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The Shareholder Activism ReportBest Practices and Engagement Tools for Public Companies
Engage. Assess. Respond.A comprehensive set of resources for public companies fromThe Conference Board Governance Center
�
The Shareholder Activism Report
Best Practices and Engagement Tools for Public Companies
Includes a 400+ page publication and a regularly updated website (see details inside)
Also, a free annual subscription to
Director NotesThe Conference Board
series of updates onthe proxy season In light of increased demands from shareholders and the
potential changes in the regulatory environment, this
report highlights a range of considerations for directors
as they approach the assessment and oversight of their risk
management programs. The report begins by outlining the
emerging risk management trends that senior executives are
focusing on.
It also provides a brief overview of the regulatory context in
which directors are expected to oversee risk management efforts.
Although the discussion is tailored to U.S. public companies,
the considerations are equally relevant to boards of non-U.S.
listed companies, including companies with listings in the
United States as well as those that have no direct U.S. nexus.
Adapting to Regulatory Developmentsand Emerging Practicesby Mark S. Bergman
The fallout from the financial crisis is creating greater demands on boards ofdirectors and senior executives to strengthen corporate risk management practices,and this trend is no longer confined to banks and other financial institutions.The focus on risk management structures of U.S. listed companies also is due torecent legislative proposals intended to address the causes of the economic turmoil.Similarly, federal agencies, such as the U.S. Securities and Exchange Commission(SEC), have been vocal about possible future regulatory initiatives.
no. dn-001 november 2009
Director NotesThe Role of the Board in Risk Oversight
Order today and receive a complimentary copy of
The 2009 Institutional Investment Report
Trends in Asset Allocation and Portfolio Composition
“Important reading for corporate directors and those who advise them.”
David A. KatzCorporate Partner
Wachtell, Lipton, Rosen & Katz
New!
Special Proxy Season Offer
Gathering securities holding intelligence� Limits of investor disclosure� Lists of beneficial owners� Securities surveillance services� Trade settlement data from custodian
banks
Activist types and investment strategies� Hedge fund activism as an investment
strategy� Supporting votes by institutional investors� The role of mutual funds and tag-along
shareholders
Shareholder engagement techniques� Establishing an engagement policy� The role of the governance committee� Complying with Regulation FD� Engaging with governance and proxy voting
professionals
The target profile� Low capitalization� High trading liquidity� Undervaluation� Operational performance� Cash availability� Debt capacity� Asset diversification� Low R&D expenditures� Extensive institutional ownership
Activist demands� Financial demands� Strategic demands� Governance-related demands
Key financial issues in activism campaigns� Liquidity needs and other balance sheet
issues� Financial reporting and auditing issues� Mark-to-market issues
Key strategic issues in activism campaigns� Strategic oversight issues� Risk oversight issues� Performance evaluation issues
Key governance issues in activism cam-paigns� Majority voting� Electronic delivery of proxy materials� Broker discretionary voting� Proxy access reform� Separate notice and record dates for
shareholder meetings� Say on pay� Compliance with enhanced disclosure rules� Board leadership structures� Director and nominee disclosure� Directorships held and legal proceedings� Risk oversight disclosure� Climate change risk disclosure� Risk resulting from compensation policies� Compensation consulting fees� Equity award value reporting� CEO succession planning� Director compensation standards� Executive compensation standards� Recent shareholder proposals
Activist tactics� Nonconfrontational tactics� Confrontational tactics� Threatening as a tactic� Group tactics� Wolf packs� Remora funds� Ten-or-fewer rule� Free communication rule� Electronic shareholder forums� Empty voting techniques� Over-voting� Dividend recapture tactics� Fiduciary obligations and share recall
Corporate responses� Response strategy� Outreach measures� Support by proxy vote advisors� Relations with stakeholders� Avoiding outright criticism
Defensive measures� Defenses against hostile acquisitions� Shareholder rights plans� “NOL” rights plans� Section 203 of the DGCL� Supermajority vote and
fair-price requirements� Defenses in proxy vote contests� Classified board structures� Disallowing action by written consent� Limiting the ability to call special meetings� Adopting advance-notice bylaws
Activism campaign outcomes� Success rates� Case studies of success and failure� Settlements
Also includes a regularly updated website:� Directory of 400+ activist investors� Top 50 activist profiles� 2009 proxy contest fact sheets� 2010 proxy season updates� Voting policies by major shareholder
group and advisories (including CalPERS,TIAA-CREF, Council of InstitutionalInvestors, and RiskMetrics)
� Literature on activism (organized by topics)� List of advisors and specialists� Over 200 sample documents from
activist campaigns:� DE220 letters� Letters to management� Shareholder proposals� Proxy solicitation materials� Settlement agreements
Shareholder Activism ReportBest Practices and Engagement Tools for Public Companies
by Matteo Tonello and Damien Park
To order or request more information, contact Timothy Concannon at [email protected] or +1 212 339 0207.
www.conference-board.orgTrusted Insights for Business Worldwide
“Given the dramatic changes takingplace on the corporate governance
landscape, this is a timely publicationworthy of attention by
directors, officers, and investors.”
James C. MorphyManaging Partner
Sullivan & Cromwell llp
Save time and access critical information on activist investors and their objectives andstrategies through a single, easy-to-use reference book and its online supplement.The Shareholder Activism Report and the related resource portal provide you with one reliable source of informa-tion that goes well beyond discussing the regulatory environment in which activists operate. Investor profiles, proxy contest fact sheets, and statistical data on activists’ objectives and strategies are offered to help companiesanalyze the rationale of activists’ requests and engage effectively with the investment community.
Meeting date: April 29, 2009
Proxy PR Legal Banking
Dissident: MacKenzie N/A Kane Kessler N/ACompany: Innisfree Joele Frank Bartlit Beck Goldman Sachs
Top Institutional Holders:
Dissident Information:
Proxy Advisory Recommendations:
Fund name Ownership Voting results
Franklin Mutual Advisers 3,565,943 For managementHeartland Advisors Inc. 3,565,400 Withheld on all 3 management’s nomineesKeeley Asset Management Corp. 2,870,000 Withheld on 1 and for two of management’s nomineesDimensional Fund Advisors 2,840,304 For managementBarclays Global Investors, N.A. 2,505,265 For management
Proxy Advisory Firm Management Dissident Split Comment:
RiskMetrics XGlass Lewis X
Outcome: Withdrawn
Fund Name:Ownership:Proposals:
Warren B. Kanders2.9%Three Directors
Federal Signal Corporation (Ticker: FSS)
Meeting date: December 29, 2009
Proxy
Dissident: D.F. King
Top Institutional Holders:
Dissident Information:
Proxy Advisory Recommendations:
Fund name Ownership Voting results
Talon Asset Management 1,287,837 N/ASecond Curve Capital, L.L.C. 1,002,000 N/AFairview Capital Investment Management 970,000 N/ANorth Star Investment Management Corp. 866,874 N/ANorth Star Asset Management Inc. 30,055 N/A
Proxy Advisory Firm Management Dissident Split Comment:
RiskMetrics XGlass Lewis X Vote for one and withhold on one of
management’s nominees
Outcome: Settled
Fund Name:Ownership:Proposals:
Peerless Systems Corporation20.40%One Director
Highbury Financial Inc. (Ticker: HBRF)
Advisors:
Advisors:
www.conference -board.org Shareholder Act iv ism 13
Bulldog Investors
Bulldog Investors often employs investor activism to unlockthe intrinsic value of its investments – mostly in closed-endfunds and, more recently, with Special Purpose AcquisitionVehicles (SPACs). Bulldog has conducted more than 30 proxycontests and several “hostile” tender offers since its inceptionin 1992.
Phillip Goldstein formed Bulldog Investors with SteveSamuels in 1992 after 25 years as a civil engineer for the Cityof New York. Goldstein is a widely quoted expert on closed-end funds, hedge funds, value investing, investor activism,corporate governance, and securities regulation. In 2006,Goldstein succeeded in a legal challenge to invalidate theSEC’s controversial rule to register hedge funds. Goldsteingraduated from the University of Southern California in 1966with a Bachelor of Engineering degree and from C.C.N.Y in1968 with a Master of Engineering degree.
Contact Information:Park 80 West Plaza Two, Suite 750Saddle Brook, NJ 07663www.bulldoginvestors.com
Phillip GoldsteinFounder, Chairman and CEO201 556 0092
Steve SamuelsCo-Founder & Principal
Andrew DakosManaging Member
Recently Disclosed Public Company Investments (Holdings as of December 30, 2009)
Percent Δ Over Value percentTicker Company name Shares held ownership last quarter Value of portfolio
FGF SunAmerica Focused Alpha Growth Fund 2,109,252 10.36% Increase $29,297,510 Not Available
FCM First Trust/Four Corners SR Float Income Fund 540,450 10.98% Increase 6,544,849 Not Available
FGI SunAmerica Focused Alpha Large-Cap Fund 1,416,089 14.67% Increase 19,570,349 Not Available
STTA.OB Stone Tan China Acquisition Corp 2,986,999 7.25% - 23,686,902 Not Available
DCS Claymore Dividend & Income Fund 1,555,252 17.13% Increase 22,551,154 Not Available
XNDDX Neuberger Berman Dividend Advantage Fund 885,580 16.95% - 9,024,060 Not Available
Source: EDGAR Total Portfolio Value Not Available
6 Shareholder Act iv ism www.conference -board.org
Executive compensation data reported in proxy statementsfiled by SEC-registered companies as of June 2008 andanalyzed by The Conference Board revealed that:
• CEO compensation rises with company earnings andso does the share of compensation not paid in cash.Smaller companies deliver a much larger fraction ofcompensation in salary (i.e., cash plus bonus and othernon-equity incentives) than do larger enterprises.
• In larger companies (with revenues of $10 billion or more),the current market value of the CEOs’ total holdings inequity of their companies equals almost 100 times of their salaries. Across industries, the largest median multiple (94.44) is seen in Financial Services (non-banking)and the smallest in Commercial Banks (23.31).
Facts and StatisticsTop Executive Compensation
88 Corporate Governance Handbook: Lega l Standards and Board Pract ices The Conference Board
Table 15
CEO Compensation by Corporate Revenue
Median MedianRevenue deciles total cash total
in millions compensation compensation
$0 – < $139.4 577,500 1,081,523
139.4 – < 246.3 609,375 1,125,540
246.3 – < 410.7 784,445 1,393,827
410.7 – < 638.5 924,801 1,814,461
638.5 – < 966.4 1,077,303 2,116,330
966.4 – < 1,458.8 1,398,000 2,948,893
1,458.8 – < 2,299.4 1,643,750 3,802,863
2,299.4 – < 4,247.9 1,835,488 4,358,392
4,247.9 – < 10,301 2,475,000 7,059,987
> 10,301 3,632,965 12,800,000
Source: Kevin Hallock and Judit Torok, Top Executive Compensation in 2008, The Conference Board, Research Report 1438, 2008.Based on a review of 2,154 filings by SEC-registered companies.
CEO Compensation Mix Distribution by IndustryChart 27
Mix of compensation varies greatly from industry to industry.
Transportation (S)
Other Manufacturing (M)
Electronics (M)
Retail Trade (S)
Communications (S)
Industrial and Transportation Equipment (M)
Energy (M)
Food and Tobacco (M)
Chemicals (M)
Utilities (S)
33.19
45.36
23.27
26.76
31.15
30.56
32.73
24.29
24.14
25.99
27.88
28.92
6.70
4.26
13.52
5.58
6.36
6.62
3.50
7.90
6.10
7.35
10.51
23.00
11.65
21.29
22.18
16.58
16.90
17.59
21.00
22.53
17.70
12.50
19.01
11.07
11.65
12.12
19.02
19.07
15.06
21.22
16.22
11.26
16.33
7.79
12.17
19.54
11.87
23.75
16.92
21.47
22.88
19.78
19.73
24.76
26.11
34.08
23.80
2.93
8.80
1.53
4.63
1.63
2.52
0.64
5.92
7.23
1.53
1.34
9.25
Textile and Apparel (M)
Commercial Banks (S)
Financial Services (non-banking) (S)
Wholesale Trade (S)
Other Services (S)
Business Services (S)
Computer Services (S)
Insurance (S)
Commodities (M)
Construction (M)
Holding Companies (S)
Lumber and Paper (M)
26.79
29.39
29.75
33.15
27.00
27.27
24.08
21.20
26.41
23.78%
6.52
4.28
4.84
3.79
8.74
3.32
12.37
4.58
5.68
2.61%
2.95
16.92
16.36
14.45
11.93
13.10
18.16
11.04
20.95
14.11
19.07%
17.84
25.24
27.01
20.91
18.42
20.53
16.86
19.07
30.49
7.94%
23.61
17.40
18.20
20.50
24.30
19.96
29.36
23.85
17.08
28.22%
5.26
4.40
2.75
2.90
3.14
6.61
2.38
6.41
3.03
14.49%
3.59
6.42
4.52
4.91
3.74
5.47
4.53
4.94
3.97
4.99
5.89
3.89
3.07
2.94
2.99
6.83
5.30
4.15
3.92
3.94
3.20
3.89%
Salary Bonus Incentives Options Stock Pension Other
(M) = Manufacturing (S) = Services
Summaries of the most notableproxy contests of the last few yearsare supplemented with the docu-ments used by companies andinvestors, including DE220 lettersto access shareholder lists, lettersto management, presentationsmade during proxy solicitations,and settlement agreements.
Detailed profiles of activistinvestors offer up-to-dateinformation on their currentpositions, investment styles,and the recent activism situations in which theywere involved.
Companies are guided through an assessment process for theevaluation of adherence to bestpractices. Practice discussion isaccompanied by charts and tableswith statistical information ontheir use within the company’speer group.
Meeting date: April 29, 2009
Top Institutional Holders:
Dissident Information:
Fund name
Franklin Mutual Advisers Heartland Advisors Inc
Fund Name:Ownership:Proposals:
Warren B. Kander2.9%Three Directors
sclosed Public Company Investments (Holdings as of December 30
Percent Δ Oveany name Shares held ownership last quar
merica Focused Alpha Growth Fund 2,109,252 10.36% Increas
rust/Four Corners SR Float e Fund 540,450 10.98% Increas
merica Focused Alpha Large-Cap 1,416,089 14.67% Increas
Tan China Acquisition Corp 2,986,999 7.25% -
ore Dividend & Income Fund 1,555,252 17.13% Increas
erger Berman Dividend tage Fund 885,580 16.95% -
Total Portfolio Va
ries, the largest median inancial Services (non-banking)rcial Banks (23.31).
2,299.4
4,247.9
CEO Compensation Mix DistributioChart 27
Mix of compensation varies greatly from indust
bacco (M)
micals (M)
tilities (S)
21 20
26.41
23.78%
4 58
5.68
2.61%
20 95
14.11
19.07% 7.94%
Salary Bonus Incentives Op
About The Conference Board Governance CenterThe Governance Center brings together a distinguished group of corporate directors, senior executives, institutional investors, and governance practitioners in a nonadversarial setting to discuss the most pressing issues in corporate governance.
The Governance Center draws upon almosttwo decades of authoritative research onissues of corporate law, governance, andrisk oversight. Most recently, The Gover-nance Center instituted the Task Force onExecutive Compensation, co-chaired byRobert E. Denham, former chairman andCEO of Salomon Inc., and Rajiv L. Gupta,former chairman and CEO of Rohm andHaas Company. The Task Force issued rec-ommendations to public companies in Sep-tember 2009.
These efforts build upon the internationallyacclaimed and influential The ConferenceBoard Commission on Public Trust and Private Enterprise, which was co-chaired by Hon. Peter Peterson and Hon. John Snow and whose members included Hon.Paul Volcker; Hon. Arthur Levitt, Jr.; AndrewGrove, chairman of Intel Corporation; RalphLarsen, former chairman and CEO of John-son & Johnson; and John Bogle, founder andformer chairman, Vanguard Group, Inc.
Governance Center membersAlcoa Inc.
AT&T Inc.
BlackRock, Inc.
Blue Cross Blue Shield Association
BP plc. (uk)
California State Teachers’ Retirement System
CalPERS
Chevron Corporation
The Chubb Group of Insurance Companies
Cleary Gottlieb Steen & Hamilton llp
Deloitte & Touche llp
Edison International
E. I. du Pont de Nemours
Emerson Electric Co.
Ernst & Young llp
Farient Advisors llc
Freddie Mac
Hewlett-Packard Company
Jones Day
KPMG’s Audit Committee Institute
Lockheed Martin Corporation
McGuire Woods llp
PricewaterhouseCoopers llp
Saudi Aramco
Selective Insurance Group, Inc.
Spencer Stuart
State Board of Administration (SBA) of Florida
TIAA-CREF
The Walt Disney Company
Universities Superannuation Scheme Ltd
Weil, Gotshal & Manges llp
Interested in becoming a member of The Conference Board Governance Center?Contact: Paul DeNicolaDirector, The Governance Center+1 212 339 0221 (9am–5pm EST)[email protected]
To order or request more information, contact Timothy Concannon at [email protected] or +1 212 339 0207.
“A very comprehensive set of resources, including battle-
tested recommendations that will prove invaluable for both
companies and investors.”
Arthur CrozierCo-Chairman
Innisfree M&A Incorporated
The Conference Board brings you today’s most comprehensive reference guide to engaging shareholders, preventing proxy contests, and, when necessary,appropriately addressing requests for change made by activist investors.
The Shareholder Activism Report helps you navigate investor filings, distinguishinvestor types, and learn about activists’ objectives and tactics. Benchmarkinginformation is offered to increase shareholder value and address gaps and vulner-abilities that would increase exposure to requests from activist investors.
Order today and, in addition to the report, you will receive online accessfor two to the Shareholder Activism Resource Portal, which features:
The Shareholder Activism ReportBest Practices and Engagement Tools for Public Companies
� Directory of 400+ activist investors� Proxy contest fact sheets� Voting policies by shareholder groups � Extensive literature
(articles, legal memorandums, business notes,conference presentations)
� Top 50 activist profiles� Over 200 sample documents from activism
campaigns (including response letters and settlement agreements)
In collaboration with:
New
To order or request more information, contact Timothy Concannon at [email protected] or +1 212 339 0207.
�
Trusted Insights for Business Worldwide
Trusted Insights for Business Worldwide
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The Shareholder Activism ReportBest Practices and Engagement Tools for Public Companies
�
A 400+ page publication and a regularlyupdated website (see details inside)
The Shareholder Activism ReportBest Practices and Engagement Tools for Public Companies
A 400+ page publication and a regularly updated website (see details inside)
“A timely and comprehensiveanalysis that should promote rationaldiscourse and reduce the fear factor.”John C. WilcoxChairman, SodaliFormer Head of Corporate Governance, TIAA-CREF