June 25, 2010

The House-Senate Reconciliation Reaches the Finish Line: The “Proxy Access” & “SOP” Results Are In

Racing to an artificial deadline, the House-Senate conferees worked into the wee hours this morning (5:39 am!) to finalize numerous open provisions in the RAFSA (renamed “The Dodd/Frank Act“?) , much of it behind closed doors despite the decision to televise the negotiations on C-SPAN. Once again, thanks to Ted Allen of ISS who blogged along the way yesterday to give us the lowdown on the finalized corporate governance items that were still outstanding (we’ll have to wait to see the final bill to fully realize what transpired, that likely will take a few days):

Proxy access reverts back to the original formula, with the SEC given the authority to adopt proxy access and asked to consider minimum ownership thresholds and holding periods

Mandatory say-on-pay moves to biannual or triennial at company’s option; exemption from SOP for “small issuers”

No majority vote standard required

On other open items, some answers are provided in this Washington Post article – and this Morrison & Foerster scorecard.

I got this from a member yesterday: In this late 2007 letter, a group of Senators lobbied then-SEC Chair Cox to head off the SEC from considering the use of a 5% shareholder ownership requirement because it would “…effectively bar most shareholders from ever filing such proposals…This threshold should be eliminated.” Yet that exact same threshold is what some – but not all – of these same senators argued for this week over the objection of House conferees. Just another day in Washington.

More on “My Ten Cents: Say-on-Pay”

On “The Corporate Library Blog,” Paul Hodgson blows off some steam about the decision to allow flexibility beyond one year for SOP. Although not having an annual SOP certainly means less work for our community of board advisors, is it really a good thing for Corporate America? During an “off-year” when SOP is not on the ballot, shareholders may well choose to vent frustration over a company’s pay package by voting against re-election of the compensation committee (or the full board). Not a good result for them.

Plus my reaction is a bit different than Paul’s because I still believe that say-on-pay has the potential to derail the progress towards responsible pay as boards at the numerous companies who inevitably will receive support from 90-plus percent of their shareholders will think that they are doing a great job in setting pay, even though some of their processes are still broken (eg. the heavy reliance on peer group benchmarking). I don’t like SOP much at all.

In other words, most boards should be thanking their “lucky stars” for say-on-pay because it gives them cover, both reputationally and probably also from liability. Given that, I’ll never understand the knee-jerk reaction from the corporate community to oppose SOP so vehemently as I’ve blogged before. On the other hand, maybe companies do have a reason to be scared of SOP since three companies failed to obtain majority support for their MSOPs over the past month…

Big News: SCOTUS Rules on “Foreign-Cubed” Securities Class Actions

Not only was Congress in action yesterday impacting our community, across the street, the US Supreme Court finally delivered its opinion over the “Foreign-Cubed” securities class actions the Morrison v. National Australia Bank case, issuing an opinion affirming dismissal. Among other things, the Supreme Court’s opinion will limit securities claims by investors who bought their shares on foreign exchanges. As noted in the “D&O Diary Blog,” this ruling could have a dramatic impact on many pending cases as well as on future filings.

We’ll be posting the hordes of memos that will analyze this important decision in our “Securities Litigation” Practice Area (which frankly has grown so large over the years that it’s essentially a website onto itself). Here is an excerpt from a Morrison & Foerster memo:

The Supreme Court yesterday handed down a sweeping victory for foreign businesses facing securities class actions in United States courts. In Morrison v. National Australia Bank, No. 08-1191, the Court ruled that “Foreign-Cubed” securities class actions–private actions brought on behalf of foreign purchasers of foreign companies’ securities that were sold on foreign exchanges–may not be litigated in United States courts under Section 10(b) of the Securities Exchange Act.

The Court rejected the fact-intensive “conduct” test, which the Second Circuit had used to determine whether claims based on a foreign transaction could be litigated under the U.S. securities laws. Instead, the Court adopted a bright-line “transactional test”–“whether the purchase or sale is made in the United States, or involves a security listed on a domestic exchange.”

– Broc Romanek