With Sarbanes-Oxley in the rear-view mirror for 4 years now, one would think that this would have been a quiet year for corporate governance developments. To the contrary, it was arguably the most dramatic year of change in recent history. Here is a snapshot of some of the more significant developments:
– The majority-vote movement matured at an incredible pace. Within the span of a single year, over half of the Fortune 500 adopted some form of policy or standard to move away from pure plurality voting for director elections. This trend is likely to continue as it’s the governance change that investors seek the most.
– An area not touched by Sarbanes-Oxley – executive compensation – continued to be inspected under a microscope by both investors and regulators. The SEC adopted sweeping changes to its compensation disclosure rules and investors became more willing to challenge companies that continue outlandish compensation policies. And House Democrats intend to consider executive compensation legislation early in 2007. [Today's WSJ and Washington Post contain articles in which Rep. Barney Frank expresses displeasure over the SEC's recent change in its exec comp rules - and we have announced a January 11th webcast just on these new changes. More on all this next week.]
– More and more hedge funds and private equity funds found “value” in using governance as an entree into forcing management to alter strategic course or to put a company into “play.” The recent hiring of Ken Bertsch, a former TIAA-CREF governance analyst who had been working for Moody’s, by Morgan Stanley is an indicator that using governance as a “big stick” is likely to continue.
– The recent sale of the two primary proxy advisory services – ISS and Glass Lewis – at handsome premiums is a pretty good indicator that governance as a skill set can be quite profitable.
– The re-opening of the SEC’s “shareholder access” proposal – spurred by a recent 2nd Circuit decision – was unthinkable a year ago. But it’s now reality.
– The proposed elimination of broker votes in 2008 – via a rulemaking from the NYSE – means that the 2008 proxy season promises to be the wildest yet. But 2007 surely will be wild enough.
One thing we know for sure – we can’t predict what the New Year will bring! Happy Holidays!
Some Thoughts from Professor John Coffee
In an interview with the Corporate Crime Reporter, Professor John Coffee waxes on problems with the McNulty Memo and the Paulson Committee Report.
A Conservative Year for Holiday Cheer
Fried Frank took it easy in this year’s annual festive message. Each year, the firm issues an alert at the end of the year which focuses on a true – and zany – government prosecutorial act. No food fraud to report on this year…