This post addresses an emerging litigation trend that entails a higher degree of litigation risk than in past years. Companies familiar with shareholder litigation in the context of mergers and acquisitions transactions know that virtually all material corporate transactions attract plaintiffs’ lawyers who, suing on behalf of shareholders, allege that proxy materials published ahead of a shareholder vote are, for one reason or another, false or misleading. These plaintiffs’ lawyers typically seek a quick settlement in which the issuer avoids a possible injunction delaying the shareholder vote on the proposed transaction by publishing “corrected” disclosure. In return, the plaintiffs’ lawyers demand a fee for the purported “benefit” to the shareholder class.

This proxy season, there has been an uptick in the number of cases in which plaintiffs’ lawyers assert similar claims in connection with “say-on-pay” proxy disclosures and approval of equity incentive plans. Although many of these cases have been dismissed, or motions for preliminary injunctive relief have been denied by the courts, some issuers are electing to settle such claims to avoid even a remote possibility of a delayed annual shareholder meeting and the burden and expense associated with litigation. Recent press reports highlight this growing trend. [1] We outline below the current trend and several suggested strategies for addressing this new proxy litigation.

…continue reading: Plaintiffs’ Lawyers Target “Say-on-Pay” Disclosures in Annual Proxy Statements

The effects of say on pay on shareholder engagement, the introduction of proxy access proposals, and the resurgence of board declassification resolutions were the principal themes of the last proxy season and are expected to continue to take center stage in 2013, according to a report issued today by The Conference Board in collaboration with FactSet Research Systems Inc.

Proxy Voting Analytics (2008-2012) analyzes data on voting by shareholders of U.S. companies that held their annual general meetings (AGMs) in the January 1-June 30 period during the last five years. Aggregate data on shareholder proposals, management proposals, and proxy contests is examined and segmented based on market index (whether the Russell 3000 or the S&P 500) and 20 business industry groups.

The report is supplemented with an appendix offering detailed recommendations from Conference Board experts for companies facing situations of shareholder activism.

Data analyzed in the report includes:

…continue reading: Proxy Voting Analytics (2008-2012)

Institutional Shareholder Services (“ISS”) and Glass, Lewis & Co., Inc. (“Glass Lewis”), the two major proxy advisory firms, recently released updates to their proxy voting policies for the 2013 proxy season. The ISS U.S. Corporate Governance Policy 2013 Updates (the “ISS Policy Updates”), which are available at http://issgovernance.com/policy/2013/policy_information, apply to shareholder meetings held on or after February 1, 2013. ISS also has released updated Frequently Asked Questions (the “ISS FAQs”), available at the link above, relating to its 2013 policies. The Glass Lewis Proxy Paper Guidelines for the 2013 Proxy Season (the “Glass Lewis Guidelines”) will be effective for annual meetings held on or after January 1, 2013. A summary of the updates to the Glass Lewis Guidelines is available here. This alert reviews the most significant ISS and Glass Lewis updates and suggested steps for companies to consider in light of these updated proxy voting policies.

…continue reading: ISS, Glass Lewis, and the 2013 Proxy Season

Institutional Shareholder Services Inc. (ISS) and Glass Lewis & Co. have each made several important revisions to their proxy voting policies for the 2013 proxy season. ISS released new and updated FAQs relating to application of ISS proxy voting policies to compensation (including peer groups and realizable pay), board responsiveness to shareholder proposals, hedging and pledging of company stock, and other matters. This post provides guidance to US companies on how to address these policy changes.

…continue reading: How to Address ISS & Glass Lewis Policy Changes

On Tuesday, October 16, Institutional Shareholder Services (ISS) proposed updates to its proxy voting guidelines for the 2013 proxy season.

ISS’s proposed policy would:

• Recommend voting against boards of directors who do not act on shareholder proposals that were approved by the vote of a majority of shares cast in the prior year;
• Revise ISS’s say-on-pay criteria by refining the peer group selection methodology, incorporating “realizable pay” analysis into the qualitative evaluation of pay-for-performance and designating pledging shares as a problematic pay practice;
• Extend the analysis of golden parachute arrangements to existing and legacy arrangements rather than just new or renewed arrangements; and
• Provide for a case-by-case assessment of shareholder proposals to link executive compensation to environmental and social “sustainability metrics.”

The proposed updates were open to public comment until October 31, and the final policies are expected to be released in November. While these new policies have not yet been finalized and are subject to revision, it’s not too early for public companies to consider how these changes could affect their ISS profile in the upcoming proxy season.

…continue reading: ISS Proposes 2013 Voting Policy Updates

Abstract

Turkey’s New Company Law paved the way for its national stock exchange to be the first in the world to require the issuers change their company statutes in order to allow electronic participation and voting at their general assemblies. A recent regulation mandated all listed companies to use a single electronic portal to allow shareholders to participate and vote electronically in general assemblies with immediate effect. The move is one in a series of reforms in support of Istanbul International Financial Center Project. The Financial Times refers to the new regulation as a coup for international institutional investors with Turkish holdings as it increases the transparency of ISE listed companies and empowers them to embrace an activist approach. This commentary discusses the possible consequences of the new regulation.

…continue reading: Istanbul Stock Exchange Moves First on Mandatory Electronic Voting

As say-on-pay (SOP) resolutions were being voted on during the 2012 proxy season, management nominees to boards of directors of U.S. public companies faced less opposition by investors. This and other data from nearly 2,500 annual general meetings (AGMs) held between January 1 and June 30 at Russell 3000 companies are discussed in the new edition of Proxy Voting Fact Sheet — the periodic report issued by The Conference Board in collaboration with FactSet Research. Data discussed in the report is compared with the S&P 500 and analyzed across 20 business sectors.

The report reviews the most recent statistics on:

• Voted, omitted, and withdrawn shareholder proposals.
• Proposal sponsors.
• Average voting results, by topics.
• Say-on-pay management proposals.

…continue reading: July 2012 Proxy Voting Fact Sheet

The declassification of the board of directors is emerging as one of the key highlights of the 2012 proxy season, as shareholder proposals on the subject continue to receive overwhelming support. This and other data from nearly 500 annual general meetings (AGMs) held at Russell 3000 companies in the January 1-April 30 period are discussed in the new edition of Proxy Voting Fact Sheet—the periodic report issued by The Conference Board in collaboration with FactSet Research.

In classified boards, members are divided into classes with directors in each class serving staggered terms (typically three years) so that only one class stands for election each year. Classification is used as a defensive measure to prevent hostile takeovers: when a board is staggered, hostile bidders must win more than one proxy contest at successive shareholder meetings to exercise control of the target. Proposals on declassification seek to discontinue this board structure in favor of a system of annual election for all members. The Fact Sheet reports that across the 17 proposals on declassification that went to a vote in the first four months of the year, the average support level was 75.9 percent of votes cast. The most notable examples included the 85.2 percent approval at Johnson Control, a 78.7 percent vote at F5 Networks, and the 77.2 percent vote at Emerson Electric.

…continue reading: Proxy Voting Fact Sheet

In the paper, The Role of Institutional Investors in Voting: Evidence from the Securities Lending Market, which was recently made publicly available on SSRN, we use a unique setting to examine if institutional investors influence firm-level corporate governance through proxy voting. Understanding institutional investor preferences regarding corporate governance is important for firms trying to attract new investors as well as policy makers considering the regulation of different governance mechanisms. The activities of institutional investors in the securities lending market provide one of the few opportunities to directly examine the behavior of institutional investors in influencing firm-level governance.

To study the securities lending market for U.S. firms during the period 2007-2009, we use a proprietary data set comprising shares available to lend (supply), shares borrowed (demand), and loan fees. The data covers more than 85% of the securities lending activity for these firms and allows for a comprehensive analysis during a period of tremendous growth in that market. In the past, understanding the securities lending market has been limited partly due to the lack of transparency in this fragmented market. We find that on average, 22.48% of a firm’s market capitalization is available for lending, 3.44% is actually borrowed, and the annualized loan fee is 35 basis points. The supply of lendable shares shows great variation, with minimum and maximum values of 0.01% and 74.38% of market capitalization. We find that more lending supply is available for firms with larger institutional ownership and strong corporate governance. There is considerable interest in some stocks and almost 100% of the available supply of such stocks is actually borrowed and on loan. The annual fee can be quite high, with the maximum at 745 bps. During 2007-2009, 10% of the stocks were very expensive to borrow and had a fee greater than 100 basis points. 2007 was the peak year for the securities lending market, with activity dropping off after the financial crisis.

…continue reading: The Role of Institutional Investors in Voting

Fiscal year 2011 witnessed the SBA’s shift from domestic and foreign asset classes, to a combined global equity portfolio, with a heavier international equity weighting and a more balanced U.S. exposure. With the recent structural changes, the proportion of SBA assets invested in foreign equity markets will continue to rise, and a significant proportion may be managed internally. In 1998, for foreign equities was 7.6 percent, rising to 12.7 percent by 2003, and 18.8 percent by the end of fiscal year 2010. Upon completion of the transition to a combined global equity asset class, foreign equities composed 33 percent of FRS assets as of October 2011. As a percent of the equity asset class, foreign shares account for 56 percent and U.S. shares for 44 percent.

Coinciding with this shift, the SBA realigned its international proxy voting practices, bringing foreign voting decisions ”in-house” to match domestic SBA voting practices.

Previously, external asset managers were responsible for voting international proxies associated with SBA shares held in their funds. Since the SBA assumed this responsibility, votes are now cast by SBA staff—based on our own Corporate Governance Principles & Proxy Voting Guidelines and meeting specific research from our proxy research providers.

…continue reading: Analyzing Global Proxy Voting Practices