ISS has opened the annual comment period for its 2011 proxy voting policies.

The comment period, part of ISS’ policy development process, offers institutional investors, corporate issuers, and industry constituents the opportunity to provide feedback on ISS draft policy updates.

The comment period runs through Nov. 11 and solicits feedback on 11 updates to ISS’ proxy voting policy guidelines in markets worldwide. Topics covered include "say on pay" and authorized capital requests in the U.S., dilution/burn rate limits regarding equity-based remuneration in Europe, board independence in Canada, Japanese pay disclosure/deep-discount options, and domestic issuers incorporated outside the United States.    

“Engaging with a broad range of market participants on our draft policies is crucial to ISS’ process for developing transparent policy guidelines,” said Steve Harvey, Head of Business at ISS. “Offering this level of transparency around our voting policies is unique to ISS and critical to representing balanced global policies for investors.”

ISS gathers input each year from clients and market constituents through a policy survey, issue-oriented roundtables, and a unique open comment period to ensure its voting policies comprise a broad range of views. This year’s policy survey had more than 900 respondents. The full results from the survey are posted on ISS’ Policy Gateway.

“With so many changes to the market and regulatory landscape for governance this year, we focused on clients’ fundamental views and priorities regarding key corporate governance issues,” said Dr. Martha Carter, Head of Global Research at ISS. “Our policy formulation process is designed to be collaborative so investors and issuers can engage effectively on the most important topics.”

ISS plans to release its final 2011 U.S. and international policy updates in late November and its global policy summary and concise guidelines in late December. To participate in the comment period and learn more about the ISS policy formulation process, please visit http://www.issgovernance.com/policy.

The SEC and its efforts to implement the Dodd-Frank Act will face more scrutiny if Republicans take control of the U.S. House of Representatives during the Nov. 2 midterm elections, as many pollsters are predicting.

At the same time, it doesn't appear that Republicans are going to try to repeal the Dodd-Frank law. Such a move would create more uncertainty for the financial markets, so Republicans instead will aim to defund "portions of it," said Rep. Jeb Hensarling of Texas, one of the senior Republicans on the House Financial Services Committee, according to Politico.com. In addition, Republicans may not win a majority in the Senate, and President Obama presumably would veto any bill that goes too far to repeal the sweeping legislation.

At the very least, the SEC, the Federal Reserve, the new Consumer Financial Protection Bureau, and other regulators would get closer oversight from a Republican-led House. The SEC, which has sought more resources, likely will face more skeptical lawmakers during the annual budget process and be subject to more committee hearings over its regulatory efforts.

If the Republicans win control of the House, the next chairman of the House Financial Services Committee likely will be Rep. Spencer Bachus of Alabama, according to Politico.com and other news reports. The current chairman, Rep. Barney Frank, is facing a tougher-than-expected election in Massachusetts, but he probably will keep his seat. 

Mary Schapiro, chairman of the U.S. Securities and Exchange Commission, told a group of directors today that boards should go beyond the SEC’s minimum disclosure requirements and do more to communicate with investors. 

“Speaking both as a regulator and as a former board member, I believe that it is vital that shareholders and board members move beyond the minimum required communications and become truly engaged in the shared pursuit of high quality governance,” she said in a speech at the annual conference of the National Association of Corporate Directors in Washington. “For boards and their companies, engagement means more than just disclosure. It means clear conversations with investors about how the company is governed--and why and how decisions are made.”

She recalled that the SEC tried to improve communication by adopting a series of new disclosure rules before the 2010 proxy season, including requirements to provide more detail on director qualifications, compensation consultant fees, how the board oversees risk, and the company’s .reasons for selecting a specific board leadership structure (such as a combined chairman/CEO). She said most companies did a better job this year of providing disclosure on how specific qualifications helped directors contribute to the board, although some issuers stuck with same bare-bones disclosure of the past. 

“We have been told that some board members were advised that they should keep the new information to a minimum. I disagree,” she said. “I urge board members to engage with those who draft the proxy statements to make sure that this disclosure accomplishes its goal of better communicating this key information to shareholders.”

Regarding the risk disclosure provision, Schapiro said companies should do more than simply recite that “risk is overseen by the board as a whole,” as some issuers did. “Other companies provided detailed disclosures of their boards’ and executives’ risk-related responsibilities and functions. I believe investors feel better informed and reassured by these more detailed disclosures,” she said. 

During a question-and-answer session, Schapiro was asked about concerns that companies may violate Reg. FD if they make directors available for private meetings with investors. At the request of the SEC’s Investor Advisory Committee, the SEC staff issued an updated interpretative guidance in June that clarifies that such engagement won’t normally violate Reg. FD, Schapiro said. That guidance suggests that companies can reduce the risk of violation by pre-clearing topics with corporate counsel, having counsel present during meetings, or by asking investors to agree not to trade on the information discussed.
 

The Securities and Exchange Commission today released a set of proposed rules for the "say on pay" votes that U.S. companies will be required to conduct at their first annual meeting after Jan. 21, 2011.

The rules also address the separate votes on advisory vote frequency that will be required at 2011 annual meetings. Investors will vote on whether to hold future pay votes every one, two, or three years. The SEC also proposed rules for shareholder votes on "golden parachute" arrangements.

Also today, the SEC released a set of draft rules concerning the disclosure of compensation-related proxy votes by large institutional investment managers.

The deadline for comments on both rulemakings will be Nov. 18.

Three activist investors filed shareholder proposals this week at Valero Energy, Tesoro, and Occidental Petroleum that seek an independent board review of their policies on political expenditures. The resolutions were inspired by the companies’ support for a California ballot initiative that seeks to block the state’s strict global warming law. 

According to the investors, Valero and Tesoro have spent $4 million and $1.5 million, respectively, in corporate money in support of Proposition 23, while Occidental has spent $300,000. Other oil majors, such as Chevron, have not taken sides, while Royal Dutch Shell opposes the ballot initiative, the investors said.  

“As shareholders, we’re concerned that Tesoro’s support for the highly controversial Proposition 23 could lead to a decrease in shareholder value by damaging the company’s reputation and negatively impacting the business environment in a state where Tesoro has significant operations,” Laura Campos, director of shareholder activities at the Nathan Cummings Foundation, which filed the resolution at Tesoro, said in a press release. 

Green Century Capital Management filed the proposal at Occidental, while the Unitarian Universalist Association submitted the resolution at Valero. Proposition 23 targets a 2006 California law that requires the state to cut greenhouse gas emissions to 1990 levels by 2020. The ballot initiative seeks to block that law until the state’s unemployment rate, which now is above 12 percent, falls below 5.5 percent for a full year.

The three proposals specifically cite the oil companies’ support for Proposition 23 and have similar resolved clauses. For instance, the proposal at Occidental calls for independent directors to “institute a comprehensive review” of the company’s political expenditures and spending processes and to present a report for investors by September 2011. Items for review include:

• The process used for determining the approval of expenditures supporting or opposing candidates and an assessment of the impact such expenditures may have on the company’s reputation, sales, and profitability;
• Direct or indirect expenditures, including payments made to trade associations such as the U.S. Chamber of Commerce, social welfare organizations, and political organizations, supporting or opposing candidates or for issue ads aimed at affecting political races;
• Expenditures for state-level ballot initiatives, including an analysis of the impact on the company and the environment of any such initiative;
• Oversight processes by management and the board for all political spending.

These 2011 proposals reflect the growing concern among environmental activists and other investors over the role of corporate money in elections. Corporate political activities have received more shareholder attention since the U.S. Supreme Court’s Citizens United decision lifted limits on independent expenditures by corporations and other groups. Since that ruling, business-funded groups and other Republican-leaning organizations have significantly increased their spending on campaign ads that oppose Democratic lawmakers during the Nov. 2 federal and state elections.  These groups aren’t required to disclose their donors, which has raised concerns among environmental activists and Democrats about who is funding these efforts. 
 

In response to complaints from investors, Symantec said it would hold a hybrid annual meeting next year that would allow investors to attend in person or participate electronically, according to the Reuters news service. 

“We've listened to the feedback from our stockholders and will host a hybrid meeting next year," a Symantec spokeswoman said, according to Reuters. "We remain committed to open communications with our stockholders and understand the importance for stockholders to share their concerns."

Symantec held a virtual-only annual meeting on Sept. 20, and was one of the first S&P 500 companies to hold do so.  The plan troubled some investor activists, including the U.S. Proxy Exchange, a Massachusetts-based advocacy group, which organized a letter-writing campaign. Among the investors and groups that wrote letters to Symantec were the Council of Institutional Investors, the California State Teachers' Retirement System, the First Affirmative Financial Network, SRI investors Harrington Investors and Clean Yield, U.K.-based Co-operative Asset Management, and retail activists John Chevedden and Jim McRitchie, according to the group. 

Symantec's decision is "fantastic," said Glyn Holton, executive director of U.S. Proxy Exchange. "Individual investors, who have long been neglected and ignored, can have an impact," Holton said, according to Reuters.

In an unexpected move, the U.S. Securities and Exchange Commission announced today that it would grant a request by two corporate groups to delay implementation of its long-awaited proxy access rule. 

The SEC acted after the U.S. Chamber of Commerce and the Business Roundtable filed a Sept. 29 lawsuit that seeks to overturn the rule. The commission said it would join the groups in seeking an expedited review by the U.S. Court of Appeals for the D.C. Circuit. Even if the appeals court acts quickly and upholds the controversial rule, it’s not likely that proxy access would take effect until at least the 2012 proxy season. 

The challenged provision, SEC Rule 14a-11, seeks to authorize shareholder groups that have held more than a 3 percent stake for at least three years to nominate board candidates to appear on management proxy statements. The rule had been slated to take effect on Nov. 15 and would have impacted companies holding meetings during the second half of the spring 2011 proxy season. The business groups assert that the rule is "arbitrary and capricious" in its treatment of state law; and that the SEC failed to properly consider the costs of access or the effects on "efficiency, competition, and capital formation."

"Few issues in corporate governance have generated more disagreement or stronger passions, in part because of the serious disruptions that issuers of securities and others have long feared would result," the two groups argued in their request for delay.  "Proxy access has waited more than 65 years. There is no discernable harm to delaying the effective date of the rules until the resolution of the petition for review."

The SEC acknowledged these concerns in its order granting a stay. “The Commission finds that, under all of the circumstances of this matter, a stay of Rule 14a-11 and related rule amendments is consistent with what justice requires. Among other things, a stay avoids potentially unnecessary costs, regulatory uncertainty, and disruption that could occur if the rules were to become effective during the pendency of a challenge to their validity,” the SEC said in its order.

The SEC also said it would delay an amendment to Rule 14a-8, which would have allowed investors to file bylaw proposals that seek more permissive access procedures. That rule change was not challenged by the corporate groups, which have argued that companies and investors should be able to adopt issuer-specific provisions instead of being subject to uniform federal standards. The SEC said it decided to delay the implementation of this rule change, “because the amendment to Rule 14a-8 was designed to complement Rule 14a-11 and is intertwined, and there is a potential for confusion if the amendment to Rule 14a-8 were to become effective while Rule 14a-11 is stayed.”

The SEC's decision, especially its move to also delay the Rule 14a-8 amendment, surprised both investors and corporate advisers. The Dodd-Frank Act, which was enacted in July, included authorization for the SEC to adopt a proxy access rule, so many SEC observers expected that the commission would move forward to implement the rule after obtaining that legal support.

Con Hitchcock, a lawyer for labor funds, observed that the SEC order was "a way to lower the temperature of this debate."

"While we are disappointed in the delay, it is not the end of the world," said Amy Borrus, deputy director of the Council of Institutional Investors. "The Council and concerned investors have pressed for years for this basic shareowner right. A few more months’ wait will not make a big difference.  Given the timing of the rule approval and publication in the Federal Register, it was already a stretch for active investors to use access in the 2011 proxy season. We look forward to expedited resolution of this case because of the cloud of uncertainty hanging over the rules as a result of the litigation. We continue to believe that access to the proxy is a fundamental shareowner right and that it will make boards of U.S. public companies more responsive to shareowners and more diligent in their oversight of management."