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Preparing for Regulatory Changes, U.S. Companies Act on Corporate Governance, Compensation Priorities
Aug. 17, 2010 — U.S. public companies have been acting aggressively to streamline corporate governance practices and establish their executive compensation priorities, according to Shearman & Sterling's eighth annual "Corporate Governance Surveys" of the 100 largest U.S. public companies.
This year's surveys are again based primarily on an in-depth analysis of the 2010 proxy statements of the 100 largest U.S. public companies. These proxies were filed months before the recent signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which calls for sweeping regulatory changes, including changes to U.S. corporate governance and executive compensation practices.
"Corporate governance and executive compensation changes have been anticipated for quite some time, and many companies were already ahead of the curve before Dodd-Frank even became part of our regulator lexicon," said John Madden, the Shearman & Sterling partner who founded the firm's corporate governance advisory group.
The general corporate governance survey findings reflect continued development in corporate governance policies and practices, driven in large part by shareholder activists and institutional investors. This year's survey includes a review of 41 top institutional investors that made corporate governance and proxy voting guidelines publicly available. Key findings include:
- Majority voting in uncontested director elections has been implemented in some form by 82 of the 100 largest companies, up from 75 last year and 11 as recently as 2006.
- Despite amendments to NYSE Rule 452 implemented last year (which eliminated broker discretionary voting in director elections), no director standing for re-election at one of the 100 largest companies failed to receive majority support this year.
- The number of top 100 companies at which the CEO is the only member of the board of directors who is not independent increased significantly, rising to 59 this year from 49 last year.
- The number of top 100 companies with classified boards, of which there were 54 in 2004, declined to 20. Of those 20, more than one-third were either in the process of declassifying their boards or received approval from their shareholders this year to do so.
- 71 companies disclosed that they maintain an executive compensation clawback policy (an increase from 56 companies in 2009 and 35 in 2007 — representing a 103% increase in four years). This will become increasingly significant, as the new Dodd-Frank Act mandates clawbacks if a material restatement would have affected the amount received.
- There was a decrease in the overall number of compensation-related shareholder proposals; however, advisory say-on-pay policies continued to be the most prevalent proposal. In addition, the survey suggests that companies cannot assume that their say-on-pay advisory resolutions will pass. For example, three public companies (including one top 100 company) failed to win majority support in the 2010 proxy season.
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http://dreamlearndobecome.blogspot.com This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
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