ISS/ RiskMetrics' 2008 Postseason Report Summary

By Cydney Posner

ISS/ RiskMetrics has issued its 2008 Postseason Report Summary. The summary indicates that, somewhat surprisingly, indications of serious shareholder discontent and activism manifested at the beginning of the year actually dissipated after Bear Stearns suddenly collapsed in March. In a stunning foray into psychobabble, the summary attributes this change to "forgiveness" by shareholders of directors' lack of "perfect foresight." Greater opposition was noted, however, at firms where shareholders concluded that executive compensation and performance were not in sync.

• Support for “say on pay” advisory vote proposals and independent board chair resolutions was only slightly higher than last year, contrary to the expectations of some governance observers at the start of the year.  Average support for "clawback" proposals was only 10.4%, down from 28.9% in 2007. However, several of the proposals were at companies that had already instituted a recoupment policy after high 2007 votes. Policy adoption has spread broadly since 2004, and a majority of S&P 100 firms now have some type of clawback policy. (The bailout bill (pardon me, rescue bill) already contains clawback provisions and golden parachute limitations for participating financial firms. Query whether interest in these types of proposals may increase substantially in the future, given public indignation over the enormous payouts to executives of Lehman, Fannie, Freddie, AIG and other failed and bailed firms yet to be named.)
• Shareholder proposals on non-compensation governance reforms fared relatively well this proxy season compared with last, although the number of resolutions that came to a vote generally declined.
• Hedge funds and other activists continued to target underperforming companies, leading to another record year for U.S. proxy contests.
• The vast majority of directors at large firms were elected with broad support. However, RiskMetrics notes that, even in the absence of a high-profile “vote no” campaign or a contested election, investors have become increasingly willing to withhold support from board members. According to RiskMetrics' data, directors at 82 S&P 500 companies received more than 10% opposition this year, up from 64 firms in 2007 and 57 in 2006.
• Shareholder proposals concerning greenhouse gas emissions and product safety fared better in 2008 than last year, while investors withdrew a record number of social and environmental proposals.
• Outside the U.S., developed markets, including those in Europe and Canada, saw a spike in shareholder activism amid greater concern about executive pay.

Since the traditional end of the U.S. proxy season in June, RiskMetrics notes that the global credit crisis has "worsened significantly" (now there's a euphemism) and the federal government has intervened in a number of respects. As a result of these events, RiskMetrics observes, the 2009 proxy season will find shareholders (and companies) in "uncharted territory."