Views on improving the integrity of global capital markets
30 March 2012

Corporate Governance Update: Goldman Gives in, Say-on-Pay Fever Spreads, and JOBS Act Leaves Investors Cold

Our apologies for the dominance of the U.K. and U.S. in the March corporate governance roundup, but a lot happened on both sides of the Atlantic this month. However, let’s start with some important developments in Asia and Canada.



According to a recent report, shareowners can play a greater role in influencing corporate governance practices. The report, Reform Priorities in Asia: Taking Corporate Governance to a Higher Level, was released in March by the OECD’s Asian Roundtable on Corporate Governance, of which CFA Institute is a member. The report was endorsed by 13 roundtable countries at a meeting last October.


The Ontario Securities Commission (OSC) announced that it will create an Office of the Investor to better identify and address investor issues. The group is tasked with raising investor concerns internally and establishing links with investor advocacy groups and the OSC Investor Advisory Panel. The announcement came as part of a larger strategic plan released on the last day of February. It follows the collapse of a proposed single national securities regulator for the provinces and territories of Canada.

United Kingdom


According to an interim report of an independent review of investment in U.K. equity markets and its impact on company performance and governance commissioned by the U.K. Department for Business, Innovation and Skills (BIS),  The Kay Review of UK Equity Markets and Long-Term Decision Making, asset managers should engage issuers more on governance issues. The current response period is open until 27 April. You can submit comments to [email protected]. Final recommendations are expected mid-year.


U.K. Business Secretary Vince Cable announced in March that U.K. companies will be required to issue an annual strategic report integrating business strategy, executive pay, and ESG issues — but not until April 2013 to give companies time to adjust. The plan was introduced in a 2011 consultation.

Say on Pay

U.K. issuers could face binding shareowner votes on executive pay with a passing threshold of 75 percent. Firms whose plans fail would be required to keep their existing pay plan in place, or propose a new one to shareowners within 90 days. Votes on how pay plans were implemented the prior year would still be nonbinding. But if they don’t receive at least 75 percent support, the company would be required to state publicly why it failed to meet that threshold and how it would work with shareowners to address the problems. Comments on the plan will be accepted until 27 April at [email protected].

United States

Say on Pay
In March, a second U.S. company, International Game Technology, failed a say-on-pay vote for 2012. The casino game company received 44.4 percent support for its compensation practices at its annual meeting. As was the case with most failed votes in 2011, investors cited a pay-for-performance disconnect.

The only other U.S. company to receive a failed say-on-pay vote thus far this year is Actuant Corp., which received 46.7 percent support for its compensation practices in January.

As of 21 March, the average support level was 90.9 percent, according to ISS Voting Analytics data, which included vote results from 138 companies in the Russell 3000 Index.

It seems that say on pay is working as intended, as many companies and investors are talking through their compensation differences. Although it is still early in the 2012 proxy season, at the end of this year we expect far fewer than the 40+ negative votes we saw in 2011. According to a new report by the Conference Board, the NASDAQ OMX Group, and Stanford University’s Rock Center for Corporate Governance, many companies are improving their pay and disclosure practices. Of the surveyed companies, 72 percent said they review the voting policies of proxy advisory firms or engage with an advisory firm to get feedback on compensation practices.

Companies that received negative votes or low support during their say-on-pay votes in 2011 reported that they are more likely to make changes to their compensation programs this year by improving disclosure, introducing performance-based awards, reducing potential severance payments, changing pay targets, or reducing compensation levels.

The U.S. House of Representatives recently voted 380-41 to approve legislation that would exempt newly public companies from say-on-pay votes and various accounting and disclosure rules. The Senate also approved the bill, known as the “Jumpstart Our Business Startups (JOBS) Act,” by a 73-26 margin. The president has said he will sign the bill into law, which has been criticized by investor advocates — including CFA Institute — and regulators like the SEC.

The JOBS Act would create a new category of newly public issuers, “emerging growth companies,” that would be exempt from say-on-pay votes, golden parachute votes, and various audit, disclosure, and initial offering requirements for five years, or until they reach $1 billion in annual revenues or $750 million in market capitalization.

The final bill does include a Senate amendment that calls for additional requirements for companies that seek to raise funds from investors through “crowdfunding” over the Internet.

42 Companies in the United States Agree to Declassify Their Boards
Forty-two U.S. companies have agreed to declassify their boards (hold board elections every year instead of the typical three-year structure) in response to shareholder proposals, according to Harvard Law School’s Shareholder Rights Project (SRP), which coordinated the campaign.

The SRP notes that these settlements represent about one-third of the S&P 500 Index companies that had classified boards at the start of this year. As recently as 2004, 56 percent of large-cap firms had staggered board terms.

Goldman Sachs Gives in to Investor Pressure
Goldman Sachs agreed to change its board structure to placate the American Federation of State, County and Municipal Employees. The fund agreed to drop a shareholder proposal that could have cost Goldman Chief Executive Lloyd Blankfein his chairman position. According to the deal, Goldman will appoint a “lead” director, but shareholders will not vote at the firm’s annual meeting on a proposal to replace Mr. Blankfein with an independent chairman.

The compromise allows Mr. Blankfein to keep both the CEO and chairman positions until his resignation or retirement. The union fund noted in the now-withdrawn proposal that relieving Mr. Blankfein of his chairman responsibilities would help Goldman repair its reputation.

The announcement about the “lead” director compromise comes soon on the heels of a New York Times op-ed by a former Goldman employee who accused the firm of “ripping their clients off.” Goldman is currently investigating his claims.


About the Author(s)
Matt Orsagh, CFA, CIPM

Matt Orsagh, CFA, CIPM, is a senior director of capital markets policy at CFA Institute, where he focuses on corporate governance, ESG, and climate change analysis. He writes and speaks frequently on these topics on behalf of CFA Institute. His paper, Climate Change Analysis in the Investment Process was named “Best ESG Paper” by Savvy Investor in 2021.

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