Depending on whom you ask, when it comes to shareholder activism and corporate governance issues this year’s proxy season is a glass half full, a glass half empty, or a glass completely shattered.

On the pro-activist side:

Provisions of the 2010 Dodd-Frank financial reform bill, and related moves by the Securities and Exchange Commission, mean that shareholders for the first time will be able to weigh in on a number of issues.

The SEC in January adopted final rules that required shareholders get a “say-on-pay” vote on executive compensation and an opportunity to indicate how often they’d like such a vote.

Or, as Paul Hodgson, senior research associate at the Corporate Library, wrote in his Ratings Haiku V:

To say on pay or
Not to say on pay? Three years?
Or each blossom time?

The new rules apply starting with shareholders’ meetings on or after Jan. 21, 2011.

Many companies are recommending an every-three-year vote (one recent tally of 150 proxy statements found 82 companies recommending triennial, 47 annual), but there are exceptions.  Apple Inc. directors, for example, are proposing that the advisory vote be conducted annually.  (But, as previously noted here, Apple’s board opposed a shareholder proposal to adopt a written CEO succession planning policy.  Apple CEO Steve Jobs has had a liver transplant and this January announced he was taking a medical leave of absence.)

Proxy advisory service ISS recommends an annual vote, and in January, a group of 39 institutional investors with more than $830 billion in assets called for annual votes. “The discipline of an annual vote will encourage Boards to be more responsive and accountable on compensation,” said Timothy Smith, senior vice president of Walden Asset Management, one of the group’s members. And a number of major mutual funds have indicated they’ll support an annual vote.

Already this year shareholders have rejected a triennial schedule at Costco Wholesale (52.8% for an annual vote),  Johnson Controls (58.6% for every year), at Monsanto (62.2% for an annual vote), and at Jacobs Engineering (66%).  Monsanto subsequently announced it would conduct an annual say-on-pay vote.

A January analysis by the Latham & Watkins law firm observed that annual say-on-pay votes “may take some of the pressure off director elections” by directing attention to pay issues, while “less frequent votes may allow an unpopular pay practice to continue too long without timely feedback.”   Triennial votes, it suggested, “will provide shareholders sufficient time to evaluate the effectiveness of short- and long-term compensation strategies.”

The new rules also require advisory votes on executive compensation (a majority of Jacobs Engineering shareholders also voted against the company’s compensation practices) and on golden parachute provisions where mergers are in the works, although small public companies with a public float of less than $75 million don’t have to adopt such votes until 2013 annual meetings.  The Dodd-Frank legislation forbids brokers from giving proxies to vote shares without instructions from beneficial owners on matters relating to executive compensation; the change will cut down on the size of the vote and remove corporate leverage in voting broker proxies on pay issues.

Noted attorney Martin Lipton and colleagues, in a recent memo on governance, declares “This latest round of reforms is remarkable not because it has ushered in bold new ideas for improving governance, but rather because of the extent to which it has one-sidedly embraced the shareholder rights agenda and further expanded the ability of shareholders to direct corporate decision-making. As a result of the Dodd-Frank Act and other reforms, boards will increasingly need to solicit shareholder views and support for a range of decisions – including executive compensation and director nominations—that have traditionally been a core responsibility of boards.”

In Mr. Lipton’s view, “we have reached a point of serious debate…as to whether the scales have tipped too far in empowering shareholders and preventing boards and management from managing for the long term.”

Even if proxy access rules are struck down, Mr. Lipton says, “it is likely that activists will pursue shareholder proposals and bylaw amendments to impose proxy access on a company-by-company basis.”  Despite the legal uncertainties, he suggests, “companies will need to engage constructively and proactively with shareholders and, in the cases where directors nominated by shareholders are successfully elected, boards will need to work to minimize the potential for adverse effects on board stability, collegiality and effectiveness.”

He urges boards and compensation committees to “review compensation policies with great care, being mindful of pay-for –performance principles while also seeking to avoid policies that will encourage excessive risk-taking.”

He has commented several times on the increased problems in recruiting corporate directors, given regulatory and investor emphasis on “director independence at the expense of other skills and qualifications.”  Such factors “preclude the candidacy of insiders with extensive, day-to-day knowledge of the company” as well as industry experts with “naturally developed relationships and affiliations in the sector.”  He concludes “given the importance of expertise, there should be no complaint about adding additional inside directors to a board so long as a majority of the board consists of ‘independent’ directors.”

On the hurry-up-and-wait side:

The long-sought proxy access rules, adopted by the SEC last year, are frozen pending an aggressive legal challenge by the U.S. Chamber of Commerce and the Business Roundtable.

The SEC has adopted a rule allowing shareholders with at least three percent of ownership for at least three years the right to have their own board candidates listed on the proxy ballot without the need for an often-expensive proxy fight. The Chamber/Business Roundtable lawsuit asserts, among other things, that the SEC exceeded its authority, violated companies’ First and Fifth Amendment rights, erred in appraising the costs of proxy access, ignored evidence of adverse consequences of the rule, and ignored state laws on proxy access.  The SEC filed its response in January, and the case will be herd by the U.S. Court of Appeals for the D.C. circuit April 7.

A useful analysis of major arguments in the case has been published at the Conference Board’s Governance Center Blog.

An amicus brief supporting the SEC rule has been filed by the Council of Institutional Investors. CII executive director Ann Yerger says proxy access will “make companies more responsive to their shareowners and more vigilant in their oversight of management.”  And a group of 36 law professors, who hold varying views on many corporate governance and legal issues, have filed a brief arguing the SEC rule doesn’t violate the First Amendment.

While corporate pay and proxy issues are dominating the blogs and legal commentary, the 2011 proxy season will include a wide range of environmental, social and governance issues.  The Interfaith Center on Corporate Responsibility, whose members last year filed 308 shareowner resolutions, and withdrew dozens more after conducting dialogues with companies, has tallied 159 resolutions filed so far, SocialFunds.com reported in January.

In an interview with SocialFunds, ICCR executive director Laura Berry noted that at least 25 resolutions address corporate political spending, reflecting concern over the 2009 U.S. Supreme Court decision in the Citizens United case.  Other resolutions seek disclosure on indirect political spending by corporations through trade associations, address labor practices in agriculture, and examine healthcare access and how pharmaceutical companies can address neglected diseases, she said.

On the snarky side, one critic is boldly declaring “corporate governance is dead.”  John Richardson, who blogs on governance, risk and human rights issues at Global Investment Watch, declared at year end that “Corporate Governance as we know it is dead. Gone. Pfffft.  As 2010 comes to a close, we must all come to terms with the fact that this old clunker has seen its day. Its rusted hood ornament and fins are of a bygone era, an artifact of another time.”

After tracing the mid-2000s history of governance issues, and noting the various mergers in the proxy advisory world, Mr. Richardson declares “…the arcane discussions about executive pay, director responsibility and risk are proving to be ever more irrelevant in a world concerned about the influence of the corporate enterprise on society and the environment.  Corporate Governance as a tool for addressing these problems has lost its edge.  While these discussions remain important to the initiated, its backward-looking approach and its failure to influence the ills of global corporate conduct speaks to its ultimate irrelevance.”

His rant prompted James McRitchie of CorpGov.net to respond: “Richardson appears ready to throw in the towel even before the most significant reform, proxy access, has even been implemented.”  He cites increased numbers of issues submitted to corporate annual meetings and declares “if individuals embrace the importance of corporate governance in both their equities and in how their institutions vote, half the battle will be won.  Corporate governance is far from dead.”

Dead or not, governance continues to intrigue researchers.  The conservative Manhattan Institute for Policy Research has launched ProxyMonitor.org containing information on all shareholder proposals submitted for a vote between 2009 and 2010 at the 100 largest American public companies.

The Institute’s initial analysis of the proxy statements finds that “a substantial percentage of shareholder proposals have little to do with corporate performance or increasing share value. Issue-advocacy groups with social agendas that go beyond shareholder protection as well as labor unions with interests that sometimes conflict with those of the average shareholder are major sponsors of shareholder proposals. Also striking is the large role in shareholder activism played by ‘corporate gadflies,’ individuals who repeatedly initiate shareholder proposals despite having only small holdings in a wide variety of companies.”

Females still have a long way to go before being represented in equal numbers and equal responsibility in corporate boardrooms, according to a new report from The Corporate Library, a corporate governance research firm.

Citing “uneven progress” in increasing female participation in governance, the report found that while almost 90 percent of S&P 500 companies have at least one woman board member, there are far fewer female directors at smaller companies.  Only 60 percent of the companies in the Russell 3000 index have at least one woman director.  And among “small cap” companies in the Russell 2000 Index (a subset of the Russell 3000), half have no female directors at all.

Board diversity is one focus of new Securities and Exchange Commission rules announced in December 2009 requiring that a company disclose how its board nominating committee considers diversity in assessing nominees and how the committee implements the effectiveness of the company’s diversity policy.

The latest report echoes the findings of a December survey by Catalyst, a non-profit organization that focuses on issues related to women in business, which found that in both 2008 and 2009, almost 90 percent of Fortune 500 companies had at least one women director, but less than 20 percent had three or more women serving together. Catalyst found that in 2008 women collectively held a total of only 15.2 percent of board seats among Fortune 500 companies.

Corporate Library found that “even among the S&P 500 companies with female directors, women are typically a small minority and hold few positions of responsibility,” with only 57 percent having at least two women directors, and only 19 percent with more than two women.

Among S&P 500 companies, the report found that only 14 have female board chairs, and of those 11 are also the CEOs of their companies.  Corporate Library said: “Only 45 S&P 500 companies have women chairing their compensation committees; 58 have female audit committee chairs; and 75 have a woman leading their nominating committees. Very few companies have women in two or more of these positions of responsibility.”  Xerox Corporation is the only company in the S&P 500 that has a woman serving as chair of the board and another woman serving as CEO.

The report concluded that “gender parity—measured both by absolute numbers and by the levels of responsibility given to women—is still far out of reach” and recommended that a broader pool of female director candidates be developed, so more women are ready and willing to serve on corporate boards. “Once women are on boards, they must be given equal opportunity to serve in positions of leadership and influence, such as chairing the board or key committees,” Corporate Library said.

Television viewers in more than 3 million homes in New York City and its suburbs discovered this morning that their cable TV provider was no longer carrying local station WABC, flagship of the ABC Television network, raising the possibility that they might not be able to watch tonight’s globally-televised 82^nd annual Academy Awards ceremony.

The cutoff came after the breakdown of negotiations between The Walt Disney Company, which owns ABC, and Cablevision Systems Corporation, one of the nation’s largest cable companies.   Disney wants more from Cablevision in so-called “retransmission fees” for the right to transmit the WABC signal to the cable company’s subscribers.  When the two sides couldn’t reach agreement by their current contract deadline, Disney pulled the WABC signal.

These two prosperous companies will undoubtedly sort out their dispute, maybe even in time for tonight’s orgy of Hollywood self-congratulation.   What’s notable about the confrontation, however, is the harsh public language used by corporate combatants and the hints it provides of progress in the movement toward corporate governance reform.

On its web site for customers, for example, Cablevision argued: “It is wrong for ABC to demand $40 million in new fees, which is nothing more than a new TV tax, to help pay the salaries and bonuses for top ABC executives.”  (Translation: Executive compensation levels at Disney are a real issue.  That affects the type and quality of TV programming you receive.)

Disney’s WABC fired back: “Cablevision pocketed almost $8 billion last year, and now customers aren’t getting what they pay for – again.  It’s time for Jim Dolan and the Dolan family dynasty to finally step up, be fair, and do what’s right for our viewers.”  (Translation: The Dolan family makes an awfully good living because it tightly controls publicly-held Cablevision through its ownership of a special Class B common stock.  That affects the type and quality TV programming you receive.)

It’s no wonder that The Morning Bridge, a TV industry newsletter, published a special Sunday morning bulletin focusing on the war of words and asking: “Think anybody wins in these situations?”

(Update: Disney and Cablevision reached a tentative agreement and the ABC signal was restored 14 minutes into the Oscar broadcast.)

Is the tide turning?

Well, it could be that the movement for corporate governance reform is actually beginning to score some wins, if only because average citizens and small shareholders are beginning to understand that these issues can really mean something to them.  The question is whether these victories are only short-term tactical advantages or constitute signs of longer-term success.

“Up until now, it’s been sort of a Soviet system,” is the way shareholder democracy is described by Stephen Davis, executive director of the Millstein Center for Corporate Governance and Performance at the Yale School of Management.  “We have been operating in the United States under the myth that boards have been accountable to shareholders.”

Davis’s views are reflected in a generally upbeat weekend New York Times article on shareholder democracy which concludes that “the tide is beginning to turn, albeit slightly” for shareholders.  In addition to various rules changes, the Times cites the availability of more Web resources that help educate smaller investors to the issues, including ProxyDemocracy.org, Shareowners.org and MoxyVote.com.

Governance activist and blogger James McRitchie agrees that that the tide “is turning to become more balanced through increased voice from shareowners. Of course, we are still a long way from the point where most directors feel more accountable to shareowners than CEOs,” he adds.  McRitchie says his optimism about the outlook for shareholders, like that of other activists, is also fed by the work of the Securities and Exchange Commission’s newly-formed Investor Advisory Committee.

“A many-splendoured thing…”

Bob Monks

Seemingly less sanguine about the prospects for shareholder democracy is Robert A.G. “Bob” Monks, one of the world's most provocative thinkers on corporate governance.  Back in 2005, my colleague Marjorie Kelly, co-founder and then Editor of Business Ethics Magazine, wrote that “Monks seems to have invented the term ‘corporate governance.’”  As a co-founder with Nell Minow of the Corporate Library, a governance research firm, and founder of Institutional Shareholder Services (acquired in 2007 by RiskMetrics Group), Monks has an established track record in the field.

“Clearly, the modern shareholder, like love, is a many-splendoured thing, but while we can admire such diversity, we also have to ask whether any single class so broadly writ can ever begin to exercise its ownership rights vis a vis entrenched and well-funded corporate power,” Monks writes in a new, lengthy and colorfully-written post on the Harvard Law School Forum on Corporate Governance and Financial Regulation.

Monks goes on: “The practical effect of having ownership spread so broadly is that shareholders as a group have virtually no effective ownership rights they can exercise. Senior management pays itself, boards sit idly or complacently by, corporations abrogate ever more authority to themselves and gain an ever stronger voice in the political process, and when it comes time for the piper to be paid, the shareholders pony up in lost equity value and increasingly of late taxpayers pick up the final tab. This is a condition that ultimately serves no public good.”

One possible solution, suggests Monks, is a standard corporate structure with two classes of stock ownership: “passive shareholders, who choose not to exercise ownership rights, and stewardship shareholders, who already bear a fiduciary responsibility for funds under their management.”  Accomplishing that, Monks says, would require federal government action to create “a framework of legally enforceable responsibility.”

Speaking of Oscars…

None of this is likely to help some 3 million Cablevision subscribers in the New York area watch the Academy Awards tonight.   Their outrage is reflected in the comments on local newspaper web sites:

“GREED THY name is america.......if you make a gazillion dollars you want a bazillion......”

“Corporate blackmail with the consumer caught in the middle. Time for regulatory reform.”

Indeed, the current state of shareholder rights calls to mind the Oscar-winning performance of Peter Finch as TV anchorman Howard Beale in the prophetic 1976 film “Network.” Outraged by the respective states of society and the TV industry, Beale explodes spontaneously on-camera, driving ratings through the roof as he gets millions of viewers to join him in screaming: “I’m as mad as hell and I’m not going to take this anymore.” (YouTube)

It’s a message that the senior management and boards of Cablevision and Disney – and many other publicly-held U.S. companies – should listen to again and take to heart.

Disclosure: Michael Connor is a past employee of Cablevision Systems Corporation and ABC Television.

Oscar Photo: Darren Decker / ©A.M.P.A.S.