Court Ruling Shifts Debate on Political Contributions to Boardrooms, Shareholders

The U.S. Supreme Court decisionruling that struck down the government ban on political spending by corporations will shift the fight over campaign contributions to directors and shareholders, lawyer Theodore Olson predicts.

Olson, the former U.S. solicitor general, argued before the court for Citizens United, a nonprofit corporation that produced a 2008 film about Hillary Clinton, then a U.S. senator and presidential candidate. Citizens United’s plan to show the film on the cable television on-demand system was blocked by a federal law barring corporations from using general treasury funds for political advocacy. The Supreme Court overturned the law on January 21. Olson writes: 

“The decision creates new corporate governance issues by shifting efforts to restrict corporate political speech from Congress to the boardroom. In Citizens United, the Supreme Court rejected the government’s argument that corporate political speech can be banned in order to protect dissenting shareholders from being compelled to fund political speech with which they disagree. In the aftermath of Citizens United, it can be expected that shareholders in some corporations will attempt to adopt measures restricting corporate participation in the electoral process and mandating disclosure of corporations’ political activities.”

On Shareholder Democracy

ProxyDemocracy is among the shareholder-oriented Web sites that “are the beginning of Business 2.0,” the Financial Post said.  These sites will provide the best leverage for shareholders seeking to bring transparency and accountability to corporate management.

Pension Leaders Oppose Weakening SEC Proxy Proposal

Leaders of two state pension funds asked the Securities and Exchange Commission to prevent companies from opting out of a proposed rule that would allow shareholders to nominate directors in corporate proxy materials, Pensions & Investments reported.

Keith Bozarth, executive director of the $78 billion State of Wisconsin Investment Board, and Theresa Whitmarsh, who heads the $70.5 billion Washington State Investment Board, submitted letters to the SEC last week opposing any provisions to allow companies or shareowners to decide what access to proxy materials, if any, is appropriate.

“The recent economic crisis has highlighted the need for enhanced accountability of boards for their stewardship responsibilities,” Bozarth said in his letter. “Reasonable access to corporate proxy materials for long-term investors would address some of the problems surrounding director elections. Such access could significantly enhance the U.S. corporate governance model.”

Alexander Cutler, chairman of the corporate leadership initiative of the Business Roundtable and chief executive officer of Eaton Corp., told the SEC in August that, rather than an SEC rule, state law should prevail, allowing companies to decide on amending their corporate bylaws to provide for shareholder access, P&I said.

Click here for the full list of comment letters.

Slate Gives Shout-Out to ProxyDemocracy

ProxyDemocracy is highlighted in Eliot Spitzer’s column on Slate, where he says technology could transform corporate democracy as much as it changed electoral politics in 2008. The former New York governor describes how stockholders can use ProxyDemocracy to inform themselves about corporate ballot items and see how institutional investors will vote at upcoming meetings. He also notes that mutual fund shareholders can easily see how their managers have voted on particular issues and can track those choices over time.

“ProxyDemocracy is the corporate equivalent of knowing how major editorial boards judged a political candidate,” Spitzer writes in “We Own You!’’

 He notes that individual shareholders often sit out proxy elections; only one-quarter of the 25 percent of shares held by individuals are voted. Technology — especially services like ProxyDemocracy’s — could be the answer, he says:

“In the long run, reinvigorating corporate democracy is almost as important as reinvigorating political democracy. Much as we may believe that a new regulatory regime will fix our corporate sector, the more important levers of influence will, and should, come from the activities of shareholders, aided by new technology.’’

CalSTRS to Ask Managers for Climate-Risk Analysis

The California State Teachers’ Retirement System will ask its active equity managers to factor climate-risk analysis into their investment decision-making.

CalSTRS will highlight the need for managers to have expertise in climate change and other sustainable investment analysis and to adapt their corporate governance voting practices to address climate risks. The $130 billion pension plan disclosed its action in conjunction with the release of a report by Ceres, the coalition of environmental groups and investors.

“CalSTRS wants to invest in well-managed companies that can address the physical risks of climate change and adapt to the changing regulatory and market realities of a carbon-constrained economy,” Chief Executive Officer Jack Ehnes said in a statement. “Our asset managers need to ask the right questions and critically evaluate how companies are positioned so that we’re sure that our investments will produce outstanding risk-adjusted returns for our members.”

The Ceres study found that 71 percent of managers don’t conduct a climate-risk analysis when they’re not marketing a “green fund,’’ and that 44 don’t consider climate risks at all because they don’t think the issue is material to selecting investments.

“These findings make clear that the investment community is overly focused on short-term performance and ignoring longer-term business trends such as climate-related risks and opportunities,’’ Ceres President Mindy Lubber said.

The survey included 84 investment firms managing $8.6 trillion in assets.

Watch for Investor Populism in 2010

Middle-class managers and professionals could turn their anger against corporate executives in the upcoming proxy season, columnist Evan Cooper says. In an Investment News essay headlined “When the middle class gets angry, watch out,’’ Cooper writes:

Instead of throwing out their proxy-voting cards this spring, more investors may decide to vote against management proposals simply out of anger and frustration. … If corporate boards beholden to top management and timid institutions won’t rein in runaway CEO compensation, perhaps humiliation will work if it comes from Ma and Pa Investor.

Directors Move From Failed Firms to New Board Spots

Gretchen Morgenson points out in the NYT that board members of companies that were damaged, and caused wider harm, in the subprime mortgage crisis haven’t been hurt themselves. Directors of failed banks and mortgage companies have moved on to serve on other corporate boards, including Sunoco Inc., Paccar Inc. and Tetra Tech Inc., she writes. Key passage:

… [I]t is hard to blame shareholders for wondering whose side directors are on, given the broad failures by many board members to recognize and rein in risk-taking at so many companies. As fiduciaries for the owners of the companies on whose boards they serve, directors have a duty to act in shareholders’ interests. After all, they are the shareholders’ representatives, and they are charged with ensuring that their companies are operated soundly and with long-term profitability in mind. Yet it doesn’t always seem to work out that way.

Morgenson mentions the steps the U.S. Securities and Exchange Commission is considering to make director elections more competitive, though she acknowledges critics regard the proposals as inadequate.

On2 Adjourns Meeting on Google, Solicits More Votes

On2 Technologies Inc., the video-compression software company, adjourned a special meeting on Google Inc.’s takeover bid, saying investors needed additional time to vote.

Most of the shares voted at the Dec. 18 meeting favored Google’s $106.5 million offer, On2 said in a statement. However, a merger vote requires a majority of shares outstanding rather than of shares voted, the company said. On2 suspended the meeting until Dec. 23 to provide more time to solicit proxies.

Matthew Frost, On2’s interim chief executive officer, said in the statement:

“Since a large number of On2’s stockholders have not yet voted, including many retail investors, we believe it is appropriate to adjourn the meeting and extend the voting deadline in order to give these investors a chance to vote.’’

Moxy Vote, the proxy-voting platform for individual investors, said on Dec. 16 that ballots representing 18.9 million On2 shares, or 11 percent of those outstanding, were cast through its Web site. Moxy Vote opened in November.

Google’s proposal has faced resistance from shareholders who said it was too low. Google offered 60 cents in its own stock for each share of On2.

Update: On2 has again adjourned the special meeting, this time until Feb. 17. The company set a new record date of Jan. 15. Investors who own stock on that date are eligible to vote at the meeting.

Google Bid for On2 Faces Shareholder Opposition

Google Inc.’s $106.5 million bid to take over video-compression software maker On2 Technologies Inc. has run into shareholder opposition and might fail in a vote next week, according to Seeking Alpha.

On2 investors would receive 60 cents in Google stock for each On2 share they own. The Internet search giant’s offer is considered too low by group of On2 shareholders. While three proxy advisory companies recommend voting for the transaction, “there is a good chance the deal won’t be approved by [On2] shareholders’’ on Dec. 18, Dan Rayburn writes.

Nell Minow feature in New Yorker

David Owen wrote a nice feature on Nell Minow in the New Yorker’s “Money Issue.” You can only read the abstract online, here. I think it does a really nice job of surveying the landscape of compensation reform and presenting Nell’s view, which is that compensation will be reined in when shareholders have more power to get rid of directors, call meetings, and shape company policies. Hear, hear.