Petition for Disclosure of Corporate Political Spending

“A group of ten very prominent corporate and securities law experts submitted a formal rulemaking petition to the SEC last week urging the Commission to develop rules requiring public companies to disclose the use of corporate resources for political activities to shareowners…”
– Read more at CorpGov.net

You can support this petition by submitting a comment to the SEC by email following their How to Submit instructions — send to rule-comments@sec.gov and include “File Number 4-637″ in your Subject.

You can read the comments submitted so far, including mine.

I blogged about this issue last year after the U.S. Supreme Court decision on Citizens United.

Rating the Raters

I applaud CalPERS for proposing that credit rating agencies (CRAs) should be hired by investors instead of by corporate management. This proposal was in CalPERS’ October 4, 2010 comment letter to the SEC:

“Current legislation through the Dodd-Frank Act … appoints the Comptroller General through Section 939D, to study an alternative means to compensate the CRAs in order to create incentives for them to provide more accurate credit ratings, including statutory changes that would be required to facilitate the use of alternative means of compensation.

CalPERS believes an alternative payment model should include the following:

• Issuers still pay for services rendered to obtain a CRA ratings. CRA revenues should be pooled and allocated to CRAs based on periodic voting process by “customers” – investor constituents.
• The voting process will be administered through a “proxy like” process and paid by CRAs.
• We believe this model should be transitioned over a 4-5 year period with increasing amounts of revenue at risk.
• Revenue at risk to CRAs will:
  - Create a market based results oriented feedback loop to CRAs;
  - Motivate CRAs to improve and maintain ratings process as opposed to relying on regulator edicts and audits;
  - Motivate CRAs to be more conservative in ratings new financial instruments or companies professing new business models;
  - Align the interests of CRAs with investors, who are true customers or user of information as opposed to issuers.
• Investors will utilize information gained from increased transparency and their customer experience to assess CRA relative skills, abilities and performance.”

This is similar to proposals I have made for investors to allocate corporate funds to competing proxy advisors. In my 2007 article “Proxy Voting Brand Competition” (available at votermedia.org/publications), I suggested that organizations hired by investors in this way could also provide other services such as compensation consulting, finding potential candidates for board seats, and auditing financial statements. Like these services, the determination of credit ratings would be more trustworthy and effective if performed by organizations loyal to investors rather than to corporate management.

If the competition for investor-allocated corporate funds is open to all types of service providers, then investors can choose which services and providers are most valuable, thus maximizing the benefit of this system.

At VoterMedia.org, we have developed, tested and implemented methods for allocating funds by vote among competing service providers. There are many possible ways of designing such a system, and some work much better than others. The paper “Global Voter Media Platform” (at votermedia.org/publications) explains the factors that determine success, and describes our test implementations.

As we have seen in our shareowner proposal campaign, CEOs and boards generally oppose such reforms. This is not surprising, since the proposals would increase accountability of CEOs and boards, thus reducing their power. These reforms will need more support from investors, whether via proposals in corporate proxies or via proposals to regulators.

We welcome CalPERS’ powerful voice in the push for corporate accountability by aligning the incentives of “infomediaries,” such as credit rating agencies, with the investors they are supposed to serve!

This is also published as a guest post at the CorpGov.net blog.

My comments on the SEC Proxy Concept Release

My comments (dated September 29) are now available on the SEC website page for comments on their proxy concept release.

Mainly I recommended the development of an open Client Directed Voting system. I’m pleased to see a growing consensus advocating CDV, including these diverse voices:

• John Endean, President, American Business Conference
• Thomas Quaadman, Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce
• James McRitchie, Editor, CorpGov.net
• John Wilcox, Chairman, Sodali

I won’t be on the new SEC IAC

I’ve had a great year or so representing individual investors on the SEC Investor Advisory Committee (IAC). (Here are links to its member list and SEC web page.) I’ve learned a lot from my colleagues on the committee and from SEC staff. I hope I have made a worthy contribution serving retail investors and the broad public interest.

The Dodd-Frank Act redefines the IAC, so the committee is now being reconstituted to conform with the Act. I’ve decided not put my name forward as a candidate for the new (Statutory) IAC. I tend to specialize in just a few areas of the SEC’s broad regulatory mandate, and once I have submitted my personal comments on their recent proxy concept release, I will have contributed the bulk of what I have to offer. I’ll blog about and link to my comments after I submit them later this month.

There is still plenty of work for the new IAC to do on proxy voting, but I am confident that there are more suitable candidates than I to help with that. I’m still engaged on these issues, and expect to stay involved one way or another. My main work continues on VoterMedia.org, pursuing governance reform for democracies and corporations.

Conference Appearances & Reimbursements Report

I’m participating in these three conference panels:

Date	Conference Organization	Conference City	Panel	My Role	Air & Hotel Paid By
2010-08-02	American Accounting Association	San Francisco	3.28 XBRL: What Have We Really Learned?	Panelist	Mark Latham
2010-09-20	Council of Institutional Investors	San Diego	Board-Shareowner Communications	Moderator	CII
2010-11-10	XBRL US	Philadelphia	Proxy & Governance	Panelist	Broadridge

SEC Concept Release on Proxy Voting + Table of Contents

Today the U.S. Securities & Exchange Commission published its 150-page Concept Release on the U.S. Proxy System.

Its Table of Contents lacked page numbers, so I created one with page numbers, which you can download here in doc and pdf formats.

The SEC press release gives a brief overview.

Public comments linked here.

Fortune uses ProxyDemocracy to critique Vanguard’s CEO on their voting record

This 4-minute video leads off with a tough question to Vanguard’s CEO, based on ProxyDemocracy data.

Here’s Vanguard’s voting profile on ProxyDemocracy. It shows that Vanguard funds have voted against the recommendation of management on 13.7% of the proposals they have faced. 87% of the fund families in the ProxyDemocracy database voted against management more often than that.

1-page overview of ProxyDemocracy.

Ultimate Proxy Advisor Proposal – revised

Thanks to comments from Jim McRitchie and John Richardson on the previous draft, I’ve revised it below to make it more attractive for advisors:

This shareowner proposal is an enhancement of my previous Proxy Advisor proposals, based on what we have learned from implementing this idea for the past four years at the University of British Columbia. The main idea is in section 3 of “Proxy Voting Brand Competition”, and the UBC implementations are described in “Global Voter Media Platform”, both at votermedia.org/publications. See also the current UBC ballot.

WHEREAS many shareowners lack the time and expertise to make the best voting decisions, yet prefer not to always follow directors’ recommendations;

WHEREAS shareowners could benefit from greater competition in the market for professional proxy voting advice;

THEREFORE BE IT RESOLVED that XYZ Corporation shareowners request the Board of Directors to hold a competition for proxy advisors giving public advice on the voting items in the proxy filing for next year’s XYZ annual general meeting, with the following features:

* The competition will be announced no more than six months after this year’s annual general meeting. To insulate advisor selection from influence by the Company’s management, any proxy advisory organization can enter by paying an entry fee of $10,000, and providing their name and website address. Each entry will be announced publicly, promptly after it is received.

* The competition will award a total prize pool equal to the sum of entry fees received plus $30,000 if there are three or more competitors. If there are two competitors, the total prize pool will be the sum of entry fees received plus $20,000.

* Prizes will be determined by shareowner vote on next year’s XYZ proxy. The proxy will show this question: “What percentage of the prize pool should we award to each of the following proxy advisors? (Your votes need not sum to 100%.)” Then the name and website address of each advisor entered will be listed in chronological order of entry, with the following voting choices for each advisor: 0%, 10%, 20%, 30%, 40%, 50% if there are three or more competitors; if there are fewer than three competitors, then the voting choices will be 0%, 20%, 40%, 60%, 80%, 100%.

* If there are two or more competitors, then a cutoff number of votes (i.e. shares voted) will be determined such that the sum of awards will be 100%, where each advisor is awarded the highest percentage such that the sum of its votes for that percentage or higher is greater than the cutoff.

* If there is only one advisor entered, then that advisor will receive $10,000 (i.e. their entry fee), plus the median voted percentage times $10,000.

* The XYZ filing that reports the final voting results will show the total number of shares voted for each percentage level, for each advisor.

* It is expected that each proxy advisor will publish advice on its website regarding next year’s XYZ proxy, but there will be no formal requirement to do so. The incentive to win shareowner voting support and to maintain the advisor’s reputation will be considered sufficient motivation for giving quality advice.

(Further information at http://votermedia.org/publications.)

I have no immediate plans to submit this proposal, but I think it would greatly benefit shareowners and improve corporate governance. I recommend anyone to submit it. Feel free to change it as you wish.

Your comments welcomed!

Client Directed Voting – Q&A

I was recently asked to share my thoughts on client directed voting (CDV). I’ve written them in question-and-answer format, available at votermedia.org/publications.

I’ve been advocating and looking forward to this reform for many years, so am pleased with the recent increase in interest and momentum toward CDV! Your comments welcomed…

Ultimate Proxy Advisor Proposal

NOTE: This early draft has now been superseded by a revision linked here.

This shareowner proposal is an enhancement of my previous Proxy Advisor proposals, based on what we have learned from implementing this idea for the past four years at the University of British Columbia. The main idea is in section 3 of “Proxy Voting Brand Competition”, and the UBC implementations are described in “Global Voter Media Platform”, both at votermedia.org/publications. See also the current UBC ballot.

WHEREAS many shareowners lack the time and expertise to make the best voting decisions, yet prefer not to always follow directors’ recommendations;

WHEREAS shareowners could benefit from greater competition in the market for professional proxy voting advice;

THEREFORE BE IT RESOLVED that XYZ Corporation shareowners request the Board of Directors to hold a competition for proxy advisors giving public advice on the voting items in the proxy filing for next year’s XYZ annual general meeting, with the following features:

* The competition will be announced no more than six months after this year’s annual general meeting. To insulate advisor selection from influence by the Company’s management, any proxy advisory organization can enter by paying an entry fee of $20,000, and providing their name and website address. Each entry will be announced publicly, promptly after it is received.

* The competition will award a total prize pool no less than the lesser of $100,000 and the sum of entry fees received. For example, if three advisors enter then the prize pool is at least $60,000. If seven advisors enter then the prize pool is at least $100,000, and the extra (at most) $40,000 in entry fees is revenue to XYZ.

* Prizes will be determined by shareowner vote on next year’s XYZ proxy. The proxy will show this question: “What percentage of the prize pool should we award to each of the following proxy advisors? (Your votes need not sum to 100%.)” Then the name and website address of each advisor entered will be listed in chronological order of entry, with the following voting choices for each advisor: 0%, 10%, 20%, 30%, 40%, 50% if there are three or more competing advisors; if there are fewer than three advisors, then the voting choices will be 0%, 20%, 40%, 60%, 80%, 100%.

* If there are two or more advisors competing, then a cutoff number of votes (i.e. shares voted) will be determined such that the sum of awards will be 100%, where each advisor is awarded the highest percentage such that the sum of its votes for that percentage or higher is greater than the cutoff. (In the case of a tie at the cutoff, the discontinuity will be divided equally among the tied advisors.)

* If there is only one advisor entered, then that advisor will receive 100% of the award pool, regardless of how XYZ shareowners vote. The vote will simply serve as shareowner feedback on the quality of advice provided.

* The XYZ filing that reports the final voting results will show the total number of shares voted for each percentage level, for each advisor.

* It is expected that each proxy advisor will publish advice on its website regarding next year’s XYZ proxy, but there will be no formal requirement to do so. The incentive to win shareowner voting support and to maintain the advisor’s reputation will be considered sufficient motivation for giving quality advice.

(Further information at http://votermedia.org/publications.)

It’s written so that awards can be funded entirely from entry fees, although it leaves the board discretion to sweeten the pot with corporate funds if desired. This may seem unattractive to proxy advisors, but their reputations can benefit from the advertising exposure. Once the concept demonstrates its value to shareowners, it should spread to more corporations and get corporate funding.

I have no immediate plans to submit this proposal, but I think it would greatly benefit shareowners and improve corporate governance. I recommend anyone to submit it. Feel free to change it as you wish.

Your comments welcomed!