February 8, 2011

Say-on-Pay Frequency: Confusion Over Vote Counting

As perhaps can be expected given it’s a new ballot item for most companies, the first batch of companies reporting voting results regarding say-when-on-pay have led many members to send questions about how to properly count votes. As an example of the confusion, Steve Quinlivan notes a voting ambiguity at the end of this blog. And in his “California Corporate & Securities Law” Blog, Keith Bishop also blogs about the confusion of counting say-on-frequency votes – here is Keith’s follow-up blog too.

The bottom line is that whether a majority preferred a triennial vote depends on how “abstentions” are treated – which means that the same numbers could wind up with entirely different results for two different companies. Personally, I don’t see how abstentions wouldn’t be counted, but it seems like a matter of state law – not my area of strength. But I do note that the SEC’s adopting release in discussing the Rule 14a-8 exclusion states at footnote 151:

“Specifically, as adopted, the note to Rule 14a-8(i)(10) will permit exclusion of such a shareholder proposal if, in the most recent shareholder vote on frequency of say-on-pay votes, a single frequency (i.e., one, two or three years) received the support of a majority of the votes cast and the issuer has adopted a policy on the frequency of say-on-pay votes that is consistent with that choice. FN 151

Footnote 151 – For purposes of this analysis, an abstention would not count as a vote cast. We are prescribing this voting standard solely for purposes of determining the scope of the exclusion under the note to Rule 14a-8(i)(10), and not for the purpose of determining whether a particular voting frequency should be considered to have been adopted or approved by shareholder vote as a matter of state law.”

One might ask whether the difference matters. There are some consequences. One is determining whether a specific frequency preference received a “majority of the votes cast” for purposes of the Rule 14(a)-8(i)(10) exclusion – so it matters for purposes of the shareholder proposal rule (I guess it also could have an impact on which preference received a plurality of the votes cast, but this situation isn’t likely to come up too often – and doesn’t seem have any legal consequences). Perhaps the biggest factor to consider is one that isn’t driven by regulation: the optics of how you report your voting results. In other words, how will it be received by shareholders and the media in general.

I expect that companies will want to disclose the potential voting implications “right” at the outset in their proxy materials – it doesn’t look good to file a corrective disclosure. So it’s something to figure out now and not when it comes time to report the voting results in a Form 8-K…

In his “Proxy Disclosure Blog,” Mark Borges gives us the latest say-when-on-pay stats: with 218 companies filing their proxies, 58% triennial; 6% biennial; 30% annual; and 6% no recommendation.

SEC Promotes Mark Cahn to General Counsel

On Friday, the SEC announced that it had promoted Mark Cahn from Deputy General Counsel to the top job. Cahn came to the SEC two years ago from WilmerHale.

January-February Issue: Deal Lawyers Print Newsletter

This January-February issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:

– How to Respond to Shareholder Proposals Seeking Board Declassification
– The ABCs of Board De-Staggering
– Acquiring US Companies with Foreign Subsidiaries: Relevant Issues
– The Window Closing Pill: One Response to Stealth Stock Acquistions

If you’re not yet a subscriber, try a no-risk trial to get a non-blurred version of this issue on a complimentary basis.

– Broc Romanek