Beginning of the End for Ken Lewis

Next week, on April 29th, Bank of America (BAC) will hold its annual meeting. An issue which will come to a head there in a shareholder vote is whether Ken Lewis should retain the two roles of Chair and CEO.

Longtime BAC shareholder Jerry Finger (who sold his bank to NationsBanK in 1996) put the issue on the proxy and is right to call for change, given the bank's disastrous performance in the last 12 months.

Late last week, we learned the 3 largest and most influential proxy advisory firms (RiskMetrics, Glass Lewis and ProxyGovernance) all threw their support behind the splitting of these roles. This means it's virtually assured that the split will happen, given how closely large institutions and pension funds follow these suggestions from the advisory firms.

In my view, this stripping of Lewis' Chair role makes it more likely that Lewis will also step down as the bank's CEO in the next year. He's already dropped hints that he is open to doing so "when the crisis passes" -- that's CEO-speak for "Ok, I'm getting tired of the abuse I'm taking."

If BAC really wants to show shareholders (including the government) that it's turning the page, a change at the top is probably best for everyone.

Originally published in RealMoney.com on 4/20/2009 9:01 AM EDT

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Proxy Governance Advises "Against" Bostock, Burkle, and Kern at Yahoo!

Proxy Governance has announced this morning that it is advising institutional and pension fund clients to vote "against" the re-election of Roy Bostock, Ron Burkle, and Art Kern at this Friday's Yahoo! annual meeting.

I have previously spoken out against their re-election. I also have argued that Eric Hippeau should not be re-elected, based on the fact that he and Art Kern have served on this board for 12 years. In my opinion, they have ceased to be "independent" due to such length of tenure.

Here's an excerpt from the report:

We have concerns regarding the company's executive compensation, which is high compared to peers and given the company's financial performance relative to peers. Historically the company has relied heavily on equity incentive awards combined with relatively modest cash compensation. In 2006 equity grants played an even larger part than usual in senior executives' compensation packages. The board justified these grants by noting that the company began developing a new strategic plan and launched its new advertising system, Project Panama. Consequently, the Compensation Committee argued, it was imperative to ensure that current management remain with the company throughout the reorganization. It therefore approved performance and retention agreements with former Chairman/CEO T. Semel, former COO D. Rosenweig, CFO and Head of Advertiser and Publisher Group S. Decker and former CTO and Head of Technology F. Nazem. Under these arrangements, in 2006 each executive received a large grant of options, which would vest over periods ranging from two to four years.

The actual effectiveness of the grants is somewhat in doubt: Rosenweig resigned from the company in March 2007 and both Semel and Nazem resigned in June 2007. Under the terms of Rosenweig's separation agreement, the company accelerated the vesting of 600,000 options to the date of his separation, and will allow him to exercise those and certain other options (currently underwater) for an extended period of up to three years. Nazem's separation agreement provided similar accelerated vesting of all his option grants.

In 2007 option awards were more modest, ranging from $4.5 million to $1.3 million. Incoming CFO B. Jorgensen received 425,000 options valued at $4.1 million as part of his recruitment package, and S. Decker received 300,000 options valued at $3.1 million when she was promoted from CFO to president.

We note, however, that little of the reduction in executive pay is attributable to the Compensation Committee, which has announced no changes in its compensation philosophy such as performance-vesting criteria for equity awards and no plans to restructure
compensation in line with peers and company performance. CEO compensation dropped only because founder Yang, stepping in to replace Semel as CEO, accepted a purely nominal compensation of $1 per year. Among the other named executives, compensation
dropped largely because three of the four most highly-compensated executives left the company (in some cases taking portions of their retention grants with them); the fourth, Decker, again received a large equity grant on top of the previous year’s retention grants.

Given the company’s historically high executive compensation, the fact that high executive attrition rather than Compensation Committee restraint drove 2007 compensation lower, and the lack of changes in the company’s compensation strategy or practices which would keep compensation more in line with peers and performance, we recommend shareholders withhold votes from the three members of the Compensation Committee, R. Bostock, R. Burkle, and A. Kern, to signal their concern over the company’s compensation practices.

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CNET: Icahn set to release his final Yahoo slate

June 20, 2008 10:08 AM PDT

Posted by Dawn Kawamoto

In the coming days, Yahoo investors should expect to see shareholder activist Carl Icahn filing the final version of his proxy, indicating to what degree he seeks to control Yahoo's board and keep the door open to Microsoft.

Icahn, who initially launched his proxy fight to push a merger between Yahoo and Microsoft and subsequently saw talks on even a partial search buyout deal fall through, is expected to print and disseminate his definitive proxy materials within the next two weeks, say people familiar with the proxy process.

That document will indicate whether he plans to try to oust a majority of Yahoo's nine directors and replace them with his candidates to run the company, or if he will seek minority representation on Yahoo's board when the company holds its annual shareholders' meeting on August 1.

Icahn initially put forth a preliminary slate of 10 dissident directors when launching his proxy contest in May.

"If Icahn proposes a majority slate, it signals a takeover of the company...and the institutional advisory services will look at him with caution and look at his motives," said one source with an institutional investor advisory service. "Icahn does not have economic ownership of Yahoo (a controlling stake), but by controlling the board, it will allow him to do what he wants to his benefit without paying a premium to take control of Yahoo."

Influential institutional investor advisory services, such as RiskMetrics Group, Glass Lewis, and Proxy Governance, issue recommendations to their clients on how to vote on proxy matters.
These recommendations are given to mutual funds, pension funds, and asset management companies a week to two weeks before the annual meeting. Some funds have internal policies that require its votes be cast according to an advisory service's recommendations, whereas other funds allow their portfolio managers to make their own call.

Wall Street observers, meanwhile, note investors should not jump to the conclusion that a re-entry of a Microsoft buyout is on the immediate horizon if Icahn opts to run a slate for control of Yahoo's board.

That assessment comes despite Icahn's original motive in launching his proxy fight, which had been to pave the way for Microsoft to acquire Yahoo at a substantial premium. But the software giant has made no public statements it would rebid for Yahoo since it withdrew its sweetened offer of $33 a share in early May.

The software giant, via an employee e-mail that seemed to issue a wink-and-nod to Yahoo shareholders as well, discussed the financial benefits that Yahoo's shareholders would have received if Microsoft had acquired only Yahoo's search business. Microsoft, however, cannot do a tender offer for only part of Yahoo's assets, and it has made no indication it would launch a tender offer for the entire company.

Nonetheless, Microsoft continues to remain interested in bolstering its search capabilities to further drive advertising revenue, as noted in a Financial Times interview with Microsoft CEO Steve Ballmer, prior to the Yahoo-Google search advertising announcement:

The most important application for the foreseeable future...is search. I don't think we can say: 'OK, well, we're going to be in the ad platform business and we're going to do it just on the strength of non-search-based assets.' We don't have to dominate, but we'd better have a darn good chunk of the search market over time.

Icahn, meanwhile, could face a greater chance of getting his dissident slate elected, if he runs for a number of board seats that would constitute a minority slate.

"He is smart enough to know not to propose a full slate because of the ramifications," said the institutional advisory services source. "If he proposed a full slate, even knowing he may later reduce it, it could distract from his message."

Proxy solicitors and investors agree.

"Carl will likely have scaled down his slate when he files his definitive proxy," said one proxy solicitor. "Otherwise, he has to articulate why investors should support all of his directors, and RiskMetrics and Glass Lewis are not inclined to support a change of control...If he says he wants a few seats to be a watchdog (for investors), he'll likely get more support."

Earlier this week, shareholder activist Eric Jackson called on Icahn to run a short slate of dissident directors. Jackson, who has had talks with Icahn's folks, is proposing the billionaire investor run four candidates, rather than nine.

Like Jackson, one hedge fund manager noted that most institutional investors would be reluctant to kick out Yahoo's board and turn it over to Icahn's slate, given it does not have the prior experience and institutional knowledge in running the Internet search pioneer.

"Icahn's in a tough spot right now," said the hedge fund manager.

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