The ICGN, whose members have more than $18 trillion in assets under management, has sent a letter to the SEC that supports a rulemaking petition filed by 10 law and business school professors.

This article originally appeared on the Institutional Shareholder Services blog.

“The ICGN recognises that corporate political activity can be positive. However when corporate resources are deployed to seek political influence there is also potential for abuse. In the extreme this can lead to serious breaches of business ethics, particularly when influence is sought through corrupt practices or in ways that are not consistent with promoting the long-term interests of the company and its investors,” the London-based group wrote in its Aug. 10 letter.

U.S. companies are not required to disclose their political contributions in their proxy materials, but some large companies, such as Merck, Hewlett-Packard, Aetna, and Microsoft, have voluntarily provided greater disclosure in response to shareholder demands, which include a multiyear shareholder proposal campaign coordinated by the Center for Political Accountability.

In related news, Starbucks CEO Howard Schultz has enlisted more than 100 current and former chief executives in his campaign to stop making personal contributions to lawmakers until they address the U.S. government’s mounting debt. Among the executives who have supported this effort are those at AOL, J. Crew, JC Penney, and Whole Foods Market, according to CNN Money. While this effort is attracting media attention, it appears unlikely that Schultz’s campaign will discourage investors from filing shareholder proposals that seek more disclosure of corporate political spending.

Meanwhile, ISS’ Governance Exchange plans to hold a Sept. 27 webcast, “Show Me the Money: The Debate Over Corporate Political Spending Disclosures.” The webinar’s panelists will discuss proposed legislation and preview the shareholder resolutions expected during the 2012 proxy season. The panelists will include: Matthew Lepore, vice president and chief counsel for corporate governance at Pfizer; David Katz, a partner with the law firm of Wachtell, Lipton, Rosen & Katz; Bruce Freed, president of the Center for Political Accountability; and Adam Kanzer, managing director and general counsel at Domini Social Investments. The panel will be open only to Governance Exchange members. For more details, click here.

Ted Allen is governance counsel and director of publications at ISS.

According to news reports, it appears that GM’s board decided that the need for stability outweighed the potential corporate governance concerns posed by combining the roles. The U.S. government still owns a 60.8 percent stake in automaker, and it does not appear that the company’s board sought approval from Obama administration officials. GM no longer has any publicly traded shares since emerging from bankruptcy in July.

Whitacre, a long-time telecommunications executive, held both the chairman and CEO titles at AT&T from 2005 to 2007 and at SBC from 1990 to 2005.

GM is taking the opposite approach of Whole Foods Market, which announced in late December that it was splitting the two roles. The divergent approaches suggest that the question of combining or splitting the CEO and chairman roles will remain a key governance issue this year.

In addition to a proposal at Whole Foods, labor pension funds and other investors have filed 36 resolutions for the 2010 proxy season that urge companies to appoint independent board chairs, according to RiskMetrics Group data.

In addition, U.S. companies will be required under new SEC disclosure rules this year to elaborate on their reasons for selecting a particular board leadership structure.

While RiskMetrics Group and other research firms count class-action cases differently, they all agree that 2009 filings declined from 2008 levels, primarily because there were fewer credit-crisis claims. In a Dec. 15 report, NERA Economic Consulting projected that 235 new cases would be filed in 2009, down 7 percent from 253 filings in 2008. In a joint Jan. 5 report, Stanford Law School and Cornerstone Research said that 169 cases were filed last year, a 24 percent decrease from 223 cases in 2008. Meanwhile, RiskMetrics’ Securities Class Action Services (SCAS) tracked 236 new federal cases in 2009, 16.3 percent less than the 282 cases brought in 2008.

“It looks like the credit crisis cases are not disappearing, but they are slowing down,” Stephanie Plancich, a senior consultant with NERA, said in a press release. “It looks like they are winding down, and I would expect to see fewer in 2010.”

The Stanford-Cornerstone report also attributes the decline to a decrease in market volatility. “After sharply rising for two years, market volatility decreased in the first half of 2009 and then fell again in the second half of the year. In that sense, it’s no surprise that filings decreased this year,” John Gould, senior vice president of Cornerstone Research, said in a press release.

While new case filings have declined, NERA points out that they still are outpacing the rate of litigation activity before the credit crisis began in 2007. There were 130 just new lawsuits filed in 2006, and the 2009 total is comparable with the 1997-2004 average of 231 annual filings, the NERA report noted. However, the Stanford-Cornerstone report concludes that last year’s 169 filings were below the historical average of 197 cases observed between 1997 and 2008.

Adam Savett, director of SCAS, believes that the NERA numbers and conclusions track closer to the reality that his research team is seeing than the Stanford-Cornerstone numbers. “While 2009 saw a dip from 2008′s surge in new cases, according to SCAS’ numbers, new case filings in 2009 trended about 15 percent over historical levels,” Savett said.

Once again, the largest category of 2009 cases were those that arose from the credit crisis. NERA reported that 60 credit crisis lawsuits (40 percent of the total) had been filed as of Nov. 30, and noted that most of those complaints were brought during the first half of the year. Likewise, Stanford-Cornerstone found that just 17 of 53 credit-related cases were filed during the second half of the year.

One significant trend that contributed to the 2009 filing volume were the cases brought by investors in exchange-traded funds (ETFs) managed by ProShare Funds and other managers. Thirteen ETF-related cases were filed between August and November, according to NERA; Stanford-Cornerstone documented 11 such cases.

Another contributing factor was the cases related to Ponzi schemes. According to NERA, there were 39 lawsuits, up from 10 cases in 2008. Most of those cases arose from Bernard Madoff’s massive investment fraud case. There also were claims by investors who lost money with fund manager R. Allen Stanford.

“The proposed rule is a historically significant reform that will enable investors to hold corporate boards accountable and restore investor confidence in the capital markets,” Joseph Dear, chief investment officer at the California Public Employees’ Retirement System, the nation’s largest state pension fund, wrote in the pension system’s comment letter to the SEC.

Meanwhile, corporate advocates have asked the SEC to refrain from adopting marketwide access standards or at least delay adoption until 2011. In contrast to their position in 2007 when the agency last considered the issue, most issuer representatives now are arguing that shareholders should have the ability to file resolutions that seek company-specific access provisions.

The question of giving investors the ability to nominate directors to appear on management proxy statements has been debated by the commission since the 1940s. In May, the SEC voted 3-to-2 to propose a marketwide access rule over objections from the agency’s two Republican commissioners. The proposed Rule 14a-11 would require all public companies and registered investment companies to permit qualifying shareholder groups to offer nominees for up to 25 percent of the board.

The draft rule requires a one-year holding period and includes tiered ownership thresholds based on market capitalization (or net assets for investment firms). For issuers, the minimum holding would be 1 percent at “large accelerated” filers (those with more than $750 million in publicly traded securities; 3 percent at “accelerated” filers ($75 million to $750 million in traded securities); and 5 percent at “non-accelerated” filers (less than $75 million in traded securities). The agency rulemaking release also includes a proposal to amend Rule 14a-8(i)(8) to permit investors to file bylaw proposals that seek more permissive access provisions.

The agency received more than 450 comment letters from investors, issuers, proxy solicitors, academics, and individuals by the Aug. 17 deadline. SEC officials have said they hope to have a final rule in place before the 2010 proxy season.

The SEC also received comments from various international institutions, which observed that proxy access provisions in the United Kingdom and other markets have led to more board accountability and better communication with investors. “Our experience in markets like the Britain, Australia, and the Netherlands is that these rights are rarely used. Instead, because of greater accountability to the shareholders whom they represent, boards tend to put forward qualified candidates that are more responsive to shareholder interests,” wrote Daniel Summerfield, co-head for responsible investment at the U.K.’s Universities Superannuation Scheme.

While most public pension funds and labor investors generally support the rule, other investors raised concerns or expressed opposition. Although Barclays Global Investors said it supported the principle of allowing long-term investors to propose board nominees, the investment firm called for a “narrowly tailored” approach with a triggering requirement (such as a 50 percent withhold vote) for access rights.

The United Brotherhood of Carpenters said it opposes a federal uniform access rule and urged the SEC to amend Rule 14a-8 to enable investors to file access proposals in 2010. The union noted that other reforms, such as better disclosure rules and the widespread adoption of majority voting in director elections, have made boards more accountable.

Corporate Opposition
Corporate advocates, including the National Association of Corporate Directors and the Society of Corporate Secretaries & Governance Professionals, generally opposed a marketwide rule, calling instead for the SEC to permit “private ordering” by allowing investors and companies to devise their own access rules. The proposed Rule 14a-11 “would deprive stockholders of their ability to exercise their rights under enabling state laws to implement the specific form of proxy access that they believe best fits their particular company and fellow stockholders, or alternatively to choose to forego entirely the costs and burdens of proxy access,” Cravath, Swaine & Mooreand six other corporate law firms argued in a joint comment letter.

In response, CalPERS argues that forcing investors to seek proxy access on a company-by-company basis “will cost shareowners and companies significant time, and unnecessary expense.” Based on the SEC’s 1997 data on the costs for shareholders to offer proposals and for companies to respond to them, the pension system estimates that it would cost $351 million to attempt to put proxy access in place at Russell 3000 companies.

In the SEC adopts a marketwide rule, the corporate law firms have asked the agency to delay the effective date until 2011 to give issuers and shareholders time to address the complex issues raised by access. The firms also noted that it would be difficult for investors to meet the proposed 120-day deadline for nominations at firms with early 2010 annual meetings. The corporate lawyers also said the commission should give investors the right to opt out of a uniform rule by either a stockholder vote or ratification of board action.

The Altman Group, a proxy solicitation firm, said it would be a “serious mistake” for the SEC to adopt a marketwide access rule soon after approving the New York Stock Exchange’s ban on broker votes in uncontested board elections. Instead, Altman said the SEC needs to first address “important” issues, such as the rules on issuer-shareholder communications and other “proxy plumbing” issues.

Priority for Larger Holders
Many commenters, including the Council of Institutional Investors (CII), CalPERS, and the AFL-CIO, urged the SEC to drop its proposal to use a “first-in” standard to determine priority if multiple groups seek to nominate board candidates who exceed the 25 percent limit. Instead, the investors called for giving preference to the investor group with the largest shareholding. “What matters most is not who is the fastest to nominate but what investor or group has the greatest stake in the director election and ultimately, the long term performance of the company,” CII stated in its comment letter.

The Calvert Group disagreed, arguing that a “first-in” approach would be fairer. “Allowing the largest shareholder group to essentially ‘trump’ the first smaller, but no less committed or relevant shareholder submission, is not good governance,” according to Calvert, an investment firm that offers socially responsible investment funds.

Alternatively, the Ohio Public Employees Retirement System(OPERS) called for a two-fold approach based on the length of ownership and the largest beneficial ownership. The pension fund also said a 25 percent cap on nominees was too restrictive and should be closer to 50 percent. OPERS and other investors said the limit on nominees should be based on the total number of board seats, not simply those up for election, as the later approach would reward firms with classified boards. CalPERS and many investors called for allowing at least two shareholder nominees, regardless of board size, pointing out that a single dissident director can be more easily shunned by a recalcitrant board.

Differences Over Eligibility Rules
There were a variety of opinions expressed by investors and issuers over the economic stake required to nominate directors. T. Rowe Price and TIAA-CREF asked the SEC to set a 5 percent ownership requirement at all companies, rather than permitting lower thresholds at larger companies. “[I]n order to use the company’s resources to nominate a director, a significant amount of capital must be represented and 5 percent is an acceptable threshold,” TIAA-CREF wrote in its comment letter.

In its letter, the Australian Council of Superannuation Investors (ASCI) said a 3 percent threshold should be sufficient to deter “frivolous or vexatious nominations.” Barclays called for a sliding scale of 5 to 15 percent based on market capitalization to “protect shareholders and the companies they own from the unnecessary distraction and expense of including director nominees for whom support is limited and whose likelihood of election is low.”

The coalition of seven corporate law firms suggested that the SEC impose a 5 percent threshold for a single investor and a higher threshold (7-to-10 percent) for investor groups. The National Association of Corporate Directors endorsed a 5 percent threshold (with no aggregation of holdings), and a 10 percent standard for micro-cap firms.

There also were disagreements over the required ownership duration to submit a nomination. The Change to Win (CtW) Investment Group, the AFL-CIO, the union-affiliated Amalgamated Bank, and TIAA-CREF all asked the SEC to increase the minimum time period for offering nominees from one year to two years. “A two-year holding period requirement would better ensure that shareholder-nominated directors are properly focused on long-term value creation for the company’s investors,” CtW wrote in its letter.

Some corporate advocates also endorsed a longer holding period. A group of corporate governance officers from Intel, Microsoft, Pfizer, and more than 20 other issuers said a “two- or three-year holding period would be more appropriate.”

However, T. Rowe Price said it did not object to a one-year holding requirement, and CII agreed that such a standard “should be sufficient to limit the access mechanism to long-term shareowners.” The Association of British Insurers and ASCI argued that there should be no minimum time period. “It is a core principle that the holders of the same capital instruments must have the same rights regardless of the period they have held them,” the British group wrote.

The AFL-CIO and CII were among the investors that asked the SEC to clarify the rule’s “continuous ownership” provisions to take into account the fluctuations in share ownership that may occur during the year as institutions rebalance their portfolios or lend shares. Noting that most institutions will recall loaned shares so they can vote them, the labor federation argued that the right to nominate directors “should be based on the number of shares beneficially owned, not shares that are held on loan.”

The Society of Corporate Secretaries & Governance Professionals asked the SEC to include a resubmission requirement for investor groups that repeatedly offer nominees; if a shareholder nominee failed to win at least 25 percent support, the nominating group would be barred from offering candidates at the company for two years. “Such a threshold would also ensure that other shareholders would be given a chance to suggest nominees who may be more satisfactory to the company’s shareholders,” the corporate group said in its comment letter.

More generally, a group of 80 professors led by Lucian Bebchuk of Harvard University, urged the SEC “to be careful to avoid eligibility or procedural requirements that would undermine or unnecessarily detract” from the proposed access rule. “In evaluating these requirements, it is important to keep in mind that, no matter how moderate eligibility or procedural requirements may be, shareholder nominees must still meet the demanding test of getting elected before they can join the board,” the professors wrote.

Ted Allen is director of publications at RiskMetrics. For a copy of RiskMetrics Group’s comment letter, please click here.