Corporate Governance

Shearman & Sterling LLP Introduction | 3 Majority voting Of the Top 100 Companies, 91 have implemented some form of majority voting in uncontested director elections, up from 85 companies last year. Of the remaining nine Top 100 Companies that have not implemented majority voting, one put forth a management proposal and three received a shareholder proposal to do so during the 2012 proxy season. It is clear at this point that majority voting is the rule rather than the exception, which is a marked change from just six years ago when only 11 of the companies we surveyed had implemented majority voting in uncontested 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. Of the 91 Top 100 Companies that have implemented majority voting in uncontested elections, the vast majority have adopted mandatory resignation policies, with various approaches to the manner in which a decision whether to accept a resignation is made. coMpany and Board leadership Since 2010, public companies have been required to disclose their board leadership structure, specifically whether the same person serves as CEO and chair of the board or whether two individuals serve in those positions and why they believe their leadership structure is appropriate. Common explanations for splitting the offices of CEO and chair of the board included that the two offices have different responsibilities, with the CEO focusing on daily operations of the company's business and the chair providing leadership to the board in the oversight of management. justifications for combining these offices included unified leadership in identifying and carrying out strategic priorities, as well as in certain instances the particular longevity, experience and in-depth knowledge of the individual. In 71 of the Top 100 Companies, the same person served as the CEO and chair of the board and in 29 of the companies, the CEO and chair of the board are different individuals. however, in the 2012 proxy season, the number of shareholder proposals calling for an independent chair of the board more than doubled and we expect to see continued pressure on boards to separate the two offices. political contriBution policies for the first time this year, we reviewed disclosure the Top 100 Companies make about their political contribution policies. These policies have received significant attention since the 2010 uS Supreme Court decision in Citizens United v. Federal Election Commission, which confirmed that companies may advocate for the election or defeat of candidates for office, including through ads, even though contributions to individual campaigns are not permissible. Of the Top 100 Companies, 95 have a disclosed political contributions policy, and five of those companies expressly state that corporate funds may not be used for political contributions. five companies referred to the Citizens United decision in their policies and each stated that, notwithstanding the case, it did not intend to use corporate funds to make independent political contributions. shareholder proposals The number of shareholder proposals the Top 100 Companies included in their proxies in 2012 remained essentially unchanged from 2011. While the number of proposals remained constant, 2012 saw a significant shift in the topics that received the most attention. The number of shareholder proposals calling for the board to adopt a policy requiring its chair to be an independent director and not a current or former CEO rose to 25 in 2012, more than doubling the number of similar proposals in 2011. The call for an independent chair was also the corporate governance related proposal most frequently submitted to shareholders in 2012. from 2009 through 2011, the corporate governance related proposal most frequently submitted to shareholders called for the board to take the steps necessary to permit shareholders holding a certain percentage of the company's stock to call special meetings. Only six proposals seeking this right were submitted to shareholders in 2012, compared to 20 in 2011. Interestingly, as was the case in 2011, the average level of support for corporate governance related shareholder proposals was generally below a majority. Even though these proposals do not generally garner majority support, in some cases they may be one of the drivers behind some of the management proposals in recent years implementing corporate governance reforms. August 2012

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