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Wall Street Journal, March 11, 2009 article

 

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HEARD ON THE STREET   |   MARCH 10, 2009, 7:46 P.M. ET

RiskMetrics' Words Gain Currency


Public fury over executive compensation could be good news for shareholders of one company: proxy adviser RiskMetrics Group.

RiskMetrics is the primary firm institutional investors turn to for advice on how to vote their shares at annual meetings. That job just got a lot bigger, with a raft of shareholder proposals to limit pay and the new federal law requiring 400 companies receiving bailout money to give shareholders an advisory vote on executives' compensation.

Congress is likely to extend the requirement to all public companies. Few investors have much experience analyzing pay, so they are more likely to seek help from RiskMetrics.

Another RiskMetrics unit gets paid on the other side -- advising companies on how to improve governance and to sway shareholders. Companies need shareholder approval to tinker with now-valueless stock-option plans or re-elect directors.

That also is proving lucrative, although it comes with risks. The model faces criticism because of potential conflicts of interest when advising both individual companies and their shareholders.

For now, though, RiskMetrics is arguably the most powerful player in proxy voting, as Internet firm Keynote Systems learned last month. Keynote asked shareholders to approve a two-year extension of its equity-compensation plan; RiskMetrics urged shareholders to vote "no." In response, Keynote's chief executive adjourned the meeting for a week and agreed to cancel 400,000 of his stock options.

Even after falling almost 40% in a year, RiskMetrics shares trade at a lofty 26 times 2009 expected earnings. Heading into a lucrative annual-meetings season, it has a lot to live up to.

Write to Phred Dvorak at phred.dvorak@wsj.com

 

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