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Mercury News, November 7, 2008 article



Jack Davis on the stories behind Silicon Valley’s paper trail

SEC change you can bet on


In our e-mail today was the text of a posting by the director of publications at the RiskMetrics Group, Ted Allen. (It was forwarded to us by Gary Lutin at The Shareholder Forum, which is currently hosting an ongoing forum on “Say on Pay” and acts as a clearinghouse of information on the topic. Allen’s post is titled “A ‘New Opening’ for Investors,” referring to the incoming administration of President-elect Barack Obama.


“Activist investors are looking fors that go beyond those adopted in 2002 in response to the accounting scandals at Enron and WorldCom.ward to a change in leadership at the Securities and Exchange Commission. Chairman Christopher Cox plans to leave when the Bush administration’s term expires in January, so the new president will name a new chairman to join the two Democrats and two Republicans already on the five-member commission. Given the public attention to the financial crisis, Obama likely will focus on the SEC soon after he names a new Treasury secretary.”


The current financial crisis and the controversial bailout of Wall Street firms, not to mention larger Democratic majorities in both the House and Senate, Allen writes, will likely lead to “a wave of governance and regulatory reform”

He catalogues a list of corporate governance and executive compensation issues that are likely to be addressed by a re-configured SEC commission:

  • requiring public companies to hold an annual advisory vote on compensation.
  • revival of a proposal by the New York Stock Exchange to end the counting of “broker votes” (i.e., shares where clients have given no voting instructions) in uncontested board elections
  • revival of a proposal debated for decades at the SEC, which has been on hold since November 2007 when the agency’s Republican majority voted to allow companies to omit shareholder proposals that seek access bylaws to give investors who own a minimum stake, such as 3 or 5 percent the right to place board nominees on management ballots
  • limiting “golden parachute” severance payments
  • broadening “claw back” provisions to recoup executive bonuses based on financial results that are later restated
  • requiring enhanced disclosure of compensation consultant conflicts,
  • imposing new restrictions on deferred compensation,
  • further limiting the funding of supplemental executive retirement plans,
  • tightening the U.S. tax code’s definition of performance-based pay used to exempt it from deductible limits

In 2007 the House of Representatives passed “say on pay” legislation with some Republican support, but a companion bill in the Senate — sponsored by Obama himself — got stalled. We’d say chances of a bill like it being passed in 2009 got a whole lot better this week.






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