Corporate Governance

Shearman & Sterling LLP 2 | Introduction proxy access The proxy access rules proposed by the Securities and Exchange Commission (the "SEC") in August 2010 were challenged in a lawsuit filed by the uS Chamber of Commerce and business roundtable and ultimately vacated by the uS Court of Appeals for the District of Columbia Circuit in july 2011. The proxy access rules would have allowed 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 has indicated that it does not plan to propose new proxy access rules in the near term. Although this was a setback for proponents who had anticipated proxy access becoming a reality when the SEC's authority to issue proxy access rules was confirmed in Dodd-frank, proxy access is now being pursued through shareholder proposal submissions. A companion rule amendment proposed by the SEC together with its proxy access rules narrowed an exception in the existing proxy rules that permitted the exclusion of proxy access shareholder proposals from a company's proxy statement. This rule amendment was not vacated in the Business Roundtable lawsuit and became effective in September 2011. The 2012 proxy season was the first time that shareholders were permitted to submit proposals seeking proxy access. At least 23 such proposals have so far been submitted at u.S. listed companies. Of these, two proposals passed and eight successfully were excluded on technical grounds that shareholder proponents have now addressed in the wording of their proposals. however, only one of the Top 100 Companies included in this Survey received a proxy access shareholder proposal this year, and it was rejected. Although the share ownership requirements and other terms of the proposals that were rejected varied significantly, the two proposals that passed had terms similar to those contained in the SEC's vacated proxy access rules. While the results of one proxy season provide only a limited set of information, going forward, proxy access proposals may become a popular method for shareholders to pursue corporate governance reform. The results of our 10th Annual Survey of Corporate Governance Practices of the Largest US Public Companies (the "Survey") show continued focus on corporate governance practices by both corporate boards and shareholders. Although the passage of the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") in July 2010 was an important event in the area of corporate governance, its impact has been limited principally to the advent of "say-on-pay" shareholder advisory votes. Nonetheless, corporations and their boards continue to be under significant scrutiny and shareholders continue to pursue a variety of corporate governance reforms, including in the area of so-called "proxy access". In light of the increased willingness of institutional investors to support (and in many cases, actively advocate for) these reforms, as well as the continued influence of proxy advisory firms, we expect this trend to continue and therefore it remains critical for listed companies to regularly assess their corporate governance practices and other characteristics that could invite shareholder scrutiny. Introduction

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