October 4, 2016

Proxy Access: New No-Action Letters Follow H&R Block

Following up on what Broc blogged about last week, Cooley’s Cydney Posner notes that Corp Fin has issued three new no-action letters addressing proxy access proposals – & so far, the play stands as called in H&R Block. The letters were issued in response to no-action requests from Microsoft, Cisco & WD-40.

In its responses, Corp Fin continues to refuse to concur in “substantial implementation” arguments for exclusion of shareholder proposals to amend existing access bylaws, but takes a different view on proposals relating to the initial implementation of those bylaws:

In one of the Corp Fin responses to no-action requests posted yesterday, the shareholder proposal requested adoption of amendments to the company’s existing proxy access bylaw, identifying in the proposal specific changes characterized as essential elements for substantial implementation. The request for no-action suffered the same fate as H&R Block, as Corp Fin was unable to concur that the proposal to amend could  be excluded under Rule 14a-8(i)(10). As of now, the score for proposals to amend existing proxy access bylaws for H&R Block and progeny:  company-0 proponent-2.

However, where the proposal related to initial adoption of proxy access, Corp Fin has continued to grant no-action relief and permit exclusion, even where the proponent has identified specific elements of the proposal that he views to be essential.

There are still two no-action requests from Oshkosh & Walgreens Boots Alliance that are awaiting a response from the Staff that could impact the Rule 14a-8(i)(10) analysis.

Audit Committees: More Voluntary Disclosure in 2016

According to this EY study, voluntary audit-related disclosure by Fortune 100 audit committees continued to trend upward during 2016. Here’s a summary of some key findings:

– 50% of companies disclosed factors considered by the audit committee when assessing the qualifications & work quality of the external auditor increased to 50%, up from 42% in 2015. In 2012, only 17% of audit committees disclosed this information.

– 73% of companies disclosed the audit committee’s belief that the choice of external auditor was in the best interests of the company or shareholders; in 2015, this percentage was 63%. In 2012, only 3% of companies made this disclosure.

–  The audit committees of 82% of the companies explicitly stated that they are responsible for the appointment, compensation & oversight of the external auditor; in 2012, only 42% of audit committees provided such disclosures.

– 31% of companies provided information about the reasons for changes in fees paid to the external auditor compared to 21% the previous year.  From 2012 to 2016, the percentage of companies disclosing information to explain changes in audit fees rose from 9% to 31%.

– 53% of companies disclosed that the audit committee considered the impact of changing auditors when assessing whether to retain the current auditor. This was a 6 percentage point increase over 2015. In 2012, this disclosure was made by 3% of the Fortune 100 companies.

– Over the past five years, the number of companies disclosing that the audit committee was involved in the selection of the lead audit partner has grown dramatically, up to 73% in 2016. In 2015, 67% of companies disclosed this information, while in 2012, only 1% of companies did so.

– 51% of companies disclosed that they have three or more financial experts on their audit committees, up from 47% in 2015 and 36% in 2012.

T+2 Proposal: Will Firm Commitments Have to Toe the Line?

Broc recently blogged about the SEC’s proposal to move to a T+2 settlement cycle. Now Brian Pitko blogs that the proposal creates uncertainty about whether the exception provided under the current T+3 regime for firm commitment offerings will continue. Here’s an excerpt:

As currently formulated, Rule 15c6-1 provides an exception under Rule 15c6-1(c) for “firm commitment offerings registered under the Securities Act or the sale to an initial purchaser by a broker-dealer participating in such offering” which allows such offerings to rely on an extended T+4 settlement cycle instead of the standard T+3 settlement.

The proposed rules, however, seek comment on whether the settlement cycle timeframe under Rule 15c6-1(c) should be similarly shortened to T+3 or T+2 in conjunction with the broader proposed change to Rule 15c6-1 and how such changes would impact “risk, costs or operations of retaining the current provision for firm commitment offerings but shortening the settlement cycle to T+2 for regular-way transactions, as proposed.”

John Jenkins