TheCorporateCounsel.net

Excuse me if I’m cranky, but I had decided to take a day off blogging today in honor of my half-birthday – been trying to get my wife to celebrate it for years to no avail – but the Delaware Supreme Court didn’t cooperate. Late yesterday, the Court released it’s long-awaited opinion – written by Justice Jacobs – affirming the Chancery Court’s decision in the Disney litigation. We have posted a copy of the 91-page opinion in CompensationStandards.com’s “Compensation Litigation” Portal. Analysis to follow next week…

Option Grants to Get Attention in Final Compensation Disclosure Rules

From Mark Borges’ “Proxy Compensation Disclosure” Blog yesterday: “The brewing scandal about possible stock option grant timing abuses could lead to significant changes in the final executive compensation disclosure rules. As reported in several media outlets, yesterday SEC Chairman Chris Cox indicated that the Commission is considering revisions to the proposals in response to concerns about option dating. In fact, one article notes that Cox is going to address the subject later today – I’ll update this post once his comments have been made public.

As you probably know, one of the items included in the proposed Compensation Discussion and Analysis would require companies to consider discussing the timing of their option grants as part of this report. Proposed Item 402(b)(2) includes, as one example of the type of material information that may need to be discussed in the CD&A, “[f]or equity-based compensation, how the determination is made as to when awards are granted.”

At this point, I suspect that the changes under consideration would go much further than just revising this particular item. If you want to get a flavor of what might be under discussion, take a look at the comment letter of the CFA Centre for Financial Market Integrity (which was submitted on May 30th). The CFA recommends four specific enhancements to the current proposals to cover option timing concerns:

– The dates for all prior-year compensation committee meetings be disclosed in the CD&A;

– The dates on which the compensation committee approves equity awards be disclosed on an on-going basis in Form 8-K filings and, by reference, in the proxy statement;

– The effective grant dates for all equity awards that differ from the previously-disclosed approval dates be disclosed on an on-going basis in Form 8-K filings and, by reference, in the proxy statement; and

– The compensation committee be required to determine and disclose if any effective grant date was selected to take advantage of the pending release of material information about the company, and whether executives are permitted to select or recommend grant dates for their options.

It’s unclear whether the Commission is entertaining any of these recommendations or what other ideas it may be considering. However, as the investigations into option grant timing continue to expand, it seems a virtual certainty that the disclosure rules are going to get adjusted to address this issue.”

Broker Votes vs. Broker Non-Votes II

After I initially blogged on this issue a few days ago, I went back and tweaked my entry after numerous responses from members addressing what is the proper meaning of “broker non-votes.” I continue to get conflicting e-mails from members, so proxy mechanics is an area where more education appears necessary for many of us. Here is one member’s thoughts on the topic:

“Broker non-votes” has a specific meaning and is not the same as broker votes on behalf of their customers. A broker non-vote occurs when a broker’s customer does not provide the broker with voting instructions on non-routine matters for shares owned by the customer but held in the name of the broker. For such matters, the broker cannot vote either way and reports the number of such shares as “non-votes.”

Like abstentions, broker non-votes are counted as present and entitled to vote for quorum purposes. Unlike abstentions, at least for Delaware corporations, broker non-votes are not the equivalent of an “against” vote on those items that require the affirmative vote of a majority of shares present in person or by proxy and entitled to vote. Proxy statements must discuss the treatment of “broker non-votes,” and in Item 4 of Part II of Form 10-Q, registrants must report, for each item voted on at the shareholder meeting, the number of “broker non-votes” along with the number of shares cast for, cast against or withheld, and abstained.

And one more from another member:

Rather than being the same thing as a broker vote, I would say that a broker non-vote is the flip side of a broker vote. Both broker votes and broker non-votes relate to the ability of the broker to vote shares with respect to which the broker has not received specific voting instructions from the beneficial owner of the shares. But a broker vote occurs in a situation where NYSE Rule 452 does not prohibit the broker from casting a discretionary vote with respect to uninstructed shares, so the broker goes ahead and votes those uninstructed shares in its discretion, whereas a broker non-vote occurs in a situation where NYSE Rule 452 does prohibit the broker from casting a discretionary vote with respect to uninstructed shares, so the broker is unable to vote those uninstructed shares.

Broker votes show up as a “for,” “against” or “abstain” vote, depending on how the broker casts its discretionary vote, whereas broker non-votes are excluded from the “for,” “against” and “abstain” counts, and instead are reported by the company as broker non-votes. Depending on the approval standards applying to a particular matter, broker non-votes may or may not have an impact on the outcome of the matter.