Last July, we co-chaired a committee of ten corporate and securities law experts that submitted a rulemaking petition to the Securities and Exchange Commission urging the Commission to develop rules to require public companies to disclose their political spending. As of today, the petition has attracted massive support from a record number of comments filed with the SEC.

Altogether, as is indicated on the SEC’s webpage for comments filed on the petition, the SEC has received more than a quarter of million comments on the petition. An analysis of the comment file indicates that all except eight were supportive of the petition.

Of the filed comments, 259,801 came from individuals who expressed their views through one of six common types of letters received by the Commission. The submission of comments by such a large number of individuals was partly due to the work of the Corporate Reform Coalition, a group that includes institutional investors and public officials. While the 259,801 comments used standard form letters, each of them was separately submitted by one or more individuals who presumably were interested enough in the subject to file a comment with the SEC.

In addition to the 259,801 comments using form letters, the SEC received 487 “unique” comments on the petition. Of these comments, 5 came from institutional investors; 7 were submitted by government officials; 12 were submitted by researchers and nonprofits; 3 were submitted by other organizations such as religious groups; and 460 comments came from individuals who did not indicate an affiliation. Within this group of 487 unique comments, all but eight comments expressed support for the petition.

Notably, the commentary by institutional investors has been unanimously supportive of the petition, with comments coming from prominent investors responsible for significant amounts of shareholder money. These letters included supportive comments from John Bogle, the former chief executive and senior chairman of The Vanguard Group, as well as a letter from a group of mutual fund and institutional asset managers with more than $690 billion under management.

The commentary from government officials was also unanimously in support of the petition. These supportive comments included one from a group of state government officials including the State Treasurers of North Carolina, Pennsylvania, and California and from a group of 43 members of the U.S. House of Representatives.

To the best of our knowledge, the petition has drawn considerably more commentary than any other rulemaking petition in the SEC’s history. To illustrate, over the last three years, the Commission has received some 35 rulemaking petitions, and these petitions received on average 71 comments.

Indeed, the rulemaking petition on corporate political spending has attracted more commentary than even prominent rulemaking initiatives proposed by the SEC itself. For example, the SEC’s proposed proxy access rule, which was the subject of much attention and public debate, received approximately 600 comments.

The overwhelming support reflected in the comment file is consistent with the support expressed for the petition outside the file. Both Bloomberg News and The New York Times have published editorials in support of the petition. Furthermore, 15 members of the U.S. Senate have called on the SEC to develop disclosure rules of the kind proposed in the petition.

In a speech in February of this year, Commissioner Aguilar expressed support for the petition, indicating that the SEC should act soon to provide for disclosure of corporate spending on politics. At the same conference, Chairman Mary Schapiro told reporters that the Commission will address the petition “at some point.”

We hope that the analysis provided in the petition, coupled with the unprecedented support the petition has received over the last nine months, will lead the SEC to initiate a rulemaking process that would produce rules requiring public companies to disclose to shareholders the use of corporate resources on politics.

Already at this stage of the current proxy season, seventeen charter amendments declassifying boards of S&P 500 companies have been adopted following agreements entered into with investors represented by the Shareholder Rights Project (SRP). Details about these early results, as well as about the large number of agreed-upon management proposals to declassify expected to go to a vote at other S&P 500 companies later on, are provided below.

As described on the SRP’s website, during the 2011-12 proxy season, the SRP has been representing and advising several institutional investors – Illinois State Board of Investment (ISBI), the Los Angeles County Employees Retirement Association (LACERA), the Nathan Cummings Foundation (NCF), the North Carolina State Treasurer (NCDST), and the Ohio Public Employees Retirement System (OPERS) – in connection with the submission of precatory shareholder proposals to more than eighty S&P 500 companies that have classified boards. The proposals urge repealing the classified board and moving to annual elections, which are widely viewed as corporate governance best practice.

Through active engagement with companies receiving declassification proposals, negotiated outcomes have been obtained with forty-four S&P 500 companies receiving proposals from the SRP-represented investors (about half of the companies receiving such proposals). These forty-four companies have entered into agreements committing them to bring management proposals to declassify their boards. Overall, the forty-four companies that have entered into such agreements represent about one-third of the S&P 500 companies that had staggered boards as of the beginning of this proxy season, and have an aggregate market capitalization that exceeds (as of April 1, 2012) half a trillion dollars.

Of the forty-four agreed-upon management proposals, twenty-three management proposals have already gone to a shareholder vote. Of these twenty-three proposals, seventeen have passed, resulting in declassification of the board. The table below provides information concerning the agreed-upon management proposals that passed. As the table indicates, these proposals obtained average support of 99.08% of votes cast and 81.01% of votes outstanding.

The six management proposals to declassify that did not pass (detailed here) did receive a majority of the votes (95.51% of the votes cast on average, and 67.22% of the votes outstanding on average). However, the proposals did not pass due to the presence of high supermajority requirements.

Agreed-upon management proposals to declassify are expected to go to a vote at other S&P 500 companies later on. A list of such companies that have already made public filings that disclose the planned management proposals is available here.

The Harvard Law School Program on Corporate Governance hosted a meeting of the M&A roundtable last Thursday, May 10. The M&A Roundtable, which is supported by the Corporation Service Company, brought together many of the country’s leading M&A experts and practitioners. Participants in the Roundtable engaged in a discussion with Chancellor Leo Strine of the Delaware Court of Chancery (who is also a Senior Fellow of the Program on Corporate Governance) on the state of Delaware corporate law.

Among the issues discussed were confidentiality provisions and their effect on mergers and acquisitions in light of the decision in Martin Marietta Materials v. Vulcan Materials; dual-class share structures and director accountability; go-shop provisions and deal protection devices; process issues in approving mergers and appropriate remedies; the use of poison pills following Airgas v. Air Products; and trends in shareholder litigation, including multiple forum issues and the fragmentation of shareholder litigation. The participants in the M&A Roundtable included:

…continue reading: Harvard M&A Roundtable Meets to Discuss the State of Delaware Corporate Law

Although the current proxy season is still in its early stages, shareholders of twelve S&P 500 companies have already approved precatory declassification proposals that investors represented by the Harvard Law School Shareholder Rights Project (SRP) submitted. These early results, as well as the large number of such proposals expected to go to a vote at other S&P 500 companies, are described further below.

As described in detail on the SRP’s website, during the 2011-12 proxy season, the SRP has been representing and advising several institutional investors – Illinois State Board of Investment (ISBI), the Los Angeles County Employees Retirement Association (LACERA), the Nathan Cummings Foundation (NCF), the North Carolina State Treasurer (NCDST), and the Ohio Public Employees Retirement System (OPERS) – in connection with the submission of precatory shareholder proposals to more than eighty S&P 500 companies that have classified boards. The proposals urge repealing the classified board and moving to annual elections, which are widely viewed as corporate governance best practice.

Through active engagement with companies receiving declassification proposals, negotiated outcomes have been obtained with forty-four S&P 500 companies. These forty-four companies have entered into agreements committing them to bring management proposals to declassify their boards. Overall, the forty-four companies that have entered into such agreements represent about one-third of the S&P 500 companies that had staggered boards as of the beginning of this proxy season. At this stage of the proxy season, twelve agreed-upon management proposals to declassify have already been approved by shareholders.

In many of the companies receiving proposals, however, negotiated outcomes have not been obtained. In such cases, the shareholder proposals submitted by the SRP-represented investors are expected to go, or have already gone, to a vote at the 2012 annual meeting. In particular, such proposals have already gone to a vote at sixteen companies, and fourteen of them have already released voting results.

Of these fourteen proposals, twelve have already passed. The table below provides information concerning the precatory declassification proposals that passed. As the table indicates, these proposals obtained average support of 79.25% of votes cast.

Two shareholder proposals to declassify (detailed here) did not pass. Although these proposals failed to gain majority support, they received an average support of 48.55% of the votes cast.

Precatory proposals are expected to go to a vote at twenty-two other S&P 500 companies. A list of these companies is available here.

Staggered boards have long been a key mechanism for insulating boards of publicly traded firms from shareholders. This year, several institutional investors and a program working on their behalf have used shareholder proposals to move a large number of publicly traded firms away from such structures. Despite strong and expected criticism from the usual suspects, shareholders should welcome and support this work.

The Shareholder Rights Project, a clinical program that I run at Harvard Law School, assists public pension funds and charitable organizations in improving corporate governance at publicly traded companies. During this proxy season, we represented and advised five such clients – the Illinois State Board of Investment, the Los Angeles County Employees Retirement Association, the Nathan Cummings Foundation, the North Carolina State Treasurer, and the Ohio Public Employees Retirement System – in connection with their submission of proposals for a vote at the annual meetings of more than 80 companies on the Standard & Poor’s 500-stock index.

The proposals urge companies with a staggered board, which allow shareholders to replace only a few directors each year, to place all board members up for election every year. Such a move to annual elections is viewed by investors as a best practice of corporate governance. By enabling shareholders to register their views on all directors each year, annual elections make boards more accountable to shareholders.

…continue reading: Giving Shareholders a Voice

This post provides information about thirty-six precatory board declassification proposals, submitted by institutional investors represented and advised by the Harvard Law School Shareholder Rights Project (SRP), that are expected to go to a vote at annual meetings during this proxy season.

During the 2011-12 proxy season, the SRP has been representing and advising several institutional investors – Illinois State Board of Investment (ISBI) , the Los Angeles County Employees Retirement Association (LACERA), the Nathan Cummings Foundation (NCF), the North Carolina Department of State Treasurer (NCDST), and the Ohio Public Employees Retirement System (OPERS) – in connection with the submission of precatory shareholder proposals to more than eighty S&P 500 companies that have classified boards. The proposals urge repealing the classified board and moving to annual elections, which are widely viewed as corporate governance best practice.

Through active engagement with companies receiving declassification proposals, the SRP and the institutional investors working with the SRP have been able to reach negotiated outcomes with (as of today) forty-four of the companies receiving such proposals. These companies have entered into agreements committing them to bring management proposals to declassify their boards. (A partial list of companies entering into such agreements, including only companies that have already made public filings that disclose the planned management proposals, is available here.)

In many other companies receiving proposals, however, the SRP and the institutional investors working with the SRP have not been able to obtain such negotiated outcomes. In such cases, the shareholder proposals urging board declassification are expected to go, or have already gone, to a vote at 2012 the annual meeting.

Thus far, only one proposal has gone to a vote. The proposal, submitted by the Illinois State Board of Investments to the F5 Networks, Inc. (FFIV), won 77% of the votes cast.

Below is a list of thirty-six companies where shareholders are expected to vote at the 2012 annual meeting on shareholder proposals submitted by institutional investor represented and advised by the SRP. Where the proxy statement has already been issued, the date of the meeting and a link to the proxy statement are also provided. The list does not include companies where a dialogue is still ongoing. The list will be updated periodically and the most updated version is available here.

…continue reading: Thirty-Six Precatory Declassification Proposals Going to a Vote at Annual Meetings

Since the Harvard Law School Shareholder Rights Project (SRP) issued its March 19 News Alert (reprinted in a post here), ten additional companies have made filings disclosing management proposals to declassify their boards made pursuant to agreements that these companies entered with institutional investors represented and advised by the SRP. With these ten additional companies, the number of companies that have made filings disclosing such management proposals during this proxy season – all listed here – has increased to 31.

During the 2011-12 proxy season, the SRP has been representing and advising several institutional investors – the Illinois State Board of Investment (ISBI), the Los Angeles County Employees Retirement Association, the Nathan Cummings Foundation (NCF), the North Carolina State Treasurer (NCDST), and the Ohio Public Employees Retirement System – in connection with the submission of shareholder proposals to over eighty S&P 500 companies with a staggered boards. The proposals urge a move to annual elections, which are widely viewed as corporate governance best practice.

Through active engagement with companies receiving declassification proposals, the SRP and the institutional investors working with the SRP have been able to reach negotiated outcomes with forty-three companies receiving such proposals (one additional company entered into an agreement since the March 19 News Alert). These forty-three companies have entered into agreements committing them to bring management proposals to declassify their boards.

The new companies disclosing management proposals made in accordance with such agreements (with the proponent submitting the shareholder proposal in parenthesis) are: C.H. Robinson Worldwide, Inc. (NCF); CenturyLink, Inc. (ISBI); Coventry Health Care, Inc. (ISBI); Flowserve Corporation (NCDST); FMC Technologies Inc (NCDST); Hudson City Bancorp, Inc. (NCF); Juniper Networks, Inc. (ISBI); O’Reilly Automotive, Inc. (NCF); Western Union (NCF); and Wyndham Worldwide Corporation (NCF). The full list of companies that have made filings disclosing management proposals made pursuant to agreements with institutional investors represented and advised by the SRP is available here. The list will be updated periodically as additional companies of those entering into agreements to bring management declassification proposals make such filings.

All of these companies, including the ten companies newly announcing management proposals, should be commended for their willingness to engage in a dialogue with shareholder proponents and their representatives and advisers – and for their responsiveness to shareholders’ preferences regarding classified boards.

The HLS Forum recently published a post by Martin Lipton and Theodore Mirvis titled “Harvard Shareholder Rights Project is Wrong.” The post was based on a memorandum issued by their law firm, Wachtell, Lipton, Rozen & Katz (“Wachtell”), and signed by the authors of the post and two other top partners at the firm. The memo and post offer a strongly worded critique of Harvard Law School for permitting the operation of the Shareholder Rights Project (SRP) clinical program. The objections were twofold: First, the results achieved by the clinic – agreements by 42 large public companies to propose charter amendments declassifying their boards – are undesirable as a public policy matter. Second, the clinic was wrong to represent public pension funds and charitable endowments because this representation went beyond “provid[ing] educational opportunities while benefiting impoverished or underprivileged segments of society for which legal services are not readily available.”

I think the Wachtell memo-writers’ strongly held belief about the virtue of classified boards as a governance feature of large public firms has spilled over into an unfair attack on the Harvard SRP clinic based on a straitjacketed conception of clinical legal education not followed by leading American law schools. Wachtell has, of course, long been known for its invention of the poison pill and its expertise in takeover defenses. Because staggered boards make poison pills more powerful and fortify takeover defenses, it is understandable that Wachtell, and some of the clients it serves, do not welcome large-scale declassification of boards. Whether such declassification would benefit shareholders and the American economy is a legitimate question for debate. However, criticizing Harvard Law School for permitting the SRP to operate should not be part of this debate.

…continue reading: Wachtell Lipton’s Critique of Harvard Law School

The Forum is pleased to announce that Allison A. Bennington, General Counsel and a Partner of ValueAct Capital, joined the Advisory Board of the Harvard Law School Program on Corporate Governance.

She joins the existing members of the Board: William Ackman, Peter Atkins, Joseph Bachelder, Richard Breeden, Richard Climan, Isaac Corré, John Finley, Stephen Fraidin, Byron S. Georgiou, Larry Hamdan, Robert Mendelsohn, David Millstone, Theodore Mirvis, James Morphy, Toby Myerson, Eileen Nugent, Paul Rowe, and Rodman Ward.

Prior to joining ValueAct Capital in April 2004, Mrs. Bennington was the General Counsel of Atriax, Ltd. (“Atriax”), a joint venture of Deutsche Bank, J.P. Morgan Chase, Citibank and Reuters that was formed to establish a global foreign exchange internet trading market. Prior to joining Atriax, Mrs. Bennington was a Managing Director of Robertson Stephens, a full service investment bank, where she ran the Legal Department. Mrs. Bennington was previously a Partner in the London office of Brobeck Hale and Dorr International, where she specialized in cross-border mergers and acquisitions and corporate finance transactions. Mrs. Bennington is a director of Seitel, Inc. She has a B.A. from the University of California at Berkeley and a J.D. from the University of California, Hastings College of the Law.

Over the past two weeks, Lucian Bebchuk and René Stulz engaged in an online debate on the question: Has Executive Compensation Contributed to the Financial Crisis? Bebchuk supported a “yes” answer, and Stulz argued for a “no” answer. The debate, which was hosted by the World Bank’s All about Finance blog, was followed by a poll in which readers cast their votes. The votes are now in, and 79.9% of the votes were cast in support of the position supported by Bebchuk.

The opening statements by Bebchuk and Stulz are available here and here. The second-round responses by Bebchuk and Stulz are available here and here. The results of the readers’ poll are available here.