In a memorandum issued recently by the law firm Wachtell, Lipton, Rosen & Katz (WLRK), WLRK co-founder Martin Lipton criticized me for supporting shareholder activism that allegedly has detrimental effects in the long term. The memorandum followed two earlier, strongly-worded WLRK memoranda signed by Lipton and several other prominent corporate partners at the firm, titled “The Shareholder Rights Project is Wrong” and “The Shareholder Rights Project is Still Wrong“. Those memoranda criticized the work of a program I direct, the Shareholder Rights Project (SRP), for destroying long-term value by contributing to numerous board declassifications.

I am currently carrying out research work that addresses the view held by WLRK and others that investor activism is generally detrimental to the long-term interests of companies and their shareholders. In the meantime, however, the SRP’s recent release of its 2013 results provides an appropriate opportunity to respond to WLRK claims that the SRP’s work, in particular, has contributed to the destruction of long-term value. As I explain below, these results indicate that relevant institutional investors and corporate boards have largely rejected WLRK’s views – and require that WLRK reconsider its position.

…continue reading: Wachtell Lipton Was Wrong About the Shareholder Rights Project

As a result of the work of the Shareholder Rights Project (SRP) and SRP-represented investors, declassification proposals will be voted on in April and May 2013 at the annual meetings of 36 S&P 500 and Fortune 500 companies:

• At 28 companies, agreed-upon management proposals to declassify will be brought to a shareholder vote of approval pursuant to agreements entered into with SRP-represented investors;
• At 8 companies, where such agreements have not been reached, precatory proposals that the SRP has submitted on behalf of SRP-represented investors will go to a vote.

These 36 proposals are in addition to 9 proposals that already went to a vote and were approved at annual meetings of S&P 500 and Fortune 500 companies in 2013 (3 management proposals and 6 precatory proposals), as well as the many additional declassification proposals (both agreed-upon management proposals and precatory proposals) that will go to a vote at subsequent annual meetings.

…continue reading: 36 Declassification Proposals Going to a Vote in April and May

During the 2012 proxy season, the SEC staff concurred that a number of high profile shareholder proposals could be excluded from company proxy statements because various key terms in the proposals were not adequately defined or explained within the text of the proposal and supporting statement. See e.g., WellPoint, Inc. (SEIU Master Trust) (avail. Feb. 24, 2012, recon. denied Mar. 27, 2012) (concurring with exclusion of an independent chair proposal that referred to the New York Stock Exchange standard of independence without defining it because “neither shareholders nor the company would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires”); Textron Inc. (avail. Mar. 7, 2012) (arguing that a reference to the Rule 14a-8 eligibility requirements in a proxy access shareholder proposal was vague and indefinite, although the staff ultimately concurred with the exclusion of the shareholder proposal on other grounds); Dell Inc. (avail. Mar. 30, 2012) (concurring with the exclusion of a similar proxy access shareholder proposal because the proposal’s reference to the Rule 14a-8 eligibility requirements was vague and indefinite). While these no-action letters reflected long-standing SEC staff precedent, in the current proxy season, there has continued to be a large number of no-action requests arguing that various terms in shareholder proposals are undefined or vague and therefore excludable under Rule 14a-8(i)(3).

…continue reading: Assessing Vague Shareholder Proposals Under Rule 14a 8(i)(3)

The 2013 annual meeting season may lack the drama of last year’s Occupy protests and impending presidential election but it will still have its share of challenges for issuers. Revisions to proxy advisors’ pay models and peer groups are already spawning another round of supplemental proxies on Say-on-Pay (SOP), while threats of compensation disclosure strike suits have become this year’s unwelcome sideshow.

This spring also promises another big wave of shareholder resolutions, with over 600 filed to date, though for the most part they will repeat the prevailing themes seen in past years. Public pension funds and other institutional proponents are methodically cleaning up S&P 500 and Russell 2000 firms that still have classified boards and plurality voting in director elections. Meanwhile, retail activists are boosting their share of proposals calling for independent board chairmen and compensation reforms, in addition to their perennial filings on supermajority voting, special meetings, and written consent.

Based on submissions to date, several unexpected trends stand out. The first is a renewed blitz of resolutions on corporate campaign finance, particularly indirect lobbying activities, following the record spending in the 2012 election cycle. Although not likely to gain ground in support levels, proponents are clearly keeping up the momentum on this issue in the hopes of eventual SEC rulemaking mandating disclosure of political spending. Filings of compensation-related proposals have also escalated this year, though many of these were part of a now-abandoned campaign by the United Brotherhood of Carpenters (UBC) to promote triennial SOP votes.

…continue reading: 2013 Proxy Season Preview: Key Shareholder Proposals

In its news alert released yesterday, the Shareholder Rights Project (SRP), working on behalf of eight SRP-represented investors, announced that proposals submitted for 2013 meetings have already had significant impact. As discussed below, major results obtained so far include the following:

• Following active engagement, 46 S&P 500 and Fortune 500 companies that received shareholder proposals for 2013 annual meetings have already agreed to move towards annual elections.
• These 46 companies represent more than 60% of the companies receiving shareholder proposals from SRP-represented investors for the 2013 proxy season.
• Together with the 2012 work of the SRP, 91 companies — about three-quarters of the S&P 500 and Fortune 500 companies that received proposals in 2012, 2013 or both — have agreed to move towards annual elections. The aggregate market capitalization of these 91 companies exceeded one trillion dollars as of March 1, 2013.

…continue reading: Substantial 2013 Results Already Produced by SRP and SRP-Represented Investors

Although the 2013 proxy season is still in its early stages, board declassification proposals submitted by the Shareholder Rights Project (SRP) on behalf of SRP-represented investors have already gone to a vote at the 2013 annual meetings of six S&P 500 and Fortune 500 companies, and these proposals all passed by substantial majorities, receiving average support of 79% of votes cast.

This result continues the strong record of success for SRP-represented investors in 2012, and reflects the on-going strong support for board declassification among institutional investors. The table below provides information concerning these six precatory declassification proposals, all submitted on behalf of the Massachusetts Pension Reserves Investment Management Board (PRIM).

DECLASSIFICATION PROPOSALS GOING TO A VOTE SO FAR IN 2013

…continue reading: Initial 2013 Annual Meeting Results: Six Board Declassification Proposals Passed with Average Support of 79%

On February 22, 2013, the United States District Court for the Southern District of New York enjoined Apple, Inc. from proceeding with a planned vote at its annual shareholders’ meeting on amendments to certain provisions of its articles of incorporation on the grounds that the proposed amendments, which were presented as a single matter to be voted upon, likely violated SEC rules prohibiting the “bundling” of separate matters into a single vote.

In the same opinion, the court rejected a shareholder petition to enjoin Apple’s “say-on-pay” vote. In that regard, the shareholder made similar arguments as those in complaints received by numerous companies in recent months – namely, that the Compensation Discussion and Analysis section was not compliant with SEC rules because it gave insufficient detail on the compensation committee’s decision-making process and the information the committee had. The court disagreed, holding that Apple’s disclosure was “plainly sufficient under SEC rules.”

The unbundling decision serves as a reminder that companies preparing their proxy statements for upcoming annual meetings should ensure that all material, separate matters are presented for separate votes. The mere fact that multiple matters are included in a single charter amendment, or that the matters are all broadly “shareholder-friendly,” is not, based on the Apple decision, sufficient to avoid a violation of the unbundling rules.

…continue reading: Unbundling Rules and Say-on-Pay Decisions in Apple Shareholder Case

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)

In its 2012 Annual Report released today, and in joint press releases issued today with institutional investors it represents, the Shareholder Rights Project (SRP) provided detailed information about the outcomes of its work with SRP-represented investors during 2012, the SRP’s first full year of operations.

As discussed below, major results obtained during 2012 include the following (for complete details on all outcomes see the Annual Report):

• 48 S&P 500 companies (listed here) entering into agreements to move toward declassification;
• 38 successful precatory proposals (listed here), with average support of 82% of votes cast;
• Over 60% of successful precatory proposals by public pension funds and over 30% of all successful precatory proposals; and
• 42 board declassifications (listed here), reducing the number of classified boards among S&P 500 companies by one-third.

Expected Impact by End of 2013: As a result of these outcomes and the ongoing work of the SRP and SRP-represented investors, it is estimated that a majority of the 126 S&P 500 companies that had classified boards at the beginning of 2012 will have moved toward annual elections by the end of 2013.

…continue reading: Large-Scale Governance Reforms in S&P 500 Companies

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