As if you needed another sign that life isn’t “back to normal” quite yet, Corp Fin has once again updated its guidance for conducting shareholder meetings in light of COVID-19 concerns. The section on “presentation of shareholder proposals” now encourages issuers to continue to provide shareholder proponents or their representatives with the ability to present their proposals through alternative means, such as by phone, during the 2022 proxy season.
We blogged about the original guidance way back in March 2020, as well as updates that the Staff made in April 2020. The guidance was also updated last year in regards to the 2021 proxy season. It would have been great to share this new update with my blog yesterday on annual meeting formats, but oddly Corp Fin’s announcement didn’t arrive in our inboxes until mid-morning yesterday. Based on the poll I ran yesterday, it’s looking like many meetings will continue to be “virtual only” this year – but don’t rule out the outdoor “foam party” option, which is making a strong showing of 7% of votes (more than hybrid!).
– Liz Dunshee
The NYSE has sent its “annual compliance guide” to listed companies to remind them of their obligations on a variety of topics and summarize developments since last year. The letter points out these two changes:
On April 2, 2021, the SEC approved changes to the NYSE’s shareholder approval rules. The changes eliminated related party limitations and bona fide private financing requirements in Listed Company Manual Section 312.03 for market price cash transactions. (Approval Order Amendment No. 1 to Sections 312.03 and 312.04) The related party transaction rules in Section 314.00 were also clarified in connection with this and a subsequent amendment on August 26, 2021. (Approval Order Amendment to Section 314.00)
On November 19, 2021, the SEC approved changes to NYSE’s policy on how abstentions are treated in votes cast on matters requiring shareholder approval. Issuers now must calculate the votes cast in accordance with their own governing documents and any applicable state law. (Approval OrderAmendment to Section 312.07)
The NYSE’s annual letter is a good resource to have on hand – all the NYSE email and telephone number contact information is provided and the letter explains when and how listed companies should contact the exchange for various matters. For links to NYSE resources, as well as memos & analysis on NYSE compliance issues, visit our “NYSE Guidance” Practice Area.
– Liz Dunshee
This is something that won’t come around again: Bonhams announced that it is running a “single owner” online auction for items from the personal library of Justice Ruth Bader Ginsberg, which runs until Thursday, January 27th. Here’s the full catalogue. Highlights include:
• Ginsburg’s personal copy of the 1957-58 Harvard Law Review, the year that she was a member, heavily annotated by her. Estimate: $2,500 – 3,500.
• Ginsburg’s personal copies of the Reports on the 1978 Equal Rights Amendment Extension Hearings before the House and Senate subcommittees. Estimate: $600 – 900.
• Offprints of Ginsburg’s own articles, including “Women in the Federal Judiciary” (1995), inscribed by Ginsburg to Senator Nancy Kassebaum. Estimate: $800 – 1200. A Sandra Day O’Connor legal article “They Often Are Half Obscure: The Rights of the Individual and the Legacy of Oliver Wendell Holmes” (1992), a presentation copy from the Justice to Ruth Bader Ginsburg, just days before her nomination, and subsequently quoted from in her nomination acceptance speech. Estimate: $800 – 1200.
• Toni Morrison’s Beloved inscribed by the author to Ruth and Martin Ginsburg. Estimate: $300 – 500.
• Books relating to important cases adjudicated by Ginsburg, including Citizens United (Estimate: $200 -300), Bush v. Gore (Estimate: $400 – 600), and Lilly Ledbetter’s fair pay lawsuit (Estimate: $250 – 350), all inscribed to Ginsburg. A deluxe copy of Antonin Scalia’s Reading Law, warmly inscribed to Ginsburg. Estimate: $600 – 900.
• Ginsburg’s copy of her book, My Own Words, with her personal bookplate. Estimate: $1000 – 2000.
Here’s another write-up about the auction from “The Art Newspaper” that includes a pic of the inside cover page of the first edition of Gloria Steinem’s My Life on the Road, inscribed “To Dearest Ruth” and signed by Steinem. The pic is the closest I’ll ever get to seeing that inscription, but it could be yours for the right price. Hat-tip to Cooley’s Cydney Posner (self-declared “auction junkie”) for alerting us all to this very unique opportunity!
– Liz Dunshee
State Street Global Advisors announced on Wednesday of this week that President & CEO Cyrus Taraporevala, age 54, is planning to retire later this year. He’ll remain in his role through the completion of the search for his successor and the transition process.
The announcement came only one week after Taraporevala sent SSGA’s annual letter to portfolio companies that set forth 2022 priorities. This Bloomberg article says that State Street CEO Ron O’Hanley does not expect any broad strategic change in connection with this change to SSGA leadership.
SSGA’s investment management pre-tax earnings grew by 67% during Taraporevala’s tenure. Its assets under management are up to $4.1 trillion, a nearly 50% increase from when Taraporevala was appointed SSGA’s President & CEO in late 2017.
– Liz Dunshee
Several in-house people I’ve spoken with have said that having to plan a hybrid annual shareholder meeting would be the “worst of both worlds.” This format requires planning two simultaneous events and fretting about both in-person and technical mishaps. At the same time, some shareholders have grown to enjoy the easier attendance format for virtual meetings – while others still prefer the option of in-person interaction with directors. Some state corporate laws also require companies to conduct meetings in person, versus virtual-only.
There are signs that the meeting format is going to be a point of contention. A few months ago, I blogged on our members-only “Proxy Season Blog” that a majority of the voting power at Cracker Barrel had approved a shareholder proposal requesting the company to ensure it would hold its annual meeting in whole or in part through virtual means. This was after Corp Fin denied no-action relief to exclude the proposal on the basis of “ordinary business” in light of public health issues and technological advancements.
Now, as I mentioned earlier this week, Vanguard has added a section to its 2022 voting policies to address its stance on the topic. Here’s more detail – from page 18:
Hybrid/virtual meetings. A fund will generally support proposals seeking to conduct “hybrid” meetings (in which shareholders can attend a meeting of the company in person or elect to participate online). A fund may vote for proposals to conduct “virtual-only” meetings (held entirely through online participation with no corresponding physical meeting). To date, data show that virtual meetings can be an effective way to increase shareholder participation and reduce costs. Virtual meetings should not curtail rights — e.g., by limiting the ability for shareholders to ask questions. A fund will consider support if:
– Meeting procedures and requirements are disclosed ahead of a meeting;
– A formal process is in place to allow shareholders to submit questions to the board;
– Real-time video footage is available and attendees can call into the meeting or send a recorded message; and
– Shareholder rights are not unreasonably curtailed.
Vanguard’s move suggests that it anticipates more proposals on this topic, although it doesn’t specifically say that this policy is limited to proposals from shareholders. The conditions for support are factors that appear to be under management’s control.
– Liz Dunshee
What’s in store for your 2022 annual shareholder meeting? Please participate in this anonymous poll to show what’s trending:
– Liz Dunshee
We’ve posted the transcript for our recent webcast for members, “Understanding LTSE Listings.” LTSE Services’ Martin Alvarez and Jane Storero, Asana’s Katie Colendich and Eleanor Lacey, and Twilio’s Mariam Sattar shared practical tips about the listing process and what it means to be traded on the LTSE, including this nugget from Mariam:
Unlike Asana, we were already a public company when we started to have internal discussions around listing with LTSE. The champions internally for our organization were our IR organization. They were intrigued both about and around aligning the values of LTSE with those that Twilio already has; particularly with respect to our social impact and DEI initiatives, which we’ve been championing and are proud of internally. Additionally, we wanted to attract long-term capital and some of the technological solutions that would allow us to target and build a shareholder base that’s consistent with our social values and our DEI initiatives.
Our board was excited about LTSE in general. The practicalities of the listing process from our perspective were a minimal lift, and that will be an overarching theme here. The principles-based approach enabled us to produce one LTSE policy in which we addressed all the different principles: the long-term stakeholder policy, compensation, strategy, investor policy and board policy. Within that one policy and those overarching values, we leveraged what we were already doing internally. There weren’t shifts that we had to make as a company to bring ourselves into alignment with LTSE.
When we had made the decision to do one policy, we created an internal working group that consisted of our head of social impact, our head of DEI, our chief people officer, our head of IR, myself as the legal person and outside counsel. Together, we brainstormed on what that policy would look like and the ways in which it spoke to our organization and was consistent with Twilio’s ideologies. For us, that ended up being not a significant lift.
– Liz Dunshee
Yesterday, BlackRock CEO Larry Fink rounded out the guidance we’ve seen over the past week from the “Big 3” asset managers, by sending his annual letter to portfolio CEOs. This year’s tone seems a little defensive – it is less “Moses coming down from the mountain” and more “heading off rebellion in the wilderness.” Here’s an excerpt:
Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not “woke.” It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism.
As far as practical takeaways for companies, one of the most noticeable things is the emphasis near the front of the letter on the importance of workers. Similar to the guidance SSGA just released, BlackRock wants more disclosure about “human capital” oversight. Here’s an excerpt:
At BlackRock, we want to understand how this trend [of worker turnover and new expectations of work and social issues] is impacting your industry and your company. What are you doing to deepen the bond with your employees? How are you ensuring that employees of all backgrounds feel safe enough to maximize their creativity, innovation, and productivity? How are you ensuring your board has the right oversight of these critical issues? Where and how we work will never be the same as it was. How is your company’s culture adapting to this new world?
Climate is still important too:
Our question to these companies is: what are you doing to disrupt your business? How are you preparing for and participating in the net zero transition? As your industry gets transformed by the energy transition, will you go the way of the dodo, or will you be a phoenix?
We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients. That requires understanding how companies are adjusting their businesses for the massive changes the economy is undergoing. As part of that focus, we are asking companies to set short-, medium-, and long-term targets for greenhouse gas reductions. These targets, and the quality of plans to meet them, are critical to the long-term economic interests of your shareholders. It’s also why we ask you to issue reports consistent with the Task Force on Climate-related Financial Disclosures (TCFD): because we believe these are essential tools for understanding a company’s ability to adapt for the future.
None of this will be very surprising to folks who have been tracking BlackRock’s voting policies and investment stewardship principles. While this annual letter signals broadly applicable themes that BlackRock plans to emphasize, companies should continue to consult those policy documents for guidance on specific topics as we head into proxy season.
Lastly, although BlackRock remains hugely influential and its policies will continue to be a deciding factor in voting outcomes at many companies for the foreseeable future, Mr. Fink took this opportunity to remind people that the asset manager will soon be giving up some voting power (here’s our earlier analysis of that announcement):
Just as other stakeholders are adjusting their relationships with companies, many people are rethinking their relationships with companies as shareholders. We see a growing interest among shareholders – including among our own clients – in the corporate governance of public companies.
That is why we are pursuing an initiative to use technology to give more of our clients the option to have a say in how proxy votes are cast at companies their money is invested in. We now offer this option to certain institutional clients, including pension funds that support 60 million people. We are working to expand that universe.
We are committed to a future where every investor – even individual investors – can have the option to participate in the proxy voting process if they choose. .
That doesn’t mean that BlackRock wants to exit the conversation, though. The asset manager is launching a “Center for Stakeholder Capitalism” – which will “bring together leading CEOs, investors, policy experts, and academics to share their experience and deliver their insights.”
– Liz Dunshee
Cleary Gottlieb is out with its “Selected Issues for Boards of Directors in 2022” – this year’s edition covers 16 topics over the course of 83 pages. One item that I found particularly useful was the summary of how Delaware courts are analyzing director independence & disinterest (pg. 28), which is almost always an important issue in derivative suits and any other challenges to potentially conflicted transactions.
The Cleary team notes that recent Delaware cases – United Food & Commercial Workers Union v. Zuckerberg and others – are showing that judges are closely analyzing both economic conflicts and personal relationships. Here are the takeaways:
– The independence analysis under Delaware law is distinct from, and more nuanced, than under stock exchange rules. While the Delaware courts have noted that independence for purposes of stock exchange rules is one factor they consider, the Delaware law analysis is more holistic and fact-specific and considers, in addition to the traditional financial factors, such things as personal friendships or other relationships of a “bias-producing nature.
– Independence of directors is critical under Delaware law in a number of situations, including when the board is sued in a shareholder derivative action or when the board is asked to consider a related-party transaction. The Delaware courts have developed doctrines, including the demand futility test announced in Zuckerberg and the “MFW test” – which requires the approval of an independent special committee of directors for obtaining business judgment review of controlling stockholder squeeze-outs and other conflicted controlling stockholder transactions – that place a premium on the independence of directors in managing litigation risk.
– In evaluating director independence, Delaware courts have not hesitated to scrutinize closely personal relationships, taking into account facts such as co-ownership of unique assets, personal admiration, longstanding and overlapping business network ties, and shared philanthropic contributions. Boards should give serious consideration to these factors when selecting new directors or constituting special committees for the purposes of potentially conflicted transactions. It is advisable to stay aware of potential independence issues raised by interconnected personal relationships as Delaware courts continue to focus on this issue.
– Liz Dunshee
A recent SEC order serves as a reminder that the Commission is paying attention to disclosures about director relationships. This Stinson blog explains:
The SEC announced settled charges against formerly publicly-traded Leaf Group Ltd. for failing to adequately evaluate and disclose in its annual proxy statement the lack of independence of a director and a board committee as well as an “interlocking” board-of-directors relationship between that director and Leaf’s Chief Executive Officer.
According to the SEC’s order, Leaf made material misstatements in 2020 concerning the independence of a director and the existence of an interlocking relationship between that director and Leaf’s CEO. The order finds that Leaf materially misstated that the director was independent even though he served as Chief Financial Officer of another company, for which Leaf’s CEO served as a director and whose compensation committee Leaf’s CEO chaired. The order further finds that this “compensation committee interlock” disqualified the Leaf director as independent under the listing standards of the securities exchange on which Leaf’s stock traded and also required specific disclosure, under the SEC’s Regulation S-K, in Leaf’s proxy statement.
According to the order, Leaf further materially misstated the independence of a special committee that it had established to explore strategic alternatives, including a possible sale of Leaf, and also failed to maintain, during the 2019-20 period, disclosure controls concerning director independence and interlocks.
The blog points out several other interesting points from the order – and says that the company paid a penalty of $325,000 to settle the charges. As you head into proxy season, our “Director Independence” Handbook is an essential resource to help navigate the tricky world of interlocks and independence standards.
– Liz Dunshee