Corporate Governance

Shearman & Sterling LLP Introduction | 3 questions were raised about the SEC's authority to implement those rules. The Dodd-Frank Act resolved those questions and, in August 2010, the SEC adopted new rules that would allow shareholders owning an aggregate of at least three percent of a company's shares continuously for at least three years to include nominees for directors representing up to 25% of the board in the company's proxy materials. The SEC was taking the position that long-term significant shareholders should have the ability to nominate candidates to boards as a matter of fairness and accountability. However, the SEC delayed implementation of the new rules in October 2010 in response to a U.S. Chamber of Commerce and Business Roundtable lawsuit contending that the SEC exceeded its authority in drafting the rules and did not properly evaluate the costs they would impose on companies. As a result of this litigation, the rules were not in effect for this year's proxy season. In late July, the U.S. Court of Appeals for the District of Columbia Circuit found that the SEC had been "arbitrary and capricious" in promulgating the proposed rules and vacated them. At this time, it is not clear whether the SEC will appeal the ruling, rewrite the proposed rules or abandon proxy access for the time being. Majority Voting Of the Top 100 Companies, 85 have implemented some form of majority voting in uncontested director elections, up from 82 last year. Of the remaining 15 Top 100 Companies that have not implemented majority voting, four put forth a management proposal and four received a shareholder proposal to do so during the 2011 proxy season. Generally speaking, majority voting is becoming the rule rather than the exception, notwithstanding that the Dodd-Frank Act, when passed, did not impose majority voting standards on all listed companies in uncontested elections as earlier versions of the law had sought to do. This is a marked change from just five years ago, when only 11 of the companies we surveyed had implemented majority voting in contested director elections. As a result, listed companies that have not yet implemented majority voting should be prepared for this issue to continue to receive a great deal of focus for the foreseeable future from shareholders and advocacy groups. As was the case in 2010, no director standing for reelection at one of the Top 100 Companies failed to receive majority support in 2011. Introduction

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