May 5, 2010

An Emerging Hot Topic? Whether to Disclose Voting Result Percentages

Lately, I’ve heard grumblings that the SEC – when it adopted new rules requiring the reporting of voting results in a Form 8-K within four business days after the end of the meeting at which the vote was held – only required companies to just provide raw voting data, information that most shareholders would not know how to interpret. In other words, Item 5.07 of Form 8-K doesn’t require companies to include voting percentages.

At first, I thought this was an oversight during the rulemaking process since reporting percentages – instead of totals – was not one of the questions asked by the SEC in its proposing release – nor does it appear that the issue was raised during the comment process either (we checked a number of comment letters from shareholder groups and didn’t see anyone suggest adding this type of requirement).

But after mulling the issue – and conferring with those who know better than me – perhaps the SEC may have been wise to not require such disclosure since quite a few practitioners (including inspectors of election and tabulators!) have had trouble calculating percentages themselves. This is tricky business, figuring out whether – and how – abstentions count towards the vote calculations for shareholder proposals. Those rules differ depending on a company’s state of incorporation. For example, New York and Delaware have different rules on this (and to dig deeper for Delaware companies, there are the state law percentages – and then there is the Rule 14a-8 approach, which is the approach that shareholder proponents use, that looks only at votes cast).

Another factor is how the company’s bylaws are drawn up – oftentimes with language agreed to many years ago and whose intent is long forgotten. Carl Hagberg, our “go-to” independent inspector of elections, tells me that he has seen many mistakes by practitioners when they report on percentages because they have not read or interpreted the bylaws correctly. As I’ve noted before, Carl’s article from his “Shareholder Service Optimizer” on the basics on inspectors of elections is a “must” read (it’s posted in our “Annual Stockholders’ Meetings” Practice Area).

Notably, there are some companies that have figured out how to make the calculations for themselves and provided valuable voluntary disclosure. Recently, IBM filed its Form 8-K with voting results and they voluntarily included percentages for the shareholder proposals on its ballot, in addition to the required raw data. It will be interesting to see if other companies will follow IBM’s approach going forward…

Ban on Blackberries in the Boardroom?

Take a listen to the audio archive from a recent BBC program. The relevant segment starts at minute #11, in which a professor calls for banning blackberries in board meetings – and that companies should publicly disclose that they have a “no wireless device” policy in the boardroom. He discusses that plaintiff attorneys could use a record of a director’s emailing and phone calls during a board meeting as evidence of breach of duty of care (ie. inattention to meeting).

PS – I’m no litigator, but I doubt a plaintiff could get the phone company/ISP records of phone and email calls that easily?

Latest Developments in Director Diligence

In this podcast, Jim Rowe of the James Mintz Group discusses the latest developments for diligence practices during the director recruitment process, including:

– What does the Mintz Group typically do to vet a board candidate?
– How has diligence for board candidates changed over the past few years?
– Any surprises these days about the board vetting process?

– Broc Romanek