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]]> http://www.directorship.com/survey/feed/ 0 http://www.directorship.com/bofa-opens-field-for-lewis-successor/ http://www.directorship.com/bofa-opens-field-for-lewis-successor/#comments Tue, 04 Aug 2009 10:16:48 +0000 News Editor http://www.directorship.com/?p=6623 A management team shake-up at Bank of America opened the field of successors to the 62-year old Chief Executive Officer Ken Lewis, the Wall Street Journal reports. The Charlotte, N.C., bank confirmed that former Citigroup Inc. Chief Financial Officer Sallie Krawcheck is taking charge of the global wealth and investment management operations at Bank of America. Brian Moynihan, who had been in charge of that business as well as corporate and investment banking, will now run the consumer bank and the credit card business, while Tom Montag takes corporate and investment banking and keeps global markets. The bank has shuffled senior management and paid $33 million to settle U.S. claims it misled investors while buying Merrill Lynch & Co. Liam McGee, who headed consumer banking, left  was replaced by Moynihan in a division that has provided most of the bank’s revenue and profit, said Bloomberg. Moynihan, 49, who ran wealth management and corporate and investment banking, is the top CEO candidate, according to analysts. Possible successors include ex-Citigroup Inc. Krawcheck, , home-lending chief Barbara Desoer, and Chief Financial Officer Joe Price. Also in the running is Tom Montag, a Goldman Sachs Group veteran. The bank, which has had three CEOs since 1973, hasn’t previously disclosed succession plans. The new post is Moynihan’s fourth job since December 2008. He’s worked as head of corporate and investment banking, general counsel and most recently, head of both investment banking and wealth management. He joined the bank through the 2004 acquisition of Fleet Boston Financial Corp. “These changes are designed to drive enhanced performance and to ensure that our strategies and franchise are positioned for maximum success in the coming years,” Lewis said in a statement Monday. “We have all the pieces of the puzzle in place to be the leading financial services firm in the world. Our mission is to take advantage of our position to create value for all our constituencies from shareholders to clients.” The leadership changes follow a regulatory sanction imposed after shareholders stripped Lewis of his chairman’s seat in late April. The so-called memorandum of understanding requires the company to overhaul its board, address perceived problems with risk and liquidity management and take a serious look at management and succession planning. Instead of asking Lewis to leave as CEO, the Federal Reserve pressed the board to bolster the top ranks of the company and have strong people in key positions.

The current economic downturn and the increased frequency and severity of claims against directors and officers that will likely ensue make it more crucial than ever for directors to take a close look at their company’s Directors and Officers (D&O) insurance coverage and ensure that appropriate coverage is in place. While no one expects that D&O insurance will protect against any and all risks, directors legitimately expect that they will be protected from potential liabilities arising from the good-faith performance of their duties as board members. Too often, however, that legitimate expectation is disappointed due to important features of the D&O insurance program that did not receive adequate attention. The list below will help directors avoid being placed in that situation.

1. Focus on the ‘D’ in D&O

A typical D&O policy has several coverage components, usually referred to as A, B, and C. Side A provides coverage for claims against individual directors and officers, when the company legally is not permitted or unable to indemnify them. When the company provides indemnification to its directors and officers, it can seek reimbursement under Side B of the policy. Finally, Side C provides “entity” coverage to the company for certain asserted claims against it (mainly, securities law claims). This means that, in addition to the “Ds” and the “Os”, a policy typically provides coverage for the company itself. In some instances, the list of insureds can be even longer, and a policy may afford coverage to spouses as well as certain employees. This is important because, under traditional D&O coverage, all insureds—including outside directors, officers, and the company itself—share the policy’s limits. As a consequence, the available coverage can be severely depleted before a claim against the policy is even made by a director. This scenario is starkly illustrated by the fate of the outside directors of Just For Feet, a company that filed for bankruptcy protection in 2000. Around the same time it filed for bankruptcy, Just For Feet settled a class-action lawsuit brought against it and its directors and officers for $24.5 million, payment of which left only $100,000 available under the company’s D&O policy. As a result, when the bankruptcy trustee later brought suit against certain former outside directors, there was no money left to cover the $41 million settlement that put an end to the lawsuit. The fate of the directors and officers of automotive parts supplier Collins & Aikman is another dramatic case-in-point. There, the $50-million limit available under the D&O policy was entirely exhausted by defense expenses incurred in connection with the company’s bankruptcy and the related lawsuits and investigations, before trial in the criminal case even started.

One way the insurance market has responded to the risks posed by shared limits is by offering dedicated or “stand-alone” policies that protect only directors and officers or, even more narrowly, only independent directors or certain named individuals. These policies, sometimes referred to as “Side-A Only” or “Difference-In-Conditions,” vary greatly in their terms and scope. What they have in common is that they cannot be drawn upon by the company. Thus, while a director-only policy may not have been enough to fully fund the Just For Feet settlement given its magnitude, it would have gone a long way toward protecting the personal assets of directors and officers. Similarly, a supplemental dedicated policy could have offered protection to the individual Collins & Aikman directors and officers in the face of rapid exhaustion of the main policy’s limits due to the large number of “insured persons” with access to the policy.

2. Ask about severability

Another consequence of increased claim frequency as a result of the economic crisis is closer scrutiny given by carriers to claims made under the policy. This scrutiny may well focus on statements made as part of the insurance application process. Before an insurer issues a policy, the potential insured must submit an application. Among other information, the application typically includes the company’s financial statements, and representations by the CEO or CFO that there are no facts or circumstances of which he or she is aware that might give rise to a future claim covered under the proposed policy. If the financials or the representations and warranties turn out to be erroneous, the insurer can seek to rescind the entire policy, leaving all directors and officers without any coverage, whether or not they knew of the fraud or made the false representation.

Coverage rescission is thankfully rare. But it is a draconian result for the innocent individuals covered under the policy, and it is a remedy that D&O insurers have sought or obtained in several high profile cases—think Tyco, Healthsouth, or Worldcom. To protect against the risk of rescission, the application (or the policy itself) should contain a so-called “severability” clause. Severability language protects the innocent directors by ensuring that an insurer can rescind coverage only as to an insured with actual knowledge of the misstated facts and precludes the carrier from imputing the knowledge of one insured to other insureds.

3. Insulate innocent directors from the impact of misconduct by others

Severability is also key with regard to a policy’s exclusions. D&O policies generally exclude from coverage claims arising out of criminal or fraudulent acts and acts involving illegal profit or personal advantage. Without language limiting the scope of these “conduct” exclusions, a director could be denied coverage based on a plaintiff’s allegations, a carrier’s self-serving assertions of misconduct by a director, or another insured’s fraudulent acts.

To avoid this outcome, the policy should provide that, with regard to policy exclusions, the conduct of one individual insured will not be “imputed” to any other insured. This ensures that an individual insured will not be tagged with a bad actor’s wrongdoing. In drafting the clause, it is essential to consider the policy as a whole and to be mindful of its interplay with the other policies that form the coverage program. This is one of the lessons to draw from a recent decision arising out of the ill-fated 2005 Refco IPO. The Southern District of New York found that a primary policy’s severability-of-exclusions language applied only to the exclusions in the primary policy, and not to the excess policies, despite their so-called “follow-form” nature. (A “follow-form” policy incorporates the terms and conditions of the primary policy, subject to expressly stated non-conforming terms.) As a result, coverage under the excess policies was barred as to all insureds because of the misrepresentations of the company’s CEO, which triggered the policies’ knowledge exclusion precluding coverage for claims arising from any facts or circumstances that might be reasonably expected to give rise to a claim of which any insured had knowledge at policy inception.

A further way to limit the potential impact of the conduct exclusions is to spell out clearly the standard to be used to determine whether misconduct by an insured has occurred. A mere finding by the insurer of misconduct “in fact,” a written admission of misconduct by an insured, or a plaintiff’s allegations in a complaint should not be enough to trigger the exclusion. Instead, the policy should contain language providing that, before coverage can be denied under the exclusion, there must be a final adjudication in the underlying action adverse to the director that such bad conduct indeed occurred. Given the fact that most disputes settle before trial, the “final adjudication” language typically prevents the exclusion from being used to deny coverage.

4. Understand the effects of bankruptcy

Although the year is still young, 2009 is well on the way to be a record year for corporate bankruptcies. Recently released data shows bankruptcies for publicly traded companies already at twice their 2008 level. This trend not only increases the likelihood of claims against the directors and officers of the bankrupt companies, it also means that the availability of coverage could be threatened should one of the carriers become insolvent.

To make matters worse, courts routinely freeze D&O policies as being part of the bankruptcy estate, when the policy includes entity (Side C) coverage. This leaves directors and officers temporarily—if not permanently—without access to the policy’s proceeds. Dedicated policies of the type discussed above—policies that cover only the directors and officers, not the entity—help alleviate these concerns by providing limits that are available to the directors in case of insolvency of the company, when the need for coverage is most acute. They also provide coverage in the event one of the carriers of the traditional D&O program becomes “financially unable” to respond to the claim. (Of course, this is only true if the stand-alone policy’s carrier is not the carrier on the traditional D&O side.)

Another potential coverage gap exacerbated by bankruptcy is a consequence of the “insured-versus-insured” exclusion. The “I v. I” exclusion, which is a feature of every D&O policy, provides that a claim brought by one insured against another insured will not be covered. The exclusion was originally crafted to prevent collusive claims by insureds. An unintended result is that a bankruptcy trustee standing “in the shoes” of the company could be considered an insured under the policy, and claims brought by the trustee against the company’s directors and officers barred from coverage under the exclusion. It is therefore crucial to limit the scope of the I v. I exclusion by explicitly

5. Know what constitutes a ‘claim’

The credit crisis has caused a marked increase in regulatory investigations and administrative enforcement actions. The availability of coverage for administrative and regulatory investigations depends on the particular language in the applicable policy, most notably the policy’s definition of the term “claim.” For example, it is not uncommon for policies to limit coverage for civil administrative proceedings to expenses incurred after the entry of a formal order and, for criminal proceedings, to post-indictment matters. However, considerable expenses are incurred by a company in the early stages of an investigation, precisely in order to avoid the entry of a formal order or an indictment. Directors should ensure that the policy’s definition of “claim” is broad enough to include informal investigations from the time a subpoena is received (or, somewhat less favorably, from the time an insured is identified in writing as a person against whom charges may be filed).

6. Don’t ignore the excess

Most D&O insurance programs involve multiple coverage layers. The first policy in line, the primary policy, might cover $10 or $20 million. Excess policies provide additional limits of liability in excess of a specified underlying amount of coverage. One important feature of all excess policies is that they come into play only after the underlying policy is “exhausted,” i.e., fully paid out. The exhaustion clause of the excess policy, which governs when an excess insurer is obligated to pay, is therefore critical. In a recent case, Qualcomm, incurred close to $30 million in defense and settlement expenses in connection with a series of lawsuits related to the company’s stock-option granting practices. The company agreed that its primary insurer (whose coverage limit was $20 million) would pay $16 million toward the settlement in exchange for a full release for any future claim under the policy. When Qualcomm turned to its excess carrier, Lloyd’s of London, for coverage, Lloyd’s refused to pay, arguing that the underlying layer had not been “exhausted” because payments by the primary were $4 million short of its limit. Based on the particular language of the policy, the court agreed that the excess layer had not been triggered.

The lesson here is that excess policies should provide that underlying coverage will be deemed exhausted if either the underlying carrier or the insured pays the loss. Such a provision will make it easier for a company to negotiate a settlement with a carrier without fearing the loss of its excess coverage. It will also provide protection should an underlying carrier become insolvent.

7. Make sure the company has adequate claim-reporting procedures

It should be apparent by now that the time to think about D&O coverage is long before a claim presents itself. Now is the time to locate and review all liability policies that may provide coverage in case of a claim. While this discussion has focused on D&O insurance, a claim against a director may potentially trigger coverage under more than one line of insurance. For example, claims arising out of allegations of negligent or reckless misrepresentations about a company’s investment activities or failures to perform adequate due diligence would likely also be covered under professional liability errors and omissions (E&O) insurance policies, which are designed to cover losses arising from alleged wrongful acts committed in rendering or failing to render professional services. The sections of the policies that relate to notice merit special attention. Timely notice of claims is critical to ensure coverage. Most E&O and D&O policies are claims-made policies, meaning that the claim must be made during the policy period. Some policies have a “notice of circumstances” provision, which require that a company give notice of facts or circumstances that potentially could give rise to a claim. It is important to make sure that the company has procedures in place to ensure timely reporting of potentially covered claims and circumstances. In reviewing such procedures, one should consider the interplay between the notice provisions and the policy’s definition of a “claim.” An expansive definition of claim means that more situations will trigger the notice requirement.

8. Last but not least: review the company’s indemnification policy

With recent events causing renewed interest in D&O insurance, it is easy to forget that the first line of defense for a company’s directors and officers is corporate indemnification. All companies include within their certificate of incorporation, bylaws, or charter indemnification provisions that require the company to indemnify its directors and officers under certain circumstances. These provisions should be closely analyzed to ensure that they are state-of-the art in light of statutory law and latest court decisions, as well as other legal developments. For example, a Delaware court held last year that a former director was not entitled to advancement of his legal fees where, subsequent to the director’s departure from the board, the company revised its bylaws to eliminate advancement rights for former directors. To avoid the same fate, a director should ensure that, when indemnification is provided under a company’s bylaws, the bylaws include language stating that the rights to indemnification are contractual, vest upon commencement of board service, and cannot be limited by a retroactive amendment of the bylaws. It may also be appropriate to consider the purchase of a dedicated policy for retired directors.

The expected increase in D&O claims makes it more important than ever to carefully review policy language and to be aware that seemingly minor wording nuances can mean the difference between having and not having coverage. Because the language of D&O policies presents unique complexities, enlisting the assistance of a knowledgeable insurance expert will help directors gain a thorough understanding of the coverage available to them under their company’s D&O insurance program.

Sources: Settlement in Just for Feet Case May Fan Board Fears, The Wall Street Journal, April 23, 2007: http://online.wsj.com/article/SB117728671802378484.html?mod=todays_us_marketplace

Various orders and pleadings, including the Motion for Appointment of Counsel Under the Criminal Justice Act, U.S. v. Barnaba, 07 CR 0220, SDNY Aug. 18, 2008: http://www.law.du.edu/index.php/corporate-governance/criminal-cases/united-states-v-david-stockman

XL Specialty Insurance Company v. Agoglia, et al., No. 08 Civ. 3821 (S.D.N.Y. March 2, 2009). U.S. Bankruptcies Double 2008 Pace, Reuters, March 10, 2009: http://www.reuters.com/article/ousiv/idUSTRE52960S20090310

Qualcomm, Inc. v. Certain Underwriters At Lloyd’s, London, 161 Cal. App. 4th 184, 73 Cal. Rptr. 3d 770 (Cal. Ct. App. 2008). Schoon v. Troy Corp., C.A. No. 2362, 2008 WL 821666 (Del. Ch. March 28, 2008).

Gregg L. Weiner (gregg.weiner@friedfrank.com) is a litigation partner and Frédérique Beky (frederique.beky@friedfrank.com) is a litigation associate at Fried, Frank, Harris, Shriver & Jacobson LLP.

President Barack Obama’s financial-market reforms announced Wednesday will be the starting point for new US systemic risk regulation and corporate governance rules, especially regarding shareholder rights, reports Global Proxy Watch.

The plan would give oversight duties to the Federal Reserve while keeping the SEC as the key regulator in the financial sector, while expanding international cooperation.

It is likely that Congress will toughen elements of the plan before it is enacted. Last week, Congressman Gary Peters proposed The Shareholder Empowerment Act, which includes the Shareholder Bill of Rights that New York Senator Charles Schumer proposed last month. Included in the Shareholder Bill of Rights would be requirements of a majority vote in uncontested director elections and a split in the chair and CEO posts. The SEC also proposed rules allowing shareholders to access corporate proxies.

The new board members are Donald E. Powell, a former chairman of the Federal Deposit Insurance Corp.; Susan Bies, a former member of the board of governors in the Federal Reserve system; D. Paul Jones Jr., the former chief executive of Compass Bancshares, and William Boardman, a former executive at Bank One, which is now a part of JPMorgan Chase.

“These new directors bring a wealth of experience in financial services from a variety of perspectives,” Massey said in a statement. “Their participation will make our board even stronger as we move our company toward achieving its true potential.”

The board changes are part of an overall management change, including the departure of CRO Amy Woods Brinkley. She is being replaced by Greg Curl, a longtime bank executive who has overseen the bank’s acquisitions and deal-making.

The private equity firm, one of this country’s most politically connected, also agreed to end the use of placement agents, who work as middlemen between funds and investment managers and have been at the center of multiple corruption charges.

Other fund managers will also feel the heat as the Securities and Exchange Commission deliberates possible bans on contributions to officials overseeing pension funds.

Bank of America shareholders voted to remove CEO Ken Lewis as chairman, according to a statement released by the company. A shareholder proposal to split the chairman and CEO positions passed with 50.34 percent of the vote.

Lewis will relinquish his role as chairman immediately but will remain president and CEO. “He is very much in the driver’s seat in terms of running the company day to day,” said spokesperson Robert Stickler to The Wall Street Journal. He added that “there is little evidence” to suggest Lewis’ job could be in jeopardy.

Without an unequivocal endorsement from shareholders, the vote could weaken Lewis’ grip as CEO, said Jeffrey Sonnenfeld, a professor and associate deal and Yale University’s School of Management to WSJ. He believe that Lewis has “lost the legitimacy to lead.”

Still, Lewis was re-elected to the board as a director with 67.3 percent of the vote as a good number of shareholders gave him their support. Others lamented that broker votes skewed the percentages as they typically side with management.

Lewis has told directors he intends to leave as CEO as soon as the crisis is over at the earliest and three years at the latest.

Lead director O. Temple Sloan was re-elected with 62.2 percent of the vote, despite a “vote no” campaign launched against him by shareholder groups.

Except for a shareholder proposal for an independent chairman, others for government employment disclosure, executive compensation advisory votes, special stockholder meetings, limits on executive compensation among others, were voted down.

On April 14 the European Sustainable Investment Forum released a call to the European Commission to adopt disclosure rules of environmental, social, and governance issues, according to Global Proxy Watch.

The group made recommendations also backed by the U.S. effort: Walden Asset Management, the U.S. Social Investment Forum, and Ceres. These include requiring companies to use key performance indicators for ESG factors, including sector-specific ones.

Eurosif wants institutional investors held accountable by requiring them to adopt a mandatory statement of investment principles.

Not an easy task, Eurosif also wants shareholders to retain voting rights when they lend shares. It also wants custodians to give issuers up-to-date lists of all shareholders—a tough sell.

The Shareowner Education Network (SEN) bills itself as “a non-profit organization established to educate and mobilize citizen shareholders…[educating] investors so they understand their rights as owners and [providing] them the tools to take action at publicly-held companies they own.”

Ferlauto, who is the director of pension and benefit policy for the American Federation of State, County, and Municipal Employees (AFSCME),is joined on SEN’s board of directors by a number of corporate andacademic figures, including John Wilcox, independent consultant oncorporate governance for TIAA-CREF.

SEN’s method is to build a network that connects small and larger shareholders under the common goal of improving performance at portfolio companies, including enhancing transparency, efficiency, and accountability.

SEN has penned a Shareholder’s Bill of Rights that outlines its mission: “Investments are now an essential factor in determining our quality of life. Therefore, millions of us in our daily lives, while voters, taxpayers, and consumers, are also shareowners. We have a vital collective stake in financial agents and public corporations that perform in our interest. And we demand laws and regulations that empower us to protect our assets.”

London-based Nestor Advisors compared three failures–Bear Stearns, Lehman Brothers, and Merrill Lynch–against three survivors: Goldman Sachs, JPMorgan Chase, and Morgan Stanley.

Nestor’s conclusion: the wrecks had more entrenched directors, more power vested in the CEO, and less board expertise in the financial sector that led to even less risk oversight than normally exercised by U.S. investment bank boards. Nestor’s “most counter-intuitive conclusion?” GPW reports: the wrecks had a greater degree of alignment between executive compensation and long-term shareowner value.

“The real question to ask in the future is whether such hardwired, single-minded alignment to the shareholders—long the holy grail of investor activism—is appropriate for systemically important financial institutions,” the study says.

The group of investors had previously attempted to lift a stay on the SEC case against Madoff that prevents former Madoff clients from pursuing their own bankruptcy actions. The SEC and DoJ yesterday filed a motion in Manhattan District Court  asking Judge Louis Stanton to reject the motion.

Individual Madoff victims worry that the red tape associated with the bankruptcy action procedure will prevent them from getting their full due. “Neither the SEC nor the Justice Department have procedures in place to determine claims, the amount of claims, and to pay the money for creditors,” said Jonathan M. Landers, a legal representative for the Madoff victims.

The SEC refutes this claim, saying that, “the SEC can state unequivocally that…any Madoff assets it recovers will be distributed to Madoff’s victims and creditors.”

Madoff’s investment firm is currently being liquidated by a court-appointed trustee, with the proceeds to go to investors. Madoff himself is expected to be sentenced in June.

Allocation of pension fund assets towards equity structures reached record levels in 2006, with 60 percent allocation, though this figure had fallen to 44 percent by the end of 2008. The culprit for this shift, of course, is the increased volatility of the stock market, which has scared institutional investors such as pension funds back to the less risky investments offered by bonds.

Pension allocation for bonds was only 30 percent when equity allocation was at its highest. That figure had increased to 41 percent by the end of last year.

Milliman’s John Erhardt, and the main author of the report, predicted that equity allocation would rise to about 50 percent by the end of the year, but “[didn’t] expect that we’ll ever see 60 percent equity allocations” again.

Asset returns for the largest 100 corporate pension plans were negative 18.9 percent for 2008, resulting in a $300 billion loss. Milliman predicts a rise in pension funding in 2009 to make up for the loss.

Nisanci’s appointment will continue the SEC’s latest trend of bringing in officials known for their pro-investor agenda. SEC Chairman Mary Schapiro has made clear her loyalties to shareholders, having also named shareholder advocate and former SEC commissioner Kayla Gillan as senior advisor.

On February 26, the New York Stock Exchange re-filed a proposal with the SEC to eliminate brokers’ ability to vote uninstructed shares in director elections. Brokers almost always vote with management, creating a built-in block against activist efforts to hold boards accountable to shareholders. While the NYSE proposed a change in 2010, expect to the SEC to push for an earlier end, according to GPW.

The staff objected last year when then-SEC chair Christopher Cox overrode them to set aside the proposal after complaints from the business community. The final SEC ruling must await the conclusion of a 21-day public comment period that starts after the proposal is formally published this week.

In a move to make it easier for shareholders to nominate directors to troubled boards, SEC chair Mary Schapiro will have to wait. Delaware, home to more than half of large US public companies, is currently considering breakthrough amendments to state corporate law that would enable access, along with means for investors to claim reimbursement for proxy expenses. The bill, drafter by the Delaware State Bar Association, would clarify state law to allow companies to adopt proxy access bylaws.

While the proposal does not require firms to adopt them, it would be a step forward for US activists seeking the ability to challenge incumbent boards without a costly proxy fight. If passed by the state Assembly, the law would take effect August 1, after the 2009 US proxy season. Delaware’s efforts could be superseded if the SEC adopts a federal access mechanism.

The Securities and Exchange Commission put hundreds of companies on notice that they must submit their executive pay plans to an advisory shareholder vote of confidence within months, reports Global Proxy Watch.

The SEC issued an updated guidance yesterday that backed the legislative interpretation offered by Senator Christopher Dodd in a February 20 letter to the agency. As chairman of the Banking Committee, Dodd has oversight authority over the SEC and inserted the advisory vote provision into the recently enacted economic stimulus legislation, according to the RiskMetrics Blog.

The new SEC guidance and Dodd’s letter has further encouraged the investor coalition that filed more than 100 “say on pay” resolutions this season. This campaign has made significant progress since 2006 when the first shareholder proposals appeared on U.S. ballots. Insurer Aflac held the management-sponsored advisory vote last May, and was followed by five other firms in 2008.

Tim Smith, a senior vice president at Walden Asset Management and a leading pay vote proponent, said the latest SEC guidance will prod other firms to agree to hold pay votes. He recalled that one major bank had expressed concern that holding a pay vote would leave it at a “competitive disadvantage,” but said the new guidance “leaves us feeling much more comfortable with providing investors a chance to vote on compensation.”

Although banks are taking the brunt of the blame for the global financial crisis, private-equity firms are feeling the pressure, too. The latest sign: Guidelines for Responsible Investment announced last week by the Private Equity (PEC), a US trade group representing major firms such as Blackstone, Carlyle, and KKR. The voluntary guidelines say PEC firms will consider environmental, public health, safety, and social issues associated with target companies, Global Proxy Watch reports.

The commitments were worked out in private talks hosted last year by the United Nations Principles for Responsible Investment involving leading pension funds such as the UK’s Universities Superannuation Scheme and the California Public Employees Retirement System. Advocates should hold the champagne, though. The guidelines have no teeth, such as monitoring, reporting, or enforcement procedures.

The PEC rejected stronger language in parallel talks that eventually broke down with the Service Employees union and other US labor funds. Still, the guidelines offer funds investing with private equity firms a new way to hold them accountable on environmental, social, and governance (ESG) issues.

Stringent executive pay restraints in the new stimulus package President Barack Obama signed Tuesday are a foretaste of economy-wide restrictions likely to come out of a US Congress steamed up about the issue, Global Proxy Watch reports.

The Senate supplanted Obama’s $500,000 salary cap with tougher rules that limit all bonus and other payments to a third of an executive’s annual salary at firms receiving bailout money.

U.S. labor and public pension funds now see this as an opening to push for restrictions they have long wanted at all U.S. firms. Among the possibilities: Broadening the 1993 law that prohibits companies from taking a federal tax deduction for executive salaries over $1 million a year. It has been widely criticized for driving up pay by prompting executives to skirt the limit with stock and option grants. One revision would extend the deductibility limit to all forms of compensation.

Another would cap the deductibility of compensation in excess of 25 times the pay of the company’s lowest-paid worker, as advocated by the Income Equity Act of 2007, which failed to pass.

In a bold, industry-wide game-changer, RiskMetrics announced said that it is buying New-York based Innovest, a global leader in environmental, social and governance (ESG) research, for $16 million in cash.

The move is a gamble that shareowner appetite for ESG analysis will grow, especially after staff cuts in these areas by the likes of Citi, Deutsche Bank,and JPMorgan, Global Proxy Watch reports. The acquisition is commercial evidence of the rapid fusion of mainstream corporate governance with environmental and social responsibility. Savvy corporate executives may read it as a signal to get ESG profiles in shape or face critical RMG scrutiny.

Due to close March 2, the buy will double RiskMetrics¹s ESG staff to more than 80. CEO Ethan Berman wants to equip RMG with data and screening tools that make it a dominant player in the socially responsible investment industry. John Connolly, former president and CEO of Institutional Shareholder Services (ISS), was named chairman of the board of Innovest. During his ISS tenure, revenues doubled profits increased 250% over three years. This phenomenal growth ultimately led to the sale of ISS in early 2006 to RiskMetrics Group for $556 million.

Global Proxy Watch reports today that Securities and Exchange Commission Chairman Mary Schapiro will name Kayla Gillan, a prominent corporate governance champion, to a “top chief-of-staff-like post.”

“My role will be to outreach to the investor community and try to restore the organization’s reputation there,” Gillan told GPW. Gillan was a key architect of the governance program at the California Public Employees’ Retirement System before the SEC appointed her as a founding board member of the Public Company Accounting Oversight Board in 2002. She left last year for become the chief administrative officer of RiskMetrics. Expect investors to celebrate the move, as it promises them a direct information channel to SEC decision-making.

Under ex-chair Christopher Cox, funds felt frozen out of the agency, whose motto is “the investors advocate.” Shapiro is also laying plans to expand the SEC’s depleted enforcement staff and lift the need for board approval before it can negotiate penalties with accused firms—a rule that cut fines by 85% since it was adopted in 2006. She will have to act quickly: the agency is getting mauled in Congress. At a Wednesday hearing on Bernard Madoff’s US $50 billion Ponzi scheme, lawmakers blasted the SEC as incapable of protecting investors.