Yesterday, Special Master Kenneth Feinberg revealed the details of the long and contentious negotiations over the pay levels for the top 25 paid executives at five financial institutions and two automakers that received TARP money. Although Feinberg’s plan itself hasn’t yet been made public (but will be later today or within the next day or so), the details of the plan are fully reported in numerous articles in the papers today.
It appears that the key components of this pay reform include:
– About a 50% overall compensation cut
– Salary cuts of about 90%
– Some of the reduced salaries replaced with restricted stock, vesting immediately but paid out in one-third per year installments after a two-year waiting period
– Limits on perks, with anyone receiving more than $25k having to seek special permission
Here are articles from today’s newspapers describing this story:
The Battle Over Climate Change Heats Up for Shareholders
Recently, I blogged about the strong likelihood that Corp Fin would act on refining disclosure requirements related to environmental and climate change issues. That blog included statistics from the past proxy season regarding the growing support for ESG shareholder proposals, courtesy of RiskMetrics.
On top of this movement, the news recently has been filled with companies leaving the US Chamber of Commerce due to the Chamber’s position on climate change (egs. Apple, Exelon, PG&E, PNM Resources, Duke Energy and Nike). We may soon see more of these departures – or at least companies publicly distancing themselves from the Chamber which is now in attack mode on climate, health care reform and financial reforms.
As noted in this press release, letters were just sent to 14 large companies from a group of 43 investors and investment-focused organizations – representing over $16 billion in assets under management – urging the companies to “end the ‘glaring contradiction’ between their own policies and the U.S. Chamber of Commerce’s and National Association of Manufacturers’ positions on pending climate legislation. Each of the companies has publicly stated that it supports action on climate change, which the Chamber and NAM strongly oppose.” And Change-to-Win released a scatching report recently about how the Chamber’s leader, Tom Donohue, has hijacked the Chamber’s agenda.
Recently, a bunch of the mass media outlets were tricked into reporting that the Chamber had reversed its climate change stance. And the Washington Post reports how President Obama has reduced the clout that the Chamber has in DC.
Is the 6th Time a Charm? More Internal Control Delays Possible?
As I blogged recently, the SEC has announced a delay for smaller companies to provide auditor attestations – the adopting release is now posted. I think that’s the last of the delays in internal controls, as SEC Chair Schapiro indicated in the press release announcing this last delay. But then again, the efforts to delay – or stop – internal controls reporting shouldn’t be underestimated.
Recently, Representative Scott Garrett (R-N.J.) introduced the “Small Business SOX Compliance Relief Act,” which would permanently exempt non-accelerated filers from the auditor attestation requirements of SOX Section 404(b). I doubt a deregulatory bill will go anywhere in Congress these days – but you never know. Let us know what you think:
A few weeks ago, the WSJ ran an article about how some boards were rejecting resignations by directors after they failed to achieve a majority vote “for” at an annual shareholders meeting.
A day later, Delaware Vice Chancellor Noble held – in City of Westland Police v. Axcelis Technologies – that, among other things, if a company adopts a plurality-plus voting policy (ie. Pfizer-style) and several directors do not receive a majority of the vote in the election, the board’s subsequent rejection of the directors’ resignation letters is not, by itself, enough to serve as a credible basis of wrongdoing in a books and records request brought under Section 220 of the Delaware General Corporation Law. I imagine this type of issue will become more common as withhold vote campaigns continue to gain traction. Fyi, Professor Jay Brown blogged about this case today and yesterday in “The Race to the Bottom” Blog.
In reading the opinion, note that VC Noble really focused on the plurality aspect, as the directors were, in fact, re-elected. There is the potential for a plaintiff to try to make a distinction if this arises for a company with a majority vote standard. I don’t think this should make a difference, but a plaintiff may disagree…
Understanding the Impact of FASB’s Codification on Disclosures in SEC Filings
Unfortunately, lawyers who draft disclosure for a living are impacted by the FASB’s recent codification of accounting standard project. In this podcast, Larry Bard of Morrison & Foerster explains how the Codification impacts disclosures in SEC filings, including:
– What is the Codification and when is it effective?
– What effect will the Codification have on public companies?
– What about all the SEC rules and interpretative material that reflects the pre-Codification Literature?
– What should lawyers be doing to get up to speed with the Codification?
In FEI’s “Financial Reporting Blog,” Edith Orenstein reports on the dozen items on the PCAOB’s ambitious standard-setting agenda going forward. Edith notes “Different from prior years, however, the agenda includes ‘milestones’ for projected dates of finalization of these projects, and the dates go out to 2011.”
Last Day for San Fran Registration: “4th Annual Proxy Disclosure Conference”
Due to unprecedented demand and limited space at our conference hotel for the “17th Annual NASPP Conference,” we were forced to end Conference Registrations last week for that Conference. It’s sold out! However, we are still accepting San Fran registrations through the end of today for the paired Conferences, the “4th Annual Proxy Disclosure Conference” (11/9) – and the “6th Annual Executive Compensation Conference” (11/10). You automatically get to attend both Conferences for the price of one. Here is the agenda for both Conferences.
Order Audio from NASPP Conference: In addition, you can still hear each – and any – of the 36 panels you wish from the NASPP Conference by ordering the downloadable audio and course materials.
With the upcoming proxy season promising to shake things up and possibly place more companies in “play” than ever before, I decided to create a “special” issue of the Deal Lawyers print newsletter and rush it out so that you can begin to prepare now. This “Special” November-December issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:
– How to Respond to a Stocklist Demand
– How to Scrub Your Bylaws Ahead of Proxy Access: Considerations for Delaware Corporations
– A Practical Primer: How to Tabulate and Report Voting Results
– “Practice Points” on Reporting Voting Results
– An Insider’s Perspective: How to Avoid a Yahoo-Like Tabulation Nightmare
– The Growing Importance of “Just Vote No” Campaigns: Analysis and Takeaways
If you’re not yet a subscriber, try a “no-risk trial to get a non-blurred version of this issue on a complimentary basis. Current subscribers should renew now as this is the last issue since all subscriptions expire at year-end.
Please take a moment to participate in our “Quick Survey on Impact of Loss of Broker Nonvotes for ’10 Proxy Season.”
RiskMetrics Publishes ’09 Postseason Report
Always popular, RiskMetrics has posted its final ’09 Postseason Report. It’s a good piece to help read the tea leaves for the upcoming proxy season…
Bringing It: PPIP Finally Gets Going
Back on September 30th, the Treasury Department announced that two firms – Invesco and The TCW Group – have raised the initial capital for the purchase of illiquid assets in accordance with the Legacy Securities Public-Private Investment Fund (since then, 3 more firms have done so). Here is a related Washington Post article.
On Friday, the SEC announced that Adam Storch had been lured out of Goldman Sachs to fill the newly-created position of Managing Executive in the SEC’s Division of Enforcement. As noted in the SEC’s press release:
Mr. Storch will be responsible for project management and workflow for various infrastructure and operational aspects of the Division, including budget, information technology, and administrative services. In addition, he will oversee the workflow and process associated with the collection and distribution of Fair Funds to harmed investors. Along with Lorin Reisner, the Deputy Director of the Division of Enforcement, Mr. Storch will supervise the Office of Market Intelligence, improving the collection, analysis, risk-weighing, triage, referral, and monitoring of the hundreds of thousands of tips, complaints and referrals that the agency receives each year.
Getting beyond Adam’s tender age of 29 – which is easy for me to get beyond, personally I feel I was “smarter” at that age, but not wiser (note Seeking Alpha has trouble with age) – the issue of whether Goldman Sachs secretly rules the world is what the public has focused on so far (here is an example, again and another). This one from the Motley Fool has a funny line:
I pledge allegiance to the Flag of the United States of America, and to the Corporation, which it supports, One Nation under Goldman, indebted forever, with Liberty and Justice unlikely.
I can understand how the fear of a Goldman conspiracy may the focus – and perception indeed does matter – but this clearly is a recruitment coup for the SEC. It’s not easy to lure someone from the Street with a government salary, particularly someone that can help sift technologically through the massive amounts of market data and the numerous leads that the SEC receives daily. But maybe the SEC shouldn’t have started Adam out in such a key role and saved themselves some “face”…
A Comeback for Insider Trading?
It’s one of those crimes that we will never eradicate and periodically rears its ugly head as perhaps being rampant – insider trading. It’s too easy to do and the gains are immediate (and likely feels like no one is being hurt).
On Friday, the SEC announced the latest “giant” in a series of insider trading actions that goes back decades. A billionaire hedge fund manager got charged with being a “master of the rolodex” rather than a genius in trading strategies. Raj Rajaratnam cultivated a network of senior executives at major companies like IBM, Intel and McKinsey.
I normally don’t cover insider trading, but this one is a “biggie” (see this NY Times article and this Reuters article) and may signal a larger trend. For those in companies, make sure your compliance programs are spotless so that you don’t get dragged down by any true fraudsters in your midst when the diligence for litigation commences…
Mailed: September-October Issue of The Corporate Counsel
The September-October issue of The Corporate Counsel includes pieces on:
– More Meltdown Fallout–Going Concern and Other Out-of-the-Ordinary Audit Reports in SEC Filings
– Omitting Schedules from a Filed Merger Agreement–The Merrill Lynch Bonuses
– Filing an Acquired Company’s Post-§15(d) Suspension 10-K–EDGAR Technicalities
– Discussion at ABA of Risdall’s Reg D Integration Holding
– A Few Thoughts on FASB’s Recent Codification of Accounting Principles
– FAS 5 Now Subtopic 450-20–Impact on Audit Letters?
– Expert Consent Required For Reference to Consultant, Etc.?–New CDI
– New/Revised CDIs Provide More Flexibility for Selling Security Holder Registration
Act Now: Get this issue on a complimentary basis when you try a “Rest of ’09” for free when you try a 2010 no-risk trial today.
Well, it’s not really a surprise since we’ve been waiting a few years for this proposing release to amend Notice & Access, which the SEC finally issued last night. The surprise is that it wasn’t a product of an open Commission meeting. The SEC smartly issued this set of proposals without the fanfare of an open meeting, which is not required if all of the Commissioners sign an order (ie. seriatim). Since these e-proxy proposals are not likely to be controversial – at least compared to the outstanding proposals the SEC has out there – the SEC went with what used to be the traditional route of getting a proposal out of the SEC (more recently, nearly all proposals are the product of open Commission meetings; it wasn’t that way a decade ago).
One problem is the late date of this proposing release. The comment period is 30 days from the proposals being published in the Federal Register, which doesn’t give the SEC much breathing room to adopt changes to the e-proxy rules ahead of the upcoming proxy season.
Then again, the impact of the loss of broker nonvotes for director elections may cause many companies – ones that have used e-proxy during the past few proxy seasons – to go back to mailing paper (one of the subjects of our “Quick Survey on Impact of Loss of Broker Nonvotes for ’10 Proxy Season”). So these proposals may be a day late and dollar short (sorta like NIRI’s newly released “Standards of Practices for Notice & Access, Volume II“).
The proposing release is pretty short (the “meat” is 21 pages) and there are three main items proposed:
1. More flexibility for the form of Notice that companies use (which will catch the rules up to what the SEC already has informally blessed for the revised Notice that Broadridge has been using recently)
2. Enabling companies (and others who use e-proxy) to enclose explanatory materials with the Notice
3. Tweak timeframe when someone other than an issuer relies on e-proxy to make it more feasible to do (changing to a later of (i) 40 days before the shareholder meeting or (ii) file preliminary proxy within 10 days of issuer filing a definitive proxy and send Notice no later than date on which it files its definitive proxy with the SEC)
Note that the SEC didn’t propose reducing the 40-day timeframe for issuers – but did ask this question on page 17 as to whether to reduce it to 30 days. By at least asking the question, the SEC arguably could adopt something like this if it so desired. In comparison, the SEC didn’t propose nor ask the question about whether issuers could just send the notice with a proxy card from the “get go.” So this type of framework couldn’t be adopted unless the SEC re-proposed it.
The First Company Creates a Year-Round E-Forum
The first company has created a year-round e-forum (there have been a number of companies that have created e-forums for their annual meeting, such as Intel and Amgen). In this podcast, Abe Wischnia of Abe Wischnia & Associates and Jnyaneshwar Prabhu of iMiners explain why – and how – a company can start its own e-forum for shareholders, including:
– What motivated you and your client company to implement an electronic shareholder forum?
– How can an electronic shareholder forum enhance corporate disclosure and transparency?
– What about processes and policies to maintain control of the board content and to ensure that SEC rules and regulations aren’t violated?
– How expensive/time consuming was it to create the e-forum?
What is the process by which iMiners can help others that are considering an e-forum?
– What else does iMiners do?
Just found out that there is a famous “B Romanek” with handbags at Barneys – feel violated somehow…
The Fees Remain the Same (Not to be Confused with “The Song Remains the Same”)
Last week, the SEC issued this fee rate advisory, announcing a a continuing resolution as part of its annual ritual of delaying the new rates for registrations statements, etc. until Congress passes the government’s budget for the new fiscal year that started on October 1st. Until Congress acts, all fee rates remain at their current rates.
Recently, I blogged about how Microsoft became the first company to take a triennial approach to say-on-pay. Yesterday, Prudential adopted a biennial model – starting with its 2010 annual shareholders’ meeting, the company will have a non-binding say-on-pay on its ballot every other year.
More Executive Pay Surveys: A Comparison
Following a trend commenced last year by Schering-Plough, industry rivals Lockheed Martin and Northrop Grumman recently posted shareholder surveys regarding executive pay on their websites. The principal idea behind these surveys is to provide a better avenue than say-on-pay for shareholders to weigh in on compensation (egs. shareholders can provide specific comments and the questions are more narrowly focused).
You may recall that I recently conducted a podcast with Susan Wolf of Schering-Plough regarding how the experience worked out for them this past proxy season. Schering-Plough intends to announce the results of its survey sometime during the next few months. Amgen also canvassed shareholders this past proxy season. We have compiled all these surveys in our “Say-on-Pay” Practice Area.
A Comparison of the Surveys
1. Posting Surveys Online – The two newest surveys are posted online – but Schering-Plough mailed their survey as part of their proxy materials (as noted in this press release). Amgen also posted its survey online. It will be interesting to see whether posting surveys increases – or decreases – shareholder participation. My guess is “increase” – but you never know (for example, note how e-proxy has resulted in a decrease in retail votes).
2. Evaluation of CD&A Transparency – To some degree, all of the surveys piggyback on TIAA-CREF’s list of ten questions for evaluating CD&As that was released back in August ’07 (in fact, Amgen’s survey is identical to TIAA-CREF’s survey). All of the surveys ask whether shareholders found their CD&As clear and useful and allow for five types of answers.
3. Tying Pay to Performance – The surveys ask whether shareholders think pay is tied to performance in slightly different ways. Lockheed Martin’s survey asks whether its executive pay as disclosed ties pay to performance and is aligned with shareholder value. Northrop Grumman’s survey asks whether its compensation play is aligned with the long-term creation of shareholder value. Schering-Plough asks whether its executive pay program is tied to performance and then also drills down with questions about specific performance metrics.
4. Does Pay Matter? – Northrop Grumman asks two interesting questions that the others do not: whether the shareholder analyzed the company’s pay policies and practices before becoming a shareholder and whether the company’s compensation plan was a material consideration in becoming a shareholder.
5. Retention and Mix of Equity – Schering-Plough was the only company to ask whether shareholders thought that the company’s pay plan allows it to attract and retain well-qualified executives, as well as ask questions about the mix of equity in both its executive’s and director’s pay.
6. Whether Shareholders Support Pay – Both of the newest surveys – Lockheed Martin and Northrop Grumman – cut to the chase and ask the $64,000 question: whether shareholders support the company’s compensation plan as described in the CD&A.
7. Additional Comments – All of the surveys allow for shareholders to submit their own comments, a smart move since the use of multiple choice answers can be limiting. Amgen’s survey doesn’t even provide an opportunity to select from a multiple choice menu – each question has a text box below it. I think providing multiple choice selections will increase the likelihood of obtaining more responses – as some potential respondents may be daunted by the burden of spending too much time on a survey.
Note that Northrop Grumman decided to also use its survey to solicit feedback on two non-compensation related matters: allowing shareholders to call a special meeting on any issue and if so, what minimum percentage of shares should be the threshold to do so.
San Francisco Conference Registration Ends Tomorrow!
Due to unprecedented demand and limited space at our conference hotel for the “17th Annual NASPP Conference,” we are forced to end San Fran Conference Registrations at the end of tomorrow, Friday, October 16th for those attending live in San Francisco. This includes attending the pre-conference – the “4th Annual Proxy Disclosure Conference” – in San Francisco.
You Can Still Attend Via Video Webcast: In the alternative, you can still attend the “6th Annual Executive Compensation Conference” (held on 11/10) – which is paired with the “4th Annual Proxy Disclosure Conference” (11/9) – by video webcast. You automatically get to attend both Conferences for the price of one. Here is the agenda for both Conferences.
Order Audio from NASPP Conference: In addition, you can still hear each – and any – panel you wish from the NASPP Conference by ordering the downloadable audio and course materials.
Helping you to gear up for a difficult proxy season, I have decided to start a weekly proxy solicitor podcast series. Each week, a new podcast with cover a hot topic that you may well face soon – with practical guidance from a proxy solicitor to help you navigate troubled waters. Here is the second installment in our series:
In this podcast, Tom Ball of Morrow & Co. explains the basics of the mechanics of counting broker non-votes and it’s implications for companies this proxy season, including:
– What is an example of how the math should be done to determine the impact of the loss of discretionary broker votes on a specific company?
– What type of companies – size, market cap, stock price, industries – may be impacted the most by the loss of broker nonvotes?
Please take a moment to participate in our “Quick Survey on Impact of Loss of Broker Nonvotes for ’10 Proxy Season.”
XBRL US Proposes New US GAAP Elements for Latest FASB Pronouncements
Recently, XBRL US announced that it has published a set of over 200 new elements – known as “US GAAP Taxonomy 2009 Addendum-1” – to reflect new FASB accounting standard changes issued since December 31, 2008. Some of these new standards are eligible for early adoption by public companies for annual and interim periods ending on or prior to December 31, 2009. These elements are out for public comment, but likely will be adopted as proposed.
The new FASB standards incorporated include only those that are deemed critical for companies preparing financial statements before the US GAAP Taxonomy 2010 is published. The XBRL US GAAP Taxonomy is published once each year to avoid confusion over which release should be used and to ensure the greatest comparability of data. In the event of a substantial number of new accounting standards, XBRL US publishes an addendum taxonomy such as this one, so that companies that need to use the new FASB pronouncements do not have to create new extensions and so that every company using the new standard uses the same element.
How to Sell a Division: Nuts & Bolts
We have posted the transcript for our recent DealLawyers.com webcast: “How to Sell a Division: Nuts & Bolts.”
In his “Proxy Disclosure” Blog, Mark Borges has already blogged three times about the challenges of determining how much money recently “resigned” CEO Ken Lewis will walk away with from Bank of America. As Marked noted in his first blog: “All it took was one hour, two college degrees, and over 20 years’ experience in the executive compensation area to come up with this “ball park” figure. Does anyone still think that we don’t need a “walk-away” number as part of the executive compensation disclosure?”
We have been touting the need for better transparency in the severance and change-in-control contexts for quite some time – pushing the need for companies to disclose their “walk-away numbers.” This is not even about responsible pay practices – this is squarely in the hands of lawyers who draft for a living. This is about better transparency. It’s time for you to make a difference.
Those of you attending our upcoming “4th Annual Proxy Disclosure Conference” – either in San Francisco or by video webcast – will not only receive practical guidance about how to craft such a disclosure, you will also get a pro-forma example of what this looks like…register for the Conference now.
It is widely reported that Bank of America’s board decided on Friday to reverse course and waive its attorney-client privilege so that the SEC, Andrew Cuomo and others will soon know the details regarding “who advised what” when it came to BofA deciding not to disclose the circumstances regarding bonuses paid to Merrill Lynch employees. According to this NY Times article:
The board reached a tipping point after bank executives held conversations over the last two weeks with the office of New York’s attorney general, said the people briefed on the matter. Mr. Cuomo’s office threatened to charge individual bank executives, including Mr. Lewis, with wrongdoing, these people said. The bank also faced a deadline this week to provide a log of its private legal documents to a House committee.
The bank notified Mr. Cuomo’s office of its decision on Monday, and will do the same in a separate case pending against it by the Securities and Exchange Commission. The bank will also provide documents to investigators in Congress, Ohio and North Carolina, where the bank is headquartered.
SEC (and BofA) Requests a Jury Trial: Is That Normal?
Last week, both the SEC and Bank of America filed a notice in the US District Court-SDNY seeking a jury trial. I searched the SEC website and confirmed my hunch that it is not at all uncommon for the SEC to ask for a jury trial, particularly when the circumstances indicate that their action will be contested. There looked to be at least a dozen complaints filed already in 2009 with demands for jury trials.
Bear in mind that most cases are filed as settled cases, so there would never by a jury trial demand in any of those. For example, in this case, the SEC didn’t initially file a demand for a jury trial because BofA settled (and then Judge Rakoff didn’t accept the settlement).
Ohio Attorney General Files Class Action Lawsuit against Bank of America
It’s not just New York Attorney General Andrew Cuomo and the SEC going after BofA (and a horde of private plaintiffs; this Bloomberg article notes Delaware VC Strine refused to dismiss a case against BofA yesterday). On September 28th, the Washington Post article noted the Ohio Attorney General has filed a class action lawsuit against Bank of America and its executives over the bank’s alleged failure to disclose losses and bonuses prior to its acquisition of Merrill Lynch. Here is the Ohio AG’s complaint – and press release.
On re:theauditor, Francine McKenna blogs about Deloitte’s exposure in these BofA cases, including a hearing being held today in one of them.
Last Friday, Broadridge filed their proxy statement, which reveals the company’s intention to hold an electronic-only shareholders’ meeting on November 18th. Just a few weeks ago, I blogged about Herman Miller’s similar plans, as well as covered traditional objections to foregoing a physical meeting.
Unlike Herman Miller though (which will allow voting during the meeting via fax only), Broadridge will allow live voting online during the annual meeting (like Intel recently did, as I blogged about in this first-hand report).
As noted on page 8 of its proxy statement, Herman Miller will allow shareholders the ability to ask questions by downloading audio software (after they have submitted their 12-digit control number from their proxy statement) if the question is deemed appropriate. Broadridge’s proxy statement says that shareholders may submit questions while attending the meeting on page 7 of its proxy statement, but its unclear how that work at this early date. The proxy statement says that instructions on how to do so are posted on its IR web page – and Broadridge’s IR web page links to a “stockholder forum” and these instructions about how to participate at the meeting.
It will be interesting to see if there are any shareholder complaints over Broadridge’s virtual meeting. I tend to doubt it considering how well its stock has performed (remember how I told you to buy “BR” a long time ago; I still own plenty of shares and so should you). For companies performing well, the virtual meeting can be a real time-and-money saver – but companies need to ensure that they don’t disenfranchise shareholders and allow real opportunities for them to participate and not get shut out by either a rigorous screening process or a confusing set of hurdles just to get in. As part of this “inclusive” process, I think companies need to post a set of FAQs and other information about how to attend and participate online.
Remember how I’ve been touting the use of an “Annual Meeting Home Page” to better campaign during meetings. This goes double for virtual meetings as part of the effort to explain to shareholders what is going on…
The Rise of ESG Shareholder Proposals
As reflected by the postseason review of ESG (environmental, social, and governance – including climate change) shareholder proposals from RiskMetrics noted below, I think we can expect continued focus on environmental issues by shareholder activists – that eventually will result in the SEC acting on the handful of rulemaking petitions that have been submitted to elicit enhanced disclosure by companies of their environmental and climate change risks, etc.
Given the attention paid to this issue by the SEC’s Investor Advisory Committee and recent remarks by SEC Commissioner Elisse Walter, I wouldn’t be surprised if we saw Corp Fin propose something over the course of next year since the SEC’s environmental regulations haven’t been updated in quite some time. Here is the RiskMetrics ’09 postseason review:
Environmental Proposals Maintain Support
– by Carolyn Mathiasen of RiskMetrics’ Sustainability Solutions Group
During the 2009 proxy season, there was greater support for some types of climate change proposals while investor backing for resolutions on sustainability and political contributions remained strong. The social issues season also was notable for setting a new record for negotiated withdrawals of resolutions, while the Securities and Exchange Commission staff allowed companies to omit fewer proposals this year.
A climate change proposal passed for the first time in 2009. The resolution in question, which got 51.2 percent support, asked utility firm Idacorp to set reduction goals for greenhouse gas emissions. This beat the previous record for a climate change resolution (39.6 percent), set last year at Consol Energy, by more than 11 percentage points, according to RMG data. Two resolutions sponsored by New York City’s pension funds asking for reports on plans to reduce emissions also beat the 2008 record–winning 45.6 percent support at Massey Energy and 42.2 percent at Mirant. A resolution asking Dover to report on climate change challenges to business registered 40.5 percent support.
Support for other climate change proposals was in the 20 percent range, including results at ConocoPhillips, Home Depot, and two resolutions at ExxonMobil. But some other votes were considerably lower. A new resolution at Dominion Resources, which asked the company to provide 80 percent fossil-free electricity generation, got only 4.3 percent support. New proposals from the People for the Ethical Treatment of Animals asking two food companies–Tyson Foods and Hormel–to disclose greenhouse gas emissions from company products got less than 3 percent. PETA has been attempting to draw attention to emissions from factory farming, which recently have become part of the greenhouse gas debate. With these votes dragging down support figures, votes on the 20 proposals relating to climate change and renewable energy averaged 20.7 percent, compared with 23.9 percent in 2008.
Investors continued to give strong support to many proposals asking companies to provide broad-based reports on sustainability issues. After 20 withdrawal agreements, only eight resolutions came to votes during the spring 2009 season and averaged 19.5 percent support, a bit higher than in 2008. The best showing was at Boston Properties, where the resolution earned 37.3 percent support. Conversely, an individual proponent managed only 6.8 percent support at Berkshire Hathaway, and the Unitarian Universalists got 5.4 percent at Las Vegas Sands where Sheldon Adelson owns a majority of the outstanding shares, making it difficult for proponents to make much headway there.
Political Contributions
The campaign coordinated by the Center for Political Accountability to get companies to provide more disclosure on their political contributions and policies held up well in its sixth year. Investors associated with a wide range of proponent groups–public pension funds, labor unions, social investment funds, religious groups and foundations–filed 48 resolutions, the same number as in 2008, of which 29 came to votes. The proposals averaged 29.9 percent, beating last year’s 26 percent tally.
The best showing was 39.8 percent support at Travelers, but three other resolutions also registered 39 percent votes. Votes at the low end of the spectrum were 10.5 percent at Ford Motor and 11.7 percent at Wal-Mart Stores; both companies have high percentages of family ownership.
Banking Practices
The filing deadlines for many resolutions hit in late 2008 just when the financial crisis was deepening, leading shareholders to submit a number of proposals related to that issue. Activists, especially those affiliated with religious groups, had been filing proposals on predatory lending even before the term became widely known, but they took on the issue with new vigor in 2009. Many of those resolutions were later withdrawn after agreements, but three of seven proposals asking companies to evaluate their credit-card marketing and collection practices did come to votes, with varying results. The resolution got 33.4 percent support at Bank of America and 28.4 percent at Citigroup, but only 8.4 percent at JPMorgan Chase. Most corporate recipients argued vigorously, but to no avail, that the issue was not appropriate under Rule 14a-8, the SEC’s shareholder proposal rule.
Health Care
For the second year, the AFL-CIO organized a campaign to get companies to support universal health care–an option that opened up once the SEC staff pulled away from its earlier position that the issue could be omitted as an “ordinary business” matter because it related fundamentally to employee health benefits. The proposal, submitted to 41 companies this year, up from 28 in 2008, asked the companies to adopt an approach to comprehensive health care reform based on principles articulated by a 2004 report from the Institute of Medicine, an arm of the National Academy of Sciences. The principles assert that health care coverage should be universal, continuous, and affordable to individuals and families.
Ultimately, after a number of successful withdrawal agreements, 18 resolutions came to votes. As in the first year of the campaign, the votes were low, averaging 5.4 percent; the final average in 2008 was 4.5 percent. This year’s highest vote (11 percent) was at Honeywell; the lowest vote was 0.4 percent at CBS.
Also faring poorly with investors were animal rights activists, though the proponents say they continue to find the shareholder resolution process an effective way to communicate their concerns to management. Anti-smoking proposals also continued to win meager results, as investors appeared to conclude that the issue was being handled effectively through other channels.
Record Number of Withdrawals
For many activist shareholders, the votes on social issues resolutions are not the central point of proxy season–success in working out withdrawal agreements also has fundamental importance. By this measure, 2009 has been a good year for proponents, with a bumper crop of withdrawals.
As of late August, proponents had withdrawn 143 resolutions (out of 381 filed overall), already cracking the all-time high of 140 registered during all of 2008, according to RiskMetrics data. A few of the withdrawals came about because proponents realized that they were going to lose corporate challenges at the SEC, but most involved at least some concessions from companies. At the same time, though, some proponents were more willing than in recent years to accept withdrawal agreements in return for companies’ expressions of concern about the issue they were raising, rather than demanding substantive changes. A major exception was one of the most active proponents, New York City, which continued to insist that companies commit fully to the requests in their proposals before agreeing to withdraw.
The leading issue by number of withdrawals in 2009 involved the New York City-led campaign asking companies to amend their Equal Employment Opportunity statements to outlaw discrimination on grounds of sexual orientation and gender identity. Proponents withdrew 22 proposals after companies agreed to the requests or revealed that they already had such policies; in some cases this merely involved changing EEO statements that already outlawed discrimination against homosexuals to add gender identity, an increasing concern of activists.
The nine anti-discrimination resolutions that appeared on ballots pulled in some of the highest votes of the year. A proposal passed at D.R. Horton, and the resolutions overall averaged 30.5 percent support. By contrast, the issue with the next highest number of withdrawals got some of the lowest votes–proponents, led by the AFL-CIO, were able to withdraw 22 proposals in the second-year campaign asking companies to endorse universal health coverage. Many institutional investors were not comfortable with the wording of the proposal, but companies themselves have been increasingly willing to issue statements in support of universal health care.
Other issues with high numbers of withdrawals included sustainability reporting, traditionally a good negotiation target, with 20. Proponents who were part of the campaign to get companies to disclose their political contributions were able to withdraw 15 resolutions, although that was down from 20 in 2008, which had seen a similarly sized effort.
The number of withdrawals on climate change fell noticeably to 12 from 21 in 2008. The 12 included five of six in a campaign by the California State Teachers Employees’ Retirement System, which has been newly active on the issue. In the banking category, shareholders withdrew all four new resolutions asking for a loan servicing policy that would “remedy borrowers for past predatory loan practices”; the withdrawals came after what proponents termed “productive dialogues.” Resolutions raising a range of product safety issues, which have been increasing since the debut of the Investors’ Environmental Health Network four years ago, have been relatively amenable to withdrawal, and IEHN members withdrew nine of the 16 proposals they submitted for 2009.
No-Action Rulings
As of late August, the SEC allowed companies to exclude 48 proposals that raised social issues, making it unlikely that omission totals for 2009 will reach the mid-60s’ levels of recent years. None of the staff’s 2009 no-action decisions appeared to set precedents that would make it harder for activists to get their proposals in proxy statements next year.
Seven of the omissions came about because of technical glitches in the filings, but the rest occurred because the SEC staff concluded that the resolutions fell under one of the 13 substantive reasons for exclusion under Rule 14a-8. As usual, the “ordinary business” exclusion accounted for the lion’s share of the omissions, knocking out 23 proposals.
Notably, the ordinary business exclusion claimed most of the proposals in the biggest new campaign of the proxy season, which was organized by the Open Media and Information Companies Initiative, known as “Open MIC.” The SEC staff allowed companies to omit proposals asking companies to report on the effects of their Internet network management practices on the “public’s expectations of privacy and freedom of expression on the Internet.” The institutions sponsoring the resolutions, including the New York City funds and social investment groups, say they will try again next year with new phrasing.
In other ordinary business decisions, the agency staff continued its June 2005 policy of allowing companies to omit proposals that it determines involve “an internal assessment of the risks or liabilities that the company faces as a result of its operations that may adversely affect the environment or the public’s health.” In 2008, the staff had decided that New York City’s standard climate change proposal asking companies to report on how they are “responding to rising regulatory, competitive, and public pressure to significantly reduce carbon dioxide emissions” was vulnerable under that policy. For 2009, the city revised the wording of the resolution to emphasize reducing “social and environmental harm” from emissions, but the SEC staff concluded that the proposal still concerned ordinary business, allowing it to be omitted at the two companies (Consol Energy and Alpha Natural Resources) that challenged.
The classification of risk assessment as ordinary business had been strongly criticized by a large coalition of shareholder activists in a December 2008, letter to the SEC. At the time, the letter’s primary author, attorney Sanford Lewis, acknowledged to RMG that it came too late to produce action that would affect the 2009 proxy season, but he said the letter’s signatories hoped that it would discourage the SEC “from doing any more damage on this issue in 2009.” Activists are likely to intensify their push to change this SEC policy before the 2010 season.
Editor’s Note: All the vote results in this section are based on the votes cast “for” and “against” and don’t include abstentions or broker votes.
Paying the Fraudster’s Attorney Fees: Good Use of Shareholder’s Money?
Kevin LaCroix indirectly gives us a reminder in his “D&O Diary” Blog today to review your D&O insurance policies and indemnification arrangements to attempt to prevent out-and-out fraudsters from draining corporate resources by enabling them to have their attorney fees paid for while defending themselves.
Kevin blogs about how Stanford Allen likely will get his fees paid for, while 60 others from Stanford Financial also fight to have their attorney fees covered…
Yesterday, the SEC released a Draft 5-Year Strategic Plan that outlines its strategic goals for fiscal years 2010 through 2015. The draft plan outlines over 70 initiatives for public comment. Nothing in particular struck me as profound – all of the larger reforms in the strat plan have already been announced (although the “world-class leader” section on page 45 gave me pause. More $$$ for the SEC to recruit?). Most of the few initiatives related to Corp Fin are on page 25, with a chart about turnaround of annual report and ’33 Act reviews on page 36 and a veiled reference to XBRL on page 47.
The SEC is required to come up with a five-year plan pursuant to the Government Performance and Results Act of 1993 (here is my blog about the SEC’s previous strat plan). Personally, I dislike five-year horizons for any plan since unforeseen events often change priorities and needs. Given the pressure that the SEC is under to change its ways, it needs a one-year blitzkreig plan – which for the Enforcement Division, it already has created…
Note that page 8 of the draft plan has a nice bar graph comparing fees collected and SEC funding levels – that should help make the pitch for the SEC to be self-funded.
Redoubled Efforts: Global Regulators Want Single Set of Accounting Standards by 2011
One of the outgrowths of the G-20 Summit last week was a call on the international accounting standard setters to redouble their efforts and achieve a single set of global accounting standards through convergence by June 2011. Here is the progress report provided at the Summit, which is more detailed than the leaders’ statement as noted by Edith Orenstein in FEI’s “Financial Reporting Blog.”
G-20 Summit Ends with FSB’s Pay Implementation Standards
As expected, the G-20 Summit ended with the release of these implementation standards that were developed by the Financial Stability Board in conjunction with the G-20 and provide the greatest degree of detail to date on global compensation regulation that could impact global financial institutions. These implementation standards build upon the principles that the FSB issued back in April.
The implementation standards focus on what the FSB considers the critical topics to be addressed first: Pay Structure and Risk Alignment; Governance; Compensation and Capital; Disclosure; and Supervisory Oversight. The Standards state that “[f]irms and supervisors should ensure the process of implementation is begun immediately and pursued rigorously in their respective jurisdictions.” In a joint statement issued by the UK Treasury, the five largest UK banks – Barclays, HSBC, Lloyds, Royal Bank of Scotland and Standard Chartered – said they welcome the new rules and expressed hope that “there is parity both nationally and internationally on these issues.”
Perhaps not the best online organization, but I have been posting related content in CompensationStandards.com’s “Bonuses” Practice Area…
A Farewell to Craig Johnson
Our Associate Editor, Linda DeMelis, expresses her own farewell to Craig Johnson:
Craig was 62, but had the looks and energy of a much younger man. I worked for Craig from 1998-2003, and remained part of his network until his untimely death last week.
Craig worked very hard (and made a lot of money), but he also knew how to have fun. He sponsored quarterly “points parties” at VLG (“points” were the mechanism by which some of the law firm’s profits were shared with all employees, not just partners), as well as an annual “Blue Chalk” party at a local pub for clients and friends of the firm. You never knew when he was going to show up in the office dressed as Batman or Marie Antoinette. He was a huge bicycling fan, once traveling to France to see Lance Armstrong top the Pyrenees. His enthusiasm was so infectious that I started following the Tour de France, though I don’t even ride a bike.
Craig seemed to know everybody. Having any kind of meal with him in a public place, even breakfast, was quite an experience, because of the number of people who came by to say hello. But most of all, Craig was a heck of a nice guy, who treated everyone with respect. Silicon Valley can be a tough business environment, but I have never heard anyone say an unkind word about Craig. His family has set up a guestbook for remembrances of Craig, and I was struck by how many tributes came from staff — secretaries, paralegals, and librarians — with whom he had worked over the years.
