And What a Year It Was!

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With the Sarbanes-Oxley Act in the rear-view mirror for 4 years now, one would think that this would have been a quiet year for corporate governance developments. To the contrary, it was arguably the most dramatic year of change in recent history. Here is a snapshot of some of the most significant developments:

– The majority-vote movement matured at an incredible pace. Within the span of a single year, over half of the Fortune 500 adopted some form of policy or standard to move away from pure plurality voting for director elections. This trend is likely to continue as it’s what investors seek the most.

– An area not touched by Sarbanes-Oxley – executive compensation – continued to be inspected under a microscope by both investors and regulators. The SEC adopted sweeping changes to its compensation disclosure rules and investors became more willing to challenge companies that continue outlandish compensation policies. And House Democrats intend to consider executive compensation legislation early in 2007.

– More and more hedge funds and private equity funds found “value” in using governance as an entree into forcing management to change course. The recent hiring of Ken Bertsch, a former TIAA-CREF governance analyst who had been working for Moody’s, by Morgan Stanley is an indicator that using governance as a “big stick” is likely to continue.

– The recent sales of the two primary proxy advisory services – ISS and Glass Lewis – at handsome premiums reflects that governance as a skill set can be quite profitable.

– The re-opening of the SEC’s “shareholder access” proposal – spurred by a 2nd Circuit decision – was unthinkable a year ago. But it’s now reality.

– The proposed elimination of broker votes in 2008 – via a rulemaking from the NYSE – means that the 2008 proxy season promises to be the wildest yet.

One thing we know for sure – we can’t predict what the New Year will bring! Happy Holidays!

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