September 23, 2011
Whoa! First Say-on-Pay Lawsuit to Survive a Motion to Dismiss
Early yesterday, I tweeted that the first say-on-pay lawsuit has survived a motion to dismiss and boy, did a get a reaction as nearly everyone had predicted that these lawsuits would be seen as frivolous. As noted in this order, the US District Court for the Southern District of Ohio refused to grant Cincinnati Bell’s motion because the company had not proven that it had met its fiduciary duties. The fiduciary duty standard in Ohio is a “deliberate attempt to cause injury to the corporation” or “reckless disregard for the best interest of the corporation.” Pretty breathtaking that the court thought the complaint supported “deliberate intent to injure” or “reckless disregard.” Thanks to Paul Hastings’ Mark Poerio for pointing this lawsuit out.
What does this all mean? A few things to consider:
1. More Lawsuits Coming – There have been 9 say-on-pay lawsuits filed so far. But I hear there are more in the pipeline because these 9 didn’t include demands on the board first. There are a slew of others that have first made demands – and if an agreement is not reached, lawsuits will be filed. And this development will likely encourage more suits to be filed as well.
2. More Failed Say-on-Pays in ’12 – I’ve been saying that this year was a test year for say-on-pay and that companies who just had their say-on-pay pass should not rest easy for next year. Here are just some of the factors that have led me to this belief:
– Conversations with institutions who appear willing to fail more companies next year now that they have had real experience with voting on large numbers of SOPs and realize that more engagement is possible if necessary
– Increasing anger about income inequality generally, including ramped-up rhetoric in an election year
– A rapidly declining economy and stock market – compared with all boats rising earlier this year
– Throw into the mix that we don’t know what positions ISS and Glass Lewis might change for the coming year. As well as investors and their policies.
– Directors were spared “against/withhold” vote campaigns this year in deference to say-on-pay. I wouldn’t necessarily bank on that happening again. And directors are likely to take a large number of “no” votes personally compared to SOP votes.
As I have learned from the prep calls for our upcoming pair of say-on-pay conferences (one regarding disclosure and one regarding pay practices – both combined for one price), I can tell you that we are still in the infancy of how say-on-pay will ultimately play out. And you will hear for yourself the horror stories when a company does fail its say-on-pay – and how the say-on-pay lawsuit really shakes up a boardroom – during the “Failed Say-on-Pay? Lessons Learned from the Front” panel during the conference.
Act Now: Come join 2000 of your colleagues in San Francisco – or thousands more watching live (or by archive) online – to receive a load of practical guidance and prepare for what is promising to be a challenging proxy season. Register now.
For Good Reason: Prominent Lawyers Support David Becker
A group of prominent member of the securities bar sent this letter yesterday to the House committees who held a hearing on the David Becker matter that I have been blogging about. A quick read of the letter illustrates pretty clearly how the SEC Inspector General’s investigation – and criminal referral – have all the trappings of a witch hunt.
In private conversations with lawyers more senior than me – those that know David far better than me – I have learned even more to support the notion that David might be the most ethical lawyer in the bar. So it clearly is no time to be idly sitting by and watch those not interested in justice and fairness do whatever they wish to accomplish personal (and unprofessional) goals. Here is David’s testimony – and SEC Chair Schapiro’s testimony – from yesterday’s hearing. Both are worth reading. And here is David Kotz’s testimony...
Tweeting Away! A Fake SEC Inspector General Employee
And apparently someone else think that the SEC’s IG referral is a crock. A few days ago, someone created this Twitter account pretending to be in Kotz’s IG office – Bill Hanrahan – and he has been sarcastically tweeting since. The fake guy’s tagline is “Bucking for a promotion since ’85.” Here are a few of the tweets so far:
– I can’t read lips so well but I think Schapiro asked my boss if he’d conduct an investigation into how he got to be so awesome. #madoff
– Need suggestions for new, totally appropriate venue to announce investigation. Used Fox Business on Goldman; maybe sit in Rick Perry’s lap?
– Proud of our new Becker precedent: if 7 or fewer people know you are not doing anything wrong…you are committing wrongoing.
– Heard DOJ paid for $8 muffins at conferences. Scones at my testimony prep right now taste like Harvey Pitt’s beard. Will ‘vestigate. #javert
– Need investigation re SEC failure to build time machine so it can predetermine all the unwitting mistakes it should not have made #TerraNova
– Working out a lot at #SEC gym a lot recently (you’ve got to be in shape to drag people through the mud)…
Let me be clear that this fake tweeter is not me! I do have a fake alter ego to have a little fun – @MrPoorCEO – but just the one. But these fake Twitter accounts can be worth real money – read this article.
– Broc Romanek