It's All about Proxy
Brannen, Laurie, Business Finance
A look at the ebb and flow of power between management and institutional shareholders during the 2007 proxy season.
THE 2007 PROXY SEASON may best be remembered in the context of three major themes: shareholder say in executive compensation; majority voting and proxy access for shareholders in director elections; and the filing of a record number of social and environmental proposals, most of which deal with political contribution disclosure.
While most finance executives tend to remain on the sidelines of proxy processes, CFOs must be in the loop on major developments because the fallout can significantly impact company policies and performance over time.
The stock options backdating scandals that rocked companies during 2006, resulting in new SEC rules pertaining to executive compensation disclosure, played out in corporate boardrooms around the country throughout this year's proxy season. Yahoo Inc.'s CEO, who drew fire from shareholders over excessive compensation that was far out of sync with company performance, stepped down in June. Shareholders rebuked Yahoo directors responsible for approving such an overly generous pay package by withholding votes for their reelection.
"A significant theme for the 2007 proxy season will be the continuation of the 2006 movement toward majority voting for the election of directors," predicted Richard P. Swanson, securities attorney at Arnold and Porter, at the beginning of this year, a prognostication that proved correct as many companies adopted a requirement that all directors be elected by an affirmative majority of votes cast.
Proposals on a dozen social issues, including disclosure of corporate political donations and proposals relating to global warming, proliferated during this proxy season. Of the more than 350 social proposals that were filed this spring by shareholders, the largest number, 60 proposals, revolved around the adoption of disclosure and board oversight of some or all political spending, according to San Francisco-based As You Sow, an advisory group that works with corporations and shareholders in areas including corporate governance and the environment.
But while 2007 was an active year for shareholder resolutions, there were few full-blown proxy contests for control. "There were fewer than I expected," says Swanson. "The reason is that boards are being more responsible and acting peremptorily [to address shareholder concerns]."
AT THE FOREFRONT OF SAY ON PAY
"Say on pay" proposals, which would allow shareholders an annual nonbinding vote on executive pay, were submitted at more than 60 companies this year, according to proxy advisory services. These proposals approach the issue of excessive executive compensation in a way that may get results without seeking to impose pay limits, explains Michael Passoff, associate director of the Corporate Social Responsibility Program at As You Sow, and companies are responding to the call. In fact, proxy advisory services have recommended votes in favor of these proposals. "Shareholders in the United Kingdom have been allowed to cast advisory votes on executive compensation for several years," says Passoff. "Such a vote is not binding but gives shareholders a clear voice that provides feedback on how shareholders view management performance."
"The average support for say on pay is around 40 percent in shareholder votes, which is pretty high," says Roger McCormick, vice president, Proxy Research, Glass Lewis. "It received a majority vote at Blockbuster and Verizon, but at Verizon it just squeaked through with a bare majority. But remember, these are both nonbinding. The goal isn't for shareholders to have a vote up or down on compensation or in compensation program design or to set amounts, but instead to encourage companies to talk about performance goals and targets."
The more extreme forms of say on pay proposals, which are usually defeated …
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Publication information: Article title: It's All about Proxy. Contributors: Brannen, Laurie - Author. Magazine title: Business Finance. Volume: 13. Issue: 9 Publication date: September 2007. Page number: 39+. © Penton Media, Inc. Dec 2008. Provided by ProQuest LLC. All Rights Reserved.