Recently, Bank of America filed preliminary proxy statement that includes BOTH a management proposal on say-on-pay and a shareholder proposal on say-on-pay (from Kenneth Steiner, whose agent is John Chevedden). The management proposal is an actual vote, while the shareholder proposal is merely a non-binding vote regarding whether the company should have a policy requiring an annual pay vote.
BofA had tried to exclude this proposal through the no-action letter process, arguing that it (1) conflicts with management’s proposal and (2) the company has substantially implemented the shareholder proposal by including the management proposal. The proponent won the day with his argument that the two proposals are not the same because management’s proposal is limited to the period of time that the company is in TARP, while his proposal is unlimited as to duration. Yesterday, Corp Fin posted its response, not permitting BofA to exclude the proposal on either ground (they did waive the 80-day advance requirement).
I think dueling “say-on-pay” proposals will be confusing to shareholders – and I certainly hope this won’t be a new trend. Over the past month, most proponents withdrew their “say-on-pay” proposals once management included their own; this position by the Staff may cause them to reconsider going forward…
Transcript Posted: “Say-on-Pay: A Primer for TARP Companies”
Due to popular demand, we decided to prepare a cleaned-up transcript of the recent CompensationStandards.com webcast – “Say-on-Pay: A Primer for TARP Companies” – and have posted it in our “Say-on-Pay” Practice Area.
Tune in tomorrow for our webcast – “Raising Equity Capital in a Turbulent Market” – to hear Dave Lynn, John Newell of Goodwin Procter and Lora Blum of Jones Day discuss how companies are using alternative methods to raise capital these days (egs. registered directs, “at-the-market,” etc.).
Thanks to Jay Brown for his note about the passing of the SEC’s Associate General Counsel Diane Sanger. She was truly unique and will be sorely missed.
When the market surged 6% last Tuesday, it was allegedly due to the rumor that the SEC would bring back the “uptick” rule (on Friday, the SEC announced it will hold an April 8th Commission meeting to propose a new uptick rule). The use of short selling by hedgies to move markets for their own gain was discussed during the conversation between Jon Stewart and Jim Cramer on Thursday. Add us to the chorus that something has to be done about short-selling. And something different than the SEC’s emergency short-selling restrictions implemented last Fall, which some argue had no impact.
We’ve always believed that naked short selling is a form of manipulation, particularly when it occurs near the market’s opening and close (even if it’s part of a hedging strategy, it’s often still manipulative). There now have been a number of stories revealing what short sellers have been doing over the past few years and it’s clear that this is destructive behavior.
It’s time that the SEC and other regulators step up. Otherwise, this is one more aspect of “deregulation” that will continue to allow some to artificially manipulate stock prices – and feed the widespread belief that the markets aren’t safe.
How to Fix It: Totally Eliminate Naked Short Selling
Many thanks to Carl Hagberg, for allowing us to reproduce his fine article below from the most recent issue of his “Shareholder Service Optimizer“:
Here’s the simple fix: We still can’t figure why smart people haven’t been able to understand exactly how naked short sales cheat investors – and how they can and do create cascades of sales to spook legitimate investors into panic selling – so the shorts can lock-in their profits, guaranteed – AND how simple the “fix” to the naked short-selling scandal really is:
Every single trade must be settled on T+3, or a mandatory buy-in must be executed by the seller’s agent…no excuses or exceptions allowed. Something the SEC is still – shockingly and wrongly allowing.
We’ve been equally surprised by the large number of very smart people who think that restoring the “uptick rule” is the solution to the problem. It isn’t – especially since with trades now moving in one-cent increments, any crook in town can create an uptick to sell on – but still fail to deliver, sale after sale, after sale, etc.
How the markets are supposed to work: Let’s patiently review what should really be simple logic, about the way securities markets are supposed to work – and also about the inexorable, but basically simple law of supply and demand:
– First, let’s remember that one of the main reasons the SEC was formed in the first place – and the main reason that SEC registration of all publicly tradable shares was (and is) required – is to prevent fraudulent “over-issuances” of securities. In other words, if 100 shares of Company-A are registered, and I own 10 of them, the SEC rules and regs are meant to assure that I own one-tenth of the company, regardless of whether the shares are $1 each or $10 each.
– Second, let’s note than when shares are “sold short” there is always, by definition, a buyer. That buyer is entitled to have possession of his shares, and all the rights pertaining thereto, on T+3. And, under the present system, the buyer’s agent automatically credits the buyer with the ownership.
– But thus, please note, it is not enough for a seller to simply “locate shares” or to simply “ascertain that shares are available for lending” as current SEC rules seem to say is sufficient: the “short seller” must literally “borrow” the shares – and literally deliver them to the buyer for cancellation and re-registration; otherwise the issuer is “over-issued.”
Let’s review: For every single day a short-seller is allowed to go “naked” – i.e., the seller or his agent has failed to deliver the shares sold for cancellation – the issue is literally “over-issued” by that number of shares.
– In other words, if I sell 10 shares and the buyer has taken ownership of ten shares … but I haven’t delivered 10 shares for cancellation… there are now 110 shares “floating” out there in our little example. And, most important to note, in economic terms, this represents a 10% dilution of the SEC-registered shares.
– Theoretically, the 10% dilution – and the accompanying economic distortion of the true “equilibrium price” of the stock – is supposed to be immediately corrected by a forced “buy-in” of the undelivered shares, which will automatically bring the price back to a market-based “equilibrium” price.
– But when the buy-in rule is not strictly enforced, as is presently the case, “smart” naked-short-sellers will make as many more naked-short-sales as they possibly can – since allowing shorters to go naked almost guarantees that the shares will continue to fall – which will allow them to “cover” at even lower market prices than if they’d been covered on time.
– Please note carefully that allowing “naked shorts” to go uncovered by T+3 creates a “double whammy” in terms of market dynamics and in terms of the economics: Not only is there a frightening drumbeat or repeated sales – that tends to encourage a barrage of covered-sales too – each “naked sale” dilutes the number of shares they’ve bought, but no shares have been presented for cancellation.
– Please note too, that if a mandatory buy-in takes place, the “outstanding shares” are immediately brought back to the registered number of shares – and the market purchase automatically assures that the price is brought to a market-based “equilibrium number”…which, of course, is the correct number from a market-based perspective.
Let’s review the math again: If I make a short sale of 10 shares of the 100 shares outstanding on Monday, and don’t deliver on Thursday – and I am not automatically bought-in – as theoretically required, Company-A is over-issued by 10%. If I decide to make another naked short sale of 10 shares – and once again fail to deliver and fail to get bought-in, Company-A is now over-issued by 20%. Make no mistake about it: the SEC is allowing this to happen every single day!
Let’s review the consequences again: The market – and the market price of the stock – are being inexorably distorted…because in reality, sellers are being allowed to sell something they do not have…or ever plan to have and for every day they are allowed to go naked they have been allowed to sell shares that should no longer truly exist under the charter and bylaws of the company – or under SEC rules.
So let’s sum up: There is absolutely nothing wrong with short selling…as long as one ponies-up the shares on settlement date…regardless of whether one owns them outright or borrows them. (If one bets the wrong way, as very often happens, and the shares go up – and pass the point where the seller “sold short” legitimate short sellers will, of course, have to “cover their bet” at some point and repay the borrowed shares – either by delivering shares they may now own or buying them at the market price, which keeps the price of said shares at the market-based “equilibrium price”).
But note: There is something that is both immoral and illegal about selling something you don’t own – or where you haven’t actually borrowed the goods to make delivery…and made delivery, pursuant to the normal terms of the sale. (And if you sold short with no intention of ever delivering the goods…that’s fraud.)
If one allows the supply of shares to multiply by 5% or 10% or more – as naked short sellers actually have done…while the “demand” to buy shares is constant, other things being equal, the price of said shares will definitely fall. (This is the first law of economics by the way). And if one adds to the normal desire to sell – by initiating a panic, fueled by sales of shares that one doesn’t own, and doesn’t intend to lay claim to and deliver try the agreed upon date…(i.e. an artificially induced ‘disequilibrium’ between real supply and real demand)…the price will fall even more!
Yesterday’s House hearing on mark-to-market issues seemed to light a fire under the SEC and FASB, prompting commitments from FASB Chairman Robert Herz and the SEC’s Acting Chief Accountant Jim Kroeker to provide guidance on fair value accounting within three weeks.
As Edith Orenstein notes in the FEI Financial Reporting Blog, the members of the Committee pressed for immediate action:
“Rep. Paul Kanjorski (D-PA), chair of the Capital Markets Subcommittee of the House Financial Services Committee, noted in his opening remarks, “Mark-to-market accounting did not create our economic crisis, and altering it will not end the crisis. But improving the application of a fundamentally sound principle that is having profound adverse implications in a time of global financial distress is imperative. Therefore, our hearing today is about getting Financial Accounting Standards Board and the Securities and Exchange Commission to do the jobs they are required to do.” He added, “Emergency situations require expeditious action, not academic treatises. They must act quickly.”
“There are three pieces of legislation presently pending in Congress,” noted Kanjorski, with respect to mark-to-market accounting or accounting standard-setting generally (e.g. HR 1349 co-sponsored by Rep. Ed Perlmutter (D-CO) and Rep. Frank Lucas (R-OK) which would create a Federal Accounting Oversight Board). Kanjorski added, “I guarantee you one of those pieces of legislation is going to become law before early April.
Rep. Gary Ackerman (D-NY) responded to FASB’s current timetable, ‘If you are going to act, you’ve got to do it real quick.’”
The FASB Chairman ultimately responded, “We could have the guidance in three weeks; whether it will fix things, I don’t know.”
Also on the fast track are efforts to reinstate the “uptick rule” applicable to short selling. As noted in this Business Week article, SEC Chairman Mary Schapiro indicated in her testimony before the House appropriations committee earlier this week that the SEC hopes to propose reinstatement of the uptick rule some time in April.
SEC Filing Fees Increase on Monday
With the signing of the fiscal 2009 appropriations bill earlier this week, the SEC announced that is now set to raise the fees due for Securities Act registration statements and other filings. On Monday, March 16th, the Section 6(b) fee rate applicable to Securities Act registration statements, the Section 13(e) fee rate applicable to the repurchase of securities, and the Section 14(g) fee rate applicable to proxy solicitations and statements in corporate control transactions all increase to $55.80 per million dollars. Filings that get in today by 5:30 p.m. eastern time (except for short-form Rule 462 registration statements which get until 10:00 p.m.) will pay the old fee of $39.30 per million dollars.
The Alaska Air Letter and Beneficial Ownership
As noted in this O’Melveny & Myers memo, a Rule 14a-8 no-action letter granted to Alaska Air Group by Corp Fin last week delved into the specific proxy authority granted with respect three shareholder proposals, and whether the breadth of that proxy actually caused the person designated as proxy to be a beneficial owner of all of the nominal proponents’ shares – and thus unable to submit more than one proposal under Rule 14a-8(c). The particular proxy language in question specified that the designee could “act on my behalf in all shareholder matters, including this Rule 14a-8 proposal for the forthcoming shareholder meeting before, during and after the forthcoming shareholder meeting.”
This language appears to differ from proxies in circulation among other shareholder proponents, which often are not as broad in that they don’t grant authority with respect to “all shareholder matters.” As is always the case, the Staff’s decisions on shareholder proposal no-action letters are based on the specific circumstances of each proposal and the arguments raised by issuers in seeking to exclude the proposal. Certainly, the result in the Alaska Air letter will focus attention – both for issuers and proponents – on the specific language used in granting proxy authority with respect to a proposal.
To me, among the big “sleepers” in the race for who is most to blame for what went wrong with financial regulation are those Congressional overseers who failed to direct sufficient resources to the SEC and other financial regulators – and you won’t see them calling themselves before a committee to be subjected to a public flogging. In over 10 years of working at the SEC, I recall that a substantial portion of that time was spent under one sort of hiring freeze or another, and the general question on everyone’s mind was always “how do we do more with less?” Granted, in the wake of Sarbanes-Oxley, the agency got the opportunity to beef up, but it amazes me to this day how quickly that advantage eroded. Within only 5 years of enactment of Sarbanes-Oxley, there was a risk that lawyers would become an endangered species in Corp Fin, as Staffers left and a prolonged hiring freeze prevented acquiring any replacements. I myself oversaw an office that had more than doubled in size after 2002, only to shrink again to back to its prior size just a few short years later. During just the first two years of former Chairman Cox’s tenure, Corp Fin’s Staff shrank by a whopping 13%! In short, the budget has a huge impact on the effectiveness of regulators – in many instances, budgetary pressures mean doing less, because doing more with less is no longer an option.
As Broc mentioned in the blog last week, the SEC is seeking a significant increase in its budget, which very well may be too little, too late. In testimony yesterday before the House Appropriations Committee’s Subcommittee on Financial Services and General Government, Chairman Schapiro set out in more detail how the SEC intends to utilize an increased budget (including a $17 million “reprogramming request”). Among the top priorities are to:
1. add staff to the SEC’s Enforcement program to focus on pursuing tips, complaints, and other leads;
2. add new positions in the Examination program to expand its inspections of credit rating agencies, and to strengthen risk-based surveillance and examination oversight of investment advisers;
3. increase the number of staff in the Office of Risk Assessment specifically dedicated to deepening the SEC’s understanding of risk, and incorporating risk assessment into all aspects of the agency’s operations; and
4. enhance technology, including improved systems for: handling tips, complaints and referrals; monitoring risks; and managing cases and exams.
Now we will just have to wait and see what the SEC ends up getting for fiscal year 2010. If past practice is any indicator, we should know that some time in 2011.
Say-on-Pay Proposal Defeated at Disney
As noted in this LA Times article, a shareholder proposal asking Disney’s board to provide for an advisory vote on executive compensation received 39% support earlier this week. If you back out abstentions, the level of support was 42%. While not a majority, these numbers clearly represent significant support for the measure, and may foreshadow the possibility some majority votes on these proposals coming up this proxy season.
Disney shareholders were apparently less enamored with a shareholder proposal seeking to address so called “golden coffin” benefits. Several of these proposals are likely to be on ballots this year, courtesy of AFSCME and other proponents. At Disney, the proposal only got 27% of the vote. It was a nice touch, however, that Scott Adams from AFSCME handed the Disney board members a golden nail to hammer into the golden coffin benefits, but apparently such theatrics were not enough to carry the day on the proposal.
Aligning Compensation Incentives with Corporate Objectives
In this CompensationStandards.com podcast, David Koenig, Founding Partner of Ductilibility, discusses how companies can align their compensation incentives with risk management objectives, including:
– How work regarding risk and pay ties into today’s environment
– How a compensation incentive system with objective performance metrics might actually lead to misalignment between an employee’s incentives and the company’s operational objectives
– Whether corporate codes of ethics are effective in preventing risky behavior, including the “risk manager’s dilemma”
It would be nice to see (for once) some sort of orderly, coordinated effort to move us to where we have to be on reforming the financial regulatory system. There is obviously a great sense of urgency, whether real or manufactured, and no one good answer seems to exist for how best to tackle the multitude of concerns about the quality and effectiveness of our regulatory structure.
I firmly believe that rushing toward political solutions on regulatory reform may be the worst thing that we could do at this point, particularly if the result is implementation of a new regulatory structure just at the time when institutions and companies are turning the corner toward improvement. As we all learned from the Sarbanes-Oxley Act, a rush job on regulatory reform can have some near term benefits for restoring confidence, but also some long term costs and concerns.
Unfortunately, we may not get the chance to actually see any orderly effort toward reform. Late last week, for instance, Congressman Ed Perlmutter (D-CO) and Congressman Frank Lucas (R-OK) introduced H.R. 1349, the “Federal Accounting Oversight Board Act of 2009.” As this CFO.com article points out, the bill contemplates that the SEC would cede its accounting oversight to a newly created five member board consisting of the Federal Reserve Chairman, the Treasury Secretary, the SEC Chairman, the FDIC Chairman and the PCAOB Chairman.
This Federal Accounting Oversight Board (FAOB) would get its funding from assessments on accounting firms, and would have the power to “approve and oversee accounting principles and standards for purposes of the Federal financial regulatory agencies and reporting requirements required by such agencies.” Among the things that the FAOB would need to consider in the course of approving and overseeing accounting standards would be “the extent to which accounting principles and standards create systemic risk exposure for (i) the United States public; (ii) the United States financial markets; and (iii) global markets.” Based on the other standards outlined, the bill is clearly seeking to get at fair value accounting standards through the authority of the proposed Board.
The bill has been referred to the House Committee on Financial Services and will be discussed at a hearing scheduled for tomorrow on the topic of mark-to-market accounting.
Recovering Costs: This is the Big One
Earlier this month, the US Court of Appeals for the Tenth Circuit affirmed a district court award of $611,964.20 in costs against the plaintiffs in a securities class action lawsuit (In re: Williams Securities Litigation – WCG Subclass (Docket Number 08-5100)). The plaintiffs in this case claimed that the district court’s award represented the highest costs award in the history of American jurisprudence. As discussed in this Gibson Dunn & Crutcher memo:
The Tenth Circuit acknowledged that the costs awarded were “undoubtedly higher than the norm,” but the size was not particularly surprising “given the massiveness and complexity of the litigation at issue” and the fact that the Plaintiffs sought almost $3 billion in damages. Slip Op. at 12. “Defendants’ costs were, quite plainly, driven upward by the cold, hard facts of this case,” and in particular, “Plaintiffs’ litigation choices; including the number of defendants, the high amount of damages sought, the broad allegations asserted, the complexity of the claims at issue, and Plaintiffs’ aggressive course of discovery …” Slip. Op. at 13. No abuse of discretion was found in awarding over $610,000 in costs: “In this case, the stakes were indisputably high, and ‘it was incumbent on [De]fendants to fully prepare their case on the merits.'”
Guidance on Exiting ’34 Act Reporting
The March-April issue of The Corporate Counsel was just mailed. This issue includes pieces on:
– Exiting 1934 Act Reporting—Recent CDIs Provide Much-Needed Guidance
– Getting Into the Reporting System—The Easy Part
– Getting Out—The Hard Part
– Significant Negative Numbers in the Summary Compensation Table This Year
– More on Issuers’ Ability to Eliminate Non-Binding Shareholder Proposals
– FAS 5 Follow-Up
– Shareholder Approval of Cash Incentive Plans—Not Always “Routine” under NYSE Rule 452
– New Oil and Gas Rules Not Applicable to 2008—But, SAB 74/Topic 11:M
– Goodwill Impairment MD&A Disclosure Not Just for the Impaired!
Act Now: Get this issue on a complimentary basis when you try a 2009 no-risk trial today. As all subscriptions are on a calendar-year basis, renew now to continue receiving upcoming issues during a time of great change.
Recently, Corp Fin updated its guidance on Securities Act Forms with a new set of Compliance and Disclosure Interpretations. This now makes a complete set of Compliance and Disclosure Interpretations on Securities Act Sections, Rules and Forms. Included among the interpretations are no less than 55 interpretations dealing with Form S-8, which is a form that never ceases to generate a lot of questions in my experience. The latest Securities Act Forms guidance includes interpretations that were previously published in the Manual of Publicly Available Telephone Interpretations and in other guidance, as well as new interpretations.
SEC Seeks to Streamline the Form ID Process
Monday is going to be “D-Day” for EDGAR, as the new electronic Form D submission rules go into effect. As Broc mentioned in the blog last week, the SEC is expecting a flood of Form ID applications, as issuers who have never had anything to do with the EDGAR system rush to get their access codes. In anticipation of the big rush, the SEC adopted rule changes yesterday (effective Monday, March 16) that will permit a person submitting a Form ID online to attach the “authenticating document” in a PDF format, rather than having to submit the authenticating document separately by fax.
The authenticating document is a notarized document containing the same information as contained in the Form ID application. Historically, the SEC Staff has had to match the information provided in the online submission with the faxed authenticating document before approving the Form ID application and generating EDGAR access codes, which can sometimes lead to delays. When this new optional method is used, a prospective filer can use a fillable PDF version of Form ID on the Commission’s website to create and print the document, and then attach a notarized version of that document as a PDF. For online Form ID applications submitted with the authenticating documents attached, the Staff will no longer have to match the faxed authenticating documents manually with the online submissions.
If attaching a PDF of the authenticating document is too much for you, and you still want to have a reason to use your old fax machine, then that “legacy” method will still exist after these rule changes go into effect. The new process, however, will hopefully speed the process for all of those nerve-wracking times where you run into a last minute need for EDGAR filing codes.
The Politics of Corporate Aircraft
Companies are facing unprecedented negative publicity these days with respect to corporate aircraft. In this CompensationStandards.com podcast, Terry Kelley, CEO of corporate aviation consulting firm GoldJets, discusses recent challenges for companies owning aircraft, including:
– What steps are companies taking to counter the current “image” problem with their aircraft?
– How are companies changing their corporate aviation policies To deal with this?
– What pitfalls should the company be aware of in revising their aircraft policies?
– What is 91Plus and how can it help companies with their corporate aviation needs?
The NYSE’s proposed amendment regarding broker discretionary voting on director elections is on the fast track (as Broc mentioned in the blog a couple of weeks ago), and that fast track means that interested parties only have a very short time to comment on the proposal. As is typical with these sorts of SRO proposals, comments are due only 21 days after publication in the Federal Register. With the Federal Register publication occurring last Friday, that means comments are due by March 27th.
Unlike your typical SRO rulemaking, this one has the potential for a broad impact on companies – changing the voting dynamics in uncontested director elections across the board. While it seems that, given the current environment, commenters won’t be able to stop this proposal from happening now, it is nonetheless important that concerns about – and support for – this proposal be aired through the public comment process, so comment if you can. For more on the topic, check out our “Broker Non-Vote” Practice Area.
Note that Exhibit 2 to the 4th Amendment includes the 39 comment letters regarding Rule 452 that the NYSE received in response to its Proxy Working Group Report, which predated the October 2006 submission of the initial notice of proposed Rule 452 changes. The NYSE typically does not solicit comments prior to filing a Section 19(b)(1) notice or any amendment to such a notice, so there are no other publicly available comments on the NYSE’s website (or on the SEC’s website). One of the main concerns raised by commenters on the Proxy Working Group’s recommendation was the potential difficulty in achieving a quorum if director elections become non-routine.
Corp Fin’s Guidance for Smaller Reporting Company IPOs
While what we think of as the traditional IPO market continues to be virtually non-existent, smaller companies still keep filing first-time registration statements, whether it be for the purpose of raising capital or to register the resale of shares already issued. (Since the old “SB” forms have been phased out, smaller reporting companies now file on Form S-1 for an “initial public offering.”)
Last week, the Corp Fin Staff released “Staff Observations in the Review of Smaller Reporting Company IPOs” to highlight some of the typical comments raised on smaller reporting company registration statements. Many of the comments referenced in this report are equally applicable to registration statements – and other filings – for companies that do not qualify as smaller reporting companies. Topics covered include: the cover page and summary, risk factors, use of proceeds, description of business, MD&A, disclosure about directors, officers and control persons, related person transaction disclosure, the plan of distribution, selling security holders and financial statements.
Developments in Debt Restructurings & Debt Tender/Exchange Offers
We have posted the transcript for the DealLawyers.com webcast: “Developments in Debt Restructurings & Debt Tender/Exchange Offers.”
I just LOVE this one! Apparently, there are fraudsters out there impersonating actual SEC employees – and the problem is serious enough that the SEC issued this press release earlier this week. I imagine some of the fraudulent phone calls go something like this podcast.
Note that the frumpy dude in the “Willy Wonka” costume is not me. I may be a little “off,” but I do have my pride…
A Few Items on Policing TARP
As noted in this NY Times article, a Senate hearing yesterday consisted of angry Senators wondering where its AIG bailout money went. I imagine this will be a consistent theme from Capitol Hill as the government ramps up to give away another trillion dollars.
Anyways, we’ve seen a few reports from the Congressional TARP Oversight Panel – consisting of five members – since it was created a few months ago. Now, we’re learning more about the inner machinations of the Oversight Panel. For example, I found this WSJ article entitled “Policing TARP Proves Tricky” pretty interesting. Here is an excerpt:
The short-staffed panel is drawing heavily on the Harvard University law students and colleagues of its chairwoman, law professor Elizabeth Warren, as it churns out reports at a break-neck pace. Most of the staffers are 20-something aides from the Obama campaign, though an executive director and two banking lawyers were hired recently.
The panel’s other members have had to hustle for a chance to weigh in, or, in the case of the body’s two Republicans, to dissent altogether, something that isn’t supposed to happen on a panel dubbed “bipartisan.”
In the “Conglomerate Blog,” David Zaring has this interesting entry entitled “How Powerful is Elizabeth Warren?” – she used to be his law school teacher so he has a unique insight.
Has former Senator John Sununu lost his mind? He’s one of the TARP overseers – and just joined the board of a company affiliated with a TARP bank. No common sense. Perception matters. Then again, he’s rushed to become “overboarded” ever since he lost his re-election bid. It’s hard to keep track, but my count shows that he’s joined at least three boards over the past few months.
A Code of Conduct for Proxy Advisors?
Recently, Yale’s Millstein Center released its final report entitled “Voting Integrity: Practices for Investors and the Global Proxy Advisory Industry.” It proposes the first industry-wide code of conduct for proxy advisors, which includes a ban on advisors performing consulting work for any company on which it provides voting recommendations or ratings – and also asks the SEC to create a Blue Ribbon Commission to provide recommendations about how to modernize the voting framework.
The report also urges institutional investors to be more transparent about the way they act by disclosing how they vote, what ownership policies they follow and what resources they put into engagement efforts.
Congrats to Felicia Kung for being named as the new head of Corp Fin’s Office of Rulemaking. She takes over for Betsy Murphy, who recently became the SEC’s Secretary. Felicia has been on the Staff for many years, toiling in Corp Fin’s Office of International Corporation Finance as Senior Special Counsel (ie. #2) to Paul Dudek for the past seven years. She’ll be a great asset during a time of intense rulemaking.
“Hear, hear” to the promotion of Jamie Brigagliano as Deputy Director of the Division of Trading and Markets. Great guy and great choice…
Podcast on Delaware’s Proposed Legislation
Recently, I blogged about new proposed amendments to the Delaware General Corporation Law. Yesterday, I caught up with John Grossbauer of Potter Anderson for this podcast, in which John provides some analysis of the new bill, including:
– How do the proposed DGCL changes address proxy access and reimbursement bylaws?
– What about authorization to separate record dates for notice and voting at shareholder meetings do?
– Any other noteworthy proposals?
California and the “Delaware Carve-Out”
Keith Bishop reports on this development: A few weeks ago, the 9th Circuit Court of Appeals – in Madden v. Cowen & Company – delivered an opinion regarding a lawsuit filed in California state court by 63 shareholders against an investment banking firm. The suit alleged that the investment banking firm misled the plaintiffs in connection with the sale of their shares in a closely held California corporation (St. Joseph) to a publicly traded Delaware corporation (FPA Medical Management) that went bankrupt shortly after the sale. The plaintiffs’ suit was removed to federal court pursuant to the Securities Litigation Uniform Standards Act of 1998. The federal district court denied the plaintiffs’ motion to remand the case back to state court and granted the defendant’s motion to dismiss.
On appeal, the 9th Circuit concluded that the suit fell within the so-called “Delaware Carve-Out” that preserves certain actions based on the statutory or common law of the state in which the issuer is incorporated if certain conditions are met. 15 U.S.C. Sec. 77p(d). In this case, the issuer of the shares sold by the plaintiffs, St. Joseph, had been incorporated in California.
Thus, it is somewhat ironic that the Delaware Carve-Out was being applied to a California corporation. The defendant argued that the Delaware Carve-Out applied only to the acquiring company (in this case, FPA, a Delaware corporation) because it was the issuer of the covered security. The 9th Circuit rejected this argument finding that the issuer in the Delaware Carve-out refers to the corporation that is the issuer of the securities described in the carve-out and was not limited to the issuer of a “covered security”.
The 9th Circuit also addressed the defendant’s argument that it did not act on behalf of the issuer because it was not an officer, director or employee of the issuer (referring to the Private Securities Litigation Reform Act of 1995) which defines the phrase “person acting on behalf of an issuer”. The 9th Circuit rejected this argument as well.
Accordingly, the court found that the Delaware Carve-Out applied and the case should be remanded to state court. The case is significant because it adopts an expansive reading of the Delaware Carve-Out and opens the door to more state court suits involving issuers and persons acting on their behalf who are not the issuers of covered securities.
Implementing the New Cross-Border Rules
We just posted the DealLawyers.com transcript for our recent webcast: “Implementing the New Cross-Border Rules.”
A few days, we held the prep call for this newly-scheduled CompensationStandards.com webcast to be held today – “Say-on-Pay: A Primer for TARP Companies” – and I know it’s gonna be a “biggie.” Our panelists have a lot to say – with much practical guidance to provide. Join these experts:
– Mark Borges, Principal, Compensia
– Ning Chiu, Counsel, Davis Polk & Wardwell LLP
– Dave Lynn, Editor, CompensationStandards.com and Partner, Morrison & Foerster LLP
– Carol Bowie, Head, RiskMetrics’ Governance Institute
On CompensationStandards.com’s “The Advisors’ Blog,” I’ve posted links to two dozen say-on-pay preliminary proxy statements filed in the past few days.
And shortly after the say-on-pay webcast ends, tune into this important webcast on TheCorporateCounsel.net today: “How Boards Should Manage Risk.”
Mandatory E-Filing of Forms Ds: Commences March 16th
In anticipation of the impending March 16th start-date when all Form Ds must be electronically filed, the SEC issued this notice warning those that have not ever filed electronically before to obtain their EDGAR access codes from the SEC well in advance of a filing deadline – since the SEC expects a deluge of last minute requests that it may not be able to handle. In our “Regulation D” Practice Area, we have posted numerous memos on this new e-filing requirement.
A Market Regulation Reform Group
There is a lot of high-wattage star power in a new investor task force announced by the Council of Institutional Investors and CFA Institute last month. The Investors’ Working Group is a diverse, non-partisan panel of experts, led by former SEC Chairs Bill Donaldson and Arthur Levitt. It intends to issue an initial report with recommendations by late spring. Add another set of proposals to the pile…