Thursday, April 30, 2009

Another Tool for Activists, thanks to Chuck Schumer

If Chuck Schumer has his way, he'll add several arrows to be available to activist investors seeking to influence under-performing managements and boards of directors.

According to an article over the weekend, Schumer is preparing a bill that would be favorable to shareholders in the following ways (summarized in

1. Say-on-Pay - require companies to give shareholders an annual nonbinding vote on executive pay practices

2. Say-on-Severance - give shareholders a nonbinding vote on severance packages for executives following mergers or acquisitions

3. Proxy Access - buttress potential SEC rules that would make it easier and cheaper for investors to nominate their own directors (article says SEC is considering a number of "proxy access" techniques and could issue a proposal in mid-May)

4. No More Classified Boards - require companies to hold annual director elections rather than putting only a portion of the board up to vote each year

5. Majority Vote Standard for Director Elections- require directors to resign if they don't win a majority of shares voted

6. Independent Board Chairs - require board chair to be independent

7. Risk Management Board Committees - require boards to appoint special committees to oversee risk management

In my view, the most important parts of this are numbers 3, 4, 5, and 7. However, all these subtle changes, combined with the SEC's decision to revisit "Proxy Access" later next month and their decision to disallow broker votes in being automatically counted in favor of incumbent management on shareholders votes, will lead to a sea-change in how activists engage with entrenched boards and managers starting in 2010.

Position: None.

Originally published in on 4/27/2009 9:04 AM EDT

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