ON Securities : Securities Lawyer & Attorney for Corporate Governance & Executive Compensation Matters

Last week, the SEC disclosed that it would not appeal the opinion of the D.C. Circuit Court that struck down Rule 14a-11, the proxy access rule that would have allowed shareholders to nominate members of the board of directors and required the company to include these nominees in its proxy statement. Therefore, Rule 14a-11 will not go into effect unless the SEC readopts the rule using procedures that will satisfy the courts.

At the same time, the SEC announced that it will allow a companion change to Rule 14a-8 (PDF) to go into effect. The amended Rule 14a-8 allows shareholders to submit proxy access proposals at individual companies and would prevent the companies from excluding those proposals. This process is known as "private ordering." The SEC issued a stay of effectiveness of Rule 14a-8 at the same time it stayed the effectiveness of Rule 14a-11. In its release last week, the SEC confirmed that the stay will expire without further SEC action on the date when the court’s decision will be finalized, expected to be September 13, 2011. The ON Securities Cheat Sheet, always available on this site, has been updated to provide more detail on amended Rule 14a-8.

In a recent post on the Conference Board Blog, “2012 Proxy Access Shareholder Proposal Wave Can Commence Next Week,” Gary Larkin reports that many commentators are recommending that proxy access proposals should be on the radar screens of boards of directors for the 2012 proxy season. This is true – of course, boards should be familiar with the operation of the amended rule.

But should companies expect a flood of shareholder proposals demanding or requesting proxy access? Probably not, at least not right away. Ted Allen in the ISS Governance Blog provides a very useful perspective on the advent of private ordering. In “Will Proxy Access Appear on Corporate Ballots in 2012?”, Allen reports:

At this point, it appears unlikely that investors will submit dozens of access proposals for 2012 meetings, as they have done in past seasons to seek board declassification, majority voting bylaws, or "say on pay" votes. There is concern among some activists that corporate advocates will argue that federal access standards are not needed if investors file a large number of access resolutions next year.

Amy Borrus, CII's [the Council of Institutional Investors’] deputy director, said she expects to see "probably not more than a handful" of access proposals in 2012. "I expect that shareowners will file proxy access proposals selectively at companies where boards have a history of not being responsive to shareowners or have been asleep at the switch," she said.

Allen also points out a variety of factors that will discourage proxy access proposals, especially binding votes on bylaws amendments, or make it more difficult for shareholders to get support for the proposals. See this previous post for further discussion of binding vs. non-binding votes.

In other words, once again to paraphrase Bob Dylan (a/k/a Bobby Zimmerman from Minnesota), it may be a while before shareholders are “knock-knock-knockin’ on the boardroom’s door.” But this delay doesn’t change the fact that, in terms of shareholder relations, “the times they are a-changin’.”
 

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 In “Will Investors File Proxy Access Proposals in 2012?”, in the RiskMetrics Blog, Ted Allen analyzes the possible impact of the D.C. Circuit Court’s ruling (discussed in this prior post) that struck down the SEC’s proxy access rule, Rule 14a-11. Rule 14a-11 grants to large shareholders of public companies the right to nominate directors and have the nominees included in management’s proxy statement.

Allen points out that the SEC may lift its stay on the related amendment to Rule 14a-8, which would allow shareholders to introduce proxy access proposals in 2012. He reports that there may not be a flood of proxy access proposals next year, due to institutional investors’ mixed feelings on these proposals and some complex dynamics:

Several investors said this week they are looking into submitting access proposals next season . . . . So far, it appears that the activist investor community is undecided about whether to file access proposals in 2012 and how many companies to target. There is a concern that the filing of dozens of access resolutions next season might bolster corporate arguments that the SEC should refrain from adopting a new marketwide access rule and just allow private ordering to work. There also is a concern that low support levels for poorly targeted proposals would be cited by corporate critics as evidence that most shareholders don't want access. Conversely, some activists argue that strong shareholder votes for access in 2012 could help prod the resource-stretched SEC to prepare a revised access rule. If activists do file access proposals next season, it appears that they may focus on a few high-profile companies with well-known governance issues.

One interesting issue is whether the shareholder access proposals would likely be votes on binding amendments to the bylaws or non-binding precatory votes that are merely recommendations to the board. Allen states: “Investors could file binding or non-binding resolutions, but some states require higher ownership thresholds for binding bylaw proposals.” Individual companies also may have bylaws that would require a supermajority vote by shareholders. Allen points to three examples of proxy access proposals in 2007, before the SEC stopped allowing such proposals under Rule 14a-8:

• A binding access proposal involving Hewlett-Packard Corporation that won a high percentage of approval but did not pass. This proposal would have required a two-thirds positive vote under H-P’s bylaws.
• Non-binding access proposals involving UnitedHealth Group, Inc. and Cryo-Cell International, Inc. The UnitedHealth proposal won a high percentage of approval but did not pass; the Cryo-Cell proposal passed.

Therefore, if the SEC lifts its stay on the amendment to Rule 14a-8, the resulting proposals are likely to include a mix of binding and non-binding proposals.

Cheat Sheet Updated for Changes in Dodd-Frank Rulemaking Timetable

As Broc Romanek pointed out in TheCorporateCounsel.net Blog, the SEC has modified its timetable for rulemaking under the Dodd-Frank Act. The ON Securities Cheat Sheet has been updated to include the additional dates. Most of the changes consist of adding a proposed time frame for final rules that have not yet been adopted, in many cases giving a range of January to June 2012. This makes it very unlikely that some of these rules, including the disclosure of pay relative to performance and the ratio of CEO pay to median non-CEO employee pay, will apply to the 2012 proxy season.

Stock Market Woes? Blame the Blue Guys!

We’re all still reeling from the stock market plunge this week so far. In his CNN show this evening, Piers Morgan showed footage of the New York Stock Exchange’s opening bell being rung on July 29 by . . . the Smurfs! He points out that, since that time, the Dow Jones Industrial Average has plunged by almost 1,000 points. Obviously, there must be a connection.

See the video below, if you want to know who’s to blame for the crummy stock market. You’ll be singing the blues!

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 It’s going to be quite a while longer before, to paraphrase Bob Dylan, large shareholders are “knock-knock-knockin’ on the boardroom’s door.” As has been widely reported, last Friday the D.C. Circuit Court of Appeals struck down the SEC’s Rule 14a-11 (127-page PDF), adopted in August 2010, which grants to large shareholders of public companies the right to nominate directors and have the nominees included in management’s proxy statement. The Court’s opinion, using very harsh language, found that the SEC’s process was deficient in adopting the rule and held that the adoption of the rule was arbitrary and capricious.

The SEC’s statement about the decision expresses disappointment and states that the agency is “considering our options going forward.” What might this mean for proxy access?

• Reconsideration/Rehearing or Appeal. As reported by Ted Allen in “U.S. Appeals Court Strikes Down Proxy Access” in the RiskMetrics Blog, “The SEC now has 45 days to decide whether to ask the three-judge panel to reconsider its ruling or seek a rehearing by the full nine-judge D.C. Circuit.” Presumably, depending on further action of the D.C. Circuit, the agency could further appeal to the U.S. Supreme Court.
• Re-Adoption of the Rule. Allen also reports, “If the commission doesn’t seek additional judicial review, it would then have to decide whether to redo its economic analysis and try to revive Rule 14a-11. Given the SEC’s heavy workload of Dodd-Frank Act rulemakings, it appears unlikely that the commission would move quickly to resurrect the rule.” I agree that it is unlikely in the short term that the SEC will go through the process of reconsidering the rule and re-adopting it with a more deliberate process. However, the agency has put a huge amount of time and effort into the rule already, and the Dodd-Frank Act specifically authorized the adoption of the rule. Therefore, in the long run, I wouldn’t rule out another attempt by the SEC.
• Removal of Stay on Rule 14a-8. The more immediate question in the short term is what the SEC will do about a companion amendment to Rule 14a-8 that was adopted in the same release (127-page PDF) as Rule 14a-11. This amendment allows shareholders to submit proxy access proposals at individual companies and would prevent the companies from excluding those proposals. The SEC issued a stay of effectiveness of Rule 14a-8 at the same time it stayed the effectiveness of Rule 14a-11. The SEC’s statement regarding the Court of Appeals’ decision specifically points out that the Rule 14a-8 amendment “is unaffected by the court’s decision . . . . ” The SEC could quickly lift the stay relating to Rule 14a-8, regardless of what it does with Rule 14a-11. Allen predicts, “ . . . [the stay on the Rule 14a-8 amendment] likely will be lifted before the filing deadlines for most 2012 meetings.”

The bottom line: there is a consensus that it is highly unlikely that proxy access will be in effect for the 2012 proxy season. However, if the stay on Rule 14a-8 is lifted, then a large number of companies may be dealing with shareholder proposals in 2012 to provide proxy access to large shareholders in future years.

What should companies do now? For those companies with advance notice bylaws, there is probably no rush to amend those bylaws to conform to the requirements of Rule 14a-11. However, companies without advance notice bylaws should consider adopting them, to provide adequate notice of shareholder proposals and to provide the board with additional information about the shareholders making the proposal, their shareholdings, and their relationships with each other and with the company.

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To quote the old Virginia Slims ad, we’ve come a long way, baby.

As we close out a very eventful year, it’s interesting to look back on how far corporate governance and executive compensation reforms have come since the end of 2009. I pulled out a copy of the December 23, 2009 version of the ON Securities Cheat Sheet (PDF) and was reminded that, a year ago, there were almost as many reform bills suspended in Congressional committees as there are members of Congress. That version of the Cheat Sheet summarized the provisions of the “Schumer Bill,” the “Frank Bill” (which was a repackaged version of the Obama Bill), and several other bills. The bills contained diverse but overlapping restrictions and limitations, responding to the fact that the near-collapse of the banking system and the worldwide economy was still fresh in everyone’s mind.

As we all know, after a long and tangled legislative process, what resulted was the Dodd-Frank Act. [For a musical lesson on how a bill makes its way through the legislative process, see this previous post, which in turn links to the “I’m Just a Bill” episode of the Schoolhouse Rock television show.]

In turn, the Act resulted in a long laundry list of anticipated SEC rulemaking projects, continuing into 2011. For a status report on the SEC’s rulemaking progress, see the latest version of the Cheat Sheet (PDF) (always available by clicking the box at the right side of the home page). As the Cheat Sheet shows, we’re waiting for proposed and final SEC rules on a variety of Dodd-Frank Act provisions. We’re also waiting for the results of the legal challenge to the proxy access rule, as described in this previous post.

I just updated the Cheat Sheet to reflect that the SEC did not meet its announced timetable for proposing independence standards for compensation committees and their advisors. These proposed rules were scheduled for December, but the Dodd-Frank rulemaking timetable on the SEC web site has been changed and now lists the proposed rules in the January-March 2011 time frame.

One More Frequency Vote Scoreboard in 2010

One last time in 2010, here is an updated scoreboard of the proxy statements filed so far that include the shareholder advisory votes required under the Dodd-Frank Act, including the ‘Say When on Pay” frequency vote. Based on Mark Borges’ updated tally (as of December 23) of 58 companies’ proxy statements in his Proxy Disclosure Blog on compensationstandards.com (subscription site), here’s the score:

Triennial Say-on-Pay vote recommendation: 32 companies
Biennial Say-on-Pay vote recommendation: 6 companies
Annual Say-on-Pay vote recommendation: 14 companies
No recommendation: 6 companies

The above tally included thirteen smaller reporting companies (7 triennial recommendations, 2 biennial recommendations and 4 annual recommendations).

Happy New Year

I want to wish all of you a safe New Year’s celebration and a happy and prosperous year in 2011!
 

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In the hope that it will bring the Minnesota Twins better luck in their upcoming trip to Yankee Stadium, I am providing this link to my post from March 29, 2010, entitled: “Talkin' Baseball, Joe Mauer and Proxy Statements: Hypothetical Disclosures of Compensation Risk and Qualifications.” In the post, I included “hypothetical” proxy statement language, as if Joe Mauer were the CEO of a public company. The language was meant to illustrate the following disclosures, which were required this year for the first time for public companies in their proxy statements:

• A discussion of compensation-related risk under Item 402(s) of Regulation S-K, required if compensation is determined to create material risks. Of course, the “hypothetical” disclosure focused on the merits and risks of Joe’s then-newly signed $184 million contract.
• A discussion of the qualifications of each member of the board of directors, including their special qualifications and skills. Of course, the “hypothetical” set of reasons read, in full, as follows: “HE’S JOE MAUER.”

Comment: In preparing for the upcoming proxy season, companies should focus anew on these sections of the proxy statement, even though they will generally be included for the second time:

• Whether or not the Item 402(s) risk disclosure is technically required, many companies have chosen to discuss the process used by the Board or the Compensation Committee to analyze compensation–related risks. These discussions often include an analysis of features of the compensation program that mitigate risks. Such a discussion of risk mitigation factors will likely be one factor considered by shareholders in evaluating whether to vote in favor of the Say-on-Pay resolution on the ballot at the 2011 annual shareholders meeting. Therefore, the risk mitigation factors should be emphasized in the Compensation Discussion and Analysis section of the proxy statement.
• The discussion of the qualifications of board members will take on added importance in future years (probably starting in 2012), when proxy access will likely give large long-term investors the ability to nominate director candidates and have them included in management’s proxy statement. It’s not too early to consider whether the reasons stated in the coming year’s proxy statement wlll provide shareholders a compelling reason to vote for management’s candidates in future years.

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It looks like it will be another year, at least, before large shareholders will be “knock knock knockin’ on the boardroom’s door.” Today, the SEC issued an order (PDF) delaying the effective date of the rule pending the results of a legal challenge.

As reported in this previous post, last week the U.S. Chamber of Commerce and the Business Roundtable filed a petition with the U.S. Court of Appeals challenging the SEC’s adoption of Rule 14a-11, the proxy access rule. This rule grants large shareholders the right to nominate directors in certain circumstances and have these nominees included in the company’s proxy statement. The Chamber and the Roundtable requested that the effectiveness of the rule be delayed until the court had a chance to rule. In today’s order, the SEC agreed to the delayed effective date and joined the two groups in requesting expedited review by the court.

Ted Allen, in the RiskMetrics blog published by ISS, posted “The SEC Puts Proxy Access Rule on Hold,” discussing the anticipated impact of the SEC’s order:

. . . . Even if the appeals court acts quickly and upholds the controversial rule [14a-11], it’s not likely that proxy access would take effect until at least the 2012 proxy season.

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.

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As public companies prepare for their first proxy season under the Dodd Frank Wall Street Reform and Consumer Protection Act (848-page PDF), I’m fielding many questions about implementation of the compensation and governance provisions of the Act. Unfortunately, given the broad language of the Act and the current absence of SEC regulations, there are not a lot of definitive answers.

However, the Society of Corporate Secretaries and Governance Professionals has provided a very thoughtful and helpful analysis. Darla C. Stuckey, Senior Vice President of the Society, in her testimony before the House Finance Committee last week, discussed the possible impact of various compensation-related provisions of the Act, as well as the Society’s “wish list” of possible regulatory clarifications. Ms. Stuckey’s testimony (PDF) makes interesting reading for anyone wrestling with preparation for the 2011 proxy season:

Say-on-Pay and Related Votes. The Society observes that the SEC is targeting January through March of 2011 for adoption of rules on Say-on-Pay and Say When on Pay. Since these votes are required at the first shareholders meeting on or after January 21, 2011, even January is too late to provide guidance for many affected companies. The Society requests that the SEC propose the rules in early October so the final rules can at least be adopted before January 21.

Advisory Firms. The Society also commented that the SEC should consider the power of proxy advisory firms (which would include ISS) in the Say-on-Pay process. A recent survey indicated that almost half of Society members reported 30% or more of the companies’ shares being voted in line with the advisory firms’ recommendations. Over 60% of respondents indicated at least one experience with an advisory firm’s recommendations being based on materially inaccurate or incomplete information, and of those recommendations, 60% were not corrected.

Comment. I have listened to several public company representatives complain about advisory firm recommendations based on inaccurate or incomplete information. Unfortunately, with the increased workload of the advisory firms in the coming year, this problem is not likely to get better.

Say When on Pay. The Society recommends that the SEC rulemaking should give weight to board recommendations on the frequency of Say-on-Pay votes. They suggest providing boards “a choice whether to offer a resolution with a single recommended choice (e.g., every two years), or a resolution that would give the board’s preference but ask for a vote on a one, two or three year frequency in a multiple-choice fashion.” The latter type of vote would involve a plurality vote of the shareholders.

Comment. The Society is asking the SEC to allow companies the discretion to offer When on Pay as a yes-or-no vote on a single recommended choice (e.g., an up or down vote on a triennial Say-on-Pay vote). I don’t believe it is clear that such a vote would be consistent with Section 951(a)(2) of the Act, which requires a separate resolution “to determine whether votes on the . . . [Say-on-Pay resolutions] will occur every 1, 2 or 3 years.” Ms. Stuckey included with her testimony a comment letter (PDF) on the Act to the SEC from the Center on Executive Compensation. That letter does make a cogent argument that the vote with a single recommended choice is consistent with the Act, but certainly doesn’t answer all questions about the SEC’s authority in this area. Ultimately, the SEC has to make a determination about its authority to permit a “single recommended choice” vote – and quickly, if it is to propose rules by early October, as requested by the Society.

If the SEC rules do allow an up or down vote on a single recommended choice, the rules will have to answer other questions. For example, if the shareholders vote against a triennial Say-on-Pay vote, what action will the board of a company be required to take in subsequent years – would the company then be required to hold annual Say-on-Pay votes, or could the board elect to hold biennial votes?

Internal Pay Ratio. The Act will require companies to present the median annual total compensation of all employees of the company (other than the CEO) and the annual total compensation of the CEO, then provide the ratio of these figures. These rules are expected to be in effect for the 2012 proxy season. Ms. Stuckey’s testimony makes it clear just how difficult and complex a task will be presented by the calculations. The Society recommends that the Act be clarified, either through a technical amendment or rulemaking, to provide that “all employees” be limited to full time U.S. employees, and that the total compensation amount exclude pension accruals, benefits and other non-cash items. According to an Alert from the Society dated September 28, 2010, Congressman Frank indicated his agreement with Ms. Stuckey on this issue.

The Society also commented on the Act’s clawback requirement, a subject I will address in a future post.

Legal Challenge Seeks to Invalidate the Proxy Access Rule

The U.S. Chamber of Commerce yesterday announced that the Chamber and the Business Roundtable filed a petition with the U.S. Court of Appeals challenging the SEC’s adoption of Rule 14a-11, the proxy access rule. This rule grants large shareholders the right to nominate directors in certain circumstances and have these nominees included in the company’s proxy statement. The petition claims, among other things, that the Rule is arbitrary and capricious and that the SEC failed to follow appropriate procedures. It’s not clear whether the petition will affect the Rule’s scheduled effective date of November 15, 2010.
 

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Today I attended a terrific presentation by Don Nemerov and Eric Gonzaga, compensation consultants with Grant Thornton, LLP, to a meeting of the Twin Cities Chapter of the National Association of Stock Plan Professionals (NASPP). The program materials are available here. The presentation covered the new executive compensation and corporate governance requirements under the Dodd Frank Wall Street Reform and Consumer Protection Act (848-page PDF), and what public companies should be doing to prepare.

Don and Eric spent much of their presentation talking about mandatory Say-on-Pay, the requirement under Section 951 of the Act that public companies submit their compensation to an advisory vote of the shareholders starting with the 2011 annual meeting. Slides 12 through 14 of the presentation contain charts that outline “potential drivers of ‘no’ votes" under the guidelines of the two most influential proxy advisory firms – RiskMetrics/ISS and Glass Lewis. Interestingly, the speakers described RiskMetrics as having policies that are more quantitative, while Glass Lewis takes a more principle-based qualitative approach.

The presentation included the following interesting points:

• Starting with slide 36, the presentation includes a list of action items for each compensation-related provision of the Dodd-Frank Act.
• Management and the board should do due diligence right away to determine whether the company’s pay will be considered reasonable relative to its performance. Performance will likely be evaluated by reference to total shareholder return (TSR), particularly by ISS/RiskMetrics.
• Communication will be absolutely critical, and companies should start now in determining how to communicate the reasons for the company’s pay policies and why pay is reasonable relative to performance. If shareholders should be considering performance factors other than TSR, including performance relative to peers, the company should be thinking about how best to communicate this.
• The company’s investor relations personnel are critical in this process and should be consulted early, including on ways to make the CD&A more effective in telling the pay-for-performance story.

I’m attending the NASPP Annual Conference in Chicago next week, where national speakers will be providing input on the latest developments in SEC rulemaking under Dodd-Frank. I should be able to pass along further tips on how public companies should prepare.

The SEC’s Proxy Access Rules Will Be Effective November 15, 2010

As reported in this previous post, on August 25, 2010, the SEC adopted Rule 14a-11, the shareholder access rule that was originally proposed on June 10, 2009. The Rule was finally published today (September 16, 2010). Here is the convenient Federal Register version of the Rule (127 page PDF). Therefore, we finally know the effective date of the Rule, November 15, 2010 (60 days after today's publication).

The critical date, however, is March 15, 2010. If a company mailed its proxy materials this year before March 15, then it will not be subject to proxy access rule for the 2011 proxy statement. This is because on November 15, 2010, a shareholder of the company would not be able to provide notice that is 120 days before the first anniversary of the 2010 proxy mailing. On the other hand, any company that mailed its proxy materials on or after March 15, 2010 will be subject to proxy access for the 2011 proxy statement. As Broc Romanek said in today’s post in thecorporatecounsel.net Blog, beware “the Ides of March”.

In her blog, “The Filing Cabinet,” in Compliance Week today, Melissa Aguilar posted “Proxy Access Rules Effective Nov. 15 — Who’s Affected?”, in which I provided commentary on which companies will be affected by the rule in 2011, and on other aspects of the new rule.

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To paraphrase Bob Dylan, large shareholders are closer than ever to “knock-knock-knockin’ on the boardroom’s door.”

In a Wall Street Journal report today, “SEC Set to Open Up Proxy Process”, Kara Scannell reports that the SEC has scheduled a meeting on August 25, 2010 for approval of proposed Rule 14a-11 (PDF), the shareholder access rule that was originally proposed on June 10, 2009. Scannell reports that the Commission is expected to approve a revised version of the rule by a 3-2 vote, with the Republican Commissioners voting against approval. The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (848-page PDF) on July 21, 2010 clarified the SEC’s authority to order proxy access and thus removed a major legal concern about enforcement of the rule (Act Section 972).

Rule 14a-11 will grant to large shareholders of public companies the right to nominate directors and have the nominees included in management’s proxy statement. Scannell reports that under the language currently being negotiated (still subject to change), shareholders would be required to beneficially own at least 3% of the outstanding stock for at least two years before having the right to nominate directors. Under the original proposal, the threshold was 1%, 3% or 5% depending upon the size of the company, with a one year ownership requirement. The company would be required to include shareholder nominees for up to 25% of the board positions. If nominees are received above the 25% limit, access is granted on a first-come-first-served basis.

In an interesting post on the Altman Group’s Governance & Proxy Review, “Dog Days of Pre-Proxy Access Summer”, Francis H. Byrd discusses the stated intention of the CalSTRS pension fund and hedge fund Relational Investors to team up to seek four boards seats at the Occidental Petroleum 2011 annual meeting. The funds stated that the issues driving their intended contest are executive compensation and succession planning, not financial performance. Byrd points out that the joint 1% holdings of the funds will not be sufficient under the rumored 3% standard in the final proxy access rule, so it’s not clear that the funds will ultimately seek the board seats.

Byrd describes these lessons from the Occidental situation:

First, don’t let corporate governance issues – especially on compensation – fester. . . . The goal should be to limit surprise issues, and be proactive with both your largest holders and the governance influencers like CalSTRS or the NYS Common Fund.

Second, companies . . . . that have [received a majority vote or large vote in favor of non-binding shareholder proposals but] ignored such votes in the past – especially if their stock performance has struggled – will be prime targets for short slate campaigns. This also holds true for companies whose directors have been targeted in Vote No campaigns. Substantial withhold votes from directors could also serve as a beacon for activists seeking to run a potential short slate.

Lastly, your Say on Pay vote matters on more than compensation. Many investors, especially the activist institutions, view compensation as a window for judging the quality of board oversight and determining whether a CEO is ‘imperial’. . . . In that context, a failed Say on Pay vote could be viewed as a signal to an activist that there is at least some lack of confidence in the board and management.

As the proxy access rules quickly approach reality, public companies should plan accordingly – and listen for the knockin' on the boardroom’s door.
 

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