Archive for the ‘Corporate Elections & Voting’ Category

The State of Corporate Governance for 2015

Editor’s Note: Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update.

The balance of power between shareholders and boards of directors is central to the U.S. public corporation’s success as an engine of economic growth, job creation and innovation. Yet that balance is under significant and increasing strain. In 2015, we expect to see continued growth in shareholder activism and engagement, as well as in the influence of shareholder initiatives, including advisory proposals and votes. Time will tell whether, over the long term, tipping the balance to greater shareholder influence will prove beneficial for corporations, their shareholders and our economy at large. In the near term, there is reason to question whether increased shareholder influence on matters that the law has traditionally apportioned to the board is at the expense of other values that are key to the sustainability of healthy corporations. These concerns underlie the issues that will define the state of governance in 2015 and likely beyond:

…continue reading: The State of Corporate Governance for 2015

Responding to Corporate Political Disclosure Initiatives

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday January 30, 2015 at 9:00 am
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Editor’s Note: The following post comes to us from Robert K. Kelner, partner in the Election and Political Law Practice Group at Covington & Burling LLP, and is based on a Covington Alert. Recent work from the Program on Corporate Governance about political spending includes: Shining Light on Corporate Political Spending by Lucian Bebchuk and Robert J. Jackson, Jr. (discussed on the Forum here). Posts related to the SEC rulemaking petition on disclosure of political spending are available here.

Despite recent setbacks, efforts by activist groups to pressure companies to disclose details of their political activities are not going away. As these groups become increasingly sophisticated, 2015 looks to be their most active year to date. In fact, for the first time ever, the Center for Political Accountability plans to issue a report this year ranking the political spending disclosure practices of all 500 companies in the S&P 500 Index. This post highlights recent developments regarding corporate political spending disclosure efforts, looks ahead to what public companies can expect in the near future, and provides strategies and tips for those grappling with disclosure issues.

…continue reading: Responding to Corporate Political Disclosure Initiatives

Understanding Director Elections

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday January 29, 2015 at 9:00 am
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Editor’s Note: The following post comes to us from Yonca Ertimur of the Accounting Division at the University of Colorado at Boulder; Fabrizio Ferri of the Accounting Division at Columbia University; and David Oesch of the Department of Financial Accounting at the University of Zurich.

In the paper Understanding Director Elections: Determinants and Consequences, which was recently made publicly available on SSRN, we provide an in-depth examination of uncontested director elections. Using a hand-collected and comprehensive sample for director elections held at S&P 500 firms over the 2003–2010 period, we examine the factors driving shareholder votes in uncontested director elections, the effect of these votes on firms’ actions and the impact of these actions on firm value. We make three contributions.

First, it is well known that recommendations by the proxy advisory firm Institutional Shareholder Services (ISS) play a key role in determining the voting outcome. Yet, the question of what factors drive ISS recommendations and, thus, shareholder votes in uncontested director elections remains largely unanswered. To fill this gap, we use the reports ISS releases to its clients ahead of the annual meeting and identify the specific reasons underlying negative ISS recommendations. We find that 38.1% of the negative recommendations target individual directors (reflecting concerns with independence, meeting attendance and number of directorships), 28.6% target an entire committee (usually the compensation committee), and the remaining 33.3% target the entire board (mostly for lack of responsiveness to shareholder proposals receiving a majority vote in the past). A withhold recommendation by ISS is associated with about 20% more votes withheld, in line with prior research. More relevant to our study, there is substantial variation in votes withheld from directors conditional on the underlying reason. A board-level ISS withhold recommendation is associated with 25.48% more votes withheld, versus 19.73% and 16.44%, respectively, for committee- and individual-level withhold recommendations. The sensitivity of shareholder votes to ISS withhold recommendations is higher when there are multiple reasons underlying the withhold recommendation for the director (a proxy for more severe concerns) and at firms with poorer governance structures. These results suggest that shareholders do not blindly follow ISS recommendations but seem to take into account their rationale, their severity and other contextual factors (e.g. governance of the firm). However, cases of high votes withheld without a negative proxy advisor recommendation are rare, suggesting that voting shareholders only focus on the issues singled out by proxy advisors, potentially at the expense of other value-relevant factors (e.g. directors’ skill set, expertise and experience) for which proxy advisors have not (yet) developed voting guidelines (perhaps due to lack of sophistication or the inherent complexity of the issue).

…continue reading: Understanding Director Elections

ISS 2015 Independent Chair Policy FAQs

Posted by Carol Bowie, Institutional Shareholder Services Inc., on Monday January 26, 2015 at 9:16 am
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Editor’s Note: Carol Bowie is Head of Americas Research at Institutional Shareholder Services Inc. (ISS). This post relates to ISS independent chair voting policy guidelines for 2015.

1. How does the new approach differ from the previous approach?

Under the previous approach, ISS generally recommended for independent chair shareholder proposals unless the company satisfied all the criteria listed in the policy. Under the new approach, any single factor that may have previously resulted in a “For” or “Against” recommendation may be mitigated by other positive or negative aspects, respectively. Thus, a holistic review of all of the factors related to company’s board leadership structure, governance practices, and performance will be conducted under the new approach.

For example, under ISS’ previous approach, if the lead director of the company did not meet each one of the duties listed under the policy, ISS would have recommended For, regardless of the company’s board independence, performance, or otherwise good governance practices.

Under the new approach, in the example listed above, the company’s performance and other governance factors could mitigate concerns about the less-than-robust lead director role. Conversely, a robust lead director role may not mitigate concerns raised by other factors.

…continue reading: ISS 2015 Independent Chair Policy FAQs

What Sitting Commissioners Should and Shouldn’t Do

Posted by Tamar Frankel, Boston University School of Law, on Tuesday January 20, 2015 at 8:38 am
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Editor’s Note: Tamar Frankel is a Professor of Law at Boston University School of Law. This post relates to a paper by Commissioner Daniel Gallagher and Professor Joseph Grundfest, described on the Forum here. An earlier post about this paper by Professor Tamar Frankel, titled Did Commissioner Gallagher Violate SEC Rules?, is available on the Forum here. The Forum also featured last week (here) a joint statement by thirty-four senior corporate and securities law professors from seventeen leading law schools—including at Boston University, Chicago, Columbia, Cornell, Duke, George Washington, Georgetown, Harvard, Michigan, New York University, Northwestern, Stanford, Texas, UCLA, Vanderbilt, Virginia and Yale—opining that the paper’s allegations against Harvard and the SRP are meritless and urging the paper’s co-authors to withdraw these allegations. In addition, the Forum published earlier posts about the paper by Professor Grundfest (most recently here) and by Professor Jonathan Macey (most recently here), and replies by Professor Richard Painter and Harvey Pitt (available here and here) to Professor Frankel’s first post.

In an earlier post (available here), I expressed concerns about Commissioner Gallagher’s decision to issue (jointly with Professor Joseph Grundfest) a paper accusing Harvard University and the Shareholder Rights Project (SRP) of violating securities laws when they assisted investors submitting declassification proposals. Subsequently, a group of thirty-four senior corporate and securities law professors (including myself) issued a joint statement (available on the Forum here). In addition to opining that the allegations in the paper were meritless, the joint statement expressed concerns that a sitting SEC Commissioner has chosen to issue such allegations. However, others have taken the view that sitting Commissioners should be as free as other individuals to express opinions that specific individuals or organizations violated the law. I beg to differ, for the following reasons.

Sitting Commissioners may, and should be encouraged, to publicly discuss policy problems and issues. However, they should avoid publishing accusations against specific individuals or organizations, except as part of the SEC process. Publishing such accusations should not be an acceptable behavior by a sitting SEC Commissioners. That is even though during their tenure, SEC Commissioners are likely to disagree with others about potential legal accusations against specific parties.

So what is wrong with a publication of a Commissioner’s views about possible actions against Harvard University? Most persons could do the same with impunity. The answer is that the Commissioner is bestowed with power to participate in a decision to bring a suit by the SEC. None of us has this power. Yet, the Commissioner’s power is not granted for his own use. The power to participate in these decisions is bestowed on the Commissioner as a fiduciary for the purpose of serving this country and only pursuant to the processes of the Agency.

I hope that this Commissioner and future Commissioners will distinguish between expressing a policy opinion and issuing accusations of legal violations against specific parties. I hope that the discussions and disagreement on this issue will guide future Commissioners’ speeches: Please speak your mind. But do not give any whiff of accusations against specific parties except by following carefully and fully the Commission’s process. Thus, regardless of scholarly and legal arguments, and regardless of the motivation of the Commissioner’s actions, his inappropriate statements are at issue, and I am very sorry he made them.

If A SEC Commissioner Thinks Someone Is Violating the Securities Laws, He Should Say So

Posted by Richard W. Painter, University of Minnesota Law School, on Monday January 19, 2015 at 11:08 am
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Editor’s Note: Richard W. Painter is the S. Walter Richey Professor of Corporate Law at the University of Minnesota. This post is a reply to a post by Professor Tamar Frankel, titled Did Commissioner Gallagher Violate SEC Rules?, and available on the Forum here. This post and the post by Professor Frankel relate to a paper by Commissioner Daniel Gallagher and Professor Joseph A. Grundfest, described on the Forum here. The Forum featured last week (here) a joint statement by thirty-four senior corporate and securities law professors from seventeen leading law schools, including at Boston University, Chicago, Columbia, Cornell, Duke, George Washington, Georgetown, Harvard, Michigan, New York University, Northwestern, Stanford, Texas, UCLA, Vanderbilt, Virginia and Yale, opining that the paper’s allegations against Harvard and the SRP are meritless and urging the paper’s co-authors to withdraw these allegations. In addition to this joint statement, the Forum featured earlier posts about the paper by Professor Grundfest (most recently here), Professor Jonathan Macey (most recently here), Professor Tamar Frankel (here) and Harvey Pitt (here).

Although I have concerns about the impact of declassified corporate boards (boards that can be replaced by shareholders in a single election cycle) on corporate ethics, I will not weigh in on the substance of that controversy here. The more immediate question is whether a SEC Commissioner, in this case Daniel M. Gallagher, if he believes the federal securities laws are repeatedly being violated in connection with proposals submitted for a shareholder vote on this or any other issue, in this case by investors working with the Harvard Shareholder Rights Project, may and indeed should make a public statement to that effect, or whether the Commissioner is ethically required to remain silent, refer his concerns to the Enforcement Division of the Commission and wait for the official process to run its course. (See New York Times article.)

I am aware of no ethics rule that requires a SEC Commissioner to conceal his thoughts on such matters, and I know of many reasons why those charged with enforcing our laws should be free to speak their mind about private conduct they believe violates the law so long as their interpretation of the law is reasonable. For the police officer, it might be a speech to high school students or a similar venue. For the SEC Commissioner it might be a bar association speech or a publication. Those charged with enforcing the law have a right—and in some contexts an obligation—to tell the public what they believe the law requires.

This controversy arose because of a law review article (discussed on the Forum here) in which Gallagher and former SEC Commissioner Joseph Grundfest argued that over 100 proposals submitted by investors working with Harvard’s Shareholder Rights Project violated federal securities laws because they presented a misleading characterization of academic research on the impact of classified boards on corporate governance.

Some commentators have responded to this allegation on the merits, arguing that the proposals submitted by investors working with Harvard’s Shareholder Rights Project are not materially misleading in their characterization or research on classified boards or in any other way.

…continue reading: If A SEC Commissioner Thinks Someone Is Violating the Securities Laws, He Should Say So

On Ethics, Rhetoric and Civility: A Response to Professor Frankel

Editor’s Note: Harvey L. Pitt is Chief Executive Officer and Managing Director at Kalorama Partners, LLC and former Chairman of the U. S. Securities and Exchange Commission. This post is a reply to a post by Professor Tamar Frankel, titled Did Commissioner Gallagher Violate SEC Rules?, and available on the Forum here. This post and the post by Professor Frankel relate to a paper by Commissioner Daniel Gallagher and Professor Joseph A. Grundfest, described on the Forum here. The Forum featured last week (here) a joint statement by thirty-four senior corporate and securities law professors from seventeen leading law schools, including at Boston University, Chicago, Columbia, Cornell, Duke, George Washington, Georgetown, Harvard, Michigan, New York University, Northwestern, Stanford, Texas, UCLA, Vanderbilt, Virginia and Yale, opining that the paper’s allegations against Harvard and the SRP are meritless and urging the paper’s co-authors to withdraw these allegations. The Forum also published earlier posts about the paper by Professor Grundfest (most recently here) and by Professor Jonathan Macey (most recently here).

One of the many positive attributes of the Harvard Law School Forum on Corporate Governance and Financial Regulation (“Forum”) is that it is democratic. It accepts and posts submissions on its website reflecting a valuable diversity of opinion, philosophy and perspective. Nowhere is this better borne out than in the ongoing back-and-forth discussion regarding a recent, substantively valuable, paper (here) co-authored by SEC Commissioner Dan Gallagher and Stanford Law Professor (and former SEC Commissioner) Joseph Grundfest (summarized on the Forum here). The Paper was critiqued with valuable substantive observations by Professor Jonathan Macey (here, here, and here), some of which were, in turn, responded to by Professor Grundfest (here and here). I foolishly entered this debate on the Forum, acknowledging the valuable insights Professors Grundfest and Macey both were offering, recommending that their continuing debate, and any other contributors to it, focus on the important substance of the Gallagher/Grundfest Paper (here). I had hoped thereby that we all might be spared from certain forms of future commentary (especially of a personal nature) that strayed from the Paper’s and Professor Macey’s scholarly substantive analysis.

In my Forum post, I confirmed the correctness of the Gallagher/Grundfest Paper’s unassailable core observation—irrespective of whether any particular proposal (or the proponent of that proposal) espousing the elimination of staggered boards in fact violated the SEC’s proxy fraud rules—those antifraud rules, by their terms, undoubtedly apply to proponents of shareholder proposals as well as to public companies’ proxy solicitation materials. In submitting my post, I suppose I anticipated that—no matter how balanced a presentation I might endeavor to offer—if emotion were to become a substitute for analysis—I might soon be swept up in any subsequent cross-fire. What I did not expect, however, was that a new voice—belonging to Boston University School of Law’s Professor Tamar Frankel, one of the Country’s pre-eminent legal experts on the application of the federal securities laws to mutual funds and other investment companies (as well as those who advise and manage collective portfolios), would enter the fray, and question the accuracy of my response to a newspaper reporter about prior precedent for a sitting SEC Commissioner to express his views on whether current/recent activities might violate of the law (here).

…continue reading: On Ethics, Rhetoric and Civility: A Response to Professor Frankel

ISS Releases 2015 Benchmark Policy Updates

Posted by Carol Bowie, Institutional Shareholder Services Inc., on Friday January 16, 2015 at 1:01 pm
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Editor’s Note: Carol Bowie is Head of Americas Research at Institutional Shareholder Services Inc. (ISS). This post relates to ISS global benchmark voting policy guidelines for 2015.

ISS recently issued updated guidelines for several of its benchmark global voting policies, which will be effective for analyses of publicly traded companies with shareholder meetings on or after Feb. 1, 2015. For the 10th year running, ISS gathered broad input from institutional investors, corporate issuers, and other market constituents worldwide as a key part of its policy development process. The 2015 updates reflect the time and effort of hundreds of investors, issuers, corporate directors, and other market participants who provided input through a variety of channels, including ISS’ annual policy survey, topical and regional roundtables, and direct engagements with staff.

…continue reading: ISS Releases 2015 Benchmark Policy Updates

Statement of Thirty-Four Senior Corporate and Securities Law Professors Urging Commissioner Gallagher and Professor Grundfest to Withdraw Their Allegations against Harvard and the SRP

Posted by Thirty-Four Senior Corporate and Securities Law Professors, on Thursday January 15, 2015 at 8:30 am
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Editor’s Note: This post is a joint statement by thirty-four senior corporate and securities law professors, listed in the statement, from seventeen leading law schools at Boston University, Chicago, Columbia, Cornell, Duke, George Washington, Georgetown, Harvard, Michigan, New York University, Northwestern, Stanford, Texas, UCLA, Vanderbilt, Virginia and Yale. Reacting to a recent paper by Commissioner Daniel Gallagher and Professor Joseph Grundfest (described on the Forum here), the thirty-four senior law professors listed in this statement opine that the paper’s allegations against Harvard and the Shareholder Rights Project (SRP) are meritless and urge the paper’s co-authors to withdraw these allegations. The Forum featured earlier posts about the paper by Professor Grundfest (most recently here), Professor Jonathan Macey (most recently here), Professor Tamar Frankel (here) and Harvey Pitt (here).

We are thirty-four senior professors from seventeen leading law schools whose teaching and research focus on corporate and securities law. We write to respectfully urge SEC Commissioner Daniel M. Gallagher, and his co-author Professor Joseph Grundfest, to withdraw the allegations, issued in a paper released last month (described on the Forum here), that Harvard and the Shareholder Rights Project (SRP), a clinic at its law school, violated the securities laws by assisting institutional investors in submitting shareholder proposals to declassify corporate boards.

We conduct our teaching and research at seventeen different law schools throughout the United States, including at Boston University, Chicago, Columbia, Cornell, Duke, George Washington, Georgetown, Harvard, Michigan, New York University, Northwestern, Stanford, Texas, UCLA, Vanderbilt, Virginia and Yale. We write in our individual capacities; our institutional affiliations are noted below for identification purposes only.

Members of our bipartisan group differ widely in our views on corporate law issues, including on the appropriate use of staggered boards and shareholder proposals. However, we all agree that Commissioner Gallagher and Professor Grundfest should withdraw their accusations.

First, the authors’ allegations are meritless. The Gallagher/Grundfest paper accuses Harvard and the SRP of violating federal securities law by assisting investors with shareholder proposals that did not include sufficient references to certain academic studies. These accusations are deeply flawed. (For a detailed analysis of flaws in the paper, see the posts by Professor Jonathan Macey available here, here, and here). For example, the proposals were consistent with the SEC’s long-standing policy on shareholder proposals; none of the more than one hundred public companies receiving proposals, many represented by the country’s premier law firms, raised any of the claims put forward by the authors; and there is no precedent for an enforcement action or private suit against shareholder proponents, let alone those assisting them, of the type that the paper urged against Harvard and the SRP. Members of our group do not all share the same view on each of these and the other flaws in the authors’ analysis. However, we all agree that the allegations of securities law violations in the Gallagher/Grundfest paper are meritless.

Furthermore, while it is always regrettable when meritless allegations are raised by any author, we are especially concerned that a sitting SEC Commissioner has chosen to issue such allegations without support from a prior investigation by the SEC staff and without due process of law. While the Commissioner has indicated his interest in changing the SEC’s long-held policy in this area, meritless accusations against private parties should not be part of an effort to bring about such a change. We worry that Commissioner Gallagher’s decision to level meritless allegations against specific private parties will have adverse consequences for the important work that the SEC must do.

We wish to stress our support for a vigorous policy debate about the appropriate role of staggered boards and shareholder proposals in corporate and securities law—subjects on which there is substantial diversity of views among us—and we welcome Commissioner Gallagher and Professor Grundfest as valuable participants in such a discussion. The baseless accusations issued against Harvard and the SRP should not, however, be part of this debate. We respectfully urge Commissioner Gallagher and Professor Grundfest to withdraw these accusations.

Jennifer H. Arlen
Norma Z. Paige Professor of Law
New York University School of Law
Jeffrey N. Gordon
Richard Paul Richman Professor of Law
Columbia Law School
Michal Barzuza
Professor of Law
The University of Virginia School of Law
Robert J. Jackson, Jr.
Professor of Law and Milton Handler Fellow
Columbia Law School
Jeffrey D. Bauman
Professor of Law
Georgetown University Law Center
Marcel Kahan
George T. Lowy Professor of Law
New York University School of Law
Laura Nyantung Beny
Professor of Law
University of Michigan Law School
Vikramaditya S. Khanna
William W. Cook Professor of Law
University of Michigan Law School
Lisa Bernstein
Wilson-Dickinson Professor of Law
The University of Chicago Law School
Michael Klausner
Nancy and Charles Munger Professor of Business and Professor of Law
Stanford Law School
Stephen Choi
Murray and Kathleen Bring Professor of Law
New York University School of Law
Reinier H. Kraakman
Ezra Ripley Thayer Professor of Law
Harvard Law School
Robert C. Clark
Harvard University Distinguished
Service Professor and Austin Wakeman Scott Professor of Law
Harvard Law School
Kimberly D. Krawiec
Kathrine Robinson Everett Professor of Law
Duke Law School
John C. Coates IV
John F. Cogan, Jr. Professor of
Law and Economics
Harvard Law School
Donald Langevoort
Thomas Aquinas Reynolds Professor of Law
Georgetown University Law Center
John C. Coffee, Jr.
Adolf A. Berle Professor of Law
Columbia Law School
Katherine Litvak
Professor of Law
Northwestern University School of Law
James D. Cox
Brainerd Currie Professor of Law
Duke Law School
Jonathan R. Macey
Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law
Yale Law School
Lawrence A. Cunningham
Henry St. George Tucker III Research Professor of Law
The George Washington University Law School
James Park
Professor of Law
UCLA Law School
Deborah A. DeMott
David F. Cavers Professor of Law
Duke Law School
J. Mark Ramseyer
Mitsubishi Professor of Japanese Legal Studies
Harvard Law School
Allen Ferrell
Harvey Greenfield Professor of Securities Law
Harvard Law School
Mark J. Roe
David Berg Professor of Law
Harvard Law School
Tamar Frankel
Professor of Law
Boston University School of Law
James C. Spindler
Sylvan Lang Professor of Law
University of Texas School of Law
Jesse M. Fried
Dane Professor of Law
Harvard Law School
Randall S. Thomas
John S. Beasley II Professor of
Law and Business
Vanderbilt Law School
Mira Ganor
Professor of Law
University of Texas School of Law
Frederick Tung
Professor of Law
Boston University School of Law
Ronald J. Gilson
Charles J. Meyers Professor of
Law and Business
Stanford Law School
Marc and Eva Stern Professor of
Law and Business
Columbia University School of Law
Charles K. Whitehead
Myron C. Taylor Alumni Professor of Business Law
Cornell University Law School

Appeal of No-Action on Proxy Access at Whole Foods Markets

Editor’s Note: James McRitchie is the publisher of CorpGov.net.

Shareholders have been engaged in a long struggle to obtain proxy access—the idea that shareowners should be allowed to place their own board nominations on the proxies distributed by management, much as we are allowed to place our own proposals on those proxies. Shareholders should not accept the most recent roadblock, a reactive substitute proposal, by the management of Whole Foods Market (Whole Foods) and acquiescence in the form of a no-action letter from the Securities and Exchange Commission (SEC).

The idea of proxy access certainly is not new. In 1980 Unicare Services included a proposal to allow any three shareowners to nominate and place candidates on the proxy. Shareowners at Mobil proposed a “reasonable number,” while those at Union Oil proposed a threshold of “500 or more shareholders” to place nominees on corporate proxies. The California Public Employees’ Retirement System (CalPERS) submitted a proposal in 1988 but withdrew it when Texaco agreed to include their nominee.

…continue reading: Appeal of No-Action on Proxy Access at Whole Foods Markets

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