October 26, 2006

More on Overvoting

We have posted the transcript from our recent webcast: “Understanding Overvoting and Other Tricky Voting Issues.” The webcast panelists went beyond the “big picture” – but this big picture is noteworthy, including:

– there are a lot more close votes than many of us realize (in other words, there’s a lot more overvoting than meets the eye)

– overvoting is on the rise

– over-voters are almost always short-termers and not even “owners” at all

– there are a number of unresolved legal issues and/or ambiguities

Bush ‘Astounded’ by CEO Pay, Urges Link to Performance

According to the following excerpt from a Boston Globe article from Tuesday, President Bush said he is “astounded” by the size of some executive pay packages and urged companies to tie salaries to performance, while stopping short of advocating government action.

“These compensation packages can get out of hand,” he said in an interview on CNBC. While incentives for performance are necessary, he said, companies should “make sure the incentive pay is rational.” The president, who didn’t mention any executives or companies by name, encouraged investors to pressure corporate boards on compensation. “I don’t think government should control salaries,” Bush said, “but I would hope shareholders would take a close look at some of these compensation packages.”

Thanks to FEI’s “Section 404″ Blog for pointing this article out…

“Paulson Committee” May Soon Recommend Dramatic Limits on Securities Class Actions

The Boston Globe article then went on to note: “The president also said he and Treasury Secretary Henry Paulson are looking at ways the Sarbanes-Oxley Act can be “fine tuned” to make sure it’s not driving capital away from US public markets. Congress passed the legislation, which subjects companies to stricter auditing rules and stiffer penalties for financial crime, in 2002 after accounting frauds at Enron Corp. and WorldCom Inc. eroded investor confidence. ‘One way you become less competitive is through overregulation,’ Bush said. ‘Secretary Paulson and I have spent a lot of time talking about this issue.'”

Here is more on a related topic from the “Securities Litigation Watch Blog“: Since early September 2006, a committee composed of “independent … U.S. business, financial, investor and corporate governance, legal, accounting and academic leaders” has fairly quietly been conducting a study into how to improve the competitiveness of the U.S. public capital markets. Next month this committee (The Committee on Capital Markets Regulation, also referred as the “Paulson Committee” because it will present its recommendations to US Treasury Secretary Henry Paulson), will issue an interim report with recommendations on several topics. Most notably for this blog, these topics include “Liability issues affecting public companies and gatekeepers (such as auditors and directors) with a focus on securities class action litigation….”

John Coffee, a professor at Columbia University School of Law, said at a recent ALI-ABA conference that he is an adviser to the panel and has suggested several reforms designed to mitigate the threat of securities litigation. According to the article, Coffee believes that in the “near future,” the Paulson Committee can be expected to make recommendations “to impose limits on securities class actions” and that the “SEC could take some action to change the role of [the] securities class action” in the next 6 months.

Among the possible changes that could result, Coffee said, were the eye-opening ideas that:

1. The SEC could “dis-imply” a private cause of action under Rule 10b-5 against corporations, leaving enforcement of that rule to the government, not private plaintiffs. The SEC might also “dis-imply” such a private cause of action with respect to the corporation only when the SEC has sued the corporation. Coffee states in the article that “That idea does have some support”; or

2. “Stock drop” cases could be moved out of the courts and into the arbitration arena.

The Paulson Committee’s recommendations are due out by the end of November 2006. If either of these ideas are among them, look for a barrage of deafeningly loud disapproval from the plaintiffs’ bar and consumer groups…. Stay tuned.