The nonbinding resolution was proposed by public-pension fund systems in five states: California, Connecticut, Illinois, New York and North Carolina. Hopefully, with this first breakthrough will come the realization that proxy access doesn’t mean the sky is falling. However, it does send a strong message, especially to companies with serious governance problems like Nabors, that at least 25% of their board members could be challenged without going to an expensive proxy fight involving solicitations.

Lubin’s article discusses some of the issues at Nabors:

Nabors stirred an outcry last year with news that Chairman Eugene Isenberg would receive $100 million in cash under his contract for relinquishing his chief executive title—even though he wasn’t leaving the company. Nabors later said the SEC was looking into perks received by company executives, such as personal flights on company jets.

In early February, Nabors said that Mr. Isenberg would waive the $100 million payment. Nabors, which is registered in Bermuda but has operational headquarters in Houston, owns the world’s largest fleet of land rigs. It also has oil-field service operations and 50 offshore rigs.

Norges Bank’s proposal, with a more reasonable threshold of 1% held for 1 year, won 32.5% of the shares voted at Wells Fargo. I think they would have done better with a nonbinding proposal that might have allowed some flexibility in adjusting their language. It is difficult to craft a proxy access proposal, especially a binding one, with only the 500 words allowed in a proposal.

Dave Monier’s proposal at Princeton National Bancorp (PNBC) followed an early model of a proposal I helped design, along with other members of the United States Proxy Exchange. It got 31% of the shares voted and had thresholds of 1% held for 2 years or 100 shareowners who have held shares for a year. Unlike other proposals, we had no overall limit on the number of proxy access nominees, so potentially the whole board could have been booted out the following year.

Several features complicated the proposal, which has since been revised and submitted to three additional companies. One problem PNBC shareowners had was that many were so angry and frustrated they waited to vote at the meeting but being relative amateurs at proxy voting, didn’t realize they needed to request and obtain an official proxy in advance of the meeting. That’s one more issue with the Voter Information Forms (VIFs) given to retail shareowners. (see Open eMail to NYSE Re Blank Votes and my petition to the SEC filed in 2009)

The defeat at PNBC was very unfortunate. The stock lost about another 20% since the meeting and now risks delisting. Hopefully, we all learned some lessons along the way. The ProxyExchange.org will continue to re-craft our model language and perhaps those who use the proposal will see the benefit of joining the organization and learning how to run their campaigns more effectively. They could have gotten a lot of guidance for $50.

Although I’m delighted to see proxy access finally pass somewhere, I fear funds will have a heck of a time trying to reach that 3%/3yr threshold AND agreeing on candidates and strategy at Nabors. That would be quite a coordinating project I’m not sure many are willing to take on. Still, it certainly represents progress. Three cheers for New York City Employees’ Retirement System, New York City Fire Department Pension Fund, the New York City Teachers’ Retirement System, and the New York City Police Pension Fund, as well as co-sponsors: State of North Carolina Equity Investment Fund Pooled Trust, the Connecticut Retirement Plans and Trust Funds, the California State Teacher’s Retirement System and the Illinois State Board of Investment.

To contact James McRitchie directly, please email jm@corpgov.net

Chesapeake said  its largest shareholder, Southeastern Asset Management, will nominate three of the new directors, while billionaire investor Carl Icahn and his affiliates will pick the fourth. Four current directors will resign after the new directors are appointed.

The company did not specify which board members will step down. It said Chief Executive Aubrey McClendon, who agreed to drop the role of chairman, will remain on the board.

The move was praised by both shareholders in a statement released by the company. Icahn, who had a 7.6 percent stake in the company, has been agitating for changes to Chesapeake’s board.

Chesapeake has been under intense scrutiny from investors after Reuters reported that McClendon had taken out more than $1 billion in loans using his personal stakes in thousands of company wells as collateral.

The company’s shares rose 3.3 percent to $16.10 in premarket trade.

(Reporting By Michael Erman and Matt Daily; Editing by Gerald E. McCormick and Jeffrey Benkoe)

Will this slow down the push for proxy access at the firm?

To contact James McRitchie directly, please email jm@corpgov.net

A 2010 survey of HayGroup- Emotional Intelligence at the heart of performance – identified the crux of the problem. It showed that out of 12 competencies for measuring emotional intelligence –20% of the respondents had no strengths, 52% had 3 or fewer and just 16% had 9 or more. This means, that just 16% of the respondents are emotionally capable of being good leaders.

ESCI scores further analysis indicated that – the competencies typically seen as strength include achievement orientation, teamwork and organizational awareness. Whereas, those that typically require most development include emotional self-awareness, conflict management, influence and inspirational leadership. Think of it, without the emotional intelligence to understand one’s own and other people’s behavior, – can an individual positively influence others, lead teams and inspire people?

This means two things. First, that society doesn’t have a high percentage of emotionally intelligent people. Second, people without the emotional intelligence get leadership positions on technical and execution skills. Beyond a point, this results in failed leadership and causes damage to the organization. Leaders with low emotional self-awareness de-motivate 60% of the staff. The staff is disengaged, suffers in a toxic work environment and organization faces retention problems.

Read the full post, Risky Selection of Leaders, at Sonia Jaspal’s RiskBoard.

To contact James McRitchie directly, please email jm@corpgov.net

Glenn Keeling, from Phoenix Advisory Partners discusses the shareowners revolt in Canada on the Business News Network. The regulatory landscape allows shareowners to take over companies… quietly. Regulations need a wholesale change. Related videos.

Behind The Numbers: Equilar 2012 S&P 500 CEO Pay Study. Equilar anchor Bonnie Day discusses key findings from the 2012 S&P 500 CEO Pay Study. The shift away from cash to equity continues. To request a copy of the complete study, please visit Episode 1:

James Packer is turning up the heat on the board of Echo Entertainment and its chairman as part of his strategy to win a second casino license in Sydney.

To contact James McRitchie directly, please email jm@corpgov.net

Proxyvote.com encourages voting by retail shareholders by allowing them to, with one click, set all votes “for” a corporate board’s recommendations, from electing directors and approving executive pay to adopting anti-takeover defenses. Are they just facilitating voting by a group, “whose participation in corporate elections has been in decline of late,” as Broadridge claims, or are they skewing votes to management? (Top U.S. proxy vote site favors boards, critics say, Ross Kerber, Reuters, 5/29/2012)

The vote with management button results in zombie voting. While it may help corporations achieve quorum, it should not be Broadridge’s or the SEC’s role to help corporations achieve quorum. Indeed, if corporations had a more difficult time achieving quorum, they might do a better job of legitimately reaching out to retail shareowners and giving them more reason to participate.

Broadridge (one of the stocks in my portfolio) seems intent on facilitating votes for management in several ways. In his article about the vote with management button, Kerber briefly mentions “a default setting that records votes left blank as being cast for board recommendations.” The problem is that when retail shareowners vote but leave items on their proxy blank, those items are routinely voted by their bank or broker as the subject company’s soliciting committee recommends. See petition File 4-583 here. Send comments to  rule-comments at sec.gov with File 4-583 in the subject line.

This problem is not the same as “broker voting,” where brokers vote when the retail investor fails to vote at all. In the case of “blank voting,” if a shareowner votes one item on their proxy and leaves shareowner resolutions blank, unvoted, those blank votes are routinely changed to be voted as recommended by the company’s soliciting committee.

Just as broker votes were mostly eliminated so that votes counted reflect the true sentiment of shareowners, the practice of converting blank votes to votes for management should also end. SEC Rule 14a-4(b)(1) requires that when a choice is not specified by the security holder, a proxy may confer discretionary authority “provided that the form of proxy states in bold-face type how it is intended to vote the shares represented by the proxy in each such case.” (my emphasis) Broadridge, instead, uses an asterisk and practically microdot type in a footnote.

Broadridge says that shareowners using ProxyVote are communicating “voting instructions” to their bank/broker. They are not voting a proxy. Since Rule 14a-4(b)(1) pertains to “forms of proxy,” not the “voting instruction form,” there is no violation. However, subdivision (1) refers to the “person solicited” and the need to afford them opportunity to specify their choices. The person being solicited is the beneficial shareowner. Therefore, unless the subdivision applies both to a voting instruction and a proxy, the requirements to indicate with bold-face type how each field left blank will be voted loses meaning.

Some time ago, the Millstein Center for Corporate Governance and Performance released Voting Integrity: Practices for Investors and the Global Proxy Advisory Industry. While this important briefing was primarily focused at the proxy process for institutional investors, the need for integrity applies equally to the votes of retail investors:

At the heart of any discussion about proxy voting is the humble shareholder ballot. In its simplest interpretation, the ballot is arguably the principal method by which a company’s shareholders can, while remaining investors in the company, affect its governance, communicate preferences and signal confidence or lack of confidence in its management and oversight. The ballot is the shareholder’s voice at the boardroom table. Shareholders can elect directors (and, in several jurisdictions, have the right to remove them), register approval of transactions, supply advisory opinions and (increasingly) authorize executive pay packages, all through the medium of the ballot. It is one of the most basic and important tools in the shareholder’s toolbox… Safeguarding the intention of a voting instruction is of paramount importance to system integrity.

Co-filing with James McRitchie, Publisher of CorpGov.net, were:

John Chevedden, Rule 14a-8 proposal proponent since 1996 Glyn Holton, Executive Director, United States Proxy Exchange Mark Latham, Ph.D., VoterMedia.org Eric M. Jackson, Ph.D., Managing Member, Ironfire Capital LLC James P. Hawley, Ph.D., Professor and Co-Director, Elfenworks Center for the Study of Fiduciary Capitalism, Saint Mary’s College of California Andrew Williams, Ph.D., Professor and Co-Director, Elfenworks Center for the Study of Fiduciary Capitalism, Saint Mary’s College of California Andrew Eggers, President, Proxy Democracy Bradley Coleman and Erez Maharshak, Proxy Democracy.

You can easily support our SEC petition by filling out a quick form at http://www.change.org/petitions/bring-fairness-to-corporate-elections.

To contact James McRitchie directly, please email jm@corpgov.net

Voting Decisions at US Mutual Funds: How Investors Really Use Proxy Advisers

The Investor Responsibility Research Center (IRRC) Institute and Tapestry Networks (Tapestry) hosted a webinar on Monday, June 4, 2012, to review the findings of a new report, “Voting Decisions at US Mutual Funds: How Investors Really Use Proxy Advisers.” Get the real scoop.

To contact James McRitchie directly, please email jm@corpgov.net

Forces, both external and internal, have seized my day. My ‘glorious’ book about the inner life of financial professionals, and the history/psychology of money must be completed by the Fourth of July.

Wall Street is a chaotic, stressful, exciting universe where huge sums of money are traded daily. The book documents the causes, effects, and treatments I’ve created for financial professionals working in the trenches. Exciting real life anecdotes and case material color all sections of the text.

I will finally be liberated from my self-inflicted mission. Finally. “Forces” in the media world have been pounding me to finish. Hence, the cat is out of the bag, and what will be a brief sabbatical from The Shareholder Activist (TSA) will morph into the book mission.

In the interim I have prepared templates for further TSA posts:

“The Dimon Trade: Clash of the Titans,” fifth in a series about the warrior king of Wall Street bankers focusing on the inherent fallacy of being both Chairman and CEO of one of the Big Four.

“Seniors & Money,” second in a series which will be expanded later this summer. Americans, 55 and over, own 75% of American assets. They are a shareholder tour de force! Indeed, they do represent the Grand Parent Economy.

“Money & Trust,” the shareholder’s credo will be expanded accordingly. Additional posts which focus on the neuropsychology of these constructs are in preparation.

“Psychology is the Infrastructure of Life,” a newly trademarked construct which will lead to a series of posts which explore, more deeply, the shareholder’s experience across a myriad of human and financial dimensions.

“Australia’s Cultural Bubble,” psycho-economic observations from a recent tour down under. Amazing people and country: sixth largest in world with only 22 million souls. However, in Sydney, a banana from a street vendor costs nearly $2 US, a “short” Martini in our hotel was $25 US.

A marvel of architecture, the Sydney Opera House, is a brilliant icon of design. We live in a current world besieged by cost analysis and projections. The Opera house construction was originally budgeted for $7 million; it took nearly ten “extra” years to complete and came in at $102 million. It is now slated for a billion dollar refurbishment and expansion over the next seven years. Even icons can bubble and implode. When I am back in gear at TSA, I will provide a novel explanation about the costs of the Opera House.

Such are the joys. How can this phenomenon be sustained, and what is the ultimate impact on shareholders? These are two small examples of post concepts to come. With time, my analysis will be significantly more sophisticated.

Thank you for subscribing to TSA. Intermittently, I will communicate the “comings and goings” of my book project. Keep in mind, the book itself is serialized twice weekly on my blog: www.thewallstreetpsychologist.com.

To contact Christopher Bayer directly, please email Christopher.Bayer@TheShareholderActivist.com.

Read any good PX14A6G filings lately? During the 2012 proxy season, sponsors of shareholder proposals have been increasingly making use of rules allowing them to further press their case to stockholders to support their issues. Pursuant to Rule 14a-2(b)(1) of the Exchange Act, a shareholder can freely communicate its views to stockholders without having to comply with the proxy filing and disclosure rules associated with a contested solicitation if it is not seeking proxy voting authority (i.e. the shareholder is not seeking the power to act as proxy for a stockholder and does not provide its own proxy card in its materials).  The filing itself generally takes the form of a letter to fellow shareholders attempting to persuade them to vote for a proposal the shareholder is sponsoring, to vote against a management proposal, or to withhold votes for directors, and will appear on the SEC’s EDGAR filing system alongside the company’s other filings. An exempt solicitation provides an easy, cost-effective way for proponents to express their views and lobby fellow shareholders beyond the 500-word limit imposed by Rule 14a-8 for a proposal and supporting statement in the company’s proxy statement.

More exempt solicitations have been filed since the SharkRepellent.net report. For example, here’s one from New York State Common Retirement Fund, urging shareowners to “WITHHOLD your votes from directors V. Burns Hargis and Richard K. Davidson at Chesapeake’s (CHK) annual meeting of stockholders. The two major proxy advisory firms, Glass Lewis and ISS, agree with my voting recommendation to withhold support from these directors.”

New York State Comptroller, Thomas P. DiNapoli, goes on to note a declining stock price,  $4.0 billion unsecured loan with an effective yield of 14%, loans to CEO Aubrey McClendon of over $1 billion, $1.4 billion of previously unreported liabilities that relate to ten “volumetric production payments,” and more.

Withholding your votes for the re-election of Directors Hargis and Davidson is a necessary first step toward reconstituting a Board that is currently entrenched and unaccountable to shareholders.

Here’s another such filing on Chesapeake (CHK) from CalPERS in support of their proposal #9 to eliminate supermajority requirements and the City of New York Office of the Comptroller’s proposal #10 to allow proxy access.

Why aren’t all shareowner proponents filing exempt solicitations to the SEC? It looks like the SEC charge for registering is minimal. Here’s the form for obtaining CIK and CCC codes from the SEC. The main cost appears to be formatting each exempt solicitation.  Using a typical service to “EDGARize” a typical press release costs about $100. (If you know of much less costly services, let me know.) The less expensive option is to learn how to file the PX14A6G filings yourself. It looks like the SEC has three handy dandy EDGARLink Filer Manuals (Rel 9.0). For some reason, I get the feeling that by the time I’m done reading volume 3, release 10 will be out and I’ll have to start all over again. Shortcuts anyone?

Where can we expect growth? The biggest user of PX14A6G filings since 2006 has been CalPERS, with 37 campaigns. The City of New York Office of the Comptroller filed 8. How many proposals did they submit? According to an earlier SharkRepellent.net report, 2011 Proponent Ranking, CalPERS didn’t rank in the top 10. NYC ranked 3rd with 30. Four of the top five proponents were individuals or families, with the Chevedden family submitting 70.

Individuals submitted 358 proposals in 2011 and didn’t make use of PX14A6G filings, as far as I can tell, whereas public pension funds filed 96 proposals and a few just began to really start filing exempt solicitations in earnest this year.

Takeaway: Edgarizing services, there’s a new market for you. Lower your price a bit and start helping individual shareowner proponents to file.

To contact James McRitchie directly, please email jm@corpgov.net

It is common knowledge that people are not driven solely by the prospect of financial rewards. Yet, in business, motivational tools for top executives—particularly the CEO—almost singularly comprise financial incentives. In 1980, only 10 percent of the UK’s largest FTSE100 companies utilized incentive arrangements (in the form of cash and stock-based variable pay). Today, they are universally employed as a matter of best practice and variable pay accounts for approximately two-thirds of total compensation.

Simon Wong, a partner at Governance for Owners, adjunct professor of law at the Northwestern University School of Law, and a visiting fellow at the London School of Economics and Political Science begins to ask some of the the most important questions in corporate governance and points in the right direction.  His post on the HLS Forum CorpGov & FinReg, Dim the Spotlight: De-emphasizing Pay for Performance, is based on an article that appeared in The Conference Board Review. Work from the Program on Corporate Governance on executive compensation includes the paper Paying for Long-Term Performance, and the book Pay without Performance, both by Bebchuk and Fried.

Widespread adoption of financial incentives has contributed to substantial pay increases, in absolute and relative terms. In the United Kingdom, the average compensation of FTSE100 CEOs climbed from £1 million in 1998 to £4 million a decade later, with the ratio of CEO pay to average employee pay nearly tripling. (The figures are, of course, higher for American executives.) The rise in top executive pay has far outstripped growth in share price and other indicators of company performance, with certain incentive arrangements proving counterproductive by encouraging excessive risk-taking and accounting manipulation.

Amid growing sensitivity to widening income inequality in many countries, it is no wonder that executive pay has remained a visible target. continue reading

To contact James McRitchie directly, please email jm@corpgov.net

Consider the “naked” short sell, touted by industry critics and grandstanding politicos as the epitome of the evil that has infected Wall Street.

In May 2010, Germany shocked the financial world by announcing it was issuing a ban on “naked” short selling of euro zone government bonds, their  (CDS) and the shares of the country’s 10 largest financial institutions. CDS were innovated by Blythe Masters, a Cambridge (UK) graduate. CDS are a from of derivatives. Their value is derived from the value of the underlying asset which can include: securities, livestock, currency, bullion. Buffet has gone on the record declaring CDS “weapons of mass destruction.”

Today synthetic collateralized debt obligations are making a comeback (Mark Gongloff, Huffington Post, 3/21/13). Are we gluttons for punishment: CDS “have absolutely no economic value” according to Gongloff, but they possess/contain/are riddled with some kind of seductive juice/power/intoxicant for Wall Street personnel. Bottom line: they are money maker$.

Naked short selling involves selling securities without owning or borrowing the underlying assets in the hope of buying them back at a lower price. Credit default swaps are essentially insurance contracts against certain types of securities, which were notoriously at the center of the AIG and Goldman Sachs debacles of recent memory.

European Union regulators have yet to achieve consensus on whether to adopt Germany’s ban, with France flatly refusing to mimic the prohibition, so its impact is not as profound.  With the volatility in the European markets, however, there are firm grounds to speculate that we are just one major economic crisis away from seeing such a ban expended or replicated elsewhere

Shareholders have a right to be anxious and even fearful. We all (should) know that markets can turn in a flash. We are entitled to at least a modicum of well being. A happy shareholder is a better investor. We need the naked truth and all the disclaimers that come with it. We want our companies to be straight with us. At the risk of stretching a metaphor: social security is not an entitlement; its hard earned over time. Similarly, clear honest communication between boards, managers and shareholders is a requisite for sustainability of the companies we co-own.

To contact Christopher Bayer directly, please email Christopher.Bayer@TheShareholderActivist.com.