Current Posts

August 4, 2015 | Ning Chiu

Changes to charters and bylaws by boards, director and executive compensation, proxy access, director independence and overboarding are the key topics of focus in the ISS survey for the 2016 proxy season. The survey responses from investors, issuers and others help inform ISS policy formulation for the 2016 season, and will have an impact on how the proxy advisory firm makes recommendations, especially on director elections. The survey closes on September 4th at 5:00pm.  

A summary with selected examples of the survey questions that pertain to U.S. companies are set forth below. A copy of the entire survey is here. A link that allows you to respond to the survey is here

Charter and bylaw amendments by boards.  What types of charter or... Read More

August 4, 2015 | Ning Chiu

A recent survey by the Brunswick Group counters beliefs that retail investors are always “pro-management” in any voting contest.  The survey examined the views of 801 US-based individuals who play an active role in their personal investment decisions. 

Two-thirds are aware of shareholder activism and 74% think shareholder activism adds value to companies “by pushing corporate executives and boards to make decisions about issues that company management is otherwise unwilling to make.”  Most of these investors say that activists force companies to aim for long-term value creation for shareholders, while only a slight majority indicate that companies are already doing enough to return value to shareholders.  51% do not believe that boards of directors are working in retail investors’ best interest. ... Read More

July 29, 2015 | Ning Chiu

The SEC has announced an open meeting next Wednesday, August 5, 2015 at 10:00 am, to consider final adoption of the pay ratio rule.  It is scheduled to be the last of three rule-related topics, the others pertain to security-based swap dealers. 

Open meetings are accessible through this link.

July 28, 2015 | Ning Chiu

The WSJ reports that the SEC will likely adopt a pay ratio rule next week.  Amidst intense speculation over whether the final rule will provide any flexibility to companies regarding counting non-U.S. and part time or temporary workers when determining the median employee, the article states that the SEC intends to allow companies to exclude 5% of its overseas workforce.  

A June 4 memorandum by the SEC Division of Economic and Risk Analysis, which we previously discussed here, found that the exclusion of 5% of employees may cause the pay ratio estimate to decrease by up to 3.4% or increase by up to 3.5%.  The Division later updated the memo on June 30 for more detailed scenarios... Read More

July 23, 2015 | Ning Chiu

In two pages, CalSTRS sets forth their expectations on board composition practices, an area of increasing attention by investors. 

On board tenure, CalSTRS does not advocate for strict limits and instead proposes that a mix of short- and long-tenured directors provides both fresh perspectives and experience, continuity and stability on the board.  Tenure and age limits may force turnover, but CalSTRS believes that regular evaluation of the needs of the company is more important to ensure board refreshment.  They urge companies to disclose a board succession plan and the process used to evaluate board composition and director performance, including a periodic third-party evaluation.

CalSTRS wants boards to embrace diversity “in the broadest sense” and consider “gender, age, culture, sexual orientation and identification, and... Read More

July 21, 2015 | Ning Chiu

CII filed a rulemaking petition asking that the SEC require companies to clarify the voting standards for the election of directors.  In their view, companies that use the state law default plurality rule, coupled with a policy that requires the director to submit a resignation if the director does not receive a majority of votes in favor (which CII calls "plurality-plus”), should not be permitted to state that their directors are elected by majority voting standards.  In addition, their proxy cards should only allow for the ability to “withhold” instead of voting “against”.  

CII believes companies’ disclosures about the votes necessary to elect directors are often confusing.  It refers to a company that disclosed majority voting standards for the election of directors, but also had a company proposal in the proxy statement to amend governing documents to adopt majority... Read More

July 16, 2015 | Ning Chiu

A number of business groups sent a letter to Chair White announcing the formation of the Corporate Governance Coalition for Investor Value (the Coalition).  The group includes the American Bankers Association, the U.S. Chamber of Commerce, SIFMA, the National Association of Manufacturers and ten others. 

The Coalition emphasizes the importance of strong corporate governance in driving shareholder value, and notes that communication and engagement between their member companies and their shareholders are “at an all-time high.” However, companies have seen an increase in “special-interest activism of all types.” The Coalition believes that this activism has led to campaigns that are unrelated to increasing long-term shareholder interest, while at the same time diminishing the role of boards of directors in their oversight. In addition,... Read More

July 15, 2015 | Ning Chiu

The SEC recently issued a concept release seeking public comment on whether to expand disclosure requirements about audit committees. The primary focus of the concept release is on the audit committee’s responsibilities for oversight of the independent auditor. However, the SEC has invited public comment on other aspects of the audit committee’s role beyond those involving the auditor, such as its oversight of financial reporting, internal controls and risk. 

Read the Davis Polk memo on this release >> 


July 14, 2015 | Ning Chiu

The United States Court of Appeals for the Third Circuit issued its opinion that permitted Wal-Mart to exclude a shareholder proposal that had asked the board to oversee policies to evaluate the sale of certain types of guns. The proponent had argued that the products endanger public safety and could impair the company’s reputation or damage its brand as a family retailer. We discussed the proposal and the background in several prior posts

In its ruling, the Appeals Court provided a clear set of tests under which to analyze these types of proposals. 

1.  What is the subject matter of the proposal (and its ultimate consequence)? 
In emphasizing that the proposal should be reviewed on its substance, not the form, the Appeals Court found that the District Court placed undue weight on the distinction... Read More

July 13, 2015 | Ning Chiu

EY Center for Board Matters reviewed the proxy statements of S&P 500 companies and found a dramatic increase in the number of companies that disclose shareholder engagement from five years ago. Based on 444 proxy statements available as of the middle of June, 56% discussed talking to shareholders, compared to 6% in 2010. 

Eighteen percent disclose that board members were involved in the engagement, usually the compensation committee chair or members, lead director, board chair or the nominating and governance chair or members. Slightly less than half indicate that changes were made as a result of the conversations with investors. Not surprisingly, 82% of those changes relate to executive pay, as it has been clear by now that the say-on-pay vote has essentially required companies with approval ratings of 75% or... Read More