If you think this year's proxy season is going to be interesting, wait until next year.
That's because Congress and the SEC are looking to impose a series of reforms that could change the face of shareholder voting practices and require greater disclosure on executive compensation, among other contentious governance issues.
Even so, “it will be an interesting season,” said Patrick McGurn, special counsel and executive vice president, RiskMetrics Group Inc. A lot of the big changes such as “say on pay and proxy access are probably a year off. 2010 is a year boards will start preparing for the new environment. There will be a lot of challenges.”
Here are some key measures in the works among legislators and regulators:
The Securities and Exchange Commission expects to vote soon to finalize a rule proposed last May to allow shareholders to use corporate proxy material to nominate directors.
Shareholders in aggregate would be able to nominate at least one or up to 25% of the board, whichever is larger. To be eligible for proxy access to nominate directors, shareholders individually or jointly as a nominating group would have to own for at least one year at least 1% of a company's voting shares with a market value of at least $700 million. The thresholds would rise up to 5% for smaller companies.
The public comment period on the proposal, initially set to end Aug. 17, was extended to Jan. 19. “(W)e are nearing a vote on a proposed rule,” Mary L. Schapiro, SEC chairman, said in a speech Jan. 20.
On Capitol Hill, the House on Dec. 11 passed the Wall Street Reform and Consumer Protection Act, sponsored by Rep. Barney Frank, D.-Mass., chairman of the House Financial Services Committee. Among its features, it would require an annual shareholder advisory vote on executive compensation. It also authorizes a shareholder vote to approve golden parachutes, or large severance payments, for top executives. In addition, the bill “requires financial firms with at least $1 billion in assets to disclose to federal regulators any incentive-based compensation structures,” according to a committee statement. “Federal regulators will then be authorized to ban any inappropriate or risky compensation practices that pose a threat to the financial system and to the broader economy.”
The bill “addresses perverse pay practices that encourage executives to take excessive risk at the expense of their companies, shareholders, employees and ultimately the American taxpayer - risks that contributed to the recent financial collapse,” the statement added.
The bill was referred Jan. 20 to the Senate Committee on Banking, Housing, and Urban Affairs, which is chaired by Sen. Christopher Dodd, D-Conn.
Mr. Dodd introduced the Restoring American Financial Stability Act of 2009 on Nov. 11. The bill, pending in that Senate committee, would require within 180 days of its enactment that the SEC adopt a rule requiring proxy access, a say-on-pay requirement and a vote on golden parachutes for top executives in any change in corporate control, according to a report by the law firm of White & Case LLP.
It also calls for a comparison over a five-year period of a company's stock performance and executive pay, clawback policies relating to restatements to recoup unearned incentive pay, and disclosure of employee hedging of company securities.