2006 Proxy Resolutions Show Focus on Corp Governance Issues

The number of corporate governance resolutions that have come to votes or are under consideration at US corporate meetings through June 30, 2006 stands at about 400, up from 383 for the corresponding six-month period in 2005, according to an SIF news release. An estimated 180 social and environmental shareholder resolutions either already have come to votes or are scheduled for vote for the first half of 2006, compared with 169 for the first half of 2005.

The release said that, according to Institutional Shareholder Services (ISS), key corporate governance trends for the 2006 proxy season include:

• Declassify boards.  Resolutions to declassify the board (i.e., elect all directors annually) are up, tracked at 71 for the first half of 2006, compared to 65 for the same period in 2005.
• Executive pay.  Resolutions are down this year to 150 from 252 for meetings through the first half of the year, but many are targeted at practices that have attracted significant shareholder support in the past, e.g., seeking shareholder votes on golden parachutes (32 filed) and supplemental executive pensions (13 filed) or seeking stronger links between stock-based incentives and company performance (16 filed).
• Elimination of supermajority votes ( i.e., more than 50% required to approve a merger not supported by the board or changes to a company’s bylaws or charter, such as declassifying the board.)  Resolutions eliminating supermajority votes are up again this year, tracking at 37 for meetings through June, versus 22 in 2005).
• Majority vote for directors. The “most talked about” shareholder proposal of 2005 is up significantly from last year (126 versus 79 for meetings through June).

The shareholder resolutions appearing on companies’ proxy statements in 2006 are a subset of the overall number of resolutions originally filed; many shareholders secured agreements from corporate managements and withdrew their resolutions before coming to a vote, the release said.

In addition, Key trends in social and environmental resolutions identified by the Social Investment Forum include:

• global warming (32 resolutions filed for January 1 to June 30 meetings, compared with 34 for the same period in 2005 – but with 2006 proponents withdrawing 12 proposals after reaching agreements with management) ;
• toxics and pollution reduction (22 resolutions filed in 2006, compared with 12 in 2005); and
• calls for disclosure of political contributions/donations (43 resolutions filed in 2006, compared with 39 in 2005).