Introduction

Business Roundtable www.businessroundtable.org is an association of chief executive officers of leading U.S. companies with more than $6 trillion in annual revenues and more than 12 million employees. Member companies comprise nearly a third of the total value of the U.S. stock markets and pay more than 60% of all corporate income taxes paid to the federal government. Annually, they return $167 billion in dividends to shareholders and the economy. Business Roundtable companies give more than $7 billion a year in combined charitable contributions, representing nearly 60% of total corporate giving. They are technology innovation leaders, with $111 billion in annual research and development spending – nearly half of the total private R&D spending in the United States.

We appreciate the opportunity to participate in this hearing on “Corporate Governance and Shareholder Empowerment” and to discuss the Shareholder Empowerment Act of 2009, the Corporate Governance Reform Act of 2009 and the Proxy Voting Transparency Act of 2009. Because the three bills contain many similar provisions, this written testimony discusses the provisions of the bills on an issue by issue basis.

Business Roundtable has long been at the forefront of efforts to improve corporate governance. We have been issuing “best practices” statements in this area for three decades, including Principles of Corporate Governance (November 2005), which we currently are revising to reflect recent developments in corporate governance,The Nominating Process and Corporate Governance Committees: Principles and Commentary (April 2004), Guidelines for Shareholder-Director Communications (May 2005), and Executive Compensation: Principles and Commentary (January 2007). More recently, Business Roundtable was a signatory to Long-Term Value Creation: Guiding Principles for Corporations and Investors, also known as The Aspen Principles, a set of principles drafted in response to concerns about the corrosiveness that short-term pressures exert on companies. The signatories to The Aspen Principles are a group of business organizations, institutional investors and labor unions, including the AFL-CIO, Council of Institutional Investors and TIAA-CREF, who are committed to encouraging and implementing best corporate governance practices and long-term management and value-creation strategies. In addition, Business Roundtable recently published its Principles for Responding to the Financial Markets Crisis (2009).

At the outset, we must respectfully take issue with the premise that corporate governance was a significant cause of the current financial crisis.1 It likely stemmed from a variety of complex financial factors, including major failures of a regulatory system, over-leveraged financial markets and a real estate bubble.2 But even experts disagree about the origins of the crisis.3 Notably, with the support of Business Roundtable, Congress established the Financial Crisis Inquiry Commission which is investigating the causes of the crisis.

Changes to the financial regulatory and corporate governance systems in the United States represent two enormously complex yet distinct subjects. By combining an examination of the two, public anger surrounding the financial crisis becomes a substitute for a fact-based examination of our corporate governance system. In fact, a legitimate concern is that some provisions in the proposed legislation, such as proxy access, could exacerbate factors that many believe contributed to the crisis, such as the emphasis on short-term gains at the expense of long-term, sustainable growth.4 Thus, we must be cautious that in our zeal to address the financial crisis, we remain focused on the actual causes of the crisis and do not jeopardize companies’ ability to create the jobs, products, services and benefits that improve the economic well-being of all Americans by enacting unnecessary corporate governance reforms.

Moreover, mandating federal corporate governance requirements is inconsistent with the traditional enabling approach of state corporate law, as noted in a recent article on the risks to private enterprise from federal preemption of state corporate law (attached as Exhibit I). Corporate governance involves the relationships between shareholders, the board and management of a company, and it traditionally has been governed by state law. The proposed legislation seeks to impose federal requirements that would deprive shareholders and companies of the ability to take advantage of the enabling nature of state corporate law to tailor their company’s governance practices to the company’s specific characteristics at a given point in time.

We also must consider the sweeping transformation in the corporate governance landscape in the past decade through a combination of legislation, rulemaking by the Securities and Exchange Commission (“SEC”) and the securities markets, best practices documents issued by organizations like Business Roundtable and the National Association of Corporate Directors, and voluntary action by companies. The SEC has adopted rules designed to provide that shareholders receive the information they need to make informed voting decisions, including rules requiring that companies provide shareholders with additional information on executive compensation and corporate governance practices. Similarly, state corporate law has been responsive to developments in corporate governance, most recently with respect to majority voting for directors, proxy access and proxy contest reimbursement. Finally, companies have taken a number of steps to improve their corporate governance practices, as illustrated by statistics cited later in this testimony.

For these reasons and the reasons discussed below, Business Roundtable believes that several provisions of the proposed legislation are inappropriate responses to the financial crisis and could exacerbate the focus on short-term gains at the expense of long‐term, sustainable growth. Moreover, several of the provisions of the bills are otherwise problematic and out of date. Even if Congress proceeds with considering aspects of the bills, there are a number of ways in which they can be improved as well as several other issues that need to be addressed.

Proxy Access

One of the most problematic provisions in the proposed legislation is the provision in the Shareholder Empowerment Act that would require the SEC to issue proxy access rules that would permit shareholders owning as little as 1% of a company’s securities for at least two years to nominate director candidates for inclusion in the company’s proxy materials. Business Roundtable believes that director accountability to shareholders is extremely important but that federal rules on proxy access are not the most effective way to achieve this goal and could result in significant adverse consequences. As we have noted in our comment letter on the SEC’s proposed proxy access rules in August 2009 (attached as Exhibit II), a proxy access rule could exacerbate the short-term focus that is widely considered to be a contributing factor to the financial crisis. The prospect of frequent election contests could cause directors to focus on short-term stock price rather than invest for the creation of long-term value. This already is evident in the practices of some hedge funds, which have encouraged companies where they invest to engage in practices that increase immediate financial returns to shareholders, but may be harmful to longer-term growth, such as demanding overleveraging, increased dividends and reduced capital expenses.

Proxy access also could lead to the election of “special interest” directors, who may promote their own interests or those of the shareholders nominating them at the expense of the interests of other shareholders or the company as a whole. For example, if a union‐nominated or other special interest director candidate obtains a seat on a corporate board, the board could become divided and dysfunctional, thus weakening the company and impeding its long‐term growth. Even if their “special interest” directors are not elected, the company and its shareholders will have been forced to bear the costs and suffer the distraction of a time-consuming and expensive proxy contest.

In view of the substantial cost and disruption and other serious consequences that would result from proxy access, we believe a 1% threshold ownership requirement for nominating shareholders is particularly inappropriate. In this regard, a federal proxy access mandate would result in expensive, highly contentious, and distracting proxy contests. At a time when American business is responding to the financial crisis, we question the wisdom of undertaking actions that will distract management and board attention, invite disruption in the boardroom and discourage directors from serving on boards.

Contemporary boards of directors use a variety of tools and processes to see that qualified directors are presented to shareholders for election. They strategically review skills matrixes of current directors, carefully assess forward-looking skills requirements on the board considering specialized needs, such as audit committee financial experts, see that the relevant knowledge is present to provide guidance, counsel and oversight and undertake evaluations of the board and its committees. They then disclose to shareholders their criteria for board membership along with the qualifications and experience of the nominated directors. A federally mandated proxy access regime cannot substitute for this carefully crafted qualification, assessment and skills prioritization process. Furthermore, shareholders who disagree with decisions made by a board of directors elected pursuant to this process can use the mechanisms afforded them under the existing framework by voting against directors or “voting with their feet” by selling their shares. Shareholders also can make their views known through nominating their own director candidates and engaging in election contests. Many companies also provide means for shareholders to communicate with the board about various matters, including recommendations for director candidates and the director election process in general.

Despite these concerns about a federally mandated proxy access regime, Business Roundtable believes that shareholders and companies should be able to consider recent state proxy access enabling statutes and to implement proxy access provisions that are adapted to the distinct characteristics and needs of the individual company or, alternatively, to determine that proxy access is unnecessary or inappropriate at their company. Thus, we support proposed revisions to SEC Rule 14a-8 to allow shareholders to offer customized proxy access proposals with the modifications discussed in our comment letter on the SEC’s proposed proxy access rules. In 2009, the Delaware legislature adopted amendments to the Delaware General Corporation Law that expressly permit companies to adopt bylaw provisions allowing shareholders to include director nominees in company proxy materials and provide for the reimbursement of expenses incurred by shareholders in connection with proxy contests.5 In addition, the American Bar Association recently adopted amendments to the Model Business Corporation Act similar to those enacted in Delaware.6 The Shareholder Empowerment Act would instead create a federal mandate that would deprive shareholders and their companies from exercising their rights under state law to determine whether or not, and to what degree, they wish to permit shareholders to include director nominees in company proxy materials.

Separation of Chairman and Chief Executive Officer

Both the Shareholder Empowerment Act and the Corporate Governance Reform Act would require that the chairman of the board of directors be an independent director. Business Roundtable recognizes the importance of independent board leadership, as reflected in our Principles of Corporate Governance, but a single method of providing that leadership is not appropriate for all companies at all times. Thus, while some companies have separated the positions of chairman of the board and chief executive officer, and at some of these companies the chairman is independent, others have voluntarily established lead independent or presiding director positions. These lead or presiding directors generally are responsible for approving the agenda for board meetings, as well as the information to be provided for the meeting, calling and chairing executive sessions of the board and performing other functions. Recent studies indicate that companies have been implementing changes to their board leadership structures to enhance board independence. According to the RiskMetrics Group 2010 Board Practices survey, from 2003 to 2009, the number of S&P 1,500 companies with separate chairmen of the board increased from 30% to 43%. In addition, a 2007 Business Roundtable survey of member companies indicated that 91% of member companies have an independent chairman or an independent lead or presiding director, up from 55% in 2003. Finally, according to the 2008 Spencer Stuart Board Index, by mid-2008, 95% of S&P 500 companies had a lead or presiding director, up from 36% in 2003.

Companies need the ability to adapt their leadership structures to their individual circumstances depending on the needs of the company at any particular time in its evolution. For example, a company may determine that separating the roles of chairman and chief executive officer will weaken its ability to develop and implement its strategy and that combining the roles would provide the most efficient and effective leadership model. On the other hand, during the transition to a new chief executive officer, some companies may determine it is appropriate to have a separate chairman to allow the new chief executive officer to focus primarily on management responsibilities. This illustrates the need for, and advantages of, being able to determine the approach to independent board leadership that will work most effectively for them at different points in time. Our Principles of Corporate Governance reflect this concept that a company’s board leadership structure should not be static, but rather should be considered as part of the succession planning process in light of the company’s facts and circumstances.

Shareholders today are being provided with more information about their companies’ board leadership structures. While many companies have addressed this issue in their corporate governance principles for quite some time, the SEC recently required companies to provide disclosure to shareholders about board leadership.7 Specifically, companies are required to discuss whether they combine or separate the positions of chairman and chief executive officer and describe why their leadership structure is appropriate for the company. As a result of these new disclosures, shareholders now have more information to assess whether their company’s leadership structure is appropriate. Shareholders also have the ability to use the SEC’s shareholder proposal process under Rule 14a-8 to seek a particular leadership structure at the companies in which they invest. Indeed, RiskMetrics statistics indicate that in 2009 companies held votes on 39 independent chairman shareholder proposals.8
Mandating a board leadership structure for the more than 10,000 public companies, regardless of their size, organizational structure, location, business, industry or shareholder base, simply will not work. Dictating a particular board leadership structure could seriously impact companies’ ability to operate effectively, thereby jeopardizing job creation and the creation of shareholder value.

Say on Pay

All three proposed bills would require companies to hold an annual shareholder advisory vote to approve the compensation of executives, as disclosed in the proxy statement. While Business Roundtable supports choice for shareholders, including the choice to hold an advisory vote on compensation, we are concerned with a one-size-fits all approach to a say on pay requirement that is applicable to all public companies.
The SEC’s shareholder proposal process under Rule 14a-8 affords shareholders the ability to request that companies implement say on pay. In this regard, since 2007, shareholder proposals requesting that companies provide for an advisory vote on executive compensation have become increasingly popular. According to RiskMetrics statistics, in 2009 companies held votes on 79 shareholder proposals seeking an advisory vote on executive compensation.9
Moreover, some companies already have adopted advisory votes in response to shareholder proposals or voluntarily, but in ways they consider most meaningful for their shareholders and most beneficial for the particular company. For example, several companies, including Pfizer Inc. and Colgate-Palmolive Co., have opted for biennial advisory votes, and others like Microsoft Corp. have opted for triennial advisory votes. These alternative approaches are more appropriate for many companies because they are more consistent with the time horizon of many companies’ compensation programs.

Broker Discretionary Voting in Uncontested Director Elections

The Shareholder Empowerment Act would prevent brokers from voting securities on an uncontested director election without specific instructions from the beneficial owner of those securities. However, this provision is unnecessary as broker discretionary voting in uncontested director elections was eliminated for all shareholder meetings held after January 1, 2010 under a New York Stock Exchange (“NYSE”) rule change approved by the SEC in July 2009. Because the NYSE rule applies to brokers, the amendment applies not only to companies listed on the NYSE, but also to companies listed on other exchanges such as NASDAQ or NYSE Amex.

Majority Voting

The Shareholder Empowerment Act would require majority voting in uncontested director elections and require companies to adopt director resignation policies relating to director elections. A federal mandate applicable to all public companies is not warranted in this area.

A number of states have adopted legislation to clarify or ease the adoption of some form of majority voting in director elections. For example, Delaware amended its corporate law to provide that, if shareholders approve a bylaw amendment providing for a majority vote standard in the election of directors, a company’s board of directors may not amend or repeal the shareholder-approved bylaw.10 Other states have also amended their corporations statutes to address majority voting as well, including California, Nevada, North Dakota, Ohio, Utah and others.11 In addition, the American Bar Association approved amendments to the Model Business Corporation Act permitting a company’s board or shareholders to adopt majority voting in director elections through bylaw amendments rather than through a more cumbersome process.12

These enabling statutes have facilitated the rapid response of companies and their shareholders to the majority voting movement, which began in 2004 when several labor unions and other shareholder groups began to advocate that companies adopt a majority voting standard in uncontested director elections in order to improve directors’ accountability to shareholders. Companies and shareholders alike recognized the merits of a majority voting standard, and this corporate governance enhancement was swiftly adopted by many companies. Research indicates that, as of late 2008, more than 70% of S&P 500 companies had adopted a form of majority voting, up from less than 20% in 2006,13 and mid‐ and small‐cap companies increasingly are adopting majority voting as well.14

Nevertheless, while majority voting is appropriate for many companies, there are circumstances at some companies that make plurality voting a better alternative; for example, at companies where shares are held by only a few large shareholders. Further, voluntary company action, combined with the SEC’s shareholder proposal process under Rule 14a-8, has proven to be an effective means for shareholders to seek to implement majority voting. Once again, this should be an issue for shareholder choice.

Performance Target Disclosure

The Shareholder Empowerment Act would require disclosure of “specific performance targets that are used by issuers to determine a senior executive officer’s eligibility for bonuses, equity and incentive compensation.” This provision is largely duplicative of SEC rules that already require the disclosure of performance targets in the Compensation and Discussion Analysis of a company’s proxy statement, unless this disclosure involves confidential trade secrets or confidential commercial or financial information that, if disclosed, would result in competitive harm. The standard to establish that disclosure of performance targets would cause competitive harm to the company is a strict one,15 as the SEC staff has emphasized in comment letters to companies seeking revisions to their filings. Accordingly, the performance target disclosure requirement in the Shareholder Empowerment Act is not necessary.

Independent Compensation Consultants

The Shareholder Empowerment Act would require that any compensation advisor engaged by a company be independent of the company and its executives and directors. New SEC disclosure rules require companies to disclose additional information about the fees paid to their compensation consultants and affiliates of the compensation consultant when such consultant provides other non-compensation related services to the company.16 This additional disclosure requirement informs shareholders of any possible conflicts of interest and encourages companies to establish practices to avoid even the appearance of a conflict of interest. Business Roundtable believes that requiring compensation consultant independence is unnecessary as shareholders now have information about services provided by compensation consultants and can express their views if they have concerns. Moreover, as a result of the focus on the issue of compensation consultant conflicts of interest, a number of boards have reviewed, and others are reviewing, their practices with regard to the services provided by compensation consultants, and some executive compensation consultants are breaking away from full service consulting firms. Accordingly, legislation in this area is unnecessary.

Severance Agreements Tied to Performance and Advisory Vote on Golden Parachute Compensation

The Shareholder Empowerment Act would prevent companies from entering into agreements providing for severance payments to executives who are terminated for poor performance, and the Proxy Voting Transparency Act would require a separate shareholder advisory vote on “golden parachute compensation” (i.e., any compensation, whether present, deferred or contingent, based on or related to a merger, acquisition or sale of assets). The advisory vote on executive compensation proposal included in both the Shareholder Empowerment Act and the Proxy Voting Transparency Act and discussed above affords shareholders an advisory vote on all compensation discussed in the company’s proxy statement. In this regard, current SEC rules require extensive disclosure about potential termination payments to executives, including any severance or “golden parachute” arrangements. Thus, shareholders already have information about agreements providing for potential severance payments to executives and would have the ability to express their approval or disapproval of such agreements through the say on pay vote. Given this mechanism for shareholder feedback, a separate prohibition or vote on termination payments is unnecessary.

Independent Risk and Compensation Committees

The Corporate Governance Reform Act appears to require that risk management at public companies be overseen by an independent board committee or the full board. Such a requirement is unnecessary since under both NYSE listing standards17 and state corporate law,18 boards of directors already have the responsibility for overseeing risk management. Most recently, the SEC has adopted rules requiring disclosure of the board’s role in risk oversight.19 While some boards currently address risk through their audit committees, other boards have placed responsibility for some aspects of risk oversight to other board committees while still others address risk at the full board level.20 Our 2010 Principles of Corporate Governance will emphasize the importance of the board of directors taking a proactive role in overseeing the company’s risk assessment and risk management processes.

The Corporate Governance Reform Act also appears to require that a company’s compensation practices and structure be overseen by an independent board committee or the full board. This provision also is unnecessary as both NYSE and NASDAQ listing standards require independent oversight of compensation decisions.21 Moreover, due to SEC rules and the Internal Revenue Code, other companies also have compensation decisions made by committees composed of independent directors.22 According to the RiskMetrics 2010 Board Practices survey, the compensation committees of S&P 500 companies maintained a 99% independence level in 2009, up from 94% in 2003.

Chief Risk Officer

The Corporate Governance Reform Act would require companies to appoint a chief risk officer. As reflected in our Principles of Corporate Governance, management plays an important role in identifying and managing the risks that a company undertakes in the course of carrying out its business as well as the company’s overall risk profile. Nevertheless, companies take a variety of approaches in implementing a management-level risk management structure that is appropriate for the needs of the particular company. For example, many companies in the financial services industry have a chief risk officer, while at companies in other industries the chief risk management role may be held by a different individual or responsibility for risk management may be shared by several individuals. The types of risks companies face vary tremendously according to a variety of factors, including a company’s industry, size and business. Consequently, companies must be able to tailor their risk management structure to their business and their overall management structure.

Clawback Policies

The Shareholder Empowerment Act would require company boards or board committees to develop a policy for reviewing any “unearned bonus payments, incentive payments or equity payments that were awarded to executive officers owing to fraud, financial results that require restatement, or some other cause,” for the purpose of recovering or cancelling any unearned payments. The SEC already has the authority under the Sarbanes-Oxley Act of 2002 to recoup certain cash and equity incentive compensation paid to the chief executive officer and chief financial officer in the event of an accounting restatement as a result of misconduct. In addition, many companies have voluntarily adopted clawback policies with broader coverage. According to a 2009 Equilar study, 72.9% of Fortune 100 companies have publicly disclosed that they maintain a clawback policy, up significantly from 17.6% in 2006.23 Companies with existing clawback policies also are modifying them to expand their coverage.24 In adopting clawback policies companies recognize, as any legislation should, the importance of giving some discretion to a company’s board of directors in administering the policy to address the myriad circumstances that may occur.

Director Certification

The Corporate Governance Reform Act would require the SEC to conduct a study on the feasibility of requiring, and the logistics of implementing, a certification process under which director candidates would be required to obtain certification by the SEC. The SEC’s primary role is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. The SEC does not have any particular expertise in evaluating the background and experience of individuals to determine whether they are qualified to serve as directors. Instead, the SEC recently adopted rules requiring expanded disclosure of the skills and experience of each director nominee that led to the conclusion that the nominee is qualified to serve as a director of the company.25 As a result of these new disclosures, shareholders now have more information on which to make a judgment with respect to director nominees. Many private organizations provide director education and training and some, such as the National Association of Corporate Directors, provide a certification program for directors. This is not an appropriate role for the federal government.

Other Related Issues That Should Be Considered

Before adopting legislation that would make sweeping corporate governance changes, is important to considers a number of related areas. For example, concerns about the current shareholder communications system, the integrity of the proxy voting system and the influence of the proxy advisory services have been raised by many groups in recent years, including the Business Roundtable and the Council of Institutional Investors. We are pleased that SEC Chairman Mary Schapiro has indicated that the Commission is beginning its study of these issues, but they must be resolved prior to or at least in conjunction with the implementation of some of the changes in the proposed legislation.

Fixing the Shareholder Communications System

The shareholder communications system in the United States is complex and integrated, involving companies, directors, shareholders, proxy solicitors, proxy voting services and others. Rules administered by the SEC make it difficult and expensive for companies to communicate with the beneficial owners of their securities held in street name, as described by the Shareholder Communications Coalition, of which Business Roundtable is a member (see Exhibit III), and in a recent white paper commissioned by the Council of Institutional Investors (attached as Exhibit IV).

Problems with the current shareholder communications system need to be resolved before the adoption of corporate governance legislation as certain provisions will increase the need for companies to communicate with their shareholders. More frequent proxy contests brought about by proxy access would result in additional communications between companies and their shareholders in order to solicit support for candidates. Proxy access would add to the already‐increasing need for companies to communicate with their shareholders, which has resulted from greater activism by institutional shareholders, the prevalence of majority voting and the elimination of broker discretionary voting in uncontested director elections.

While companies have been increasing their engagement efforts through meetings with their large shareholders to discuss governance issues, as well as using surveys, blogs, webcasts and other forms of electronic communication, the current shareholder communications system stands in the way of these efforts.

Voting Integrity

It is also critical that concerns related to the integrity of the current proxy voting system be addressed. Numerous commentators have noted that the proxy voting system in the United States is antiquated, byzantine and inadequate.26 Complexities in the proxy voting system can lead to problems such as empty-voting (voting with no economic interest due to hedging or derivatives) and over-voting (in the case of loaned shares), which raise concerns regarding the integrity of the proxy voting process.27 An increase in the frequency of contested elections, which would likely stem from any federal proxy access mandate, will place additional demands on an already over‐burdened and ill‐functioning system. Accordingly, it is important that such issues be considered before any federal proxy access right is mandated.

Undue Influence of Proxy Advisory Services

The role of proxy advisory services and the processes used by these firms in generating voting recommendations and making voting decisions needs to be addressed, including considerations of increased regulatory oversight and transparency. Current laws impose fiduciary responsibilities on investment advisors, investment companies, and most retirement and pension plans in voting their proxies. Because many institutional investors and their third-party investment managers do not have sufficient staff to review and vote on proxy items, they outsource their voting decisions to proxy advisory firms, which frequently apply a one-size-fits-all approach to their voting recommendations. Widespread use of proxy advisory services by institutional investors has resulted in proxy advisory firms having a significant impact on shareholder voting and corporate governance. As noted earlier, a federal proxy access mandate will increase the frequency of director election contests, and, accordingly, increase the influence of proxy advisory firms.

Despite their significant influence, proxy advisory firms remain largely unregulated and provide limited and varied transparency about their methodologies and decision-making processes. Consideration should be given to more robust oversight of proxy advisory services by the SEC, including conflict of interest disclosure, standards for professional and ethical conduct and disclosure of the methodology used by proxy advisory firms. Moreover, consideration should be given to the oversight by institutional investors with respect to any delegation, either expressly or implicitly, of their voting rights to a proxy advisory firm.

Conclusion

Business Roundtable is committed to corporate governance practices that enable U.S. companies to compete globally, create jobs and generate long-term economic growth. We believe in corporate boards and management holding themselves to high standards of accountability and making changes in their governance practices as necessary and appropriate, taking into account the circumstances and shareholder wishes at individual companies. We are concerned that the proposed legislation would take these choices away from companies and their shareholders and endanger the engine of economic growth that is the American corporation.

Footnotes

1 See Lawrence Mitchell, Protect Industry from Predatory Speculators, FINANCIAL TIMES, July 8, 2009. Professor Mitchell, a George Washington University law professor, argues that it is “hyperbolic” to suggest that inattentive boards had anything significant to do with the current recession.

2 See Robert G. Wilmers, Where the Crisis Came From, THE WASHINGTON POST, July 27, 2009.

3 Ben S. Bernanke, Four Questions About the Financial Crisis (Apr. 14, 2009), available at http://www.federalreserve.gov/newsevents/speech/bernanke20090414a.htm (observing that experts disagree about the appropriate weight to give to various explanations for the crisis).

4 See Lawrence Mitchell, Protect Industry from Predatory Speculators, FINANCIAL TIMES, July 8, 2009.

5 Delaware General Corporation Law §§ 112 and 113 (2009).

6 See Press Release, American Bar Association, Corporate Laws Committee Adopts New Model Business Corporation Act Amendments to Provide for Proxy Access and Expense Reimbursement (Dec. 17, 2009). Thirty states have adopted all or substantially all of the Model Business Corporation Act. See Model Business Corporation Act, Introduction (2008).

7 See Proxy Disclosure Enhancements, SEC Release No. 33-9089, 34-61175, 74 Fed. Reg. 68,334 (Dec. 23, 2009).

8 RiskMetrics 2009 Proxy Season Scorecard (Dec. 15, 2009), available at http://www.riskmetrics.com/knowledge/proxy_season_watchlist_2009.

9 Id.

10 Delaware General Corporation Law § 216.

11 See California Corporations Code § 708.5 (2009); Nevada General Corporation Law § 330 (2009); North Dakota Century Code § 10-35-09 (2009); Ohio General Corporation Law § 1701.55 (2009); Utah Revised Business Corporation Act § 728 (2009).

12 Model Business Corporation Act § 10.22.

13 Melissa Klein Aguilar, Shareholder Voices Getting Louder, Stronger, COMPLIANCE WEEK, Oct. 21, 2008, available at http://www.complianceweek.com/article/5113/shareholder‐voices-getting‐louder‐stronger.

14 Claudia H. Allen, Study of Majority Voting in Director Elections (Nov. 12, 2007), available at http://www.ngelaw.com/files/upload/majoritystudy111207.pdf.

15 The instructions to Item 402(b) of Regulation S-K provide that the standard for determining whether disclosure would cause competitive harm is the same standard that would apply when a company requests confidential treatment pursuant to Rule 406 under the Securities Act of 1933 and Rule 24b-2 under the Securities Exchange Act of 1934 (the “Exchange Act”), each of which incorporates the criteria for non-disclosure under section 552(b)(4) under the Freedom of Information Act. Section 552(b)(4) provides an exemption from disclosure for matters that are “trade secrets and commercial or financial information obtained from a person and privileged or confidential.”

16 See Proxy Disclosure Enhancements, supra note 7.

17 See NYSE Listed Company Manual, Rule 303A.07(c)(iii)(D). The NYSE listing standards require that the audit committee “discuss policies with respect to risk assessment and risk management.” The commentary to the listing standards states that the audit committee “is not required to be the sole body responsible for risk assessment and management, but . . . must discuss guidelines and policies to govern the process by which risk assessment and management is undertaken.”

18 See In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996).

19 See Proxy Disclosure Enhancements, supra note 7.

20 For example, environmental risks may be overseen by the environment, health and safety committee and compensation-related risks may be overseen by the compensation committee.

21 See NYSE Listed Company Manual, Rule 303A.05(c); NASDAQ Marketplace Rules, Rule 5605(d).

22 See Exchange Act Rule 16b-3; Internal Revenue Code § 162(m).

23 Press Release, Equilar Inc., Clawback Policies Get More Clarity in 2009 (Nov. 18, 2009), available at http://www.equilar.com/press_20091118.php.

24 See Katie Wagner, PepsiCo Expands Clawback Policy Following Risk Review, AGENDA (Mar. 29, 2010), available at http://www.agendaweek.com/articles/20100329/pepsico_expands_clawback_pol....

25 See Proxy Disclosure Enhancements, supra note 7.

26 See, e.g., Voting Integrity: Practices for Investors and the Global Proxy Advisory Industry, The Millstein Center for Corporate Governance and Performance (2009), available at http://millstein.som.yale.edu/Voting%20Integrity%20Policy%20Briefing%200... 09.pdf; John C. Wilcox, Shareholder Nominations of Corporate Directors: Unintended Consequences and the Case for Reform of the U.S. Proxy System, Comment, SEC File No. 4-537 (May 13, 2007); Charles Nathan, “Empty Voting” and Other Fault Lines Undermining Shareholder Democracy: The New Hunting Ground for Hedge Funds, THE CORPORATE GOVERNANCE ADVISOR (Jan./Feb. 2007).

27 See, e.g., Henry T.C. Hu and Bernard Black, The New Vote Buying: Empty Voting and Hidden (Morphable) Ownership, 79 S. CAL. L. REV. 811 (2006).