MASTER PROXY SEASON 2013 PRESENTATION.pptx [Read-Only] · – Modine Manufacturing Company –...

Click to edit Master title style2013 Proxy Season Outlook

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Click to edit Master title style

Proxy Advisor Voting Review

Dave Brown, Alston & Bird LLPLaura Thatcher, Alston & Bird LLP

Mark Borges, Compensia, Inc.Rhonda Brauer, Georgeson, Inc.

Jonathan Gottsegen, United Rentals, Inc.

2013 Proxy Season Outlook

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Click to edit Master title style• Management Say-on-Pay (MSOP) Evaluation

• 1. What is ISS' Executive CompensationEvaluation policy?

ISS 2013 FAQs

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Click to edit Master title style• Management Say-on-Pay (MSOP) Evaluation

• 3. If one or more directors received a negativerecommendation in the prior year due to ISS'concerns over compensation practices, will ithave a bearing on the following year'srecommendation?

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Click to edit Master title style• Pay-for-Performance Evaluation

• 7. How is Realizable Pay for large capcompanies computed?

• 8. Why doesn't ISS use the intrinsic value(exercise price minus current market price) ofstock options when calculating realizable pay?

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Click to edit Master title style• Pay-for-Performance Evaluation

• 13. For companies with meetings early in theyear, whose latest year peer CEO 2011 pay hasnot yet been released, what pay data does ISSuse?

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Click to edit Master title style• Determining Peer Companies

• 24. Will a company's self-selected peersalways appear in the ISS peer group if theymeet ISS' size constraints?

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Click to edit Master title style• 162(m) Plans

• 27. A post-IPO company submits an equityplan that has problematic issues (e.g.,repricing provisions) for approval by publicshareholders for the first time, solely for162(m) purposes. The company will not beadding shares to the plan or in any waychanging any provision in the plan. Will ISSreview the plan?

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Click to edit Master title style• Practical advice for communicating or

negotiating with ISS if an issue arises

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Click to edit Master title style• Board Accountability

• 2. What modification must be made to a pillthat has a dead hand provision to address anISS withhold recommendation against allnominees for this issue?

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Click to edit Master title style• Problematic Pay Practices

• 4. Why does ISS now consider hedging andpledging of company stock under its policyframework for the election of directors, ratherthan under the problematic pay practicespolicy?

• 5. How does ISS view hedging or significantpledging of company stock by an executive ordirector?

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Click to edit Master title style• Board Accountability

• 13. An executive has pledged a significantamount of company stock as collateral. Whatis the potential impact on election ofdirectors?

• 14. Should an executive or director who haspledged a significant amount of companystock immediately dispose or unwind theposition in order to potentially mitigate anegative vote recommendation?

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Click to edit Master title style• Board Responsiveness

– Majority-supported Shareholder Proposals

• 1. What does ISS consider as "responsive" tomajority-supported shareholder proposals?

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Click to edit Master title style• Director Competence

• 1. What are the disclosure requirements ondirector attendance?

• 2. What if the company is not listed on anexchange–what attendance disclosure isneeded?

• 3. What if there is no attendance disclosure?

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• 4. What boards does ISS count when lookingto see if a director is overboarded?

• 5. How are subsidiaries of a publicly-tradedcompany counted?

• 6. At which boards will an overboarded CEOreceive a withhold recommendation from ISS?

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• 7. Is the CEO of a private company subject tothe policy on overboarded CEOs?

• 8. Does the overboarded CEO policy apply toan interim CEO?

• 9. Does ISS take into account if a director istransitioning off one board soon?

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Compensation Issues and CD&A

Laura Thatcher, Alston & Bird LLPMark Borges, Compensia, Inc.

Amy Bilbija, Mackenzie Partners, Inc.Josh DeRienzis, PSS World Medical, Inc.

Stacy Ingram, The Home Depot


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• More companies will use an “executive summary” to theentire proxy statement

• Examples include:– General Electric Company

– Prudential Financial, Inc.

– SAIC, Inc.

– Cardinal Health, Inc.

– Symantec Corporation

The Proxy Summary

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• Typically, these summaries will include:– the date, time and location of the meeting;

– the meeting agenda;

– the matters to be voted on at the meeting, along with Board of Directors' votingrecommendations and a cross-reference to where the item is addressed in the proxystatement;

– the nominees for the Board of Directors, including summary information on theiroccupation, qualifications and experience, independence status, committeemembership, and other directorships;

– the identity of the company's auditors, as well as a breakdown of their audit and non-audit-related fees;

– a compensation elements table, with a brief description of the form and terms on eachprincipal compensation component;

– a brief description of the key executive compensation actions and decisions for the lastcompleted fiscal year; and

– a modified, one-year summary compensation table.

The Proxy Summary

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• The Executive Summary to the Compensation Discussion andAnalysis will continue to evolve and change

• Some registrants will continue to use a presentationhighlighting:

– their key financial results for the last completed fiscal year;

– their key executive compensation actions and decisions for the last completed fiscalyear; and

– their key corporate governance and executive compensation “best practices.”

• Version 1.0 examples include:– Western Digital Corporation

– The Procter & Gamble Company

The Executive Summary

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• Many registrants will use the Executive Summary to tell their“pay-for-performance” story

– Influenced, in part, by proxy advisory firm compensation program analyses

– May continue to move in this direction with implementation of Section 953(a) of theDodd-Frank Act

• Version 2.0 examples include:– CommVault Systems, Inc.

– H.J Heinz Company

– CVS Caremark Corporation

– The Coca-Cola Company

– Modine Manufacturing Company

– Computer Sciences Corporation

The Executive Summary

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• Disclosure of incentive (performance-based) compensationcontinues to be highest priority–and biggest challenge

– Must describe specific performance measures used in short-term and long-termincentive compensation arrangements

– Must disclose performance target levels

• Most companies have reconciled themselves to thesedisclosures

– Some companies continue to claim “competitive harm”

• SEC Staff continues to monitor this area closely in its periodicreview of Exchange Act reports

• If omitting target levels, must disclose “degree of difficulty” ofachieving undisclosed targets

Incentive Compensation

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• Focus on significant compensation actions and decisions forCEO

• Focus on significant changes and enhancements to executivecompensation policies and practices

• Enhanced use of graphics

• Streamlining of “process” discussion

• Post-employment compensation

Other Enhancements

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• Some CD&As rely too much on complex terminology

• Some disclosures (particularly involving post-employmentcompensation) look like they have been lifted directly fromemployment agreements

• Graphics should be considered as an alternative to longnarrative descriptions

– Fewer “alternative” Summary Compensation Tables

– Performance graphs used occasionally, but less common since Say-on-Pay

– Can serve to explain details of incentive compensation plans

• While “plain English” still prevails, it could use a “brush-up”

The “Readability” Issue

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Proxy Revisions – Before & After

BEFORE:

AFTER:

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Proxy Revisions – Before & After

BEFORE: AFTER:

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Shareholder Proposals and Shareholder EngagementRhonda Brauer, Georgeson

Bruce Goldfarb, Okapi Partners LLCJonathan Gottsegen, United Rentals, Inc.

Stacy Ingram, The Home DepotGary Ivey, Alston & Bird LLP

Debra Smithart-Oglesby, Denny’s Corporation


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2012 Leading Shareholder Proposals

ProposalSubmitted

to Vote Average Support*

Report on Political Contributions/Lobbying/Prior Governmental Employment 70 18%

Independent Board Chairman / Separate Chair-CEO 46 36%

Repeal Classified Board 44 81%

Majority Vote to Elect Directors 28 61%

Require Equity to be Retained 27 24%

Shareholder Right to Act by Written Consent 20 45%

Shareholder Right to Call Special Meeting 14 41%

Eliminate or Reduce Supermajority Provision 14 69%

Cumulative Voting 11 25%

Eliminate Accelerated Vesting in Termination/Change-of-Control 11 37%

Issue Sustainability Report 11 28%

*As a percentage of votes cast

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2012 Corporate Governance Shareholder Proposals

Proposal Type Proposals Submitted Withdrawn /Omitted

Voted on

Board-Related 120 32 88

• Majority Vote to Elect Directors 45 17 28

• Independent Board Chairman/Separate Chair-CEO 54 8 46

Executive Compensation 87 28 59

• Require Equity to be Retained 31 4 27

• Eliminate Accelerated Vesting inTermination/Change of Control

20 9 11

Repeal Classified Board 77 33 44

Special Meetings 37 23 14

Supermajority Provision 21 7 14

Cumulative Voting 16 5 11

Poison Pills 5 2 3

Reincorporation 2 0 2

Other Corporate Governance 53 19 34

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2012 Corporate Governance Proposals (Voted on)

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2012 (Voted on) Corporate GovernanceProposal Proponents

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Anticipated “Hot Button” Shareholder Proposalsfor 2013

Note New ISS Policy – Beginning in 2013, if a majority of votes are cast FOR ashareholder proposal, board “action” is required or ISS will recommendAGAINST/WITHHOLD for entire board (except new nominees), for the following year.

Majority Voting for Directors – As smaller companies are targeted, willlarger ones be retargeted due to “no teeth” adoptions?

• Remains an important investor issue

• Active negotiations with proponents behind the scenes

• Majority voting proposals received 61 percent support in 2012

More on Proxy Access

• Although same easy targets are expected, the public numbers are down withDisney being the highest profile one to date

• Management Proposals at HP and Chesapeake Energy

• Parameters and company size important factors for ISS, Glass Lewis andinvestors

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Political Contributions and Lobbying – Changing corporate disclosure resultingfrom proposals

• Ongoing ratings and proposals from the Center for Political Accountability(CPA @ www.politicalaccountability.net, a useful resource), etc.

• Qualcomm lawsuit initiated by the NY State Common Retirement Fund, usingDE law that gives shareholders right to inspect some company books andrecords, e.g., to force greater disclosure of corporate political spending

• The Fund had filed 27 shareholder proposals in this area in 2011 and 2012.

Independent Board Chair Requirement

• Strict criteria for ISS recommendation AGAINST

• Impact of ISS recommendation in 2012• 23.7 percent average vote when ISS recommended AGAINST (12 of the 46 votes)

• 40.3 percent (with three passed proposals) when ISS recommended FOR

• Small trend and proposals toward agreeing to adopt at time of CEO change


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Right to Act by Written Consent Versus Right to Call Special Meetings

• Declining support for right to act by written consent, perhaps due to“disenfranchisement” of minority argument

• Some companies meeting ISS criteria to gain AGAINST recommendation,with “unfettered” right to call special meetings at 10 percent and generallygood governance practices

• Special meetings may offer companies a better alternative, with more controlover timing, etc.

Board Declassification and “National Fuel Gas” Decision

• Pet project of Harvard’s Shareholder Rights Project

• “Phased-in” implementation is generally acceptable to ISS and proponents

• Unclear how successful “National Fuel Gas” cases, based on proceduralgrounds, will be in future


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Shareholder Proposal Process

• No-Action Process v. Negotiations with Proponent

– No-Action Process; Rules / Timing

• Under Rule 14a-8, a company must include a shareholder proposal in its proxy materials unlessit violates one of the rule’s eligibility and procedural requirements, or one of the thirteensubstantive bases for exclusion specified in the rule.

• If a company wishes to exclude the proposal from its proxy materials, it must submit to theSEC, at least 80 days before filing its definitive proxy materials, a “no-action” request containinga written explanation of its bases for excluding the proposal.

– Strategies for negotiation; timing

• Shareholder Communications When You Have a Shareholder Proposal

• Communications with ISS/Glass Lewis

• Evaluation of Solicitation Process and Alternatives Based on Outcome ofShareholder Vote

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Shareholder Proposals to Repeal Forum-Selection Bylaw Provisions

Background

• In recent years, at least 200 Delaware companies have adopted exclusive forum-selection provisions requiringthat shareholder class action and derivative suits be filed in a single court. Most companies adopting theseprovisions designate the Delaware Court of Chancery.

• Initially, most companies did not seek shareholder approval to do so, instead opting for board-adopted bylawamendments. Many have subsequently received shareholder proposals seeking to repeal the forum-selectionbylaws.

• In 2012, ISS made recommendations on a case-by-case basis (for a management proposal to adopt a forum-selection clause or for a shareholder proposal seeking to repeal the forum-selection bylaw already in place),weighing “best-practices governance features” together with whether the company has been materially harmedby shareholder litigation outside its jurisdiction of incorporation.

• ISS supported shareholder resolutions at Chevron and United Rentals, even though both companies exhibitedgood governance practices in all areas and had documented specific instances of significant harm, indicating inboth cases, it was unable to conclude from the company’s disclosure that the harm caused was material.

• Unlike ISS, Glass, Lewis & Co. unequivocally opposes all forum-selection provisions.

• In February 2012, class actions were filed in the Delaware Chancery Court challenging the validity of forumselection bylaws unilaterally adopted by the boards of 12 Delaware companies. Thus far, 10 of the companieshave been dismissed following the repeal of the bylaws in question. Two cases (against Chevron Corporationand FedEx Corporation) are still proceeding. The exclusive forum bylaws adopted by Chevron and FedEx werenearly identical, although Chevron amended its forum bylaw after being sued to address plaintiffs’ argumentsconcerning subject matter and personal jurisdiction.

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• In 2012, United Rentals received a shareholder proposal from Amalgamated Bankseeking to repeal the company’s forum-selection bylaw (adopted by the board ofdirectors in December of 2010).

• Strategy in defending– Communications/negotiations with Amalgamated– Statement of opposition in proxy statement– Filing of additional solicitation materials– Communications with ISS– Solicitation efforts/shareholder outreach

• Outcome– Proposal defeated with nearly 65 percent votes cast against the proposal*

*Chevron’s shareholders also did not approve the shareholder proposal seeking to repeal its exclusive forum-selection bylaw provision.

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• The Future

– Significant decrease in the number of exclusive forum bylaw provisions adopted sincethe commencement of the Chevron & FedEx litigation.

– Should the Delaware Court of Chancery uphold exclusive forum bylaws in some form,or otherwise provide guidance on the scope of a permissible bylaw, more companiesare likely to adopt such provisions.

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2012 Shareholder Proposals

2012 Shareholder Proposals Included in Proxy Statement• Shareholder Proposal Regarding Advisory Vote on Political Contributions

– Recommendation that the board adopt a policy under which the proxy statement for each annual meeting will containan advisory vote on policies regarding electioneering and political contributions and communications.

• Shareholder Proposal Regarding Employment Diversity Report– Shareholders request that the company prepare a diversity report.

• Shareholder Proposal Regarding Removal of Procedural Safeguards from Shareholder Written ConsentRight

– Shareholders request that the board take the steps necessary to strengthen the shareholders’ right to act by writtenconsent adopted after the 2011 annual meeting. This proposal would include removal of the requirement that apercentage of shares ask for a record date to be set and removal of the requirement that all shareholders must besolicited.

• Shareholder Proposal Regarding Special Shareholder Meetings– Shareholders ask the board to take the steps necessary unilaterally (to the fullest extent permitted by law) to amend

the company’s bylaws and each appropriate governing document to enable one or more shareholders, holding notless than 15 percent of the voting power of the company, to call a special meeting.

• Shareholder Proposal Regarding Charitable Contributions– Shareholders request the company to list the recipients of corporate charitable contributions or merchandise

vouchers of $6,000 or more on the company website.

• Shareholder Proposal Regarding Stormwater Management Policy– Shareholders request the board establish a written Stormwater Management Policy, applicable to all locations,

including warehouses.

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2012 Shareholder Proposals

Results of 2012 Shareholder Proposals Included in Proxy Statement

Proposal % Votes Cast FOR % Votes Cast AGAINST

Political Contributions 3% 97%

Employment Diversity Report 24% 76%

Written Consent 26% 74%

Shareholder Right to Call Special Meeting 41.5% 58.5%

Charitable Contributions 2% 98%

Stormwater Management Policy 4% 96%

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Shareholder Engagement Generally

• Improving Investor Relations

• Meetings with Shareholders and Company Representatives

– Who has these conversations? Role of directors?

• In-Season v. Off-Season Communications

• Shareholder Communication During Crisis Situation

• Communications with ISS and Glass Lewis

• Shareholder Engagement after Crisis Situation

– How can crisis situations change a company’s outlook on shareholder engagementgoing forward?

– Can crisis situations change investors’ expectations with respect to communicationsfrom a company?

• Shareholder Engagement to Prevent a Crisis Situation

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Proxy Contests & Defensive MeasuresDennis Garris, Partner, Alston & Bird LLP

Bruce Goldfarb, President and CEO of Okapi PartnersKeith Gottfried, Partner, Alston & Bird LLP

Mark Harnett, President, MacKenzie PartnersDebra Smithart-Oglesby, Board Chair, Denny’s Corporation


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Click to edit Master title style• Methods Used by Shareholders for:

– Expressing concerns

– Making suggestions/demands for Companychanges

Shareholder Activism

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Click to edit Master title style• Investor Communication Strategies

• Responding to Shareholder Letters

• Dealing with Different Types of ActivistInvestors and Activist Strategies


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Click to edit Master title style• ISS and Glass Lewis Approach to Activist

Investors

• Types of Issues Activists Will Focus On


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Evaluation of SolicitationProcess and Alternatives

The Key To Successful Solicitation Is Planning Ahead

New Solicitation Strategies – Where to Begin Analyze stockholder base Setting meeting date and record date – these dates can have an

impact Create vote projection(s) for respective proposals and campaign

scenarios Develop appropriate response scenarios

Segment solicitation and communication strategies for different stockholders(retail, institutional, proxy advisory, etc.)

Plan strategy for communication with Institutional Shareholder Services (ISS)and Glass Lewis

Use appropriate solicitation communication technologies•Internet and Social Media •Vote by Phone (OnPhone Voting™)•Mail • “Traditional” Media


Different Approaches Among Investors

Public Company Shareholders Investment Styles Observations

Portfolio manager influence can besignificant

Index Funds

Quant Funds

Activists

Hedge Funds

Public Pension Funds

Active Managers

Retail

Positions in thousands of issuers and generally do notspecifically follow individual companies

Generally do not interact with companies

May pursue governance activism

Often support activist agenda

Hold directly and through derivatives

Transaction-focused

Recent rule changes have resulted in reduced voterparticipation

May be difficult to reach in activist situations or a proxy fight47


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Who Are the Activists in 2013?

Traditional economic activists

The outsiders or non conventional activists

Corporate governance activists

Click to edit Master title style• Proxy Contest Trends

– Proxy Fight Trend Analysis 2001 – Present

– Activist Success Rate, Proxy Fights 2001 – Present

• Creating Value through Proxy Contests

Proxy Contests & Defensive Measures

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Proxy Fight Trend Analysis2001 - Present

Source: www.SharkRepellent.net

6368

75

42

56

100108

126133

100

93

76

0

20

40

60

80

100

120

140

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

#o

fFi

ghts

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Activist Success Rate, Proxy Fights2001 - Present

Source: www.SharkRepellent.net

44%46%

36%

50%

55%

57%

49%

51%

54%

55% 59%

51%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Succ

ess

Rate

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The Most Active ActivistsPast Five Years

Source: FactSet SharkWatch

0

2

4

6

8

10

12

14

16

Nu

mb

er

of

Filin

gsDissident Activity in Past 5 Years by Firm

2007

2008

2009

2010

2011

2012


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When Shareholders Decide:Proxy Contests That Went To A Vote In 2012

Fewer Campaigns “Go the Distance”

The Majority of Proxy Fights “Settled” in 2012(a continuing trend of last half decade)

Not All Proxy Fights Settled in 2012 –28 went to a shareholder voteOf those 28 – Management won 15, Dissidents won 9 (and split 4)

Significantly Fewer Fights “Go the Distance” (compare with 37 in 2010 and51 in 2009)

Click to edit Master title style• Company Strategies to Respond to Proxy

Contest

• Building Response Team

• Engaging with Insurgents

• Types of Insurgents


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Click to edit Master title style• Board Dynamics

• Key Considerations from Board Perspective


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Click to edit Master title style• Settlement of Proxy Contests

• Impact of Private Ordering of Proxy Access onProxy Contest

• SEC comments on Proxy Contest Filings


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Issuer Perspective on Proxy SeasonDavid E. Brown, Jr., Alston & Bird LLP

Josh DeRienzis, PSS World Medical, Inc.Jonathan Gottsegen, United Rentals, Inc.

Stacy Ingram, The Home Depot, Inc.Scott Ortwein, Alston & Bird LLP

Debra Smithart-Oglesby, Denny’s Corporation


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Click to edit Master title style2013 Proxy Season Outlook

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MASTER PROXY SEASON 2013 PRESENTATION.pptx [Read-Only] · – Modine Manufacturing Company –...

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