The U.S. Securities and Exchange Commission has reaffirmed its position that shareholder proposals seeking auditor rotation policies may be omitted as “ordinary business” matters. 

Earlier this month, the SEC denied requests by the United Brotherhood of Carpenters for the agency’s commissioners to reconsider staff decisions that permitted Deere & Co., Walt Disney Co. and Hewlett-Packard to exclude the labor pension fund’s seven-year rotation proposals. 

Under SEC rules, a proponent can seek reconsideration if its request involves "matters of substantial importance and where the issues are novel or highly complex." “We have applied this standard to your request and determined not to present your request to the Commission,” Thomas Kim, chief counsel for the Corporation Finance Division, wrote in his letter concerning the Carpenters' proposal at Deere. 

The Corporation Finance Division staff also has granted no-action requests by Stanley Black & Decker and U.S. Bancorp to omit similar auditor rotation proposals. American Electric Power, Alcoa, AT&T, Baker Hughes, Dominion Resources, Dow Chemical, Hess Corp., General Dynamics, General Electric, and Sprint Nextel have filed similar exclusion requests. Given the SEC’s refusal to reconsider its initial rulings on this topic, it appears likely that the staff will grant all of these pending no-action petitions. 

The resolutions, filed by the Carpenters and the Sheet Metal Workers' pension fund, ask the companies' boards to establish a policy to require the rotation of audit firms every seven years, with a three-year cooling-off period before an auditor could be retained again.

In its request for reconsideration of the Deere proposal, the Carpenters’ pension fund argued that auditor rotation and independence have become “significant policy issues” that transcend ordinary business. 

“The subject of auditor independence and auditor rotation is a paramount concern of shareholders and the investor community generally. In both the U.S. and internationally, the issue is being considered with increasing urgency. In its recent Concept Release on Auditor Independence and Audit Firm Rotation, the [Public Company Accounting Oversight Board] solicited public comment on ways that auditor independence, objectivity, and professional skepticism can be enhanced, including through mandatory rotation of audit firms,” Ed Durkin, director of corporate governance for the Carpenters, wrote in his request for reconsideration.  

Durkin also pointed to the European Commission’s recent audit legislation, which includes a new mandate for companies to rotate audit firms every six years. “Auditor independence is a matter of substantial importance and shareholders have the right to vote on shareholder proposals seeking to establish an auditor rotation policy as a means of enhancing that independence,” Durkin wrote.

As part of its transparent annual policy development process, ISS has posted additional 2012 policy materials on its Policy Gateway. 

For the United States, ISS has posted a summary of its benchmark proxy voting guidelines, plus a concise summary of selected policies. The Policy Gateway also includes ISS’ recent white paper on its revised pay-for-performance policy. 

ISS also has released summaries of its 2012 voting policies for Canada, Europe, and the United Kingdom (the U.K. policies are based exclusively on the voting guidelines of the National Association of Pension Funds). The Policy Gateway includes a set of FAQs on the new ISS policy for equity-based remuneration in France. 

The Policy Gateway also has summaries of the 2012 voting policies for Japan, China, Korea, Hong Kong, Singapore, Australia, and New Zealand. 

The new policies will be in effect for companies holding shareholder meetings on or after February 1, 2012.

U.K.-incorporated companies that are FTSE index constituents on the London Stock Exchange (LSE) will soon be required to maintain a minimum 25 percent of free float, a 10 point increase from current requirements. The new rule would take effect for companies listing on or after Jan. 1, 2012, though companies currently failing to meet the requirement would have two years to achieve the new threshold. 

The change, announced Dec. 14 by the FTSE Group, which manages the FTSE U.K. Index Series, comes in response to growing investor concerns over governance practices and the low level of float maintained by some foreign companies incorporated in the U.K. and listed on the LSE. A boardroom row at FTSE 100 Kazakh mining group Eurasian Natural Resources Corporation (ENRC) this summer brought into sharp focus many of these concerns, with investors questioning the ouster of two directors who challenged the independence of their peers. More than 80 percent of shares tendered at the June meeting voted to remove the two independent board members despite backing from a number of institutional investors. 

Kazakh oligarchs and the Republic of Kazakhstan control roughly 47 percent of the company's outstanding common stock, while fellow Kazakh miner and FTSE 100 member Kazakhmys controls a further 26 percent (though is believed to have abstained from the June vote). Just 18 percent of the company's outstanding shares are deemed to be free float, according to press reports. 

Given their size, investors also say they are forced to include companies such as ENRC in portfolios tracking large and medium-sized company indices with little ability to effect governance changes. The Association of British Insurers, which had called on FTSE Group to raise the threshold, lauded last week's move, which a spokesman described to The Wall Street Journal as "a welcome step towards addressing our concerns." 

Five companies, including ENRC, Essar Energy, Evraz, Ferrexpo, and Fresnillo, fall short of the new requirements with FTSE 100 commodities broker Glencore excluded due to its status as a non-U.K. incorporated company. 

In other U.K. related news, Britain's Financial Reporting Council last week issued a paper detailing the impact and efficacy of governance codes of conduct applying to both issuers and investors. Buttressing the case for the FRC's "comply or explain" approach to promulgating good governance, the paper noted that nearly 80 percent of the top 350 LSE companies had switched to annual elections following fresh code guidance in 2010 that called for an end to staggered board elections. Moreover, the FRC said more than 230 asset managers, asset owners, and service providers had since July 2010 signed on to its Stewardship Code, which lays out governance practices for investors. 

The "FRC believes that rapid sign-up indicates a real commitment to making the code-based approach work effectively, and the dynamic interaction between code-setting and response demonstrates the advantages this has over slower-changing law-based systems," FRC officials noted.

The European Commission questioned the efficacy of the "comply or explain" approach as part of a green paper on corporate governance, released earlier in the year, which asked respondents whether regulations may be necessary to ensure compliance. 

For more coverage of governance news, please visit Governance Exchange. To learn more about the benefits of joining Governance Exchange, please click here.

The variations on proxy access proposals continue to proliferate. Earlier today, Jim McRitchie's CorpGov.net blog reported that investor Daniel Rudewicz had filed a proxy access proposal at a small-cap firm, KSW Inc.

The proposal is the fourth “private ordering” approach to access and is the 16th resolution that has been submitted for a 2012 U.S. shareholder meeting. His binding proposal calls for investors to hold at least a 2 percent stake for one year to be eligible to nominate director candidates, according to McRitchie.

KSW is a Long Island City, N.Y.-based company with a $19.7 million market capitalization that furnishes and installs heating, ventilating, and air conditioning systems and process piping systems. The company typically holds its annual meeting in May. 

The CorpGov.net blog also reported that Rudewicz filed a binding access proposal at Paragon Technologies, a micro-cap firm that now trades over the counter. The proposal was submitted in September, but it did not appear on the proxy statement for the company’s Dec. 14, 2011, meeting. Rudewicz explained that Paragon is no longer registered with the SEC, and thus is not subject to Rule 14a-8, so he attended the meeting and presented his proposal during the investor comment period.  

Rudewicz, a financial analyst who lives in the Washington area, is the managing member of Furlong Financial and is a law student, according to McRitchie.  

For a full list of proxy access proposals, please click here.

Submitted by Robbert Gerritsen, Belgium and Netherlands Research

A new study on executive remuneration in Belgium shows that approximately 95 percent of companies on Belgium's main index (Bel20) provide detailed information about compensation for their CEO. Since April 6, 2010, Belgian companies are legally obliged to disclose remuneration details of the CEO and other executives and make a distinction between the base salary, the short-term incentive, the long-term incentive, and other contributions.

The Belgian-based Executive Remuneration Research Centre of Vlerick Management School published on Dec. 13 its findings and compared Belgium with other European markets. The research confirms that remuneration in absolute terms depends on the company size, market practices, and the institutional context. The median total remuneration for a CEO at a Bel20 company is EUR 1.5 million, while the median total remuneration for a CEO of a small cap company in Belgium is approximately EUR 370,000. Of the latter amount, approximately 82 percent is fixed base salary, while 42 percent of the total remuneration for a Bel20 CEO is fixed base salary. 

For 65 percent of executives in Bel20 companies, equity based remuneration is still granted in time vesting stock options. Whereas only a handful of the companies also grant performance shares, time vesting stock options can be considered the standard in Belgium. This popularity is mainly due to Belgian tax law, which taxes the (conditional) grant of stock options and not the actual exercised stock options. As a result, non-achievement of performance criteria would actually penalize executives. 

Also taking into account other European markets, Belgium can be considered an outlier when it comes to the popularity of time vesting stock options. Although some companies are moving toward performance shares, Belgium lags behind countries like United Kingdom or the Netherlands when it comes to performance vesting shares, which are most popular in these markets.

Earlier today, ISS released a white paper, "Evaluating Pay for Performance Alignment: ISS’ Quantitative and Qualitative Approach," to accompany our new pay-for-performance proxy voting policy. 

The goal of the white paper is to help both our institutional clients and the companies in which they invest more fully understand ISS’ pay-for-performance methodology in advance of the 2012 proxy season. To download our white paper, please click here. For more information on ISS' policy updates for 2012, please visit ISS’ Policy Gateway. ISS will begin applying the new policy guidelines beginning February 1, 2012. 

ISS' new approach to pay for performance will include an initial quantitative assessment and, as appropriate, an in-depth qualitative review to determine either the likely cause of a perceived long-term disconnect between pay and performance, or factors that mitigate the initial assessment. 

The quantitative methodology utilizes two components:

• A relative evaluation--primarily, rankings of CEO pay and performance relative to peers over three years, and
• An absolute evaluation--CEO pay trends relative to shareholder return trends over five years. 

Both are considered from an investor's perspective in evaluating the efficacy of top executive pay packages on a long-term basis. For the relative evaluation, peer groups are designed not for pay benchmarking or stock-picking but rather to compare pay and company performance within a group of companies that are reasonably similar in terms of industry profile, size, and market capitalization. The evaluation focuses on disclosed pay and equity grants, since they represent the pay and award opportunities the board determines should be provided to its top executive each year, and should be aligned with the company's performance trends--or if not, should be appropriately performance based, as ISS' qualitative analysis will address. 

The quantitative methodology is designed to identify outlier companies that have demonstrated significant misalignment between CEO pay and company performance over time. Extensive back-testing has also validated that this approach generally aligns with shareholder opinions as expressed through say-on-pay votes in 2011. The follow-up qualitative assessment, applied to companies with an apparent pay-performance disconnect, is designed to uncover mitigating factors (such as rigorous performance-based award opportunities that are designed to drive improvement) or potential causes of the misalignment, such as problematic pay benchmarking practices. 

Two years ago, ISS launched Governance Risk Indicators (GRId) as a new measure of governance-related risk. GRId drew on ISS’ long experience in providing rigorous, market-specific evaluations of companies’ corporate governance practices, and represented a new and unique approach to modeling governance risk.

GRId 2.0 represents a next step in the evolution of governance ratings.

The initial launch in February 2012 will include content and methodology updates for the U.S., with updates to other markets, and coverage of new markets in Europe and Asia-Pacific to follow in the third and fourth quarters.

GRId ratings identify and evaluate a company's key governance practices across four dimensions: audit, board of directors, compensation/remuneration, and shareholder rights.

GRId provides critical information across the investment process, supporting investors by allowing them to:

• Flag portfolio companies with governance-related concerns;
• Screen and identify companies with particular combinations of governance practices;
• Access governance-related company tearsheets for engagement purposes; and
• Incorporate governance risk factors into the investment decision-making process.

For more information on the GRId methodology and the launch of GRId 2.0, please click here or call 301-556-0540.

Retail investor activist Jim McRitchie has filed a shareholder proposal at Apple that calls for an annual non-binding vote on outside director compensation at the technology company.

"This proposal is similar to our management's proposal on this same ballot enabling us to cast a vote in regard to the pay of our executives," McRitchie wrote in a recent blog posting about his resolution. "This shareholder proposal simply extends the shareholder voting opportunity to apply to our directors. Some of our directors are paid more than $1 million for work that may take less than 400 hours per year--or $2,500-plus per hour."

In response to this proposal, Apple argues that the compensation for its non-employee directors is "reasonable and appropriate." The California-based company points out that a substantial portion of directors' pay is equity-based to "further align" the interests of directors with shareholders. The company said it has retained an independent compensation consultant to review its director pay each year. Apple plans to hold its 2012 annual meeting on Feb. 23.

Two outside Apple directors earned more than $1.07 million in total compensation from the company, while two others received more than $840,000, according to ISS' 2011 report on Apple.

Investor proposals on director pay have had mixed success in recent years, as most shareholder activists have focused on advisory votes on executive pay, which were mandated by the Dodd-Frank Act of 2010. During the 2011 proxy season, five say-on-director-pay resolutions went to a vote and averaged almost 17 percent support, according to ISS data. The best showing was 46.4 percent approval at Chesapeake Energy, where outside directors receive personal aircraft usage as a perk.

A longer version of this article appears in this week's edition of ISS' Governance Weekly, which can be found on Governance Exchange. To learn more about the benefits of joining Governance Exchange, please click here.

The special committee formed to investigate recent events at Olympus Corp. has issued its report on what has turned into Japan's biggest corporate scandal in years, one which has brought the 92-year-old company to the brink of delisting. What lessons can investors draw from the scandal?

The scandal itself began with an attempt to hide over JPY 100 billion in investment losses by moving bad assets off the balance sheet, in anticipation of the introduction of mark-to-market accounting. Many Japanese companies engaged in similar behavior in the wake of the collapse of the economic bubble in the early 1990s, but Olympus continued the deception far longer than most (although the revelations about Olympus have caused some to wonder if other companies may still be engaged in such behavior). Inflated payments in connection with acquisitions as recently as 2008 were used to cover investment losses dating back to the 1990s. Although the special committee found no evidence that "anti-social forces" (i.e., organized crime) played any role in helping Olympus perpetrate the fraud, the fact that so many observers suspect such involvement is a problem for the credibility of corporate Japan.

Olympus first made headlines in October when it abruptly fired its recently-appointed CEO, Michael Woodford. The company's initial explanation for the firing--that Woodford had violated protocol and failed to understand Japanese management--would have seemed plausible to many Japanese observers keenly attuned to the differences between Japanese companies and their Anglo-Saxon counterparts. Yet Woodford had seemingly thrived at Olympus for many years, and had apparently impressed the board enough that he had been chosen as CEO over his Japanese colleagues.

Once Woodford began to go public--admittedly a very un-Japanese thing to do--with the news of Olympus' questionable M&A transactions, it emerged that his real sin had been to challenge the rest of the management team, led by his predecessor Tsuyoshi Kikukawa, over those dubious transactions. This raised questions as to whether Woodford had been chosen as CEO with the expectation that he would never uncover the accounting fraud, and would allow Kikukawa to continue to wield influence as executive chairman--or with the expectation that he would be the one to take the fall in the event the scandal came to light. While it would be unfair to suggest that shareholders should generally be skeptical of a company's motivations for hiring a foreign CEO, in a consensus-driven and hierarchical corporate culture such as Japan's, the hiring of a surprise candidate (whether foreign or native) may be a sign that none of the obvious candidates wanted to take the job.

The practice of a "retired" CEO continuing to exercise power from behind the scenes (as executive chairman, or as a consultant or advisor) is a well-established phenomenon with many antecedents in Japanese history, from emperors in the feudal era to politicians like former Prime Minister Kakuei Tanaka. Shareholders may justifiably be concerned with the potential for these former CEOs to undermine their successors' authority. Yet there are limits on what shareholders can do about it: even if such individuals are voted off the board, they may be appointed to advisory posts where they may continue to wield influence without the accountability that comes from a board seat.

The obvious way to balance the power of current and former executives is to appoint outsiders to the board. Yet when Japanese issuers complain that there is a shortage of qualified candidates, it is not entirely an excuse. Japanese executives tend to have spent their entire careers with a single company or group, and many lack some of the transferable skills that executives elsewhere may have gained through a diverse career or through formal study of corporate finance, law or management; making them less well-suited to serve as outside directors of other companies. The insularity of Japanese management teams also means that when an outsider, or even a foreign-born executive like Woodford, does join the board, he or she can have a major disruptive impact.

Governance Exchange members can read this full article by clicking here. To learn more about the benefits of joining Governance Exchange, please click here.

Public pension funds from California, Connecticut, North Carolina, Illinois, and New York City have filed a proxy access proposal at Nabors Industries. The proposal, which is based on SEC Rule 14a-11, asks the Bermuda-based oil drilling contractor to adopt a bylaw to permit shareholders who have held a 3 percent stake for at least three years to nominate candidates for up to a quarter of the company's board seats.

"Nabors has a long history of poor governance, including a board that has consistently been unresponsive to shareholder concerns," Janet Cowell, state treasurer of North Carolina, one of the resolution's proponents, said in a press release.

Nabors, which has its operational headquarters in Houston, has faced significant investor dissent in recent years. At its 2011 annual meeting in June, Nabors received more than 57 percent opposition during its say-on-pay vote. Nabors is one of 41 U.S.-listed companies that have reported failed pay votes this year, according to ISS data. In addition, a director received majority opposition this year after the company failed to adopt a majority-supported board declassification proposal in 2010. (The company since has said that it will put a declassification proposal on the ballot in 2012.)

Overall, investors have filed 15 proxy access proposals for the 2012 proxy season, according to ISS data. Among the recent filings was a lower-threshold (a 1 percent stake for two years) resolution filed by shareholder activist John Chevedden at Chiquita Brands International. That resolution is based on the U.S. Proxy Exchange's model proposal, which also would permit nominees from groups of 100 investors who each own a $2,000 stake for at least one year.

ISS Governance Exchange members can learn more about these proposals and see a full list of 2012 access resolutions by clicking here. To learn more about the benefits of joining Governance Exchange, please click here.

Join ISS Governance Exchange members on Wednesday, Dec. 14, at 1:00 P.M. EST for a roundtable discussion on how investors can strike a balance between ensuring alignment between pay and performance, while giving portfolio companies sufficient latitude to design and implement pay policies boards deem effective. 

The roundtable discussion, moderated by Carol Bowie, ISS’ Head of Compensation Policy Development, will feature a panel of investors, issuers, and pay advisors discussing the benefits and drawbacks of traditional approaches to long-term and at-risk compensation, and how investors can best communicate their preferred approach to portfolio companies. The one-hour session also will explore alternative approaches to long-term pay, including market stock units and other equity-based instruments, circumstances where their use is most appropriate, investors’ perspectives on their efficacy, and their upside and downside for various stakeholders.

The panelists include:

• Matthew Filosa -- Manager, Corporate Governance and Proxy Voting; MFS Investment Management
• Drew Hambly – Head of Corporate Governance; Morgan Stanley Investment Management
• Kathryn Neel -- Consultant; Frederick W. Cook & Co.
• Sam Reed -- Director Compensation and Benefits; Curtiss-Wright Corp.

Governance Exchange members can register by clicking here and then choosing the Events tab. 

Please contact governanceexchange@governanceexchange.com for further information.

To learn more about the benefits of joining Governance Exchange, please click here.

Earlier this week, ISS hosted webinars to discuss its 2012 European and U.S. policy updates. If you missed either webinar, you can listen to a replay by clicking here.

During the Dec. 6 European webinar, the following key policy and market updates for 2012 were covered:

• European equity compensation including new, ISS France-specific guidelines.
• U.K. update on the recently published ABI Principles of Remuneration.
• Failures of risk oversight.

During the Dec. 7 U.S. webinar, the following key policy and market updates for 2012 were covered:

• ISS' more robust analysis of the relationship between executive pay and company performance over a sustained time horizon.
• ISS' new policy on board responsiveness to say-on-pay votes.
• ISS has expanded the factors it will consider with regard to proxy access proposals.

Hewlett-Packard, which has experienced continued CEO turnover and failed to get majority support for its pay practices at its last shareholder meeting, now faces a proxy access proposal filed by the Amalgamated Bank, a labor-affiliated investor.

In addition, shareholder activist Jim McRitchie said he has submitted a low-threshold access proposal at Goldman Sachs. Overall, investors have publicly announced 13 access resolutions for the 2012 U.S. proxy season. 

Amalgamated Bank’s non-binding proposal at HP asks the technology giant’s board to adopt a bylaw that is similar to the SEC’s marketwide access rule, Rule 14a-11, which was struck down by a federal appeals court in July. The shareholder resolution seeks an access bylaw that would require investors to hold a 3 percent stake continuously for three years, with a 25 percent limit on the number of board seats that investors could nominate candidates for.

The HP resolution was filed in October, and the company did not ask the SEC staff for permission to omit the proposal before the no-action deadline, said Cornish Hitchcock, a lawyer for Amalgamated Bank.

It appears that this proposal should fare well at HP. In 2007, a similar access resolution at the technology company received 43 percent support. HP traditionally holds its annual meeting in March, so the company likely will be the first test of the popularity of proxy access in 2012.

The HP proposal is the third “private ordering” variation on proxy access so far for the 2012 season. McRitchie’s filing at Goldman Sachs is based on a model resolution drafted by the U.S. Proxy Exchange, which calls for a 1 percent threshold for two years; that proposal also would allow access nominees from groups of 100 or more investors who each hold at least $2,000 in company stock for one year. 

ISS Governance Exchange members can learn more about these proposals and see a full list of 2012 access resolutions by clicking here. To learn more about the benefits of joining Governance Exchange, please click here.

ISS has named Yovanka Bylander as its new Head of Securities Class Action Services. ISS' Securities Class Action Services business serves more than 300 institutional investment clients, leveraging its large collection of securities litigation data and its robust claims filing operation to maximize investors' class action recoveries. 

"For more than a decade, Securities Class Action Services has improved investor performance through effective recoveries management," said Stephen Harvey, Head of the ISS Governance Business. "We are confident that Yovanka's 18 years of professional experience and proven track record in launching and growing businesses will set our Securities Class Action Services business on a new path of innovation and growth." 

Billions of dollars each year are recoverable by investors in securities class-action lawsuits. Yet, the reality is that less than half of the eligible claims are filed in many cases, resulting in those settlement dollars going unclaimed. In fact, there is almost $19 billion in pending or final settlements for which the claim-filing deadlines have not passed. 

"For institutional investors extending their fiduciary responsibilities to recovering lost assets resulting from fraud, ISS' Securities Class Action Services represents a turnkey processing solution that is proven, secure, and low cost," Bylander said. "There is a tremendous amount of money at stake for investors. With the most extensive securities litigation database in the industry and a proven end-to-end claims processing platform, we are maximizing returns for our clients in the U.S. and abroad." 

Before joining ISS, Bylander was acting CEO of Hawkstone Capital LLC, a $200 million Europe long/short fund in which she was actively involved since it launched in 2006. Prior to Hawkstone, she was an equity analyst, covering Latin American bank stocks at Morgan Stanley and Fox-Pitt Kelton. At Morgan Stanley, she was an integral part of a leading Institutional Investor ranking research team and was an important contributor to a $2 billion Brazilian bank equity placement--one of the largest such transactions at the time.

ISS' Securities Class Action Services business employs 18 full-time case research and operations professionals and files almost a half-million claims each year on behalf of its clients. The singular focus of the service is to provide asset managers, asset owners, and hedge funds with the highest return possible on their settlement claims. ISS offers its Securities Class Action Services on an annual fixed-fee subscription basis or through a no up-front cost contingency arrangement.

For more on Securities Class Action Services, please click here.

Join ISS Governance Exchange members on Dec. 14 at 1:00 P.M. EST for a roundtable discussion on how investors can strike a balance between ensuring alignment between pay and performance, while giving portfolio companies sufficient latitude to design and implement pay policies boards deem effective. 

The roundtable discussion, moderated by Carol Bowie, ISS’ Head of Compensation Policy Development, will feature a panel of investors, issuers, and pay advisors discussing the benefits and drawbacks of traditional approaches to long-term and at-risk compensation, and how investors can best communicate their preferred approach to portfolio companies. The one hour session also will explore alternative approaches to long-term pay, including market stock units and other equity-based instruments, circumstances where their use is most appropriate, investors’ perspectives on their efficacy, and their upside and downside for various stakeholders.

The panelists include:

• Matthew Filosa -- Manager, Corporate Governance and Proxy Voting; MFS Investment Management
• Drew Hambly – Head of Corporate Governance; Morgan Stanley Investment Management
• Kathryn Neel -- Consultant; Frederick W. Cook & Co.
• Sam Reed -- Director Compensation and Benefits; Curtiss-Wright Corp.

Governance Exchange members can register by clicking here and then choosing the Events tab. 

Please contact governanceexchange@governanceexchange.com for further information.
 

Norges Bank Investment Management (NBIM), which manages Norway's $550 billion pension fund, has filed proxy access proposals at Wells Fargo, Charles Schwab, Western Union, Staples, Pioneer Natural Resources, and CME Group.

Overall, investors have publicly announced the submission of 11 proxy access resolutions for the 2012 proxy season, which is rather surprising, given that many governance observers had expected just a handful of resolutions.

The NBIM proposals, which were filed on Nov. 22, all call for a minimum stake of 1 percent for at least one year, with a 25 percent cap on the percentage of board seats that investors could nominate candidates for. At the time of filing, NBIM held stakes of 0.6 percent to 1.1 percent in these companies, valued at a total $1.4 billion.

“Board members must be held accountable,” Anne Kvam, global head of ownership policy at NBIM, said in a press release on Tuesday. “When they fail to meet our expectations, we as shareholders should be able to propose alternatives without incurring prohibitively high costs.”

The NBIM proposals seek more permissive access standards than contained in the SEC's universal access rule, Rule 14a-11, which would have required investor groups to hold a 3 percent stake for at least three years, and imposed a 25 percent cap on the board seats that could be contested by access nominees. That rule was overturned by a federal appeals court in July and the SEC appears unlikely to try to revive that rule in the coming year.

As you prepare for the 2012 proxy season, please join ISS for two informative webinars on Tuesday and Wednesday on the updates to ISS' benchmark proxy voting policies for Europe and the United States. ISS experts will also provide a preview of the key issues that institutional investors and issuers will face in the coming year. 

European Policy Updates, Tuesday, December 6, 2011, 2:30 PM GMT
Presented by ISS' Jean-Nicolas Caprasse, Head of Business, Europe; Daniel Jarman, Head of U.K. Research; Thomas von Oehsen, Head of German-Dutch Research; and Eva Chauvet, Senior Analyst, French Research. Key policy and market updates that will be covered:

• European equity compensation including new, ISS France-specific guidelines.
• U.K. update on the recently published ABI Principles of Remuneration.
• Failures of risk oversight.

U.S. Policy Updates, Wednesday, December 7, 2011, 11:00 AM EST
Presented by ISS' Dr. Martha Carter, Head of Governance Research; Carol Bowie, Head of U.S. Compensation Research; and Patrick McGurn, Special Counsel. Among the key policy updates that will be covered:

• ISS will provide a more robust view of the relationship between executive pay and company performance over a sustained time horizon.
• ISS' new policy on board responsiveness to say-on-pay votes.
• ISS has expanded the factors it will consider with regard to proxy access proposals.

To register for these webinars, please click here.

The ISS global policy updates are the culmination of an extensive consultation process that included outreach to and input from institutional investors and corporate issuers worldwide. ISS analysts will begin applying the updated policies to all publicly-traded companies with shareholder meetings on or after February 1, 2012. To learn more about the policy updates, please visit the ISS Policy Gateway.
 

Retail activist Ken Steiner has filed low-threshold proxy access resolutions at three more companies--Bank of America, Sprint Nextel, and Ferro Corp. Steiner submitted the Sprint and Ferro proposals on Monday, and the Bank of America resolution on Wednesday, according to the U.S. Proxy Exchange (USPX), an advocacy group for retail investors.

So far, Steiner has filed five non-binding access resolutions for the 2012 proxy season; the other two targets are Textron and MEMC Electronic Materials. His filings are based are based on a model proposal that USPX members have drafted as a more permissive alternative to the SEC's universal access rule (Rule 14a-11), which would have required investor groups to hold a 3 percent stake for at least three years, and imposed a 25 percent cap on the board seats that could be contested by access nominees. That rule was overturned by a federal appeals court in July and the SEC appears unlikely to try to revive that rule in the coming year. While some institutional investors have expressed support for Rule 14a-11’s thresholds, the USPX and other retail activists have argued that those hurdles would be too high and would bar small shareowners from nominating board candidates.

The USPX model proposal urges a company's board to adopt a proxy access bylaw that would permit director nominees from: any party of one or more shareowners that has held continuously, for two years, 1 percent of the company’s securities eligible to vote for the election of directors, and/or any party of shareowners of whom 100 or more satisfy SEC Rule 14a-8(b) eligibility requirements (i.e., those who hold at least a $2,000 stake for one year). Any such party may make one nomination or, if greater, a number of nominations equal to 12 percent of the current number of board members, rounding down.

In the supporting statement for his access proposal at Bank of America, Steiner cites the company's large losses during the second and third quarters of 2011 and the bank's recent retreat on its controversial plan to collect additional fees from debit card holders. At Sprint, he mentions executive pay concerns and the telecommunications company's 40 percent share decline in the year ending Nov. 23. His Ferro proposal criticizes the chemical company's pay practices, the absence of a "clawback" policy, and its 67 percent share decline in the year ending Nov. 23.  

Earlier this week, the Council of Institutional Investors, which represents public, labor, and corporate pension funds, released a statement on proxy access proposals. While the statement didn't specifically mention the USPX-inspired resolutions, the group did "encourage Council members and other long-term shareowners to consider using this new tool in a focused and consistent manner that enhances the U.S. corporate governance model and contributes to the health and long-term value of public companies."

"More specifically, the Council believes that shareowner proposals to specify the procedures for proxy access should include language requiring a nominator or nominating group to have beneficially owned a meaningful percentage of the company’s voting stock continuously for a meaningful period of time, especially if those resolutions call for lower ownership thresholds than in Rule 14a-11," the institutional investor group said.  

It appears likely that the targets of Steiner's proposals will seek SEC permission to keep them off their proxy statements. While the SEC has repealed a 2007 rule that allowed companies to exclude all access-related shareholder proposals, issuers still can raise other substantive objections (such as impermissibly vague or misleading, or contrary to state or federal law), or seek to challenge a proponent's evidence of ownership. The director of SEC's Corporation Finance Division has said she plans to personally review the staff rulings on these no-action requests.