E-Minders March 2015
In This Issue:
E-Minders is our monthly e-mail newsletter containing the latest developments and practical guidance for corporate & securities law practitioners.
We view TheCorporateCounsel.net as the gathering place for the community and encourage those who may not yet be members to take advantage of a No-Risk Trial to see what you are missing. Here are 10 Good Reasons to try us now.
You can subscribe below to receive a complimentary E-Minders subscription - even if you don't subscribe to TheCorporateCounsel.net. Our hope is that once you get to know us, you will understand the true value of a subscription to TheCorporateCounsel.net. Note that subscribers to TheCorporateCounsel.net should sign up below for E-Minders too, as we don't have the e-mail addresses for many people in our community.
Early Bird! Our Pair of Popular Executive Pay Conferences: We just posted the registration information for our popular conferences - "Tackling Your 2016 Compensation Disclosures" & "12th Annual Executive Compensation Conference: Say-on-Pay Workshop" - to be held October 27-28th in San Diego and via Live Nationwide Video Webcast on TheCorporateCounsel.net. Act now for the early bird discount - which expires April 24th - to get as much as 33% off! Here are the agendas.
2015 Edition of Romanek's "Proxy Season Disclosure Treatise": Broc Romanek has wrapped up the 2015 Edition of the definitive guidance on the proxy season— Romanek's "Proxy Season Disclosure Treatise & Reporting Guide." With over 1450 pages—spanning 32 chapters—you will need this practical guidance for the challenges ahead.
1st Edition of Morrison & Romanek's "The Corporate Governance Treatise": Wrapping up a project that Randi Morrison & Broc Romanek feverishly commenced two years ago, we are happy to say the inaugural 1st Edition of Morrison & Romanek's "The Corporate Governance Treatise" is finished. With over 900 pages—including 212 checklists—this tome is the definition of being practical. You can return it any time within the first year and get a full refund if you don't find it of value.
Upcoming Webcasts on TheCorporateCounsel.net: Join us on March 3rd for the webcast - "Conduct of the Annual Meeting" - to hear Randy Clark of Sempra Energy; Angela Hilt of Clorox; Jeff Taylor of Pepco, Carol Ward of Mondelez International and Carl Hagberg of The Shareholder Service Optimizer explain how they handle the many challenges of running an annual shareholders meeting.
And join us on March 24th for the webcast - "Proxy Access: The Halftime Show" - during which Morrow's Tom Ball, Davis Polk's Ning Chiu, Covington & Burling's Keir Gumbs, Gibson Dunn's Beth Ising and Sullivan & Cromwell's Glen Schleyer will analyze how companies decided to handle the new wave of proxy access shareholder proposals - and how investors might react to that.
And join us on May 5th for the webcast - "Form S-8: Share Counting, Fee Calculations & Other Tricks of the Trade" - to hear Gibson Dunn's Krista Hanvey, Davis Polk's Kyoko Takahashi Lin and Kaye Scholer's Jeff London discuss a topic rife with uncertainty and traps for the unwary.
And join us on June 2nd for the webcast - "Escheatment Soup to Nuts: Handling Unclaimed Property Audits & More" - to hear Reed Smith's Diane Green-Kelly, Keane's Valerie Jundt and Exelon's Scott Peters cover everything you need to know about escheatment, from the basics to handling the growing number of unclaimed property audits.
There is no cost for these webcasts if you are a member of TheCorporateCounsel.net. If you are not a member, take advantage of our no-risk trial to access the programs. You can sign up for this no-risk trial online, send us an email at firstname.lastname@example.org - or call us at 925.685.5111.
Upcoming Webcasts on CompensationStandards.com: Join us on March 10th for the webcast - "The Top Compensation Consultants Speak" - to hear Mike Kesner of Deloitte Consulting, Blair Jones of Semler Brossy and Ira Kay of Pay Governance "tell it like it is. . . and like it should be."
And join us on June 16th for the webcast - "Proxy Season Post-Mortem: The Latest Compensation Disclosures" - to hear Mark Borges of Compensia, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn analyze what was (and what was not) disclosed this proxy season.
No registration is necessary - and there is no cost - for these webcasts for CompensationStandards.com members. If you are not a member, take advantage of our no-risk trial to access the programs. You can sign up online, send us an email at email@example.com - or call us at 925.685.5111.
Upcoming Webcasts on DealLawyers.com: Join us on March 4th for the webcast - "Merger Filings with the SEC: Nuts & Bolts" - to hear Dennis Garris of Alston & Bird, Laurie Green of Holland & Knight and Jim Moloney of Gibson Dunn discuss the nuts & bolts of preparing disclosure documents that are filed with the SEC, including practical guidance into what should be disclosed (or not disclosed) to minimize litigation risk - as well as how to handle common Corp Fin comments.
And join us on June 11th for the webcast - "Selling the Public Company: Methods, Structures, Process, Negotiating, Terms & Director Duties" - to hear Greenberg Traurig's Cliff Neimeth, Richards Layton's Ray DiCamillo and Richards Layton's Mark Gentile analyze the legal and commercial parameters of what you can - and can't do (or should and shouldn't do) - when shopping and agreeing to sell control of a public company are evolving due to judicial decisions, legislative developments and market conditions.
No registration is necessary - and there is no cost - for these webcasts for DealLawyers.com members. If you are not a member, take advantage of our no-risk trial to access the programs. You can sign up online, send us an email at firstname.lastname@example.org - or call us at 925.685.5111.
Our Newly Redesigned Site! Give Broc Your Feedback...
If you head to our home page today, you'll see that we have launched a newly redesigned site! Long overdue, it's Broc's first rethink since he completely overhauled the site when he took it over in January 2003. The reality is that only the home page has changed. The underlying content is the same, the blogs are the same, etc. If you have subscribed to have a blog or eminders pushed to you, you will still receive them as you always have. And there is no log-in box on the home page, as you will only be prompted to log-in when you encounter members-only content.
Broc's primary redesign goal was to enable you to more easily navigate to our main areas of content, which is accomplished now through the prominent 16 tabs at the top of the home page (for example, the 500+ Practice Areas are accessible from the top left tab rather than being forced to scroll through a long left column of the home page). And you'll see that the rest of the page isn't cluttered anymore. Rather, the bulk of the home page highlights key resources & news developments. A secondary goal was to have the home page look "clean" on any mobile device. Give Broc your honest feedback please!
Proxy Access: Citigroup Joins GE & Others (Sorta Kinda)
In mid-February, Broc blogged that General Electric and two other companies had adopted proxy access bylaws in the face of shareholder proposals seeking access. Now comes the news from this WSJ article - in this case, Citi will support the adoption of the 3%/3-year formula sought by the shareholder proponent, Jim McRitchie, after he changed his formula as noted in this blog. Here's the draft support language for Citi's proxy statement. So the Citi situation isn't quite like the other companies because the company hasn't adopted proxy access - rather, it has just agreed to support an amended non-binding shareholder proposal...
Meanwhile, a coalition of 17 groups sent this letter to the SEC on Wednesday expressing concern about the SEC's decision to review its (i)(9) views in the midst of the proxy season...
Transcript: "Conflict Minerals: Tackling Your Next Form SD"
- Pending Litigation and Current SEC Guidance
Hedging & Pledging Policies: Possible Approaches & Survey
In early February, the SEC posted this proposing release on hedging disclosure, a rulemaking dictated by Section 955 of Dodd-Frank. It came out of the blue, based on seriatim action taken by the Commissioners - not at an open Commission meeting. Commissioners Gallagher & Piwowar supported getting the proposal out of the gate, but they issued this joint statement noting there are aspects of the proposal that they have concerns about (meanwhile, Commissioner Aguilar issued this statement supporting the proposal). That might be one of the reasons why the proposing release is loaded with specific requests for comments, running on longer than the explanation of the proposed rule! There is a 60-day comment period. We're posting memos in our "Hedging" Practice Area. It's hard to predict whether this means that we'll soon see action on the other "Four Horsemen" rulemakings left from Dodd-Frank, including adoption of the pay ratio rules.
An analysis of ISS Governance QuickScore data finds: 54.3% of Russell 3000 companies have a policy prohibiting hedging of company shares by employees, while 84% of large capital S&P500 companies have such a policy. Executive or director pledging of company shares was prevalent at just 14.2% of Russell 3000 companies, and, notably, 15.8% of S&P500 companies.
In reaction to the SEC's hedging & pledging policy disclosure proposal last week, I received this nifty chart on possible approaches from one in-house member - as well as this note below:
From where I sit, companies would do a disservice to themselves - and their stockholders - by adopting a blanket "one-size-fits-all" rule with regard to hedging of company securities. Instead, I believe we should consider different policy decisions on how we view hedging with regard to (i) outstanding equity awards v. shares owned outright and (ii) rank-and-file employees v. directors and officers. Also, even though the proposed rules are focused on hedging activity, I believe that companies should re-visit their pledging policies because they raise similar issues. See my attached snapshot summary.
Proxy Access: Did GE (& Others) Just Open a New Front in (i)(9) Battle?
In mid-February, General Electric filed this Form 8-K, disclosing that the company has adopted a proxy access bylaw, so that a shareholder, or a group of up to 20 shareowners, owning 3% of the company's common stock continuously for at least 3 years to nominate directors constituting up to 20% of the board. This blog notes two other companies have done this too: HCP and CF Industries. So it looks like these companies have figured out a way to avoid placing competing proxy access proposals on the ballot, etc. - and perhaps they will now file a no-action request with Corp Fin, making a "substantially implemented" argument under Rule 14a-8(i)(10). We'll see.
There is some pretty good analysis in this article entitled "Did GE Just Become More Activist-Friendly... Or Activist-Minded?" - including a list of GE's largest shareholders. Also see these articles from Reuters and the WSJ...
Proxy Access: Keith Higgins Speaks on SEC's (i)(9) Review
In mid-February, Corp Fin Director Keith Higgins delivered this interesting speech entitled "Rule 14a-8: Conflicting Proposals, Conflicting Views." There are some really interesting things in this speech on counterproposals, etc., although there isn't much that helps those companies grappling with proxy access shareholder proposals this proxy season (but there is some, such as #6 below). Here's some notables from Keith's speech (and here's more analysis from this Cooley blog):
1. (i)(9) Rarely Invoked Before 2009: "The substantial uptick in Rule 14a-8(i)(9) activity began in 2009 with proposals involving the right of shareholders to call a special meeting of shareholders."
2. Keith's Disclaimer Disclaims Some of His Own Speech: "Of course, because the Division has just begun its review, all of these thoughts are very preliminary and, as mentioned in my disclaimer, do not reflect anyone's views, in this case likely including my own. But, it's a place to start." [emphasis included in the speech]
3. Precatory v. Mandatory Nature of Proposals Not Historically a Factor: "The Division has not considered the precatory/mandatory distinction as factoring into our view of Rule 14a-8(i)(9) conflicts. There are two reasons for this. First, virtually all shareholder proposals are precatory. Applying the precatory/mandatory distinction to conclude there is no conflict would make the exclusion applicable to a small number of situations. Perhaps the exclusion was meant to be narrow; the regulatory history is not clear. Second, even accepting that the vote on the shareholder proposal would be a data point for the directors to consider, the concern was that the data, taken as a whole, may be ambiguous for the directors to interpret and, just as importantly, that it would make it difficult for shareholders to decide how to send their message."
4. Proxy Rules Could Be Structural Obstacle to Dealing With Competing Proposals: "As we do our review, we may consider whether there may be a structural limitation in our current proxy rules that makes it difficult to have a side-by-side comparison. Exchange Act Rule 14a-4(b)(1) requires that a form of proxy permit a shareholder to vote for or against or to abstain from voting on each separate matter other than the election of directors or say-on-frequency votes. Putting the 10% and the 25% proposals side-by-side and asking shareholders to choose which one they prefer may provide the board with better information than full "for" and "against" votes on conflicting proposals, although it still would not accommodate the preferences of shareholders who either want a different threshold or do not believe that shareholders should be entitled to call a special meeting at all. But should Rule 14a-4(b) be amended to permit more flexibility than a thumbs up or thumbs down approach?"
5. Concerns Over Company Motives: "The concern about management's motives goes further. We have heard the concern expressed that management could continue year after year to come up with a slightly different proposal for the purpose of keeping the shareholder proposal from ever making it into the proxy materials. While we have not yet seen this concern materialize, it is certainly not beyond the realm of possibility. Should the Commission consider addressing this concern by, for example, amending Rule 14a-8(i)(9) so that the exclusion is not available to a company two years in a row for the same shareholder proposal or perhaps another shareholder proposal on the same subject matter?"
6. Need for More Disclosure When Companies Exclude Shareholder Proposals?: "Should the Commission, for example, require that when management uses Rule 14a-8(i)(9) to exclude a shareholder proposal, it needs to include in the proxy statement something akin to a "Background of the Merger" discussion that appears in a merger proxy statement to explain the circumstances that led it to present its proposal, a discussion of alternatives and management's rationale for crafting its proposal as it did? Another approach might be to require the company to allow the shareholder proponent whose proposal was excluded to include a statement in opposition, much as management does when it is required to include a shareholder proposal in the proxy."
7. Reminders About False & Misleading Arguments: "To be clear, we did not abdicate our responsibility over shareholder proposals that may be materially false or misleading. From our perspective, there are three threshold questions we consider when asked to exclude a proposal or supporting statement as false or misleading. First, is it really a "fact"? Sometimes, we are asked to exclude based on inferences and opinions. These generally seem like issues best addressed in the opposition statement. Second, is it false or misleading? The Commission's rules make clear that the company has the burden of demonstrating that it is entitled to exclude a proposal. So the staff is looking for objective, demonstrable evidence of falsity. Finally, is it "material"?"
Broc received quite a few emails from members expressing surprise that Keith would address this topic in the midst of the SEC's review of how it will apply (i)(9) going forward. Broc finds it quite useful - both for its analysis of the issues, as well as a way to publicize the fact that the Staff is soliciting comments on (i)(9) as part of its review (even though it's not obligated to do so). This comment solicitation gives the speech the feel of a proposing release, which may be prudent given the Chamber's recent letter expressing concerns about the Staff not taking a view on the possible exclusion of proxy access shareholder proposals during this proxy season...
Proxy Access: CalPERS & CalSTRS Weigh In
In this recent joint statement about climate change, CalPERS and CalSTRS note that they intend to ramp up their engagement efforts on this topic (remember that the NY Comptroller's office sent proxy access shareholder proposals to 33 energy companies as part of its 75 access proposal initiative). In addition, CalSTRS updated its corporate governance principles noting that it would oppose any proxy access formula more stringent than 3%/3-years. Here's an excerpt from CalSTRS' related announcement:
"CalSTRS will, in the coming proxy season, support any shareholder proposal that includes a three-and-three group structure," said Ms. Sheehan. "Our intention is to oppose any proxy access proposal with a structure more onerous than three-and-three ownership by a group of shareholders." CalSTRS Corporate Governance unit will also urge fellow shareholders to withhold their votes from company directors who either exclude a three-and-three shareholder proposal from the proxy statement, or who deliberately preempt such a shareholder proposal with one of their own that establishes more excessive thresholds.
In addition, this Cooley blog notes comments from a BlackRock representative about proxy access. Finally, check out page 7 of this "Proxy Insight Monthly" for a list of how asset managers have voted for proxy access shareholder proposals in the past...
ISS' Compensation Policies: 104 New FAQs
In mid-February, ISS posted 104 new FAQs - over 43 pages - on its US compensation policies, covering all sorts of topics...
Glass Lewis Changes Its Pay-for-Performance & Equity Plan Models
Glass Lewis is pleased to announce enhancements to the performance metrics used in its US and Canadian pay-for-performance (P4P) models, as well as its US equity plan model. These changes will go live on February 2, 2015. Glass Lewis' P4P models evaluate the linkage between pay and performance at companies versus their peers. Weighted-average executive compensation percentiles and weighted-average performance percentiles are reviewed to determine how well a company aligns its executive pay with its corporate performance. When calculating the performance percentiles, the current models evaluate the following five metrics: Change in Operating Cash Flow, Change in Earnings Per Share, Total Shareholder Return, Return on Equity, and Return on Assets.
Glass Lewis has determined that changing some of the performance metrics for certain industries will better reflect how the operating performance of companies in these industries is measured and evaluated by management, boards, and industry analysts. Along those lines, Glass Lewis will:
- Replace Change in Operating Cash Flow with
Tangible Book Value Per Share Growth for companies in the Bank, Diversified
Financials, and Insurance sectors
In order to be consistent with these updates, Glass Lewis will also make the same changes to the performance metrics used in its US equity plan model. Glass Lewis has back-tested these changes in the P4P and equity plan models. The results indicate that there will be minimal impact on the grades generated by the P4P models, as well as minimal impact on the pass/fail assessments generated by the equity plan model.
The SEC Commissioners Speak: More Changes Coming?
Recently, the SEC Commissioners have delivered a higher volume of speeches than normal. Some of them seek some interesting changes. Here are a few:
- SEC May Encourage "Venture Exchanges" - In this speech, SEC Chair White noted that the SEC may encourage the development of venture exchanges as venues to provide more liquidity for the securities of smaller companies (see this Bloomberg article)
- SEC May Issue Guidance on Bad Actor Waivers - As I've blogged a few times, the Commissioners have been battling over the topic of bad actor waivers. It's such a hot potato that most waivers now coming from the Commissioners, not the Corp Fin Staff itself. In this speech (and covered in this blog), SEC Commissioner Gallagher addressed the current debate over this topic (and this Reuters article notes that the SEC will be issuing guidance in this area).
- SEC May Revisit E-Proxy - As noted in this Reuters article, SEC Commissioner Piwowar wants the e-proxy rules to be studied, particularly its impact on retail voting.
- SEC Looking to Bring Enforcement Cases Over Cybersecurity Disclosure - As noted in this Reuters article, David Glockner, Director of the SEC's Chicago Regional Office, said the SEC wants to bring enforcement cases over poor internal controls and/or misleading disclosure about a cybersecurity breach.
- SEC May Issue Guidance on When Its Cases Will Go Before an Administrative Law Judge - As I have blogged several times (and as noted in this blog), there is controversy over when the SEC uses administrative proceedings to seek penalties against non-registered respondents. As noted in this speech, SEC Commissioner Piwowar wants the SEC to issue guidelines about when the SEC will use an ALJ. As noted in this article, the SEC has been getting sued over the use of its own administrative law judges to try enforcement cases. Here's a Perkins Coie memo with more info about speeches on enforcement issues.
ISS Issues FAQs on Proxy Access Proposals
Here's news from Davis Polk's Ning Chiu's blog :
In its long-awaited FAQs, ISS indicates that it will generally recommend in favor of management and shareholder proposals for proxy access which allow for nominations to be made by shareholders owning not more than 3% of the voting power for 3 years, with "minimal" or no limits on the number of shareholders permitted to form a nominating group, and allowing nominations for up to 25% of the board. ISS will also review the reasonableness of any other restrictions and may recommend against proposals that are more restrictive than these guidelines.
ISS is tracking 96 shareholder proposals on proxy access. For companies that present both a board and a shareholder proxy access proposal in their proxy statement, ISS will review each proposal separately. Yesterday, we issued a memo on a decision framework for evaluating proxy access, including for those companies that do not have the proposal this season but are watching these governance developments, which is available here.
In addition, ISS will recommend a vote against one or more directors (individual directors, certain committee members, or the entire board based on case-specific facts and circumstances), if a company excludes a shareholder proposal, unless it has obtained (a) voluntary withdrawal by the proponent; (b) no-action relief from the SEC or (c) a U.S. district court ruling. ISS may issue negative recommendations in these situations regardless of whether there is also a management proposal on the same topic. This is under ISS' governance failures policy and expand beyond proxy access, to other situations where companies had also attempted to exclude conflicting shareholder proposals through the SEC no-action letter process, such as proposals requesting the right to call a special meeting. If a company has taken unilateral steps to implement the proposal, the degree to which the proposal is implemented, including any material restrictions, will also factor into the assessment.
ISS Publishes TSR Medians By Industry Group
As noted in this blog, ISS has published "Industry Group US TSR Medians for Performance-Related Policies." The publication was solely for informational purposes.
Company performance relative to industry medians is incorporated into ISS' evaluation of shareholder proposals seeking an independent chair and for ISS' evaluation of director performance. However, the TSR sector medians in ISS' reports are updated monthly and align with the subject company's fiscal year end.
Virtual Annual Meetings: Could Hewlett-Packard Build Momentum?
Recently, Broc blogged last year's stats for virtual annual meetings - noting that growth was relatively flat in 2014. Virtual-only meetings has grown slowly, with 53 meetings in '14, 35 in '13 and 27 in '12. The notable thing about all these virtual meetings, however, are that the companies doing them are not household names. That is about to change. As noted in this Reuters article, Hewlett-Packard will hold a virtual annual meeting next month. Wow! Here's the table of contents for H-P's proxy statement - and here are the FAQs about how the meeting will work.
Over the years, Broc has blogged numerous times about virtual annual meetings (and even have a set of FAQs about them posted in our "Virtual Shareholder Meetings" Practice Area. CII and some institutional investors continue to rail against them - and Broc continues to believe it's a problematic practice if the company is facing turbulent waters (as noted in this blog). It will be interesting to see how H-P's shareholders react...
Clawbacks: SEC Gets $500k from Pair of Ex-CFOs
Here's news from this blog by Steve Quinlivan:
Two former CFOs have agreed to return nearly a half-million dollars in bonuses and stock sale profits they received while their Silicon Valley software company, Saba Software, was committing accounting fraud. While not personally charged with the company's misconduct, the SEC's position is the two CFOs are still required under Section 304 of the Sarbanes-Oxley Act to reimburse the company for bonuses and stock sale profits received while the fraud occurred.
Senior employees responsible for the fraud were told on multiple occasions by the finance department that the company's accountants and auditors needed to understand exactly how many hours were being worked and when (regardless of whether or not they were billed to the customer) in order to ensure that revenue was recognized accurately, and they understood that inaccurate time-keeping would lead to misstatements in Saba's reported professional services revenue and violate the Company's policies regarding financial reporting. The two CFOs each consented to the entry of the SEC's order without admitting or denying the finding that they violated Section 304 of the Sarbanes-Oxley Act.
Last year, the SEC charged Saba Software and two former executives responsible for the accounting fraud in which timesheets were falsified to hit quarterly financial targets. As part of that settlement, the SEC similarly reached an agreement with the former CEO to reimburse the company $2.5 million in bonuses and stock profits that he received while the accounting fraud was occurring, even though he was not charged with misconduct.
Striking a Balanced View of Non-GAAP Disclosures
Non-GAAP measures have received some bad press recently - and in some cases, deservedly so. The WSJ reported that some companies are excluding costs that would seem to belong in earnings calculations such as "regulatory fines, 'rebranding' expenses, pension expenses, costs for establishing new manufacturing sources, fees paid to the board of directors, severance costs, executive bonuses and management-recruitment costs."
Yet another WSJ article cites questions about exclusions of executive bonueses, fees for stock offerings and acquisition expenses, and notes that the SEC has sent comment letters to more than 30 companies in the past two years for giving their non-GAAP measures "undue prominence" in their filings. And this CFO article notes comments made by a PCAOB representative at an accounting conference about companies' "increasing abuse" of non-GAAP measures, and an example he cited of a company's exclusion of director fees because they allegedly related to governance - purportedly unrelated to company operations.
However, non-GAAP measures aren't inherently bad. Used appropriately - in conformance with the letter and the spirit of SEC rules - they can significantly enhance comparability and provide tremendous insights into the business, ongoing operations and future prospects that aren't otherwise discernable based on the use of GAAP alone. Rather than be deterred by - or ignoring - the bad press, companies should revisit the non-GAAP measure basics, and continue to use them effectively to enhance the utility of their disclosures.
PwC's recent IPO study, although IPO-focused, provides a nice overview of the objectives, uses and SEC requirements pertaining to non-GAAP measures - as well as SEC comment letter examples that, for the most part, apply equally to mature companies. In addition, this Deloitte report (pgs. 72 - 74) includes a helpful discussion of recent SEC comment letter trends pertaining to non-GAAP measures that is instructive for future disclosures.
NYSE Proposes to Clarify Proxy Solicitation Mechanics
Here's a blog from Stinson Leonard Street's Jill Radloff:
The NYSE proposes to amend Section 402.05 of the Listed Company Manual to clarify that listed companies soliciting proxy material through brokers or other entities must comply with SEC Rule 14a-13. Rule 14a-13 mandates that listed companies must inquire of the record holder whether other persons are beneficial owners of the subject shares and, if so, how many copies of the relevant proxy or other soliciting materials must be provided to supply such materials to the beneficial owners. SEC Rule 14a-13 further sets forth the timeline on which inquiry of the record holder must be made.
The Listed Company Manual, in addition to requiring compliance with Rule 14a-13, also separately states that a listed company's inquiry of brokers must be made not less than 10 days in advance of a record date. The NYSE imposed this absolute 10 day minimum in recognition of the fact that the provisions of SEC Rule 14a-13 allow, in certain limited circumstances, for a listed company to inquire of brokers less than 20 days in advance of a record date for a special meeting (but not for an annual shareholders' meeting).
The NYSE believes that the 10-day period presently described in Section 402.05 is in conflict with the requirements of Rule 14a-13. For example, although the NYSE makes specific reference to the SEC's 20-day advance inquiry rule (i.e., SEC Rule 14a-13), the NYSE believes Section 402.05 could be read as requiring only a 10-day advance inquiry.
The NYSE proposes to revise Section 402.05 of the Listed Company Manual to clarify that listed companies soliciting proxy material through brokers or other entities must comply with the provisions of SEC Rule 14a-13 and that the NYSE does not impose any additional requirements with respect to the relevant inquiry of brokers. Further, the NYSE proposes to delete the requirement in Section 402.05 of the Listed Company Manual that listed companies immediately advise the NYSE if it becomes impossible for them to make an inquiry of brokers at least ten days before a record date. Given that listed companies are required to comply with SEC Rule 14a-13 and the NYSE has no authority to waive compliance with such rule, the NYSE believes that such notice requirement is unnecessary.
SEC v. China: Tug-of-War Over Audit Files Finally Ends!
In early February - after a battle lasting 3 years! - the SEC announced that the China-based affiliates of the Big 4 (Deloitte Touche Tohmatsu, Ernst & Young, KPMG and PwC) settled SEC administrative charges by each paying $500k and admitting that prior to the commencement of the agency's enforcement proceedings, they didn't provide the SEC with the work papers for audits conducted for US companies. As noted in this Reuters article, the settlement also lays out the process that the firms must follow for future record requests and also details the consequences that may face if they fail to follow it.
It's amazing how long this battle dragged out - an administrative law judge from the SEC suspended the Big 4'Chinese affiliates over a year ago. And bear in mind that WSJ reported last June that settlement talks had commenced. Not easy to settle with four large organizations based overseas...
Understanding Governance Engagement from the Investor POV
In this article, CamberView Partners discusses key considerations relevant to successful governance engagement including investor diversity, identifying the most appropriate company participants for engagement, and the fact that such engagements commonly involve a 2-way dialogue - topics that were also very effectively addressed by Vanguard and BlackRock in our recent "Governance Roadshows" webcast.
Here are some of the many key insights from our webcast:
Sarah Goller, Senior Manager, Vanguard: First, there's no one definition for governance roadshow or what we as investors want to get out of it. I think the one common denominator is that we always want a productive exchange. Firms like BlackRock and Vanguard hold shares of thousands of different companies in meaningful amounts. So we do hundreds of engagements every year, and it's important that they're productive.
It can vary a lot by meeting, but we always want to gather information. We want to understand what's important to the company, what's changing about the business, what changes they are thinking about on the governance front, within the board or about compensation, and understanding their rationale for those changes. Beyond that, we always want to be asked for feedback.
So we always want a call or a meeting to have a purpose. Maybe you're thinking about a change. Maybe you're thinking about something that will impact governance at a board and you want to hear what we're saying. It's also important to define the agenda in advance. We want to have a clear purpose for the meeting and the right sort of people at the meeting. We want the meeting to allow us to exchange information, to listen to each other, and then to provide us with the opportunity to give feedback.
Michelle Edkins, Managing Director, BlackRock: When it comes to considering who in senior management attends and represents the company, I think companies need to be more thoughtful, without wishing to offend anyone, about not having people with a very traditional mindset, where you just do meetings with shareholders to broadcast the company's message. That's a real missed opportunity to hear shareholders' views, and to listen for things perhaps not said. It's important to hear shareholder's views on issues and clarify what shareholders don't understand about the company. Often that's quite a significant factor, especially if in six months' time there is an event where that lack of understanding means that the outcome is not optimal for the company.
In my experience, the role of the Corporate Secretary is becoming increasingly important in those "listening" meetings, rather than "broadcasting" meetings. I think that companies would do themselves a real service by thinking about how they structure that role and make it a more significant part of the outreach to their long-term steady-state shareholders.
If you haven't already done so, be sure to check the webcast transcript out.
Conflict Minerals: AICPA Issues Additional Audit Guidance
This memo summarizes the AICPA's recent additional guidance for independent private sector audits (IPSA) contemplated by the Conflict Minerals Rule. The additional guidance suggests a fairly robust list of representations for auditors to consider including in the IPSA management rep letter, and addresses the auditor's responsibility for understanding and testing the company's internal controls.
As noted in Cydney Posner's recent blog, in view of Corp Fin's 2014 Statement following the US Court of Appeals decision in the conflict minerals litigation and the rule's temporary transition period, few companies provided IPSAs last year.
Access previously issued AICPA guidance on these topics:
We have oodles of additional resources available in our "Conflict Minerals" Practice Area.
Survey Results: Whistleblower Policies & Procedures
Here are the survey results from our recent poll about whistleblower policies & procedures:
1. Over the last year, when it comes to our whistleblower policy, our
2. The board committee charged with consideration of the SEC's whistleblower
3. Our company:
4. Our company:
5. Since the SEC adopted its whistleblower rules, our company has had:
Take a moment to participate in our "Quick Survey on Currency Fluctuations for Incentive Compensation."
Just Launched: The "Section16.net Listserv"
At the recent "Section 16 Workshop" in DC, Alan Dye & Broc came up with the idea of creating a Section 16 listserv because the audience was so interactive. That new listserv is now up live on Section16.net (for Section16.net members only) and we encourage you to sign up so that you can gain the benefit of the knowledge of your peers. It's simple to join - just input your email address and click the "subscribe" button. Here are FAQs about the listserv, including instructions about how to email to group and how to unsubscribe...
January-February Issue of "The Corporate Executive"
We have mailed the January-February Issue of The Corporate Executive, which includes pieces on:
- ISS's New Equity Plan Scorecard - A Closer Look
Act Now: Get this issue rushed to when you try a 2015 No-Risk Trial to The Corporate Executive.
More on "The Mentor Blog"
We continue to post new items daily on our blog - "The Mentor Blog" - for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
- Study: 10-K Tax Disclosure as a IRS "Roadmap"
People: Who's Doing What and Where
Farewell to Harvey Goldschmid!
Sad to hear about the passing of former SEC Commissioner Harvey Goldschmid. Harvey also served as the General Counsel for the SEC before he came back as a Commissioner. As noted in this statement by SEC Chair White and NY Times article, Harvey was very active teaching at Columbia and was the driving force behind adopting Reg FD. Here's a nice piece by the New York Law Journal - and here's Harvey's obituary.
The Glaring Lack of Racial Diversity Continues in Our Profession
In this speech, SEC Commissioner Luis Aguilar listed his priorities including wrapping up the outstanding rulemakings required by Congressional acts and the need for the SEC to bring enforcement cases that are a real deterrent. Aguilar has been the Commissioner to periodically make speeches about diversity, probably the most challenging task facing our profession. The speech lays out the progress - and lack thereof in some cases - that the SEC has made in promoting diversity. But this is not a challenge just for the SEC. It is a challenge across the board for law firms, for companies, etc.
What's New on Our Websites
Among other new additions, during the last month we have:
Your Input, Please
Please let us know what you like - and don't like - so we can tailor TheCorporateCounsel.net to be more of a hands-on resource for you and your colleagues.
Because we view TheCorporateCounsel.net as a "community" site, let us know if you would like to contribute content to our site. E-mail comments, suggestions and other input to email@example.com.
How to Receive this E-minders E-Newsletter Each Month
If you are not yet a member of TheCorporateCounsel.net, we encourage you to take advantage of the special offer and enter a no-risk trial, particularly with all of the changes we will all be facing in the months ahead. Email us at firstname.lastname@example.org or call us at 925.685.5111 for more information.
You also have our permission - and indeed are encouraged - to forward this issue of E-Minders to anyone that might not yet benefit from it. In the alternative, you can sign them up to receive E-minders each month by going to http://www.thecorporatecounsel.net/E-minders/listmanager.asp - then, input an email address, check the box to receive it each month and click "Submit."
Current members of TheCorporateCounsel.net receive this newsletter as one of their benefits of being part of the community if we have their email address. You can provide your email address to email@example.com or sign up on the web page as noted above.
To no longer receive these E-Minders newsletters, go to http://www.thecorporatecounsel.net/E-minders/listmanager.asp, input your email address, check the box to no longer receive it and click "Submit."
(c) 2015 Executive Press.
This email newsletter is provided for informational purposes only and does not constitute legal advice. Executive Press is not engaged in rendering legal or other professional services. Publication of this newsletter is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. Do not act or rely upon the information and advice given in this publication without seeking the services of competent professional counsel. You may decline to receive further email solicitations from us by sending an email to firstname.lastname@example.org or contacting us at Executive Press, PO Box 21639, Concord, CA 94521-0639