Davis Polk Briefing: Governance

NYSE Committee Recommends Reform in Proxy Fees Paid by Companies

Wed, 16 May 2012 14:12:00 GMT

The NYSE announced today that the Proxy Fee Advisory Committee (PFAC), formed in September 2010 and comprised of representative investors, brokers and companies, has published its recommendations to change the proxy fees. Brokers and banks are required under SEC rules to distribute company proxy materials to beneficial owners of securities, or shareholders holding in "street name." In turn, companies must reimburse them for their expenses. The NYSE regulates the amount of fees, subject to SEC review and approval.

The full Report by PFAC explains in summary form the complexities of the proxy distribution process, by reference to the SEC "proxy plumbing" concept release. Over 80% of public securities are estimated to be held in street name. Broadridge, the primary intermediary for proxy distribution, reported that in 2011 it handled distributions to 90 million beneficial owners with accounts at over 900 banks and brokers, covering over 628 billion shares, at a cost of about $200 million to companies in the aggregate.

The Report painstakingly describes the careful work by PFAC in considering each of the four different type of proxy fee designed to compensate brokers for different services, an examination of the existing rationale based on the work involved and an evaluation of whether a change in fee is warranted based on recent developments, such as a move toward less paper distributions. According to the Report, it is expected that overall fees paid by companies will decrease by about 4% under the revised structure.

PFAC's recommendations include several changes to the existing fees and also streamlining the proxy fee categories to increase transparency. In addition, PFAC supported allowing companies to ask brokers for a list of the identity of non-objecting beneficial owners (NOBO) based on number of shares held or of those that have not yet voted proxies, without needing to pay for an entire list of all NOBOs. In order to encourage further retail investor voting, PFAC also recommended that the NYSE broach with the SEC the idea of a fee to pay for an "investor mailbox," through which investors can access proxy materials and voting forms through their brokers' website.

For those interested in learning more, an archive version of a webcast sponsored by the NYSE is here.

PFAC's work is only the beginning. The NYSE indicated that it will initiate discussions regarding the PFAC’s recommendations with the SEC, after which the NYSE would expect to submit a rule change proposal to the SEC reflecting the outcome of these discussions. Any rule filing proposal would be published for public comment prior to SEC approval.

U.K. Proposes Binding “Say on Pay” and a Limitation on Executive Severance Arrangements

Tue, 15 May 2012 11:35:00 GMT

The U.K.’s implementation of “say on pay” in 2002 is widely considered the harbinger of mandatory “say on pay” in the United States. So far, in both countries, the shareholder advisory vote on executive compensation has been non-binding on companies and their boards. Now, the U.K. appears to be moving toward a binding regime. Earlier this spring, the U.K. government’s Department of Business Innovation & Skills (BIS) published a consultation paper setting out a range of measures, including:

An annual binding vote on future remuneration policy;
An increase in the level of support required on votes on future remuneration policy (up to 75% of votes cast);
An annual advisory vote on how the company’s pay policy was implemented in the previous year (same as the status quo); and
A binding vote on “exit payments” of more than one year’s salary – with “exit payments” including not only cash severance payments, but also the vesting of equity compensation, continuation of benefits, etc.

How This Differs from Current Practice

Currently, the U.K.’s “say on pay” vote is limited to a shareholder advisory vote on the compensation of the executive directors (by approving the directors’ remuneration report). The vote is retrospective in that it relates to the prior year’s compensation. Under the proposal, the retrospective vote would remain advisory; however, there would also be a binding vote on future pay, where an affirmative vote would require a supermajority. Companies would be required to propose, at the start of the year, a pay policy for the upcoming year, including potential payouts and the performance measures that would be used. This proposal would then be put before shareholders. If, for some reason, the binding vote were lost, the company would be required to fall back to the last policy to be approved or hold another shareholders meeting so that shareholders could vote on a revised proposal.

To facilitate this binding vote on future remuneration, the U.K. government intends to publish draft regulations later this year, which will prescribe the content of remuneration reports. The regulations are likely to state that the section of the report that discloses the company’s future remuneration should include the following elements:

The composition and potential level of pay for each individual executive director;
How proposed pay structures reflect and support company strategy and key performance indicators;
What the performance criteria are, how performance will be assessed and how this will translate into total level of reward for each individual under different scenarios (e.g., on-target and stretch performance);
How and why the company has used benchmarks and other comparison data to inform pay levels and structures;
How employee pay and views have been taken into account; and
How shareholders’ views have been sought and taken into account, including the results of the previous year’s votes on remuneration.

In addition, there would also be a binding vote related to any severance arrangements for an executive director exceeding the equivalent of one year’s base salary. A company proposing to pay a higher amount would be required to provide detailed information explaining the proposed amount, how it was calculated and why it is deserved. This proposal would then be put to shareholders. If the vote were lost, the company would not be able to pay the exiting executive more than the basic limit. Existing arrangements would be required to be amended prior to legislative effectiveness (as noted below, currently slated for October 1, 2013).

What to Expect Next

Already, this spring has been a tumultuous one for U.K. public companies. Three major companies – including, most recently, Aviva, Britain’s largest insurer – have witnessed the departures or imminent departures of their CEOs, in connection with compensation arrangements that drew shareholder ire. And, just before their annual shareholders meeting, Barclays announced that a portion of the bonuses for the CEO and Finance Director would be subject to performance criteria. An unanswered question is whether these developments will serve to embolden shareholder activists, or whether they are Exhibit A that shareholders already have the ability to exert their will in compensatory matters.

As a formal matter, the consultation period closed on April 27, 2012, and our understanding is that a number of market players, including trade and business organizations, have commented on the proposals. The consultation paper notes that the government will consider the comments received and confirm the exact measures it proposes to take forward in primary legislation later this year, subject to parliamentary time being available.

Subject to the parliamentary process, the government expects legislation on new shareholder voting rights and revised reporting requirements to come into force in spring 2013. These provisions would take effect for companies whose reporting years end after October 1, 2013, and for executive directors whose contracts are terminated after that date; thus, this would impact shareholders meetings held after October 1, 2013.

It is contemplated that, in the first instance, these changes will be adopted via amendments to the U.K. Companies Act (analogous to the general corporation law of many U.S. states). Thus, they would apply to all U.K. public companies (the consultation paper notes that there are over 1,000 U.K.-incorporated companies listed on the London Stock Exchange’s Main Market as of January 31, 2012, plus another 100 or so U.K.-incorporated companies listed on the NYSE, Nasdaq or in a European Economic Area state).

However, given the perceived anti-competitive effect that this could have on U.K.-incorporated companies (who might even seek to redomicile elsewhere), it remains to be seen if any changes along these lines will be implemented more broadly through other means, such as through the requirements of the UK Listing Authority or the index inclusion rules.

Interested Shareholders File Soliciting Materials on Annual Meeting Ballot Items

Thu, 10 May 2012 11:54:00 GMT

An increasing number of shareholders are filing solicitation materials advocating for a particular position on a voting matter at annual meetings, the flip-side to our recent discussion of companies filing additional soliciting materials to support management proposals. Some companies that are not accustomed to the practice may be surprised that the shareholder materials are filed under the company's EDGAR record, as a Notice of Exempt Solicitation. As permissible under Rule 14a-6(g)(1) and Rule 14a-2(b)(1), the solicitation is exempt from requiring the proponents to file accompanying proxy statements.

Since March 1st, shareholders have made over 30 such filings. More than half were filed by the proponents that submitted shareholder proposals being voted on at the meeting. The others generally focus on voting against director nominees. Recently, a coalition of state pension funds, including CalPERS and CALSTRS, urged shareholders to vote against the two directors up for re-election at Hospitality Properties Trust. Their letter states that they are taking this "extraordinary action" for several reasons, including the adoption of a poison pill by the company without shareholder approval and the absence of efforts to declassify its board after receiving more than majority support for shareholder proposals seeking annual elections for three consecutive years. Yesterday, the company announced that one of the directors received only 42% in support and resigned as a result. However, as the board determined that the low vote was not due to the director's "personal failings" but rather the board's disagreement with CalPERS, the board re-appointed the same director to the vacancy that his resignation created, and the director accepted. The composition of the board remained the same.

At Wellpoint, CtW Investment Group filed three separate letters to shareholders asking them to withhold support for two director nominees because of perceived lack of oversight for political spending. The most recent criticizes not only the company but also takes issue with ISS' support for the election of those directors and the advisory firm's recommendation to vote against a shareholder proposal on political contributions disclosure. CtW also asked Sotheby's shareholders to vote against its nominating and governance committee for their "failure to take decisive action and break with James Murdoch," a former board member. In another action directed at board members, the Comptroller of the City of New York encourages shareholders to vote against several director nominees at Wal-Mart for independence and compliance issues related to recent allegations of bribery at the company.

Proponents who submitted shareholder proposals are using these materials as another way to hype their proposals, without being restricted by the 500-word limit imposed on supporting statements. They also use them to rebut the company's opposition statement in the proxy statement. The most prolific shareholders include Trillium Asset Management, urging support for their proposals asking that boards of directors adopt policies prohibiting the use of corporate funds for political purposes at 3M and Bank of America as well as proposals at Verizon and AT&T to commit to operate its network consistent with principles of network neutrality, which at 10 pages (with footnotes) was one of the longest. Most soliciting materials are from advocates of environmental and social issues, with a few covering executive compensation proposals. In addition, Amalgamated Bank filed a letter urging shareholders of Chevron to vote for its proposal to repeal an exclusive forum bylaw.

In early April, Norges Bank Investment Management filed a presentation on the proxy access proposals that it had submitted to six companies, including Wells Fargo. Norges had taken part in a Glass Lewis-sponsored proxy talk. Besides explaining the terms of the proposal, the presentation provides the reasons why it focused on these particular companies, citing issues ranging from stock price performance to governance matters such as combined CEO and chair positions, the absence of the right to call special meetings or the adoption of the right to call special meetings at higher thresholds than the 10% supported by a majority of shareholders, the existence of classified boards or the boards' rights to amend bylaws without shareholder approval. The claims are sufficiently wide-ranging as to make it difficult to predict what companies would not be targets.

The results at Hospitality Properties Trust is likely due to its fairly unusual fact pattern, and the ability of these shareholder soliciting materials to affect vote results is probably not meaningful for the most part. However, as a relatively simple and inexpensive means of shareholder communication, the use of these exempt filings could continue to appeal to these types of shareholder activists.

Seeking a Waiver from the SEC for Failure to File 8-K Announcing the Frequency Vote

Mon, 07 May 2012 14:00:00 GMT

In 2011, companies included in their proxy ballots a choice for shareholders to advise on whether they preferred to cast advisory votes on executive compensation every 1, 2 or 3 years, the so-called "say-when-on-pay" or frequency vote. Item 5.07(d) of Form 8-K required issuers that did not otherwise announce their decisions earlier to file a second, amended Form 8-K. That deadline was months later, either 150 calendar days after the meeting or 60 days before the shareholder proposal deadline, whichever came first. The SEC Staff realized this year in reported news accounts that possibly hundreds of companies did not file the amended Form 8-K.

Failure to file this Form 8-K can lead to the loss of Form S-3 eligibility, but the SEC Staff appears willing to consider granting a waiver to those companies that have implemented the frequency that the majority of shareholders supported, which was the case for all but a handful of companies. To obtain a waiver (which the Staff prefers to characterize as a "non-objection"), a company with an existing shelf registration or one that is about to file a shelf registration must file the amended Form 8-K and make a request by writing a letter and uploading it to the new SEC site.

A company will work directly with Office of the Chief Counsel on the exact content of the letter, but in general the information may include:

Whether the company has an existing Form S-3 registration statement or is planning to file one
A request for the waiver, including any requests to use an existing Form S-3 registration statement or the ability file a new one
Background on the frequency vote conducted and the board's decision as to the frequency selected
The reasons for the failure to file the Form 8-K on a timely basis
Whether the company received a shareholder proposal on the frequency of the advisory vote on executive compensation for the 2012 meeting
Whether the company has previously failed to make any required Exchange Act filings on a timely basis
Processes and procedures implemented to ensure timely Exchange Act filings in the future

The Staff will respond orally and will not confirm in writing.

The Use of Additional Soliciting Materials for Say-on-Pay Votes

Wed, 02 May 2012 10:22:00 GMT

In year two of say-on-pay, we find that companies continue to file additional materials to solicit for favorable votes. These additional materials are generally in the form of a brief letter to shareholders highlighting aspects of executive compensation. Most are in the form of descriptive narratives, although a few companies use graphs and charts and even PowerPoints. While a few are filed early on following the proxy statement, the majority appear to be in response to negative recommendations on say-on-pay from proxy advisory firms.

Proxy disclosure this season has been thorough and detailed, which would suggest that additional materials are not technically necessary. However, even with lengthy disclosure on executive compensation, companies have many reasons to want to file additional materials. They may wish to highlight key aspects of compensation without worrying about including all the different aspects necessary for compliance with SEC rules, or the proxy advisory firms' reports have narrowed the main issues that become important to discuss. Some materials provide companies with a set of talking points or script for conversations with shareholders, and others believe that investors benefit from having a clear set of reasons in summary form as ammunition to reject the proxy advisory firms' recommendations.

A threshold question is whether to directly address the criticisms from the proxy advisory firms' reports. Most companies do usually focus at least on ISS pay-for-performance analysis (a favorite statement this season has been that the ISS peer group methodology is deeply flawed). This is not a surprise, since that analysis appears to be the primary source of most of the negative recommendations in the first place.

So far, we have not seen many companies actually modify existing compensation in any way, along the lines that Disney and GE did last year. Recently however, NCR Corp. initially filed materials that advocated for the company's say-on-pay vote, explained its compensation decisions and rebutted ISS, but about a week later, the company indicated that after discussions with shareholders, it decided to add performance conditions to the CEO's existing special retention award that were initially granted as time-based restricted stock units. This reportedly changed ISS' recommendations, and the company's vote was ultimately about 80% favorable.

Annual Meetings Face Protests from the "99 Percent"

Wed, 25 Apr 2012 15:20:00 GMT

The Occupy Wall Street Movement has turned its focus on annual meetings, which one media outlet is calling "a rare public forum in U.S. business." News reports indicate that a coalition of unions and other organizations calling itself the "99% Power" intends to target more than 200 meetings, although only a few dozen companies were listed on its website. Some of these organizations sponsored trainings for those interested shareholder protests. Reportedly, over 1,000 demonstrators descended upon the Wells Fargo meeting site, where activists bought single shares of stock to gain entrance and over a dozen were ejected for disrupting the meeting. The press today reported that GE's annual meeting was delayed in order to remove two dozen people chanting at the beginning. GE confronted about 100 protestors in Detroit. Videos of the demonstrations outside the meetings, as well as the protestors' efforts during the meetings, have been posted online.

The focus of these particular agitators are not the items on the proxy ballots. At Wells Fargo, demonstrators targeted the bank's foreclosure and lending practices and mortgage operations. The anger directed at GE stems from reports about its tax rate. The protests also did not seem to affect the voting results. Wells Fargo saw over 96% support for its advisory vote on executive compensation and GE received over 92% in favor. It appears that the first proxy access shareholder proposal to be voted on this season at Wells Fargo did not pass. According to various articles, the shareholder proposal that received the highest support at that meeting, at 38%, was one to split the chairman and CEO roles. The same proposal won 22% of the vote at GE. As Ted Allen discussed recently in his blog, shareholders of 44 companies will vote on independent chair proposals this season.

Glass Lewis Makes an Attempt at Transparency, and Studies Try to Evaluate Proxy Advisory Services' Influence

Mon, 16 Apr 2012 15:01:12 GMT

Glass Lewis released a brief overview that it calls a "Primer for Issuers." Glass Lewis reiterates that it does not engage in discussions with companies during the proxy solicitation period because of concerns about the possibility of receiving material, nonpublic information. However, it will sometimes host a Proxy Talk conference call during which a company's management or board can speak directly to Glass Lewis' clients.

Board Matters. It is not always clear when a director will run afoul of Glass Lewis' voting recommendations. The Issuer FAQ provides some information about related person transactions, noting that a director who controls more than 20% of voting stock would be deemed an affiliate. Different types of relationships receive varying levels of scrutiny assessed against different financial thresholds. The condensed proxy voting guidelines are truly "abridged" and only provide the most general of discussions on different voting matters.

Pay-for-Performance Analysis. Some information in this section also raises more questions than provides answers. The Glass Lewis model examines six indicators (stock price change, change in book value per share, EPS growth, total return, return on equity and return on assets) and the total compensation of executives against four different peer groups (industry peers, sector peers of similar size, companies of similar market capitalization and companies in the same geographic regions). Each peer group is assigned a weight based principally on the market capitalization of the company. In the Issuer FAQs, Glass Lewis notes that it uses market-based data to calculate shareholder returns from FactSet and, like ISS, finds peers from the Global Industrial Classification System (GICS).

In the end, the model calculates an executive compensation percentile and a performance percentile against peers. A final numeric score is then calculated for each company based on these weighted-average percentile scores, which are then placed on a forced curve, producing the infamous Glass Lewis letter-grade on compensation. 20% of companies receive As and 10% receive Fs. The remaining distribution is not disclosed.

Say-on-Pay Analysis. The above pay-for-performance discussion makes up only the quantitative aspect of the Glass Lewis say-on-pay analysis. Here issuers will find more lists and charts and general descriptions of items examined to come up with the say-on-pay recommendations. With more negative recommendations on say-on-pay when compared to ISS, one thing to note that makes Glass Lewis quite different is its focus on proxy disclosure, particularly with respect to performance metrics.

In a recent study trying to determine whether and how any of this matters, The Conference Board, NASDAQ, and the Rock Center for Corporate Governance at Stanford University surveyed 110 companies. More than 70% reported that their compensation programs were influenced by the guidance received from proxy advisory firms or by the policies of these firms. The study found that a negative recommendation from ISS, on average, influences between 13.6% to 20.6% percent of say-on-pay votes.

The impact is further detailed in a different study that examined the reports issued for the S&P 1500, concluding that a negative recommendation from ISS is associated with 24.7% (12.9% for Glass Lewis) more votes against say-on-pay. When both advisors make negative recommendations, voting dissent is higher by 37.9%. According to this study, not all "Against" recommendations have the same impact. The impact is greater when ISS identifies a problem in pay-for-performance and change-in-control agreements, and when it identifies a problem in more than one category. In the case of Glass Lewis, the impact is higher for companies with the worst letter-grade ratings.

SEC Sues to Clawback Compensation of Executives

Thu, 05 Apr 2012 14:20:00 GMT

Yesterday, the SEC sued two former executives of Arthrocare Corporation, a manufacturer of medical devices, to recover bonuses and stock profits they had received after the company had filed false financial statements. In doing so, the SEC continued its policy of seeking to apply Section 304 of Sarbanes-Oxley to executives who have not been personally charged with the fraudulent financial statements.

Under Section 304, if “an issuer is required to prepare an accounting restatement due to the material noncompliance of the issuer, as a result of misconduct,” then its CEO and CFO is required to reimburse the issuer for certain compensation received or profits made from the sale of the issuer’s stock during the 12-month period after the fraudulent financial statement was filed. While the SEC had previously settled charges against two other Arthrocare executives who were charged with fraudulently overstating the company’s revenues and earnings, it did not charge the CEO or CFO with any personal misconduct in its current complaint.

In a previously litigated case, SEC v. Jenkins, the District Court of Arizona held that disgorgement of compensation and profit pursuant to Section 304 of Sarbanes-Oxley does not require personal misconduct.

In its press release, Robert Khuzami, the Director of the SEC’s Division of Enforcement, stated that clawbacks under Sarbanes-Oxley are “yet another reason for CEOs and CFOs to be vigilant in preventing misconduct and requiring that companies comply with financial reporting obligations.”

NYSE Webcast Panel Reflects on the 2012 Proxy Season

Thu, 29 Mar 2012 15:20:00 GMT

On Tuesday, I was fortunate to co-moderate a NYSE-sponsored webcast with Judy McLevey at the NYSE, as we discussed the leading proxy and governance issues for 2012 with a group of recognized experts that included Doug Chia from Johnson & Johnson, Michelle Edkins and Robert Zivnuska from BlackRock, Gordon McCoun from FTI Consulting and Pat McGurn from ISS. An archive of the webcast is available here. Judy first informed us that while 285 companies have held annual meetings, 430 more are slated for April with another 970 currently scheduled for May. The panelists then provided interesting perspectives and useful advice on several issues relevant to public companies today, including the following:

Proxy Statements. Doug discussed J&J's efforts to start from scratch for this year's proxy statement with an eye toward redesigning it for the individual investor, noting that a number of companies have attempted to make their documents attention getting, almost like glossy annual reports. Due to its large volume of holdings, Bob stated that BlackRock's starting point for proxy review are the summaries generated by proxy advisor firms, before they dive into the proxy statements themselves. CD&A summaries with the board's perspective, clarified through tabular and graphical disclosure, has been a helpful innovation, but they are not as enthusiastic about proxy summaries that may be trying to get ahead of proxy advisors and fail to include data that BlackRock would find important, such as conflicts of interests.

Say-on-Pay. Pat reiterated that ISS has changed its methodology to place more emphasis on the three-year and five-year timeframe in its initial quantitative pay-for-performance analysis, as well as review overall pay magnitude. More companies are providing proxy disclosure that already anticipates investor (and ISS) concerns, as a preemptive strike, which has proved to be helpful in allowing ISS to get information out to their clients faster and possibly avoid the need for so many of the ancillary filings made last year. As a result of these and other improvements, Pat predicts that there will not be a substantial increase in opposition in 2012. There has only been one instance so far of ISS making negative recommendations against the compensation committee as a result of unresponsiveness to the prior year's low votes. Overall, average support levels are at 91% with 9% against, and the number of ISS' negative recommendations are currently running in the low teens.

Shareholder Engagement. According to Bob, BlackRock has seen a significant increase in shareholder engagement during the post-season period, from July through February, as companies reach out to investors to interpret their vote result in order to build in those perspectives into their compensation committees' processes. Board members have even met directly with investors when there have been real concerns. While triggered by compensation, BlackRock has used these engagement opportunities to also speak to companies about other governance or performance questions. Since BlackRock and likely other investors are not looking at the proxy statements until a week or two before the vote is due, Michelle emphasized that building an existing relationship with investors is the best way to facilitate those last-minute panicked calls to try to obtain support in the face of negative proxy advisory firm recommendations. Doug recounted J&J's broad outreach efforts in light of the company's 61% support for say-on-pay in 2011, as they devoted more time and resources to gain an understanding of the vote results and explain their story. On his part, Gordon believes that the 2012 proxy vote will be as much about the engagement process companies have undertaken in response to the 2011 say-on-pay vote as on the compensation paid.

Shareholder Proposals. Shareholder engagement is also the reason that there are fewer proposals this year, as companies and proponents agree on compromises after negotiations. After speaking with hundreds of investors, Pat stated that it continues to be difficult to predict the level of support that proxy access shareholder proposals will receive. About a dozen proposals are likely to come to vote. Investors have indicated that rights to access should only be available at a reasonable ownership level, but have not quite agreed upon what level is reasonable. Interestingly, the length of the holding period seem to be less of a concern to investors. In giving their views on several different proposals, Bob and Michelle indicated that BlackRock believes a strong lead independent director can provide sufficient independent oversight without the need for an independent chair in all instances, but that a declassified board coupled with majority voting really enhances the accountability of directors. With respect to the popular political contributions proposals, BlackRock conducts a case-by-case analysis on the nature of the proposal and the kinds of disclosure the company is already making. Their advice for company opposition statements in proxy statements is to avoid starting with the conclusion that the proposal is not in the best interest of the company and instead focus on how the company has already addressed the concerns raised in the proposal.

A Win for Disney?

Wed, 14 Mar 2012 10:56:00 GMT

At the Walt Disney Company’s annual meeting of shareholders today, shareholders approved Disney’s controversial executive compensation plan and voted to reelect Disney’s slate of directors, despite negative recommendations by the ISS. ISS had recommended against voting for the members of Disney’s Governance and Nominating Committee because of the decision to appoint its Chief Executive Officer, Bob Iger, as Chairman of the Board at the annual meeting, thereby reversing “a commitment to independent board leadership without conducting outreach to shareholders beforehand.” Disney had not combined the roles of CEO and Chairman since 2004. ISS also recommended against Disney’s say-on-pay vote.

Disney had vigorously opposed the negative ISS recommendations. In recent SEC filings, Disney asserted that its action of combining the CEO and Chairman roles was part of a well thought-out succession and transition plan for its CEO who is expected to retire in 2016. Disney also stated that it expected to appoint an independent lead director with duties and responsibilities “that, ironically, exceed in scope those recommended by ISS.” Disney found that ISS’s recommendation on its compensation plan are “based on both flawed premises and methodology.” Disney disputed ISS’s choice of peer group and also compared its total shareholder return to that of the S&P 500 and found that it was four times greater during Mr. Iger’s tenure as CEO.

Disney’s executive compensation plan was reportedly approved by 56.6% of the shares cast while 42.8% opposed. This is down from last year when 76.8% shares supported the compensation plan and 22.7% opposed it. Although Disney might deem this a “win”, it will be interesting to see if this relatively low approval rate will result in greater scrutiny of its compensation plan by shareholders and proxy advisory services next year.

GRId Information to Change When Proxy Filed

Mon, 12 Mar 2012 10:23:33 GMT

A number of companies have been unhappy to discover that ISS' recent adoption and resulting move to GRId 2.0 changed "low" or "medium" concerns to move up a notch (to "medium" or "high" concerns), especially in the compensation category. Others were pleased to find that GRId 2.0 caused movement in the opposite direction. Any dissatisfaction, or relief, may be short-lived, because the compensation data reflects information from the 2011 proxy statement, meaning 2010 pay.

ISS has confirmed that they will update the data when companies file their 2012 proxy statements. When a company's proxy voting recommendation is published by ISS, the answers to the pay-for-performance related GRId questions will be updated along with the rest of GRId. GRId scores will be reflected in the voting report. The new GRId aligns more closely with the ISS proxy voting reports. Note in particular that the pay-for-performance section under GRId is the same pay-for-performance analysis that ISS conducts for its voting reports.

These answers will not change until the following year’s proxy filing. Companies need not input anything through the data verification process, though should check the answers, as well as the proxy voting recommendations, for accuracy.

Having spent some time with the new GRId, we find that it is quite difficult if not impossible to discern how a company attained its particular compensation score, and what would constitute sufficient changes to move (up or down) to another level of concern. Perhaps it is no surprise that ISS offers a consulting service on GRId.

SEC Staff Permits Exclusion of "Retail" Version of Proxy Access Proposals on Two Grounds

Fri, 09 Mar 2012 07:10:00 GMT

The SEC Staff has agreed that several companies can exclude their proxy access shareholder proposals that were modeled on a template provided by the United States Proxy Exchange, which also became known as the "retail" version because they were generally submitted by retail shareholders.

- For Sprint, MEMC and Chiquita, the Staff agreed the proposal is vague or indefinite for referring to "the SEC Rule 14a-8(b) eligibility requirements," since the proposal doesn't describe the specific requirements and they are a "central aspect of the proposal." The Staff went on to say that "while we recognize that some shareholders voting on the proposal may be familiar with the eligibility requirements of Rule 14a-8(b), many other shareholders may not be familiar with the requirements and would not be able to determine the requirements based on the language of the proposal." The basis for this decision may be a bit surprising given that the Staff disagreed this season with companies that had argued that proposals that request the board to have an independent board chairman, by the standard of the New York Stock Exchange, are vague or indefinite by referencing the NYSE standard without sufficiently describing them.

- For Textron, Goldman Sachs and Bank of America which included the procedural argument, the SEC Staff agreed that the access proposal consists of multiple proposals because paragraph 6 raises a "separate and distinct" proposal relating to events that would not constitute a change of control, while the other paragraphs (1-5 and 7) contained a proposal related to shareholder nominations.

In addition, as suspected, the Staff rejected KSW's argument that they had substantially implemented a binding proposal that had a threshold of 2% ownership requirement by adopting a bylaw with a 5% ownership requirement.

Lessons Companies Can Learn from CalSTRS “Lessons Learned”

Thu, 08 Mar 2012 17:57:00 GMT

CalSTRS recently released a paper, “Lessons Learned: The Inaugural Year of Say-on-Pay,” in which they detailed their reasons for voting against companies’ 2011 Say-on-Pay proposals.

Surprisingly, CalSTRS voted against 23% of the say-on-pay proposals on which they voted during the 2011 proxy season, citing a pay for performance disconnect as the primary reason. In looking at the pay for performance disconnect, CalSTRS found that most of the companies they voted against had negative 5-year performance numbers. Other pay for performance issues noted by CalSTRS were companies’ failure to prioritize or fully explain the “laundry list” of performance metrics listed in the proxy statement and problems in peer group selection, including: a failure to adequately disclose the rationale of the peer group selection, too large a peer group, mismatch of size of peers and inclusion of companies in an unrelated industry.

CalSTRS’s second reason for negative say-on-pay votes was the ratio of CEO to named executive officer pay. CalSTRS said that, although it would not be the sole factor in determining their vote, a pay ratio over 3 times would cause them to question a company’s practices.

A CEO base pay of over $1 million was listed as the next reason for a negative vote. CalSTRS also found it troubling when companies used peer benchmarking to pay above the median, “particularly when companies targeted the 75th and 90th percentile.” CalSTRS noted that this type of pay benchmarking would be a “renewed focus” next year.

Finally, in an effort to make proxy disclosure more understandable for the average investor, CalSTRS lauded the use of plain English executive summaries and additional tables to describe actually realized executive pay.

In a sampling of the companies against which they voted, CalSTRS found that the industries receiving the most negative votes were consumer discretionary, energy and industrials.

CalSTRS’s “Lessons Learned” can be found here.

SEC Decides on Questions of Proof of Ownership Regarding DTC Participants for Shareholder Proposals

Tue, 06 Mar 2012 09:36:00 GMT

The SEC Staff made several recent decisions on questions of proof of ownership for submission of shareholder proposals, in light of the requirement under Staff Legal Bulletin 14F, which we previously discussed. SLB 14F makes clear that only DTC participants are viewed as record holders of securities that are deposited at DTC.

The Staff declined to grant no-action relief to companies that argued that the proof of ownership was not from a DTC participant when the brokers' letters were from TD Ameritrade, Inc. instead of TD Ameritrade Clearing, the entity named on the DTC participant list. The proponents in some of these situations provided an additional letter of support from TD Ameritrade in response to the company's no-action letter request, but the SEC Staff gave the same ruling even when proponents did not. The Staff noted that the proof of ownership from TD Ameritrade, Inc. was sufficient since it was provided by a broker that provides proof of ownership statements of behalf of affiliated DTC participants.

But even when the Staff agreed with Allergen that the proponent, John Chevedden, failed to provide a statement from the record holder evidencing appropriate documentary support of continuous beneficial ownership, the Staff gave Mr. Chevedden seven additional days to address the deficiency. Mr. Chevedden had provided proof of ownership only from Ram Trust and not the DTC participant. The Staff indicated in its response that the company failed to informed the proponent of what would constitute appropriate documentation in its request for additional information from the proponent, and noted SLB 14F states that they will grant no-action relief to a company on the basis that a proponent's proof of ownership is not from a DTC participant only if the company's deficiency letter describes the required proof. It appears from the filed correspondence that while the company clearly pointed out the problem to Mr. Chevedden in its notice, only a copy of Rule 14a-8, and not a copy of SLB 14F, was included with the letter. The Staff denied the company's request to reconsider its decision.

Implementation of New Disclosure on Say on Pay Results

Mon, 05 Mar 2012 09:55:46 GMT

Among the new proxy disclosure requirements under the Dodd-Frank Act is the mandate that issuers disclose in their CD&A “[w]hether, and, if so, how the registrant has considered the results of the most recent shareholder advisory vote on executive compensation… in determining compensation policies and, if so, how that consideration has affected the registrant’s executive compensation decisions and policies.” Thus far, the vast majority of the 110 large accelerated filers who filed proxy statements in the 2012 season through February 29, 2012 have addressed this new requirement in their CD&As. Generally, the disclosure has been fairly predictable: those that received lower shareholder approval ratings on say on pay in 2011 have provided lengthier disclosure, often addressing changes made to their compensation programs, while those that received stronger shareholder support have simply stated that they have considered the results and decided to continue their previous compensation practices in light of the support.

However, 14 large accelerated filers have failed to disclose the effect of the 2011 say on pay vote results in their CD&As. Of these, 9 did not mention the say on pay vote in their CD&A at all. Five companies reported last year’s vote results but did not go on to discuss whether or how the company considered the result.

Interestingly, the failure to disclose the effect of last year’s say on pay vote has not negatively affected either ISS recommendations regarding this year’s say on pay proposals or say on pay results in 2012. Of the 14 companies discussed above, the 9 that have received a recommendation on their 2012 say on pay proposal from ISS have all received a “for” recommendation. Of the 14 companies discussed above, the 6 that have reported their 2012 say on pay results as of February 29, 2012 have all received above 90% shareholder support. The lack of focus on the new disclosure by ISS and shareholders may be because all of these companies received at or above 89% shareholder support in 2011. Query whether the SEC will be as forgiving with respect to companies that do not address the new disclosure requirement.

Now Available: Company Verification of its GRId 2.0 Profile

Mon, 20 Feb 2012 15:45:00 GMT

Today, February 20, ISS has posted a preview of its updated GRId 2.0 data profiles for U.S. companies. Company representatives can access the GRId profile (for free) through the ISS data verification site to review the information and alert ISS as to any mistakes or other areas for corrections. To obtain a data verification user name and password if you do not already have one, contact ISS by email at support@isscorporateservices.com or call 301 556 0570.

As we previously discussed, GRId 2.0 adds many new questions, particularly in the compensation area, and adjusts the scoring system. For the first time, actual scores in each of the categories of Board, Compensation, Audit and Shareholder Rights, will be displayed in addition to the overall “high,” “medium,” or “low” system. A copy of the lengthy technical document with all the questions being scored is available here.

The revised GRId score will be available for the entire GRId universe of US companies, largely the Russell 3000 companies, on Monday, February 27. ISS will make the data available for the Yahoo Finance page of companies on March 1 (a company's GRId score can be found under Business Summary - Company Profile on its Yahoo Finance page). A page showcasing the GRId data is also part of a company's ISS annual meeting voting recommendation report.

This Week in Governance News

Wed, 15 Feb 2012 14:17:00 GMT

Just in time before most proxy statements are issued, the SEC staff has issued a CDI on how say-on-pay resolutions should be described on proxy cards and voting instruction forms, with specific examples given of resolutions that would be considered compliant. The four examples (To approve the company’s executive compensation; Advisory approval of the company’s executive compensation; Advisory resolution to approve executive compensation; and Advisory vote to approve named executive officer compensation) all contain the notion of "approval" in casting the vote. The Staff indicated it was concerned that some resolutions, such as "To hold an advisory vote on executive compensation," are not sufficiently clear.
Western Union has announced that it will drop its plans to adopt a proxy access bylaw, in light of its decision to declassify its board and "its ongoing assessment of whether proxy access should be included in the Company’s corporate governance structure."
CalPERS, other pension funds and investors submitted a letter to the SEC asking that the Commission focus on certain priorities in the next 12 months. The list includes proxy access, the remaining executive compensation provisions required under the Dodd-Frank Act, International Financial Reporting Standards (IFRS) and corporate disclosure on sustainability issues, such as environmental matters and board diversity.
As noted on TheCorporateCounsel.net, Apache and John Chevedden have reached a settlement in the Southern District of Texas, permitting Apache to exclude Chevedden's shareholder proposal, which Apache had disputed with respect to Chevedden's proof of ownership. Chevedden's appeal in the Fifth Circuit with respect to a similar prior case (KBR v. Apache), is pending.
The NY Post reports that a whistleblower has filed a complaint with the SEC alleging that an employee in the Boston office of ISS has been providing proxy solicitors with shareholder voting data in exchange for cash and gifts.

And Then There Were Sixteen…A Rundown on Proxy Access Shareholder Proposals

Fri, 10 Feb 2012 14:57:00 GMT

Instead of being the first company with a proxy access shareholder proposal voted on at its meeting, Hewlett-Packard recently became the third company to agree to implement proxy access. If approved at the 2013 meeting, HP would allow shareholder groups that own at least 3% for 3 years to nominate candidates for up to 20% of the board. HP follows in the steps of Western Union and KSW, in making efforts to permit proxy access in response to these shareholder proposals. HP managed to get its proposal, submitted from Amalgamated Bank, withdrawn, but Western Union and KSW are seeking exclusion through the SEC no-action letter process and are still waiting to hear.

Since several companies have submitted no-action letters to the SEC staff in an effort to exclude the proposals they received, it is unclear how many will actually be voted on. Currently, there are five different variations of proposals, and without HP, a total of 16 outstanding, as noted below:

Seven companies received a version from retail shareholders that was associated with the US Proxy Exchange, which seeks implementation of proxy access for shareholders that own 1% for 2 years (Bank of America, Chiquita, Ferro Corp., Goldman Sachs, MEMC Electronic Materials, Textron and Sprint). All but Ferro Corp. have sought exclusion on the basis of no-action letter requests.
Six companies received binding proposals from Norges Bank, which seeks proxy access rights for shareholders that own 1% for 1 year (Charles Schwab, CME Group, Pioneer Natural Resources, Staples, Wells Fargo and Western Union). Western Union has sought to exclude this proposal by writing the SEC staff on the basis that it is submitting its own proposal. Charles Swab and Wells Fargo argued that the website reference referred to in the proposal should be removed, and Staples made various other arguments to exclude.
One company (Nabors) is reported to have received a proposal from several state pension funds based on previously adopted SEC Rule 14a-11 standards of ownership levels of 3% for 3 years, similar to HP's proposal.
Two companies (KSW and Microwave Filter Corp) received binding proposals from the Furlong Fund. The KSW proposal seeks proxy access for shareholders owning 2% for 1 year, while the proposal received by Microwave Filter Corp was in connection with a proxy contest, and asks that shareholders owning 15% for at least one month be able to nominate candidates.

We'll continue to track developments throughout the proxy season, as it will be interesting to see how these proposals fare in their inaugural year.

Note: Thanks to James McRitchie at corp.gov.net for pointing out that we missed Princeton National Bancorp. Inc (PNBC) on our list of companies that received proxy access shareholder proposals. PNBC received the retail version.

Contact Ning Chiu.

Reminder: SEC Interpretation on Reconciliation for Use of Non-GAAP Measures in CD&As

Fri, 03 Feb 2012 11:41:00 GMT

As companies are in the midst of preparing their proxy statements, some may have forgotten an interpretation that the SEC Staff issued last summer regarding the use of non-GAAP financial measures in CD&As that could affect your disclosure. The CDI in Question 118.08 indicates that if the non-GAAP financial measure is not a target level that is subject to exemption from the non-GAAP disclosure rules, but rather, included in CD&A or other parts of the proxy statement to perhaps explain the company's results in relation to compensation paid, then some form of GAAP reconciliation is necessary.

While the company could include the GAAP reconciliation in the CD&A itself, the Staff appeared to recognize that could prove cumbersome and distracting, and therefore the Staff is permitting companies to, in this particular circumstance:

Include the required GAAP reconciliation and other information in an annex to the proxy statement and provide a prominent cross-reference to the annex; or
If the non-GAAP financial measures are the same as those included in the Form 10-K that is incorporating Part III information from the proxy statement, provide a prominent cross-reference to the pages of the Form 10-K containing the GAAP reconciliation and other information.

Merely referring to the company's website, earnings release or the Form 10-K generally is not sufficient.

Contact Ning Chiu. Contact Kyoko Takahashi Lin.

ISS Issues Additional Explanations for Compensation Evaluations

Tue, 31 Jan 2012 16:04:00 GMT

ISS issued several helpful FAQs to further explain how it will evaluate pay-for-performance, management responses to prior say-on-pay votes and equity compensation plans. A particularly interesting comment indicates that ISS may not be as quick to reverse negative recommendations based on company commitments to make prospective changes to pay packages, indicating that "…with annual management say on pay proposals, commitments on strengthening the company's pay for performance alignment in the future are not as relevant...Additional filing materials made after the publication of our report that indicate future changes planned for the pay program will have minimum impact on the vote recommendation." (emphasis added). This would not include actions taken by companies such as GE and Disney during the 2011 proxy season, as those companies made changes to existing compensation arrangements. However, it appears to cover, for example, commitments to no longer provide gross-ups to executives in the future.

ISS also addressed questions of company responses to say-on-pay, which appear to suggest that, even if a company engaged with its shareholders in formulating a response with which its shareholders are satisfied, ISS will continue to separately evaluate the underlying issues surrounding the prior say-on-pay vote and will make its own assessment as to whether the company's response is sufficient. Failure to adequately respond, from ISS' perspective, may lead to a negative recommendation on compensation committee members, even with a say-on-pay vote on the same ballot.

An adverse pay-for-performance recommendation may lead to a negative recommendation against an equity plan on the ballot. Considerations include ISS' views of the magnitude of pay misalignment, contribution of non-performance-based equity grants to the overall pay levels and the proportion of equity awards granted in the last three fiscal years concentrated at the named executive officer level (a ratio that exceeds 25% would warrant "additional scrutiny"). One item that ISS apparently believed needed clarification is that, for companies with early meetings in the 2012 season, the pay of their peer groups used by ISS may be from the prior year. This is already of concern to companies, but at the same time it is unclear whether any viable alternatives are available.

Other items discuss technical questions related to how total shareholder return is calculated, how ISS will construct the company's peer group, and the impact of having a new CEO or more than one CEO in the five-year period evaluated.

Contact Ning Chiu. Contact Kyoko Takahashi Lin.

Mixed Signals on the Future of Say on Pay Litigation

Fri, 27 Jan 2012 14:45:00 GMT

The Oregon district court provided a ray of hope for companies fearing the possibility of shareholder say on pay litigation when it handed down its January 11, 2012 decision granting Umpqua’s motion to dismiss a shareholder derivative suit alleging directors’ breach of duty and officers’ unjust enrichment after an increase in executive compensation. In the decision, Magistrate Judge Acosta rejected the shareholders’ arguments that demand was futile because the directors were not independent or disinterested.

In Umpqua, plaintiff-shareholders argued that, where directors were likely to be subject to liability for the challenged actions, they could not be disinterested. The court rejected that reasoning in this context, saying that an adverse say on pay vote coupled with the award of increased compensation did not reach the necessary threshold of substantial likelihood of liability necessary to show that demand would be futile under Delaware law. (See our October 17, 2011 blog post on the success of companies in dismissing shareholder say on pay suits under Delaware and New York law). That reasoning had been successful in defeating dismissal under Ohio law in Cincinnati Bell, a case filed by the same firm representing the plaintiffs in Umpqua. The Oregon court disagreed, stating that accepting the reasoning “that presuit demand is itself suggestive of impending liability [and] is sufficient to create the type of self-interest that triggers the demand futility exception. . . would permit every derivative action plaintiff to argue that demand is futile. . . because no board would be able to act objectively in evaluating presuit demand.” This would essentially negate the purpose of the demand requirement.

Despite the positive nature of the Umpqua decision for potential defendant-companies and the fact that, as the Umpqua decision points out, the holding in Cincinnati Bell has recently been called into question by jurisdictional defects, Cincinnati Bell Inc.’s December 20, 2011 decision to settle one of the say on pay shareholder suits may continue to fuel the plaintiffs’ bar’s desire to bring further suits. For example, suit was filed against Navigant Consulting, Inc. on January 19, 2012 in the Northern District of Illinois alleging breach of fiduciary duty on the part of the board and executive officers for increasing executive compensation during a period of decreasing shareholder value.

It remains to be seen if court decisions such as that in Umpqua will quell the lawsuits.

NOTE: Umpqua was dismissed without prejudice.

Contact Kyoko Takahashi Lin. Contact Gillian Emmett Moldowan.

Two Companies Adopt Proxy Access Provisions in Response to Shareholder Proposals

Thu, 26 Jan 2012 11:33:35 GMT

Western Union recently submitted a no-action letter to the SEC Staff seeking to exclude a binding proxy access shareholder proposal from Norges Bank, arguing under Rule 14a-8(i)(9) that the company is submitting a conflicting management proposal to amend their bylaws allowing for proxy access. The Norges Bank proposal sought to provide proxy access to shareholders who own at least 1% of shares for a year, while Western Union's provision would permit shareholders to make nominations if they own 5% for at least 3 years.

Another company, KSW, has already amended its bylaws to allow for shareholder nominations by shareholders who own 5% or more shares for at least one year, in response to a different binding shareholder proposal it received seeking to give proxy access rights to shareholders who own 2% for one year. KSW is arguing exclusion of the shareholder proposal on the basis of Rule 14a-8(i)(10), that it has substantially implemented the essential elements of the shareholder proposal.

Both no-action letters can be considered against the backdrop of similar efforts to exclude special meeting shareholder proposals, which usually ask companies to allow shareholders owning 10% or more to call special meetings. Companies that have adopted, or plan to adopt, similar provisions but at higher thresholds of ownership (usually 25%) have argued substantial implementation (unsuccessfully) and conflicting proposals (successfully). The downside of making the exclusion argument on the basis of a conflicting proposal is that the proponent may submit the same proposal to the company next year.

While we believe the SEC Staff will likely grant Western Union's no-action letter request, what is more interesting is that two companies have taken the steps of adopting, or will soon adopt, proxy access in response to these untested shareholder proposals, given that there is still a great deal of uncertainty as to the level of support the proposals will receive from institutional investors. Even at these higher ownership thresholds, supporters of proxy access may still view these actions as quite positive in response to the first year that proxy access shareholder proposals have been submitted, when none have been voted on yet. There have been fewer than 20 proxy access proposals submitted this year, but these actions may motivate proponents to submit many more for next season.

Several other companies (Textron, Bank of America and Goldman Sachs among them) are arguing to exclude the proposal on numerous other grounds that do not call for implementing the proposal in any form.

Contact Ning Chiu. Contact Richard Sandler.

Questions of Proofs of Ownership for Shareholder Proposals Continue to Generate Controversy

Mon, 23 Jan 2012 12:33:00 GMT

While the SEC Staff's recent pronouncements in Staff Legal Bulletin 14F was intended to provide clarity and stem the tide of no-action letters citing procedural deficiencies, at least in the short term, it has spawned a new set of arguments. As noted in our memo, SLB 14F makes clear that only DTC participants are viewed as record holders of securities that are deposited at DTC.

In a letter from Allergan, the company argues that a shareholder proposal from John Chevedden should be excluded because the statement from Ram Trust Services refers to shares being held by Northern Trust, a DTC participant, but does not include a separate proof of ownership from Northern Trust. AT&T submitted no-action letters seeking to exclude two shareholder proposals on the basis that the proofs of ownership were not from the entities named in the DTC participant list that is available on the DTC website (and linked to in SLB 14F). For example, one proposal (from John Chevedden) included a broker's letter from TD Ameritrade, Inc. but the DTC participant list names only TD Ameritrade Clearing, Inc. and TD Ameritrade Trust Company while the broker's letter for another proposal (from Calvert) included a broker's letter from State Street Corp. but the DTC participant list contains only State Street Bank and Trust Company and State Street Global Markets. Rite Aid also argues that proposals (from Steven Krol) with broker's letters received from TD Ameritrade, Inc. resource specialists are procedurally deficient.

Finally, Apache sent the SEC Staff a letter, not to seek the Staff's views, but merely notifying the Staff of an intent to exclude a shareholder proposal from John Chevedden, which included proofs of ownership from both Ram Trust Services and Northern Trust. Apache argues that Ram Trust Services is neither a bank or broker, but rather an investment advisor. Ram Trust Services responded by disputing the company's characterization. The company argued, however, that Ram Trust Services did not provide any additional documentation, could not be found as a registered broker-dealer or bank under various federal and state agencies, and therefore under two prior Texas federal court cases (KBR v. Chevdden and Apache Corp. v. Chevedden), the company is permitted to exclude the proposal.

The SEC Staff has not weighed in on any of these bases for exclusion, and, in fact, the letter from Allergan, dated December 1st, is the oldest letter seeking no-action letter relief currently undecided on the SEC's webiste.

Contact Ning Chiu.

Letter to SEC Urges Regulation of Proxy Advisory Firms

Wed, 18 Jan 2012 14:01:00 GMT

The Shareholder Communications Coalition, a group that includes the Business Roundtable, the National Investors Relations Institute and the Society of Corporate Secretaries and Governance Professionals, recently sent a letter to the SEC advocating for a proposed regulatory framework for proxy advisory firms, as a result of recent public statements from the SEC indicating that the agency may finally move forward on the proxy plumbing concept release issued in July 2010. The Coalition recommends that the SEC develop rulemaking that includes:

- Regulatory oversight. The Coalition suggests that any rulemaking include minimum standards of professional conduct and full disclosure of conflicts of interest, and require proxy advisory firms to disclose relationships with clients who are the proponents of shareholder proposals or "vote no" campaigns when making favorable recommendations on those items. The rules should also address whether the firms are permitted to offer consulting services to any public company for which they then provide voting recommendations.

- Increased transparency. The Coalition states that increased transparency is needed regarding the firms' internal procedures, guidelines, standards, methodologies and assumptions used in developing voting recommendations, especially where they apply policies without taking into account company-specific factors.

- Accuracy of factual information. The Coalition seeks to have proxy advisory firms provide advance drafts to all public companies so factual errors can be corrected, and asks the SEC to consider whether disclosures of disagreements with companies should be disclosed in the reports.

In addition, the Coalition discusses the need for the SEC and the Department of Labor to review the existing regulatory framework for the use of proxy advisory firms by institutional investors, and whether those investors are sufficiently exercising their oversight responsibilities to satisfy their fiduciary duties.

Contact Ning Chiu.

Coming Soon to Score Your Company's Governance Practices: ISS GRId 2.0

Wed, 11 Jan 2012 12:17:00 GMT

As 2011 neared a close, ISS announced that it will update its Governance Risk Indicators (called GRId 2.0) on February 24, 2012 to score all Russell 3000 companies. For the first time, actual scores in each of the categories of Board, Compensation, Audit and Shareholder Rights, will be displayed in addition to the overall “high,” “medium,” or “low” system. This could allow shareholders to measure companies against each other. Other major changes include:

Compensation updates. Mandatory say-on-pay was not around when GRId was adopted, so it is no surprise that most of the refinements are in the compensation area. The revised categories include: pay for performance, nonperformance-based pay, the use of equity, equity risk mitigation, communication & disclosure, and termination/severance. GRId 2.0 has 27 new questions covering topics like:

Alignment between total shareholder return (TSR) and CEO pay relative to peers
Ratio of CEO pay to executive pay
Different types of tax gross-ups, including perk-related gross-ups
Dividends paid on unvested restricted shares
Equity plan provisions including prohibitions on repricings or automatic vestings upon a change-in-control
Minimum vesting periods for equity awards
Basis for change-in-control or severance payments for CEO and other executives

Audit, board and shareholder rights updates. GRId 2.0 also asks more granular questions about poison pills, including trigger thresholds, shareholder approval and slow-hand or dead-hand provisions. Other new questions include whether there are material restrictions to timing, topics or ownership levels for shareholders to call special meetings, and whether there are enforcement actions or investigations affecting directors or officers.

Simplified scoring and rating processes. Although it can’t quite be discerned from the fairly complex description, GRId 2.0 will have a more simplified scoring process, with the previous weighting schemes eliminated. Each answer is assigned a positive, negative or zero score. Questions also work in tandem, so that while a poison pill will receive negative points, this may be mitigated if it was approved by shareholders. Scores are also capped by category in order to avoid having one area, such as termination agreements, overwhelm the entire compensation analysis.

Impact of GRId 2.0. It is difficult to tell what impact these changes may have, other than to suggest that companies may need be aware of the new focus from the additional questions. The technical document contains an appendix with the questions for scoring, rationales and scoring approach, which currently does not provide the actual scores that would be elicited by a certain response, making it difficult to anticipate the effect of a company’s governance practices on the overall analysis. ISS indicates that more information is forthcoming.

Action plans for companies:

Confirm that you already have the data-verification log-in (which has not changed). It can be obtained, for free, by contacting support@isscorporateservices.com.
Since GRId information is obtained only from publicly available data, companies should ensure that the public information fully and accurately captures their governance practices.
The data verification site will be updated with the GRId 2.0 methodology and data on February 20, 2012. Yahoo Finance pages will be updated as of March 1, 2012.

Contact Ning Chiu. Contact Bill Kelly.

ISS’s New Pay-For-Performance Review Framework is Now in Place

Mon, 09 Jan 2012 12:37:00 GMT

In December, ISS issued a whitepaper providing further guidance on its new pay-for-performance review framework first introduced in its 2012 proxy voting guidelines update (effective for meetings on or after February 1, 2012). As described in our memo New ISS Policies Overhaul Say-on-Pay Analysis (November 29, 2011), the revised pay-for-performance methodology includes both a three-part quantitative analysis and a qualitative analysis. The quantitative analysis is made up of two relative measures (“Relative Degree of Alignment,” comparing CEO pay and TSR performance against a comparison group over 1- and 3-year periods, and “Multiple of Median,” comparing the prior year’s CEO pay to the median pay of a comparison group for the same period) and one absolute measure (“Pay-TSR Alignment,” comparing trends in CEO annual pay and the value of an investment in the company over the prior 5-year period).

The whitepaper provides extensive detail on ISS’s pay-for-performance evaluation methodology, which continues to analyze pay based on award opportunity (and not realized pay) with a focus on Total Compensation as reflected in a company’s Summary Compensation Table. Of particular interest, the whitepaper provides insight into (1) how ISS will construct a company’s relative alignment comparison group and (2) how the results of a company’s quantitative analysis will determine whether ISS considers the company to be at risk of having a pay-for-performance disconnect.

Comparison Group. Comparison groups will consist of 14 to 24 companies selected from a database of more than 4000 companies (the Russell 3000 index, together with publicly traded peers disclosed by Russell 3000 companies in their proxy statements). Comparison groups will be constructed twice per year, and will be selected from a group of companies within the same 2-digit GICS category, between 0.45 times and 2.1 times annual revenues (assets for financial companies) and with market capitalizations between 0.2 times and 5 times. In constructing a comparison group, ISS will start with companies within the same 6-digit GICS category and those closest in revenue and market capitalization. Approximately 25 unidentified “super-mega” non-financial companies (over $50 billion in revenue and at least $30 billion market capitalization) will make up their own comparison group.

Impact of Quantitative Analysis. The quantitative analysis is intended to identify companies with a likely pay-for-performance disconnect by identifying companies that are (1) high concern with respect to a single evaluation measure or (2) medium concern with respect to two or three evaluation measures. The whitepaper includes the following table showing where results would trigger concern:

Measure	Medium Concern		High concern
Relative Degree of Alignment	-30	~25th percentile	-50	~10th percentile
Multiple of Median	2.33x	~92nd percentile	3.33x	~97th percentile
Pay-TSR Alignment	-30%	~10th percentile	-45%	~5th percentile

ISS’s new approach to evaluating pay-for-performance alignment is complex and may be difficult for companies to model on their own. Despite this challenge, there are a number of actions companies can take to ready themselves for the second year of say-on-pay as described in our Say-on-Pay Year Two: a Planning Primer (December 13, 2011) memo.

Contact Kyoko Takahashi Lin. Contact Gillian Emmett Moldowan.

SEC Updates Its Dodd-Frank Governance Rulemaking Schedule

Tue, 03 Jan 2012 11:25:00 GMT

As we remarked back in August 2011, the SEC website with its rulemaking schedule on Dodd-Frank initiatives is changed with little notice, as it has been again. Back in August 2011 we even speculated whether the corporate governance rules would apply to the 2012 proxy season, but the SEC did not meet most of its previously stated timeline with the exception of the rules on mine safety. The current schedule for January to June 2012 is as follows:

Final rules: (a) disclosure by institutional investor managers on how they voted on executive compensation; (b) listing standards on compensation committee independence and compensation advisers; and (c) disclosure on conflict minerals and by resource extraction issuers.

Proposed rules: (a) disclosure of pay-for-performance, pay ratios, and hedging by employees and directors; and (b) recovery of executive compensation.

For the July - December 2012 period, the SEC calendar currently indicates it plans to adopt final rules on (a) these executive compensation disclosures and clawback policy; and (b) end-user exception to mandatory clearing of security-based swaps.

Contact Ning Chiu.

PCAOB Reproposes Standards for Auditor Communications with Audit Committees

Wed, 28 Dec 2011 11:02:00 GMT

After receiving comments and hosting a roundtable, the PCAOB has reproposed for comment an auditing standard on Communications with Audit Committees by making modifications to its original proposal from March 29, 2010. Both proposals update existing AU 380. Comments are due by February 29, 2012, with the new standard anticipated to be effective for audits of fiscal years ending on or after December 15, 2012.

Overall, the proposal as it currently stands covers almost all of the existing topics under AU 380, and in addition contains specific enhancements or new requirements, such as:

providing the audit engagement letter to the audit committee and determining that the committee has acknowledged and agreed to the terms of the engagement;
inquiring of the audit committee about matters that might be relevant to the audit, including knowledge of violations or possible violations of laws or regulations or complaints or concerns raised regarding financial reporting matters;
discussing with the audit committee an overview of the audit strategy, including significant risks identified during the auditor's risk assessment procedures, whether specialists will be needed and the extent to which the auditor plans to use the work of the company's internal audit function or other parties;
with respect to critical accounting estimates, describing the process that management used to develop those estimates and changes to the process as well as any assumptions used by management that the auditor believes have a high degree of subjectivity;
informing the audit committee about difficult or contentious matters that triggered consultation outside the engagement team and that the auditor believes are relevant to the audit committee's oversight of the financial reporting process;
discussing significant transactions that are outside the normal course of business for the company or otherwise appear to be unusual due to their timing, size or nature; and
communicating matters from the audit that are significant to the oversight of the company's financial reporting process, including concerns regarding accounting or auditing matters that have come to the auditor's attention.

In addition, the auditor must inform the audit committee of certain matters related to an evaluation of the company's ability to continue as a going concern, and when the auditor expects to modify its opinion or include explanatory language in the auditor's report. The audit committee communications, which will be required to be conducted prior to the issuance of the report, may continue to be handled either orally or in writing, so long as they are noted in the auditor's work papers.

Contact Ning Chiu. Contact Janice Brunner.

2012 Proxy Season: Early Filers Disclose the Impact of 2011 Say On Pay Voting Results

Tue, 20 Dec 2011 11:25:00 GMT

Proxy season 2012 has begun and we’re beginning to see disclosure on the impact of last year’s say on pay voting results. As of December 16, 2011, 14 large accelerated filer companies have filed proxy statements for the 2012 season. These proxy statements disclose whether, and to what extent, the companies considered the results of their 2011 management say on pay proposal and how that affected their compensation decisions and practices. Unsurprisingly, the ten companies with high shareholder approval ratings (83% and higher) have provided simple and unremarkable disclosure. These companies generally acknowledge their high ratings and cite them as support for continuing their compensation practices.

In contrast, disclosure varied among the four companies with lower shareholder approval ratings. Mueller Water Products, Inc., who received approximately 78% approval from its shareholders in 2011, kept its disclosure short, indicating that the results were taken into account in determining the amounts of annual cash incentive awards for 2011 and in setting bonus targets for executive officers for 2012. Johnson Controls, Inc., Jacobs Engineering Group, Inc., and Monsanto, Co., who had 60%, 45%, and 65% approval ratings respectively, all provided lengthy disclosure regarding how say on pay results were considered, and two companies disclosed changes in their compensation practices.

Johnson Controls and Jacob Engineering both stated that feedback from investors was a factor in their decisions to modify their practices, with Johnson Controls changing annual and long-term incentive performance plan targets and Jacobs Engineering changing the form of awards and adding a performance condition to its long-term equity based incentive program. In contrast, Monsanto did not alter its compensation practices in light of its results from say on pay. Monsanto said that discussions with shareholders suggested no common reason for the negative votes and hypothesized that the results stemmed from poor fiscal performance in 2010. Monsanto said it believes its compensation practices are sound and, based on improved performance in 2011, it thinks it will have improved say on pay results in 2012.

It appears that companies with solid support for their compensation practices are not providing extensive disclosure on the impact of say on pay results, while those who did not fare so well are taking steps to demonstrate they take say on pay seriously—even if they aren’t changing their compensation practices. This bifurcated approach aligns with what we are hearing in discussions with other companies regarding disclosure for the 2012 proxy season.

Contact Barbara Nims. Contact Gillian Emmett Moldowan.

Chairman Schapiro's Speech Provides a Window into the SEC Governance Agenda

Fri, 16 Dec 2011 12:58:00 GMT

SEC Chairman Schapiro recently made a speech about corporate governance at the Transatlantic Corporate Governance Dialogue which provides some insight into upcoming SEC initiatives in this area. In her speech, she indicated that the Commission is considering:

- how to provide guidance on how the federal securities laws should regulate the activities of proxy advisory firms. It's unclear what the careful choice of words that led to "how to provide guidance on how to regulate" suggests for issuers eager to see greater SEC regulation of these firms;

- how to require participants in the voting process to share information in order to allow for vote confirmation, as currently it is not logistically possible; and

- possible major changes to the beneficial ownership rules, including (a) shortening the Form 13D 10-day filing requirement; (b) changing reporting for use of cash-settled equity swaps and other types of derivatives; and (c) changing the form and information on Forms 13D and 13G. She discussed the arguments in the debate, and noted that the first step is likely to be through a concept release "given the controversy surrounding some of the issues."

In addition, she reiterated her support for a mandatory proxy access rule, without mentioning whether the SEC will make another attempt in the near future. Instead, Chairman Schapiro extolled the type of "private ordering" now available under Rule 14a-8 for proxy access, which she believes could, over time, bring about shareholders' ability to nominate directors at more and more companies.

Contact Ning Chiu.

Glass Lewis Talks About Say-on-Pay and Updates to Voting Policies

Mon, 12 Dec 2011 15:42:00 GMT

During its 2012 North American Proxy Season review, proxy advisory services firm Glass Lewis looked back to the 2011 proxy season and also gave insights as to what we can expect from them in 2012. Highlights included:

Say-on-Pay. Glass Lewis recommended against 17.5% of say-on-pay proposals in 2011. They use a proprietary model to evaluate companies and come up with "A" to "F" grades. 10% of companies that they reviewed received "F"s in 2011, with the average say-on-pay results at those companies at 73%. While, like ISS, they cite pay for performance issues as the primary reasons for causing negative recommendations, Glass Lewis also tends to cast an unusual focus on CD&A disclosure that sometimes surprises companies. According to Glass Lewis, they find it problematic when companies disclose performance measures but not the rationale for the selection or the weighting of the measures, or when they perceive inadequate discussion of a compensation committee's exercise of discretion. Glass Lewis grades CD&A disclosure as "poor, fair and good," and 5% of companies received "poor" citations in 2011. They mentioned Amazon as an example of a company that, in their view, both performs and has appropriate executive compensation, but has poor CD&A disclosure. In terms of evaluating company responses to prior year say-on-pay votes, Glass Lewis will examine those companies that received at least 75% negative votes for whether to recommend against either the chairman of the compensation committee or the entire committee, depending on companies' engagement efforts with shareholders and then the level of responses.

Shareholder Proposals, Including Proxy Access. Glass Lewis data shows that there were 443 shareholder proposals in 2011, a decrease from 591 in 2012, mainly attributable to the absence of compensation proposals in light of mandatory say-on-pay. This year's most popular proposal, given the election year, will likely be on political contributions and related topics. As for proxy access shareholder proposals, similar to ISS, Glass Lewis will review those on a case-by-case basis before making recommendations, including the percentage ownership requested and holding period requirement. Their list of factors that they will consider is much longer than the ISS policy, including an analysis of the company's shareholder base in both percentage of ownership and type of shareholders, responsiveness of board and management to shareholders as evidenced by "progressive shareholder rights policies" such as annual elections and majority voting, and company performance and steps taken to improve bad performance.

Exclusive Forum Provisions. Glass Lewis discussed the selection of Delaware as an exclusive forum for shareholder derivative suits by 80 companies as of November, adopted either after seeking shareholder approval or by board action alone. We recently blogged about ISS policies on this matter. Like ISS, Glass Lewis generally recommends against an exclusive forum provision and a company will need to demonstrate that it has a long history of suffering from frivolous lawsuits to justify the proposal. But Glass Lewis also takes it a step further and will recommend against the chairman of the governance committee if the company adopts exclusive forum provisions either without shareholder approval or pursuant to a bundled bylaw or charter amendment (where exclusive forum is coupled with other changes). If a company adopts an exclusive forum provision before a company's IPO, Glass Lewis will recommend against the chairman of the governance committee or the board chairman if there is not a governance committee chairman.

Talk to Us Now. Glass Lewis reiterated that they do not engage with companies during the proxy season, long a frustrating policy for companies after they receive negative Glass Lewis reports, but they are available for discussions during the off-season. At times during the proxy season, they will sponsor "proxy talks" involving a specific company and invited clients.

Contact Ning Chiu.

Six Proxy Access Proposals Filed by Institutional Investor

Tue, 06 Dec 2011 18:22:00 GMT

In what would appear to be the first filing of proxy access proposals by an institutional investor, Norges Bank Investment Management (NBIM), manager of the Norwegian Government Pension Fund, has recently filed proxy access shareholder proposals at six U.S. companies. The Norwegian Government Pension Fund held approximately $98 billion in U.S. equities and $63 billion in U.S. bonds as of the end of November.

According to its press release, NBIM filed shareholder proposals at Wells Fargo, Charles Schwab, Western Union, Staples, Pioneer Natural Resources and CME Group, asking each of the companies to establish procedures for shareholders to nominate candidates to the company’s boards of directors. The NBIM proposal would require that shareholders own a minimum of 1% of the company’s stock for at least one year in order to nominate directors. Under the proposal, up to 25 percent of the board may be nominated by shareholders. These proposals provide a lower threshold of stock ownership required for nomination than that of the SEC’s vacated Rule 14a-11, which required ownership of 3% of a company’s shares for a period of three years in order to nominate a director.

All but one of the companies targeted by NBIM has seen a drop in its stock price over the last year. In its press release, a spokesperson for NBIM said that it “will continue to identify companies with unsatisfactory performance.” According to an article in the Wall Street Journal today, NBIM selected the six targeted companies after a review more than 2000 of the fund’s U.S. holdings. A spokesperson also said in the article that NBIM is “not planning [on nominating directors] now; we would much rather have a good dialogue with the board.”

Contact Richard Sandler. Contact Elizabeth Weinstein.

Register for ISS Webinar on Its New Proxy Voting Updates

Thu, 01 Dec 2011 14:17:00 GMT

ISS has asked that we encourage interested parties to register for its free webinar to discuss its new proxy voting guidelines, which we recently summarized in a client publication. The session focused on U.S. policies will take place on Wednesday, December 7, at 11:00 a.m. EST and will feature Martha Carter, Head of Governance Research; Carol Bowie, Head of U.S. Compensation Research; and Pat McGurn, Special Counsel.

Having been on panels with Carol and Pat, both frequent speakers about ISS, it is always helpful to hear them discuss ISS' recent experiences and the background and application of ISS guidelines. They may explain and further elaborate on some of the seeming complexities of the new pay for performance criteria that will be used to evaluate say-on-pay in 2012, and may provide indications of their upcoming guidance to be issued on the topic, likely in mid-December. They may also give a sense of the latest status of proxy access proposals. While many are critical of it, no one disputes the reality of ISS' influence on proxy voting, so this is a welcome opportunity for education as a key step toward being prepared.

A separate discussion of the European policies will take place a day earlier, and you can find registration for that session on the same site as noted above.

Contact Ning Chiu.

SEC Staff Permits Exclusion of Audit Firm Rotation Shareholder Proposals

Mon, 28 Nov 2011 14:08:00 GMT

In what may be the first major decision this proxy season on shareholder proposals, the SEC staff has granted no-action letters to two companies, Hewlett-Packard Company and Deere & Company, that had sought to exclude proposals submitted by the United Brotherhood of Carpenters Pension Funds. The proposals had requested that the boards and audits committees establish policies that require the respective audit firms, at least every seven years, to rotate off the engagement for a minimum of three years.

While there is a line of precedents indicating that the SEC staff traditionally viewed the selection and engagement of auditors as part of a company's ordinary business as understood under Rule 14a-8, and not a subject suitable for being voted on by shareholders, recent actions by the PCAOB raised at least the possibility that audit firm rotation could be considered a "significant policy issue" as a subject of widespread public debate. In August, the PCAOB issued a concept release to solicit comments on ways to enhance auditor independence, objectivity and professional skepticism. A cornerstone of the release is the idea of mandatory rotation of audit firms, which would limit the number of consecutive years for which a firm could serve as auditor. The Release highlighted concerns, from more than 2,800 engagements in eight years of inspections of the largest audit firms, of audit failures that could be attributable to a failure to exercise objectivity, and speculates that mandatory audit rotation could help overcome the basic conflict of auditors attempting to develop engagements into long-term relationships with management. Comments are due on the PCAOB release on December 14, 2011. The European Commission is considering similar issues and may shortly propose legislation.

Carpenters specifically cited the PCAOB release in making its arguments to the SEC staff, but failed to persuade the staff. In its decision, the SEC staff noted, in a bit of awkward phrasing, that "proposals concerning the selection of independent auditors, or more generally, management of the auditor's engagement, are generally excludable under rule 14a-8(i)(7)". The two uses of "generally" in this brief statement suggests that the staff is likely watching this topic, and related proposals, closely.

Contact Ning Chiu.

ISS Revisits Policy on Exclusive Forum Provisions

Mon, 21 Nov 2011 11:51:00 GMT

Exclusive forum provisions in charters and bylaws, under which derivative suits and other shareholder litigation must be brought in the courts of the company's state of incorporation, drew some attention during the 2011 proxy season. My recent piece summarizing the state of the law and the practice on this subject is here. No consensus on this topic has yet emerged among institutional investors, and the 2011 votes were close and had mixed results.

ISS's position on these provisions in the 2011 season ignored the merits of exclusive forum requirements and instead looked to a set of largely unrelated governance "best practices":

annual election of directors
majority voting for directors in uncontested elections
10% shareholders having the right to call special meetings
the absence of a poison pill unless approved by shareholders

Only companies that had adopted all four of these practices would receive an ISS recommendation in support of an exclusive forum provision.

ISS has revisited this policy in connection with its overall policy review for the 2012 season and, as often seems to be the case with ISS, has taken a step or two forward and a step back. Instead of the checklist approach used in 2011, ISS says that this issue will now receive "case-by-case" analysis, taking into consideration most of the same factors that were in the checklist. The weighting of these factors is unclear.

A step forward is the deletion of the 10% shareholder special meeting requirement from the list of best practices. ISS acknowledges that "this governance feature is less relevant to exclusive venue than it is to other proposals". (The same could of course be said about the other items on the list, but never mind.)

The step backward is the addition of a new factor that ISS says it will consider: "[w]hether the company has been materially harmed by shareholder litigation outside its jurisdiction of incorporation, based on disclosure in the company's proxy statement." It's hard to make sense of this one, since exclusive forum provisions are by their nature prophylactic and not retrospective. If avoidance of potentially duplicative litigation is a legitimate goal, it hardly becomes less legitimate if the company has not yet been a victim of the practice. This would be akin to saying that you shouldn't buy fire insurance unless your house has burned down at least once in the past.

The new guidelines make ISS's position on any particular company's proposal less predictable than before, and to that extent further complicate the decision tree for companies considering whether to adopt an exclusive forum provision and, if so, whether to submit it for shareholder approval. We may need to see another proxy season's results before this becomes more clear.

Contact Bill Kelly.

First Two Proxy Access Proposals Arrive

Fri, 18 Nov 2011 14:50:00 GMT

Last week, the U.S. Proxy Exchange, an organization supporting retail shareholder activists, released its Model Proxy Access Proposal. According to an ISS blog, two proxy access proposals which closely resemble the U.S. Proxy Exchange’s model proposal were filed by retail shareholder activist Ken Steiner at MEMC Electronic Materials, Inc. and Textron Inc. on November 11th and November 15th, respectively. The model proposal provides a lower threshold of stock ownership for shareholder nomination of directors than that contemplated by the SEC’s vacated Rule 14a-11, which required ownership of 3% of a company’s outstanding shares in order to nominate a director. The model proposal recommends that the company’s proxy include nominees of: “any party of one or more shareholders that held continuously, for two years, 1% of the Company’s securities eligible to vote for the election of directors” or any party of 100 or more shareholders that satisfy SEC rule’s 14a-8(b) eligibility requirements ($2000, or 1% of company’s securities eligible to vote, continuously held for at least 1 year). In addition, the model proposal provides that any one party may make one nomination to the board or, if greater, a number of nominations equal to 12% of the current board members. In its comments to the proposal, U.S. Proxy Exchange noted that the 12% provision is intended to dissuade boards from growing beyond 16 members in response to proxy access provisions.

These targeted companies are not obvious choices to receive shareholder access proposals. MEMC Electronic Materials and Textron both received relatively strong support in their 2011 say-on-pay votes: 81% and 82%, respectively. In addition, both companies’ GRId profiles are low concern on board and medium concern on both compensation and shareholder rights. Nonetheless, both proposals do focus on executive compensation. The MEMC Electronic Materials proposal states that the company’s CEO was awarded “options worth over $14 million in 2009 without performance-contingent criteria” and the “CEO’s 2011 annual awards will be 20%-based on a subjective analysis of personal metrics.” In addition, MEMC Electronic Materials has seen a 63% drop in its stock price over the last 52-week period. The Textron shareholder proposal notes that “[e]xecutive compensation is a particular concern” and refers to a “potential $39 million payout to our CEO.” Textron’s shares had declined 11.8% over the previous 52-week period.

One wonders whether these proposals will prove beneficial to the proponents of proxy access. We would expect that even if these proposals survive no-action challenges by the company, they will most likely fail to obtain shareholder approval and may set a precedent that shareholders are not in favor of proxy access. In addition, any proxy access proposal submitted first by a retail shareholder could be used by a company as a basis for exclusion of a proposal received later from an activist institution.

The head of the U.S Proxy Exchange has indicated that their members plan to file at least four more proposals. The filing of two shareholder proposals right on the heels of the U.S. Proxy Exchange’s Model Proxy Access Proposal, combined with the fact that a number of companies have proxy filing deadlines in December, may indicate that there will be more proxy access proposals than initially expected this season.

Contact Richard Sandler. Contact Elizabeth Weinstein.