Editor: I understand that RiskMetrics Group has recently issued
its 2010 corporate governance updates and frequently asked compensation
questions which affect several areas, including takeover defenses and
compensation. What are some of the key changes relating to these two
areas?

Newsome: With regard to takeover defenses, a key change is
the treatment of poison pills adopted, renewed or materially adversely
modified without stockholder approval. RiskMetrics now distinguishes
between long-term poison pills, those having a term of more than one
year, and short-term poison pills, those having a term of one year or
less. For companies with long-term poison pills that have not been
approved by stockholders and where the entire board of directors is
elected on an annual basis, RiskMetrics will now recommend a vote
against or to withhold authority against directors every three years,
and for companies with classified boards of directors, every year. For
non-stockholder-approved short-term poison pills, RiskMetrics will
determine on a case by case basis whether to recommend a vote against
or to withhold authority taking into account specific factors.

Editor: In addition to poison pills, for what other takeover defenses has RiskMetrics issued updates?

Newsome: RiskMetrics now provides that it will generally
recommend a vote in favor of proposals that provide stockholders with
the ability to call a stockholder meeting or to act by written consent
so long as the proposals will provide substantive rights to the
stockholders. Regarding proposals to reduce the super-majority
stockholder vote required to approve an action, RiskMetrics will
generally recommend a vote in favor of such proposals unless the
company has a significant stockholder, since in such a case, minority
stockholders could benefit from the existing super-majority vote
requirements.

Editor: As RiskMetrics evaluated its "pay-for-performance"
updates, it seems they considered a new factor. Can you explain this
factor?

Newsome: In evaluating "pay-for-performance," RiskMetrics
added a new factor in recommending whether to vote for or against a
management "say-on-pay" proposal or an equity-plan proposal or to vote
for or against or to withhold authority on the election of directors,
with the key focus being on compensation committee members, which is
the alignment of the CEO's total direct compensation and total
stockholder return over at least a five-year period, especially for
companies that have under-performed their peers over a significant
period. RiskMetrics' under-performance factors include a company rating
in the bottom half of an industry group in one-year and three-year
total stockholder return, and if a CEO's total compensation for two
straight years is not aligned with the company's total stockholder
return over both short-term and long-term periods.

Editor: What are the types of problematic pay practices that RiskMetrics identified?

Newsome: RiskMetrics included a number of problematic pay
practices, including multi-year guarantees of salary increases,
non-performance-based bonuses, and equity compensation; change of
control payments that are in excess of three times base salary and
target bonus, that are based on single triggers or modified single
triggers or that include excise tax gross-ups; and repricing of
underwater stock options without stockholder approval. If a company has
problematic pay practices, RiskMetrics generally will recommend voting
against a management "say-on-pay" proposal or an equity plan if
non-performance-based equity awards are a major cause of the
misalignment of "pay-for-performance" or against or withhold authority
on the election of directors, especially compensation committee
members.

Editor: What could be the general impact on companies from the RiskMetrics updates?

Newsome: Directors, especially compensation committee
members, will be receiving increased scrutiny for their actions,
especially regarding takeover defenses and compensation practices.
Directors should realize that the updated policies will likely result
in RiskMetrics issuing more against or withhold authority
recommendations for the election of directors and more against
recommendations for management compensation proposals.