In response to a number of requests from institutional investors, corporate issuers and market intermediaries, ISS will extend the deadline for commenting on its 2012 draft proxy voting policies through Nov. 7. A critical component of ISS' annual policy formulation process, this comment period allows institutional investors, corporate issuers, and governance market participants to provide feedback on ISS' policy updates while they are still in draft stage. ISS is seeking comments on both its U.S. and international policies.

"With a number of complex governance issues to address globally for the 2012 season, we are pleased to know that market participants from different reaches of the world are taking the time to provide policy input,” said Martha Carter, ISS' Head of Global Research.  “We’re pleased to be in a position to extend our open comment period by one week.”

To ensure its voting policies reflect the perspectives of the corporate governance community and represent the collective voice of its institutional clients, ISS gathers broad input each year from institutional clients and market constituents through policy surveys, issue-specific roundtables, and this unique open comment period. During this year's policy survey, more than 300 respondents weighed in on issues that included executive compensation, board independence, engagement triggers, and social and environmental issues. The full results from the survey are posted on the ISS Policy Gateway.

The proposed policy changes include a more robust pay-for-performance policy for the U.S. and Canada with a longer-term focus on trends in total CEO compensation and shareholder return. The proposed policies also address the responsiveness of boards to significant shareholder opposition during say-on-pay votes and to investor preferences during say-on-pay frequency votes.

ISS also is seeking comment on draft policy changes on these topics:

• Proxy Access Proposals (U.S.)
• Election of Censors (France)
• Board Independence (Brazil)
• Equity Plans Related to Section 162(m) (U.S.)
• Equity-Based Compensation (France)
• Increase in Director Compensation Ceiling Proposals (Japan)
• Hydraulic Fracturing Proposals (U.S.)
• Political Contribution Proposals (U.S.)

ISS will release its final 2012 U.S. and international policy updates during the week of Nov. 14 and its Global Policy Summary and Concise Guidelines in December. To participate in ISS' comment period and learn more about its policy formulation process, please visit the ISS Policy Gateway. --Cheryl Gustitus

ISS is still seeking comments on its 2012 draft proxy voting policies. A critical component of ISS' annual policy formulation process, this comment period allows institutional investors, corporate issuers, and governance market participants to provide feedback on ISS' policy updates while they are still in draft stage. The comment period runs through Oct. 31 and includes ISS' U.S. and international policies.

"ISS firmly believes that incorporating multiple views on corporate governance issues is critical for effective policy formulation," said Martha Carter, ISS' Head of Global Research. "The uniquely transparent and collaborative nature of our policy formulation process serves not only to inform our policies, but also helps to create a higher level of understanding and dialogue across the corporate governance community."

To ensure its voting policies reflect the perspectives of the corporate governance community and represent the collective voice of its institutional clients, ISS gathers broad input each year from institutional clients and market constituents through policy surveys, issue-specific roundtables, and this unique open comment period. During this year's policy survey, more than 300 respondents weighed in on issues that included executive compensation, board independence, engagement triggers, and social and environmental issues. The full results from the survey are posted on the ISS Policy Gateway.

The proposed policy changes include a more robust pay-for-performance policy for the U.S. and Canada with a longer-term focus on trends in total CEO compensation and shareholder return. The proposed policies also address the responsiveness of boards to significant shareholder opposition during say-on-pay votes and to investor preferences during say-on-pay frequency votes.

ISS also is seeking comment on draft policy changes on these topics:

• Proxy Access Proposals (U.S.)
• Election of Censors (France)
• Board Independence (Brazil)
• Equity Plans Related to Section 162(m) (U.S.)
• Equity-Based Compensation (France)
• Increase in Director Compensation Ceiling Proposals (Japan)
• Hydraulic Fracturing Proposals (U.S.)
• Political Contribution Proposals (U.S.)

ISS will release its final 2012 U.S. and international policy updates during the week of Nov. 14 and its Global Policy Summary and Concise Guidelines in December. To participate in ISS' comment period and learn more about its policy formulation process, please visit the ISS Policy Gateway. --Bimal Patel, ISS Governance Institute

In a substantial vote of "no confidence," News Corp. shareholders withheld more than 30 percent support from James Murdoch, Lachlan Murdoch, and three other directors at the media company's Oct. 21 annual meeting. The five board members received majority opposition from the shareholders not affiliated with the Murdoch family, which has a 40 percent voting stake through the company's dual-class structure. The dissent was greater than some investors expected, and several pension funds have called on the board to respond quickly.  

While News Corp. has taken steps to respond to a U.K. phone hacking scandal, many institutional investors still have concerns about the board's oversight and independence from management. Various pension fund groups, such as the California State Teachers' Retirement System, the California Public Employees' Retirement System, and the U.K.'s Local Authority Pension Fund Forum, opposed some of the 15 board members and called for the appointment of an independent chairman.

Most of the investor dissent was targeted at directors with ties to the Murdoch family or management. Deputy Chief Operating Officer James Murdoch received 34.9 percent opposition, while director Lachlan Murdoch faced 33.7 percent dissent. Natalie Bancroft, a member of the family that sold Dow Jones to News Corp., encountered 33.4 percent opposition. Andrew S.B. Knight, who has served on News Corp.'s board for 20 years and chairs the compensation committee, faced 32.2 percent dissent, while long-serving News Corp. executive Arthur Siskind had 30.2 percent opposition. If one excludes the Murdoch family stake from the vote tallies, the five directors received opposition ranging from 67 to 58 percent. By contrast, the average dissent against S&P 500 directors has been about 5 percent this year.

News Corp. shareholders also withheld 22.7 percent support from David DeVoe, another long-serving company executive. Investors were more forgiving of Chairman and CEO Rupert Murdoch, who received 14 percent opposition. The display of shareholder outrage contrasts with last year's meeting, where all of the company's directors were elected with support that ranged from 89 to 99 percent.

News Corp. investors also voiced significant concern about the company's pay practices. The media company received almost 35 percent opposition during its advisory vote on compensation, which is more than three times the average dissent at U.S. companies this year. Almost 67 percent of the unaffiliated shares were voted against the company's say-on-pay proposal. The vote appears to be a reaction to the board's decision to give Rupert Murdoch a $12.5 million cash bonus in fiscal 2011, as compared with $4.4 million in fiscal 2010. In addition, while the board reduced Chief Operating Officer Chase Carey's base salary from $8.1 million to $4.05 million, the board retained an excise tax gross-up provision when it extended the term of his employment agreement, a practice that many investors object to.

Investors generally were encouraged by the vote results, and have urged News Corp. to bring more independence to the 15-member board, which has only eight independent directors (based on ISS' definition of independence).  

"The high number of withholds . . . for certain directors demonstrates the strong desire of unaffiliated shareholders, such as CalSTRS, for a more independent board. In addition, the large negative vote on News Corp.'s say-on-pay proposal shows a greater need for alignment of interest between shareholders and management," CalSTRS said in a press release. "Trying to effectuate governance changes at News Corp. has been a challenging task for shareholders given the dual-class voting structure and the significant influence of the Murdoch family. However, as News Corp. continues to be a publicly traded company, CalSTRS believes that the company should be held to the same governance standards as other companies in the CalSTRS portfolio. The recent scandal has underscored the need for the highest ethical and governance standards."

Ian Greenwood, chairman of the Local Authority Pension Fund Forum, expressed a similar view: "These results show a clear desire for change amongst News Corp.'s shareholders. The level of investor opposition to certain board members is even higher than many had expected," he said in a press release. "[T]he board needs to move swiftly to institute genuinely independent representation. News Corp. would also benefit from a clear separation of powers at the head of the company."

During the annual meeting, a religious group, Christian Brothers Investment Services, presented a floor proposal that called for an independent board chair. That resolution received minimal support, as it did not appear on the company's proxy statement and investors were unable to vote on it unless they attended the meeting in person.

On Tuesday, ISS hosted a webinar, “Governance Reforms Through Securities Class Actions.” If you were unable to dial in for the webinar, you can hear a replay of this program by clicking here.

Luke Green, Head of Research for ISS' Securities Class Action Services (SCAS), has written a white paper on this topic. To download a copy of this paper, please click here. 

In addition to tracking governance provisions in securities settlements, SCAS has more than 20 years of detailed class-action data, including 3,700 settlements, and covers the United States, Australia, Canada, the Netherlands, Germany, and other markets. There is almost $19 billion in pending settlements for which the claims filing deadline has not passed, so it’s critical for all institutional investors to know if there are any settlements where they could recover. 

If you would like to learn more about SCAS, please click here. 
 

ISS invites you to join us for a webinar today at 2 p.m. Eastern U.S. time on how institutional investors are using securities class-action litigation to obtain significant governance reforms. 

The hour-long webinar will be moderated by Luke Green, Head of Research for ISS' Securities Class Action Services. The guest speakers will include two well-known experts, Duke University Law Professor James D. Cox and Vanderbilt University Law Professor Randall S. Thomas, who have written extensively on securities class actions. To register, please click here.

The webinar will cover the rise of institutional lead plaintiffs, the impact of institutional lead plaintiffs on settlement size and attorneys' fees, key settlements with governance reforms, and the future of reform. 

On Tuesday, the Securities and Exchange Commission issued a long-awaited guidance on shareholder proposals that tightens proof-of-ownership requirements, while giving investors more leeway to submit revised proposals. While this guidance primarily deals with technicalities under SEC Rule 14a-8, U.S. companies have been raising more procedural objections to omit proposals in recent years.  

The new guidance, Staff Legal Bulletin 14-F, surprised some SEC observers, as it reverses several positions the Corporation Finance Division staff has expressed in past no-action rulings, but observers said the staff is trying to strike a balance between the concerns of proponents and issuers. 

In the latest guidance, the staff takes a stricter view on the evidence-of-ownership letters that investors must provide to verify that they have held at least $2,000 in company stock for one year, and thus are eligible to file a shareholder proposal. Most U.S. investors are beneficial owners and hold their securities through a securities intermediary, such as a broker or a bank. Most large U.S. banks and brokers in turn hold their clients’ securities through the Depositary Trust Co. (DTC), a centralized clearing entity. 

SEC Rule 14a-8(b)(2)(i) requires a proponent to submit a verifying letter from a “record holder,” but there has been uncertainty over which banks or brokers qualify as record holders. During a 2008 no-action request by Hain Celestial, the SEC ruled that shareholder activist John Chevedden did not need to submit a letter from a DTC participant; a letter from an “introducing broker” that was not a DTC member would suffice. Companies have continued to challenge that staff position, and Apache Corp. obtained contrary rulings from a federal judge in Texas to omit 2010 and 2011 proposals submitted by Chevedden.  

In the latest guidance, the SEC staff said it would no longer follow the Hain Celestial decision and would allow companies to omit proposals that lack a proof-of-ownership letter from a DTC participant. “We believe that taking this approach as to who constitutes a ‘record’ holder for purposes of Rule 14a-8(b)(2)(i) will provide greater certainty to beneficial owners and companies,” the staff said. 

Earlier today, ISS announced the opening of its annual comment period for its 2012 proxy voting policies. A critical component of ISS' annual policy formulation process, the comment period allows institutional investors, corporate issuers, and governance market participants to provide feedback on ISS' policy updates while they are still in draft stage. The comment period runs through Oct. 31 and includes ISS' U.S. and international policies.

"ISS firmly believes that incorporating multiple views on corporate governance issues is critical for effective policy formulation," said Martha Carter, ISS' Head of Global Research. "The uniquely transparent and collaborative nature of our policy formulation process serves not only to inform our policies, but also helps to create a higher level of understanding and dialogue across the corporate governance community."

To ensure its voting policies reflect the perspectives of the corporate governance community and represent the collective voice of its institutional clients, ISS gathers broad input each year from institutional clients and market constituents through policy surveys, issue-specific roundtables and this unique open comment period. More than 300 respondents weighed in on issues ranging from executive compensation and board independence, to engagement triggers and social and environmental issues. The full results from the survey are posted on ISS' Policy Gateway.

ISS will release its final 2012 U.S. and international policy updates during the week of Nov. 14 and its Global Policy Summary and Concise Guidelines in December. To participate in ISS' comment period and learn more about its policy formulation process, please visit the ISS Policy Gateway.

With the shareholder-proposal filing season for 2012 corporate meetings under way, U.S. companies have begun submitting no-action requests with the Securities and Exchange Commission to exclude those resolutions.

One of the first companies to seek such relief is Deere & Co., which has filed six no-action requests so far, according to the SEC's Web site. 

On Sept. 29, the Illinois-based farm equipment manufacturer asked the staff of the SEC's Corporation Finance Division for permission to omit a mandatory auditor rotation proposal filed by the United Brotherhood of Carpenters. The Carpenters seek a policy that would require the company to end its engagement with its auditor after seven years, and not use that audit firm again for another three years. The labor pension fund argues that a mandatory rotation policy would be "an important next step in improving the integrity of the public company audit system."

Deere argues that the proposal can be omitted because it relates to "ordinary business" operations. The company points to past SEC staff rulings where auditor engagement proposals have been deemed ordinary business.  Deere also asserts that the proposal would cause the company to violate listing standards, which provide that only independent audit committee members, rather than the whole board, can make decisions on auditor engagement. 

The company also is trying to omit separate proposals from retail investors that seek an independent board chair, a 10 percent special meeting threshold, the right for shareholders to act by written consent, and limits on board service and compensation peer benchmarking. In all four cases, Deere argues that the investors failed to submit sufficient evidence that they have held at least $2,000 in company stock for one year. 

Deere also has petitioned the SEC for permission to exclude a proposal from Walden Asset Management and the Tides Foundation that seeks a report on political contributions and exenditures. The company argues that the proponents failed to comply with SEC Rule 14a-8(b) because their proof-of-ownership letter has a different date than the proposal submission letter.

In recent years, companies have increasingly raised technical objections in their efforts to knock out shareholder proposals. During the first half of 2011, the SEC allowed companies to exclude 24 proposals based on insufficient evidence of ownership.  

In addition, Hormel Foods is seeking to omit a Humane Society proposal concerning the welfare of pigs. The company argues that the resolution can be barred because a similar proposal filed by another investor received less than 3 percent support in 2010.

ISS has released its final 2011 U.S. Postseason Report, which includes vote results for meetings held before Sept. 1.

The report’s key findings include:

• During the first year of advisory votes on executive compensation under the Dodd-Frank Act, investors overwhelmingly endorsed companies' pay programs, providing 92.1 percent support on average. 
• Through Sept. 1, shareholders voted down management "say on pay" proposals at 38 Russell 3000 companies, or just 1.6 percent of the total that reported vote results. The primary driver of these failed votes appears to be pay-for-performance concerns, which were identified at 28 companies. Almost half of the failed-vote firms have reported double-digit negative three-year total shareholder returns. Also contributing to investor dissent were issues like tax gross-ups, discretionary bonuses, inappropriate peer benchmarking, excessive pay, and failure to address significant opposition to compensation committee members in the past.
• "Say on pay" votes increased investors’ workloads, but spurred greater engagement by companies and prompted some firms to make late changes to their pay practices to win support.
• Investors overwhelmingly supported an annual frequency for future advisory votes. As of Sept. 1, annual votes had garnered majority (or plurality) support at 80.1 percent of companies in the Russell 3000 index, as compared to triennial votes, which won the greatest support at 18.5 percent of issuers.
• Management preferences did not appear to have a significant influence on the outcome of this year’s frequency votes. As of Sept. 1, investors had defied management recommendations for triennial votes at 538 of 892 Russell 3000 companies, according to ISS data. Shareholders also were not swayed by biennial recommendations at 34 out of 47 Russell 3000 firms.
• The number of directors at Russell 3000 firms that failed to garner majority support fell by nearly half as say on pay votes presented shareholders with an alternative to votes against compensation committee members. Poor meeting attendance, the failure to put a poison pill to a shareholder vote, and the failure to implement majority-supported shareholder proposals were among the reasons that contributed to majority dissent against board members this year.
• Among governance proposals, the biggest story of this year was the greater support for shareholder proposals that seek board declassification. These resolutions averaged 73.5 percent support, up more than 12 percentage points from 2010, and won majority support at 22 out of 23 large-cap firms.
• Majority voting proposals averaged almost 60 percent support, while proponents reached settlements with more than 30 firms. Independent chair proposals fared better this year, winning majority support at four companies. 
• There were fewer shareholder proposals to repeal supermajority rules, as more companies put management proposals on the ballot.
• Investor support for shareholder resolutions on environmental and social (E&S) issues continues to rise. This year, there was a 20.6 percent average approval rate for these proposals, the first time this support level had reached the 20 percent mark. Five proposals received a majority of votes cast, a new record.
• Investors were more receptive to the Center for Political Accountability’s long-running proposal campaign for more disclosure on corporate political spending. This year, the average support for those resolutions was 32.5 percent, up from 30.4 percent for similar proposals in 2010.
• The most eye-catching E&S results involved the second year of a campaign coordinated by the Investors Environmental Health Network to ask companies to report on the implications of their use of hydraulic fracturing to tap natural gas reserves. These proposals went to a vote at five companies and averaged 40.7 percent support, up more than 10 points from 2010.
• For the second straight year, the number of proxy contests at U.S. companies fell sharply. Only nine contested meetings went to a shareholder vote during the first half of 2011, compared to 14 and 25 for the same periods in 2010 and 2009, respectively. However, the number of public settlements and anecdotal evidence of behind-the-scenes agreements suggests that the level of shareholder activism continues to be high.

To download a copy of the U.S. Postseason Report, please click here. ISS also has produced postseason reports on Japan, the United Kingdom, and other markets, which are available through the ISS Proxy Season Resource Center.

The Swedish debate on board diversity took an unexpected turn last month when Moderate Party Secretary-General Sofia Arkelsten wrote an editorial in the national business daily Dagens Industri announcing that the party may support board gender quotas. While the party has been traditionally skeptical of government intervention in the private sector, Arkelsten's comments are symptomatic of the party's recent drift toward the center of the political spectrum.

Although the new stance needs to be approved by the party's annual conference on Oct. 20-23, the sheer size of the party's representation in Sweden's parliament means that the prospect of legislation must be taken seriously. The party controls 30.7 percent of parliament seats, and is the senior partner in a center-right minority coalition government. The opposition Social Democrats control 32.1 percent of parliament, and are officially in favor of board gender quotas. If the Moderate Party conference supports Arkelsten's position, an overwhelming majority of parliament would therefore be controlled by parties that support board gender quotas.

Arkelsten's comments have nevertheless revealed ideological fault lines both within her own party as well as among the junior coalition partners. Several senior female members of the Moderate Party's youth wing wrote a Sept. 22 editorial in the national daily Svenska Dagbladet that criticized gender quotas and argued instead for more grassroots empowerment of women.

Meanwhile, Minster for Gender Equality Nyamko Sabuni of the Liberal People's Party is opposed to gender quotas in the boards of listed companies, and is instead working to increase the proportion of women on the boards of state- and municipal-owned companies. While the Liberal People's Party controls only 6.9 percent of parliamentary seats, the Moderate Party needs its support in order to maintain its coalition government.

Women today occupy 23 percent of the board seats at listed Swedish companies, as compared with 3 percent in 1999.

Sweden would not be the first Nordic or European country to enact legislation on this issue, and gender diversity has been a subject of renewed discussion in several European markets this year. Norway instituted a 40 percent minimum gender quota in 2004.

During the spring, the U.K. government concluded an inquiry into male boardroom dominance. Lord Davies, who led the review, recommended that the chairmen of FTSE 350 companies should publish, within six months, the percentage of women they aim to have on their boards in 2013 and 2015. FTSE 100 companies were encouraged to aim for a 25 percent female boardroom presence by 2015. The report, however, stopped short of endorsing compulsory quotas.

On Oct. 11, Britain's Financial Reporting Council announced changes to the U.K. Corporate Governance Code that will strengthen voluntary reporting around board diversity, including gender. Companies adhering to the code's recommendation are encouraged to begin reporting on diversity considerations immediately, though guidance will formally take effect for companies with fiscal years beginning on or after Oct. 1, 2012.

In France, a new law was adopted in January that requires a 40 percent female boardroom presence by 2017. In Germany, Minister of Labor Ursula von der Leyen noted the possibility of legislative action before year-end. The latest Green Paper by the European Commission also mentions gender quotas as a potential means to harmonize board composition.

--Martin Wennerstrom and Tomi Lakkonen, Nordic Research, and Subodh Mishra, Governance Exchange

The Association of British Insurers (ABI) has released two reports on two important aspects of corporate governance that can influence long-term value creation. On Sept. 28, the ABI released a new report on the effectiveness of boards and issued revised guidelines on executive remuneration.

"Effective boardrooms should be the powerhouse of the U.K economy," ABI Director General Otto Thoresen said in a press release. "The board effectiveness report and long standing remuneration guidelines represent U.K. best practice. They aim to ensure that remuneration is linked to performance and shareholders' interests are protected."

The ABI's "Report on Board Effectiveness, highlighting best practice: encouraging progress" looks at three areas the ABI considers to be fundamental to improving board effectiveness: board diversity, succession planning, and board evaluation. This report follows the 2010 U.K. Corporate Governance Code, which places increased emphasis on board evaluation as a tool to improve a board's effectiveness.

Selecting the best individuals from a diverse talent pool, planning for the succession and replacement of key personnel, and regularly evaluating the board's performance to ensure its continued effectiveness are considered key to the success of any enterprise, the ABI said. In addition, for these activities to be successful, the leadership of the board chairman is critical, the report said.

The report looks for existing best practice as a guide to improving the way companies report on these areas and includes examples of how a variety of leading companies currently implement diversity, succession planning strategies, and board evaluation. The report provides some helpful pointers for companies and governance professionals to identify good practice so that it can be applied more widely and boost board effectiveness at other companies.

For many years, the ABI's pay guidelines have been widely accepted as providing the basis for good practice in the U.K. market, and so the first revision of the guidelines since 2007 is an important event. 

The major objective of the new report, "Principles for Executive Remuneration," was to bring together the ABI's existing pay guidelines, which had developed over a number of years and promulgated in various different documents, into a single easy-to-understand document that would provide a concise guide for non-executive directors, who are responsible for determining the pay of executive directors at U.K. companies.

The revised remuneration guidelines place a greater emphasis on a number of areas of concern to institutional shareholders, and include a specific section on the hot topic of total quantum. Much of the guidance continues to focus on achieving pay packages tailored to incentivize long-term performance in line with company strategy and deliver reward at a level appropriate for the company, while ensuring that pay structures avoid payment for failure.

Key points in the ABI principles include:

• Increases in basic pay should be justified without over-reliance on benchmarking.
• Annual bonus targets and payments should be disclosed (retrospectively, if necessary) and the rationale for the level of payment clearly explained.
• All companies' remuneration packages should include bonus deferral but its inclusion should not trigger an increase in the overall bonus potential.
• Clawback or malus is now expected to be included in service contracts and pay plans.
• Shareholding requirement compliance should reflect only vested share awards.
• Remuneration committees should exercise discretion diligently, within previously agreed and clearly disclosed boundaries.
• One-off pay awards to retain existing executives are considered to reflect a failure of pay policy and are rarely justified or effective.
• Companies should not change pay arrangements to compensate executives for changes in personal taxation or introduce schemes that do so.
• Pension should not be used to boost total remuneration and payments in lieu of pension contributions should be treated as a separate non-salary payment.
• Transaction bonuses continue to be considered inappropriate.
• Non-executive directors are encouraged to hold shares in the company and may have their fees paid in shares, but excluding any performance related element.

A spokesperson for the U.K. government's Department for Business Innovation & Skills (BIS) welcomed the new reports. "The key principles in the ABI's guidance match what we have found in our conversations with shareholders, investors, and business leaders so far--that excellent performance should be rewarded, but that there is a strong need to end 'reward for failure,'" the BIS spokesperson said.

--Tom White, U.K. Research

ISS will host a webinar at 11 a.m. (EDT) today on its ExecComp Analytics offering for institutional investors. To register, please click here.

This innovative new product, which is based on ISS’ new executive compensation database, provides investors with a comprehensive view of executive pay programs at more than 4,000 U.S. companies. Both CEO and top five named executive officer (NEO) data are available for analysis and integrated with complementary ISS data such as management "say on pay" (MSOP) levels of concern from 2011 and select Governance Risk Indicator ™(GRId) compensation data. This web-based solution provides investors with easy-to-use screening and search features to benchmark pay at portfolio companies and identify pay practices requiring engagement with companies. 

Meanwhile, peer benchmarking has been getting more attention recently. The Washington Post published a front-page article this week that examines the practice. In addition, ISS recently released a study on peer benchmarking, which can be downloaded by clicking here. Drawing from ISS’ new executive compensation database, the study includes a review of almost 15,000 proxy filings from over the past four years.

“An examination of the underlying data shows clear trends regarding peer benchmarking composition and its impact on executive pay,” said Daniel Cheng, the author of the paper. “As expected, highly paid CEOs are the most prevalent peers for benchmarking. The group of companies in our study with the highest paid group of CEOs was used 34 percent more often for benchmarking.”

It's been more than 14 months since the signing of the Dodd-Frank Act, which directed the Securities and Exchange Commission to establish a new Investor Advisory Committee.

So far, the SEC has not publicly announced a timetable for creating this panel, and Commissioner Luis Aguilar and some investors are asking why. At the same time, the SEC did create a new Advisory Committee on Small and Emerging Companies in mid-September. In the press release on that panel, the commission said it "also is in the process of re-establishing an Investor Advisory Committee," but did not specify a date for action.

In June 2009, the SEC created an investor advisory panel, which met quarterly for more than a year. That panel was formed pursuant to the Federal Advisory Committee Act. This group was disbanded in November 2010, "with the intention that it would be quickly reconstituted to meet the Commission's statutory obligation under the [Dodd-Frank Act]," Aguilar recalled in a recent speech. However, in January, the SEC said the creation of the panel had been deferred because of budget uncertainty.

"In the current environment, revelations of egregious fraudulent conduct and recent market conditions continue to demonstrate the vulnerability of investors. Furthermore, the millions of American families trying to save for retirement, education, and a better life are the same investors most impacted by the wild stock market swings we have witnessed, as the stock market has lost over a trillion dollars in value in the past two months," Aguilar said. "Thus, the need to obtain the views of investors remains critical. I am disappointed that the Investor Advisory Committee has not been re-established."

"The Investor Advisory Committee is essential to the SEC's ongoing work. I strongly urge that the SEC's Investor Advisory Committee be immediately re-established," Aguilar said in his speech.

Section 911 of the Dodd-Frank Act doesn't include an explicit deadline for forming a new panel. The provision does state that the panel should have at least 10 members, including a representative of state securities commissioners, a representative of senior citizen interests, and representatives of individual debt and equity investor interests, including pension funds and registered investment companies. The committee also is to include the "Investor Advocate," a new Dodd-Frank-authorized position that has not been filled.

Shareholder representatives also have expressed concern about the delay. "We have communicated to Chairman [Mary] Schapiro our strong support for the re-establishment of the SEC's Investor Advisory Committee," said Jeff Mahoney, general counsel of the Council of Institutional Investors.

In a letter to Schapiro in June, a representative of the Forum for Sustainable and Responsible Investment wrote: "It will send a troubling message if this new small business advisory group is created while reconstitution of the Investor Advisory Committee . . . [continues] to be delayed."

At the same time, the SEC has been struggling to catch up with other Dodd-Frank Act regulatory efforts and now faces a Republican-controlled House of Representatives that often questions the need for new rules. The agency has completed 16 final rulemakings, missed deadlines for 53 other rules, and not finalized rules for 29 other rulemakings with future (or no) deadlines, according to an Oct. 3 progress report from the law firm of Davis Polk & Wardwell.

In another strong showing, a board declassification proposal won 78.4 percent support (based on “for” and “against” votes) at Smithfield Foods’ Sept. 21 annual meeting. 

The resolution was filed by the California Public Employees’ Retirement System, which argued that annual accountability to shareholders is a good corporate governance practice. Management at the Smithfield, Va.-based meat-processing company opposed the resolution, asserting that a staggered board structure provides stability and continuity of board membership. Smithfield, which is in the Russell 3000, has three classes of directors who each serve three-year terms. 

So far this year, board declassification resolutions submitted by investors have averaged 71 percent support at 41 U.S. companies, up from 61.1 percent in 2010, according to ISS data as of Oct. 1. These proposals have done even better at S&P 500 firms, winning 79.6 percent approval on average this year. Investors also have negotiated withdrawal agreements on declassification at a much higher rate than in past seasons. At least 15 companies have agreed to put the issue on the ballot this year or in 2012. 

This season’s vote results and proposal withdrawals are further evidence of the waning acceptance of classified boards at large companies. As recently as 2005, a majority (53 percent) of the S&P 500 index had staggered board terms. As of this year, just 30.8 percent of large-cap firms maintain classified boards, and another 3.6 percent are in the process of declassifying, according to ISS data. 

While classified boards are more common at smaller companies, there has been a similar downward trend. In 2005, 59 percent of S&P 1500 firms had staggered board terms. Today, just 43.4 percent of those companies do, and another 3.2 percent are in the process of moving toward annual elections for all directors.