Seven for '11: Directors Roll Dice in Proxy Season Craps Game. Today s Presenters. Patrick McGurn Executive Director ISS

Transcription

1 Seven for '11: Directors Roll Dice in Proxy Season Craps Game 1 2 Today s Presenters Patrick McGurn Executive Director ISS Steven R. Barth Partner Foley & Lardner LLP Patrick G. Quick Partner Foley & Lardner LLP 1

2 3 The View From Washington, DC Congressional Gridlock Puts Focus Back on Private Ordering Election Impact Leadership Changes Funding/Oversight Fewer New Proposals? SEC s Full Plate Dodd-Frank Rules Clock is Ticking Proxy Plumbing Changes 2012 and Beyond Sen. Tim Johnson (D-S.D.) Rep. Spencer Bachus (R-Ala.) 4 Proxy Access Delay Creates 2011 Uncertainty Quiet 2010 Boardroom Scene May Be Last of Kind Limited Broker Vote Fallout No votes tumbled Failed elections held steady Small- and mid-caps Disclosures Directors EQAS (NACD model) Board diversity Delayed Access Casts Shadow 3% for 3 years; 25% of seats Bylaw amendments Lower bar only 8.0% 6.0% 4.0% 2.0% 0.0% 5.5% 7.4% 6.1%

3 5 Structural Boardroom Reforms Hit Wall Activists Seek To Restore Dodd-Frank Edits Growing Small-Cap Gap 80 Leftovers Fuel Wish 70 Lists Annual elections 50 Majority voting 40 Letters 30 Independent chair 20 Support falls in Weak debut for 0 disclosures Succession Debut Drew Strong Support Vote support (% cast) Class Bd Shareholder Proposals Maj Vote 57.6 Indep Chair Split Views on Splitting the Chair/CEO Roles Should the head of management (CEO) concurrently be the head of the board (Chair) that represents shareholders' interests? The chairman of the board is an executive/insider The chairman of the board is an independent director Other Sources: For investor and issuer responses: ISS Policy Survey. For directors: Audience Response Survey, Corporate Board Member Annual Boardroom Summit, Source: ISS 3

4 7 Say on Pay Tsunami Reaches Shore Dodd-Frank Mandates Will Boost Workload Trio of Say-On-Pay Resolutions Hit Ballots Say What (MSOP) Advisory votes on executive compensation Broker votes out of play; 13F vote disclosure goes live 2010: Average against vote close to 09 s opposition level Yellow cards KeyCorp, Motorola and Oxy Petroleum Say When (New!) Multiple choice vote on frequency (annual, biennial, triennial or abstain) Vote recommendations and requirements (plurality rule) Say Goodbye (New!) Advisory votes on change-in-control arrangements Now or later?: New disclosure required for roll up into MSOP vote Delayed New Disclosures (PFP, Hedging, Clawbacks and Disparity) No Clear Successor to SOP on Shareholder Proposal Front 8 MSOP: What s Most Important? In the absence of any particular problematic compensation issues, additional information/discussion on which of the topics below is most important in evaluating an advisory vote on executive compensation proposal ("management say on pay")? (Top three only.) Disclosure of short-term and long-term incentives and how they relate to the company's business strategy Non-performance-based pay elements* Pay for performance evaluation under ISS policy Risk mitigating practices (e.g., clawback policy, stock ownership, stock retention guidelines) Employment/Change-in-Control agreements** Company peer group(s) (e.g. list of companies; target benchmarking percentiles) Internal pay equity (i. e., CEO pay compared to the second-highest paid executive) CD&A clarity/completeness Communication (e.g., board responsiveness, prior year MSOP vote, risk assessment) *e.g., perks, tax gross-ups, pension plans, CEO service credits for pension plans, deferred compensation balance, above-market interest rate, future CEO base salary ** e.g., trigger, multiple, basis, treatment of equity, excise tax gross-up provision 4

5 9 Takeovers Pick Up Speed Signs of Life in M&A Market Spur Activism Proxy Fight Pipeline Growing Attacks on Defenses Score Supermajority Votes Written Consent Strong support for revival Special Meetings What s the demand threshold? Poison Pills More rights plans hit proxy Unilateral adoption Support (% cast) Super Maj Shareholder Proposals 73.7 Writ Con 54 Spec Mt BP Effect Energizes ESG Established Sustainability Issues Gaining Ground Risk/Financial Impact Attract Interest and Support Average support: 18.1% of votes cast 48 proposals win 30%+; 87 receive 15%+ 146 resolutions withdrawn following agreements Proponents Look to Boost Support in 2011 Sustainability reporting Environment/climate change/greenhouse gas emissions When global warning met CEO pay EEO sexual orientation/gender identity Corporate political contribution disclosure Say on PAC (political activity) 5

6 11 Age of Engagement: Investors/Issuers Agree on Priorities What are the top three governance topics in North America that are most important to you? Investors 1. Executive compensation 2. Board independence 3. Board competence 4. Risk oversight 5. Shareholder rights* 6. Environmental/social proposals 7. Takeover defenses 8. Audit-related practices 9. M&A and proxy fights Issuers 1. Risk oversight 2. Executive compensation 3. Board competence 4. Board independence 5. Audit-related practices 6. Shareholder rights* 7. M&A and proxy fights 8. Takeover defenses 9. Environmental/social proposals 12 U.S. Engagement Is On The Rise Demand Grows in the Wake of MSOP, Market Decline, Proxy Access 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 9% 18% 10% 44% 38% 47% 41% 45% 33% Asset Owners Asset Managers Issuers Significantly Up Somewhat Up Unchanged Decreasing Source: ISS/IRRC Institute Engagement Survey 6

7 13 What s Impeding Engagement? Mainly Time and Staffing; Some Issuers Point to Regulatory Concerns 80% 70% 60% 50% 40% 30% 20% 10% 0% Asset Owners Asset Managers Issuers Time Staffing Regulatory Concerns Source: ISS/IRRC Institute Engagement Survey 14 Questions/Disclaimer This document and all of the information contained in it, including without limitation all text, data, graphs, charts (collectively, the Information ) is the property of Institutional Shareholder Services Inc. ( ISS ), its subsidiaries, or in some cases third party suppliers. The Information may not be reproduced or redisseminated in whole or in part without prior written permission of ISS. The Information has not been submitted to, nor received approval from, the United States Securities and Exchange Commission or any other regulatory body. None of the Information constitutes an offer to sell (or a solicitation of an offer to buy), or a promotion or recommendation of, any security, financial product or other investment vehicle or any trading strategy, and ISS does not endorse, approve or otherwise express any opinion regarding any issuer, securities, financial products or instruments or trading strategies. Issuers mentioned in this document may have purchased self-assessment tools and publications from ISS Corporate Services, Inc. ( ICS ), a wholly-owned subsidiary of ISS, or ICS may have provided advisory or analytical services to the issuer. No employee of ICS played a role in the preparation of this document. Any issuer that is mentioned in this document may be a client of ISS, ICS, ISS parent company, MSCI Inc., or a subsidiary of MSCI Inc., or may be the parent of, or affiliated with, a client of ISS, ICS, MSCI Inc., or another MSCI Inc. subsidiary. The user of the Information assumes the entire risk of any use it may make or permit to be made of the Information. ISS MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE INFORMATION AND EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION. Without limiting any of the foregoing and to the maximum extent permitted by law, in no event shall ISS have any liability regarding any of the Information for any direct, indirect, special, punitive, consequential (including lost profits) or any other damages even if notified of the possibility of such damages. The foregoing shall not exclude or limit any liability that may not by applicable law be excluded or limited. 7

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