RiskMetrics Group - Risk & Governance Blog
RiskMetrics Group - Risk & Governance Blog

• Investors Decry Proposal OmissionsSubmitted by: Ted Allen, Publications
  

  A coalition of more than 60 investors has called on President-elect Barack Obama to reverse Securities and Exchange Commission (SEC) rulings that allowed companies to exclude shareholder proposals on mortgage and environmental risks.

  The investors include the New York City funds, Calvert Group, Domini Social Investments, Trillium Asset Management, Boston Common Asset Management, Catholic Healthcare West, and shareholder advocates Robert A.G. Monks and Amy L. Domini. Among the groups that also endorsed the letter are the Investor Network on Climate Risk, the Investor Environmental Health Network, and the Interfaith Center on Corporate Responsibility.

  In their Dec. 11 letter, the investors urge Obama “to reverse a pattern of recent SEC staff decisions that have been closing the door to important dialogues between shareholders and management. The SEC has disallowed many shareholder resolutions that ask companies to disclose the financial implications of an array of environmental, community, public health, and human rights concerns and issues.”

  The investors contend that the agency has improperly granted “no action” requests since 2003 to omit proposals that request “risk evaluation.” The investors contend that the staff of the Corporation Finance Division has “disregarded the reasonable and principled approach that had governed at the SEC for decades,” and replaced it “with a radical interpretation of the rules.” The letter specifically criticizes the commission’s decision last February to allow Washington Mutual to omit a proposal that asked for details on the lender’s potential exposure as a result of the subprime mortgage crisis.

  The investors’ letter is part of a growing chorus of complaints by activist shareholders over exclusions of proposals under Rule 14a-8(i)(7) that relate to a company’s “ordinary business operations.” Labor funds--including the Laborers' International Union of North America, the Service Employees International Union, and the International Brotherhood of Teamsters--have expressed frustration over rulings that permitted companies to bar proposals on CEO succession planning, climate change, mortgage risks, and compliance committees. The agency staff also has allowed firms to omit proposals concerning director conflicts of interest, share buy-back programs, and off-balance sheet liabilities and derivatives.

  The SEC had no direct comment on the letter. In an e-mail to Risk & Governance Weekly, agency spokesman John Nester said “the staff agrees with the signatories on the importance of disclosing material financial risks to companies, and notes that Item 303 of Regulation S-K requires companies to identify and disclose known trends, events, demands, commitments, and uncertainties that are reasonably likely to have a material effect on a company’s financial condition or operating performance.”

  David Lynn, a former SEC lawyer who is a partner at the Morrison & Foerster law firm, said he doesn’t expect that the investors’ letter will prompt the SEC staff to change its approach to “ordinary business” requests. He said the agency would need to issue a new staff bulletin or undertake a full rule-making proceeding.

  Keir Gumbs, a lawyer with Covington & Burling who reviewed “no action” requests while at the SEC, also doesn’t expect the staff to change its position this season, but he said shareholders could ask the full commission to revisit the issue after their proposals are excluded. “A strong case can be made, given the current economic crisis, for the commission to reconsider its position,” he told R&GW.

  “I understand why shareholders care about this, but I’m not sure this issue will be at the top of the commission’s list,” Gumbs said, noting the turnover in SEC leadership, the challenges posed by the credit crisis, and the need to improve enforcement after the Bernard Madoff fraud case.

  “We think this should be a priority for the commission in light of the current economic crisis, but that remains to be seen,” Sanford Lewis, a lawyer for the Investor Environmental Health Network, told R&GW.

• RiskMetrics Group Releases Research on Globalization in Securities Class ActionsSubmitted by: Sarah Cohn, Communications
  

  An update to our May 2007 paper Accountability Goes Global, this paper explores recent trends in non-US investor interest in US Securities Class Actions. It highlights the growth in non-US investors taking a lead plaintiff role in US cases, the countries with the most such plaintiffs and the law firms working on behalf of these plaintiffs.

  To access this research, please visit here.
  

• Banking Crisis Pressures Government Bailouts OverseasSubmitted by: Stephanie O'Neil, Marketing
  

  The credit market fallout continues overseas with foreign banks strapped with liquidity shortages while governments struggle to keep their country’s credit-worthiness in good shape.

  Just last month, the Greek government set aside EUR 28 billion ($33.6 billion) to support the banking system, making it an equity stakeholder of the country’s largest banks (see our RiskMetrics Group report, “Greek Government responds to Credit Crisis”). But not all banks readily accept government money – case in point: London’s Barclays Bank, whose denial of public funding for controversial private funding put its shareholders in a tailspin and its board on the defensive – arguing government’s involvement would influence the company’s strategic direction (see out report, “A Change of Perception: The Fallout from Barclays’ Decision to Decline Government”). In Iceland, where the economy’s reliance on the banking industry has it teetering on the brink of financial collapse, the government passed an emergency law transferring powers of shareholder meetings of its three top banks to the Financial Supervisory Authority (FME) (see our report, “Unprecedented Measures Transfer Powers of Shareholder Meeting to Icelandic Government.”) We are seeing that government bailouts come in all shapes and sizes; while the change of power may foster greater transparency, the lines of shareholder voting rights are usually blurred.

• IBM, Tesco and Dell Receive Top Scores in First-Ever Ranking of Consumer & Tech Companies on Climate Change StrategiesSubmitted by: Sarah Cohn, Communications
  

  Today Ceres and the Investor Network on Climate Risk published a study, authored by RiskMetrics Group, titled, Climate Change and Corporate Governance: Consumer and Technology Companies. The report is the first comprehensive assessment of how 63 of the world's largest consumer and information technology companies are preparing to deal with the challenges and opportunities posed by climate change. The report spans 11 industry sectors: Apparel, Beverages, Big Box Retailers, Grocery & Drug Retailers, Personal & Household Goods, Pharmaceuticals, Real Estate, Restaurants, Semiconductors, Technology and Travel & Leisure.
  
  While progress is being made, consumer and technology companies still have more to do in confronting the business challenges posed by climate change. With millions of customers and massive operations and supply chains, consumer and technology companies face broad impacts from climate change, whether from higher energy costs due to emerging climate regulations or growing global demand for products that use less energy and contribute fewer greenhouse gas (GHG) emissions.

  The Ceres report found that select companies in various consumer and technology sectors are responding to the risks and opportunities presented by climate change, primarily by setting GHG emissions reduction targets, boosting energy efficiency efforts, expanding renewable energy purchases and integrating climate factors into product design. But the report found that many other companies are still largely ignoring climate change, especially at the board and CEO level. For example, only 11 of the 63 companies have their boards receive climate-specific updates from management, only seven of the CEOs among these firms have taken leadership roles on climate change initiatives and none of the companies have linked C-suite executive compensation directly to climate-related performance. The mixed performance was evident in the report's final scores.

  Using a 100-point scale, the three highest scoring companies were IBM, UK-based grocery retailer Tesco and Dell, with 79, 78 and 77 points, respectively. More than half of the 63 companies scored under 50 points, with a median score of 38 points.

  The scoring methodology behind the report utilizes a Climate Change Governance Framework, developed by RiskMetrics, and which is comprised of 14 indicators to evaluate five main governance areas: board oversight, management execution, public disclosure, emissions accounting and strategic planning. For this report the framework h