February 12, 2008

A New Breed? The Blogging Activist

Last week, I spoke at the annual RiskMetrics’ Conference (my panel was on executive pay, more on that later) and I hung around for most of the program since I have always enjoyed the Conference because it’s slant is different than the traditional legal fare. I was there when Carl Icahn announced he was thinking of starting a blog (although he didn’t call it a blog – nor was he really sure what it was gonna be, if anything). Perhaps Carl’s blog will look something like this blog – seeking change in companies he feels are undervalued. Carl also noted he would blog about governance more generally. At the Conference, he spoke out about outsized executive pay, as did nearly every speaker at the Conference.

For me, Carl’s announcement was just another wake-up call that we are truly in the infancy of how the Web will be leveraged by activists to place pressure on boards and management. And I say “wake up call” because I think that most companies are nowhere near ready to handle what is coming. They don’t view their IR web pages as a “campaign” tool and in fact, most companies outsource their IR web page to third-parties who have no clue about how to run a campaign because they merely provide simple tools to allow companies the bare minimum online.

I also think that most proxy solicitors don’t have a real handle on how to leverage the Web either. I understand that personal relationships with one’s largest shareholders is the best route to handling a tough vote. But I think we will find that the Web is a necessary adjunct to the traditional means by which proxy solicitors do their job. E-proxy plays a big role in this (and don’t take it just from me, check out this interesting paper from Professor Jeffrey Gordon entitled “Proxy Contests in an Era of Increasing Shareholder Power: Forget Issuer Proxy Access and Focus on E-Proxy.”)

All Marty Lipton, All The Time

At the RiskMetrics conference, Marty Lipton talked about some of his grander moments over the years (eg. original label for the poison pill was the “warrant dividend plan”) and provided his views on the current state of affairs (he’s not really a professional entrencher of management; rather, he’s an entrencher of allowing the board to exercise its fiduciary duties). It was good stuff. During the Q&A, there was some heated moments between Marty regarding his views on “say on pay” and some in the predominantly investor audience.

By the way, a member points out a “Poison Pill” blog dedicated solely to Marty Lipton (albeit the blog may be defunct; it has been silent for a few months). It’s definitely different and I guess even corporate attorneys can have their own paparazzi…

RiskMetrics Goes Public

Speaking of RiskMetrics, its IPO occurred a few weeks back (and yes, I bought a few shares). Here is the IPO prospectus. It will be interesting to see their voting recommendations for their own annual meeting. Given their governance principles – which includes providing a say on pay and allowing for proxy access – they likely will get high marks. Here is a snapshot of some key governance principles:

– Annual Election of Directors – All of our directors will stand for election annually to create greater alignment between the directors’ and stockholders’ interests and to promote greater accountability to our stockholders.

– “Proxy Access” – Our bylaws set forth the provisions by which we will include in our proxy materials the name of a person nominated by one of our stockholders, or group of our stockholders, who meets specified requirements for election as a director. Generally, a nominating stockholder must have owned at least 4% of our outstanding common stock continuously for at least 2 years and must provide notice to us in accordance with our bylaws.

– Majority Voting – Our bylaws provide that in uncontested elections, our directors must be elected by majority vote and directors must submit a contingent resignation in advance of each annual stockholders meeting to help effectuate this process.

– Say on Pay – Our stockholders will be given the opportunity to vote on an advisory management resolution at each annual meeting to approve our Executive Compensation Policies and Practices as outlined in our annual proxy statement.

– Separation of Chairman/CEO; Lead Director – Our policy is that the role of our chairman should be filled by someone other than our chief executive officer and that our chairman should come from the ranks of our independent directors. If our board of directors ever concludes that it is in the best interests of our stockholders to have a chairman who is not an independent member of our board of directors, then we will disclose this reasoning in our proxy statement and we will appoint a lead independent director to provide appropriate independent management of our board of directors and its processes. Since 2004, the roles of our chairman and chief executive officer have been filled by the same individual. Our board of directors believes it is prudent and in the best interests of our stockholders to leave this arrangement in place until additional independent directors join our board of directors following our initial public offering. In the interim we have appointed Stephen Thieke as our lead independent director.

– Director Stock Ownership – In order to more strongly align the interests of our directors with those of our stockholders, non-vested stock grants will be a significant component of our directors’ compensation. We will also require our directors to maintain certain levels of equity ownership.

– Poison Pills – Our board of directors’ policy is that it will not adopt a shareholders’ rights plan, or poison pill, without first seeking and obtaining stockholder approval.

The ‘Former’ M&A SEC Staff Speaks

We have posted the transcript from our recent webcast: “The ‘Former’ SEC Staff Speaks.”

– Broc Romanek