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US proxy season - contested elections and Euro activists

Euro investor activism at US firms continues

International pension funds appear ready to continue to pressure U.S. companies to appoint independent board chairs, a leadership structure now commonly adopted by European boards but still relatively rare in the United States. According to research by Proxy Governance  only 25% of U.S. companies now have an independent board chair.

In the first such vote in 2010, UK insurer Legal & General is requesting that credit rating agency Moody’s Corp adopt an independent chair policy at its April 20 meeting (the proposal was co-filed with the Central Laborers’ Pension, Welfare & Annuity Fund).

Independent board chair proposals from Norges Bank Investment Management (manager for the Norwegian Government Pension Fund) came to a vote at four U.S. companies in 2009: Harris Corp, Parker-Hannifin Corp, Cardinal Health Inc and Clorox Co. Railpen, the investment arm of the UK’s Railways Pension Fund, submitted a similar request at Texas Instruments Inc.

One significant difference in the structure of the proposals appears to heavily influence the results. On average, binding resolutions tend to receive lower support than precatory proposals. The Norges Bank proposals, each of which was binding, received support from 16% to 26% of the votes cast, lower than the 35% average support for the non-binding proposals last year.

Contested Elections May Run Significantly Below 2009 Levels

One early indicator of proxy contest activity – preliminary contested proxy filings by either an issuer or a dissident shareholder – suggests that after several years of increases, definitive proxy contests are likely to decline in the 2010 proxy season. Through March 18, 2010, preliminary proxy statements for contested elections had been filed (either by a dissident or the issuer) at just 13 companies, down substantially from 23 for the same period in 2009. Five companies have seen a definitive contested filing so far in 2010, down from nine in 2009.

An even more striking – though perhaps yet incomplete – indicator is the number of contested meetings being held in the first four months of the year. Nine proxy contests were conducted for annual meetings held by April 30, 2009: five went to a shareholder vote, two were settled, and two were withdrawn after the dissident proxy went definitive. In 2010, by contrast, it appears that only three companies with meetings scheduled through April 30 will face a definitive contested election.

Given the expense of mounting a contest, the 2010 contests are remarkable for the tiny size of the target companies. CLST Holdings – which has been in liquidation since the current board took office in a proxy contest three years ago, to protest a prior board’s liquidation plan, and has just announced it will file its certificate of dissolution three days after the March 23 meeting – sports a market capitalization of just $1.2 million. Indiana savings and loan holding company CFS Bancorp, which will hold its contested meeting April 27, has a market cap of $49 million, and restaurant chain Kona Grille, whose contested meeting is April 28, has a market cap of $31 million.

For further on these or any other US governance issues pleas please contact Allie Monaco, Research Manager at Proxy Governance Inc, Manifest’s North American partner. Allie can be reached on +1 703 245 5755.

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