TheCorporateCounsel.net

October 4, 2005

Mandatory Bylaw “Majority Vote” Proposal Looms at Paychex

Next Wednesday, Paychex shareholders will vote on a binding shareholder proposal from ASFCME which would require the board to change the company’s bylaws, stipulating, “directors shall be elected by a majority of the shares present in person or represented by proxy, provided a quorum is present at the meeting.” In Sunday’s NY Times, this mandatory bylaw proposal was discussed in this article.

As noted in ISS’s Friday Report, ISS has supported non-binding majority elections proposals this proxy season, but recommended against AFSCME’s binding proposal at Paychex on the grounds that it does not differentiate between contested and uncontested elections. As ISS noted in its analysis: “Dissidents in a contested election would be subject to the same majority standard as management nominees. The majority vote standard becomes more difficult to achieve because of the complicating impact of withhold votes, as well as the division of votes between two candidates for the same seat. In a case where no candidates win a majority of the votes cast, the holdover rule would favor the incumbent directors, thus creating a form of takeover defense for the management nominees. While the risks of these types of scenarios are small, they do exist.”

“ISS, which applies stricter scrutiny to binding proposals, would have supported the AFSCME resolution had it stated that plurality voting would apply in contested elections,” said Martha Carter, senior vice president and director of U.S. research at ISS. ISS’ position could have profound implications for the majority vote movement.

Court Rules that There is No Private Right to Sue Under Section 304

More than a handful of members emailed me this recent article from Law.com – the article is about the recent opinion of Neer v. Pelino from U.S. District Judge Stewart Dalzell, who became the first judge to address the question of whether §304 creates an implied private right of action.

Judge Dalzell ruled that §304 – which calls for disgorgement of profits and bonuses from top corporate executives in the wake of an alleged accounting fraud – does not provide a private right of action for shareholders to file a derivative suit. Rather, the Judge found that Congress clearly intended for §304 to be enforced only by the SEC. We have posted the 23-page opinion in our “SEC Enforcement” Practice Area.

Changing Relationships Between Auditors and Their Clients

In this podcast, Nils Okeson, a Partner of Alston & Bird, explains how auditor/client relationships have changed as there is a greater emphasis on the independence of outside auditors in the wake of Sarbanes-Oxley, including:

– How has all of this affected the relationship between issuers and their auditors (or, from the other point of view, between auditors and their “clients”)?
– Both the SEC Staff and the PCAOB have issued public statements addressing some of these concerns, including the “chilling effect” on communications between auditors and issuers that has reportedly occurred. What impact will these public statements have?
– Looking ahead then, what do you see going forward? Will relationships return to what they used to be, or is this simply the new reality?
– Some companies observe that changing auditors in a quest to get better service (whatever that might be) or to find a more cooperative relationship is not a realistic alternative. What can companies do to improve the situation? How can they be proactive about it?