Posts Tagged ‘James Barrall’

Disclosure Lessons from the 2013 Proxy Season

Editor’s Note: Matteo Tonello is managing director of corporate leadership at The Conference Board. This post relates to an issue of The Conference Board’s Director Notes series authored by James D. C. Barrall, David T. Della Rocca, Carol B. Samaan, Julie D. Crisp, and Michelle M. Khoury.

In light of increased transparency and governance expectations imposed by shareholder advisory groups and increasingly aggressive attempts by plaintiffs’ firms to enjoin shareholder votes on key compensation issues, U.S. public companies face a substantial burden to provide adequate disclosure in their annual proxy statements. This Director Notes examines the key disclosure issues and challenges facing companies during the 2013 proxy season and provides examples of company responses to these issues taken from proxy statements filed during the first half of 2013.

U.S. public companies face a substantial burden to provide adequate disclosure in their annual proxy statements. In addition to complying with a growing number of increasingly burdensome disclosure rules from Congress and the Securities and Exchange Commission (“SEC”), companies must take into account corporate governance guidelines from institutional shareholder advisory groups such as Institutional Shareholder Services (“ISS”) and Glass Lewis & Co. Moreover, a recent wave of proxy injunction lawsuits has added to this burden and created additional issues and challenges for companies. The plaintiffs’ bar has also been actively pursuing damage claims against public companies based on disclosure and corporate governance issues, including issues relating to Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). All of these developments present many traps for the unwary. As a result, companies should review their executive compensation disclosure and their say-on-pay and equity plan proposals to determine whether additional disclosures, beyond those required by statutes and rules, are appropriate to attempt to reduce the risk of a potential lawsuit or investigation by a plaintiff’s law firm.

…continue reading: Disclosure Lessons from the 2013 Proxy Season

Building Relationships with Your Shareholders Through Effective Communication

Posted by James D.C. Barrall, Latham & Watkins LLP, on Tuesday November 13, 2012 at 10:06 am
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Editor’s Note: James D. C. Barrall is a partner at Latham & Watkins LLP and co-chair of the Benefits and Compensation Practice. This post is based on a Latham & Watkins Corporate Governance Commentary.

Introduction

In recent years, shareholders of US public companies have increasingly invited dialogue with management, sometimes even demanding personal interaction with directors. This trend is part of a new paradigm in the corporate governance realm. Historically, despite some management engagement with shareholders, companies have seen little in the way of direct dialogue between shareholders and members of the board of directors. For most public companies, governance strategies have seldom included systematic engagement with shareholders beyond quarterly earnings calls, investor conferences and traditional investor relations efforts.

That was then, this is now. More than ever before, institutional shareholders are aggressively exerting their influence in the name of holding companies and management accountable. Emboldened (or pressured) by recent events — high-profile corporate governance and executive compensation controversies, the financial collapse and public criticism of pay disparities — these shareholders increasingly seek to influence board-level decisionmaking, often deploying incendiary buzzwords such as “corporate mismanagement,” “excessive risk taking,” “pay-for-failure” and the like. All told, the new paradigm represents a significant shift for most public companies.

In this Commentary, we discuss:

  • The current state of corporate governance and signposts along the way to the existing state of affairs
  • How and when public companies can benefit from shareholder engagement
  • The components of an effective shareholder engagement program

…continue reading: Building Relationships with Your Shareholders Through Effective Communication

Defining Pay in Pay for Performance

Posted by Matteo Tonello, The Conference Board, on Friday October 5, 2012 at 8:58 am
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Editor’s Note: Matteo Tonello is managing director of corporate leadership at the Conference Board. This post is based on an issue of the Conference Board’s Director Notes series by James D.C. Barrall, Alice M. Chung and Julie D. Crisp, attorneys at Latham & Watkins LLP; the full issue, including footnotes, is available for download here.

Why 2012 Was the Year of Pay for Performance

Whether the pay of a company’s CEO and other executive officers is aligned with the company’s performance has been the single most important and controversial executive pay issue for U.S. public companies since the advent of mandatory say-on-pay votes under the Dodd-Frank Act, which applied to most U.S. public companies in 2011; smaller reporting companies will face these votes and issues in 2013. As we wrote in our Director Notes “Proxy Season 2012: The Year of Pay for Performance,” 2012 was indeed the year of “pay for performance.” This has been proven by the over 2,000 say-on-pay vote results reported through September 5, 2012.

The stage for the 2012 pay-for-performance debate was set in 2011, when Institutional Shareholder Services Proxy Advisory Services (ISS), which is widely regarded as the most influential U.S. proxy adviser, applied a crude two-step test to assess pay for performance in making its say-on-pay voting recommendations.

Generally, under its 2011 test, ISS concluded that a pay-for-performance “disconnect” existed if:

…continue reading: Defining Pay in Pay for Performance

Proxy Season 2012: The Year of Pay for Performance

Posted by Matteo Tonello, The Conference Board, on Thursday May 17, 2012 at 9:36 am
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Editor’s Note: Matteo Tonello is managing director of corporate leadership at the Conference Board. This post is based on an issue of the Conference Board’s Director Notes series, by James D.C. Barrall, Alice M. Chung, and Julie D. Crisp, all of Latham & Watkins LLP. The original report, including footnotes, is available here. Work from the Program on Corporate Governance on executive compensation includes the paper Paying for Long-Term Performance, and the book Pay without Performance, both by Bebchuk and Fried.

As in 2011, executive compensation is the single most important corporate governance issue for companies, boards, and investors for the 2012 proxy season. This Director Notes discusses the evolving analytics and issues around pay for performance (P4P) and suggests ways for companies and their boards to analyze the alignment of P4P, counter negative recommendations by proxy advisers, and draft their proxies to obtain shareholder support for their pay programs.

In 2011, approximately 3,000 companies held their first mandatory shareholder say on pay (SOP) and say on frequency votes; approximately 1,500 “smaller reporting companies” are not required to do so until January 21, 2013. Overall, 42 companies that held SOP votes in 2011 received less than 50 percent shareholder support. More than 90 percent of companies received shareholder support of 70 percent or higher, and more than 70 percent received shareholder support of 90 percent or higher. On the issue of say on frequency, shareholders at more than 75 percent of companies supported annual SOP votes, while shareholders at a majority of the remaining companies supported triennial votes, and a few supported biennial votes. Following the votes, the vast majority of companies adopted the vote frequency preference supported by a plurality of their shareholders.

One unexpected development during the 2011 proxy season was the large volume of publicly filed disputations between public companies and Institutional Shareholder Services (ISS) and Glass Lewis, the two most influential U.S. proxy advisers, over their negative SOP recommendations. While some of the negative recommendations and the controversies that followed were related to pay practices labeled “problematic” or “egregious” by the proxy advisers, most of the negative recommendations and controversies stemmed from negative recommendations based on those proxy advisers’ P4P voting policies.

…continue reading: Proxy Season 2012: The Year of Pay for Performance

Say on Pay 2011: Proxy Advisors On Course for Hegemony

Posted by Charles M. Nathan, Latham & Watkins LLP, on Friday January 6, 2012 at 9:23 am
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Editor’s Note: Charles Nathan is Of Counsel at Latham & Watkins LLP and is co-chair of the firm’s Corporate Governance Task Force. This post discusses an article by Mr. Nathan, James D.C. Barrall, and Alice Chung that appeared in the New York Law Journal, available here.

My colleagues, Jim Barrall and Alice Chung, and I have co-authored an article titled Say on Pay 2011: Proxy Advisors on Course for Hegemony. The article analyzes the results of the first year of mandatory Say on Pay advisory votes and discusses the implications of these results for Say on Pay advisory voting during the 2012 proxy season. We begin by noting that based on the Say on Pay votes of a universe composed of the Russell 3000 companies that were subject to mandatory Say on Pay voting, recommendations by the two principal proxy advisory firms (ISS and Glass Lewis) appeared to have a significant effect, with a recommendation by ISS accounting, on average, for an approximately 25% vote swing, and one by Glass Lewis accounting, on average, for about a 5% vote swing. The data also indicates that companies receiving a negative SOP recommendation from ISS averaged less that a 70% favorable vote.

…continue reading: Say on Pay 2011: Proxy Advisors On Course for Hegemony

Say on Pay in 2011: Lessons and Coming Attractions

Posted by James D.C. Barrall, Latham & Watkins LLP, and Matteo Tonello, The Conference Board, on Friday August 5, 2011 at 9:26 am
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Editor’s Note: James Barrall is a partner at Latham & Watkins LLP, and Matteo Tonello is Director of Corporate Governance for The Conference Board, Inc. This post is based on a Conference Board Director Note by Mr. Barrall and his colleague Alice M. Chung.

With the 2011 proxy season coming to a close, this report reviews the results of the inaugural season of shareholder advisory votes under the Dodd-Frank Wall Street Reform and Consumer Protection Act through June 23, 2011. It further offers recommendations for companies to consider in making their compensation and governance decisions to help position them for future say-on-pay (SOP) votes. [1]

The 2011 proxy season—the first in which all but small public companies in the United States were required to allow shareholders to vote on an advisory basis to approve or disapprove the compensation of their named executive officers—is almost over. Companies with non-calendar fiscal years or delayed meetings will continue to hold SOP votes throughout 2011, but a majority of U.S. companies that are now subject to the vote requirements (and most S&P 500 and Russell 3000 companies with calendar fiscal years) have already had their 2011 shareholder meetings. [2]

There have been many twists and turns this proxy season, but some clear trends and bottom lines have emerged. Now, while experience and memories are fresh, is a good time to review the results of the inaugural SOP season, identify trends and issues, and assess the landscape for future regulations and other developments. Most importantly, companies need to take all of this into account as they make the compensation and governance decisions in 2011 that will best position them for the 2012 proxy season and SOP votes to come.

…continue reading: Say on Pay in 2011: Lessons and Coming Attractions

Proxy Advisory Business: Apotheosis or Apogee?

Posted by Charles M. Nathan, Latham & Watkins LLP, on Wednesday March 23, 2011 at 9:10 am
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Editor’s Note: Charles Nathan is Of Counsel at Latham & Watkins LLP and is co-chair of the firm’s Corporate Governance Task Force. This post is based on a Latham & Watkins Corporate Governance Commentary by Mr. Nathan and James D.C. Barrall.

Introduction

Proxy advisory firms, particularly the two dominant players — ISS and Glass Lewis — seem to many observers to be in the proverbial cat-bird seat. [1]

The closure of Proxy Governance, Inc. at the end of 2010 gave these two firms a duopoly, which should be good for their businesses.

The number of shareholder votes at public companies, which is the bread and butter of the proxy advisory business model, has increased markedly over the past decade, and will continue to grow with the advent of mandatory Say on Pay and Say on Pay frequency votes, not to mention proxy access if it survives its pending judicial review.

The combined influence of these two proxy advisory firms on shareholder voting is often determinative of the outcome, particularly in contested vote situations. [2]

…continue reading: Proxy Advisory Business: Apotheosis or Apogee?

The Latest Word on 2011 Say on Pay Vote Recommendations

Posted by Charles M. Nathan, Latham & Watkins LLP, on Thursday January 13, 2011 at 9:16 am
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Editor’s Note: Charles Nathan is Of Counsel at Latham & Watkins LLP and is co-chair of the firm’s Corporate Governance Task Force. This post is based on a Latham & Watkins Corporate Governance Commentary by James D.C. Barrall, Alice M. Chung and Samuel T. Greenberg.

Dodd-Frank and Proposed Say on Pay Vote Rules

On October 18, 2010, the Securities and Exchange Commission (SEC) published proposed rules (Proposed Rules) implementing Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act). Section 951 generally requires US public companies to provide their shareholders the right to cast three types of pay votes: (i) a vote to approve the compensation of the named executive officers (say on pay vote); (ii) a vote on the frequency with which shareholders should be entitled to cast votes on the company’s executive compensation (frequency vote) and (iii) a vote to approve certain payments made in connection with an acquisition, merger or other specified corporate transaction (golden parachute vote). As of this date, the SEC has not adopted any final rules on the say on pay votes, but they are expected any day.

This Commentary provides a brief overview of the Proposed Rules and their effective dates, the current institutional and public company say on pay trends and what companies should be doing now to prepare for their 2011 say on pay votes. For a more detailed overview of the Proposed Rules, please see our Client Alert: SEC Announces Preliminary Say on Pay Rules, dated November 4, 2010.

…continue reading: The Latest Word on 2011 Say on Pay Vote Recommendations

Executive Compensation for the 2009-2010 Season

Posted by Charles M. Nathan, Latham & Watkins LLP, on Friday November 20, 2009 at 9:16 am
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Charles M. Nathan is a corporate partner at Latham & Watkins LLP and Global Co-Chair of the firm’s Mergers and Acquisitions Group.This post comes is based on a Latham & Watkins LLP client memorandum by James D.C. Barrall, Bradd L. Williamson and Allegra C. Wiles.

Policy Drivers in the Current Environment — As public companies, Boards and Compensation Committees begin to make year-end 2009 compensation decisions, draft proxies for their 2010 shareholder meetings and design 2010 executive compensation plans, they face many challenges caused by the uncertain economic environment, limited visibility for future business prospects, public anger over executive compensation and increased activity by proxy advisors, institutional shareholders and corporate activists, as well as looming legislative and regulatory changes aimed at executive compensation and related corporate governance.

TARP Participants and Banks — The more than 300 TARP participants are dealing with stringent new compensation limits imposed by Kenneth Feinberg, the Special Master for TARP Executive Compensation. All banks regulated by the Federal Reserve (the Fed) will be required to review their incentive compensation arrangements and governance processes relative to risk under the Fed’s unprecedented pay guidelines and review policies.

Other Companies — For companies outside of TARP and the financial sector, thankfully there is now a lull in the storm over executive compensation which gives them an opportunity to survey the scene and take deliberate steps to review compensation programs and improve governance processes heading into 2010 and also plan for the likely “say on pay” vote in 2011.

…continue reading: Executive Compensation for the 2009-2010 Season

 
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