RiskMetrics Releases 2009 Corporate Governance Background Report on Poison Pills

by Kevin M. Wells, for RiskMetrics Group, September 25, 2009.

Though not as prevalent as they once were, shareholder rights plans, commonly referred to as “poison pills,” remain a fixture of the corporate governance landscape. As the global economic crisis took a toll across U.S. and international capital markets over the past year, companies continued to adopt pills, albeit with more shareholder-friendly provisions. Indeed, an analysis of regulatory filings, proxy voting trends, and other data finds that companies are incorporating more shareholder-friendly provisions into their pills; moreover, companies are putting such plans to a shareholder vote in greater numbers than ever before.

Perhaps as a consequence of increased management votes to ratify or adopt pills, shareholder activism, as measured by filings of shareholder proposals to terminate or allow shareholders to vote on pills, has declined. However, those shareholder proposals appearing on ballots generally received high levels of support in 2009.

Amid the recent economic turmoil, 2009 has also seen the emergence of NOL poison pills, which are meant to protect companies’ tax assets rather than to deter acquisition offers. It was an NOL pill, in fact, that became the subject of controversy in Selectica v. Versata, pending in Delaware Chancery Court, which may significantly affect future uses of poison pills by Delaware companies…

To read this report click here.