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RISKMETRICS Group
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2009 U.S. PROXY VOTING GUIDELINES SUMMARY
December 24, 2008
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RISKMETRICS GROUP
2009 U.S. PROXY VOTING GUIDELINES SUMMARY
EFFECTIVE FOR MEETINGS ON OR AFTER FEB. 1, 2009
UPDATED DEC. 24, 2008
The following is a condensed version of the proxy voting recommendations
contained in the RiskMetrics' (RMG) U.S. Proxy Voting Manual.
Table of Contents
1. OPERATIONAL ITEMS...........................................................6
Adjourn Meeting.............................................................6
Amend Quorum Requirements...................................................6
Amend Minor Bylaws..........................................................6
Auditor Indemnification and Limitation of Liability.........................6
Auditor Ratification........................................................6
Change Company Name.........................................................7
Change Date, Time, or Location of Annual Meeting............................7
Transact Other Business.....................................................7
2. BOARD OF DIRECTORS:.........................................................8
Voting On Director Nominees in Uncontested Elections........................8
RMG Classification of Directors - 2009.....................................10
AGE LIMITS.................................................................12
Board Size.................................................................12
Classification/Declassification of the Board...............................12
Cumulative Voting..........................................................12
Director and Officer Indemnification and Liability Protection..............13
Establish/amend Nominee Qualifications.....................................13
Establishment of Board Committees Shareholder Proposals....................13
Establishment of Board Policy On Shareholder Engagement....................14
Filling Vacancies/Removal of Directors.....................................14
Independent Chair (Separate Chair/CEO).....................................14
Majority of Independent Directors/Establishment of Committees..............15
Majority Vote Shareholder Proposals........................................15
Open Access................................................................16
Performance/Governance Evaluation for Directors............................16
Stock Ownership Requirements...............................................16
Term Limits................................................................16
Vote No Campaigns..........................................................17
3. PROXY CONTESTS.............................................................18
Voting for Director Nominees in Contested Elections........................18
Reimbursing Proxy Solicitation Expenses....................................18
Confidential Voting........................................................18
4. ANTITAKEOVER DEFENSES AND VOTING RELATED ISSUES............................19
Advance Notice Requirements for Shareholder Proposals/Nominations..........19
Amend Bylaws Without Shareholder Consent...................................19
Poison Pills...............................................................19
Shareholder Ability to Act by Written Consent..............................20
Shareholder Ability to Call Special Meetings...............................20
Supermajority Vote Requirements............................................20
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5. MERGERS AND CORPORATE RESTRUCTURINGS.......................................21
OVERALL APPROACH..............................................................21
Appraisal Rights...........................................................21
Asset Purchases............................................................21
Asset Sales................................................................22
Bundled Proposals..........................................................22
Conversion of Securities...................................................22
Corporate Reorganization/Debt Restructuring/Prepackaged
Bankruptcy Plans/Reverse Leveraged Buyouts/Wrap Plans...................22
Formation of Holding Company...............................................23
Going Private and Going Dark Transactions
(Lbos and Minority Squeeze-outs)........................................23
Joint Ventures.............................................................24
Liquidations...............................................................24
Mergers and Acquisitions/Issuance of Shares to Facilitate
Merger or Acquisition...................................................24
Private Placements/Warrants/Convertible Debentures.........................24
Special Purpose Acquisition Corporations (Spacs)...........................25
Spinoffs...................................................................26
Value Maximization Shareholder Proposals...................................26
6. STATE OF INCORPORATION.....................................................27
Control Share Acquisition Provisions.......................................27
Control Share Cash-Out Provisions..........................................27
Disgorgement Provisions....................................................27
Fair Price Provisions......................................................27
Freeze-out Provisions......................................................28
Greenmail..................................................................28
Reincorporation Proposals..................................................28
Stakeholder Provisions.....................................................28
State Antitakeover Statutes................................................28
7. CAPITAL STRUCTURE..........................................................29
ADjustments to Par Value of Common Stock...................................29
Common Stock Authorization.................................................29
Dual-class Stock...........................................................29
Issue Stock for Use With Rights Plan.......................................29
Preemptive Rights..........................................................29
Preferred Stock............................................................30
Recapitalization...........................................................30
Reverse Stock Splits.......................................................30
Share Repurchase Programs..................................................31
Stock Distributions: Splits and Dividends..................................31
Tracking Stock.............................................................31
8. EXECUTIVE AND DIRECTOR COMPENSATION........................................32
EQUITY COMPENSATION PLANS.....................................................32
Cost of Equity Plans.......................................................32
Repricing Provisions.......................................................33
Pay-for-Performance Disconnect.............................................33
Three-year Burn Rate/Burn Rate Commitment..................................35
Liberal Definition of Change-in-Control....................................37
Poor Pay Practices.........................................................37
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SPECIFIC TREATMENT OF CERTAIN AWARD TYPES IN EQUITY PLAN EVALUATIONS:.........38
Dividend Equivalent Rights.................................................38
Liberal Share Recycling Provisions.........................................38
Operating Partnership (Op) Units in Equity Plan Analysis of
Real Estate Investment Trusts (Reits)...................................39
Option Overhang Cost.......................................................39
OTHER COMPENSATION PROPOSALS AND POLICIES.....................................40
401(k) Employee Benefit Plans..............................................40
Advisory Vote On Executive Compensation (Say-on-Pay)
Management Proposals....................................................40
Director Compensation......................................................41
Director Retirement Plans..................................................41
Employee Stock Ownership Plans (ESOPs).....................................41
Employee Stock Purchase Plans-- Qualified Plans............................41
Employee Stock Purchase Plans-- Non-qualified Plans........................42
Incentive Bonus Plans and Tax Deductibility Proposals
(OBRA-related Compensation Proposals)...................................42
Options Backdating.........................................................43
Option Exchange Programs/repricing Options.................................43
Stock Plans in Lieu of Cash................................................44
Transfer Stock Option (TSO) Programs.......................................44
SHAREHOLDER PROPOSALS ON COMPENSATION.........................................45
Advisory Vote On Executive Compensation (Say-on-Pay).......................45
Bailout Bill/Executive Compensation Resolutions............................45
Compensation Consultants-Disclosure of Board or Company's Utilization......45
Disclosure/Setting Levels or Types of Compensation for
Executives and Directors................................................45
Golden Coffins/Executive Death Benefits....................................46
Pay for Superior Performance...............................................46
Performance-Based Awards...................................................46
Pension Plan Income Accounting.............................................47
Pre-arranged Trading Plans (10B5-1 Plans)..................................47
Recoup Bonuses.............................................................47
Severance Agreements for Executives/Golden Parachutes......................48
Share Buyback Holding Periods..............................................48
Stock Ownership or Holding Period Guidelines...............................48
Supplemental Executive Retirement Plans (SERPs)............................49
Termination of Employment Prior to Severance Payment and Eliminating
Accelerated Vesting of Unvested Equity..................................49
Tax Gross-Up Proposals.....................................................49
9. CORPORATE SOCIAL RESPONSIBILITY (CSR) ISSUES...............................50
OVERALL APPROACH..............................................................50
ANIMAL WELFARE................................................................50
Animal Testing.............................................................50
Animal Welfare Policies....................................................50
Controlled Atmosphere Killing (CAK)........................................51
CONSUMER ISSUES...............................................................51
Genetically Modified Ingredients...........................................51
Consumer Lending...........................................................51
Pharmaceutical Pricing, Access to Medicines, and Product Reimportation.....52
Product Safety and Toxic/hazardous Materials...............................52
Tobacco....................................................................53
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DIVERSITY.....................................................................53
Board Diversity............................................................53
Equality of Opportunity....................................................54
Gender Identity, Sexual Orientation, and Domestic Partner Benefits.........54
CLIMATE CHANGE AND THE ENVIRONMENT............................................54
CLimate Change.............................................................54
Concentrated Animal Feeding Operations (CAFOs).............................54
Energy Efficiency..........................................................55
Facility and Operational Safety/security...................................55
Greenhouse Gas (GHG) Emissions.............................................55
Operations in Protected Areas..............................................55
Recycling..................................................................56
Renewable Energy...........................................................56
GENERAL CORPORATE ISSUES......................................................56
Charitable Contributions...................................................56
Csr Compensation-related Proposals.........................................56
Health Pandemics...........................................................57
Lobbying Expenditures/Initiatives..........................................57
Political Contributions and Trade Associations Spending....................57
INTERNATIONAL ISSUES, LABOR ISSUES, AND HUMAN RIGHTS..........................58
Community Social and Environmental Impact Assessments......................58
Foreign Military Sales/Offsets.............................................58
Internet Privacy and Censorship............................................58
Labor and Human Rights Standards...........................................59
Macbride Principles........................................................59
Nuclear and Depleted Uranium Weapons.......................................59
Operations in High Risk Markets............................................60
Outsourcing/Offshoring.....................................................60
SUSTAINABILITY................................................................60
Sustainability Reporting...................................................60
10. MUTUAL FUND PROXIES.......................................................61
Election of Directors......................................................61
Converting Closed-end Fund to Open-end Fund................................61
Proxy Contests.............................................................61
Investment Advisory Agreements.............................................61
Approving New Classes or Series of Shares..................................62
Preferred Stock Proposals..................................................62
1940 Act Policies..........................................................62
Changing a Fundamental Restriction to a Nonfundamental Restriction.........62
Change Fundamental Investment Objective to Nonfundamental..................62
Name Change Proposals......................................................62
Change in Fund's Subclassification.........................................63
Disposition of Assets/Termination/liquidation..............................63
Changes to the Charter Document............................................63
Changing the Domicile of a Fund............................................63
Authorizing the Board to Hire and Terminate Subadvisors
Without Shareholder Approval............................................64
Distribution Agreements....................................................64
Master-Feeder Structure....................................................64
Mergers....................................................................64
SHAREHOLDER PROPOSALS FOR MUTUAL FUNDS........................................64
Establish Director Ownership Requirement...................................64
Reimburse Shareholder for Expenses Incurred................................65
Terminate the Investment Advisor...........................................65
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1. OPERATIONAL ITEMS
ADJOURN MEETING
Generally vote AGAINST proposals to provide management with the authority to
adjourn an annual or special meeting absent compelling reasons to support the
proposal.
Vote FOR proposals that relate specifically to soliciting votes for a merger or
transaction if supporting that merger or transaction. Vote AGAINST proposals if
the wording is too vague or if the proposal includes "other business."
*****
AMEND QUORUM REQUIREMENTS
Vote AGAINST proposals to reduce quorum requirements for shareholder meetings
below a majority of the shares outstanding unless there are compelling reasons
to support the proposal.
*****
AMEND MINOR BYLAWS
Vote FOR bylaw or charter changes that are of a housekeeping nature (updates or
corrections).
*****
AUDITOR INDEMNIFICATION AND LIMITATION OF LIABILITY
Consider the issue of auditor indemnification and limitation of liability on a
CASE-BY-CASE basis. Factors to be assessed include, but are not limited to:
o The terms of the auditor agreement- the degree to which these
agreements impact shareholders' rights;
o Motivation and rationale for establishing the agreements;
o Quality of disclosure; and
o Historical practices in the audit area.
WTHHOLD or vote AGAINST members of an audit committee in situations where there
is persuasive evidence that the audit committee entered into an inappropriate
indemnification agreement with its auditor that limits the ability of the
company, or its shareholders, to pursue legitimate legal recourse against the
audit firm.
*****
AUDITOR RATIFICATION
Vote FOR proposals to ratify auditors, unless any of the following apply:
o An auditor has a financial interest in or association with the
company, and is therefore not independent;
o There is reason to believe that the independent auditor has rendered
an opinion which is neither accurate nor indicative of the company's
financial position;
o Poor accounting practices are identified that rise to a serious level
of concern, such as: fraud; misapplication of GAAP; and material
weaknesses identified in Section 404 disclosures; or
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o Fees for non-audit services ("Other" fees) are excessive.
Non-audit fees are excessive if:
o Non-audit ("other") fees >audit fees + audit-related fees + tax
compliance/preparation fees
Tax compliance and preparation include the preparation of original and amended
tax returns, refund claims and tax payment planning. All other services in the
tax category, such as tax advice, planning or consulting should be added to
"Other" fees. If the breakout of tax fees cannot be determined, add all tax fees
to "Other" fees.
In circumstances where "Other" fees include fees related to significant one-time
capital structure events: initial public offerings, bankruptcy emergence, and
spin-offs; and the company makes public disclosure of the amount and nature of
those fees which are an exception to the standard "non-audit fee" category, then
such fees may be excluded from the non-audit fees considered in determining the
ratio of non-audit to audit/audit-related fees/tax compliance and preparation
for purposes of determining whether non-audit fees are excessive.
Vote CASE-BY-CASE on shareholder proposals asking companies to prohibit or limit
their auditors from engaging in non-audit services.
Vote CASE-BY-CASE on shareholder proposals asking for audit firm rotation,
taking into account:
o The tenure of the audit firm;
o The length of rotation specified in the proposal;
o Any significant audit-related issues at the company;
o The number of Audit Committee meetings held each year;
o The number of financial experts serving on the committee; and
o Whether the company has a periodic renewal process where the auditor
is evaluated for both audit quality and competitive price.
*****
CHANGE COMPANY NAME
Vote FOR proposals to change the corporate name.
*****
CHANGE DATE, TIME, OR LOCATION OF ANNUAL MEETING
Vote FOR management proposals to change the date, time, and/or location of the
annual meeting unless the proposed change is unreasonable.
Vote AGAINST shareholder proposals to change the date, time, and/or location of
the annual meeting unless the current scheduling or location is unreasonable.
*****
TRANSACT OTHER BUSINESS
Vote AGAINST proposals to approve other business when it appears as voting item.
*****
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2. BOARD OF DIRECTORS:
VOTING ON DIRECTOR NOMINEES IN UNCONTESTED ELECTIONS Vote on director nominees
should be determined on a CASE-BY-CASE basis.
Vote AGAINST or WITHHOLD(1) from individual directors who:
o Attend less than 75 percent of the board and committee meetings
without a valid excuse, such as illness, service to the nation, work
on behalf of the company, or funeral obligations. If the company
provides meaningful public or private disclosure explaining the
director's absences, evaluate the information on a CASE-BY-CASE basis
taking into account the following factors:
- Degree to which absences were due to an unavoidable conflict;
- Pattern of absenteeism; and
- Other extraordinary circumstances underlying the director's
absence;
o Sit on more than six public company boards;
o Are CEOs of public companies who sit on the boards of more than two
public companies besides their own-- withhold only at their outside
boards.
Vote AGAINST or WITHHOLD from all nominees of the board of directors, (except
from new nominees, who should be considered on a CASE-BY-CASE basis) if:
o The company's proxy indicates that not all directors attended 75% of
the aggregate of their board and committee meetings, but fails to
provide the required disclosure of the names of the directors
involved. If this information cannot be obtained, vote
against/withhold from all incumbent directors;
o The company's poison pill has a dead-hand or modified dead-hand
feature. Vote against/withhold every year until this feature is
removed;
o The board adopts or renews a poison pill without shareholder approval,
does not commit to putting it to shareholder vote within 12 months of
adoption (or in the case of an newly public company, does not commit
to put the pill to a shareholder vote within 12 months following the
IPO), or reneges on a commitment to put the pill to a vote, and has
not yet received a withhold/against recommendation for this issue;
o The board failed to act on a shareholder proposal that received
approval by a majority of the shares outstanding the previous year (a
management proposal with other than a FOR recommendation by management
will not be considered as sufficient action taken);
o The board failed to act on a shareholder proposal that received
approval of the majority of shares cast for the previous two
consecutive years (a management proposal with other than a FOR
recommendation by management will not be considered as sufficient
action taken);
o The board failed to act on takeover offers where the majority of the
shareholders tendered their shares;
o At the previous board election, any director received more than 50
percent withhold/against votes of the shares cast and the company has
failed to address the underlying issue(s) that caused the high
withhold/against vote;
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(1) In general, companies with a plurality vote standard use "Withhold" as the
valid contrary vote option in director elections; companies with a majority vote
standard use "Against". However, it will vary by company and the proxy must be
checked to determine the valid contrary vote option for the particular company.
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o The board is classified, and a continuing director responsible for a
problematic governance issue at the board/committee level that would
warrant a withhold/against vote recommendation is not up for election-
any or all appropriate nominees (except new) may be held accountable;
o The board lacks accountability and oversight, coupled with sustained
poor performance relative to peers. Sustained poor performance is
measured by one- and three-year total shareholder returns in the
bottom half of a company's four-digit GICS industry group (Russell
3000 companies only).
Vote AGAINST or WITHHOLD from Inside Directors and Affiliated Outside Directors
(per the Classification of Directors below) when:
o The inside or affiliated outside director serves on any of the three
key committees: audit, compensation, or nominating;
o The company lacks an audit, compensation, or nominating committee so
that the full board functions as that committee;
o The company lacks a formal nominating committee, even if board attests
that the independent directors fulfill the functions of such a
committee;
o The full board is less than majority independent.
Vote AGAINST or WITHHOLD from the members of the Audit Committee if:
o The non-audit fees paid to the auditor are excessive;
o The company receives an adverse opinion on the company's financial
statements from its auditor; or
o There is persuasive evidence that the audit committee entered into an
inappropriate indemnification agreement with its auditor that limits
the ability of the company, or its shareholders, to pursue legitimate
legal recourse against the audit firm.
Vote CASE-by-CASE on members of the Audit Committee and/or the full board if
poor accounting practices, which rise to a level of serious concern, such as:
fraud; misapplication of GAAP; and material weaknesses identified in Section 404
disclosures, are identified.
Examine the severity, breadth, chronological sequence and duration, as well as
the company's efforts at remediation or corrective actions in determining
whether negative vote recommendations are warranted against the members of the
Audit Committee who are responsible for the poor accounting practices, or the
entire board.
Vote AGAINST or WITHHOLD from the members of the Compensation Committee if:
o There is a negative correlation between the chief executive's pay and
company performance (see discussion under Equity Compensation Plans);
o The company reprices underwater options for stock, cash or other
consideration without prior shareholder approval, even if allowed in
their equity plan;
o The company fails to submit one-time transfers of stock options to a
shareholder vote;
o The company fails to fulfill the terms of a burn rate commitment they
made to shareholders;
o The company has backdated options (see "Options Backdating" policy);
The company has poor compensation practices (see "Poor Pay Practices" policy).
Poor pay practices may warrant withholding votes from the CEO and potentially
the entire board as well.
Vote AGAINST or WITHHOLD from directors, individually or the entire board, for
egregious actions or failure to replace management as appropriate.
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*****
RMG CLASSIFICATION OF DIRECTORS - 2009
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INSIDE DIRECTOR (I)
o Employee of the company or one of its affiliates(1);
o Non-employee officer of the company if among the five most highly paid
individuals (excluding interim CEO);
o Listed as a Section 16 officer(2);
o Current interim CEO;
o Beneficial owner of more than 50 percent of the company's voting power
(this may be aggregated if voting power is distributed among more than
one member of a defined group).
AFFILIATED OUTSIDE DIRECTOR (AO)
o Board attestation that an outside director is not independent;
o Former CEO of the company(3,4);
o Former CEO of an acquired company within the past five years4;
o Former interim CEO if the service was longer than 18 months. If the
service was between twelve and eighteen months an assessment of the
interim CEO's employment agreement will be made;5
o Former executive(2) of the company, an affiliate or an acquired firm
within the past five years;
o Executive2 of a former parent or predecessor firm at the time the
company was sold or split off from the parent/predecessor within the
past five years;
o Executive(2), former executive, general or limited partner of a joint
venture or partnership with the company;
o Relative(6) of a current Section 16 officer of company or its
affiliates;
o Relative(6) of a current employee of company or its affiliates where
additional factors raise concern (which may include, but are not
limited to, the following: a director related to numerous employees;
the company or its affiliates employ relatives of numerous board
members; or a non-Section 16 officer in a key strategic role);
o Relative(6) of former Section 16 officer, of company or its affiliate
within the last five years;
o Currently provides (or a relative(6) provides) professional
services(7) to the company, to an affiliate of the company or an
individual officer of the company or one of its affiliates in excess
of $10,000 per year;
o Employed by (or a relative(6) is employed by) a significant customer
or supplier(8);
o Has (or a relative(6) has) any transactional relationship with the
company or its affiliates excluding investments in the company through
a private placement; (8)
o Any material financial tie or other related party transactional
relationship to the company;
o Party to a voting agreement (9) to vote in line with management on
proposals being brought to shareholder vote;
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o Has (or a relative6 has) an interlocking relationship as defined by
the SEC involving members of the board of directors or its
Compensation and Stock Option Committee; (10)
o Founder (11) of the company but not currently an employee;
o Is (or a relative6 is) a trustee, director or employee of a charitable
or non-profit organization that receives grants or endowments(8) from
the company or its affiliates(1).
INDEPENDENT OUTSIDE DIRECTOR (IO)
o No material(12) connection to the company other than a board seat.
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FOOTNOTES:
(1) "Affiliate" includes a subsidiary, sibling company, or parent company. RMG
uses 50 percent control ownership by the parent company as the standard for
applying its affiliate designation.
(2) "Executives" (officers subject to Section 16 of the Securities and Exchange
Act of 1934) include the chief executive, operating, financial, legal,
technology, and accounting officers of a company (including the president,
treasurer, secretary, controller, or any vice president in charge of a principal
business unit, division or policy function). A non-employee director serving as
an officer due to statutory requirements (e.g. corporate secretary) will be
classified as an Affiliated Outsider. If the company provides additional
disclosure that the director is not receiving additional compensation for
serving in that capacity, then the director will be classified as an Independent
Outsider.
(3) Includes any former CEO of the company prior to the company's initial public
offering (IPO).
(4) When there is a former CEO of a special purpose acquisition company (SPAC)
serving on the board of an acquired company, RMG will generally classify such
directors as independent unless determined otherwise taking into account the
following factors: the applicable listing standards determination of such
director's independence; any operating ties to the firm; and if there are any
other conflicting relationships or related party transactions.
(5) RMG will look at the terms of the interim CEO's employment contract to
determine if it contains severance pay, long-term health and pension benefits or
other such standard provisions typically contained in contracts of permanent,
non-temporary CEOs. RMG will also consider if a formal search process was
underway for a full-time CEO at the time.
(6) "Relative" follows the SEC's new definition of "immediate family members"
which covers spouses, parents, children, step-parents, step-children, siblings,
in-laws, and any person (other than a tenant or employee) sharing the household
of any director, nominee for director, executive officer, or significant
shareholder of the company.
(7) Professional services can be characterized as advisory in nature and
generally include the following: investment banking / financial advisory
services; commercial banking (beyond deposit services); investment services;
insurance services; accounting/audit services; consulting services; marketing
services; and legal services. The case of participation in a banking syndicate
by a non-lead bank should be considered a transaction (and hence subject to the
associated materiality test) rather than a professional relationship.
(8) If the company makes or receives annual payments exceeding the greater of
$200,000 or 5 percent of the recipient's gross revenues. (The recipient is the
party receiving the financial proceeds from the transaction).
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(9) Dissident directors who are parties to a voting agreement pursuant to a
settlement arrangement will generally be classified as independent unless
determined otherwise, taking into account the following factors: the terms of
the agreement; the duration of the standstill provision in the agreement; the
limitations and requirements of actions that are agreed upon; if the dissident
director nominee(s) is subject to the standstill; and if there any conflicting
relationships or related party transactions.
(10) Interlocks include: (a) executive officers serving as directors on each
other's compensation or similar committees (or, in the absence of such a
committee, on the board); or (b) executive officers sitting on each other's
boards and at least one serves on the other's compensation or similar committees
(or, in the absence of such a committee, on the board).
(11) The operating involvement of the Founder with the company will be
considered. Little to no operating involvement may cause RMG to deem the Founder
as an independent outsider.
(12) For purposes of RMG's director independence classification, "material"
will be defined as a standard of relationship (financial, personal or otherwise)
that a reasonable person might conclude could potentially influence one's
objectivity in the boardroom in a manner that would have a meaningful impact on
an individual's ability to satisfy requisite fiduciary standards on behalf of
shareholders.
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*****
AGE LIMITS
Vote AGAINST shareholder or management proposals to limit the tenure of outside
directors through mandatory retirement ages.
*****
BOARD SIZE
Vote FOR proposals seeking to fix the board size or designate a range for the
board size.
Vote AGAINST proposals that give management the ability to alter the size of the
board outside of a specified range without shareholder approval.
*****
CLASSIFICATION/DECLASSIFICATION OF THE BOARD Vote AGAINST proposals to classify
the board.
Vote FOR proposals to repeal classified boards and to elect all directors
annually.
*****
CUMULATIVE VOTING
Generally vote AGAINST proposals to eliminate cumulative voting.
Generally vote FOR proposals to restore or provide for cumulative voting unless:
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o The company has proxy access or a similar structure(2) to allow
shareholders to nominate directors to the company's ballot; and
o The company has adopted a majority vote standard, with a carve-out for
plurality voting in situations where there are more nominees than
seats, and a director resignation policy to address failed elections.
Vote FOR proposals for cumulative voting at controlled companies (insider voting
power > 50%).
*****
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY PROTECTION
Vote CASE-BY-CASE on proposals on director and officer indemnification and
liability protection using Delaware law as the standard.
Vote AGAINST proposals to eliminate entirely directors' and officers' liability
for monetary damages for violating the duty of care.
Vote AGAINST indemnification proposals that would expand coverage beyond just
legal expenses to liability for acts, such as negligence, that are more serious
violations of fiduciary obligation than mere carelessness.
Vote AGAINST proposals that would expand the scope of indemnification to provide
for mandatory indemnification of company officials in connection with acts that
previously the company was permitted to provide indemnification for at the
discretion of the company's board (i.e., "permissive indemnification") but that
previously the company was not required to indemnify.
Vote FOR only those proposals providing such expanded coverage in cases when a
director's or officer's legal defense was unsuccessful if both of the following
apply:
o If the director was found to have acted in good faith and in a manner
that he reasonably believed was in the best interests of the company;
and
o If only the director's legal expenses would be covered.
*****
ESTABLISH/AMEND NOMINEE QUALIFICATIONS
Vote CASE-BY-CASE on proposals that establish or amend director qualifications.
Votes should be based on how reasonable the criteria are and to what degree they
may preclude dissident nominees from joining the board.
Vote AGAINST shareholder proposals requiring two candidates per board seat.
*****
ESTABLISHMENT OF BOARD COMMITTEES SHAREHOLDER PROPOSALS
Generally vote AGAINST shareholder proposals to establish a new standing board
committee, as such proposals seek a specific oversight mechanism/structure that
potentially limits a company's flexibility to determine an appropriate oversight
mechanism for itself. However, the following factors will be considered:
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(2) Similar structure" would be a structure that allows shareholders to nominate
candidates who the company will include on the management ballot IN ADDITION TO
management's nominees, and their bios are included in management's proxy.
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o Existing oversight mechanisms (including current committee structure)
regarding the issue for which board oversight is sought;
o Level of disclosure regarding the issue for which board oversight is
sought;
o Company performance related to the issue for which board oversight is
sought;
o Board committee structure compared to that of other companies in its
industry sector; and/or
o The scope and structure of the proposal.
*****
ESTABLISHMENT OF BOARD POLICY ON SHAREHOLDER ENGAGEMENT
Generally vote FOR shareholders proposals requesting that the board establish an
internal mechanism/process, which may include a committee, in order to improve
communications between directors and shareholders, unless the company has the
following features, as appropriate:
o Established a communication structure that goes beyond the exchange
requirements to facilitate the exchange of information between
shareholders and members of the board;
o Effectively disclosed information with respect to this structure to
its shareholders;
o Company has not ignored majority-supported shareholder proposals or a
majority withhold vote on a director nominee; and
o The company has an independent chairman or a lead director, according
to RMG's definition. This individual must be made available for
periodic consultation and direct communication with major
shareholders.
*****
FILLING VACANCIES/REMOVAL OF DIRECTORS
Vote AGAINST proposals that provide that directors may be removed only for
cause.
Vote FOR proposals to restore shareholders' ability to remove directors with or
without cause.
Vote AGAINST proposals that provide that only continuing directors may elect
replacements to fill board vacancies.
Vote FOR proposals that permit shareholders to elect directors to fill board
vacancies.
*****
INDEPENDENT CHAIR (SEPARATE CHAIR/CEO)
Generally vote FOR shareholder proposals requiring that the chairman's position
be filled by an independent director, unless the company satisfies ALL of the
following criteria:
The company maintains the following counterbalancing governance structure:
o Designated lead director, elected by and from the independent board
members with clearly delineated and comprehensive duties. (The role
may alternatively reside with a presiding director, vice chairman, or
rotating lead director; however the director must serve a minimum of
one year in order to qualify as a lead director.) The duties should
include, but are not limited to, the following:
- presides at all meetings of the board at which the chairman is
not present, including executive sessions of the independent
directors;
- serves as liaison between the chairman and the independent
directors;
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- approves information sent to the board;
- approves meeting agendas for the board;
- approves meeting schedules to assure that there is sufficient
time for discussion of all agenda items;
- has the authority to call meetings of the independent directors;
- if requested by major shareholders, ensures that he is available
for consultation and direct communication;
o Two-thirds independent board;
o All independent key committees;
o Established governance guidelines;
o A company in the Russell 3000 universe must not have exhibited
sustained poor total shareholder return (TSR) performance, defined as
one- and three-year TSR in the bottom half of the company's four-digit
GICS industry group (using Russell 3000 companies only), unless there
has been a change in the Chairman/CEO position within that time. For
companies not in the Russell 3000 universe, the company must not have
underperformed both its peers and index on the basis of both one-year
and three-year total shareholder returns, unless there has been a
change in the Chairman/CEO position within that time;
o The company does not have any problematic governance or management
issues, examples of which include, but are not limited to:
- Egregious compensation practices;
- Multiple related-party transactions or other issues putting
director independence at risk;
- Corporate and/or management scandals;
- Excessive problematic corporate governance provisions; or
- Flagrant actions by management or the board with potential or
realized negative impacts on shareholders.
*****
MAJORITY OF INDEPENDENT DIRECTORS/ESTABLISHMENT OF COMMITTEES
Vote FOR shareholder proposals asking that a majority or more of directors be
independent unless the board composition already meets the proposed threshold by
RMG's definition of independent outsider. (See Classification of Directors.)
Vote FOR shareholder proposals asking that board audit, compensation, and/or
nominating committees be composed exclusively of independent directors if they
currently do not meet that standard.
*****
MAJORITY VOTE SHAREHOLDER PROPOSALS
Generally vote FOR precatory and binding resolutions requesting that the board
change the company's bylaws to stipulate that directors need to be elected with
an affirmative majority of votes cast, provided it does not conflict with the
state law where the company is incorporated. Binding resolutions need to allow
for a carve-out for a plurality vote standard when there are more nominees than
board seats.
Companies are strongly encouraged to also adopt a post-election policy (also
know as a director resignation policy) that will provide guidelines so that the
company will promptly address the situation of a holdover director.
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*****
OPEN ACCESS
Vote shareholder proposals asking for open or proxy access on a CASE-BY-CASE
basis, taking into account:
o The ownership threshold proposed in the resolution;
o The proponent's rationale for the proposal at the targeted company in terms of
board and director conduct.
*****
PERFORMANCE/GOVERNANCE EVALUATION FOR DIRECTORS
o Vote WITHHOLD/AGAINST on all director nominees if the board lacks
accountability and oversight, coupled with sustained poor performance
relative to peers. Sustained poor performance is measured by one- and
three-year total shareholder returns in the bottom half of a company's
four-digit GICS industry group (Russell 3000 companies only).
Evaluate board accountability and oversight at companies that demonstrate
sustained poor performance. Problematic provisions include but are not limited
to:
o a classified board structure;
o a supermajority vote requirement;
o majority vote standard for director elections with no carve out for
contested elections;
o the inability for shareholders to call special meetings;
o the inability for shareholders to act by written consent;
o a dual-class structure; and/or
o a non-shareholder approved poison pill.
If a company exhibits sustained poor performance coupled with a lack of board
accountability and oversight, also take into consideration the company's
five-year total shareholder return and five-year operational metrics in the
evaluation.
*****
STOCK OWNERSHIP REQUIREMENTS
Generally vote AGAINST shareholder proposals that mandate a minimum amount of
stock that directors must own in order to qualify as a director or to remain on
the board. While stock ownership on the part of directors is desired, the
company should determine the appropriate ownership requirement.
Vote CASE-BY-CASE on shareholder proposals asking that the company adopt a
holding or retention period for its executives (for holding stock after the
vesting or exercise of equity awards), taking into account any stock ownership
requirements or holding period/retention ratio already in place and the actual
ownership level of executives.
*****
TERM LIMITS
Vote AGAINST shareholder or management proposals to limit the tenure of outside
directors through term limits. However, scrutinize boards where the average
tenure of all directors exceeds 15 years for independence from management and
for sufficient turnover to ensure that new perspectives are being added to the
board.
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*****
VOTE NO CAMPAIGNS
In cases where companies are targeted in connection with public "vote no"
campaigns, evaluate director nominees under the existing governance policies for
voting on director nominees in uncontested elections. In issuing vote
recommendations, consider arguments submitted by shareholders and other
publicly-available information.
*****
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3. Proxy Contests
VOTING FOR DIRECTOR NOMINEES IN CONTESTED ELECTIONS
Vote CASE-BY-CASE on the election of directors in contested elections,
considering the following factors:
o Long-term financial performance of the target company relative to its
industry;
o Management's track record;
o Background to the proxy contest;
o Qualifications of director nominees (both slates);
o Strategic plan of dissident slate and quality of critique against
management;
o Likelihood that the proposed goals and objectives can be achieved
(both slates);
o Stock ownership ositions.
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REIMBURSING PROXY SOLICITATION EXPENSES
Vote CASE-BY-CASE on proposals to reimburse proxy solicitation expenses. When
voting in conjunction with support of a dissident slate, vote FOR the
reimbursement of all appropriate proxy solicitation expenses associated with the
election.
Generally vote FOR shareholder proposals calling for the reimbursement of
reasonable costs incurred in connection with nominating one or more candidates
in a contested election where the following apply:
o The election of fewer than 50% of the directors to be elected is
contested in the election;
o One or more of the dissident's candidates is elected;
o Shareholders are not permitted to cumulate their votes for directors;
and
o The election occurred, and the expenses were incurred, after the
adoption of this bylaw.
*****
CONFIDENTIAL VOTING
Vote FOR shareholder proposals requesting that corporations adopt confidential
voting, use independent vote tabulators, and use independent inspectors of
election, as long as the proposal includes a provision for proxy contests as
follows: In the case of a contested election, management should be permitted to
request that the dissident group honor its confidential voting policy. If the
dissidents agree, the policy remains in place. If the dissidents will not agree,
the confidential voting policy is waived.
Vote FOR management proposals to adopt confidential voting.
*****
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4. Antitakeover Defenses and Voting Related Issues
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS/NOMINATIONS
Vote CASE-BY-CASE basis on advance notice proposals, giving support to those
proposals which allow shareholders to submit proposals/nominations as close to
the meeting date as reasonably possible and within the broadest window possible,
recognizing the need to allow sufficient notice for company, regulatory and
shareholder review.
To be reasonable, the company's deadline for shareholder notice of a proposal/
nominations must not be more than 60 days prior to the meeting, with a submittal
window of at least 30 days prior to the deadline. The submittal window is the
period under which a shareholder must file his proposal/nominations prior to the
deadline.
In general, support additional efforts by companies to ensure full disclosure in
regard to a proponent's economic and voting position in the company so long as
the informational requirements are reasonable and aimed at providing
shareholders with the necessary information to review such proposal.
*****
AMEND BYLAWS WITHOUT SHAREHOLDER CONSENT
Vote AGAINST proposals giving the board exclusive authority to amend the bylaws.
Vote FOR proposals giving the board the ability to amend the bylaws in addition
to shareholders.
*****
POISON PILLS
Vote FOR shareholder proposals requesting that the company submit its poison
pill to a shareholder vote or redeem it UNLESS the company has: (1) A
shareholder approved poison pill in place; or (2) The company has adopted a
policy concerning the adoption of a pill in the future specifying that the board
will only adopt a shareholder rights plan if either:
o Shareholders have approved the adoption of the plan; or
o The board, in its exercise of its fiduciary responsibilities,
determines that it is in the best interest of shareholders under the
circumstances to adopt a pill without the delay in adoption that would
result from seeking stockholder approval (i.e., the "fiduciary out"
provision). A poison pill adopted under this fiduciary out will be put
to a shareholder ratification vote within 12 months of adoption or
expire. If the pill is not approved by a majority of the votes cast on
this issue, the plan will immediately terminate.
Vote FOR shareholder proposals calling for poison pills to be put to a vote
within a time period of less than one year after adoption. If the company has no
non-shareholder approved poison pill in place and has adopted a policy with the
provisions outlined above, vote AGAINST the proposal. If these conditions are
not met, vote FOR the proposal, but with the caveat that a vote within 12 months
would be considered sufficient.
Vote CASE-by-CASE on management proposals on poison pill ratification, focusing
on the features of the shareholder rights plan. Rights plans should contain the
following attributes:
o No lower than a 20% trigger, flip-in or flip-over;
o A term of no more than three years;
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o No dead-hand, slow-hand, no-hand or similar feature that limits the
ability of a future board to redeem the pill;
o Shareholder redemption feature (qualifying offer clause); if the board
refuses to redeem the pill 90 days after a qualifying offer is
announced, 10 percent of the shares may call a special meeting or seek
a written consent to vote on rescinding the pill.
In addition, the rationale for adopting the pill should be thoroughly explained
by the company. In examining the request for the pill, take into consideration
the company's existing governance structure, including: board independence,
existing takeover defenses, and any problematic governance concerns.
For management proposals to adopt a poison pill for the stated purpose of
preserving a company's net operating losses ("NOL pills"), the following factors
should be considered:
o the trigger (NOL pills generally have a trigger slightly below 5%);
o the value of the NOLs;
o the term;
o shareholder protection mechanisms (sunset provision, causing
expiration of the pill upon exhaustion or expiration of NOLs); and
o other factors that may be applicable.
In addition, vote WITHHOLD/AGAINST the entire board of directors, (except new
nominees, who should be considered on a CASE-by-CASE basis) if the board adopts
or renews a poison pill without shareholder approval, does not commit to putting
it to a shareholder vote within 12 months of adoption (or in the case of a newly
public company, does not commit to put the pill to a shareholder vote within 12
months following the IPO), or reneges on a commitment to put the pill to a vote,
and has not yet received a withhold recommendation for this issue.
*****
SHAREHOLDER ABILITY TO ACT BY WRITTEN CONSENT
Vote AGAINST proposals to restrict or prohibit shareholder ability to take
action by written consent.
Vote FOR proposals to allow or make easier shareholder action by written
consent.
*****
SHAREHOLDER ABILITY TO CALL SPECIAL MEETINGS
Vote AGAINST proposals to restrict or prohibit shareholder ability to call
special meetings.
Vote FOR proposals that remove restrictions on the right of shareholders to act
independently of management.
*****
SUPERMAJORITY VOTE REQUIREMENTS
Vote AGAINST proposals to require a supermajority shareholder vote.
Vote FOR proposals to lower supermajority vote requirements.
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5. Mergers and Corporate Restructurings
OVERALL APPROACH
For mergers and acquisitions, review and evaluate the merits and drawbacks of
the proposed transaction, balancing various and sometimes countervailing factors
including:
o VALUATION - Is the value to be received by the target shareholders (or
paid by the acquirer) reasonable? While the fairness opinion may
provide an initial starting point for assessing valuation
reasonableness, emphasis is placed on the offer premium, market
reaction and strategic rationale.
o MARKET REACTION - How has the market responded to the proposed deal? A
negative market reaction should cause closer scrutiny of a deal.
o STRATEGIC RATIONALE - Does the deal make sense strategically? From
where is the value derived? Cost and revenue synergies should not be
overly aggressive or optimistic, but reasonably achievable. Management
should also have a favorable track record of successful integration of
historical acquisitions.
o NEGOTIATIONS AND PROCESS - Were the terms of the transaction
negotiated at arm's-length? Was the process fair and equitable? A fair
process helps to ensure the best price for shareholders. Significant
negotiation "wins" can also signify the deal makers' competency. The
comprehensiveness of the sales process (e.g., full auction, partial
auction, no auction) can also affect shareholder value.
o CONFLICTS OF INTEREST - Are insiders benefiting from the transaction
disproportionately and inappropriately as compared to non-insider
shareholders? As the result of potential conflicts, the directors and
officers of the company may be more likely to vote to approve a merger
than if they did not hold these interests. Consider whether these
interests may have influenced these directors and officers to support
or recommend the merger. The CIC figure presented in the "RMG
Transaction Summary" section of this report is an aggregate figure
that can in certain cases be a misleading indicator of the true value
transfer from shareholders to insiders. Where such figure appears to
be excessive, analyze the underlying assumptions to determine whether
a potential conflict exists.
o GOVERNANCE - Will the combined company have a better or worse
governance profile than the current governance profiles of the
respective parties to the transaction? If the governance profile is to
change for the worse, the burden is on the company to prove that other
issues (such as valuation) outweigh any deterioration in governance.
*****
APPRAISAL RIGHTS
Vote FOR proposals to restore, or provide shareholders with rights of appraisal.
*****
ASSET PURCHASES
Vote CASE-BY-CASE on asset purchase proposals, considering the following
factors:
o Purchase price;
o Fairness opinion;
o Financial and strategic benefits;
o How the deal was negotiated;
o Conflicts of interest;
o Other alternatives for the business;
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o Non-completion risk.
*****
ASSET SALES
Vote CASE-BY-CASE on asset sales, considering the following factors:
o Impact on the balance sheet/working capital;
o Potential elimination of diseconomies;
o Anticipated financial and operating benefits;
o Anticipated use of funds;
o Value received for the asset;
o Fairness opinion;
o How the deal was negotiated;
o Conflicts of interest.
*****
BUNDLED PROPOSALS
Vote CASE-BY-CASE on bundled or "conditional" proxy proposals. In the case of
items that are conditioned upon each other, examine the benefits and costs of
the packaged items. In instances when the joint effect of the conditioned items
is not in shareholders' best interests, vote AGAINST the proposals. If the
combined effect is positive, support such proposals.
*****
CONVERSION OF SECURITIES
Vote CASE-BY-CASE on proposals regarding conversion of securities. When
evaluating these proposals the investor should review the dilution to existing
shareholders, the conversion price relative to market value, financial issues,
control issues, termination penalties, and conflicts of interest.
Vote FOR the conversion if it is expected that the company will be subject to
onerous penalties or will be forced to file for bankruptcy if the transaction is
not approved.
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CORPORATE REORGANIZATION/DEBT RESTRUCTURING/PREPACKAGED BANKRUPTCY PLANS/REVERSE
LEVERAGED BUYOUTS/WRAP PLANS Vote CASE-BY-CASE on proposals to increase common
and/or preferred shares and to issue shares as part of a debt restructuring
plan, taking into consideration the following:
o Dilution to existing shareholders' position;
o Terms of the offer;
o Financial issues;
o Management's efforts to pursue other alternatives;
o Control issues;
o Conflicts of interest.
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Vote FOR the debt restructuring if it is expected that the company will file for
bankruptcy if the transaction is not approved.
*****
FORMATION OF HOLDING COMPANY
Vote CASE-BY-CASE on proposals regarding the formation of a holding company,
taking into consideration the following:
o The reasons for the change;
o Any financial or tax benefits;
o Regulatory benefits;
o Increases in capital structure;
o Changes to the articles of incorporation or bylaws of the company.
Absent compelling financial reasons to recommend the transaction, vote AGAINST
the formation of a holding company if the transaction would include either of
the following:
o Increases in common or preferred stock in excess of the allowable
maximum (see discussion under "Capital Structure");
o Adverse changes in shareholder rights.
*****
GOING PRIVATE AND GOING DARK TRANSACTIONS (LBOS AND MINORITY SQUEEZE-OUTS) Vote
CASE-BY-CASE on going private transactions, taking into account the following:
o Offer price/premium;
o Fairness opinion;
o How the deal was negotiated;
o Conflicts of interest;
o Other alternatives/offers considered; and
o Non-completion risk.
Vote CASE-BY-CASE on "going dark" transactions, determining whether the
transaction enhances shareholder value by taking into consideration:
o Whether the company has attained benefits from being publicly-traded
(examination of trading volume, liquidity, and market research of the
stock);
o Balanced interests of continuing vs. cashed-out shareholders, taking
into account the following:
- Are all shareholders able to participate in the transaction?
- Will there be a liquid market for remaining shareholders
following the transaction?
- Does the company have strong corporate governance?
- Will insiders reap the gains of control following the proposed
transaction?
- Does the state of incorporation have laws requiring continued
reporting that may benefit shareholders?
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*****
JOINT VENTURES
Vote CASE-BY-CASE on proposals to form joint ventures, taking into account the
following:
o Percentage of assets/business contributed;
o Percentage ownership;
o Financial and strategic benefits;
o Governance structure;
o Conflicts of interest;
o Other alternatives;
o Noncompletion risk.
*****
LIQUIDATIONS
Vote CASE-BY-CASE on liquidations, taking into account the following:
o Management's efforts to pursue other alternatives;
o Appraisal value of assets; and
o The compensation plan for executives managing the liquidation.
Vote FOR the liquidation if the company will file for bankruptcy if the proposal
is not approved.
*****
MERGERS AND ACQUISITIONS/ ISSUANCE OF SHARES TO FACILITATE MERGER OR ACQUISITION
Vote CASE-BY-CASE on mergers and acquisitions, determining whether the
transaction enhances shareholder value by giving consideration to items listed
under "Mergers and Corporate Restructurings: Overall Approach."
*****
PRIVATE PLACEMENTS/WARRANTS/CONVERTIBLE DEBENTURES
Vote CASE-BY-CASE on proposals regarding private placements taking into
consideration:
1. Dilution to existing shareholders' position.
- The amount and timing of shareholder ownership dilution should be
weighed against the needs and proposed shareholder benefits of
the capital infusion.
2. Terms of the offer - discount/premium in purchase price to investor,
including any fairness opinion; conversion features; termination
penalties; exit strategy.
- The terms of the offer should be weighed against the alternatives
of the company and in light of company's financial issues.
- When evaluating the magnitude of a private placement discount or
premium, RiskMetrics will consider whether it is affected by
liquidity, due diligence, control and monitoring issues, capital
scarcity, information asymmetry and anticipation of future
performance.
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3. Financial issues include but are not limited to examining the following:
- company's financial situation;
- degree of need for capital;
- use of proceeds;
- effect of the financing on the company's cost of capital;
- current and proposed cash burn rate; and
- going concern viability and the state of the capital and credit
markets.
4. Management's efforts to pursue alternatives and whether the company
engaged in a process to evaluate alternatives. A fair, unconstrained
process helps to ensure the best price for shareholders. Financing
alternatives can include joint ventures, partnership, merger or sale of
part or all of the company.
5. Control issues:
- change in management;
- change in control,
- guaranteed board and committee seats;
- standstill provisions;
- voting agreements;
- veto power over certain corporate actions.
Minority versus majority ownership and corresponding minority discount or
majority control premium
6. Conflicts of interest
- Conflicts of interest should be viewed from the perspective of
the company and the investor.
- Were the terms of the transaction negotiated at arm's-length? Are
managerial incentives aligned with shareholder interests?
7. Market reaction
- The market's response to the proposed deal. A negative market
reaction is a cause for concern. Market reaction may be addressed
by analyzing the one day impact on the unaffected stock price.
Vote FOR the private placement if it is expected that the company will file for
bankruptcy if the transaction is not approved.
*****
SPECIAL PURPOSE ACQUISITION CORPORATIONS (SPACS)
Vote on a CASE-BY-CASE basis on SPAC mergers and acquisitions taking into
account the following:
o Valuation - Is the value being paid by the SPAC reasonable? SPACs
generally lack an independent fairness opinion and the financials on
the target may be limited. Compare the conversion price with the
intrinsic value of the target company provided in the fairness
opinion. Also, evaluate the proportionate value of the combined entity
attributable to the SPAC IPO shareholders versus the pre-merger value
of SPAC. Additionally, a private company discount may be applied to
the target, if it is a private entity.
o Market reaction - How has the market responded to the proposed deal? A
negative market reaction may be a cause for concern. Market reaction
may be addressed by analyzing the one-day impact on the unaffected
stock price.
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o Deal timing - A main driver for most transactions is that the SPAC
charter typically requires the deal to be complete within 18 to 24
months, or the SPAC is to be liquidated. Evaluate the valuation,
market reaction, and potential conflicts of interest for deals that
are announced close to the liquidation date.
o Negotiations and process - What was the process undertaken to identify
potential target companies within specified industry or location
specified in charter? Consider the background of the sponsors.
o Conflicts of interest - How are sponsors benefiting from the
transaction compared to IPO shareholders? Potential conflicts could
arise if a fairness opinion is issued by the insiders to qualify the
deal rather than a third party or if management is encouraged to pay a
higher price for the target because of an 80% rule (the charter
requires that the fair market value of the target is at least equal to
80% of net assets of the SPAC). Also, there may be sense of urgency by
the management team of the SPAC to close the deal since its charter
typically requires a transaction to be completed within the 18-24
month timeframe.
o Voting agreements - Are the sponsors entering into enter into any
voting agreements/ tender offers with shareholders who are likely to
vote AGAINST the proposed merger or exercise conversion rights?
o Governance - What is the impact of having the SPAC CEO or founder on
key committees following the proposed merger?
*****
SPINOFFS
Vote CASE-BY-CASE on spin-offs, considering:
o Tax and regulatory advantages;
o Planned use of the sale proceeds;
o Valuation of spinoff;
o Fairness opinion;
o Benefits to the parent company;
o Conflicts of interest;
o Managerial incentives;
o Corporate governance changes;
o Changes in the capital structure.
*****
VALUE MAXIMIZATION SHAREHOLDER PROPOSALS
Vote CASE-BY-CASE on shareholder proposals seeking to maximize shareholder value
by hiring a financial advisor to explore strategic alternatives, selling the
company or liquidating the company and distributing the proceeds to
shareholders. These proposals should be evaluated based on the following
factors:
o Prolonged poor performance with no turnaround in sight;
o Signs of entrenched board and management;
o Strategic plan in place for improving value;
o Likelihood of receiving reasonable value in a sale or dissolution; and
o Whether company is actively exploring its strategic options, including
retaining a financial advisor.
*****
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6. State of Incorporation
CONTROL SHARE ACQUISITION PROVISIONS
Control share acquisition statutes function by denying shares their voting
rights when they contribute to ownership in excess of certain thresholds. Voting
rights for those shares exceeding ownership limits may only be restored by
approval of either a majority or supermajority of disinterested shares. Thus,
control share acquisition statutes effectively require a hostile bidder to put
its offer to a shareholder vote or risk voting disenfranchisement if the bidder
continues buying up a large block of shares.
Vote FOR proposals to opt out of control share acquisition statutes unless doing
so would enable the completion of a takeover that would be detrimental to
shareholders.
Vote AGAINST proposals to amend the charter to include control share acquisition
provisions.
Vote FOR proposals to restore voting rights to the control shares.
*****
CONTROL SHARE CASH-OUT PROVISIONS
Control share cash-out statutes give dissident shareholders the right to
"cash-out" of their position in a company at the expense of the shareholder who
has taken a control position. In other words, when an investor crosses a preset
threshold level, remaining shareholders are given the right to sell their shares
to the acquirer, who must buy them at the highest acquiring price.
Vote FOR proposals to opt out of control share cash-out statutes.
*****
DISGORGEMENT PROVISIONS
Disgorgement provisions require an acquirer or potential acquirer of more than a
certain percentage of a company's stock to disgorge, or pay back, to the company
any profits realized from the sale of that company's stock purchased 24 months
before achieving control status. All sales of company stock by the acquirer
occurring within a certain period of time (between 18 months and 24 months)
prior to the investor's gaining control status are subject to these
recapture-of-profits provisions.
Vote FOR proposals to opt out of state disgorgement provisions.
*****
FAIR PRICE PROVISIONS
Vote CASE-BY-CASE on proposals to adopt fair price provisions (provisions that
stipulate that an acquirer must pay the same price to acquire all shares as it
paid to acquire the control shares), evaluating factors such as the vote
required to approve the proposed acquisition, the vote required to repeal the
fair price provision, and the mechanism for determining the fair price.
Generally, vote AGAINST fair price provisions with shareholder vote requirements
greater than a majority of disinterested shares.
*****
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FREEZE-OUT PROVISIONS
Vote FOR proposals to opt out of state freeze-out provisions. Freeze-out
provisions force an investor who surpasses a certain ownership threshold in a
company to wait a specified period of time before gaining control of the
company.
*****
GREENMAIL
Greenmail payments are targeted share repurchases by management of company stock
from individuals or groups seeking control of the company. Since only the
hostile party receives payment, usually at a substantial premium over the market
value of its shares, the practice discriminates against all other shareholders.
Vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or
otherwise restrict a company's ability to make greenmail payments.
Vote CASE-BY-CASE on anti-greenmail proposals when they are bundled with other
charter or bylaw amendments.
*****
REINCORPORATION PROPOSALS
Management or shareholder proposals to change a company's state of incorporation
should be evaluated on a CASE-BY-CASE basis, giving consideration to both
financial and corporate governance concerns including the following:
o Reasons for reincorporation;
o Comparison of company's governance practices and provisions prior to
and following the reincorporation; and
o Comparison of corporation laws of original state and destination state
Vote FOR reincorporation when the economic factors outweigh any neutral or
negative governance changes.
*****
STAKEHOLDER PROVISIONS
Vote AGAINST proposals that ask the board to consider non-shareholder
constituencies or other non-financial effects when evaluating a merger or
business combination.
*****
STATE ANTITAKEOVER STATUTES
Vote CASE-BY-CASE on proposals to opt in or out of state takeover statutes
(including control share acquisition statutes, control share cash-out statutes,
freeze-out provisions, fair price provisions, stakeholder laws, poison pill
endorsements, severance pay and labor contract provisions, anti-greenmail
provisions, and disgorgement provisions).
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7. Capital Structure
ADJUSTMENTS TO PAR VALUE OF COMMON STOCK
Vote FOR management proposals to reduce the par value of common stock.
*****
COMMON STOCK AUTHORIZATION
Vote CASE-BY-CASE on proposals to increase the number of shares of common stock
authorized for issuance. Take into account company-specific factors which
include, at a minimum, the following:
o Specific reasons/ rationale for the proposed increase;
o The dilutive impact of the request as determined through an allowable
cap generated by RiskMetrics' quantitative model;
o The board's governance structure and practices; and
o Risks to shareholders of not approving the request.
Vote FOR proposals to approve increases beyond the allowable increase when a
company's shares are in danger of being delisted or if a company's ability to
continue to operate as a going concern is uncertain.
*****
DUAL-CLASS STOCK
Vote AGAINST proposals to create a new class of common stock with superior
voting rights.
Vote AGAINST proposals at companies with dual-class capital structures to
increase the number of authorized shares of the class of stock that has superior
voting rights.
Vote FOR proposals to create a new class of nonvoting or sub-voting common stock
if:
o It is intended for financing purposes with minimal or no dilution to
current shareholders;
o It is not designed to preserve the voting power of an insider or
significant shareholder.
*****
ISSUE STOCK FOR USE WITH RIGHTS PLAN
Vote AGAINST proposals that increase authorized common stock for the explicit
purpose of implementing a non-shareholder approved shareholder rights plan
(poison pill).
*****
PREEMPTIVE RIGHTS
Vote CASE-BY-CASE on shareholder proposals that seek preemptive rights, taking
into consideration: the size of a company, the characteristics of its
shareholder base, and the liquidity of the stock.
*****
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PREFERRED STOCK
Vote CASE-BY-CASE on proposals to increase the number of shares of preferred
stock authorized for issuance. Take into account company-specific factors which
include, at a minimum, the following:
o Specific reasons/ rationale for the proposed increase;
o The dilutive impact of the request as determined through an allowable
cap generated by RiskMetrics' quantitative model;
o The board's governance structure and practices; and
o Risks to shareholders of not approving the request.
Vote AGAINST proposals authorizing the creation of new classes of preferred
stock with unspecified voting, conversion, dividend distribution, and other
rights ("blank check" preferred stock).
Vote FOR proposals to create "declawed" blank check preferred stock (stock that
cannot be used as a takeover defense).
Vote FOR proposals to authorize preferred stock in cases where the company
specifies the voting, dividend, conversion, and other rights of such stock and
the terms of the preferred stock appear reasonable.
Vote AGAINST proposals to increase the number of blank check preferred stock
authorized for issuance when no shares have been issued or reserved for a
specific purpose.
*****
RECAPITALIZATION
Vote CASE-BY-CASE on recapitalizations (reclassifications of securities), taking
into account the following:
o More simplified capital structure;
o Enhanced liquidity;
o Fairness of conversion terms;
o Impact on voting power and dividends;
o Reasons for the reclassification;
o Conflicts of interest; and
o Other alternatives considered.
*****
REVERSE STOCK SPLITS
Vote FOR management proposals to implement a reverse stock split when the number
of authorized shares will be proportionately reduced.
Vote FOR management proposals to implement a reverse stock split to avoid
delisting.
Vote CASE-BY-CASE on proposals to implement a reverse stock split that do not
proportionately reduce the number of shares authorized for issue based on the
allowable increased calculated using the Capital Structure model.
*****
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SHARE REPURCHASE PROGRAMS
Vote FOR management proposals to institute open-market share repurchase plans in
which all shareholders may participate on equal terms.
*****
STOCK DISTRIBUTIONS: SPLITS AND DIVIDENDS
Vote FOR management proposals to increase the common share authorization for a
stock split or share dividend, provided that the increase in authorized shares
would not result in an excessive number of shares available for issuance as
determined using a model developed by RMG.
*****
TRACKING STOCK
Vote CASE-BY-CASE on the creation of tracking stock, weighing the strategic
value of the transaction against such factors as:
o Adverse governance changes;
o Excessive increases in authorized capital stock;
o Unfair method of distribution;
o Diminution of voting rights;
o Adverse conversion features;
o Negative impact on stock option plans; and
o Alternatives such as spin-off.
*****
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8. Executive and Director Compensation
EQUITY COMPENSATION PLANS
Vote CASE-BY-CASE on equity-based compensation plans. Vote AGAINST the equity
plan if any of the following factors apply:
o The total cost of the company's equity plans is unreasonable;
o The plan expressly permits the repricing of stock options/stock
appreciate rights (SARs) without prior shareholder approval;
o The CEO is a participant in the proposed equity-based compensation
plan and there is a disconnect between CEO pay and the company's
performance where over 50 percent of the year-over-year increase is
attributed to equity awards;
o The company's three year burn rate exceeds the greater of 2% and the
mean plus one standard deviation of its industry group;
o The plan provides for the acceleration of vesting of equity awards
even though an actual change in control may not occur (e.g., upon
shareholder approval of a transaction or the announcement of a tender
offer); or
o The plan is a vehicle for poor pay practices.
Each of these factors is described below:
COST OF EQUITY PLANS
Generally, vote AGAINST equity plans if the cost is unreasonable. For
non-employee director plans, vote FOR the plan if certain factors are met (see
Director Compensation section).
The cost of the equity plans is expressed as Shareholder Value Transfer (SVT),
which is measured using a binomial option pricing model that assesses the amount
of shareholders' equity flowing out of the company to employees and directors.
SVT is expressed as both a dollar amount and as a percentage of market value,
and includes the new shares proposed, shares available under existing plans, and
shares granted but unexercised. All award types are valued. For omnibus plans,
unless limitations are placed on the most expensive types of awards (for
example, full value awards), the assumption is made that all awards to be
granted will be the most expensive types. See discussion of specific types of
awards.
The Shareholder Value Transfer is reasonable if it falls below the
company-specific allowable cap. The allowable cap is determined as follows: The
top quartile performers in each industry group (using the Global Industry
Classification Standard GICS) are identified. Benchmark SVT levels for each
industry are established based on these top performers' historic SVT. Regression
analyses are run on each industry group to identify the variables most strongly
correlated to SVT. The benchmark industry SVT level is then adjusted upwards or
downwards for the specific company by plugging the company-specific performance
measures, size and cash compensation into the industry cap equations to arrive
at the company's allowable cap.
For the Dec. 1, 2008, March 1, June 1 and Sept. 1, 2009 quarterly data
downloads, RMG will use 400-day volatility for the shareholder value
calculation. RMG intends to revert to the 200-day volatility for the Dec. 1,
2009 and subsequent quarterly data downloads. Also, for those specified time
periods, RMG will use the 90-day average stock price at the quarterly data
download, and intends to revert to the 200-day average stock price for the Dec
1, 2009 and subsequent quarterly data downloads.
*****
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REPRICING PROVISIONS
Vote AGAINST plans that expressly permit the repricing or exchange of underwater
stock options without prior shareholder approval, even if the cost of the plan
is reasonable. Also, vote AGAINST OR WITHHOLD from members of the Compensation
Committee who approved and/or implemented a repricing or an option exchange
program, by buying out underwater options for stock, cash or other consideration
or canceling underwater options and regranting options with a lower exercise
price, without prior shareholder approval, even if such repricings are allowed
in their equity plan.
Vote AGAINST plans if the company has a history of repricing options without
shareholder approval, and the applicable listing standards would not preclude
them from doing so.
*****
PAY-FOR-PERFORMANCE DISCONNECT
Generally, vote AGAINST plans and/or WITHHOLD votes from the Compensation
Committee members if:
o There is a pay for performance disconnect between the CEO's pay and
company's stock performance;
o The main source of the pay increase (over half) is equity-based; and
o The CEO is a participant of the equity proposal.
A pay for performance disconnect is defined as an increase in CEO's total
compensation and the company's one-year and three-year total shareholder returns
are in the bottom half of its industry group (i.e., four-digit GICS - Global
Industry Classification Group). CEO total compensation is defined as the sum of
base salary, bonus, non-equity incentives, grant date full value of stock awards
and options, target value of performance shares/units, change in pension value
and nonqualified deferred compensation earnings, and all other compensation.
The pay for performance policy first identifies companies that are in the bottom
half of each four-digit GICS coupled with an increase in total direct
compensation for the CEO. Examine the Compensation Discussion & Analysis
("CD&A") to understand the source of increase. Is the increase attributed to
performance-based compensation such as performance-based stock awards with
pre-established performance measures or time-based restricted stock? The CD&A
should provide enlightening and meaningful disclosure with respect to the
committee decisions on executive pay and the underlying rationale for increases
in pay despite poor stock performance. Newly appointed CEOs that have not been
with the company for the past two complete fiscal years are exempted from the
policy. Please note that this is a case-by-case analysis that requires detailed
examination of the company's CD&A.
To potentially mitigate the withhold vote recommendations, consider whether a
company evidenced a commitment to pay for performance principles by (1) stating
that the compensation committee has reviewed all components of CEO compensation,
(2) providing a tally sheet under various termination scenarios, (3) disclosing
performance measures and goals for all performance-based compensation, (4)
committing to grant at least 50 percent of equity awards where the grant or
vesting is tied to pre-established performance conditions, and (6) committing
that the compensation committee has the sole authority to hire or fire
compensation consultants. To provide complete transparency to shareholders, the
commitment must be publicly disclosed.
On a CASE-BY-CASE basis, vote for equity plans and FOR compensation committee
members with a pay-for-performance disconnect if compensation committee members
can present strong and compelling evidence of improved committee performance.
This evidence must go beyond the usual compensation committee report disclosure.
This additional evidence necessary includes all of the following:
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o The compensation committee has reviewed all components of the CEO's
compensation, including the following:
- Base salary, bonus, long-term incentives;
- Accumulative realized and unrealized stock option and restricted
stock gains;
- Dollar value of perquisites and other personal benefits to the
CEO and the total cost to the company;
- Earnings and accumulated payment obligations under the company's
nonqualified deferred compensation program;
- Actual projected payment obligations under the company's
supplemental executive retirement plan (SERPs).
o A tally sheet with all the above components should be disclosed for
the following termination scenarios:
- Payment if termination occurs within 12 months: $_____;
- Payment if "not for cause" termination occurs within 12 months:
$_____;
- Payment if "change of control" termination occurs within 12
months: $_____.
o The compensation committee is committed to providing additional
information on the named executives' annual cash bonus program and/or
long-term incentive cash plan for the current fiscal year. The
compensation committee will provide full disclosure of the qualitative
and quantitative performance criteria and hurdle rates used to
determine the payouts of the cash program. From this disclosure,
shareholders will know the minimum level of performance required for
any cash bonus to be delivered, as well as the maximum cash bonus
payable for superior performance.
The repetition of the compensation committee report does not meet RMG's
requirement of compelling and strong evidence of improved disclosure. The level
of transparency and disclosure is at the highest level where shareholders can
understand the mechanics of the annual cash bonus and/or long-term incentive
cash plan based on the additional disclosure.
o The compensation committee is committed to granting a substantial
portion of performance-based equity awards to the named executive
officers. A substantial portion of performance-based awards would be
at least 50 percent of the shares awarded to each of the named
executive officers. Performance-based equity awards are earned or paid
out based on the achievement of company performance targets. The
company will disclose the details of the performance criteria (e.g.,
return on equity) and the hurdle rates (e.g., 15 percent) associated
with the performance targets. From this disclosure, shareholders will
know the minimum level of performance required for any equity grants
to be made. The performance-based equity awards do not refer to
non-qualified stock options(3) or performance-accelerated grants.(4)
Instead, performance-based equity awards are performance-contingent
grants where the individual will not receive the equity grant by not
meeting the target performance and vice versa.
- ------------------
(3) Non-qualified stock options are not performance-based awards unless the
grant or the vesting of the stock options is tied to the achievement of a
pre-determined and disclosed performance measure. A rising stock market will
generally increase share prices of all companies, despite of the company's
underlying performance.
(4) Performance-accelerated grants are awards that vest earlier based on the
achievement of a specified measure. However, these grants will ultimately vest
over time even without the attainment of the goal(s).
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The level of transparency and disclosure is at the highest level where
shareholders can understand the mechanics of the performance-based equity awards
based on the additional disclosure.
o The compensation committee has the sole authority to hire and fire
outside compensationconsultants. The role of the outside compensation
consultant is to assist the compensation committee to analyze
executive pay packages or contracts and understand the company's
financial measures.
*****
THREE-YEAR BURN RATE/BURN RATE COMMITMENT
Generally vote AGAINST plans if the company's most recent three-year burn rate
exceeds one standard deviation in excess of the industry mean (per the following
Burn Rate Table) and is over 2 percent of common shares outstanding. The
three-year burn rate policy does not apply to non-employee director plans unless
outside directors receive a significant portion of shares each year.
The annual burn rate is calculated as follows:
Annual Burn rate = (# of options granted + # of full value shares awarded *
Multiplier) / Weighted Average common shares outstanding)
However, vote FOR equity plans if the company fails this burn rate test but the
company commits in a public filing to a three-year average burn rate equal to
its GICS group burn rate mean plus one standard deviation (or 2%, whichever is
greater), assuming all other conditions for voting FOR the plan have been met.
If a company fails to fulfill its burn rate commitment, vote AGAINST or WITHHOLD
from the compensation committee.
For the Dec. 1, 2008, March 1, June 1 and Sept. 1, 2009 quarterly data
downloads, RMG will use 400-day volatility for the shareholder value transfer
and burn rate polices. RMG intends to revert to the 200-day volatility for the
Dec. 1, 2009 and subsequent quarterly data downloads.
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BURN RATE TABLE FOR 2009
RUSSELL 3000 NON-RUSSELL 3000
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
STANDARD MEAN MEAN MEAN
GICS DESCRIPTION MEAN DEVIATION +STDEV MEAN DEVIATION +STDEV
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
1010 Energy 1.75% 1.35% 3.09% 2.41% 2.75% 5.15%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
1510 Materials 1.22% 0.91% 2.14% 2.17% 1.63% 3.80%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
2010 Capital Goods 1.69% 1.83% 3.52% 2.71% 2.44% 5.15%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
2020 Commercial Services & Supplies 2.21% 1.79% 4.01% 2.50% 2.19% 4.69%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
2030 Transportation 1.82% 1.36% 3.18% 1.86% 1.59% 3.45%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
2510 Automobiles & Components 1.86% 1.19% 3.05% 1.86% 1.19% 3.05%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
2520 Consumer Durables & Apparel 2.06 1.38% 3.44% 2.33% 2.46% 4.79%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
2530 Consumer Services 2.11% 1.21% 3.32% 2.75% 2.39% 5.14%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
2540 Media 1.87% 1.38% 3.25% 3.16% 2.98% 6.13%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
2550 Retailing 1.84% 1.27% 3.12% 2.79% 1.83% 4.62%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
3010, 3020, Consumer Staples 1.77% 1.35% 3.12% 2.39% 2.06% 4.45%
3030
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
3510 Health Care Equipment & Services 2.72% 1.67% 4.39% 3.63% 3.01% 6.64%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
3520 Pharmaceuticals & Biotechnology 3.40% 2.36% 5.76% 4.98% 4.49% 9.46%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
4010 Banks 1.20% 0.97% 2.18% 1.40% 1.50% 2.89%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
4020 Diversified Financials 2.94% 2.62% 5.56% 5.12% 5.93% 11.05%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
4030 Insurance 1.23% 0.98% 2.22% 2.49% 2.22% 4.71%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
4040 Real Estate 1.07% 0.99% 2.05% 1.33% 1.52% 2.85%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
4510 Software & Services 4.05% 2.72% 6.76% 5.57% 4.56% 10.12%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
4520 Technology Hardware & Equipment 3.24% 2.29% 5.52% 3.54% 2.76% 6.30%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
Semiconductors & Semiconductor
4530 Equipment 3.69% 2.02% 5.72% 4.95% 2.84% 7.79%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
5010 Telecommunication Services 2.16% 1.57% 3.74% 2.92% 3.00% 5.92%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
5510 Utilities 0.81% 0.83% 1.64% 0.87% 1.00% 1.86%
- -------------- --------------------------------------- ------- ------------ --------------- ------- ----------- ---------------
For companies that grant both full value awards and stock options to their
participants, apply a premium on full value awards for the past three fiscal
years. The guideline for applying the premium is as follows:
- ------------------------------------------------------- -------------------------------------------------------------------
STOCK PRICE VOLATILITY MULTIPLIER
- ------------------------------------------------------- -------------------------------------------------------------------
54.6% and higher 1 full-value award will count as 1.5 option shares
- ------------------------------------------------------- -------------------------------------------------------------------
36.1% or higher and less than 54.6% 1 full-value award will count as 2.0 option shares
- ------------------------------------------------------- -------------------------------------------------------------------
24.9% or higher and less than 36.1% 1 full-value award will count as 2.5 option shares
- ------------------------------------------------------- -------------------------------------------------------------------
16.5% or higher and less than 24.9% 1 full-value award will count as 3.0 option shares
- ------------------------------------------------------- -------------------------------------------------------------------
7.9% or higher and less than 16.5% 1 full-value award will count as 3.5 option shares
- ------------------------------------------------------- -------------------------------------------------------------------
Less than 7.9% 1 full-value award will count as 4.0 option shares
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*****
LIBERAL DEFINITION OF CHANGE-IN-CONTROL
Generally vote AGAINST equity plans if the plan provides for the acceleration of
vesting of equity awards even though an actual change in control may not occur.
Examples of such a definition could include, but are not limited to,
announcement or commencement of a tender offer, provisions for acceleration upon
a "potential" takeover, shareholder approval of a merger or other transactions,
or similar language.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
POOR PAY PRACTICES
Vote AGAINST or WITHHOLD from compensation committee members, CEO, and
potentially the entire board, if the company has poor compensation practices.
Vote AGAINST equity plans if the plan is a vehicle for poor compensation
practices.
The following practices, while not exhaustive, are examples of poor compensation
practices that may warrant withhold vote recommendations:
o Egregious employment contracts:
- Contracts containing multi-year guarantees for salary increases,
bonuses and equity compensation;
o Excessive perks/tax reimbursements:
- Overly generous perquisites, which may include, but are not
limited to the following: personal use of corporate aircraft,
personal security systems maintenance and/or installation, car
allowances;
- Reimbursement of income taxes on executive perquisites or other
payments;
- Perquisites for former executives, such as car allowances,
personal use of corporate aircraft or other inappropriate
arrangements;
o Abnormally large bonus payouts without justifiable performance linkage
or proper disclosure:
- Performance metrics that are changed, canceled or replaced during
the performance period without adequate explanation of the action
and the link to performance;
o Egregious pension/SERP (supplemental executive retirement plan)
payouts:
- Inclusion of additional years of service not worked that result
in significant payouts;
- Inclusion of performance-based equity awards in the pension
calculation;
o New CEO with overly generous new hire package:
- Excessive "make whole" provisions;
- Any of the poor pay practices listed in this policy;
o Excessive severance and/or change in control provisions:
- Inclusion of excessive change in control or severance payments,
especially those with a multiple in excess of 3X cash pay;
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- Payments upon an executive's termination in connection with
performance failure;
- Change in control payouts without loss of job or substantial
diminution of job duties (single-triggered);
- New or materially amended employment or severance agreements that
provide for modified single triggers, under which an executive
may voluntarily leave for any reason and still receive the
change-in-control severance package;
- Liberal change in control definition in individual contracts or
equity plans which could result in payments to executives without
an actual change in control occurring;
- New or materially amended employment or severance agreements that
provide for an excise tax gross-up. Modified gross-ups would be
treated in the same manner as full gross-ups;
- Perquisites for former executives such as car allowances,
personal use of corporate aircraft or other inappropriate
arrangements;
o Dividends or dividend equivalents paid on unvested performance shares
or units;
o Poor disclosure practices:
- Unclear explanation of how the CEO is involved in the pay setting
process;
- Retrospective performance targets and methodology not discussed;
- Methodology for benchmarking practices and/or peer group not
disclosed and explained;
o Internal Pay Disparity:
- Excessive differential between CEO total pay and that of next
highest paid named executive officer (NEO);
o Options backdating (covered in a separate policy);
o Other excessive compensation payouts or poor pay practices at the
company.
*****
SPECIFIC TREATMENT OF CERTAIN AWARD TYPES IN EQUITY PLAN EVALUATIONS:
DIVIDEND EQUIVALENT RIGHTS
Options that have Dividend Equivalent Rights (DERs) associated with them will
have a higher calculated award value than those without DERs under the binomial
model, based on the value of these dividend streams. The higher value will be
applied to new shares, shares available under existing plans, and shares awarded
but not exercised per the plan specifications. DERS transfer more shareholder
equity to employees and non-employee directors and this cost should be captured.
*****
LIBERAL SHARE RECYCLING PROVISIONS
Under net share counting provisions, shares tendered by an option holder to pay
for the exercise of an option, shares withheld for taxes or shares repurchased
by the company on the open market can be recycled back into the equity plan for
awarding again. All awards with such provisions should be valued as full-value
awards. Stock-settled stock appreciation rights (SSARs) will also be considered
as full-value awards if a company counts only the net shares issued to employees
towards their plan reserve.
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*****
OPERATING PARTNERSHIP (OP) UNITS IN EQUITY PLAN ANALYSIS OF REAL ESTATE
INVESTMENT TRUSTS (REITS) For Real Estate Investment Trusts (REITS), include the
common shares issuable upon conversion of outstanding Operating Partnership (OP)
units in the share count for the purposes of determining: (1) market
capitalization in the Shareholder Value Transfer (SVT) analysis and (2) shares
outstanding in the burn rate analysis.
*****
OPTION OVERHANG COST
Companies with sustained positive stock performance and high overhang cost
attributable to in-the-money options outstanding in excess of six years may
warrant a carve-out of these options from the overhang as long as the dilution
attributable to the new share request is reasonable and the company exhibits
sound compensation practices. Consider, on a CASE-BY-CASE basis, a carve-out of
a portion of cost attributable to overhang, considering the following criteria:
o PERFORMANCE: Companies with sustained positive stock performance will
merit greater scrutiny. Five-year total shareholder return (TSR),
year-over-year performance, and peer performance could play a
significant role in this determination.
o OVERHANG DISCLOSURE: Assess whether optionees have held in-the-money
options for a prolonged period (thus reflecting their confidence in
the prospects of the company). Note that this assessment would require
additional disclosure regarding a company's overhang. Specifically,
the following disclosure would be required:
- The number of in-the-money options outstanding in excess of six
or more years with a corresponding weighted average exercise
price and weighted average contractual remaining term;
- The number of all options outstanding less than six years and
underwater options outstanding in excess of six years with a
corresponding weighted average exercise price and weighted
average contractual remaining term;
- The general vesting provisions of option grants; and
- The distribution of outstanding option grants with respect to the
named executive officers;
o DILUTION: Calculate the expected duration of the new share request in
addition to all shares currently available for grant under the equity
compensation program, based on the company's three-year average burn
rate (or a burn-rate commitment that the company makes for future
years). The expected duration will be calculated by multiplying the
company's unadjusted (options and full-value awards accounted on a
one-for-one basis) three-year average burn rate by the most recent
fiscal year's weighted average shares outstanding (as used in the
company's calculation of basic EPS) and divide the sum of the new
share request and all available shares under the company's equity
compensation program by the product. For example, an expected duration
in excess of five years could be considered problematic; and
o COMPENSATION PRACTICES: An evaluation of overall practices could
include: (1) stock option repricing provisions, (2) high concentration
ratios (of grants to top executives), or (3) additional practices
outlined in the Poor Pay Practices policy.
*****
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OTHER COMPENSATION PROPOSALS AND POLICIES
401(K) EMPLOYEE BENEFIT PLANS
Vote FOR proposals to implement a 401(k) savings plan for employees.
*****
ADVISORY VOTE ON EXECUTIVE COMPENSATION (SAY-ON-PAY) MANAGEMENT PROPOSALS
Vote CASE-BY-CASE on management proposals for an advisory vote on executive
compensation. Vote AGAINST these resolutions in cases where boards have failed
to demonstrate good stewardship of investors' interests regarding executive
compensation practices. The following principles and factors should be
considered:
1. The following FIVE GLOBAL PRINCIPLES apply to all markets:
o Maintain appropriate pay-for-performance alignment with emphasis on
long-term shareholder value: This principle encompasses overall
executive pay practices, which must be designed to attract, retain,
and appropriately motivate the key employees who drive shareholder
value creation over the long term. It will take into consideration,
among other factors: the linkage between pay and performance; the mix
between fixed and variable pay; performance goals; and equity-based
plan costs;
o Avoid arrangements that risk "pay for failure": This principle
addresses the use and appropriateness of long or indefinite contracts,
excessive severance packages, and guaranteed compensation;
o Maintain an independent and effective compensation committee: This
principle promotes oversight of executive pay programs by directors
with appropriate skills, knowledge, experience, and a sound process
for compensation decision-making (e.g., including access to
independent expertise and advice when needed);
o Provide shareholders with clear, comprehensive compensation
disclosures: This principle underscores the importance of informative
and timely disclosures that enable shareholders to evaluate executive
pay practices fully and fairly;
o Avoid inappropriate pay to non-executive directors: This principle
recognizes the interests of shareholders in ensuring that compensation
to outside directors does not compromise their independence and
ability to make appropriate judgments in overseeing managers' pay and
performance. At the market level, it may incorporate a variety of
generally accepted best practices.
2. For U.S. companies, vote CASE-BY-CASE considering the following factors in
the context of each company's specific circumstances and the board's disclosed
rationale for its practices:
RELATIVE CONSIDERATIONS:
o Assessment of performance metrics relative to business strategy, as
discussed and explained in the CD & A;
o Evaluation of peer groups used to set target pay or award
opportunities;
o Alignment of company performance and executive pay trends over time
(e.g., performance down: pay down);
o Assessment of disparity between total pay of the CEO and other Named
Executive Officers (NEOs).
DESIGN CONSIDERATIONS:
o Balance of fixed versus performance-driven pay;
o Assessment of excessive practices with respect to perks, severance
packages, supplemental executive pension plans, and burn rates.
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COMMUNICATION CONSIDERATIONS:
o Evaluation of information and board rationale provided in CD&A about
how compensation is determined (e.g., why certain elements and pay
targets are used, and specific incentive plan goals, especially
retrospective goals);
o Assessment of board's responsiveness to investor input and engagement
on compensation issues (e.g., in responding to majority-supported
shareholder proposals on executive pay topics).
*****
DIRECTOR COMPENSATION
Vote CASE-BY-CASE on compensation plans for non-employee directors, based on the
cost of the plans against the company's allowable cap.
On occasion, director stock plans that set aside a relatively small number of
shares when combined with employee or executive stock compensation plans will
exceed the allowable cap. Vote for the plan if ALL of the following qualitative
factors in the board's compensation are met and disclosed in the proxy
statement:
o Director stock ownership guidelines with a minimum of three times the annual
cash retainer.
o Vesting schedule or mandatory holding/deferral period:
- A minimum vesting of three years for stock options or restricted
stock; or
- Deferred stock payable at the end of a three-year deferral
period.
o Mix between cash and equity:
- A balanced mix of cash and equity, for example 40% cash/60%
equity or 50% cash/50% equity; or
- If the mix is heavier on the equity component, the vesting
schedule or deferral period should be more stringent, with the
lesser of five years or the term of directorship.
o No retirement/benefits and perquisites provided to non-employee
directors; and
o Detailed disclosure provided on cash and equity compensation delivered
to each non-employee director for the most recent fiscal year in a
table. The column headers for the table may include the following:
name of each non-employee director, annual retainer, board meeting
fees, committee retainer, committee-meeting fees, and equity grants.
*****
DIRECTOR RETIREMENT PLANS
Vote AGAINST retirement plans for non-employee directors.
Vote FOR shareholder proposals to eliminate retirement plans for non-employee
directors.
*****
EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS)
Vote FOR proposals to implement an ESOP or increase authorized shares for
existing ESOPs, unless the number of shares allocated to the ESOP is excessive
(more than five percent of outstanding shares).
*****
EMPLOYEE STOCK PURCHASE PLANS-- QUALIFIED PLANS
Vote CASE-BY-CASE on qualified employee stock purchase plans. Vote FOR employee
stock purchase plans where all of the following apply:
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o Purchase price is at least 85 percent of fair market value;
o Offering period is 27 months or less; and
o The number of shares allocated to the plan is ten percent or less of
the outstanding shares.
Vote AGAINST qualified employee stock purchase plans where any of the following
apply:
o Purchase price is less than 85 percent of fair market value; or
o Offering period is greater than 27 months; or
o The number of shares allocated to the plan is more than ten percent of
the outstanding shares.
*****
EMPLOYEE STOCK PURCHASE PLANS-- NON-QUALIFIED PLANS
Vote CASE-by-CASE on nonqualified employee stock purchase plans. Vote FOR
nonqualified employee stock purchase plans with all the following features:
o Broad-based participation (i.e., all employees of the company with the
exclusion of individuals with 5 percent or more of beneficial
ownership of the company);
o Limits on employee contribution, which may be a fixed dollar amount or
expressed as a percent of base salary;
o Company matching contribution up to 25 percent of employee's
contribution, which is effectively a discount of 20 percent from
market value;
o No discount on the stock price on the date of purchase since there is a
company matching contribution.
Vote AGAINST nonqualified employee stock purchase plans when any of the plan
features do not meet the above criteria. If the company matching contribution
exceeds 25 percent of employee's contribution, evaluate the cost of the plan
against its allowable cap.
*****
INCENTIVE BONUS PLANS AND TAX DEDUCTIBILITY PROPOSALS (OBRA-RELATED COMPENSATION
PROPOSALS)
Vote FOR proposals that simply amend shareholder-approved compensation plans to
include administrative features or place a cap on the annual grants any one
participant may receive to comply with the provisions of Section 162(m) of the
Internal Revenue Code.
Vote FOR proposals to add performance goals to existing compensation plans to
comply with the provisions of Section 162(m) unless they are clearly
inappropriate.
Votes to amend existing plans to increase shares reserved and to qualify for
favorable tax treatment under the provisions of Section 162(m) are considered on
a CASE-BY-CASE basis using a proprietary, quantitative model developed by RMG.
Generally vote FOR cash or cash and stock bonus plans that are submitted to
shareholders for the purpose of exempting compensation from taxes under the
provisions of Section 162(m) if no increase in shares is requested.
Vote AGAINST proposals if the compensation committee does not fully consist of
independent outsiders, as defined in RMG's classification of director
independence.
*****
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OPTIONS BACKDATING
In cases where a company has practiced options backdating, vote AGAINST or
WITHHOLD on a CASE-BY-CASE basis from the members of the compensation committee,
depending on the severity of the practices and the subsequent corrective actions
on the part of the board. Vote AGAINST or WITHHOLD from the compensation
committee members who oversaw the questionable options grant practices or from
current compensation committee members who fail to respond to the issue
proactively, depending on several factors, including, but not limited to:
o Reason and motive for the options backdating issue, such as
inadvertent vs. deliberate grant date changes;
o Length of time of options backdating;
o Size of restatement due to options backdating;
o Corrective actions taken by the board or compensation committee, such
as canceling or repricing backdated options, or recoupment of option
gains on backdated grants;
o Adoption of a grant policy that prohibits backdating, and creation of
a fixed grant schedule or window period for equity grants going
forward.
*****
OPTION EXCHANGE PROGRAMS/REPRICING OPTIONS
Vote CASE-by-CASE on management proposals seeking approval to exchange/reprice
options taking into consideration:
o Historic trading patterns--the stock price should not be so volatile
that the options are likely to be back "in-the-money" over the near
term;
o Rationale for the re-pricing--was the stock price decline beyond
management's control?
o Is this a value-for-value exchange?
o Are surrendered stock options added back to the plan reserve?
o Option vesting--does the new option vest immediately or is there a
black-out period?
o Term of the option--the term should remain the same as that of the
replaced option;
o Exercise price--should be set at fair market or a premium to market;
o Participants--executive officers and directors should be excluded.
If the surrendered options are added back to the equity plans for re-issuance,
then also take into consideration the company's total cost of equity plans and
its three-year average burn rate.
In addition to the above considerations, evaluate the intent, rationale, and
timing of the repricing proposal. The proposal should clearly articulate why the
board is choosing to conduct an exchange program at this point in time.
Repricing underwater options after a recent precipitous drop in the company's
stock price demonstrates poor timing. Repricing after a recent decline in stock
price triggers additional scrutiny and a potential AGAINST vote on the proposal.
At a minimum, the decline should not have happened within the past year. Also,
consider the terms of the surrendered options, such as the grant date, exercise
price and vesting schedule. Grant dates of surrendered options should be far
enough back (two to three years) so as not to suggest that repricings are being
done to take advantage of short-term downward price movements. Similarly, the
exercise price of surrendered options should be above the 52-week high for the
stock price.
Vote FOR shareholder proposals to put option repricings to a shareholder vote.
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*****
STOCK PLANS IN LIEU OF CASH
Vote CASE-by-CASE on plans that provide participants with the option of taking
all or a portion of their cash compensation in the form of stock.
Vote FOR non-employee director-only equity plans that provide a
dollar-for-dollar cash-for-stock exchange.
Vote CASE-by-CASE on plans which do not provide a dollar-for-dollar cash for
stock exchange. In cases where the exchange is not dollar-for-dollar, the
request for new or additional shares for such equity program will be considered
using the binomial option pricing model. In an effort to capture the total cost
of total compensation, RMG will not make any adjustments to carve out the
in-lieu-of cash compensation.
*****
TRANSFER STOCK OPTION (TSO) PROGRAMS
One-time Transfers: Vote AGAINST or WITHHOLD from compensation committee members
if they fail to submit one-time transfers to shareholders for approval.
Vote CASE-BY-CASE on one-time transfers. Vote FOR if:
o Executive officers and non-employee directors are excluded from
participating;
o Stock options are purchased by third-party financial institutions at a
discount to their fair value using option pricing models such as
Black-Scholes or a Binomial Option Valuation or other appropriate
financial models;
o There is a two-year minimum holding period for sale proceeds (cash or
stock) for all participants.
Additionally, management should provide a clear explanation of why options are
being transferred to a third-party institution and whether the events leading up
to a decline in stock price were beyond management's control. A review of the
company's historic stock price volatility should indicate if the options are
likely to be back "in-the-money" over the near term.
Ongoing TSO program: Vote AGAINST equity plan proposals if the details of
ongoing TSO programs are not provided to shareholders. Since TSOs will be one of
the award types under a stock plan, the ongoing TSO program, structure and
mechanics must be disclosed to shareholders. The specific criteria to be
considered in evaluating these proposals include, but not limited, to the
following:
o Eligibility;
o Vesting;
o Bid-price;
o Term of options;
o Cost of the program and impact of the TSOs on company's total option
expense
o Option repricing policy.
Amendments to existing plans that allow for introduction of transferability of
stock options should make clear that only options granted post-amendment shall
be transferable.
*****
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SHAREHOLDER PROPOSALS ON COMPENSATION
ADVISORY VOTE ON EXECUTIVE COMPENSATION (SAY-ON-PAY)
Generally, vote FOR shareholder proposals that call for non-binding shareholder
ratification of the compensation of the Named Executive Officers and the
accompanying narrative disclosure of material factors provided to understand the
Summary Compensation Table.
*****
BAILOUT BILL/EXECUTIVE COMPENSATION RESOLUTIONS
Vote on a CASE-BY-CASE on shareholder proposals that call for the imposition of
compensation limits at companies that are participating in the Capital Purchase
Program established under the Troubled Asset Relief Program (TARP). Limits under
the proposal include an emphasis on performance-vested equity awards, cap on
bonus compensation, equity retention requirements, limits on retirement and
severance benefits.
While there are components of the program RMG would not support on a stand-alone
basis, we consider the proposal to be a symbolic call on companies receiving
this relief to adhere to higher compensation standards, a number of which were
proposed in earlier drafts of the legislation. As such, the following factors
will be taken into account:
o The absence of evidence that the Compensation Committee has taken
substantial steps to review practices to reflect the dramatically
different circumstances of the current environment, including the
optics of maintaining former practices while taking tax-payer moneys.
o Problematic pay practices, current and past, particularly those which
shareholders believe may have promoted a risk-taking environment that
was ultimately in the detriment of shareholders' long-term interests.
*****
COMPENSATION CONSULTANTS- DISCLOSURE OF BOARD OR COMPANY'S UTILIZATION
Generally vote FOR shareholder proposals seeking disclosure regarding the
Company, Board, or Compensation Committee's use of compensation consultants,
such as company name, business relationship(s) and fees paid.
*****
DISCLOSURE/SETTING LEVELS OR TYPES OF COMPENSATION FOR EXECUTIVES AND DIRECTORS
Generally, vote FOR shareholder proposals seeking additional disclosure of
executive and director pay information, provided the information requested is
relevant to shareholders' needs, would not put the company at a competitive
disadvantage relative to its industry, and is not unduly burdensome to the
company.
Vote AGAINST shareholder proposals seeking to set absolute levels on
compensation or otherwise dictate the amount or form of compensation.
Vote AGAINST shareholder proposals requiring director fees be paid in stock
only.
Vote CASE-BY-CASE on all other shareholder proposals regarding executive and
director pay, taking into account company performance, pay level versus peers,
pay level versus industry, and long-term corporate outlook.
*****
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GOLDEN COFFINS/EXECUTIVE DEATH BENEFITS
Generally vote FOR proposals calling companies to adopt a policy of obtaining
shareholder approval for any future agreements and corporate policies that could
oblige the company to make payments or awards following the death of a senior
executive in the form of unearned salary or bonuses, accelerated vesting or the
continuation in force of unvested equity grants, perquisites and other payments
or awards made in lieu of compensation. This would not apply to any benefit
programs or equity plan proposals that the broad-based employee population is
eligible.
*****
PAY FOR SUPERIOR PERFORMANCE
Generally vote FOR shareholder proposals based on a case-by-case analysis that
requests the board establish a pay-for-superior performance standard in the
company's executive compensation plan for senior executives. The proposal has
the following principles:
o Sets compensation targets for the Plan's annual and long-term
incentive pay component s at or below the peer group median;
o Delivers a majority of the Plan's target long-term compensation
through performance-vested, not simply time-vested, equity awards;
o Provides the strategic rationale and relative weightings of the
financial and non-financial performance metrics or criteria used in
the annual and performance-vested long-term incentive components of
the plan;
o Establishes performance targets for each plan financial metric
relative to the performance of the company's peer companies;
o Limits payment under the annual and performance-vested long-term
incentive components of the plan to when the company's performance on
its selected financial performance metrics exceeds peer group median
performance.
Consider the following factors in evaluating this proposal:
o What aspects of the company's annual and long-term equity incentive
programs are performance driven?
o If the annual and long-term equity incentive programs are performance
driven, are the performance criteria and hurdle rates disclosed to
shareholders or are they benchmarked against a disclosed peer group?
o Can shareholders assess the correlation between pay and performance
based on the current disclosure?
o What type of industry and stage of business cycle does the company
belong to?
*****
PERFORMANCE-BASED AWARDS
Vote CASE-BY-CASE on shareholder proposal requesting that a significant amount
of future long-term incentive compensation awarded to senior executives shall be
performance-based and requesting that the board adopt and disclose challenging
performance metrics to shareholders, based on the following analytical steps:
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o First, vote FOR shareholder proposals advocating the use of
performance-based equity awards, such as performance contingent
options or restricted stock, indexed options or premium-priced
options, unless the proposal is overly restrictive or if the company
has demonstrated that it is using a "substantial" portion of
performance-based awards for its top executives. Standard stock
options and performance-accelerated awards do not meet the criteria to
be considered as performance-based awards. Further, premium-priced
options should have a premium of at least 25 percent and higher to be
considered performance-based awards.
o Second, assess the rigor of the company's performance-based equity
program. If the bar set for the performance-based program is too low
based on the company's historical or peer group comparison, generally
vote FOR the proposal. Furthermore, if target performance results in
an above target payout, vote FOR the shareholder proposal due to
program's poor design. If the company does not disclose the
performance metric of the performance-based equity program, vote FOR
the shareholder proposal regardless of the outcome of the first step
to the test.
In general, vote FOR the shareholder proposal if the company does not meet both
of the above two steps.
*****
PENSION PLAN INCOME ACCOUNTING
Generally vote FOR shareholder proposals to exclude pension plan income in the
calculation of earnings used in determining executive bonuses/compensation.
*****
PRE-ARRANGED TRADING PLANS (10B5-1 PLANS)
Generally vote FOR shareholder proposals calling for certain principles
regarding the use of prearranged trading plans (10b5-1 plans) for executives.
These principles include:
o Adoption, amendment, or termination of a 10b5-1 Plan must be disclosed
within two business days in a Form 8-K;
o Amendment or early termination of a 10b5-1 Plan is allowed only under
extraordinary circumstances, as determined by the board;
o Ninety days must elapse between adoption or amendment of a 10b5-1 Plan
and initial trading under the plan;
o Reports on Form 4 must identify transactions made pursuant to a 10b5-1
Plan;
o An executive may not trade in company stock outside the 10b5-1 Plan.
o Trades under a 10b5-1 Plan must be handled by a broker who does not
handle other securities transactions for the executive.
*****
RECOUP BONUSES
Vote on a CASE-BY-CASE on proposals to recoup unearned incentive bonuses or
other incentive payments made to senior executives if it is later determined
that the figures upon which incentive compensation is earned later turn out to
have been in error. This is line with the clawback provision in the Trouble
Asset Relief Program. Many companies have adopted policies that permit
recoupment in cases where fraud, misconduct, or negligence significantly
contributed to a restatement of financial results that led to the awarding of
unearned incentive compensation. RMG will take into consideration:
o If the company has adopted a formal recoupment bonus policy;
o If the company has chronic restatement history or material financial
problems; or
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o If the company's policy substantially addresses the concerns raised by
the proponent.
*****
SEVERANCE AGREEMENTS FOR EXECUTIVES/GOLDEN PARACHUTES
Vote FOR shareholder proposals requiring that golden parachutes or executive
severance agreements be submitted for shareholder ratification, unless the
proposal requires shareholder approval prior to entering into employment
contracts.
Vote on a CASE-BY-CASE basis on proposals to ratify or cancel golden parachutes.
An acceptable parachute should include, but is not limited to, the following:
o The triggering mechanism should be beyond the control of management;
o The amount should not exceed three times base amount (defined as the
average annual taxable W-2 compensation during the five years prior to
the year in which the change of control occurs;
o Change-in-control payments should be double-triggered, i.e., (1) after
a change in control has taken place, and (2) termination of the
executive as a result of the change in control. Change in control is
defined as a change in the company ownership structure.
*****
SHARE BUYBACK HOLDING PERIODS
Generally vote AGAINST shareholder proposals prohibiting executives from selling
shares of company stock during periods in which the company has announced that
it may or will be repurchasing shares of its stock. Vote FOR the proposal when
there is a pattern of abuse by executives exercising options or selling shares
during periods of share buybacks.
*****
STOCK OWNERSHIP OR HOLDING PERIOD GUIDELINES
Generally vote AGAINST shareholder proposals that mandate a minimum amount of
stock that directors must own in order to qualify as a director or to remain on
the board. While RMG favors stock ownership on the part of directors, the
company should determine the appropriate ownership requirement.
Vote on a CASE-BY-CASE on shareholder proposals asking companies to adopt
policies requiring Named Executive Officers to retain 75% of the shares acquired
through compensation plans while employed and/or for two years following the
termination of their employment, and to report to shareholders regarding this
policy. The following factors will be taken into account:
o Whether the company has any holding period, retention ratio, or
officer ownership requirements in place. These should consist of:
- Rigorous stock ownership guidelines, or
- A holding period requirement coupled with a significant long-term
ownership requirement, or
- A meaningful retention ratio,
o Actual officer stock ownership and the degree to which it meets or
exceeds the proponent's suggested holding period/retention ratio or
the company's own stock ownership or retention requirements.
o Problematic pay practices, current and past, which may promote a
short-term versus a long-term focus.
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A rigorous stock ownership guideline should be at least 10x base salary for the
CEO, with the multiple declining for other executives. A meaningful retention
ratio should constitute at least 50 percent of the stock received from equity
awards (on a net proceeds basis) held on a long-term basis, such as the
executive's tenure with the company or even a few years past the executive's
termination with the company.
*****
SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS (SERPS)
Generally vote FOR shareholder proposals requesting to put extraordinary
benefits contained in SERP agreements to a shareholder vote unless the company's
executive pension plans do not contain excessive benefits beyond what is offered
under employee-wide plans.
Generally vote FOR shareholder proposals requesting to limit the executive
benefits provided under the company's supplemental executive retirement plan
(SERP) by limiting covered compensation to a senior executive's annual salary
and excluding of all incentive or bonus pay from the plan's definition of
covered compensation used to establish such benefits.
*****
TERMINATION OF EMPLOYMENT PRIOR TO SEVERANCE PAYMENT AND ELIMINATING ACCELERATED
VESTING OF UNVESTED EQUITY Vote on a CASE-by-CASE on shareholder proposals
seeking a policy requiring termination of employment prior to severance payment,
and eliminating accelerated vesting of unvested equity. Change-in-control
payouts without loss of job or substantial diminution of job duties
(single-triggered) are consider a poor pay practice under RMG policy, and may
even result in withheld votes from compensation committee members. The second
component of this proposal -- related to the elimination of accelerated vesting
- - requires more careful consideration. The following factors will be taken into
regarding this policy.
o The company's current treatment of equity in change-of-control
situations (i.e. is it double triggered, does it allow for the
assumption of equity by acquiring company, the treatment of
performance shares.
o Current employment agreements, including potential poor pay practices
such as gross-ups embedded in those agreements.
*****
TAX GROSS-UP PROPOSALS
Generally vote FOR proposals calling for companies to adopt a policy of not
providing tax gross-up payments to executives, except in situations where
gross-ups are provided pursuant to a plan, policy, or arrangement applicable to
management employees of the company, such as a relocation or expatriate tax
equalization policy.
*****
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9. Corporate Social Responsibility (CSR) Issues
OVERALL APPROACH
When evaluating social and environmental shareholder proposals, RMG considers
the following factors:
o Whether adoption of the proposal is likely to enhance or protect
shareholder value;
o Whether the information requested concerns business issues that relate
to a meaningful percentage of the company's business as measured by
sales, assets, and earnings;
o The degree to which the company's stated position on the issues raised
in the proposal could affect its reputation or sales, or leave it
vulnerable to a boycott or selective purchasing;
o Whether the issues presented are more appropriately/effectively dealt
with through governmental or company-specific action;
o Whether the company has already responded in some appropriate manner
to the request embodied in the proposal;
o Whether the company's analysis and voting recommendation to
shareholders are persuasive;
o What other companies have done in response to the issue addressed in
the proposal;
o Whether the proposal itself is well framed and the cost of preparing
the report is reasonable;
o Whether implementation of the proposal's request would achieve the
proposal's objectives;
o Whether the subject of the proposal is best left to the discretion of
the board;
o Whether the requested information is available to shareholders either
from the company or from a publicly available source; and
o Whether providing this information would reveal proprietary or
confidential information that would place the company at a competitive
disadvantage.
*****
ANIMAL WELFARE
ANIMAL TESTING
Generally vote AGAINST proposals to phase out the use of animals in product
testing unless:
o The company is conducting animal testing programs that are unnecessary
or not required by regulation;
o The company is conducting animal testing when suitable alternatives
are commonly accepted and used at industry peers; or
o There are recent, significant fines or litigation related to the
company's treatment of animals.
*****
ANIMAL WELFARE POLICIES
Generally vote FOR proposals seeking a report on the company's animal welfare
standards unless:
o The company has already published a set of animal welfare standards
and monitors compliance;
o The company's standards are comparable to industry peers; and
o There are no recent, significant fines or litigation related to the
company's treatment of animals.
*****
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CONTROLLED ATMOSPHERE KILLING (CAK)
Generally vote AGAINST proposals requesting the implementation of CAK methods at
company and/or supplier operations unless such methods are required by
legislation or generally accepted as the industry standard.
Vote CASE-BY-CASE on proposals requesting a report on the feasibility of
implementing CAK methods at company and/or supplier operations considering the
availability of existing research conducted by the company or industry groups on
this topic and any fines or litigation related to current animal processing
procedures at the company.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
CONSUMER ISSUES
GENETICALLY MODIFIED INGREDIENTS
Generally vote AGAINST proposals asking suppliers, genetic research companies,
restaurants and food retail companies to voluntarily label genetically
engineered (GE) ingredients in their products and/or eliminate GE ingredients.
The cost of labeling and/or phasing out the use of GE ingredients may not be
commensurate with the benefits to shareholders and is an issue better left to
regulators.
Vote CASE-BY-CASE on proposals asking for a report on the feasibility of
labeling products containing GE ingredients taking into account:
o The company's business and the proportion of it affected by the
resolution;
o The quality of the company's disclosure on GE product labeling,
related voluntary initiatives, and how this disclosure compares with
industry peer disclosure; and
o Company's current disclosure on the feasibility of GE product
labeling, including information on the related costs.
Generally vote AGAINST proposals seeking a report on the social, health, and
environmental effects of genetically modified organisms (GMOs). Studies of this
sort are better undertaken by regulators and the scientific community.
Generally vote AGAINST proposals to completely phase out GE ingredients from the
company's products or proposals asking for reports outlining the steps necessary
to eliminate GE ingredients from the company's products. Such resolutions
presuppose that there are proven health risks to GE ingredients (an issue better
left to regulators) that may outweigh the economic benefits derived from
biotechnology.
*****
CONSUMER LENDING
Vote CASE-BY CASE on requests for reports on the company's lending guidelines
and procedures taking into account:
o Whether the company has adequately disclosed mechanisms in place to
prevent abusive lending practices;
o Whether the company has adequately disclosed the financial risks of
the lending products in question;
o Whether the company has been subject to violations of lending laws or
serious lending controversies;
o Peer companies' policies to prevent abusive lending practices.
*****
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PHARMACEUTICAL PRICING, ACCESS TO MEDICINES, AND PRODUCT REIMPORTATION
Generally vote AGAINST proposals requesting that companies implement specific
price restraints on pharmaceutical products unless the company fails to adhere
to legislative guidelines or industry norms in its product pricing.
Vote CASE-BY-CASE on proposals requesting that the company evaluate report on
their product pricing policies or their access to medicine policies,
considering:
o The nature of the company's business and the potential for
reputational and market risk exposure;
o The existing disclosure of relevant policies;
o Deviation from established industry norms;
o The company's existing, relevant initiatives to provide research
and/or products to disadvantaged consumers;
o Whether the proposal focuses on specific products or geographic
regions; and
o The potential cost and scope of the requested report.
Generally vote FOR proposals requesting that companies report on the financial
and legal impact of their prescription drug reimportation policies unless such
information is already publicly disclosed.
Generally vote AGAINST proposals requesting that companies adopt specific
policies to encourage or constrain prescription drug reimportation. Such matters
are more appropriately the province of legislative activity and may place the
company at a competitive disadvantage relative to its peers.
*****
PRODUCT SAFETY AND TOXIC/HAZARDOUS MATERIALS
Generally vote FOR proposals requesting the company to report on its policies,
initiatives/procedures, and oversight mechanisms related to toxic/hazardous
materials or product safety in its supply chain, unless:
o The company already discloses similar information through existing
reports such as a Supplier Code of Conduct and/or a sustainability
report;
o The company has formally committed to the implementation of a
toxic/hazardous materials and/or product safety and supply chain
reporting and monitoring program based on industry norms or similar
standards within a specified time frame; and
o The company has not been recently involved in relevant significant
controversies, significant fines, or litigation.
Vote CASE-BY-CASE on resolutions requesting that companies develop a feasibility
assessment to phase-out of certain toxic/hazardous materials, or evaluate and
disclose the potential financial and legal risks associated with utilizing
certain materials, considering:
o The company's current level of disclosure regarding its product safety
policies, initiatives and oversight mechanisms.
o Current regulations in the markets in which the company operates; and
o Recent significant controversies, litigation, or fines stemming from
toxic/hazardous materials at the company.
Generally vote AGAINST resolutions requiring that a company reformulate its
products.
*****
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TOBACCO
Vote CASE-BY-CASE on resolutions regarding the advertisement of tobacco
products, considering:
o Recent related fines, controversies, or significant litigation;
o Whether the company complies with relevant laws and regulations on the
marketing of tobacco;
o Whether the company's advertising restrictions deviate from those of
industry peers;
o Whether the company entered into the Master Settlement Agreement,
which restricts marketing of tobacco to youth;
o Whether restrictions on marketing to youth extend to foreign
countries.
Vote CASE-BY-CASE on proposals regarding second-hand smoke, considering;
o Whether the company complies with all laws and regulations;
o The degree that voluntary restrictions beyond those mandated by law
might hurt the company's competitiveness;
o The risk of any health-related liabilities.
Generally vote AGAINST resolutions to cease production of tobacco-related
products, to avoid selling products to tobacco companies, to spin-off
tobacco-related businesses, or prohibit investment in tobacco equities. Such
business decisions are better left to company management or portfolio managers.
Generally vote AGAINST proposals regarding tobacco product warnings. Such
decisions are better left to public health authorities.
*****
DIVERSITY
BOARD DIVERSITY
Generally vote FOR reports on the company's efforts to diversify the board,
unless:
o The board composition is reasonably inclusive in relation to companies
of similar size and business; or
o The board already reports on its nominating procedures and diversity
initiatives.
Generally vote AGAINST proposals that would call for the adoption of specific
committee charter language regarding diversity initiatives unless the company
fails to publicly disclose existing equal opportunity or non-discrimination
policies.
Vote CASE-BY-CASE on proposals asking the company to increase the representation
of women and minorities on the board, taking into account:
o The degree of board diversity;
o Comparison with peer companies;
o Established process for improving board diversity;
o Existence of independent nominating committee;
o Use of outside search firm;
o History of EEO violations.
*****
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EQUALITY OF OPPORTUNITY
Generally vote FOR proposals requesting a company disclose its diversity
policies or initiatives, or proposals requesting disclosure of a company's
comprehensive workforce diversity data, including requests for EEO-1 data,
unless:
o The company publicly discloses its comprehensive equal opportunity
policies and initiatives;
o The company already publicly discloses comprehensive workforce
diversity data; and
o The company has no recent significant EEO-related violations or
litigation.
Generally vote AGAINST proposals seeking information on the diversity efforts of
suppliers and service providers. Such requests may pose a significant cost and
administration burden on the company.
*****
GENDER IDENTITY, SEXUAL ORIENTATION, AND DOMESTIC PARTNER BENEFITS
Generally vote FOR proposals seeking to amend a company's EEO statement or
diversity policies to prohibit discrimination based on sexual orientation and/or
gender identity, unless the change would result in excessive costs for the
company.
Generally vote AGAINST proposals to extend company benefits to, or eliminate
benefits from domestic partners. Decisions regarding benefits should be left to
the discretion of the company.
*****
CLIMATE CHANGE AND THE ENVIRONMENT
CLIMATE CHANGE
Generally vote FOR resolutions requesting that a company disclose information on
the impact of climate change on the company's operations and investments
considering:
o The company already provides current, publicly-available information
on the impacts that climate change may have on the company as well as
associated company policies and procedures to address related risks
and/or opportunities;
o The company's level of disclosure is at least comparable to that of
industry peers; and
o There are no significant, controversies, fines, penalties, or
litigation associated with the company's environmental performance.
*****
CONCENTRATED ANIMAL FEEDING OPERATIONS (CAFOS)
Generally vote FOR resolutions requesting companies report to shareholders on
the risks and liabilities associated with CAFOs unless:
o The company has publicly disclosed its environmental management
policies for its corporate and contract farming operations, including
compliance monitoring; and
o The company publicly discloses company and supplier farm environmental
performance data; or
o The company does not have company-owned CAFOs and does not directly
source from contract farm CAFOs.
*****
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ENERGY EFFICIENCY
Generally vote FOR on proposals requesting a company report on its comprehensive
energy efficiency policies, unless:
o The company complies with applicable energy efficiency regulations and
laws, and discloses its participation in energy efficiency policies
and programs, including disclosure of benchmark data, targets, and
performance measures; or
o The proponent requests adoption of specific energy efficiency goals
within specific timelines.
*****
FACILITY AND OPERATIONAL SAFETY/SECURITY
Vote CASE-BY-CASE on resolutions requesting that companies report on safety
and/or security risks associated with their operations and/or facilities,
considering:
o The company's compliance with applicable regulations and guidelines;
o The company's current level of disclosure regarding its security and
safety policies, procedures, and compliance monitoring; and,
o The existence of recent, significant violations, fines, or controversy
regarding the safety and security of the company's operations and/or
facilities.
*****
GREENHOUSE GAS (GHG) EMISSIONS
Generally vote FOR proposals requesting a report on greenhouse gas emissions
from company operations and/or products, unless:
o The company already provides current, publicly-available information
on the impacts that greenhouse gas emissions may have on the company
as well as associated company policies and procedures to address
related risks and/or opportunities;
o The company's level of disclosure is at least comparable to that of
industry peers; and
o There are no significant, controversies, fines, penalties, or
litigation associated with the company's greenhouse gas emissions.
Generally vote AGAINST proposals that call for reduction in greenhouse gas
emissions by specific amounts or within a specific time frame, unless:
o The company lags behind industry standards; and,
o The company has been the subject of recent, significant violations,
fines, litigation, or controversy related to greenhouse gas emissions.
*****
OPERATIONS IN PROTECTED AREAS
Generally vote FOR requests for reports on potential environmental damage as a
result of company operations in protected regions unless:
o Operations in the specified regions are not permitted by current laws
or regulations;
o The company does not currently have operations or plans to develop
operations in these protected regions; or,
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o The company's disclosure of its operations and environmental policies
in these regions is comparable to industry peers.
*****
RECYCLING
Vote CASE-BY-CASE on proposals to adopt a comprehensive recycling strategy,
taking into account:
o The nature of the company's business;
o The extent that peer companies are recycling;
o The timetable prescribed by the proposal and the costs and methods of
implementation;
o Whether the company has a poor environmental track record, such as
violations of applicable regulations.
*****
RENEWABLE ENERGY
Generally vote FOR requests for reports on the feasibility of developing
renewable energy resources unless the report is duplicative of existing
disclosure or irrelevant to the company's line of business.
Generally vote AGAINST proposals requesting that the company invest in renewable
energy resources. Such decisions are best left to management's evaluation of the
feasibility and financial impact that such programs may have on the company.
*****
GENERAL CORPORATE ISSUES
CHARITABLE CONTRIBUTIONS
Vote AGAINST proposals restricting the company from making charitable
contributions. Charitable contributions are generally useful for assisting
worthwhile causes and for creating goodwill in the community. In the absence of
bad faith, self-dealing, or gross negligence, management should determine which,
and if, contributions are in the best interests of the company.
*****
CSR COMPENSATION-RELATED PROPOSALS
Vote CASE-BY-CASE on proposals to report on ways of linking executive
compensation to non-financial criteria, such as corporate downsizings, customer
or employee satisfaction, community involvement, human rights, environmental
performance, or predatory lending. Such resolutions should be evaluated in the
context of:
o The relevance of the non-financial criteria in question to the
company;
o The degree to which non-financial criteria are already included in the
company's executive compensation structure and publicly disclosed;
o The degree to which non-financial criteria are used by industry peers
in setting executive compensation;
o Significant company violations or controversies associated with social
and/or environmental performance or compensation practices;
o The company's current level of disclosure regarding environmental and
social performance;
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o Independence of the compensation committee;
Generally vote AGAINST proposals to link executive compensation to non-financial
criteria, such as corporate downsizings, customer or employee satisfaction,
community involvement, human rights, environmental performance, and predatory
lending.
Generally vote AGAINST proposals calling for an analysis of the pay disparity
between corporate executives and other employees. Such comparisons may be
arbitrary in nature and/or provide information of limited value to shareholders.
*****
HEALTH PANDEMICS
Vote CASE-BY-CASE on requests for reports outlining the impact of health
pandemics (such as HIV/AIDS, Malaria, Tuberculosis, and Avian Flu) on the
company's operations and how the company is responding to the situation, taking
into account:
o The scope of the company's operations in the affected/relevant
area(s);
o The company's existing healthcare policies, including benefits and
healthcare access; and
o Company donations to relevant healthcare providers.
Vote AGAINST proposals asking companies to establish, implement, and report on a
standard of response to health pandemics (such as HIV/AIDS, Malaria,
Tuberculosis, and Avian Flu), unless the company has significant operations in
the affected markets and has failed to adopt policies and/or procedures to
address these issues comparable to those of industry peers.
*****
LOBBYING EXPENDITURES/INITIATIVES
Vote CASE-BY-CASE on proposals requesting information on a company's lobbying
initiatives, considering:
o Significant controversies, fines, or litigation surrounding a
company's public policy activities,
o The company's current level of disclosure on lobbying strategy, and
o The impact that the policy issue may have on the company's business
operations.
*****
POLITICAL CONTRIBUTIONS AND TRADE ASSOCIATIONS SPENDING
Generally vote AGAINST proposals asking the company to affirm political
nonpartisanship in the workplace so long as:
o There are no recent, significant controversies, fines or litigation
regarding the company's political contributions or trade association
spending; and
o The company has procedures in place to ensure that employee
contributions to company-sponsored political action committees (PACs)
are strictly voluntary and prohibits coercion.
Vote AGAINST proposals to publish in newspapers and public media the company's
political contributions. Such publications could present significant cost to the
company without providing commensurate value to shareholders.
Vote CASE-BY-CASE on proposals to improve the disclosure of a company's
political contributions and trade association spending considering:
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o Recent significant controversy or litigation related to the company's
political contributions or governmental affairs; and
o The public availability of a company policy on political contributions
and trade association spending including information on the types of
organizations supported, the business rationale for supporting these
organizations, and the oversight and compliance procedures related to
such expenditures of corporate assets.
Vote AGAINST proposals barring the company from making political contributions.
Businesses are affected by legislation at the federal, state, and local level
and barring political contributions can put the company at a competitive
disadvantage.
Vote AGAINST proposals asking for a list of company executives, directors,
consultants, legal counsels, lobbyists, or investment bankers that have prior
government service and whether such service had a bearing on the business of the
company. Such a list would be burdensome to prepare without providing any
meaningful information to shareholders.
*****
INTERNATIONAL ISSUES, LABOR ISSUES, AND HUMAN RIGHTS
COMMUNITY SOCIAL AND ENVIRONMENTAL IMPACT ASSESSMENTS
Vote CASE-BY-CASE on requests for reports outlining policies and/or the
potential (community) social and/or environmental impact of company operations
considering:
o Current disclosure of applicable policies and risk assessment
report(s) and risk management procedures;
o The impact of regulatory non-compliance, litigation, remediation, or
reputational loss that may be associated with failure to manage the
company's operations in question, including the management of relevant
community and stakeholder relations;
o The nature, purpose, and scope of the company's operations in the
specific region(s);
o The degree to which company policies and procedures are consistent
with industry norms; and
o Scope of the resolution.
*****
FOREIGN MILITARY SALES/OFFSETS
Vote AGAINST reports on foreign military sales or offsets. Such disclosures may
involve sensitive and confidential information. Moreover, companies must comply
with government controls and reporting on foreign military sales.
*****
INTERNET PRIVACY AND CENSORSHIP
Vote CASE-BY-CASE on resolutions requesting the disclosure and implementation of
Internet privacy and censorship policies and procedures considering:
o The level of disclosure of company policies and procedures relating to
privacy, freedom of speech, Internet censorship, and government
monitoring of the Internet;
o Engagement in dialogue with governments and/or relevant groups with
respect to the Internet and the free flow of information;
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o The scope of business involvement and of investment in markets that
maintain government censorship or monitoring of the Internet;
o The market-specific laws or regulations applicable to Internet
censorship or monitoring that may be imposed on the company; and,
o The level of controversy or litigation related to the company's
international human rights policies and procedures.
*****
LABOR AND HUMAN RIGHTS STANDARDS
Generally vote FOR proposals requesting a report on company or company supplier
labor and/or human rights standards and policies unless such information is
already publicly disclosed.
Vote CASE-BY-CASE on proposals to implement company or company supplier labor
and/or human rights standards and policies, considering:
o The degree to which existing relevant policies and practices are
disclosed;
o Whether or not existing relevant policies are consistent with
internationally recognized standards;
o Whether company facilities and those of its suppliers are monitored
and how;
o Company participation in fair labor organizations or other
internationally recognized human rights initiatives;
o Scope and nature of business conducted in markets known to have higher
risk of workplace labor/human rights abuse;
o Recent, significant company controversies, fines, or litigation
regarding human rights at the company or its suppliers;
o The scope of the request; and
o Deviation from industry sector peer company standards and practices.
*****
MACBRIDE PRINCIPLES
Generally vote AGAINST proposals to endorse or increase activity on the MacBride
Principles, unless:
o The company has formally been found to be out of compliance with
relevant Northern Ireland fair employment laws and regulations;
o Failure to implement the MacBride Principles would put the company in
an inconsistent position and/or at a competitive disadvantage compared
with industry peers;
o Failure to implement the MacBride Principles would subject the company
to excessively negative financial impacts due to laws that some
municipalities have passed regarding their contracting operations and
companies that have not implemented the MacBride Principles; or
o The company has had recent, significant controversies, fines or
litigation regarding religious-based employment discrimination in
Northern Ireland.
*****
NUCLEAR AND DEPLETED URANIUM WEAPONS
Generally vote AGAINST proposals asking a company to cease production or report
on the risks associated with the use of depleted uranium munitions or nuclear
weapons components and delivery systems, including disengaging from current and
proposed contracts. Such contracts are monitored by government agencies, serve
multiple military and non-military uses, and withdrawal from these contracts
could have a negative impact on the company's business.
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*****
OPERATIONS IN HIGH RISK MARKETS
Vote CASE-BY-CASE on requests for a report on a company's potential financial
and reputational risks associated with operations in "high-risk" markets, such
as a terrorism-sponsoring state or politically/socially unstable region, taking
into account:
o The nature, purpose, and scope of the operations and business involved
that could be affected by social or political disruption;
o Current disclosure of applicable risk assessment(s) and risk
management procedures;
o Compliance with U.S. sanctions and laws;
o Consideration of other international policies, standards, and laws;
and
o Whether the company has been recently involved in recent, significant
controversies, fines or litigation related to its operations in
"high-risk" markets.
*****
OUTSOURCING/OFFSHORING
Vote CASE-BY-CASE on proposals calling for companies to report on the risks
associated with outsourcing/plant closures, considering:
o Controversies surrounding operations in the relevant market(s);
o The value of the requested report to shareholders;
o The company's current level of disclosure of relevant information on
outsourcing and plant closure procedures; and
o The company's existing human rights standards relative to industry
peers.
*****
SUSTAINABILITY
SUSTAINABILITY REPORTING
Generally vote FOR proposals requesting the company to report on its policies,
initiatives, and oversight mechanisms related to social, economic, and
environmental sustainability, unless:
o The company already discloses similar information through existing
reports or policies such as an Environment, Health, and Safety (EHS)
report; a comprehensive Code of Corporate Conduct; and/or a Diversity
Report; or
o The company has formally committed to the implementation of a
reporting program based on Global Reporting Initiative (GRI)
guidelines or a similar standard within a specified time frame
*****
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10. Mutual Fund Proxies
ELECTION OF DIRECTORS
Vote CASE-BY-CASE on the election of directors and trustees, following the same
guidelines for uncontested directors for public company shareholder meetings.
However, mutual fund boards do not usually have compensation committees, so do
not withhold for the lack of this committee.
*****
CONVERTING CLOSED-END FUND TO OPEN-END FUND
Vote CASE-BY-CASE on conversion proposals, considering the following factors:
o Past performance as a closed-end fund;
o Market in which the fund invests;
o Measures taken by the board to address the discount; and
o Past shareholder activism, board activity, and votes on related
proposals.
*****
PROXY CONTESTS
Vote CASE-BY-CASE on proxy contests, considering the following factors:
o Past performance relative to its peers;
o Market in which fund invests;
o Measures taken by the board to address the issues;
o Past shareholder activism, board activity, and votes on related
proposals;
o Strategy of the incumbents versus the dissidents;
o Independence of directors;
o Experience and skills of director candidates;
o Governance profile of the company;
o Evidence of management entrenchment.
*****
INVESTMENT ADVISORY AGREEMENTS
Vote CASE-BY-CASE on investment advisory agreements, considering the following
factors:
o Proposed and current fee schedules;
o Fund category/investment objective;
o Performance benchmarks;
o Share price performance as compared with peers;
o Resulting fees relative to peers;
o Assignments (where the advisor undergoes a change of control).
*****
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APPROVING NEW CLASSES OR SERIES OF SHARES
Vote FOR the establishment of new classes or series of shares.
*****
PREFERRED STOCK PROPOSALS
Vote CASE-BY-CASE on the authorization for or increase in preferred shares,
considering the following factors:
o Stated specific financing purpose;
o Possible dilution for common shares;
o Whether the shares can be used for antitakeover purposes.
*****
1940 ACT POLICIES
Vote CASE-BY-CASE on policies under the Investment Advisor Act of 1940,
considering the following factors:
o Potential competitiveness;
o Regulatory developments;
o Current and potential returns; and
o Current and potential risk.
Generally vote FOR these amendments as long as the proposed changes do not
fundamentally alter the investment focus of the fund and do comply with the
current SEC interpretation.
*****
CHANGING A FUNDAMENTAL RESTRICTION TO A NONFUNDAMENTAL RESTRICTION
Vote CASE-BY-CASE on proposals to change a fundamental restriction to a
non-fundamental restriction, considering the following factors:
o The fund's target investments;
o The reasons given by the fund for the change; and
o The projected impact of the change on the portfolio.
*****
CHANGE FUNDAMENTAL INVESTMENT OBJECTIVE TO NONFUNDAMENTAL
Vote AGAINST proposals to change a fund's fundamental investment objective to
non-fundamental.
*****
NAME CHANGE PROPOSALS
Vote CASE-BY-CASE on name change proposals, considering the following factors:
o Political/economic changes in the target market;
o Consolidation in the target market; and
o Current asset composition.
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*****
CHANGE IN FUND'S SUBCLASSIFICATION
Vote CASE-BY-CASE on changes in a fund's sub-classification, considering the
following factors:
o Potential competitiveness;
o Current and potential returns;
o Risk of concentration;
o Consolidation in target industry.
*****
DISPOSITION OF ASSETS/TERMINATION/LIQUIDATION
Vote CASE-BY-CASE on proposals to dispose of assets, to terminate or liquidate,
considering the following factors:
o Strategies employed to salvage the company;
o The fund's past performance;
o The terms of the liquidation.
*****
CHANGES TO THE CHARTER DOCUMENT
Vote CASE-BY-CASE on changes to the charter document, considering the following
factors:
o The degree of change implied by the proposal;
o The efficiencies that could result;
o The state of incorporation;
o Regulatory standards and implications.
Vote AGAINST any of the following changes:
o Removal of shareholder approval requirement to reorganize or terminate
the trust or any of its series;
o Removal of shareholder approval requirement for amendments to the new
declaration of trust;
o Removal of shareholder approval requirement to amend the fund's
management contract, allowing the contract to be modified by the
investment manager and the trust management, as permitted by the 1940
Act;
o Allow the trustees to impose other fees in addition to sales charges
on investment in a fund, such as deferred sales charges and redemption
fees that may be imposed upon redemption of a fund's shares;
o Removal of shareholder approval requirement to engage in and terminate
subadvisory arrangements;
o Removal of shareholder approval requirement to change the domicile of
the fund.
*****
CHANGING THE DOMICILE OF A FUND
Vote CASE-BY-CASE on re-incorporations, considering the following factors:
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o Regulations of both states;
o Required fundamental policies of both states;
o The increased flexibility available.
*****
AUTHORIZING THE BOARD TO HIRE AND TERMINATE SUBADVISORS WITHOUT SHAREHOLDER
APPROVAL Vote AGAINST proposals authorizing the board to hire/terminate
subadvisors without shareholder approval.
*****
DISTRIBUTION AGREEMENTS
Vote CASE-BY-CASE on distribution agreement proposals, considering the following
factors:
o Fees charged to comparably sized funds with similar objectives;
o The proposed distributor's reputation and past performance;
o The competitiveness of the fund in the industry;
o The terms of the agreement.
*****
MASTER-FEEDER STRUCTURE
Vote FOR the establishment of a master-feeder structure.
*****
MERGERS
Vote CASE-BY-CASE on merger proposals, considering the following factors:
o Resulting fee structure;
o Performance of both funds;
o Continuity of management personnel;
o Changes in corporate governance and their impact on shareholder
rights.
*****
SHAREHOLDER PROPOSALS FOR MUTUAL FUNDS
ESTABLISH DIRECTOR OWNERSHIP REQUIREMENT
Generally vote AGAINST shareholder proposals that mandate a specific minimum
amount of stock that directors must own in order to qualify as a director or to
remain on the board.
*****
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REIMBURSE SHAREHOLDER FOR EXPENSES INCURRED
Vote CASE-BY-CASE on shareholder proposals to reimburse proxy solicitation
expenses. When supporting the dissidents, vote FOR the reimbursement of the
proxy solicitation expenses.
*****
TERMINATE THE INVESTMENT ADVISOR
Vote CASE-BY-CASE on proposals to terminate the investment advisor, considering
the following factors:
o Performance of the fund's Net Asset Value (NAV);
o The fund's history of shareholder relations;
o The performance of other funds under the advisor's management.
*****
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