November 20, 2007

RiskMetrics Publishes ’08 Policy Updates

Yesterday, RiskMetrics’ ISS Governance Services unit issued updates for its US, Canadian, International and UK proxy voting policies. These new policies will be applied to all companies with shareholder meeting dates starting February 1st. RiskMetrics intends to release summary policy guidelines in mid-December and its full proxy manual after the new year. We have posted the policy updates in our “Proxy Advisors” Practice Area.

Among other topics, the policy updates deal with the following (note these brief descriptions were written by ISS):

1. Say on Pay – With several U.S. companies having committed to shareholder advisory votes on executive compensation, and several successful shareholder resolutions and the possibility of legislative action on the subject, the Say on Pay issue has arrived in the US. ISS has developed a framework for evaluating remuneration reports according to five global principles that emphasize linking pay and performance, board independence in the pay-setting process – and sufficient disclosure to allow shareholders to evaluate both the package and the process. From these global principles, we have developed market-specific guidelines that reflect local best practices in the U.S. and internationally.

2. Poor Pay Practices – Our U.S. Poor Pay Practices policy has been updated to reflect the better information available in new compensation disclosures – identifying specific poor compensation practices that may trigger withhold recommendations, including egregious employment contracts, severance and make-whole provisions, perks and retirement benefits, and poor disclosure practices.

3. Equity Plan Costs – A majority of our Policy Survey respondents indicated support for plans where employees have been holding vested in-the-money options for a significant amount of time. As such, ISS Governance Services will consider carving out a portion of cost attributable to overhang for companies with sustained positive stock performance and high overhang cost attributable to in-the-money options outstanding in excess of six years. ISS will adopt a case-by-case approach considering the following criteria: company performance, overhang disclosure, dilution, and compensation practices.

4. Independent Chairs – Since over 45% of companies in our Board Practices study now separate the chair and CEO positions, and investors show strong support for separation of CEO/chair positions, ISS will continue to support shareholder resolutions calling for an independent chair at U.S. companies. However, if a company meets certain performance tests and good governance practices, including the appointment of an independent lead director, we will recommend on a case-by-case basis. We are also adding two additional factors for consideration in this analysis: first, the disclosed comparison of the specific duties of the lead director and chair, and second, the company’s disclosed rationale for combining the two positions. These additional disclosures will aid in evaluating board independence in the case there is a combined CEO/chair.

5. Product Safety – Heightened attention to product safety, plus strong investor interest for companies to disclose their social and environmental practices led us to enhance our policy to support shareholder proposals requesting that companies report on policies and oversight mechanisms related to toxic materials across their supply chains. In fact, 66-75 percent of Policy Survey respondents believe it is very important or somewhat important to report performance on social and environmental criteria to shareholders as part of routine disclosure.

Latest Rumors: Democratic Commissioner Nominees?

We try to stay away from rumors on this blog – as they often don’t pan out – but it’s noteworthy that the Washington Post ran this article last week noting that Luis Aguilar and Elisse Walter may be tapped to fill the SEC Commissioner vacancies since the shareholder access proposals are so controversial and there won’t be any Democratic Commissioners once Annette Nazareth leaves her post (which is expected next month). Some members of Congress (and a score of investors) have asked SEC Chairman Cox to hold off on acting on shareholder access – since it appears that the current Cox plan is to hold a meeting on November 28th to deal with the AFSCME decision and then revisit shareholder access next year.

Citing unnamed sources, the Post reports that Senate Majority Leader Harry Reid has submitted both names to the White House for approval. Under federal law, two of the SEC’s five Commissioner spots must be filled by members of the political party that doesn’t control the White House.

Luis Aguilar is a securities lawyer at McKenna Long & Aldridge in Atlanta and a former SEC Staffer. Elisse Walters rose through the Corp Fin ranks to serve as Deputy Director and also served in the SEC’s Office of the General Counsel and has been the General Counsel of the CFTC; for quite some time, she has worked at the NASD (now FINRA), where she now serves as Senior Executive Vice President, Regulatory Policy & Programs.

FINRA Looking for Marketing Bang?

I couldn’t resist repeating the following entry from Mark Astarita’s “SECLaw Blog“:

“In what some believe is a marketing ploy and an attempt to increase its Google search ranking, FINRA is requiring all member firms to provide a hyperlink to The deadline for compliance is November 17, so get your web designers moving. While I am certain that this is not a Google-driven event, but rather an attempt to brand their corporate identity, it is a bit strange. The NTM simply requires a link, not any special language, or the logo, and it is not an attempt to educate customers of the existence of a regulator.

It appears that FINRA is spending way too much time worrying about its name. At a SIFMA conference yesterday, a senior FINRA executive repeatedly referred to “legacy-NASD” every time he referred to the NASD. It was so cumbersome and silly, that he had to explain that if he didn’t do that, he would “have to put a dollar in the jar” indicating that the organization thinks “NASD” is a bad word. Seems to me that the time could be better spent addressing a new rule book, or investigating firms that caused this massive $400 billion subprime scandal. How long before that filters down to investors?”

– Broc Romanek