RiskMetrics - Do as we say, not as we do?
RiskMetrics
filed its proxy today and it included a proposal to add shares to its equity
plan.
If
approved their total overhang will be about 33%. That should blow up
their SVT calculations and be over their “allowable cap”
The
other interesting item in the proposal is they distinguish options that have
been outstanding for at least 4 years (noting that if those are excluded, overhang
reduces to 21.4%). Bit misleading disclosure. Most companies have a
ton of options that are 4+ years old. It is also more aggressive than their SVT
carve-out where options can be excluded if at least 6+ years outstanding and
in-the-money.
DW -
This came across my desk today as an anonymous email. My question is this: Is it irony or hypocrisy when you can't follow the rules you demand everyone else to follow?
Is this a symptom of something greater in our society? We see similar difficulties in politics, education and executive compensation. Our athletes get caught in the same trap. Should we let people, companies ans societies have a little breathing room, or should we require that rules be followed dogmatically?
I know that RiskMetrics has at least few ECE members and this posting is not meant to offend. My personal thought is this - Moderation in all things, including moderation. Let's hear yours.
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How poetic. Frankly, I'm not surprised to hear about it. Seems inevitable that this sort of thing happens. To answer your question-seems like hypocracy to me. If they are the ones to set the rules, they ought to be quite certain they themselves don't break them. Perhaps we need more dogs to watch the watchdogs? :)
Seems like credibility would come into question if they are serious about putting up those kinds of numbers. Why should boards listen to them? DW-can you verify the filing to see if this is in fact true?
As requested by John, I have independently confirmed the information. I want to make sure we have all of the facts when we discuss things like this.
You may go to RiskMetrics filing here - http://www.sec.gov/Archives/edgar/data/1295172/000104746909004690/a2192554zdef14a.htm
First let me note that in addition to the share allocationincrease they are also asking for an extension on the life of their plan. Without approval it will expire 6/14/2009. They are asking for an extenstion to 6/30/2012.
The percentages and details from the anonymous email are correct. Overhang will be 32.6% and they do detail a carve out of options that have been outstanding more than 4 years and discuss that without them the overhang would be 21.43%.
Run Rates
2006 - 3.6%
2007 - 7.68% (noted as an anomaly due to the acquisitions of ISS and the Center for Financial Research and Analysis)
2008 - 2.88%
2009 - lower than 2008
Plan allows for an annual maximum of 1,875,000 to a single person.
So there's the facts. Let the comments begin.
Before we hang the executioner, let us all remember that it's the wall street analysts who are really making the rules. All ISS really does is analyze and report the numbers. If ISS rules didn't make sense, then the wall street analysts would be looking for a new "watchdog".
In addition, I think there are a lot of companies having issues with their equity plans. It may be ironic that ISS/RiskMetrics is one of those, but I would be a little hypocritical myself if I said that ISS was being hypocritical.
Finally, ISS only makes a recommendation based on the facts. At the end of the day the shareholders make the final decision. If the numbers don't make sense, then they don't make sense. If the plan has a sound strategy and shareholders believe in the management team, then they can get their plans approved.
Maybe it should be more like, don't shoot the messenger.
Hmmm. But doesn't risk metrics make the vote/no vote recommendations that the institutional shareholders follow? Isnt' based upon SVT and overhand? Wouldn't that make them the Judge? I've had some direct experience with their rules.
I say they are being hypocritical! I recommend their shareholders vote their plan updates down!
I'll be honest. I tend to fall more on the side of irony than hypocrisy.
First, ISS doesn't run RiskMetrics, its the other way around, but ISS still maintains independence. Who knows, ISS may still come out with recommend against the RiskMetrics proposal.
Second, Risk Metrics is in a position like many other companies. Cash is touch to come by in many companies and equity provides a great long-term incentive and compensation vehicle. In fact, I think Risk Metrics has been doing fairly well as a company.
Third, although ISS can change the course of a vote, many companies have great relationships with their institutional investors. It is these relationships and the performance of the company that often inspires the shareholders to remain shareholders. These companies seldom have to worry excessively about ISS recommendations. Instead they are concerned with what their instituionals actually think (as opposed to what they are advised to think)
Lastly, there are many institutional shareholders that have their own models for determining what constitutes a vote/no vote. Perhaps many of RiskMetrics own shareholders fall into this category.
Here's another fact which is probably the underlying reason -
All directors and executive officers of RiskMetrics as a group (15 persons) own 52.87% of the company (33,357,641 shares).