January 19, 2006

A Little Gloss on the SEC’s Upcoming Proposing Release

During a panel yesterday at Northwestern’s 33rd Annual Securities Regulation Institute in San Diego, according to some emails I received from attendees, SEC Corp Fin Associate Director Paula Dubberly spoke briefly about the upcoming proposing release on the executive compensation disclosure rules, including:

– there will be interpretive guidance that would apply to 2006 proxy statements

– the SEC likely will encourage early adoption of some of the narrative disclosure

– the proposing release isn’t likely to be available until next week at the earliest

Depending on when the proposing release is available, we might have to push back our January 26th webcast slightly: “Your Upcoming Proxy Disclosures—What You Need to Do Now!” The level of interest in the new proposal is incredible, as we already have posted a dozen law firm memos just covering the open meeting in “The SEC’s Proposal” Practice Area.

Preliminary Report from the ABA’s Director Voting Task Force

The American Bar Association’s Director Voting Task Force released its preliminary report on majority voting earlier this week. The report recommends that the plurality default standard be maintained in the Model Business Corporation Act; but that companies could choose to adopt bylaw provisions that would require directors – who received more “withheld” votes than “for” votes – to remain in office for no more than 90 days. The board may, but is not obligated to, appoint “any qualified individual” (including the director who received more votes against him/her than for him/her) to fill this vacancy. In addition, the report contemplates revisions to the MBCA that would facilitate and enforce resignations tendered by directors. The Task Force is soliciting comments on its proposals (by February 20th). We have posted a copy of the preliminary report in our “Majority Vote Movement” Practice Area.

EC Issues Cross-Border Directive

Here are selected excerpts from an article in the latest ISS Friday Report:

The European Commission has unveiled its latest draft of a directive to remove barriers to shareholder voting. The proposal, almost three years in the making, seeks to ensure that investors in European Union companies will have timely access to complete information and can easily exercise their voting rights across national borders.

In large markets such as the United Kingdom, Spain, Italy, France or Germany, more than 30 percent of the share capital of listed companies typically is held by non-resident shareholders. In other countries such as Luxembourg, Latvia, Hungary, Belgium, or the Netherlands, this proportion may reach 50 percent, and in some cases as much as 70 to 80 percent.

Earlier EU reports noted that many national laws governing shareholder meetings and voting have not been updated to reflect the modernization and computerization of share holdings and are ill-suited to modern investing and cross-border investment. Key obstacles faced by non-resident shareholders include share blocking, insufficient or late access to information, and overly burdensome requirements on distance voting.

The proposed directive, which would eliminate the main obstacles to cross-border voting and enhance other shareholder rights, calls for the following minimum standards:

– General meetings should be convened with at least 30 days notice. All relevant information should be available on that date at the latest and posted on the corporate issuer’s website. The meeting notice should contain all necessary information. An earlier version of the directive proposed a 21-day standard.

– Share blocking should be abolished and replaced by a record date, which should be set no earlier than 30 days before the meeting. Record dates are now used in the U.S. and the U.K.

– All shareholders, including non-residents, should have the right to ask questions, either in person or by mail.

– Shareholders with at least 5 percent of a company’s outstanding shares (or a stake worth at least 10 million euros ($12 million)) should have the right to present a resolution for a vote.

– Proxy voting should not be subject to excessive administrative requirements, nor should it be unduly restricted. Shareholders should have a choice of methods for distance voting.

– Voting results should be available to all shareholders and posted on the issuer’s website.

To take effect, the new directive must be ratified by both the European Parliament and the European Council under the process of codetermination. If both bodies approve it, then the EU member states will be required to incorporate the rules into their own company laws in order to be compliant. This process may take anywhere from eight months to two years, depending upon how many changes the Parliament or Council make.