U.S. Companies Increasingly Responsive to Shareholder Interests

In a press release, Shearman & Sterling said these conclusions are exemplified by the rise of majority voting, the decline of both classified boards and “poison pills,” and increased efforts to improve transparency on executive compensation.

The survey found majority voting has solidified its position as the primary voting standard used in director elections. In 2008, the number of companies surveyed that had adopted a majority voting standard rose to 71, compared to only 11 companies in 2006. The number of companies surveyed that required directors to submit their resignations if they received less than a majority of the votes cast rose to 76.

Classified boards and “poison pills” (a business strategy to increase the likelihood of negative results over positive ones for a party that attempts any kind of takeover) are becoming increasingly rare. The number of companies operating with a classified board has decreased by 50% since 2004, falling to just 27 in 2008. In 2008, only 12 companies surveyed still retained a poison pill – a decrease by almost two-thirds since 2004.

Other survey findings included:

• For the first time in 2007, certain companies were permitted to provide their proxy materials to shareholders electronically. Thirty-five of the companies surveyed utilized the “notice-and-access” model for the delivery of their proxies, with 18 of these companies utilizing a hybrid version incorporating both the “notice-and-access” and traditional methods of delivery.
• Many boards form additional committees to focus on areas of particular concern to their company. Other than the audit, compensation and governance committees, the most common committees were the executive, finance and public policy committees.

Regarding executive compensation, while the survey findings suggest efforts towards increased transparency, there is still some reluctance at the boardroom level, said Linda E. Rappaport, head of Shearman & Sterling's Executive Compensation & Employee Benefits practice, according to the press release.

Key survey findings on executive compensation include:

• While companies have provided more focused, fact-specific disclosure there is still a lack of "analysis" in the Compensation Disclosure and Analysis (CD&A). While the format and layout of many CD&As was greatly enhanced by the use of executive summaries, tables, charts and bullet points, the CD&As remained fairly long and difficult to comprehend.
• There is an aggregate of 89 compensation-related shareholder proposals -- an increase of almost 200% since 2004. The most common proposal was "say-on-pay," which was put up at 41 of the 100 largest U.S. public companies. Other proposals related to performance-based equity or incentive compensation (put up at 13 of the 100 largest U.S. public companies) and general executive compensation matters such as limitations on compensation levels, restrictions on the terms of employment agreements, elimination of gross-ups and limitations on supplemental retirement benefits (in the aggregate 18 of the 100 largest U.S. public companies).
• Certain companies continued to limit their disclosure of performance targets. While only 65 of the 100 largest U.S. public companies disclosed the specific targets for some or all of their incentive compensation performance measures, this represented a 20% increase over last year, when just 45 companies made this disclosure.
• Eighty-four of the 100 largest U.S. public companies have publicly disclosed that they maintain equity grant policies.
• Fifty of the 100 largest U.S. public companies have publicly disclosed that they have a claw-back policy, up from 35 companies in 2007.

The survey findings are available on request from www.shearman.com/corporategovernance .