September 14, 2011

Proxy Access: How Many Shareholder Proposals Will Be Filed in '12?

When I blogged last week about the SEC deciding to not appeal the proxy access court decision, I noted that one importance of the SEC's announcement was that the stay on Rule 14a-8 access proposals was being lifted. And I used the phrase "opening floodgates" in my title to intimate that a lot of shareholder proposals touting access might be forthcoming in '12.

I'm now doubting myself for using that phrase as it remains to be seen just how many access proposals will be submitted next year. On the one hand, CII issued a press release that stated: "Council member funds and the broader investor community are ready and willing to seek access to the proxy to nominate directors judiciously, at companies where boards have been asleep at the switch or chronically unresponsive to shareowner concerns."

On the other hand, ISS's Ted Allen's blog on the topic notes:

Amy Borrus, CII's deputy director, said she expects to see "probably not more than a handful" of access proposals in 2012. "I expect that shareowners will file proxy access proposals selectively at companies where boards have a history of not being responsive to shareowners or have been asleep at the switch," she said.

This view is supported by this statement in Ted's blog:

There is concern among some activists that corporate advocates will argue that federal access standards are not needed if investors file a large number of access resolutions next year.

But you never know what will really happen until it happens - so it's too early to tell, although not too early to poll (I'll post a poll soon). But one thing is sure, as noted in Ted's blog:

Even with the revised Rule 14a-8(i)(8) in place, it appears likely that shareholder access resolutions will face no-action challenges from companies on proof-of-ownership or other procedural grounds. Some companies may try to argue that an access proposal conflicts with state law or is impermissibly vague and misleading.

Second Circuit Clarifies Materiality Requirement in Securities Fraud Cases

Just ahead of our upcoming webcast - "Materiality: The Hardest Determination" - the Second Circuit recently affirmed the dismissal of a class action alleging violations of Sections 11(a), 12(a)(2), and 15 of the '33 Act in Fait v. Regions Financial Corp. (2d Cir.; 8/23/11). As noted in this Paul Weiss memo:

The Second Circuit held that defendants' alleged failures to write down goodwill in a timely manner and to increase loan loss reserves sufficiently during the financial crisis were not actionable, because defendants' challenged statements were matters of opinion rather than fact. Thus, plaintiffs had to allege that defendants did not believe the statements were true at the time they were made, something the complaint failed to do. Fait promises to be a useful tool in defending claims under the Securities Act, as well as claims that a defendant otherwise misstated financial figures, when those figures depend on the judgment of management rather than strictly objective criteria. The decision may be particularly important with respect to claims against accounting firms, whose conclusions based on their audits of financial statements and internal control regularly take the form of an expression of opinion.

The SEC's New "MAP": Organization Reform is Coming!

On Monday, the SEC posted this 25-page report entitled "Implementation of SEC Organizational Reform Recommendations" as required by Section 967 of Dodd-Frank and in response to a 267-page Boston Consulting Group study provided to Congress earlier this year (I've blogged about that twice - here and here).

At 25-pages, I was more willing to spend more time with this report than the formidable Boston Group Study - but it still wasn't my type of "quiet read." Here are a few notes based on a skim of this new report:

- Implementation of the recommendations will be expensive - $42-55 million over two years, per pg. 6 - and the SEC is budget-constrained right now.

- Program formally named the "Mission Advancement Program" aka "MAP" (pg. 10)

- Corp Fin seems to have escaped any further reshaping since it recently did some realignment (pg. 13)

- SEC will seek flexibility from Congress when creating four new Offices as required by Dodd-Frank (and since stalled due to budget limits)(pg. 17)

- SEC is following up on its momentum towards technological sophistication by devoting more attention to developing a technology strategy including eventually forming a "Technology Center for Excellence" (pgs. 19-20)

- SEC focused on addressing high priority hiring needs - those "hard to recruit or hire" (pg. 23)

A great compilation of highlights for those that want to relive Michigan's epic win over Notre Dame on Saturday...

- Broc Romanek