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08 Apr. 2010 | Comments (0)

In what is starting to shape up as one of the busiest and corporate governance-changing proxy seasons in some time, shareholder proposals picking up the most steam early on have more to do with shareholder rights, such as .advisory vote on compensation, independent board chair, right to call special meeting and review/report on political spending. It’s no surprise that governance shareholder proposals are getting more attention than hostile takeovers this proxy season, especially given the loss of shareholder value over the last two years. The historic importance of this year’s proxy season has not been lost on such key shareholder players as RiskMetrics and corporate governance research providers as The Conference Board Governance Center. Both have introduced innovative products timed to launch with the 2010 proxy season. RiskMetrics has replaced its Corporate Governance Quotient rating system with Governance Risk Indicators, a transparent governance rating methodology designed to reflect current best practices. It uses symbols such as up and down color-coordinated arrows instead of numeric ratings. It went into effect March 17. The Conference Board Governance Center April 8 released The Shareholder Activism Report: Best Practices and Engagement Tools for Public Companies. (Read the press release.) To complement the 412-page report, the Governance Center launched a Web portal that allows real-time access to vital corporate and investor documents and online literature. “Improved macroeconomic indicators and a robust rebound of the M&A environment are expected to fuel shareholder activism throughout 2010,” said Matteo Tonello, director of corporate governance research at The Conference Board and co-author of the report with Damien Park, president and CEO of Hedge Fund Solutions. “So far this year, activists have already publicly requested board representation, corporate governance improvements or operating changes at nearly 100 companies in the United States alone.” The report and portal were created in response to request from Governance Center members, according to Paul DeNicola, director of the Governance Center and Directors’ Institute. The report is broken down into several sections: •     Recommendations to Public Companies (based on The Conference Board Working Group on Hedge Fund Activism) •     Shareholder Activism Today •     Addressing Shareholder Activism •     Assessing Gaps and Vulnerabilities •     Responding to Requests for Change •     Directory of Activist Investors •     Top 50 Activist Investor Profiles •     Proxy Contest Fact Sheets, •    Case Studies and Sample Documents The recommendations were the result of consultation with The Expert Committee on Shareholder Activism, which was convened in October 2009 and includes people from such professions as legal, financial, proxy solicitation and investor communication. The members of the committee include, Andrew L. Bab, a corporate partner at Debevoise & Plimpton; Daniel H. Burch, co-founder, CEO and chairman of MacKenzie Partners; Paul Caminiti, a managing director at Sard Verbinnen & Co.; Arthur B. Crozier, co-founder and co-chairman of Innisfree M&A Inc.; David Drake, president of Georgeson; Edward Ferris, a partner at Hedge Fund Solutions; Joele Frank, managing partner at Joele Frank, Wilkinson Brimmer Katcher; Daniel Gagnier, a managing director at Sard Verbinnen & Co.;  Mark H. Harnett, president of MacKenzie Partners Inc.;  David A. Katz, a partner in the law firm of Wachtell, Lipton, Rosen & Katz; Alan M. Miller, co-chairman of Innisfree M&A Inc.;  James C. Morphy, a member of Sullivan & Cromwell's management committee; Justus O’Brien, co-leader of  the North America CEO succession and board services practices of Egon Zehnder International;  Damien J. Park, president and CEO of Hedge Fund Solutions  LLC; Rachel L. Posner, senior managing director and general counsel at Georgeson; Jeffrey J. Rosen, co-chair of Debevoise & Plimpton’s mergers & acquisitions group; Matthew Sherman, a partner at Joele Frank, Wilkinson Brimmer Katcher; Matteo Tonello, director of corporate governance research at The Conference Board; Marc R. Trevino, a co-managing partner of the Sullivan & Cromwell’s executive compensation and benefits practice group; and Kim A. Van Der Zon, a partner at Egon Zehnder International. As part of the rollout of the report and portal, the Governance Center will hold a three-part Webcast, The Changing Face of Shareholder Activism: Best Practices for Companies’ Engagement and Assessment, on April 29, May 6 and May 13. For details, click here. (The Webcast is free to guideline members of The Conference Board.) In addition to these new services, the SEC in December launched its Office of Investor Education and Advocacy, which created a Web site dedicated to proxy issues. It provides FAQs on corporate elections, voting procedures, SEC proxy-related rulemaking, e-proxy access and sample proxy ballots and forms.

Early Shareholder Proposal Returns

In an April 1 update to its 2010 Proxy Season Watchlist of Key Shareholder Proposals, RiskMetrics Group released the following figures: •    Advisory vote on compensation, 57 proposals (43 pending, 5 voted, 8 withdrawn, 3 omitted) •   Independent board chair, 49 proposals tracked (31 pending, 3 voted, 3 withdrawn, 12 omitted) •    Right to call special meeting, 65 proposals, (42 pending, none voted, 2 withdrawn, 21 omitted) •    Review/report on political spending, 50 proposals (35 pending, none voted, 11 withdrawn, 4 omitted) While shareholders seem to be fighting an uphill battle regarding separation of chair and CEO and the right to call a special meeting, the fact that some of those proposals were withdrawn shows some progress in shareholders’ favor.  (Of course, someone could make the point that the number of omissions for these two type of proposals shows companies are able to persuade the SEC to allow for exclusions under Rule 14a-8.) But overall it’s fair to say shareholder groups are picking up momentum this proxy season. The key will be if those shareholders actually vote their shares if such proposals do indeed come up for a vote. This year it has never been so important as the broker discretionary vote was eliminated.
  • About the Author:Gary Larkin

    Gary Larkin

    Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

    Full Bio | More from Gary Larkin

     

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