The times they are a-changing

Challenging times require a fresh approach to most things and, in response to the rapidly evolving regulatory framework and the shifting needs of its members, the Society of Corporate Secretaries and Governance Professionals (the Society) recently created the new role of senior vice president of policy and advocacy.

Darla Stuckey, who took up the role toward the end of the summer, explains: ‘There is a desire at the Society to do more research, education and advocacy for the members and go to Washington to talk with regulators. There has been an amazing number of things happening on the regulatory front – say on pay, proxy access, Rule 452, the Shareholder Bill of Rights – and we need to be actively involved in the development of new rules, so I have made a few trips to Washington with members of the Society to go to various roundtables and committee meetings at the SEC on various topics.’

‘A few years ago there were fewer voices talking about governance matters on Capitol Hill, and the voices were far less shrill,’ says John Seethoff, deputy general counsel and assistant secretary at Microsoft and chairman of the Society’s policy advisory committee. ‘Given the sheer volume of people talking about governance now, it can sometimes be more difficult to be heard. Times have changed and the Society is changing with them. Other organizations have increased their investment in Washington and it is only reasonable that we will do the same. We do weigh in with things that are going to affect public companies, but the goal is to be a little more visible in DC.’

Voice of experience

Stuckey brings a varied and well-rounded experience to the new position. Most recently she served as assistant corporate secretary at American Express, where she also worked as governance counsel. Other roles include several years at the NYSE and 10 years as a securities litigator with Weil Gotshal & Manges.

‘It is a very interesting move,’ she declares. ‘I had been in a law firm, at the NYSE – which was not a public company while I was there – and then I wanted to be at a public company, which I managed to do. I have always felt strongly about many of the issues the Society is dealing with and I like being an educator so the role had many of the things I was looking for.

‘There are some serious and exciting developments going on right now and I look forward to helping people deal with some of them. There are also some things happening out there that I do not think are good for companies or shareholders and I would like to work to change those. It is exciting and challenging, and a great opportunity. I want to make a difference and am really looking forward to it.’

Stuckey points out that, while the Society is not a formal lobbying group, it does have an important role to play. ‘There are a lot of staffers, and Congressmen for that matter, on the Hill who could use a little education on what our members do, how things really happen in the boardroom and why certain things work better than others, specifically with respect to proxy access,’ she explains.

Apart from more active advocacy with the SEC and lawmakers, the Society is also looking to expand its relationship with other professional organizations in order to provide its membership with an even higher level of service and education.

One of the other goals is to build alliances with certain organizations such as the National Association of Corporate Directors and the National Investor Relations Institute. ‘There is no end of organizations that have reached out looking to partner with us,’ Stuckey points out. ‘We take these proposals to the committee and the board to discuss which ones will increase the services and value we provide for our members. There is a risk group that is reaching out, for example, and there are some international partnerships we are looking at, too.’

Fair comment

With all the changes taking place, the Society is encouraging companies to write comment letters about proxy access. ‘This year we saw an issue in proxy access that was so important it motivated us to do something we have never done before,’ says Stuckey. ‘The securities law committee, which usually drafts the comment letters, actually did a very extensive outline of the issues – nuts and bolts issues on workability – and we posted it on the website, telling people: Use this if you need to. Many of our companies used our outline, but some did their own thing.

‘This is one way we have been helping our members. If a corporate secretary wanted to write a comment letter, he or she would have to go to his or her general counsel and say, I need to hire an outside law firm to help me do this. You wouldn’t have to do this now because most of the outline is already there – you could just run it past the CEO and board and see what they think about it.’

It is likely proxy access will be the dominant issue facing corporate secretaries in 2010. Proxy access is definitely the biggest elephant in the room right now, notes Stuckey. ‘We believe it will come early in the year or in the spring,’ she says. ‘That aside, I think the next really important thing for the following two or three years will be the proxy plumbing issues the SEC says it is going to tackle. It may not be the sexiest topic in the world but it is important to anyone involved in governance at a listed company.’

While the job functions of the Society’s members may vary greatly, some of the responsibilities they all have in common are getting the annual meeting done, getting the votes counted properly and drafting the proxy materials. This is at the core of what all corporate secretaries do so the plumbing issues are going to be important to all members.

At your service
Another important issue is the potential regulation of the role of proxy advisory services. The SEC has spoken several times of its intention to review the role these firms play in the proxy voting mechanism with a view to potentially regulating the industry. ‘This will be of great importance because it deals directly with the annual meeting and voting process,’ explains Stuckey.

One of the interesting things, at a policy level, is how much the actions taken by public companies can mitigate legislation. For example, HealthSouth became the first major US public company to implement a formal reimbursement program for expenses incurred by any shareholder that nominates a director who gains a majority of votes cast. Meanwhile, Microsoft and 26 other companies have voluntarily elected to give shareholders a non-binding advisory vote on executive compensation. There is a growing belief that if companies are seen to be taking their own action and moving forward on some of the more important issues, direct regulation will not be necessary.

Stuckey points out that ‘the shareholder proposal process has worked well, by and large. It worked well for majority voting, for example. At present we have 70 percent of large companies that have some form of majority vote yet only a few years ago almost none did, so the process has been effective.’

Knock-on effects

Part of the concern about direct regulation is that it can have unintended, and potentially damaging, consequences. Take the repeal of the discretionary broker vote in non-contest direction elections, otherwise known as Rule 452. This rule is now a reality and, while it is unlikely many companies will have quorum issues, there are concerns about the impact the change will have on the representation of retail voters, and how lower turnout will affect the outcome of votes.

One of the knock-on effects of this is that there will be less notice and access because it generally reduces the retail vote. ‘It is absolutely a consideration that if you are worried about retail voter turnout, you will want to make sure you are maximizing your retail vote,’ Seethoff says. ‘This means the level of notice and access is going to be a concern. It may just mean companies have to invest more in the solicitation process. This is not really the place most companies want to invest extra resources right now but getting out the company message and making sure the vote occurs is very important – and not inexpensive.’

‘As we continue to flesh out an agenda for the Society, that is one area where we are focusing attention,’ says Stuckey. One interesting question might be: Can we make incremental improvement while people study the entire process?’

‘There are going to be places where we think some level of improvement can be made without having to wait for a two or three-year examination to take any action,’ adds Seethoff.

So what is the workable alternative? One area getting a lot of attention at the SEC is investor education. ‘From a policy standpoint this is interesting but I don’t know how it would work,’ says Stuckey. ‘Voter apathy is very high and I am not sure what can be done to get retail investors to vote. Voting is not the primary motivation for most retail investors when they make share-buying decisions and it is not really something they care about, so convincing them to vote is a difficult task.’

Knowing the score

Even if shareholders are interested in voting, companies still face serious changes in identifying who those shareholders are because of the rules regarding objecting beneficial owners (OBOs) and non-objecting beneficial owners (NOBOs). ‘Many of our members are disappointed or concerned that we got rid of Rule 452 without addressing some of the other plumbing issues, such as access and the NOBO/OBO distinction,’ says Stuckey. ‘The SEC is certainly doing its job well in terms of getting input from all the interested players. That is a positive sign; now we just have to see what it will do with that in the coming months and years.’

The other big issue for boards is the identification and monitoring of risk and the appropriate role directors can and should play in oversight. Apart from the structural issues there are serious disclosure challenges. Education and recruiting will also be a problem. It is important to keep things in perspective, however. A directorship is purely an oversight role and you cannot make directors risk managers: that is not what they are supposed to be doing.

There are plenty of good educational facilities that offer training in these areas and there are also a lot of internal resources available to educate directors. As these issues continue to emerge, the Society will seek to enhance its involvement in the process and increase the level of communication with its members.