Risk & Governance Weekly

In Brief

Carpenters Expect Engagement to Continue

Looking back on a season in which his union settled more than half the proposals it filed, Ed Durkin, director of corporate affairs for the United Brotherhood of Carpenters and Joiners of America, believes the trend of negotiating settlements with companies will continue, and many of the most substantive conversations will center on executive compensation.

So far this year, the Carpenters’ pension fund has reached settlements over its “pay for superior performance” proposal at approximately 25 of the companies where it had initially submitted them. Durkin expects the pay-for-superior performance proposal to undergo continued refinements. The Carpenters expect that other proposals will be withdrawn as a trend toward engagement continues. Numerous companies will be engaged initially through correspondence as opposed to proposals.

“Companies’ first inclination now seems to be to engage in substantive discussions, given our inclination, to talk, to debate, and to settle the proposals” if the company enacts reforms, he noted.

The trend toward substantive dialogue has been helped by the improved disclosure. “We have more in-depth and substantive dialogue since we have more data coming into the meeting,” Durkin said.

In addition to conversations with specific companies, Durkin and representatives of other building trades’ pension funds participated in an executive compensation working group, formed in early 2007 with the U.S. Chamber of Commerce and various companies. The group met five times with a goal to promote better understanding and communication among investors and companies on compensation. Though the group did not issue a report, Durkin felt that the process was valuable. “It provided the investor participants greater insight into how compensation committees approach their responsibilities and structure plans,” he said, “and it gave us an opportunity to purvey our perspective.”

In general, Durkin said he believes that “all the tools are there” to engage companies on specific areas of executive compensation. In addition to the new SEC disclosure rules, in many cases, “you have majority voting as a foundation on which to have discussions,” he said.

In Durkin’s opinion, the next significant area of reform will be the issue of uninstructed broker votes, rather than proxy access. He would also ultimately like to see majority voting as the default director election standard in Delaware. --Rosanna Landis Weaver

CSX Announces Preliminary Vote Results

In a July 16 press release, CSX confirmed that four dissident nominees--Alexandre Behring, Christopher Hohn, Gilbert Lamphere, and Timothy O’Toole--were among the 12 nominees to the board who received the most votes cast at the rail company’s June 25 annual meeting. The dissident group, which includes The Children’s Investment Fund (TCI), based in London, and New York-based 3G Capital Partners, had sought five board seats in one of this year’s most contentious proxy battles.  

In a joint statement, the two hedge funds hailed the results as “a great victory for all CSX shareholders.” TCI and 3G also reported that shareholders approved the funds’ special meeting proposal and rejected a more restrictive bylaw amendment offered by management. (For more on the proxy contest, see the June 27 edition of Risk & Governance Weekly.)

However, CSX noted that the voting results are preliminary and are subject to the outcome of pending litigation between the company and the dissidents before the U.S. Court of Appeals for the Second Circuit. The Jacksonville, Fla.-based firm sought a court order to block the dissidents from voting part of their shares, contending that they tried to “ambush” management by failing to disclose equity swap arrangements on a timely basis. A federal judge concluded that the dissidents had violated federal disclosure rules, but he said he didn’t have the authority to block them from voting all of their shares. The Second Circuit has scheduled arguments in the case for late August, according to news reports.

The dispute over the dissidents’ swap disclosures has prompted Senator Charles Schumer of New York and corporate lawyers to urge the Securities and Exchange Commission to address the issue. In the United Kingdom, the Financial Services Authority plans to propose stricter rules on the disclosure of derivative positions in September. --Ted Allen