Earlier today, the Shareholder Communications Coalition, composed of organizations not generally associated with shareholder advocates (Business Roundtable, National Investor Relations Institute, Securities Transfer Association, and The Society of Corporate Secretaries and Governance Professionals), sent a letter to the SEC with its suggestions for a proposed Continue Reading →
Tag Archives | ISS
Stocking Up: Post-Crisis Trends in U.S. Executive Pay is the title of a new white paper from ISS by Subodh Mishra.
The paper explores how the executive pay package mix and overall total annual compensation levels have changed in the wake of the financial crisis and the role played by stock-based awards in fueling the spike in total executive pay. The analysis covers total annual compensation (TAC) for the top five highest-paid Continue Reading →
Looking for work-life balance? Work from home (at least part of the time). Set your own pay — $1,000 per hour and up. No threat of layoffs or workforce cutbacks. Part-time hours and multiple positions available. Excellent way to supplement your retirement income. No application necessary…
The term “chemistry,” or your ability to work collegially with the other members, is often used in board searches, and it can make or Continue Reading →
European Policy Perspectives: Tuesday, December 6, 2011, 2:30 PM GMT, 3:30 PM CET. Presented by ISS’ Jean-Nicolas Caprasse, Head of Business, Europe; Daniel Jarman, Head of U.K. Research; Thomas von Oehsen, Head of German-Dutch Research, ISS and Eva Chauvet, Senior Analyst, French Research, ISS, this webinar will give an overview of key updates to ISS’ benchmark European proxy voting policies for the 2012 proxy season.
U.S. Policy Perspectives: Wednesday, December 7, 2011, 11:00 AM EST. Presented by ISS’ Dr. Martha Carter, Head of Governance Research; Carol Bowie, Head of U.S. Compensation Research; and Patrick McGurn, Special Counsel, it will give an overview of key updates to ISS’ benchmark U.S. proxy voting policies for the 2012 proxy season.
Institutional Shareholder Services Inc. (ISS), the largest proxy advisory, released 2012 updates to its U.S., Canadian, European, and international benchmark proxy voting guidelines.
The global updates are the result of an extensive consultation process that included outreach to and input from institutional investors and corporate issuers worldwide. ISS analysts will begin applying the updated policies to all publicly-traded companies with Continue Reading →
First, the IRRC Deadline of November 18 for Research Entries approaches. This is your chance to change the predominant paradigm of Modern Portfolio Theory.
Second, Institutional Shareholder Services Inc. (ISS) extended the comment period on their 2012 proxy voting policies until November 7th. Institutional investors, individual investors, corporate issuers, and governance market participants are invited to provide feedback on ISS’ policy updates. ISS did a specific outreach to CorpGov.net readers, so I Continue Reading →
Institutional Shareholder Services Inc. (ISS) opened its comment period for their 2012 proxy voting policies. Institutional investors, corporate issuers, and governance market participants are invited to provide feedback on ISS’ policy updates until October 31. According to Martha Carter, ISS’ Head of Global Research,
ISS firmly believes that incorporating multiple views on corporate governance issues is critical for effective policy formulation. The uniquely transparent and collaborative nature of our policy formulation process serves not only to inform our policies, but also helps to create a higher level of understanding and dialogue across the corporate governance community.
I submitted comments to earlier draft policies and will participate in this round as well. I hope readers do the same. It is great that ISS uses such a transparent process, consistent with what they expect of corporations.
Over 300 respondents weighed in on issues ranging from executive compensation and director independence, to engagement triggers and social & environmental issues. The full results from the survey are posted to ISS’ Policy Gateway.
ISS will release its final 2012 U.S. and International Policy updates in the week of November 14 and its Global Policy Summary and Concise Guidelines in December.
Great to see Jon Lukomnik, managing partner of Sinclair Capital, now blogging at The Mind of an Institutional Investor, and now added to our blogroll. Lukomnik’s first two topics are Debunking Myths About ISS and Irrational Short-Termism in Investing.
One of Lukomnik’s arguments with regard to ISS is that they are as much a follower as a leader because of their annual survey, which they use to set their proxy policies. Don’t Miss Chance to Shape ISS Policy. Jon also discusses the failure of ISS to strongly influence say-on-pay votes.
For those interested in Lukomnik’s Irrational Short-Termism in Investing, I would also recommend Can Investors Behave Long Term? and What is Short Term? A Conversation Retesting Assumptions. Although we’ve discussed some of the same issues, Lukomnik brings fresh insights from his years of experience in the field of corporate governance.
Many press reports attribute 20% of voting power at some companies to recommendations made by ISS. That makes them sound like one of the most powerful entities in the world. However, much of their “power” is based on their annual survey, which helps ISS shape its recommendations to meet the voting preferences of its customers. Are they a leader or a follower?
I doubt many investors follow ISS recommendations blindly. However, their positions are certainly used as a guide in helping shareowners identify voting decisions that are consistent with the existing preferences of ISS Continue Reading →
ISS released a summary of the vote results for shareholder proposals on leading governance, environmental and social topics. Investors overwhelmingly endorsed company pay programs, 91.2% support on average (based on “for” and “against” votes). Shareholders voted down management “say on pay” proposals at 36 companies, or just 1.7 percent of the almost 2,200 companies in the Russell Continue Reading →
Gary Larkin’s recent post, 2011 CEO Succession Report: Dismissals Up, Outside Hires on the Rise, informs Conference Board readers that Institutional Shareholder Services has launched an executive compensation database service for its client subscribers. Say on Pay rules were the driving force behind the new service.
The database includes historical CEO and NEO (named executive officer) compensation data for more than 4,000 U.S. companies, together with Say on Pay data Continue Reading →
Early proxy filings were tilted towards the triennial. Very quickly, that began to as proxy advisory services and larger institutions made it clear they wanted an annual vote.
ISS recommended against the pay packages at about 16% of companies they analyze that Continue Reading →
I was about to sit down this morning and write another scathing post on Kinetic Concepts when I learned of their press release announcing they will gradually declassify their board. They gave no reason as to why they took this action just ahead of their annual meeting. Perhaps they looked again at their guiding principles,
We act with integrity and honesty above all, in all that we do.
I e-mailed them to ask why but they have not answered. A more probable cause was the likelihood that shareowners would oust board members currently up for election. The whole episode shows that persistant shareowners can hold board members accountable.
As readers of CorpGov.net may recall, shareowner John Chevedden submitted a proposal to Kinetic Concepts to declassify their board and have all members up for annual election. Kinetic Concepts filed for a no-action letter from the SEC on the grounds that Chevedden had provided insufficient evidence that he owned Kinetic stock. The SEC’s March 21 denial was in line with previous denials at Hain Celestial, Union Pacific, Devon Energy, Prudential, and News Corp where companies had not met the burden of 14a-8(g). They had not demonstrated they are entitled to exclude these proposals.
Despite denial of their no-action request, Kinetic Concepts sent an April 5 letter to the SEC putting them on notice they would mail their proxy without Mr. Chevedden’s proposal, despite the SEC’s refusal to grant their no-action request.
As justification, Kinetic pointed to a flawed court decision from a suit brought against Mr. Chevedden by KBR. Even a quick glance at page 6 (2011-04-04 KBR Chevedden Docket 24 – Memorandum and Order https://www.corpgov.net/wp-content/uploads/2011/04/2011-04-04-KBR-Chevedden-Docket-24-Memorandum-and-Order.pdf) reveals the judge didn’t base her decision on what is required in order to show evidence of ownership for a 14a-8 proposal. Instead, she based her decision on evidence of ownership requirements adopted in 14a-11, the provisions for placing shareowner director nominees on the proxy. Aside from being on a completely different subject, these rules are not even in effect, but have been stayed because of the lawsuit on the SEC’s proxy access rules.
They made no attempt to exhaust legal remedies. Kinetic simply pointed to the flawed court decision and essentially said, our case is like that case, so we’re not including the proposal from Chevedden.
I wrote several articles warning of dire consequences if Kinetic Concepts was allowed to get away with simply ignoring the law. (SEC: Time to Remove the Gag; Texas Secession Led by Apache, KRB and Kinetic Concepts; Take Action: Sixty Years of ShareOwner Rights at Risk; and Go Directly to Court, Do Not Pass SEC, Prepare to Spend Thousands). Some of these posts also appeared at Shareowners.org and Accountability Central. I also contacted several large funds, unions, proxy advisors and, of course, the SEC.
My experience with the SEC was frustrating. Although I got a sympathetic ear at Corporation Finance, they claimed the case was out of their jurisdiction. I needed to contact Enforcement. Enforcement has no public phone number and the internet forms are not set up to handle complaints on shareowner rights.
It was like writing into a black hole. In my direct experience, nothing seems to come out of Enforcement. As a brief aside, note Broc Romanek’s recent posts at theCorporateCounsel.net: The SEC’s Whistleblower Office Does Not Want To Talk To You and The Bigger Picture: Why Doesn’t the SEC’s Enforcement Division Provide a Phone Number? It turns out that due to a lack of funding the whistleblower office doesn’t exist and the Enforcement Division doesn’t want to talke to anyone.
I don’t know if the SEC took any action at all. However, I do know funds that investigated the issues and spoke to people at Kinetics. The big break for shareowners probably came when ISS and Glass Lewis both recommended voting against board members. The following are extensive quotes from ISS’ advisory:
In this case, while the company cites precedent cases as a reason for excluding the proposal, the company has not received correspondence from the SEC or a ruling from the US District Court stating that the company may exclude Mr. Chevedden’s proposal. Furthermore, the company has not filed a case to the court with regarding this proposal and as such has not fully exhausted its legal remedies in seeking a no action ruling from the SEC. In this instance the company has taken upon itself the role that is reserved for the SEC and the courts and in doing so, has denied shareholders an opportunity to vote on an important issue without the force of law…
ISS also notes that the company is ignoring a proposal to declassify the board, which is a well-accepted governance reform that regularly receives high levels of shareholder support. For instance, in 2010, such shareholder proposals filed at U.S. public companies received an average of 61.1-percent support from votes cast for and against. Furthermore, studies have shown a negative correlation between the existence of a classified board and a company’s value. ISS believes that all directors should be accountable on an annual basis and that a staggered board can entrench management and effectively preclude takeover bids or proxy contests…
By omitting this item despite the SEC’s correspondence stating that it should be included, the company has disenfranchised its shareholders from one of their key entitlements. As owners of the company, shareholders should have the right to judge a shareholder proposal which could affect the governance structure of the company. In this case, by directly disregarding the SEC’s statement confirming that the shareholder proposal should appear on the ballot, the company has intentionally disenfranchised its shareholders and as such, ISS recommends that shareholders WITHHOLD votes from the entire class of directors standing for election at this annual meeting.
Soon after Kinetic Concepts issued their press release indicating they would move to declassify their board, both ISS and Glass Lewis revised their voting recommendations to include voting in favor of all incumbents.
Lesson: Vigilance pays. Had we done nothing, shareowner rights would have been trampled. Thanks to our many readers who took action.
In response to growing concerns on the spread of the financial crisis, the Yale School of Management, in partnership with the Wall Street Journal and CNBC, organized a roundtable discussion in New York on September 23, 2010 that brought together business leaders and scholars from Yale, Wharton, NYU, and the Columbia and Harvard business schools to discuss the unfolding situation in the markets and the economy more broadly, as well as the proposed federal bailout plan. Click Here. Hat tip to Simoleon Sense; I didn’t realize it had been posted.
For a completely different take on the financial crisis, Arthur Benjamin asks, what if we put probability and statistics at the top of the pyramid instead of calculus?
On This Week in the Boardroom (TWIB), co-hosts TK Kerstetter, President, Corporate Board Member, and Scott Cutler, Executive Vice President, NYSE Euronext review what nominating/governance committees should know about including the CEO in the board recruitment process. Additionally, hear why Hewlett Packard’s new CEO and nominating committee are under fire by proxy advisory firms. For our take on these issues, see The Appearance of Legitimacy: Board Elections and HP Nomination Committee Under Fire.
I recently got this from an anonymous member (here are related thoughts from Cydney Posner and Marty Lipton):
You may have seen the stories regarding ISS’ recommendation that shareholders withhold against the entire Hewlett-Packard nominating committee for the way new directors were selected. I haven’t seen the ISS report, but the news stories (eg. WSJ article) probably describe it pretty well.
At issue seems to be the fact that five new directors of H-P were identified by an ad hoc committee, which according to H-P’s proxy statement “consisted of the CEO and three non-employee directors, which was formed in November 2010 to assist in identification of new director candidates and to facilitate the process of evaluating those candidates as potential directors.”
ISS and Glass Lewis criticize the addition of the CEO to this committee, since only the independent directors of the Nominating and Governance Committee are supposed to responsible for director nominations. While CEOs play a role in nominations, it does seem unusual to formally include the CEO on the search committee. It likely also didn’t help that, as according to this Bloomberg article, many of the new directors had connections to the CEO. None of those relationships are disclosed in the proxy, as much of it relates to the CEO’s former company.
In additional soliciting materials filed on Friday, H-P responds to ISS’s recommendation. (How You Find New Directors: “True Independence” Under the Microscope – TheCorporateCounsel.net Blog, 3/14/2011)
Go to theCorporateCounsel.net/Blog article to read the links. I highly recommend the one by Cydney Posner. Personally, I come down on the side of ISS on this one, although their action might have been better with some warning. At least now other companies have it. Don’t involve your CEO in a search committee pre-screening candidates. And some people wonder why shareowners favor split chair/CEO positions and proxy access.
Taking a quick glance at CII corporate governance policies, the action at H-P appears to be at least an attempt to circumvent:
2.5 All-independent Board Committees: Companies should have audit, nominating and compensation committees, and all members of these committees should be independent. The board (not the CEO) should appoint the committee chairs and members…
7.2 Basic Definition of an Independent Director: An independent director is someone whose only nontrivial professional, familial or financial connection to the corporation, its chairman, CEO or any other executive officer is his or her directorship. Stated most simply, an independent director is a person whose directorship constitutes his or her only connection to the corporation.
Much more from J. Robert Brown Jr. on this subject at theRacetotheBottom.org under “The Myth of an Independent System for Nominating Directors” in several posts.
The first comprehensive analysis of the engagement between investors and public U.S. corporate issuers finds a notably high and increasing trend of engagement. Yet, there is a disconnect between investors and issuers in basic areas such as the time frame of engagement, the definition of a successful engagement and, by implication, what engagement itself means.
“The State of Engagement Between U.S. Corporations and Shareholders,” commissioned by the IRRC Institute and conducted by Institutional Shareholder Services Inc., reveals that engagement is either a priority or a non-event for investors: asset owners and asset managers were most likely to report either that they had engaged with more than ten companies in the previous year, or that they had not engaged at all.
A power shift is underway and issuers are now more willing to engage. Nearly nine out of ten public companies report having had at least one engagement with its investors during the prior year. Previously, routine engagement referred to quarterly discussions about earnings and corporate strategy that occurred in company-designed forums such as conference calls and analyst meetings. Today, engagement has become a year-round exercise involving dialogue on topics such as executive compensation, boardroom independence, and sustainability through a variety of channels including conference calls, meetings, e-mails, public announcements, telephone calls, and regulatory filings. The report’s key findings are as follows:
- The level of engagement between issuers and investors is high. Approximately 87% of issuers, 70% of asset managers and 62% of asset owners reported at least one engagement in the past year.
- The level of engagement is increasing. Some 53% of asset owners, 64% of asset managers, and 50% of issuers said they are engaging more. Virtually none of the investors and only 6% of issuers responded that engagement is decreasing.
- Amongst investors, engagement is either a priority or a non-event. A bimodal, or “barbell,” distribution was evident, with 28% of asset owners and 34% of asset managers reporting engagements with more than ten companies. On the other hand, about 45% of asset owners and 43% of asset managers indicated they did not initiate any engagement activity whatsoever.
- Despite the headlines that result from high-profile conflicts between issuers and investors, the vast majority of engagements between issuers and investors are never made public. About 80% of issuers said most engagements remain private, as did 72% of asset owners and 62% of asset managers.
- Asset owners, asset investors, and issuers do not always agree on what constitutes “successful” engagement. While all three groups believed constructive dialogue on a specific issue was a success, issuers were materially more likely than investors to think that establishment of a contentious dialogue was a success. An even more dramatic difference was that about three quarters of both asset managers and asset owners defined either additional corporate disclosures and/or changes in policies as a “success” while only about a third of issuers agreed.
- Engagement is most likely to lead to concrete change by issuers in areas where shareholders are broadly in agreement, such as declassification of the board of directors or the elimination of poor pay practices, than in areas where shareholders’ views diverge, such as the need for an independent board chair.
The study was conducted as an online survey of approximately 161 institutional investors and 335 issuers based in the United States from March to May 2010, followed by in-depth follow-up telephone interviews with 21 investors and 22 issuers in August and September 2010. For each respondent, the level of engagement was assessed in terms of subject matter, frequency, participants, measurements of success, and impediments. The study also evaluated how the volume and the success of engagement have changed over time and are likely to change in the future. The survey defined engagement broadly – as direct contact between a shareowner and an issuer allowing each respondent some flexibility to define the term. Interview participants were provided anonymity to encourage candor. The full report is available at irrcinstitute.org and issgovernance.com.
I believe ISS/Risk Metrics created a policy on the Frequency of Advisory Vote on Executive Compensation (Management “Say on Pay”), a new proxy item required under The Dodd-Frank Wall Street Reform and Consumer Protection Act.
Their Recommendation: Vote FOR annual advisory votes on compensation, which provide the most consistent and clear communication channel for shareholder concerns about companies’ executive pay programs.
Rationale for Update: The Dodd-Frank Act, in addition to requiring advisory votes on compensation (aka management “say on pay” or MSOP), requires that each proxy for the first annual or other meeting of the shareholders (that includes required SEC compensation disclosures) occurring after Jan. 21, 2011, include an advisory voting item to determine whether, going forward, the “say on pay” vote by shareholders to approve compensation should occur every one, two, or three years.
In line with overall client feedback, ISS is adopting a new policy to recommend a vote FOR annual advisory votes on compensation. The MSOP is at its essence a communication vehicle, and communication is most useful when it is received in a consistent and timely manner. ISS supports an annual MSOP vote for many of the same reasons it supports annual director elections rather than a classified board structure: because this provides the highest level of accountability and direct communication by enabling the MSOP vote to correspond to the majority of the information presented in the accompanying proxy statement for the applicable shareholders’ meeting. Having MSOP votes every two or three years, covering all actions occurring between the votes, would make it difficult to create the meaningful and coherent communication that the votes are intended to provide. Under triennial elections, for example, a company would not know whether the shareholder vote references the compensation year being discussed or a previous year, making it more difficult to understand the implications of the vote.
From my understanding, ISS held a conference call on the new policy. I wasn’t on the call but I understand 250 were. I also understand that during the call it came out that CalSTRS, State Street and Vanguard all support annual votes. CalSTRS was expected but State Street and Vanguard supporting annual votes is likely to mean greater success. Annual vote seems headed for the default position.
ISS Issues 2011 Policy Updates – TheCorporateCounsel.net Blog, 11/22/2010. Broc Romanek provides highlights of ISS policy changes.
Dan Harris provides readers with his recent speech on Emerging Market/China Outsourcing Issues, China Law Blog, 11/21/2010. Also interesting, The China Rich….Are Not Like Us?, 11/19/2010.
The proposal to expand the executive branch’s role in oversight over financial institutions may represent the beginning of an incremental encroachment on SEC authority. Similarly, the proposed Consumer Financial Protection Agency could absorb a portion of the SEC’s traditional investor protection role. In the end, the SEC’s survival depends on whether its leadership takes effective action to restore its credibility andregain the public trust in the years to come.
On October 21, 2010, the Securities and Exchange Commission announced enforcement actions against Office Depot, Inc. and two executive officers for violating Regulation FD by selectively conveying to analysts and institutional investors that Office Depot would not meet analysts’ earnings estimates. (SEC Enforcement Action Under Regulation FD For Implicit Communications To Selected Analysts, Corporate Securities Law blog, 11/17/2010)
Across a matched group of more than 2,000 North American CEOs, annual pay climbed a slight 1.63 percent for the year. When increasing the pay scope to also include option profits and vested stock, compensation declined slightly, by 0.28 percent. Indeed, while we anticipated a second straight year of pay declines as of this spring, it’s evident that pay more or less stayed the same for the matched group as a whole.
(CEO Pay is Treading Water, The Corporate Library, 11/16/2010)
On June 29th the Northern California Chapter of the National Association for Corporate Directors held a low-cost high-quality lunch-time meeting at the headquarters of the California Chamber of Commerce. Now that we have wrapped up the 2010 Proxy Season with issues this year like executive compensation, risk management and high profile withhold campaigns for some Directors, how did it go? What lessons did we learn?
Moderator: Anne Sheehan is Director of Corporate Governance of the California State Teachers’ Retirement System (CalSTRS). Prior to that, she served as Chief Deputy Director for Policy at the California Department of Finance, serving on more than 80 boards, commissions, and authorities on behalf of the Director of Finance. She also served as the Executive Director of the Governor’s Public Employee Post-Employment Benefits. Anne Sheehan was appointed to the CalPERS Board in December 2007 as the designated representative of the State Personnel Board. She was named one of the 100 most influential people on corporate governance by Directorship Magazine in 2008 and 2009.
Panelists: Lydia Beebe, Corporate Secretary and Chief Governance Officer, Chevron Corporation, a position she assumed in 1995. She serves on the board of directors of the Council of Institutional Investors and the Society of Corporate Secretaries and Governance Professionals where she was past chairman. In her remarks, Ms. Beebe initially focused on corporate disclosures required by the SEC. In that context, the proxy season was “predictable,” given new disclosures for compensation. Such disclosures take up an increasing amount of space.
Beebe pondered the idea that perhaps some thought should be given to getting rid of some parts that may be less informative than others. Perhaps by example, she noted that with regard to director qualifications, companies aren’t likely to use that disclosure requirement to tip their hat concerning which directors, if any should be voted out.
Given the BP spill and new disclosure requirements, risk analysis is getting increased attention at Chevron. Like many of us, she thought the industry was well beyond such accidents. The Gulf spill will have repercussions for many years to come. Boardroom discussions around risk have increased. What is the right balance regarding board involvement? How can we be sure our processes are being followed on the ground? Careful auditing is essential. Compared crisis of management vs crisis of lack of oversight. Boards have a thirst to know and to weigh risks from the geopolitical to the geological.
She also noted what might be an increased trend of plaintiffs or their allies using shareowner proposals to further their lawsuits. She also expressed some regret and frustration over increased security requirements around annual meetings. (Activists rally at Chevron’s Houston offices during shareholders’ meeting, Houston Business Journal, 5/26/10)
Abe Friedman, Director of Corporate Governance, BlackRock. BlackRock is one of the world’s preeminent asset management firms and a premier provider of global investment management, risk management and advisory services to institutional, intermediary and individual investors around the world. As of March 31, 2010, BlackRock’s assets under management total US $3.36 trillion. Friedman
is responsible for the firms proxy voting efforts worldwide. The biggest surprise of this year’s season was how boring it was with regard to substance and new issues. Companies appear more willing than ever to engage. As evidence of that, CalPERS had no focus list this year because they were able to negotiate changes with potential targets. He thinks the trend is engagement and there are more opportunities for shareowner voices to be heard. However, he did caution that willingness to engage with shareowners may reduce if the economy improves substantially.
Friedman reiterated his opinion, that I have heard and covered at many other venues, that “say on pay” is a bad idea for investors and will likely provide insulation to boards that can point back to shareowner approval. Shareholders aren’t equipped to set pay or determine compensation in advance. Voting out compensation committees is a better strategy. He speculated that a few high profile cases could do more for adjusting compensation to risk that say on pay.
Bob McCormick, Chief Policy Officer, Glass Lewis & Co. manages the analysis and drafting of 18,000 Proxy Paper research reports on shareholder meetings of public companies in 80 countries. Previously, McCormick was the Director of Investment Proxy Research at Fidelity Management & Research Co. He serves on the International Corporate Governance Network’s Cross-Border Voting Practices and
Securities Lending committees. McCormick was named one of the 100 most influential people on corporate governance by Directorship magazine in 2008 and 2009. McCormick sees global convergence across borders as one trend that continued this year. Trends to influence election of directors, obtain more information, increased use of voting rights.
There seems to be a private ordering around issues like majority voting requirements.He also sees more engagement with shareowners. Perhaps there was a learning phase or trust building required. BP and Massey drove the focus on risk. Asked about the need to a separate board risk committee, McCormick, like the others, said it depended on a number of factors. If the board has never really managed risk, then a separate risk committee or manager reporting to the board will guarantee at least a discussion. On the other hand, compensation committees need to be aware of risk and how it relates to incentives. The audit committee also needs to be aware, so companies shouldn’t shunt risk off to one committee.
A study cited in the Sutherland and The Altman Group webinar discussed below found that 8% of surveyed companies have primary responsibility for risk management resting with the board. 34% is with 1 or more committees and 52% said both board and various committees have responsibility for risk oversight.
Great questions from the audience… need to validate subcontractor skills and performance. Discussion around perhaps higher need for risk committees at insurance companies. Ideally best nominations come from nominating committees because they know the strengths and weaknesses of the existing board. However, when they fail, proxy access will be useful as long as it is used judicially. Interesting stories from insiders, as well as international examples of rights and problems that may be coming our way.
It was close to a full house, a great little buffet, wonderful discussion and when I got the last question I asked about how funds decided to withhold votes on directors. Leading factors seem to be:
- Compensation committee members where there were large gaps relative to performance.
- Audit committee members and others when there is a crisis.
- Poor performance, coupled with poor governance.
- When directors repeatedly ignore the will of shareowners by not enacting proposals that have passed twice.
For another perspective on the 2010 proxy season, see Ted Allen’s The ISS Preliminary U.S. Postseason Report, available to subscribers of theCorporateCounsel.net and probably available somewhere at RiskMetrics.com, although I can’t seem to find it. A few highlights:
- Despite warnings from some corporate advisers that the end of broker voting in uncontested board elections would unleash a surge of withhold votes this year, the number of directors who failed to receive majority support remained about the same.
- One of the most notable developments this season occurred at Motorola, when the electronics company became the first-ever U.S. issuer to fail to win majority support during a management-sponsored advisory vote on compensation.
- After reaching a record high in 2009, fewer governance proposals filed by shareholders obtained majority support this season. As of June 15, 117 (30.2 percent) of the 388 proposals that went to a vote garnered majority approval, down from 150 (or 35.2 percent) of the 426 proposals on the ballot during the same period in 2009.
- “Say on pay” resolutions were averaging 44.1 percent support at 47 companies.
- Resolutions seeking to rescind supermajority voting rules were averaging 69.6 percent approval at 32 firms.
- For declassification proposals, there was 60.2 percent average support at 55 companies.
- Right of a majority of investors to act by written consent averaged 54.7 percent approval at 16 firms this season.
- Special meeting resolutions were averaging 43 percent support at 43 firms, down from 51.8 percent in 2009, as companies increasingly adopt 25% or higher standards to avoid the 10% demanded by shareowners.
- Independent board chair resolutions were averaging 28.9 percent support at 36 annual meetings, down from 38.8 percent during the same period in 2009.
- Majority voting proposals averaged 57.6 percent approval at 29 companies, up from 51.3 percent in 2009.
From a review by Sutherland and The Altman Group. (I presume it will be posted to the Articles portion of the The Altman Group site. If not, contact Cynthia M. Krus at Sutherland or Francis H. Byrd at The Altman Group.)
There was no huge perfect storm that many expected with loss of broker vote. ISS clamped down on compensation committee members in 2009. No further ratcheting in 2010 but companies deserve credit for taking a more proactive stance in 2010.
Some discussion of Dodd-Frank bill. Non-binding Say on Pay at least twice every six years, with variability 1, 2, or 3 years. Many institutions that advocated annual SoP aren’t prepared to vote annually because too much work to look through thousands and thousands of proxies. Management SoP didn’t pass at Occidental, Motorola and KeyCorp. ISS didn’t support management’s recommendation at any of these companies for a variety of reasons.
Issuers can no longer exclude risk assessment or CEO succession planning proposals based on ordinary business exclusion. Presentation went into more detail as to why votes may have turned out as they did in 2010. See Staff Legal Bulletin 14E.
Their webinar focused much more on proxy disclosure rules and how to please both the SEC and RiskMetrics Group. I would think the slides would be useful to all involved in compiling such disclosures for companies. Additionally, a proxy plumbing draft will be released by the SEC soon. See Modernizing the Proxy Voting System: Setting Priorities and Practical Solutions To Improve The Proxy Voting System at The Altman Group.
See also RiskMetrics 2010 Policy Updates: Test of Pay for Performance and List of Problematic Pay Practices Fine-Tuned, Peal Meyer Client Alert from December 2009 and Pay Czar Feinberg’s Best Practice Principles, The Corporate Library, 7/1/10.
Also of interest to NACD members, “Who Watches the Watchers? Why an External Board Evaluation is Most Likely to Result in a Higher-Performing Board.” This article, available from Deloitte, discusses the involvement of a third-party in assisting with the board evaluation process and explores the benefits of having an independent party involved.
Stephen Davis, of Davis Global Advisors, is assembling a long-range list of global corporate governance-related conferences/workshops/events for the World Bank website and Global Proxy Watch newsletter. Please pass on the date, city, title, sponsor, location, and contact information for any such events you may know about by e-mailing [email protected]. Please cc me at [email protected] so that I can add a select few to our education pages. You can also post a message on the ECGNlist, the information and discussion list of the European Corporate Governance Network.
When is a company ready to form a board? A recent article in the Atlanta Business Chronicle offers advice from Paul Lapides, director of the Corporate Governance Center at Kennesaw State University, Donald R. Duckworth, chairman and CEO of Atlanta-based Horton International Inc., an executive search firm, and others. Continue Reading →
Stern Stewart’s EVA product got a boost when CalPERS adopted its use in creating their annual focus list. It should help CalPERS pinpoint their targets with better accuracy and may result in increasing the “CalPERS Effect.” In other CalPERS news, they voted 36% of the time against executive stock plans and 39% of the time against exec bonus plans during the 1996-97 season. They voted in favor of management proposals 78% of the time and against 57% of shareholder proposals. Continue Reading →