A proposal asking for an annual shareholder advisory vote on executive pay won 51.8 percent support at Motorola's annual meeting, according to a May 30 company press release. The proposal, submitted by shareholder William Steiner, went to a vote on May 7.

The result marks the third time a "say on pay" proposal has received majority support this season, according to ISS data. A similar proposal at Verizon Communications won 50.2 percent of votes cast on May 3, and another resolution at Blockbuster on May 9 received 57 percent support, the highest result so far for "say on pay."

The issue first appeared on company ballots in 2006, and averaged 40 percent support over seven meetings last year. "Say on pay" has fared slightly better this year, averaging 42 percent support at 22 meetings where results are known.

Four proposals are scheduled to appear on company ballots in early June, including Nabors Industries on June 5, Ingersoll-Rand on June 6, Affiliated Computer Services on June 7, and Countrywide Financial on June 13.

Lawmakers continue to weigh in on the "say on pay" issue. Democratic Sen. Barack Obama of Illinois--a presidential contender--has asked Sen. Christopher Dodd of Connecticut, the Democratic chairman of the Senate's banking committee--who is also running for president--to hold hearings on his bill that would give shareholders at all public companies an annual advisory vote on the executive pay process.

Obama put forward the bill in late April as companion legislation to a similar bill by Rep. Barney Frank of Massachusetts, chair of the financial services committee in the House of Representatives. The House approved Frank's bill on April 20.

The California Public Employees' Retirement System (CalPERS) reported that its proposal asking for shareholder access to the proxy ballot received 42 percent support at UnitedHealth Group's May 29 annual meeting.

The Minnesota-based health insurance company has not indicated whether this percentage is based on votes cast or all outstanding shares, or whether that number reflects a total that includes abstentions or broker votes, CalPERS officials said.

Nevertheless, a 42 percent vote is another significant display of investor support for this first-year proposal. In March, a binding access proposal won 43 percent support at Hewlett-Packard. That proposal was filed by the American Federation of State, County, and Municipal Employees and three state pension funds. Very few shareholder resolutions have averaged more than 40 percent support in their first year on corporate ballots.

The non-binding CalPERS proposal at UnitedHealth called on the board to allow shareowners of 3 percent or more of company stock for at least two years to nominate up to two board candidates to appear on the management proxy statement. The company opposed the proposal, arguing that proxy access would be too "disruptive, divisive, and expensive."

Earlier this year, UnitedHealth restated its results by $1.5 billion to account for improperly dated stock options. Former CEO William McGuire resigned last year, and the company has adopted a series of governance reforms since the options irregularities were first disclosed in March 2006.

The Securities and Exchange Commission heard industry panelists raise concerns about the costs of, and suggest potential alternatives to, a proposed New York Stock Exchange rule to bar brokers from voting uninstructed shares in uncontested director elections.

While most of the panelists agreed the current rule should be changed, they differed on how that should be done. "I can't think of anything that is more important than who are the directors of our public companies," Catherine Kinney, president of NYSE Euronext, told the SEC on May 24.

The discussions on the NYSE rule change took place during a half-day SEC roundtable on proxy voting mechanics, which also included panels on voting issues and shareholder communications. The event was the second of three forums that the agency is holding on shareholder rights and the proxy voting process as it seeks to craft new proxy rules this summer. A final roundtable, which will be held May 25, will feature comments from investors and business advocates on shareholder proposals.

In October, the NYSE proposed changing Rule 452 to remove director elections from the list of "routine" matters that brokers may vote on if their clients don't send voting instructions within 10 days of an annual meeting. The NYSE rule change, which would apply to meetings after Jan. 1, 2008, requires SEC approval.

Traditionally, brokers have cast those shares in favor of management nominees, prompting the Council of Institutional Investors and other investor advocates to describe the practice as"ballot-box stuffing." The CtW Investment Group, which manages union assets, notes that broker votes can be decisive in "vote-no" campaigns and points to the recent close vote on a CVS/Caremark director.

Broker votes do account for a significant percentage of the shares in U.S. companies. About 85 percent of exchange-traded securities are held by brokers and banks on behalf of their clients, the SEC noted in a briefing paper on voting mechanics. While most institutions now vote their shares or give voting instructions, only 30 to 40 percent of retail investors bother to vote their shares. According to Broadridge Financial, broker votes on average account for about 19 percent of the votes cast at U.S. corporate meetings.

"While Rule 452 historically has worked well for issuers and investors, the time has come for the NYSE not to have brokers vote for investors in all uncontested elections," said David J. Berger, a partner with the law firm of Wilson Sonsini Goodrich & Rosati.

John Endean, president of the American Business Conference, said he agreed with shareholder activists that broker votes "serve as a thumb on the scale in vote-no campaigns." However, Endean argued that not every director election is non-routine, and broker votes should only be barred from certain elections, e.g., those with an organized vote-no campaign. Excluding broker votes from all director elections would increase the solicitation costs for small and mid-cap firms that need those votes to meet quorum requirements without changing the outcome of those board elections, Endean said. "Broker voting should be mended, not ended," he added.

Anthony Horan, the corporate secretary at J.P. Morgan Chase, warned that the rule change could disenfranchise retail investors who don't follow proxy matters as closely as institutions. "Just eliminating broker votes would have the adverse effect of leaving out a lot of people who expect their votes to be cast," he said.

Paul Schott Stevens, president of the Investment Company Institute, which represents mutual funds, said the NYSE rule change should not be applied to funds, which have a greater proportion of retail investors and already have difficulty meeting quorum requirements. In a statement, he warned that the solicitation costs for mutual funds would more than double if they were not exempted.

Kinney defended the rule and noted that companies raised similar concerns about potential costs when the NYSE in 2003 removed equity plans from the list of routine matters under Rule 452.

Even as takeover barriers are falling in the United States, they are rising in Japan, France and elsewhere in Europe. European and Japanese companies are seeking to insulate themselves from unsolicited offers by adopting new takeover defenses such as poison pills. Sound familiar? Yes, for those who recall the takeover wave that hit the U.S. in the 1980s -- and the poison pills spawned in that era.

Poison pills are popping up in Japan and France for the first time. France adopted legislation last year that legalizes poison pills, called bons Breton in honor of Finance Minister Breton. In Japan, poison pills were as unknown as hostile bids until two years ago. Takeover defenses last year trumped Japan's only hostile bid by a domestic blue-chip company. But how long will it take before major hostile takeovers succeed in Japan? To protect themselves from that possibility, hundreds of companies likely will place management proposals on proxy ballots in the coming weeks asking shareholders to approve poison pills.

Though poison pills, or shareholder rights plans, were first made in the USA, the nation has since developed a robust market for corporate control. American companies are increasingly eliminating or modifying poison pills – while also moving to annual board elections, thus removing another potent antitakeover device. In 2005, for the first time, the number of S&P 500 companies with poison pills, or shareholder rights plans, fell to less than half. In 2006, also for the first time ever, a majority of S&P 500 companies had annually elected boards.

The cross-border hostile takeover of Arcelor by Mittal Steel last year stirred protectionist responses in France and other European nations last year. Ironically, though, a venerable Canadian steel company accepted a takeover bid last year from none other than Arcelor – just before the latter itself became a takeover target. Foreigners last year even acquired Canada's Hudson Bay Co., a national icon founded in 1670. But Canadians took it all in stride. Canadian calm reflects two features that define the market there for corporate control: it is remarkably open to takeover bids, and shareholders have the final say on them.

When the Delaware Supreme Court first ruled that poison pills were legitimate two decades ago, it noted that a company's adoption of a poison pill hardly ends the matter. The larger question remains of how the board will respond to actual takeover offers. Today, an analogous question looms as to how European and Japanese companies will use antitakeover devices to protect shareholder value.

For a new report on the topic, see Poison Pills in France, Japan, the U.S., and Canada (May 2007), available here.

The Securities and Exchange Commission has announced a list of panelists for the agency's May 24 and 25 roundtables on the proxy voting process. To view the list, please visit here.

Traditional "socially responsible investing" has been around for many years, often most noticeable in the form of firms wholly dedicated to this strategy. In its most familiar form, SRI involves screening a universe of companies and eliminating those that violate one of a number of ethical tenets, such as involvement in the production of tobacco products, weapons, or adult entertainment.

Recent articles in the New York Times and the Washington Post suggest that an SRI approach is tantamount to investing with your heart rather than with your head. Both pieces assert that investors necessarily sacrifice returns when following an SRI strategy.

However, it would seem that both articles miss the larger point when it comes to evaluating the way in which investors now seek to incorporate environmental, social and governance factors (ESG) into the investment process. This approach is no longer the exclusive domain of traditional SRI firms. Rather, a large, and still growing number of investment managers, representing the spectrum of institutional investors, are beginning to consider ESG as part of the research process–with an eye towards uncovering hidden risks as well as opportunities.

Instead of striking entire sectors (think utilities, energy, resources) from consideration, investors are as likely to focus on identifying leaders across all sectors and placing bets on those companies that have gone well beyond their peers in managing the risks associated with environmental and social issues. Indeed, there is growing sentiment that such companies will outperform over time.

This means that an analysis of ESG factors is shaping investment decisions for portfolios well beyond those labeled as "SRI Funds." Even among the traditional SRI community, longtime leaders have shifted from the traditional approach to one in which they are focused on identifying companies that are leaders in operating their businesses in a sustainable manner based on the notion that these companies will be long term winners–in both sustainability and performance.

Climate change, resource scarcity, human rights, and a host of other issues have driven many investors to undertake a broader evaluation of companies as part of a growing focus on the use of extra-financial indicators to uncover risk. As we are witnessing rapid change around the incorporation of ESG in the investment process, it will be interesting to see how this approach continues to evolve. And, just as we now recognize that companies ignore ESG issues at their peril, so it would appear that investors can ill afford to discount ESG when making investment decisions.

A close director vote at CVS/Caremark is fueling investor demands for the Securities and Exchange Commission to approve a New York Stock Exchange rule change to bar brokers from casting uninstructed investor votes in board elections.

"I think this vote will be Exhibit A in the deliberations of the NYSE and the SEC in the coming weeks," said William Patterson, executive director of the CtW Investment Group, which has urged CVS/Caremark to request the resignation of director Roger Headrick.

The Council of Institutional Investors (CII) plans to hold a conference call on May 29 to address the issue, Patterson said.

Headrick received 606.585 million "for" votes and 453.175 million "against" votes at company's May 9 meeting, CVS/Caremark said in a regulatory filing. Based on those numbers, Headrick received a 42.7 percent negative vote. However, the vote results for five other proxy items reveal that 264.762 million "broker non-votes" were cast. If those broker votes are subtracted from Headrick's "for" total, then the "against" votes would amount to 57 percent of the remaining votes.

The stakes are higher at CVS/Caremark, because the company, like scores of other large firms, now requires that board nominees receive a majority of votes cast in uncontested elections to be elected.

"Before this proxy season, all of this was theoretical," Patterson told Governance Weekly. At CVS/Caremark, "the broker votes were decisive and that's clear."

CtW, which manages funds for the Change to Win labor federation, targeted Headrick and a second former Caremark Rx board member over their handling of the pharmacy benefits company's recent sale to CVS, the largest U.S. drug-store chain.

In its regulatory filing, CVS/Caremark said "votes 'against' a director's election count as a vote cast, but 'abstentions' and 'broker non-votes' do not count as a vote cast with respect to that director's election."

However, the vote results suggest that some of those broker votes were counted in Headrick's election. The company's filing indicates that a total of 1,059.76 million shares were cast either "for" or "against" Headrick. CVS/Caremark also reported that the total votes cast at the meeting were 1,091.671 million, or 31.91 million more. The vote results for five other proxy items indicate that there were 264.762 million broker votes, so it appears that 232.852 million broker votes were counted in Headrick's election for his vote total to reach 1,059.76 million. Those 232.852 million votes exceed the 153.41 million difference between the "for" and "against" votes that the company reported that Headrick received.

Company spokeswoman Carolyn Castel told Dow Jones Newswires that the "broker votes were spread among the votes cast for and against the directors."

However, Patterson and other investor advocates contend that broker votes are routinely cast in favor of management nominees in uncontested elections. The Council of Institutional Investors has said these votes "taint the integrity of the proxy voting process by stuffing ballot boxes for management."

In May 15 letter to David Dorman, chair of the company's nominating and corporate governance committee, Patterson wrote, "these votes do not accurately represent shareholder sentiment" and he warned that using "controversial 'phantom' votes" to elect Headrick "would only exacerbate" concerns about the board's accountability to shareholders.

So far, CVS-Caremark is standing by Headrick. "On the day of our shareholder meeting we expressed our enthusiasm for the election of the board and we wouldn't have anything more to add at this point," Castel said, according to Dow Jones.

Under current NYSE rules, brokers may vote on "routine" matters with shares from clients who do not provide voting instructions at least 10 days before a scheduled company meeting. While shareholder proposals and equity incentive plans are not considered routine, director elections still are. If approved by the SEC, the NYSE rule change would apply to annual meetings held after Jan. 1, 2008.

Average total potential dilution for major U.S. companies dropped 1.5 percentage points in 2006, in keeping with a three-year trend, according to Stock Plan Dilution 2007, a new ISS study that examines S&P 1,500 companies.

The data from 2006 not only confirm the recent trend of declining potential dilution, but also suggest that the pace of the trend is accelerating. From 2003 to 2005, overall average potential dilution for all companies fell by one percentage point from 17.0 percent to 16.0 percent. From 2005 to 2006, average potential dilution, or "overhang," dropped to 14.5 percent, the study finds.

A number of factors have contributed to the drop in overhang. First, the stock option, long a "free" compensation tool that enjoyed favorable accounting regulations, is no longer exempt from impacting a company's expenses. This development has resulted in a shift away from the use of stock options and toward the use of full-value awards, such as time-lapsing restricted stock and performance-vesting shares.

Since a full-value share has more intrinsic value than an option, whose tangible value is only the positive difference between the stock's market price and the option's exercise price, the number of shares necessary to fulfill a company's equity compensation needs is declining.

Secondly, companies listed on a major U.S. exchange are no longer able to adopt or add shares to a plan without obtaining shareholder approval. The inability to circumvent shareholder scrutiny may be influencing the amount of shares being reserved under compensation plans.

Third, the growing attentiveness of institutional shareholders to proxy voting, aided by the Securities and Exchange Commission's requirement that mutual funds must establish proxy voting guidelines and disclose their votes publicly, also is having an impact.

Notably, falling dilution levels stem not only from companies' decisions to curb the number of shares reserved under stock-based compensation plans, which is generally favored by investors, but also by decisions to float more shares in the open market, which is generally less well-received by investors.

From 2005 to 2006, these two factors contributed almost equally to lowering average potential dilution. The percentage decrease in the aggregate number of shares reserved under stock plans was 5 percent, while the percentage increase in the aggregate number of outstanding shares was 5.2 percent.

The moderation of potential dilution is likely to continue as companies anticipate investor backlash from the growing scandal over option backdating and "spring-loading" practices. Dilution levels also may continue to drop given that average potential dilution remains above 2000 levels, when the stock market bubble peaked. That year, average overhang stood at 13.4 percent.

With respect to benchmark firms, 2006 was a milestone year for two reasons: It was the first year that the majority of all study companies had less than 15 percent overhang. Secondly, 2006 was the first year in which the key 75th percentile fell below the 20 percent threshold.

The S&P 500, Mid Cap, and Small Cap indices all witnessed a decline in average potential dilution from 2005 to 2006. Interestingly, the Small Cap index edged out the S&P 500 as the index experiencing the most significant decline.

Companies with High Levels of Dilution
The prevalence of companies that fall into what might be called "mainstream" practices on overhang is high and continues to rise. In 2006, 78 percent of study companies had potential dilution of less than 20 percent, a meaningful increase from 73 percent in 2005.

At the same time, companies with abnormally high potential dilution are becoming increasingly rare. The percentage of study companies with more than 40 percent overhang dropped from 2.8 percent in 2005 to 1.8 percent in 2006. Companies with dilution levels in excess of 50 percent stood at 0.8 percent (11 companies) in 2006, compared with 1.9 percent (29 companies) in 2005. Twenty-four companies, or 1.6 percent, had dilution levels in excess of 50 percent in 2004.

Eleven companies are listed on this year's top-10 list for highest dilution due to a tie for the 10th position. Coincidentally, the 11 companies also represent the only study companies with more than 50 percent potential dilution.

It comes as no surprise that all but two of the 11 companies maintain at least one plan with an evergreen feature, through which the plan's reserve periodically increases. More commonly adopted during the late 1990s and early 2000s, evergreen plans are rarely introduced today.

Five of the listed companies are in the information technology sector, which as noted earlier, carries the highest average potential dilution among all sectors.

As the 2007 U.S. proxy season reaches its peak, early vote results indicate that shareholders are giving greater support to proposals seeking advisory votes on executive pay, majority voting in director elections, and the right to call special meetings.

Pay-related proposals have received the most attention, as investors have filed more than 60 "say on pay" resolutions that seek an annual shareholder vote on compensation. In addition, new resolutions seeking reforms in stock option practices and how companies calculate supplemental retirement benefits have fared well so far.

According to preliminary vote results, support for advisory vote proposals has averaged 42.5 percent over 18 meetings this year, better than the 40 percent average support the issue earned at seven meetings in 2006.

One "say on pay" proposal has received majority backing thus far--winning 57 percent of votes cast at Blockbuster on May 9, according to the proponent, the New York City Employees' Retirement System. At least five proposals so far have received more than 45 percent support, according to ISS data.

Investors filed more than 60 proposals this season requesting that firms more closely link executive pay and company performance. General pay-for-performance proposals have averaged 34.6 percent support over nine meetings so far, a slight decrease from last year's average of 36.1 percent.

However, 12 proposals have been withdrawn, indicating that companies are more willing to engage with stockholders in drawing up performance metrics for calculating executive pay. Shareholder activist John Chevedden said that at least one company, Progressive, has committed to adopting pay-for-performance metrics this season.

Proposals asking for a specific link between stock awards and option grants and executive performance have fared better than general pay-for-performance measures. A majority of shareholders at KB Home and Hewlett-Packard backed a performance-based stock proposal this year, with 54.6 percent support at KB Home, the company reported. HP shareholders gave the resolution 53 percent support, according to Chevedden.

A number of resolutions this year again propose recouping bonus payments to executives if a later investigation or restatement determines that their incentive goals weren't met. Only four of these so-called "clawback" proposals have been voted on, and one received majority support on April 26 at Wyeth, although the vote totals have not been released. Clawback proposals averaged 23.6 percent support last season.

These proposals and others reflect a shareholder backlash against what the AFL-CIO has called "pay for failure." Executive retirement and severance payments have come under scrutiny in recent years as corporate exit packages, sometimes totaling in the hundreds of millions, make headlines nationwide.

A number of proposals, over 20 filed so far, ask companies to disclose, limit the amounts of, or let shareholders vote on Supplemental Executive Retirement Plans, or SERPs, which are benefits given to top management in addition to the company-sponsored pension plan. SERP proposals have won an average of 36.2 percent support over six meetings where results are known, with two resolutions attaining majority support: 51.6 percent at Goodyear on April 10, according to the United Brotherhood of Carpenters and Joiners, and 50.2 percent at Raytheon on May 2, according to the company.

Investors also appear more receptive to resolutions that ask for a shareholder vote on future "golden parachute" packages for outgoing executives. The International Brotherhood of Electrical Workers reported that its resolution won 65 percent at PPG Industries, while a Bricklayers & Trowel Trades proposal got 85.6 percent support at KB Home on April 5, the company reported. This result may be a record for a management-opposed proposal. The California homebuilder has been criticized by investors for pay practices and is under federal investigation in connection with the timing of past option grants. In 2006, golden parachute proposals averaged 50 percent support at 11 firms.

The stock options backdating scandal that engulfed more than 200 U.S. companies has spawned a number of resolutions this year. The Amalgamated Bank's LongView Fund submitted nine proposals asking companies to fix grant dates before the fiscal year begins and to price options at an average of the stock's opening and closing price on the grant date.

According to Cornish Hitchcock, an attorney for LongView, most of the proposals were withdrawn following constructive talks with the companies. The proposal won 47 percent at Apple on May 10, Hitchcock said. At CVS/Caremark's May 9 meeting, a similar proposal received a 48.4 percent vote, a strong showing for a first-year resolution.

Another new proposal asks companies to disclose information that relates to the independence of the executive pay consultants hired by boards, such on other work that the consultant may be doing for the company. One such proposal won 47 percent at Verizon Communications, while another proposal received 44.8 percent at CVS/Caremark, the companies reported.

Investor advocates defended non-binding shareholder proposals as a useful tool of engagement with companies and urged the Securities and Exchange Commission not to scale back the ability of investors to file those resolutions.

"Non-binding proposals have an important purpose in our market," said Ted White, a former California pension fund official, who now is a strategic advisor with Knight Vinke Asset Management. "Some of the topics raised in non-binding proposals a decade ago now are accepted as best practices."

Investors also urged the SEC to ensure that investors can bring proxy access resolutions at companies. "No issue is more important to our members than the power to nominate directors," said Ann Yerger, executive director of the Council of Institutional Investors (CII).

White and Yerger made their comments at a May 7 roundtable, where a Delaware judge, corporate lawyers, and several law professors questioned the value of non-binding shareholder proposals and urged the SEC to limit annual meetings to bylaw amendments and director elections. While investor advocates hope the SEC will allow shareholders to file proxy access proposals, most of the discussion focused on non-binding resolutions and alternative ways to raise concerns with companies, including a proposal to establish secure online forums for investors.

During the all-day roundtable in Washington, the five SEC commissioners heard testimony from 20 panelists on a wide range of issues, including the shifting balance of power from boards to investors, technological advancements to facilitate shareholder communication, and the problems of "empty" voting and "over-voting."

The agency plans to release a draft rule this summer, but the commissioners and senior Corporation Finance Division staff members did not shed much light on the potential details. The SEC appears to be considering new limits on non-binding (also known as "precatory") proposals under Rule 14a-8 as the agency explores whether to give investors a limited right to nominate board nominees or file proxy access proposals at individual firms. Until a court ruling last year, the SEC allowed companies to exclude access proposals.

Additional SEC roundtables are scheduled for May 24 and 25. The next forum is to focus on voting and procedural issues, while the final roundtable will likely feature comments from investors and corporate advocates.

During the May 7 forum, several panelists noted that non-binding proposals have no legal standing under the corporate laws of Delaware and other states. As the panelists explained, these proposals arose under the federal laws that govern proxy disclosures.

Delaware Chancery Judge Leo Strine Jr. compared non-binding proposals to "prisoner litigation for stockholders" and described them as "imaginary" votes. "In Delaware, shareholders vote on 'rea'' things, such as the election of directors and major transactions," the judge noted.

Likewise, the SEC, in a briefing paper for the forum, said "it is questionable whether the proxy system is the most efficient means of shareholder communication with management on purely advisory matters."

Stanley Keller, a securities lawyer with Edwards Angell Palmer & Dodge in Boston, stressed the need for an alternative mechanism to handle non-binding proposals. "I think it would be moving backward to simply eliminate them, but there should be a way to take them out of the annual meeting process and focus the meeting on just binding proposals," he said.

At the same time, several panelists noted that companies can face real consequences if they ignore precatory proposals that receive majority support. Amy L. Goodman, a partner at the law firm of Gibson, Dunn & Crutcher, which represents directors and companies, warned that directors at firms with new majority vote requirements may face difficulty getting elected if they fail to respond to those proposals.

Likewise, Cary Klafter, a vice president and corporate secretary at Intel, noted: "We're entering an era where every vote is a potential proxy contest."

(Under its benchmark policy, ISS advises investors to withhold support from directors who fail to act on a shareholder proposal that won support from a majority of the shares outstanding the previous year, or that won a majority of votes cast the two previous two years.)

Binding or Non-Binding?
Investor advocates and some panelists defended non-binding proposals as a useful way to open a dialogue with companies. Ninety-seven percent of the proposals filed by shareholders each year are precatory, Yerger of CII noted.

"Without the ability to ask other shareholders to give their views on these matters, companies would be less willing to talk," said Paul Neuhauser, a law professor of the University of Iowa.

Yerger said most investors prefer to file non-binding proposals, because binding resolutions are perceived as "a stick" and too "prescriptive." She also noted that it is challenging to draft a well-crafted bylaw and supporting statement without exceeding the 500-word limit under SEC rules. Finally, many companies still have supermajority (e.g., 75 percent) requirements, which make it very difficult to pass a bylaw that's opposed by management. "Our members would be concerned if we were to move to a binding-proposal-only regime," she said.

John Wilcox, senior vice president at TIAA-CREF, recounted how the teachers' pension fund filed non-binding proposals seeking majority voting in board elections at 10 firms this season. All 10 proposals were withdrawn after the companies agreed to adopt bylaw changes.

"We prefer non-binding proposals because it's important to us not to micromanage the decision-making of the company," Wilcox told the SEC.

Commissioner Paul Atkins questioned Wilcox on the transparency of these negotiations with companies and likened the process to "arm twisting." Atkins said majority vote proponents are using negotiations to achieve an election change that has been rejected by shareholders at some firms. "To me, it's a tyranny of the minority," the commissioner said.

Two proposals related to executive pay received close to 50 percent of votes cast at Apple's annual meeting on May 10, according to Cornish Hitchcock, an attorney for the Amalgamated Bank's LongView Fund, which submitted one of the proposals.

An options reform proposal won 47 percent support, while a request for an annual advisory vote by shareholders on executive pay won 46 percent, Hitchcock said.

LongView, a labor-affiliated fund, put forward the options reform proposal, which asked the company to disclose grant dates before the beginning of each fiscal year and to price options at the average of the opening and closing stock prices on the grant date. Apple has declined to adopt new policy on options, noting that it has stopped giving options to top executives in favor of restricted stock grants.

"[W]e think it's important to have a policy dealing with stock options even if they're not currently in favor," Hitchcock told Governance Weekly.

The proposal, co-sponsored by the Connecticut Retirement Plans and Trust Funds, was one of the first to appear on corporate ballots since the U.S. options timing scandal broke last year. Apple restated its earnings in December, reflecting a loss of $105 million, to account for past option grants after an internal investigation concluded some grant dates were "intentionally selected in order to obtain favorable exercise prices."

The 47 percent vote for the option resolution is a strong showing for a first-year proposal, and the vote far exceeds the average support earned by most compensation-related proposals in past seasons, according to ISS data.

Another LongView options proposal may have received majority support at CVS/Caremark on May 9. Company officials said the vote result was too close to call at the end of the meeting. A similar measure filed by the Teamsters went to a vote at Broadcom on May 2. Broadcom officials indicated that the proposal did not pass, but they declined to disclose the percentage support before the company's next quarterly regulatory filing.

At Apple, the pay vote resolution was filed by the AFL-CIO. The proposal is the fifth on this topic to receive more than 45 percent support this season, according to ISS data. The best showing so far was the 57 percent vote for a New York City Employees' Retirement System resolution at Blockbuster on May 9, proponents said.

Overall, these "say on pay" proposals have averaged 42 percent support at 17 meetings this season. While shareholders can vote on executive pay in the U.K., Australia, and other markets, the idea is relatively new in the United States. In 2006, pay vote proposals averaged 40 percent support at seven meetings in their first year on corporate ballots.

In the first clear majority vote for the issue, a proposal seeking an annual advisory shareholder vote on executive pay received 57 percent support at Blockbuster, according to the proponent, the New York City Employees' Retirement System (NYCERS).

"We are encouraged by the high level of shareholder support and hope that Blockbuster's board of directors will act swiftly to implement the expressed will of its shareholders," New York City Comptroller William C. Thompson wrote in a press release.

The video-rental company declined to confirm the exact level of support, but company officials did indicate that the NYCERS resolution--along with another shareholder proposal asking the company to eliminate its dual-class share system--was approved at Blockbuster's May 9 annual meeting.

"[The proposals] are non-binding, so our board will take them under advisement," Angelika Torres, director of Blockbuster's investor relations division, told Governance Weekly.

The Blockbuster vote is the highest known support received by any advisory pay vote proposal. The "say on pay" initiative is relatively new, having debuted with seven proposals last year that averaged about 40 percent support. The showing at Blockbuster is noteworthy because the company has not been criticized by prominent investors over its pay practices or faced an investigation into past stock option grants.

In its supporting statement, NYCERS said it wanted an advisory vote to "provide Blockbuster with useful information about whether shareholders view the company's senior executive compensation, as reported each year, to be in shareholders' best interests."

Management at the Dallas-based company opposed the measure, saying it already provides means by which investors can communicate with the board.

A similar resolution at Verizon Communications may have won more than 50 percent of votes cast at the company's May 3 meeting. Preliminary counts indicate the vote was too close to call at the end of the meeting, and the company said it plans to tabulate the votes and release final results in about two weeks.

At 14 companies this season, pay vote resolutions have averaged 42 percent support, two percentage points higher than in 2006. A proposal by the Needmor Fund, a religious group, won 48.4 percent at Occidental Petroleum on May 4, while a similar measure filed by the AFL-CIO got 49.2 percent support at Merck's meeting on April 24.

All other "say on pay" measures this season have received 47 percent support or lower, with the lowest support level, 30.4 percent, at Coca-Cola on April 18.

More advisory vote proposals are on corporate ballots next week, including JPMorgan Chase on May 15, Northrop Grumman and AMR on May 16, Yum! Brands on May 17, and Time Warner on May 18.

The companion paper to our webcast today is now available for public consumption here.

Some key findings:

- The first instance we were able to find of an international institutional investor seeking to serve as a lead plaintiff was in 1999, in the Network Associates litigation.

- Every year since then has seen at least one international institutional investor seeking to serve as a lead plaintiff in a class action.

- International institutional investors sought to serve as lead plaintiffs 182 times in 98 different cases during that period.

- The cases where these investors were involved were not limited to those involving non-US companies - Prominent examples included Delphi, Coca Cola, General Motors, and Dell.

- The international institutional investors that filed lead plaintiff motions were from 17 different countries. Germany, Canada, and Israel were the countries with the largest number of movants.

- The lead plaintiff movants were represented by 23 different law firms. The law firm that represented international institutional investors most often – Milberg Weiss, followed by Schiffrin Barroway Topaz & Kessler, Bernstein Litowitz, Berger & Grossman, and Grant & Eisenhofer.

We hope to update this research on an annual basis, so stay tuned...

A group of 50 European institutional investors have reached a $352.6 million settlement with Royal Dutch Shell over the petroleum company's statements about its oil and gas reserves.

The accord is the first large securities class settlement by investors in a European legal proceeding. The settlement, if approved by the Amsterdam Court of Appeals, would resolve claims by non-U.S. investors who purchased the company's shares on European exchanges between April 8, 1999, and March 18, 2004.

"This is truly an unprecedented settlement of a large-scale European shareholder dispute," Jay Eisenhofer, a partner with Grant & Eisenhofer, a U.S. law firm that represents the European investors, said in an April 11 press release.

However, the settlement has been criticized by a lawyer who represents Shell investors in the U.S. class-action litigation, who says the company is attempting to do an "end run" around the U.S. courts and settle for less with European investors, who can't bring a securities class lawsuit in their home countries. "When all you can do is settle, you can't obtain maximum value," said Stanley Bernstein, a partner in the firm of Bernstein Liebhard & Lifshitz, which is lead counsel in the U.S. case.

The investors sued after Shell reduced its oil and gas reserve estimates by more than 33 percent in early 2004, which prompted the company's shares to fall. The reserve reductions led to the ouster of chairman Phil Watts and two other top executives. Shareholders contend in their lawsuits that Shell inflated its reserves from 1997 to 2003 and overstated more than $100 billion in future cash flows.

ISS will hold a special Governance Forum webcast, Accountability Goes Global: International Investors and U.S. Securities Class Actions, on Wednesday, May 9 at 9:30 a.m. Eastern Daylight Time.

Recent media reports have noted that the class action concept, while often foreign to non-U.S. investors, is increasingly taking hold worldwide, as investors seize the power that collective action offers to similarly situated litigation groups. During ISS' forum, panelists Mark Willis, a Partner at Cohen, Milstein, Hausfeld, Toll, P.L.L.C.; and Elli Kioupi, General Counsel at Avalon Holdings, will discuss why international investors are becoming more active in U.S. class action cases. Adam Savett, ISS Vice President of Securities Class Action Services, will moderate the panel and also share some of the key findings from his forthcoming paper, Accountability Goes Global: International Investors and U.S. Securities Class Actions.

To attend the online forum, please register here.

Investors continue to support "say on pay" shareholder proposals this proxy season, with resolutions averaging 41 percent support over 13 meetings.

A proposal at Verizon Communications may have received majority support on May 3. According to a company press release, the preliminary results "are too close to determine whether the proposal passed or was defeated." Verizon said it will report final results on its Web site and in its Form 10-Q filing for the second quarter.

Also at Verizon, proposals seeking shareholder approval for future severance agreements and greater disclosure on compensation consultants both won about 47 percent support. The AFL-CIO, which supported all three resolutions, said the results "send a strong and powerful message to Verizon that shareholders will not stand for excessive CEO compensation."

Before Verizon's meeting, the best showing for a "say on pay" proposal was a 49.2 percent vote at Merck on April 24, according to the AFL-CIO, which received that result from the company. However, it is unclear whether abstentions were included when the pharmaceutical company determined that percentage.

An advisory vote proposal won 40 percent support at Boeing on April 30, despite the company's opposition to the resolution.

"It is possible that this 40 percent is the highest so far for a say on pay proposal where a company had an aggressive vote-no campaign," said proponent and shareholder activist John Chevedden.

To review a new ISS white paper on pay votes in international markets, please visit here.

*This article ran in this week's edition of Governance Weekly.

According to CNN Money.com, News Corp's Rupert Murdoch made an unsolicited $5 billion takeover bid for Dow Jones & Co. - an offer that could prove tough for the Bancroft family that controls the publisher of The Wall Street Journal to turn down, analysts said. To read the full story, please visit here.