November 11, 2003

Are You Having Trouble Overseas

I have been hearing that US-based, multinational companies are having difficulties implementing their Codes of Ethics in overseas units. Some companies are getting pushback from employees in some countries just because their cultures do not lend themselves to this new type of oversight (particularly Italy, Spain, Germany).

The more serious issue is that local counsel are telling employees that forcing these types of codes upon them may generally violate local country laws (employee-protection types of laws), union agreements or can be viewed as a change in terms of their employment that cannot be made without consent/consideration.

In particular, these local counsel don’t like the fact that a Board of Directors can make changes to the Codes and those changes apply to them, regardless if employees agree (which is bizarre, because this has always been the way that general employee handbook provisions work). Please email me if you have had similar problems.

For subscribers, we have launched a “Code of Ethics” Portal, which is being managed by in-house lawyer Michael Goldblatt.

Nominating Committee Disclosure Proposal as the “Sleeper”

Under the SEC’s proposal regarding nominating committee activities, if the nominating committee received a nominee recommendation from a shareholder or group of shareholders that has beneficially owned more than 3% of the company’s voting common stock for at least one year as of the date of the recommendation, and the committee decided not to nominate that candidate, the company would be required to disclose the name of the stockholder that recommended the candidate and the specific reasons that the nominating committee decided not to include the candidate as a nominee.

I have long felt that this proposal was a “sleeper” and was receiving not enough attention compared to its more controversial sibling, shareholder access. At the PLI conference, my feelings were bolstered when Sarah Teslik, Executive Director of the Council of Institutional Investors, stated that she believes this disclosure proposal will be more effective in changing nominating committee behavior than the shareholder access proposal.

For subscribers, I have stuck my neck out and put together a list of eleven actions that companies should contemplate now in the face of the SEC’s two proposals that implicate the nominating committee.