Spring Training ’09: Nine Players and Issues to Watch During the Upcoming Proxy Season Patrick McGurn Senior Counsel ISS Governance @2009 Foley & Lardner LLP 1 Attorney Advertising - Prior results do not guarantee a similar outcome. 321 N. Clark Street, Suite 2800, Chicago, Illinois 60654 - 312.832.4500
Sideways Season: Voting Support Plateaus in ’08 (average % votes cast) Support grew for 70 RCB, MTV, CV and IC 60 50 ’08: 4 40 issues 30 average 2007 20 majority 2008 support; 10 five in 0 Parachutes Say on pay Indep bd chair Repeal class board Elimin SMV Majority vote Special meeting Cum vote Link pay to perf ‘07 Source: RiskMetrics/ISS Governance Services The “Sideways” Season, Part 2 Higher rate of Breakout omission in 2008 season for SOP 100 Pay and board 90 issues dominate 80 proponents’ 70 agendas Lion’s 60 Tracked share of 50 Withdrawn MTV & PFP 40 Omitted proposals 30 withdrawn 20 Voted 10 0 e r y d e f t b V t r e i p a b t t a M e i p o e r o e t h s v p m v S r n n s c n a y r o l n o o l u p t c i i l a e a y c i f m m r i c l d t a l o y a u n i s S a a e c l j C E u e a P p i I S p t M S i e l o R P Source: RiskMetrics/ISS Governance Services @2009 Foley & Lardner LLP 2 Attorney Advertising - Prior results do not guarantee a similar outcome. 321 N. Clark Street, Suite 2800, Chicago, Illinois 60654 - 312.832.4500
Top 9 for 2009 Pitcher - President Barack Obama @2009 Foley & Lardner LLP 3 Attorney Advertising - Prior results do not guarantee a similar outcome. 321 N. Clark Street, Suite 2800, Chicago, Illinois 60654 - 312.832.4500
First Inning: Election/Bailout Fallout Expected � Governance issues on the campaign trail – Populist campaigns pitted Main Street vs. Wall Street – Shareholders’ Bill of Rights—Son of SOX—in the 1st 100 days? � Troubled Asset Relief Program (TARP) “Blowback” � Say on Pay, Proxy Access, Compensation Reforms � New momentum on E/S issues – Global Warming, Universal Healthcare, Political Contributions, Human Rights First Inning: Election/Bailout Fallout Expected (cont.) � Changes at SEC and DOL – Mary Schapiro (Nominee for SEC chair draws mixed reviews) � Swift action on NYSE broker vote rule change? � Fewer “no action” letters on shareholder proposal? � Rep . Hilda Solis (AFL-CIO Lifetime Voting Score: 97%) @2009 Foley & Lardner LLP 4 Attorney Advertising - Prior results do not guarantee a similar outcome. 321 N. Clark Street, Suite 2800, Chicago, Illinois 60654 - 312.832.4500
Catcher - Your Name Here Second Inning: Focus on Board Elections � Uncontested elections – Majority threshold voting (MTV) takes hold � 70% of S&P 500 boards boost accountability � 2008: Average support >50% of votes cast – Half of proposals withdrawn � 2009: Proposals float downstream; cleanup at S&P – ’09: High “No” votes expected � Pay and risk management issues will predominate � Contested elections – What’s next? Ballot access? Fight cost reimbursement? – Hedgies subject to market pressure � A drop in proxy fights? @2009 Foley & Lardner LLP 5 Attorney Advertising - Prior results do not guarantee a similar outcome. 321 N. Clark Street, Suite 2800, Chicago, Illinois 60654 - 312.832.4500
1B - Ira Millstein Third Inning: More Calls For Independent Chairs � Focus on leadership in wake of breakdowns – ’08: Average support of nearly 30% of votes cast � Majority support at WaMu (board pulls title/fired CEO) � Issue at financials—Wachovia (board switched/fired CEO) – ’09: Bumper crop of shareholder proposals expected � Will meltdown spur voting support? � Global practices may influence support � Growing support in some boardrooms – Minority practice in US � 16% of S&P 500 firms; 22% of S&P 1500 – Focus on Lead Director Duties (Proposals) @2009 Foley & Lardner LLP 6 Attorney Advertising - Prior results do not guarantee a similar outcome. 321 N. Clark Street, Suite 2800, Chicago, Illinois 60654 - 312.832.4500
2B - Congressman Barney Frank Fourth Inning: Say On Pay: Stagnate to Legislate � When will the mandate become effective? � ‘09: May remain top shareholder proposal topic – ’08: Support remained steady at around 42% of votes cast � Majority votes at >10 firms including Apple and Sun Micro – Management votes promised by >10 firms � Aflac (RMG’s 1st thumbs up in ’08) � Jackson Hewitt Tax Service (RMG’s 1st thumbs down in US) � Continuing difference of opinion @2009 Foley & Lardner LLP 7 Attorney Advertising - Prior results do not guarantee a similar outcome. 321 N. Clark Street, Suite 2800, Chicago, Illinois 60654 - 312.832.4500
3B - AMD Comp Panel Chair Bruce Claflin Fifth Inning: Pay During a Downturn/Populist Revolt � How far will the twin R&R plagues spread? – Repricings hot topic in tech land � Shareholder approval? � Most non-tech boards say “no” – Resetting the bar: many looking to make changes � Most changes to metrics & hurdles in future years � The “retention” bonus lives � The good news: most will stay the course @2009 Foley & Lardner LLP 8 Attorney Advertising - Prior results do not guarantee a similar outcome. 321 N. Clark Street, Suite 2800, Chicago, Illinois 60654 - 312.832.4500
SS - Towers Perrin’s John England Sixth Inning: Cleanup on the Compensation Aisle What’s Out What’s In Pay for failure (P) Extending the TARP (P?/L) Gross ups (P/L) – Pay risk analysis (P?/L) – Sharper claws (P?/L) SERPs/Def Comp (P/L) – Closing tax loopholes Conflicted consultants (P/L) � Severance (L) Golden coffins (NEW-P) � Deduction caps (L) Hold Thru Retirement (NEW-P) Perks, including PUCA Internal pay equity (P) Accelerated vesting (P) Meet the “malus” Employment agreements (P) – AKA two-way pay @2009 Foley & Lardner LLP 9 Attorney Advertising - Prior results do not guarantee a similar outcome. 321 N. Clark Street, Suite 2800, Chicago, Illinois 60654 - 312.832.4500
LF - Carl Icahn Seventh Inning: M&A Fears Ignite TO Issues � Restore right to call meetings – ’08: Drop in support; ’09: Rise in proposals � Repeal classified boards (50%/50% split at S&P 1500) – ’08: Rise in support; ’09: Drop in proposals? � Remember Bismarck: North Dakota or Bust (NEW!) � Eliminate supermajority vote requirements � Vote on poison pills – Just Vote “No” hits boards that go forward without a vote � Advance notice requirements – Housekeeping changes or disclosure of synthetic voting rights @2009 Foley & Lardner LLP 10 Attorney Advertising - Prior results do not guarantee a similar outcome. 321 N. Clark Street, Suite 2800, Chicago, Illinois 60654 - 312.832.4500
CF - Walden Asset Management’s Tim Smith Eighth Inning: E&S Issues Draft Off Obama Victory � Global Warming & Sustainability (60+) � Political Contributions (50+) � Universal Healthcare (40+) � Other hot topics – Human rights – International labor practices/EEO – Predatory lending – Internet privacy/freedom of expression @2009 Foley & Lardner LLP 11 Attorney Advertising - Prior results do not guarantee a similar outcome. 321 N. Clark Street, Suite 2800, Chicago, Illinois 60654 - 312.832.4500
RF - Home Depot Lead Director Bonnie Hill Ninth Inning: Director/Shareholder Communications � New Rules of Engagement – Talk first � Hot topics – Risk, accountability and pay – More directors seek meetings with investors � Formal meetings � Social Networking – RMG’s Governance Exchange @2009 Foley & Lardner LLP 12 Attorney Advertising - Prior results do not guarantee a similar outcome. 321 N. Clark Street, Suite 2800, Chicago, Illinois 60654 - 312.832.4500
Additional Resources 2009 Policy Changes: http://www.riskmetrics.com/policy/2009/policy_information Contact information Policy Gateway: Patrick.McGurn@riskmetrics.com http://www.riskmetrics.com/policy Governance Exchange: http://www.riskmetrics.com/governance_exchange/issuers 2009 Proxy Season Trends: http://www.riskmetrics.com/knowledge/proxy_season_2009 @2009 Foley & Lardner LLP 13 Attorney Advertising - Prior results do not guarantee a similar outcome. 321 N. Clark Street, Suite 2800, Chicago, Illinois 60654 - 312.832.4500
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