February 11, 2010

Samples: Companies Complying with the SEC’s New Rules

Numerous members are asking daily about which companies have filed proxy materials under the SEC’s new rules so that they can see how they addressed the new disclosure requirements related to board qualifications, leadership structure, risk oversight, etc. Here are a few samples we found so far – the first four have been truly filed under the new rules; the last three have not but have some attributes that address some of the new requirements:

Fortune Brands (preliminary proxy filed under new rules)
Eli Lilly (preliminary proxy filed under new rules)
Analog Devices (filed early under new rules)
Hovanian Enterprises (another early adopter)
Point Blank Solutions (director qualification language from proxy contest two years ago)
Cabot Corporation (compensation-related risk assessment language)
Air Product and Chemicals (compensation-related risk assessment language)

Note that we present these samples just because they are the first ones filed; we haven’t analyzed them to determine if they adequately comply with the new rules nor don’t necessarily endorse their approach. Thanks to Dave, Mark Borges and Nick Varsam of Thermadyne Holdings for pointing these out. If you spot a new one, please drop me a line…

Proxy Disclosure: How to Explain the Impact of a Failure to Vote

The decrease in the level of voting in recent years by retaiI shareholders (particularly at those companies using e-proxy) – combined with the increasing likelihood of close votes at annual meetings for a variety of reasons – has pushed more companies to realize that they are involved in “real” campaigns this proxy season. This is a topic that I have repeatedly warned you about. I recently received the following from an in-house member:

“Due to the loss of the broker vote in director elections, we’re probably going to include the following paragraph in the “General Instructions” section of our upcoming proxy statement:

Effect of Not Casting Your Vote. If you hold your shares in street name it is critical that you cast your vote if you want it to count in the election of Directors (Item 1 of this Proxy Statement). In the past, if you held your shares in street name and you did not indicate how you wanted your shares voted in the election of Directors, your bank or broker was allowed to vote those shares on your behalf in the election of Directors as they felt appropriate.

Recent changes in regulation were made to take away the ability of your bank or broker to vote your uninstructed shares in the election of Directors on a discretionary basis. Thus, if you hold your shares in street name and you do not instruct your bank or broker how to vote in the election of Directors, no votes will be cast on your behalf. Your bank or broker will, however, continue to have discretion to vote any uninstructed shares on the ratification of the appointment of the Company’s independent registered public accounting firm (Item 2 of this Proxy Statement). They will not have discretion to vote uninstructed shares on shareholder proposals (Items 3 and 4 of this Proxy Statement). If you are a shareholder of record and you do not cast your vote, no votes will be cast on your behalf on any of the items of business at the Annual Meeting.

Broadridge has a standardized buckslip on this subject that they are offering to include – for an additional cost – in full set mailings. Some brokers (egs, Goldman Sachs and Morgan Stanley) are sending similar messages to clients – and some law firms and proxy solicitors have been pushing the idea that companies need to be proactive in educating shareholders (eg. see page 3 of this memo).”

Broc’s note: This is a good start on the road to real campaigning. However, since many shareholders ignore their proxy materials, companies will need to do more to get the attention of shareholders and communicate the importance of voting. Another cheap and easy step is to build an “annual meeting” home page, as I wrote about in the Spring 2008 issue of (still available for free).

New York Law: “Abstentions” as “Votes Cast”

Yesterday, in our “Proxy Season Blog,” I noted some feedback from a member about how abstentions and broker non-votes are counted in Delaware. Below is some information that a member recently added to the discussion in our “Q&A Forum” (ie. #4642) about how abstentions may be treated under New York law:

I recently spoke with a NYSE representative who told me that despite the fact that abstentions are not considered a “vote cast” under New York law, the NYSE takes the position that for purposes of shareholder approval of an equity plan, under NYSE rules an abstention will nevertheless be considered a vote cast on the proposal. That is consistent with the NYSE Staff’s long-standing interpretation of 312.07.

– Broc Romanek