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July 27, 2007

Executives and the Environment: Looking Back at Proxy Season 2007
    by Anne Moore Odell

With the 2007 proxy season over, shareholders saw a jump in the number of socially responsible proposals, with support growing for climate change proposals and accountability for executive pay. -- Although not all companies have reported their proxy voting results, the 2007 proxy season is wrapping up to be a winner for shareholders concerned about climate change. Shareholders wondering how their money is being spent on executive pay also have showed their support for proposals asking for more rights in helping direct CEO compensation. These issues highlighted a season where socially responsible issues moved into the mainstream, in part, due to the rise of majority voting.

Visit the
Prospectus Ordering CenterThe other story from this past proxy season is the large number of proposals that didn't get voted on. A record number for proposals were delivered to companies and a record number of proposals were withdrawn by proponents: 1150 proposals were penned and 270 plus proposals withdrawn, according to Institutional Shareholder Services (ISS), a provider of corporate governance solutions to institutional investors. This huge number of withdrawals points to a new meeting of the minds between boards of directors and shareholder activists.

More than half of majority voting proposals were withdrawn this year; 140 proposals on majority voting were submitted and over 90 were withdrawn. As of June 30, 50 majority vote proposals have been voted on. Support for majority threshold voting in director elections averaged 49.3% at the 29 meetings where results have been reported.

"We have reached the tipping point for majority voting," said Patrick McGurn, Executive Vice President for ISS. "The question becomes, when does majority voting trickle down to mid-cap and small-cap companies?"

As majority voting becomes the norm at large cap companies, boards are starting to see the importance of meeting with shareholders to come to agreements before proposals are printed up for voting. Shareholders will not support directors who do not respond to proposals that have received majority support.

"Say on Pay" remained a hot topic for proposals this proxy season, the first season since the SEC's new executive compensation disclosure regulations were in effect. Shareholders are trying to connect executive pay with corporate performance and more than 60 proposals were voted on, receiving 35.1% support on average.

"The biggest change this year was compensation disclosure," McGurn told "It was a mixed bag from the investors point of view. On the good side, there was a lot of information. On the bad side, there was a lot of information. With disclosures running 5,000 words long or longer, investors had a lot to sift through for the proxy season."

The usefulness of the information provided on executive pay in the disclosures is something the SEC, companies, and investors will be working on in the off-season, as investors look for ways to understand executives' targeted goals for company earnings.

Over 40 proposals that asked for an annual advisory vote on compensation were voted on with six resolutions withdrawn. ISS reports that as of June 30, support for CEO pay proposals averaged 42.4% at 29 annual meetings. Ingersoll Rand received 57% voting in favor of shareholders having a say on pay. Three other proposals also saw majority support.

Other proposals regarding executive pay received attention this year as well, including proposals regarding "clawback," option grant vesting, severance packages, Supplemental Executive Retirement Plans, "golden parachutes" and executive pay consultants.

This year PROXY Governance, a proxy advisory firm based in Vienna, VA, reports that more than 40 climate related proposals were filed, a huge leap from last year's 27 climate-related proposals. Of these proposals 17 made it to a vote, ten more than last year. More importantly, 19 proposals were taken off the table and withdrawn by proponents after reaching agreement with companies.

Five climate proposals garnered votes of more than 30%, Proxy Governance notes, compared to only one climate change proposal in 2006.

"The terms of the climate debate have changed quickly for companies in carbon-intensive sectors--from whether climate change is occurring and requires disclosure, to whether or not a company's awareness is translating into concrete actions--and this year's proxy season illustrates that," said Michael Pryce-Jones, Senior Social Research Analyst for PROXY Governance. "For example in 2005, less than 6% of GM shares were cast in favor of a proposal calling for more climate-related disclosure. This year, a proposal asking management to publicly adopt GHG reduction goals received 29% support."

Climate change proposals have also started to shift their intent, from just asking companies to report on carbon emissions and produce sustainability reports to actually asking companies to reduce greenhouse gases and transform current business practices to further stop climate change.

"Proponents are pushing the climate debate higher. The business community is also responding. For instance, the Business Roundtable recently called on companies to commit to making GHG emission reductions a priority," commented Pryce-Jones.

"Votes are only one outcome for the proxy season," commented Pryce-Jones. "Many proposals are withdrawn by proponents following agreements with companies on disclosure or other actions."

Socially responsible shareholders and boards of directors are both looking at the long-term profitability of their companies and seeing that social and financial issues are increasingly inter-related. This proxy season, both in constructive meetings between boards and shareholders and in the proverbial voting booth, social issues--such as climate change, executive pay, and political accountability--are the future financial risks.

Although looking at proxy votes is important to understanding the paths companies are on, the numbers only tell part of the story. Numerous conversations took place this proxy season between shareholders and companies and, with majority voting holding boards accountable, shareholders are counting on the companies to make good.

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