The year in governance; A month-by-month recap of the people, actions, and organizations that defined and refined board oversight in 2007.

Author:Kristie, James
Position:YEAR IN REVIEW 2007

JANUARY

STARTING OFF THE YEAR with a bang, Home Depot Chairman and CEO Robert Nardelli announced his resignation on Jan. 3. He never quite recovered from a fiasco of a shareholder meeting in 2006, and was continually under fire for his management practices and outsized compensation. The "surprising defenestration of one of the nation's most imperious and highly paid chief executives" reported Gretchen Morgenson of the New York Times, "was a victory for shareholders hoping to force corporate directors to be more accountable on the increasingly incendiary issues of executive pay." Nardelli resurfaced later in the year as CEO of Chrysler Corp. (see August).

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Carl Icahn rang in the new year with a stake in Motorola and request for a board seat.

Heightened activism directed at mutual fund boards: Florida's State Board Administration revealed it withheld votes for directors of two mutual funds run by Fidelity Investments and one by T. Rowe Price.

Members and associates of the Interfaith Center on Corporate Responsibility announced the filing of 288 proxy resolutions with more than 150 companies, focusing on environmental, governance, and social issues matters. (For a fuller examination of the 2007 proxy season, see page 8.)

A long road to justice: After multiple trials, Walter Forbes, former chairman of Cendant Corp., which blew up in a massive accounting scandal in 1998, was sentenced to 12 years in prison and ordered to pay $3 billion in restitution.

A finer fix on trustee governance: The Association of Governing Boards of Universities and Colleges released its AGB Statement on Board Accountability to more formally define the nature and scope of trustee accountability and fiduciary responsibility.

President Bush went to Wall Street to affirm the success of Sarbanes-Oxley, but in his speech he also cautioned corporate boards on lavish CEO pay, saying "You need to pay attention to the executive compensation packages that you approve."

KPMG LLP launched the Tax Governance Institute, an open forum for board members, management, stakeholders, and government representatives to explore and debate aspects of tax oversight and management (www.taxgovernanceinstitute.com).

The Center for Audit Quality is formed to find new ways to improve financial reporting and combat fraud (see page 14).

FEBRUARY

The Delaware Chancery Court issued two rulings affirming the illegality of options backdating (as well as "spring loading"), indicating significant liability for directors if options are wrongly granted.

Insurer Aflac Inc. said that it would become the first U.S. public company to give shareholders an advisory vote on executive compensation packages.

Investor unrest: Activist shareholders Nelson Peltz reported a stake in Tiffany & Co.; Ralph Whitworth backed a campaign to unseat the board of Ceridian Corp.; David Batchelder joined the board of Home Depot in a move by the home improvement retailer to avoid a proxy battle; and Carl Icahn offered to buy auto parts supplier Lear Corp.

The chief executive of Eddie Bauer Holdings Inc. resigned after shareholders rejected the retailer's proposed sale to two private equity firms.

Activism's sticky wicket: Arthur Sulzberger Jr., having weathered a Morgan Stanley asset manager's attempt to incite a shareholder revolt at the New York Times Co. in 2006, cuts ties with the investment firm by moving $640 million in family assets away from the longtime custodian.

In news of its own, Morgan Stanley replaced its executive compensation consultant (Hewitt Associates) amid shareholder concerns about overlapping ties that could create consultant conflicts of interest.

Fortress Investment Group goes public: Noting this "ironic moment," the WSJ reported, "Private equity and hedge funds have been gobbling up public traded companies and taking them private. But the private money investors themselves are going the opposite way."

Leaders of 29 self-described "conservative and free-market" groups, initiated by the Competitive Enterprise Institute, send a letter to the SEC opposing "shareholder access"--warning that putting shareholder-nominated director candidates on proxy ballots would "result in special interest politicking that would hurt the portfolios of average investors."

Dow Jones & Co. said it would split the chairman and CEO positions when Peter Kann retired at the annual meeting in April.

Global activism: Japanese shareholders, rallied by an American investment fund, block a Tokyo steel company from being taken over. It is heralded as a landmark vote in a country of long-silent shareholders.

Xerox Chairman and CEO Anne Mulcahy was named the chairman of the Business Roundtable's Corporate Governance Task Force. "I'll advocate for a strong, fair system of corporate governance that emphasizes integrity, transparency and accountability," she said.

MARCH

Rep. Barney Frank, chairman of the House Financial Services Committee, introduced legislation--a bill called the "Shareholder Vote on Executive Compensation Act"--to require public companies to include in their annual proxies the opportunity for a nonbinding shareholder vote on executive pay plans. In a statement, Frank said, "I do not understand those who argue that the people who make up our stock markets are collectively very wise, but at the same time are somehow incapable of rendering a coherent opinion of what they should pay those they employ to run the corporation that they own."

After more than a year of review and study, TIAA-CREF issued a newly revised edition of its Policy Statement on Corporate Governance. Among the new elements is a policy in support of corporate bylaws requiring a majority vote in director elections.

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Hewlett-Packard Co. shareholders voted down a proposal that would have given shareholders more say in the company's board makeup. The proposal was sponsored by AFSCME and three state retirement funds and supported by CalPERS and ISS. The WSJ called it "the nation's first test case" of the issue.

In other H-P news, California's Superior Court dropped all charges against former Chairman Patricia Dunn related to H-P's investigation of boardroom leaks.

Former SEC Chairman Richard Breeden, now running an activist hedge fund, filed a proxy proposal to get board representation at restaurant chain Applebee's International Inc. The company was subsequently acquired by IHOP Corp. (see July).

Options backdating still a problem: Blackberry maker Research in Motion Ltd. revealed widespread accounting errors with its options grants, leading to a significant earnings restatement, the resignation of its chairman, and changes to the board.

Clawback provisions--allowing for the recovery of compensation from executives if there is a financial restatement or other reason for recouping pay received under questionable circumstances--became more prevalent features in proxies filed this year.

Sarbanes-Oxley co-author Michael Oxley, now with the law firm Baker Hostetler, added the position of nonexecutive vice chairman of Nasdaq Stock Market Inc., a role applying his Washington presence and public policy expertise.

The SEC emphasized its interest in making executive compensation data easier for investors to sift through with its plan to add free software to the commission's Web site that will read comp data that has been "tagged" using XBRL(extensible business reporting language)software.

A sloppy sale:The Dealware Chancery Court pushed back aganist the board of Netsmart Technologies in an agreement to sell the company to two private equity firms: the board may have run a flawed auction and missed a better deal for shareholders by excluding strategfic buyers, the court noted in its ruling (see article on this and other notable rulings on page16).

In a speech to a union group early in her presidential campaign, Sen. Hillary Clinton assailed a boardroom culture of CEOs whose salaries are rising while workforce wages are stagnating.

APRIL

Verizon Communications Inc. CEO Ivan Seidenberg and six members of the company's compensation committee were singled out by the AFL-CIO for a targeted campaign over executive pay; the union's secretary-treasurer, Richard Trumka, called Verizon "the poster child for pay for pulse." It was one of the first efforts by...

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