2009 Proxy Season Review And a Look Ahead to 2010

Although 2009 was more notable for legislative and regulatory corporate governance initiatives than for shareholder activism, the recently concluded proxy season produced several potentially significant results. As might be expected, executive compensation issues attracted a large number of shareholder proposals and a significant degree of shareholder support. In the general category of corporate governance, a few topics appeared to be increasingly popular with shareholders: the right to call special meetings, the majority election of directors and independent board chairmanship. Overall, shareholders focused on many of the same issues as did Congress and the Securities and Exchange Commission (SEC) over the last year. In light of the fact that the majority of legislative and regulatory initiatives proposed in 2009 will be pending through the beginning of 2010, a number of important variables remain unknown for next year’s proxy season.

Executive Compensation

Say-on-pay shareholder proposals requesting advisory votes on executive compensation were numerous and popular in 2009: 71 say-on-pay resolutions were submitted by shareholders during the proxy season, garnering an average of 46 percent shareholder support.¹ Say-on-pay advisory votes were popular with the federal government as well: In February 2009, the Treasury Department issued a requirement for advisory say-on-pay votes at financial institutions;² in July 2009, the Treasury Department proposed to Congress the Investor Protection Act of 2009, which, if adopted, would mandate nonbinding, advisory say-on-pay votes on executive compensation packages for all public companies at each annual meeting and for “golden parachute” arrangements for executives in the context of a change-in-control transaction.³ The Investor Protection Act also would require disclosure of such arrangements, the conditions under which such arrangements may become payable and the aggregate amount of all such compensation. Regardless of whether the Investor Protection Act becomes law, it appears that say-on-pay activism in one form or another will continue to gain momentum with shareholders in the current environment.