The Conference Board Warns U.S. Companies About Undesirable Consequences of Last...

The Conference Board Warns U.S. Companies About Undesirable Consequences of
Last Week's SEC Rule on Director Election

NEW YORK, July 7 /PRNewswire/ -- Last week, the SEC amended NYSE rules to
eliminate broker discretionary voting in director elections, approving a
reform proposal that is unanimously expected to increase the power of
institutional investors--and activist shareholders, specifically--in
influencing corporate affairs through "withhold vote" campaigns.

In addition to expressing their concern about the rise in activist power,
those who opposed the amendment argue that, due to the frequent
disenfranchisement of retail investors, eliminating discretionary voting will
make it more difficult to establish a quorum at annual meetings and could
raise solicitation costs.

"To assist companies facing these concerns, The Conference Board recommends
that senior executives and board members assess the impact of the new rule on
future annual meetings, especially in light of factors such as the size of the
company's retail shareholder base, equity holdings by activists, and recent
election results," says Matteo Tonello, Associate Director, Corporate
Governance at The Conference Board. In particular, companies should consider:

-- Analyzing historical shareholder trends and monitoring future
extraordinary voting patterns, possibly with the assistance of
specialized services (such as securities surveillance reports or Wall
Street-perception audits). This will help anticipate any situation
where
individual shareholders not voting their shares may magnify the power
of
short-term, speculative investors and skew election results. If a
stock
watch service provider is engaged for this purpose, it is good
practice
to research its reputation and ensure that its means to gather
information are proper. In fact, there have been prior incidents when
the SEC probed the ethical standards of securities surveillance
analysts, who are often compensated by commission.

-- Understanding larger investors' intentions (especially if they have
a history of activism) and investigating voting policies by mutual
funds
and other--more passive--mainstream asset managers holding stock of
the
company, so as to recognize possible voting alliances with activists.
For the same purpose, in the current economic climate, The Conference
Board urges companies to regularly communicate--in compliance with
Regulation FD and insider trading rules--with the 10 largest
institutional shareholders to inform them on the business strategy,
including new efforts for improving shareholder value. A company
should
approach each proxy season with a thorough assessment of the real
voting
power of dissident institutional shareholders. Such an estimate
ultimately allows the company to determine the level of tolerance for
inadvertent "no" votes by its retail investors.

-- Developing--in collaboration with proxy solicitors and investor
relation
advisors--a specific strategy to improve external communications on
corporate matters, engage retail investors, and ultimately increase
voting response. However, since such a strategy is likely to increase
significantly the costs of uncontested elections, The Conference Board
recommends that nominating/governance committees closely monitor this
use of corporate resources and ensure appropriate safeguards from
insider abuses and conflicts of interest. Because brokers remain able
to
vote uninstructed shares with respect to any "routine" item on
the meeting agenda (for example, the ratification of auditors),
companies should ensure, at a minimum, that at least one such matter
is
put to a vote at the meeting.

Before the latest SEC amendment, in any uncontested director election, brokers
holding shares in investors' accounts were permitted to exercise discretionary
voting authority on any share for which they had not received voting
instructions from the beneficial owner. Brokers have traditionally followed
the recommendations of incumbent boards in casting their discretionary votes
for uninstructed shares, therefore potentially distorting election outcomes.
As a result of the change, since uninstructed votes will be counted as "no"
votes, it could become arduous for companies adopting a majority voting
standard to attain the vote required to elect a management's slate of
nominees--particularly if there is a large retail investor base or if an
activist launches a "just say no" campaign to encourage shareholders to
withhold votes for certain directors.

"Over the years, in witnessing the expansion of the shareholder rights
movement, The Conference Board has consistently reiterated a position of
neutrality and non-advocacy," adds Tonello. "While acknowledging a body of
empirical research that discredits the notion of activism as a monolithic
phenomenon driven exclusively by short-term gain seekers, we also recognized
the need to assist our member companies by promoting organizational and board
practices that would protect them from vulnerabilities and abuses." This
effort is attested, among other things, by the institution of The Conference
Board Working Group on Hedge Fund Activism, a diverse group of high-level
business leaders, asset managers and governance experts convened to discuss
the corporate response to hedge fund activism campaigns. Recommendations
issued by the group in September 2008 promote corporate-investor dialogue and
outreach plans as a preventive measure against speculative initiatives that
could damage long-term value growth strategies.

The rule change is effective for shareholder meetings on or after January 1,
2010 and affects most U.S. public companies, because the restriction applies
to all NYSE-registered brokers, irrespective of the exchange on which a
company is listed.

For more information, contact Matteo Tonello, Associate Director, Corporate
Governance at 212-339-0335 or matteo.tonello@conference-board.org.

ABOUT THE CONFERENCE BOARD
The Conference Board is an independent business membership and research
association working in the public interest. Its mission is unique: To provide
the world's leading organizations with the practical knowledge they need to
improve their performance AND better serve society. The Conference Board
publishes information and analysis, makes economics-based forecasts and
assesses trends, and facilitates learning by creating dynamic communities of
interest that bring together senior executives from around the world. The
Conference Board is a non-advocacy, not-for-profit entity holding 501 (c)(3)
tax-exempt status in the United States. For further information, visit The
Conference Board website at www.conference-board.org.

SOURCE The Conference Board

Matteo Tonello of The Conference Board, +1-212-339-0335, or
matteo.tonello@conference-board.org