Update on the current board issues: August 2013

Issues in brief


CII campaigns for majority voting, universal proxy, director tenure considerations

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The Council of Institutional Investors (CII) has taken some actions recently regarding board composition and election issues.

For starters, CII petitioned both the NYSE and Nasdaq to add a listing standard that would require majority voting for uncontested elections. As part of the petition filed in June, CII stated it wants to mandate that incumbent directors who do not receive majority support promptly resign from the board. In July, CII’s Policies Committee approved draft policies that support a universal ballot for proxy fights and direct boards to consider tenure when determining a director’s independence. And in early August, CII’s Advisory Council sent letters that urged both exchanges to adopt CII’s majority voting proposal because council members believe “electing directors by majority vote is a fundamental shareowner right.” They also cited the adoption of such a standard for directors around the world.

Over the past two proxy seasons, majority voting has been among the top shareholder proposals. This year, 16 such proposals passed compared to 15 in 2012. However, many of those proposals did not call for the immediate resignation of directors who fail to garner a majority vote, but rather left it up to the discretion of the board to accept or reject an offer to resign.

According to PwC’s 2012 Annual Corporate Directors Survey and other studies, average board tenure continues to grow. In fact, the PwC Survey showed that 35% of respondents had been on their board for more than 10 years.


CalSTRS releases its first annual corporate governance report

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The California State Teachers’ Retirement System (CalSTRS) has released the inaugural edition of the Corporate Governance 2013 Annual Report.

The publication communicates CalSTRS’ corporate governance philosophy while outlining its current major initiatives, such as executive compensation, majority voting, dual class ownership, boardroom diversity, and sustainability. CalSTRS pursues its corporate governance initiatives via engagement, shareholder proposals and proxy voting.

"As patient, institutional investors, CalSTRS is here for the long term," said CalSTRS Chief Executive Officer Jack Ehnes. "We want companies in our investment portfolio to perform well long into the future, and sound corporate governance practices are a critical component to accomplishing just that."

The report identifies CalSTRS’ key partnerships with other international institutional investors, discloses how it voted its proxies, and details the performance of its activist manager portfolio.


SEC’s Dodd-Frank CEO pay ratio proposed rules expected soon

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On July 23, the US District Court for the District of Columbia upheld the conflict minerals rule.

The Dodd-Frank Act calls for the SEC to write a rule requiring public companies to disclose the ratio of chief executive compensation to median employee pay.

SEC Chair Mary Jo White testified on a timeline for the rulemaking during a recent US Senate Banking Committee hearing. “We are very much as a staff and commission focused on that rulemaking,” White told Sen. Robert Menendez of New Jersey during the hearing. She explained that the recent addition of two new commissioners (Michael Piwowar and Kara Stein) could affect the projected timeline for that and other rulemaking decisions.