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RI Governance & Engagement: April 1: RWE, BP, US proxies, fifth analyst call

RI’s round-up of the most important corporate governance and shareholder engagement news.

RWE, the energy and water group, faces a rare corporate governance battle in Germany after Hermes, the fund manager owned by the BT Pension Scheme in the UK, alongside ISS, the proxy voting group and VIP, a German corporate governance group, went public with concerns that a list of 10 shareholder candidates proposed to the board comprise four representatives from German municipalities, who hold about 25% of the shares, and include three politicians. The investors have called for a vote against the appointment of Ullrich Sierau, the mayor of Dortmund, who they say already holds six other board positions. Separately, Hermes has written to Detlev Bremkamp, supervisory board chairman at Hochtief, the German construction group asking for sufficient independence of large investors in the board for the sake of minority investors.

Standard Life Investments, one of BP’s top 10 investors with a 1.6% stake says the company should drop a planned share swap with Rosneft, the 75% state-owned Russian energy group, after last week’s ruling by a Swedish arbitration court that oil exploration plans as part of the deal broke an existing agreement with TNK-BP, the British group’s Russian joint venture. The swap would see BP buy a 9.5% stake in Rosneft, taking its holding to 11%, while the Russian group would take 5% of the UK oil giant. David Cumming, Standard Life’s UK equities head, said: “At the moment we don’t think BP has got a Plan B so unless there is some clear commercial benefit to BP shareholders for doing this deal…we’re not supportive at the moment.”Australia’s Green party has put a motion to the Senate calling on the civil service Future Fund to stop investing in tobacco. The motion calls on the government to “review and revise investment criteria as a matter of urgency to ensure the Future Fund is invested into ethical enterprises that are consistent with the health and well-being of the nation and not in tobacco.” The Future Fund, which has $72bn in assets held $147.7 million worth of shares in 14 tobacco companies including British American Tobacco as of December 31, 2010.

The UK should introduce new corporate governance laws to ensure that common boardroom practices, such as the separation of the roles of chairman and chief executive, become mandatory, according to PIRC, the UK proxy voting adviser. PIRC said 97% of companies already comply with the separation, and that 90% of companies also stop their chief executives going on to chair the company.

Settlements of securities fraud lawsuits are increasingly tied to SEC cases, according to an annual study by Cornerstone Research, reports Reuters. It said 30% of class-action settlements in 2010 involved cases where the SEC had previously announced enforcement activity, up from an average 20% in the previous 14 years. Laura Simmons, a business professor at the College of William & Mary and co-author of the study, said the SEC’s involvement typically results in a 30% boost to the average settlement size for investors. Overall, the number of securities class-action settlements that US courts approved fell last year to 86, the fewest in more than a decade. Simons said she expected more settlements in 2011, notably because public pension funds are serving more often as lead plaintiffs, She said their involvement boosts the size of a typical class-action settlement by 40%.

On Page 2:
3M, Accenture, Calvert Social Index, Canadian Institute of Corporate Directors, ConocoPhillips, CVS Caremark, Eastman Kodak, F&C Asset Management, Freddie Mac, IBM, JPMorgan Chase, Norwegian Government Pension Fund, Pearl Meyer & Partners, PepsiCo, Pfizer, Railpen Investments, US Chamber of Commerce, Walden Asset Management

On Page 3:
Arkansas Teachers Retirement System, Calvert, Center for Political Accountability, Center for Social Philanthropy, ClientEarth, Eastman Kodak, Goldman Sachs, Green Century Capital Management, FreedomWorks, ING, ISS, L’Autorité des marchés financiers (AMF), Manifest, Moxy Vote, Nigerian Code of Corporate Governance, NorthStar Asset Management, Ohio School Employees Retirement System, Omnicare Inc, PAX World Investments, Plumbers and Pipefitters National Pension Group, Rio Tinto, UBS, West Virginia Investment Management Board

Institutional investors from North America, Europe and Australia, led by the UK’s Railpen Investments and F&C Asset Management, are trying to build better dialogue with US boards through a ‘Fifth Analyst Call. The idea is that prior to the annual general meeting a call be added to the calendar of quarterly analyst calls, but with the focus on corporate governance. The investors say the practice is routine in other markets including the UK, Australia and the Netherlands. Link to document

Growing pressure from institutional investors has pushed 58% of corporate boards with AGMs in March to recommend giving their shareholders an annual Say-on-Pay advisory vote, according to a survey of 2011 proxies by compensation consultancy Pearl Meyer & Partners. Just 31% of boards did so in proxies filed from December to February. The Dodd-Frank Act of 2010 mandates that companies offer shareholders a non-binding vote of approval on executive pay at least once every three years.

US activist investors are increasingly calling resolutions from the floor of annual shareholder meetings, notably to urge companies serving on the Board of the US Chamber of Commerce to re-evaluate what they say is inconsistency between a company’s public commitment to sustainability and the Chamber’s aggressive lobbying against issues ranging from climate change legislation to healthcare reform. A dozen investors led by Walden Asset Management are using company bylaws to propose resolutions from the floor, which they say can be much more direct and specific than resolutions submitted under SEC rules. So far, floor resolutions addressing Chamber membership have been submitted this proxy season to 3M Company, ConocoPhillips, CVS Caremark, Eastman Kodak, JPMorgan Chase and Pfizer. More resolutions are anticipated. Resolutions have also been filed to appear on the proxy statements of 3M, IBM and PepsiCo in 2011 and at Accenture in 2012.

NYSE-listed US pharmaceuticals firm Omnicare Inc. is to be deleted from the Calvert Social Index as it no longer meets the Index’s standards for product marketing and product safety, sustainable asset manager Calvert said.Canada’s leading association for corporate directors is urging regulators to reject mandatory rules requiring companies to hold “say on pay” votes by shareholders on executive compensation, reports the Global & Mail. In a letter submitted to the Ontario Securities Commission, the Institute of Corporate Directors said it was the responsibility of directors to determine compensation for top executives, and shareholders should elect directors they believe will act appropriately. In Canada, say-on-pay, while not mandatory, has been adopted on a voluntary basis by 49 of Canada’s largest public companies, including banks and insurers.

A US federal judge has dismissed a pension fund lawsuit against Freddie Mac, the mortgage finance giant, filed by a group of funds including Central States, Southeast and Southwest Areas Pension Fund, and the National Elevator Industry Pension Plan, reports Reuters. The lawsuit claimed Freddie Mac had materially misrepresented its exposure to risky mortgage products after disclosing a $2 billion loss for the third quarter of 2007. Judge John Keenan wrote in his ruling: “These claims fail because plaintiffs have not plausibly alleged that these misrepresentations proximately caused them economic harm.” He granted the plaintiffs sixty days to file an amended complaint.

Norway’s Government Pension Fund will keep investing in Southeast Asian oil palm planters but may exclude firms that severely damage the environment, according to a Norwegian finance ministry official, reports Reuters. The fund has been under fire from Green groups who say its investment in the firms is counter to a $1bn climate deal signed by the Norwegian government with Indonesia last year that involves banning forest clearing. Finance Ministry spokesman Runar Malkenes said: “Apart from production of certain types of weapons and tobacco, the fund will invest in most industries, including agribusiness and palm oil producers. It is what companies do, not their industry per se, which may lead to exclusion.” The fund already bans investment in logging firms in Malyasia, Samling and Lingui.

On Page 3:
Arkansas Teachers Retirement System, Calvert, Center for Political Accountability, Center for Social Philanthropy, ClientEarth, Eastman Kodak, Goldman Sachs, Green Century Capital Management, FreedomWorks, ING, ISS, L’Autorité des marchés financiers (AMF), Manifest, Moxy Vote, Nigerian Code of Corporate Governance, NorthStar Asset Management, Ohio School Employees Retirement System, Omnicare Inc, PAX World Investments, Plumbers and Pipefitters National Pension Group, Rio Tinto, UBS, West Virginia Investment Management Board
Nigeria’s revised Code of Corporate Governance for public companies comes into force today (April 1). The document, which builds on a 2003 original, “aims to ensure the highest standards of transparency, accountability and good corporate governance, without unduly inhibiting enterprise and innovation”. The Securities and Exchange is encouraging companies not covered by the Code to use the principles, where appropriate, to guide them.

Environmental law organisation ClientEarth has claimed that the Financial Reporting Review Panel’s investigation at its request into Rio Tinto annual reports has fallen short. ClientEarth had argued the mining firm’s annual reports did not comply with the Companies Act because they did not include major environmental, human rights and community concerns.
Meanwhile shareholder activist Stephen Mayne – who runs the www.themaynereport.com – has put himself forward for election as a director at Rio Tinto’s AGM on April 14, which is being opposed by the company. Link

The Arkansas Teachers Retirement System, the West Virginia Investment Management Board and the Plumbers and Pipefitters National Pension Group have been named as co-lead plaintiffs in an investor suit against Goldman Sachs relating to the bank’s Abacus collateralized debt obligation product, according to a Reuters report. The action follows the Securities and Exchange Commission suing Goldman last year.Corporate responsibility is to be a discussion item at the ING annual general meeting in May. The topic is agenda item six for the event|shm|agm being held in Amsterdam on May 9.

The $10.2bn Ohio School Employees Retirement System is seeking a proxy voting and research provider. The incumbent, MSCI’s ISS, will be able to retender. The closing date is April 29 with start date for services in October 2011.

Proxy voting agency Manifest has written to the French financial regulator the L’Autorité des marchés financiers (AMF) saying new recommendations for proxy firms “leaves much to be desired”. It is seeking clarity on the AMF’s Draft Regulation n° 2011- 06 of the Proxy Advisers that was issued last month.

Green Century Capital Management says imaging giant Eastman Kodak has agreed to greater transparency on its payments to trade associations and political donations. It follows a dialogue between the company and Green Century and the Center for Political Accountability. Link

NorthStar Asset Management and PAX World Investments are among the new Advocates for US shareholder empowerment web site Moxy Vote. Other new supporters include shareholder activist Bill Davis, the Center for Social Philanthropy and FreedomWorks.

There will be an advisory vote on UBS’s 2010 compensation report at the Swiss bank’s annual general meeting later this month. The event takes place in Basel on April 28. Link