On Friday, Corp Fin issued Staff Legal Bulletin No. 19 that provides guidance on Legality and Tax Opinions in Registered Offerings. Stan Keller of Edwards Wildman Palmer notes:
The Corp Fin Staff has long had internal guidance on legal opinions that made its way around to some people on the outside. This is the first time the Staff has made opinion guidance available publicly. Not only does issuance of the guidance increase transparency that will be helpful to practitioners, both as to Exhibit 5 legality opinions and Exhibit 8 tax opinions, it updates the Staff’s positions to reflect current opinion practice and to address some specific issues.
For example, the guidance addresses opinions on interests in non-corporate entities and recognizes the necessary flexibility to deal with the unique aspects of these entities. The guidance also shows flexibility in dealing with the difficulties of providing Exhibit 5 opinions in continuous or frequent medium-term note (MTN) programs and sets out one alternative for handling opinions in these programs. The Staff is to be applauded for developing this updated guidance that accomodates the federal securities law requirements for opinions with prevailing opinion practice and the practical needs of particular securities offerings.
Corp Fin Issues Cybersecurity Risk Disclosure Guidance
Last Thursday, Corp Fin issued the second installment of its new type of informal written guidance – “CF Disclosure Guidance: Topic No. 2 – Cybersecurity” – to direct companies to review, on an ongoing basis, the adequacy of their cybersecurity risk disclosures (here’s a blog about the first installment).
The cybersecurity guidance doesn’t create new standards – and other than a few accounting cites, it doesn’t really add anything new to what was covered in this blog (and this Sullivan & Worcester memo cited in it). But now that Corp Fin has articulated standards in this new guidance, the expectations of providing disclosure in this area should rise akin to the higher expectations (but perhaps not the reality) after the SEC’s climate change guidance came out in February. Thanks to Jim Brashear of Zix Corp and Howard Berkenblit of Sullivan & Worcester for their input.
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– More on “Putting an Overall Pricetag on XBRL”
– The Need for Continuing Disclosure by Private Companies
– Second Circuit: Rating Agencies Are Not “Underwriters” Under the ’33 Act
– Galleon and the Recent Scrutiny of Expert Networks
– Fraudulent Private Placements: Court Finds Distinction Between Broker and Underwriter
– Even More on “Insider Trading Analysis of Sokol Charges”
Yesterday, Corp Fin launched a new way for practitioners to send in formal exemptive, interpretive and no-action requests to its Office of Chief Counsel – they can now be uploaded via this form. A caveat is that Rule 14a-8 shareholder proposals requests are not permitted to be uploaded via this form – they should continue to be submitted via email to shareholderproposals@sec.gov (to the extent that they are submitted electronically at all). Before yesterday, electronic submission of no-action requests were required to be sent by email via cfletters@sec.gov rather than uploaded. Of course, paper submissions are still permitted.
From the stats I have heard, the vast majority of no-action requests are being submitted electronically these days, which is not surprising considering how correspondence related to SEC filings has been submitted electronically via Edgar for quite a while now. In addition, we all have been accustomed to submitting comments on proposed rules electronically for years. [In comparison, most requests for informal guidance are still made by phone rather than electronically.] So I am sure the transition to uploading instead of emailing will be fairly smooth…
ISS Releases Final ’11 US Postseason Report
Yesterday, ISS released its Final 2011 U.S. Postseason Report, which includes vote results for meetings held before September 1st, with findings that include:
– During 1st year of mandatory say-on-pay, investors overwhelmingly endorsed companies’ pay programs, providing 92.1% support on average.
– 38 Russell 3000 companies, or just 1.6% of the total that reported vote results, had their say-on-pay voted down. The primary driver of these failed votes appears to be pay-for-performance concerns, which were identified at 28 companies. Almost half of the failed-vote firms have reported double-digit negative three-year total shareholder returns. Also contributing to investor dissent were issues like tax gross-ups, discretionary bonuses, inappropriate peer benchmarking, excessive pay, and failure to address significant opposition to compensation committee members in the past.
– Investors overwhelmingly supported an annual frequency for SOP, with a majority (or plurality) support at 80.1% of companies in the Russell 3000 index, as compared to triennial votes, which won the greatest support at 18.5% of issuers.
– Management preferences did not appear to have a significant influence on the outcome of this year’s frequency votes. Investors had defied management recommendations for triennial votes at 538 of 892 Russell 3000 companies. Shareholders also were not swayed by biennial recommendations at 34 out of 47 Russell 3000 firms.
– The number of directors at Russell 3000 firms that failed to garner majority support fell by nearly half as say on pay votes presented shareholders with an alternative to votes against compensation committee members. Poor meeting attendance, the failure to put a poison pill to a shareholder vote, and the failure to implement majority-supported shareholder proposals were among the reasons that contributed to majority dissent against board members this year.
– Among governance proposals, the biggest story of this year was the greater support for shareholder proposals that seek board declassification. These resolutions averaged 73.5% support, up more than 12% from 2010, and won majority support at 22 out of 23 large-cap firms.
– Majority voting proposals averaged almost 60% support, while proponents reached settlements with more than 30 firms. Independent chair proposals fared better this year, winning majority support at four companies.
– Investor support for shareholder resolutions on environmental and social (E&S) issues continues to rise. This year, there was a 20.6% average approval rate for these proposals, the first time this support level had reached the 20% mark. Five proposals received a majority of votes cast, a new record.
– Investors were more receptive to the Center for Political Accountability’s long-running proposal campaign for more disclosure on corporate political spending. This year, the average support for those resolutions was 32.5%, up from 30.4% for similar proposals in 2010.
Only Two Weeks Until the Big Conference! ISS & Glass Lewis on 4 Different Panels!
As happens so often, there is now a mad rush for folks to register for our upcoming pair of say-on-pay conferences (one regarding disclosure and one regarding pay practices – both combined for one price). Come hear the views of ISS and Glass Lewis, as representatives will sit on a total of 4 panels during the two days of action. See the agendas.
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.
Below are some interesting thoughts from Vince Pisano of Troutman Sanders:
The combination of economic pressures and the competitive environment among law firms in the capital markets arena may be creating an atmosphere which is going to cause problems for firms in the near future. Item 509 of Regulation S-K requires disclosure in a registration statement of the interest in the issuer of issuer’s counsel or underwriters’ counsel who are identified in the prospectus as having given an opinion in connection with the offering. It also requires disclosure if such counsel were retained for that purpose on a contingent basis. The reason is obvious – if counsel is to be paid only if the offering is successful, it could influence the judgment of the lawyers on matters which may have a negative impact on the offering.
Law firms have always been good about identifying stock ownership of lawyers in the firm who hold securities in the registrant, but I believe that market pressures on fees have resulted in situations where disclosure should arguably be made as to those fee arrangements, as they may be deemed to be contingent interests. Stories abound in certain markets, particularly in Asia, that major law firms in pitching for new business are agreeing that no fee will be paid unless an offering closes. Fee pressures have also caused many firms to agree to major busted-fee write offs – and, in fact, those agreements have long been the norm for underwriters’ counsel.
I have never seen a prospectus that discloses these agreements – and in fact, I have never even participated in a conversation about whether that kind of disclosure is required or appropriate. In an age when law firms’ exposure to litigation are greater than ever, it may be time to give more thought to and discussion of this problem. The pressure on individual partners to avoid large write-offs has not been greater at any time in the last 30 years and very significant amounts may be at stake.
FINRA Re-Proposes to Require Filing of Private Placements
From Suzanne Rothwell: As part of FINRA’s continuing focus on sales by FINRA members of private placements, FINRA recently filed a proposal with the SEC to adopt new Rule 5123 that would require the filing of any private placement – in which a FINRA member or associated person participates – subject to certain exemptions, and require disclosure of the use of proceeds, offering expenses and offering compensation. Currently, FINRA Rule 5122 imposes similar requirements on FINRA members for private placements by the member of its own securities or those of a control entity. That rule would remain unchanged.
In comparison to the original proposal published by FINRA in Regulatory Notice 11-04, proposed Rule 5123 would:
1. Be in a rule separate from Rule 5122;
2. Not require that at least 85% of the offering proceeds be used for the disclosed business purposes;
3. Not require disclosure of any affiliation between the issuer and any participating FINRA member;
4. Narrow the application of the rule to only apply if a FINRA member offers or sells the security or participates in the preparation of any offering or disclosure document (thereby excluding offerings where members solely provide consulting services to the issuer, among other activities);
5. Require filing of the private placement disclosure document with FINRA consistent with the timing for SEC Form D of Regulation D instead of being required at the time the document is first provided to any prospective investor; and
6. Impose the filing requirement on each participating FINRA member instead of allowing members to rely on a filing by a managing member.
The new Rule – Rule 5123 – will prohibit member firms and their associated persons from being involved in a private placement unless certain written information about the deal is provided to investors and filed with FINRA. Each member firm or person associated the firm will be required to deliver a private placement memo, term sheet or other disclosure document to each investor prior to any sale, and file the document, together with any exhibits, with FINRA within 15 days after the first sale. The document must describe “the anticipated use of offering proceeds, the amount and type of offering expenses, and the amount and type of compensation provided or to be provided to sponsors, finders, consultants, and members and their associated persons in connection with the offering.” FINRA expects each firm involved in a private placement to make its own filing; thus, there will be multiple filings for any offering where more than one FINRA member firm is involved.
The proposal no longer has certain of the problematic aspects contained in FINRA’s earlier proposal, such as a prohibition on participating in private placements where less than 85% of the offering proceeds are used for the business purposes described in the disclosure document, and an implied requirement to monitor the post-offering use of proceeds. Nevertheless, FINRA intends to reconsider numerical limitations on the use of proceeds depending on the substantive terms of private placements described in the initial filings under Rule 5123.
Tackling a frequently asked question, this WSJ article entitled “Schapiro to Stay at SEC Through Next Fall” puts to bed any rumors that SEC Chair Mary Schapiro is a short-timer. Here is an excerpt from the article:
Securities and Exchange Commission Chairman Mary Schapiro intends to stay at the securities regulator for at least another year, a spokesman said Monday. Ms. Schapiro’s plans to remain at helm of the SEC come despite a series of stumbles for the agency in recent months, including an ethics scandal involving its former general counsel and a stream of critical court decisions and reports from an internal watchdog. In addition, House Republicans have sought to curtail the SEC’s budget despite hundreds of new mandates under last year’s Dodd-Frank financial-regulatory overhaul.
Outside observers of the SEC have quietly wondered for months if the setbacks would prompt Ms. Schapiro to step down. But John Nester, the SEC spokesman, said Ms. Schapiro has told colleagues she plans to stay another year, if not longer.
PCAOB Proposes Disclosure of Engagement Partners in Audit Reports & More
Yesterday, as covered in FEI’s Financial Reporting Blog, the PCAOB proposed requiring audit firms to disclose the name of the engagement partner in audit reports (but not require the engagement partner’s signature), as well as on the Annual Report – ie. Form 2 – they submit to the PCAOB. It would also require disclosure in the audit report of other accounting firms and other persons not employed by the auditor that took part in the audit. This follows a concept release with this idea from back in mid-’09. The PCAOB has posted this press release – and here is the proposal itself…
Webcast: “Lyin’, Cheatin’ and M&A Stealin’: Negotiating the Fraud Exception”
Many members have been asking if we have heard what their peers are doing in reaction to the SEC’s new whistleblower rules. These survey results should help answer those questions:
1. In the wake of the SEC’s new whistleblower rules, our company:
– Has changed existing policies to address the new rules – 9.1%
– Hasn’t yet, but intends to change existing policies to address the new rules – 27.3%
– Not sure yet if will change existing policies – 42.4%
– Has decided not to change existing policies because considerations under the new rules are adequately addressed by existing policies – 21.2%
2. The board committee charged with consideration of the SEC’s new whistleblower rules is:
– Audit Committee – 68.8%
– Corporate Governance Committee – 18.8%
– Risk Committee – 0%
– Compliance Committee – 9.4%
– Compensation Committee – 0%
– Board as a whole – 3.1%
3. In the wake of the SEC’s new whistleblower rules, our company:
– Has provided incentives for whistleblowers to report internally first – 0%
– Hasn’t yet, but intends to provide incentives for whistleblowers to report internally first – 3.0%
– Not sure yet if will provide incentives for whistleblowers to report internally first – 60.6%
– Has decided to not provide incentives for whistleblowers to report internally first – 36.4%
4. In the wake of the SEC’s new whistleblower rules, our company:
– Has created a system to alert employees of the benefits of reporting internally (eg. sign updated employee handbook, fill out compliance questionnaires) – 12.1%
– Hasn’t yet, but intends to create a system to alert employees of the benefits of reporting internally – 24.2%
– Not sure yet if will create a system to alert employees of the benefits of reporting internally – 60.6%
– Has decided not to create a system to alert employees of the benefits of reporting internally – 3.0%
5. Since Dodd-Frank was enacted in mid-2010, our company has had:
– More whistleblower claims reported internally – 3.1%
– Same number of whistleblower claims reported internally – 90.6%
– Fewer whistleblower claims reported internally – 6.3%
DOL Adopts New “Adverse Employment Action” Standard for SOX Whistleblower Cases
As noted in this memo, the DOL’s recent Menendez v. Halliburton decision substantially lowers the bar for SOX whistleblowers in terms of establishing that they suffered a legally actionable adverse employment action. In that case, the DOL’s Administrative Review Board adopted a new standard governing “adverse employment actions” under Section 806 of Sarbanes-Oxley. Now, according to the ARB, an employee need not experience a “tangible” consequence as a result of protected activity.
In addition, the US District Court for the Western District of Washington continued the trend of granting employers summary judgment on a Section 806 claim on causation grounds in Kim v. The Boeing Co. Importantly, the Kim court also noted that the “definitely and specifically” standard federal courts have applied in determining whether a complainant engaged in protected activity is alive and well (at least within the Ninth Circuit), despite the finding in Sylvester v. Parexel International LLC.
Transcript: “Preparing for the SEC’s New Whistleblower Rules: What Companies Are Doing Now”
We have posted the transcript for our popular webcast: “Preparing for the SEC’s New Whistleblower Rules: What Companies Are Doing Now.” The program was newsworthy, borne out by this Davis Polk blog regarding “Whistleblowers and Internal Certifications.”
Last week, Corp Fin updated its Financial Reporting Manual for issues related to reporting requirements in an acquisition or disposition made by a variable interest entity, subsidiary guarantee release provisions, transitional registration statement options for first-time IFRS adopters, as well as other changes. The good news is that Corp Fin continues to add a summary of changes that comprise the current update at the beginning of the Manual. Last revised in July (and April, December and October before that), Corp Fin has been updating the Manual much more frequently than in the past, deciding to do so a little bit at a time rather than major rewrites.
In addition, the SEC has posted the Charter for the new Advisory Committee on Small and Emerging Companies.
More on “STA’s Beneficial Ownership Processing Study”
Last week, I blogged about a study from the Securities Transfer Association that evaluates 20 Broadridge invoices and claims that transfer agents can process beneficial ownership services cheaper than Broadridge. In this Securities Technology Monitor article, Broadridge responds as reflected in this excerpt:
“The latest survey by the STA consists of twenty imaginary prices for services it doesn’t offer, has no idea how to perform, and would never have to deliver,” says Chuck Callan, senior vice president of regulatory affairs for Broadridge in a statement to Securities Technology Monitor on Friday morning. “The STA continues to dodge requests to disclose its rate cards. Its data does not reconcile to any published rates.”
Callan went on to say that although the STA has been interested in providing proxy distribution services for Street-name shareholders that are better, faster, cheaper and more accurate than competitors “its interest is free from any commitment to write the check.”
He suggests that the “market-rates” for proxy mailings to Street name shareholders could come out to be far higher than the regulated rates. The reason: a study conducted by Compass Lexecon, an economics consulting firm on behalf of Broadridge which examined over 12,000 invoices for “actual work performed,” showed that the market-based rates issuers pay Broadridge for delivering proxies to registered shareholders are “substantially higher” than regulated rates for sending proxies to Street-name shareholders.
Webcast Transcript: “Current Developments in Capital Raising”
We have posted the transcript for our recent webcast: “Current Developments in Capital Raising.”
I continue to get member feedback on my series of blogs about novel ways that companies can market their IPOs. Here’s an excerpt from WilmerHale’s David Westenberg’s book on going public that provides more examples of companies using gimmicks to sell their IPO.
And here’s a note from Michael Schley of Larkin Hoffman in Minnesota:
You recently blogged about the James Page Brewing SCOR offering from 1999. I did that deal. I thought you might like a little more info. It was federally exempt under 504 (not Regulation A) and state registered in Minnesota under SCOR. I still think SCOR is underused (see the book I wrote for the state about SCOR and Angel Tax Credit; also see my crowdfunding memo from May, written before the SEC’s “Pabst” enforcement action). The brewery put a “stuffer” in their 6-packs in the liquor store coolers. We didn’t expect it but a lot of investors bought the Units as Christmas gifts so we closed the deal early so we could get the certificates out timely.
The president of the company was great at marketing. Once he had all these owners/members (close to 1,000 if my memory serves), he sent them all several business cards with information about the brewery, the brands, etc. on one side and a “why don’t you serve this great beer” statement on the other side for the investors to hand to restaurants and bars who didn’t serve their beer. This led to a lot of bars telling their distributors that they wanted to add it as a tap beer.
Finally, we have this SCOR offering from Surly Brewing Company (see this article). I haven’t seen one of those in some time – I have also never seen free beer for life offered in lieu of dividends…
SEC Enforcement Actions: Internal Control Violations
This settlement of Labarge with the SEC’s Division of Enforcement involves internal controls at a company, prompting a member to ask in our Q&A Forum (#6613): Does anyone know if there have been many of these?
I believe the answer is that there are probably quite a few. This type of result is a convenient mid-point for settlement of cases where the staff thinks there was accounting fraud (or FCPA bribery) but either isn’t sure it could prove it or agrees to drop the fraud (or bribery) charge as a reward for cooperation and willingness to settle.
XBRL Snafus: “My Public Float is Bigger Than Yours. A Quadrillion Dollars!”
This blog about XBRL errors by Anne Leslie-Bini is an eye-opener, particularly when its starts off by noting SEC Data Guy founder Ed Hodder has reported that 6 companies have submitted XBRL instance documents in their Q2 10-Q filing that disclosed public floats in the quadrillions of dollars. Sounds like something that Dr. Evil would disclose!
In all the “excitement” over the recent epidemic of lawsuits over say on pay, I want to be sure that companies and their advisers do not overlook another type of shareholder derivative lawsuit being filed based on executive compensation and company performance. Like the Shareholder Say on Pay suits, the merits of these suits are highly questionable. However, fighting them can cost firms significant time and money, to say nothing of the embarrassment and bad publicity stemming from a firm being sued over its compensation practices.
In a similar vein to the SOP lawsuits, we have seen a reappearance of shareholder derivative suits based on companies’ Code Section 162(m) disclosures in the proxy statement. The 162(m) lawsuits generally allege that the company’s proxy disclosures of the performance goals and/or its claims to follow a pay-for-performance philosophy are false and misleading. Paralleling the SOP suits, the 162(m) suits further allege that because the disclosures are inadequate, the compensation in question is non-deductible and, therefore, it constitutes corporate waste, unjust enrichment of the executives, and a breach of the directors’ duty of loyalty.
In April 2011, plaintiffs’ lawyers filed a shareholder derivative (“strike”) lawsuit (Abrams v. Wainscott) against AK Holdings alleging that its 2010 proxy statement contained false or misleading statements concerning compliance with Section 162(m)(here’s the complaint). AK Holdings’ 2010 proxy statement sought stockholders’ approval of its Long Term Performance Plan and its Stock Incentive Plan, both of which the proxy claimed provided compensation to executives that was tax-deductible under Section 162(m). The complaint alleges that, while the shareholders had approved these compensation plans, portions of the plans allowed too much discretion to increase compensation and thus did not in fact comply with the tax deductibility requirements of Section 162(m). The complaint also alleged that the company would have paid this compensation regardless of the result of the stockholder vote, an interesting allegation considering that the shareholder vote in fact approved the compensation package.
In July, the US District Court for the District of Delaware allowed a similar shareholder derivative suit, Hoch v. Alexander, to continue against the officers and directors of Qualcomm, alleging that they issued a false or misleading proxy statement regarding the 162(m) tax-deductible status of executives’ compensation (here’s the court order).
We’re only a few weeks away from our upcoming pair of say-on-pay conferences (one regarding disclosure and one regarding pay practices – both combined for one price) – so come join 2000 of your colleagues in San Francisco. Or join the thousands more watching live (or by archive) online – and receive a load of practical guidance and prepare for what is promising to be a challenging proxy season. Register now.
Front-Page Article: Perils of Peer Group Benchmarking
On Tuesday, the Washington Post ran this lengthy article criticizing peer group benchmarking on the front page, in the upper left corner. The piece is well worth a read.
With an election year upon us and the unemployed becoming more willing to be vocal about perceived inequalities, I imagine we are going to see much more media attention to the processes by which CEO pay is set. Although much progress have been made over the past decade in corporate governance generally – and CEO pay specifically – I believe we are still in the infancy of the governance reforms that ultimately need to be made. There still are way too many stories of excesses – and not just by “outliers.” And as we’ve been saying all along, the overreliance on peer group surveys is one of the biggest adjustments that boards need to make…
Say-on-Pay and Smaller Reporting Companies
Here’s some good stuff from Mark Borges that he recently blogged in his “Proxy Disclosure Blog” on CompensationStandards.com:
A member inquiry came into the CompensationStandards.com “Q&A Forum” last week seeking data on how many smaller reporting companies had complied with the Dodd-Frank Act shareholder advisory votes on executive compensation (the “Say on Pay” vote and the Frequency vote) this year.
As you know, in late January, the SEC postponed compliance with these two votes for SRCs until 2013. Nonetheless, there were a number of SRCs that had filed their proxy materials prior to this announcement that contained proposals for the two votes. And, in spite of the Commission’s relief, most of those companies (although not all) proceeded to conduct the votes at their annual meetings.
In addition, a handful of SRCs that filed their proxy materials after the SEC announcement included the shareholder advisory votes on a “voluntary” basis (query whether they are obligated to hold a vote next year (if their shareholders expressed a preference for annual “Say on Pay” votes, or can “pass” until 2013).
While I haven’t been scrupulously looking for and identifying SRCs when I look for companies that are conducting the Dodd-Frank Act votes, I do note such companies when I see them. So here’s an admittedly incomplete picture of the smaller reporting companies that have conducted (or are conducting) a “Say on Pay” vote and a Frequency vote this year.
Smaller reporting companies that filed their proxy materials before the SEC issued its final “Say on Pay” rules
I identified 49 SRCs that filed proxy materials containing the two shareholder advisory votes before the SEC issued its final “Say on Pay” rules. All of these companies that followed through and conducted a “Say on Pay” vote had the proposal approved. Apparently, five of these companies scrapped the vote after the SEC rules were issued, as they reported their annual meeting voting results but no Say-on-Pay (or Frequency vote) results.
As for the Frequency vote,
– 11 companies filed proxy materials recommending annual Say-on-Pay votes. Ten of these companies saw their shareholders express a preference for future Say-on-Pay votes to be held annually. One company saw its shareholders express a preference for future Say-on-Pay votes to be held biennially.
– Two companies filed proxy materials recommending biennial Say-on-Pay votes. Both saw their shareholders express a preference for future Say-on-Pay votes to be held biennially.
– 34 companies filed proxy materials recommending triennial Say-on-Pay votes. Twenty-seven of these companies saw their shareholders express a preference for future Say-on-Pay votes to be held triennially. Two company saw their shareholders express a preference for future Say-on-Pay votes to be held annually. And, as noted above, five companies appear to have not conducted the vote at all.
– Two companies filed proxy materials with no recommendation on future Say-on-Pay votes. One saw its shareholders express a preference for future Say-on-Pay votes to be held biennially and other saw its shareholders express a preference for future Say-on-Pay votes to be held triennially.
Smaller reporting companies that filed their proxy materials after the SEC issued its final “Say on Pay” rules
So far, I have identified 23 SRCs that have filed proxy materials containing the two shareholder advisory votes since the SEC issued its final “Say on Pay” rules. Once again, I haven’t been tracking this particular item all that closely, so the actual number of SRCs that have conducted or are conducting the votes on a “voluntary” basis is, in all probability, slightly higher than this figure. As with the earlier group, all of these companies have had their “Say on Pay” proposal approved.
As for the Frequency vote,
– Six companies filed proxy materials recommending annual Say-on-Pay votes. Five of these companies have seen their shareholders express a preference for future Say-on-Pay votes to be held annually. One company has not yet reported its voting results.
– One company has filed proxy materials recommending biennial Say-on-Pay votes. This company has not yet reported its voting results.
– 13 companies filed proxy materials recommending triennial Say-on-Pay votes. Ten of these companies have seen their shareholders express a preference for future Say-on-Pay votes to be held annually. Three companies have not yet reported their voting results.
– Three companies filed proxy materials with no recommendation on future Say-on-Pay votes. Two of these companies have seen their shareholders express a preference for future Say-on-Pay votes to be held triennially and one has seen its shareholders express a preference for future Say-on-Pay votes to be held annually.
Final Thoughts
What does this data mean? Well, at least 67 SRCs have conducted “Say on Pay” votes this year, which is less than 3% of all the proxy statements that have been filed so far with the two Dodd-Frank Act shareholder advisory votes. As you might expect from smaller companies, all of the “Say on Pay” votes were approved; most with 85% – 90% shareholder support. I’ve seen only a couple of instances where the vote was close.
Second, as you also might expect, for the most part, companies that recommended that future “Say on Pay” votes be held every two or three years saw their shareholders agree with the recommendation (95%). This is in contrast with non-SRCs, where the company and shareholders agreed on this point only about half the time.
So even while almost three-quarters of the companies that held “Say on Pay” votes this year will be holding their next vote in 2012, about 60% of the SRCs that conducted votes this year will be sitting out this item next year.
Finally, here’s another query to chew on: of the 37 companies where shareholders expressed a preference for triennial “Say on Pay” votes (consistent with the company’s recommendation), will their next “Say on Pay” vote be in 2014, or, consistent with the SEC’s vision for transitioning SRCs into compliance, will they be required to hold a vote in 2013 (essentially, mimicking the requirement that applied this year to all non-SRCs)?
As this NY Times article notes, over 700 people were arrested on Saturday on the Brooklyn Bridge as part of the “Occupy Wall Street” protests that began a few weeks ago. 700 arrested – that’s a lot! On Monday, protestors dressed as “corporate zombies” eating Monopoly money – and the mass media is finally devoting attention to this movement after ignoring it initially.
In fact, Occupy Wall Street has now spread to most major US cities, as noted in this article. “Occupy K St” is planning to march on DC tomorrow, according to this Washington Post article. As I blogged when the protests started, it’s been fascinating to follow the protest on Twitter as many thousands from all over the world continuously weigh in as part of a virtual protest (use #occupywallstreet to see).
Some have been critical of Occupy Wall Street because they say the protestors must be lazy if they don’t have decent jobs. This Forbes article is the essence of that misguided view (watch this video and determine if you would characterize the protestors as lazy). As someone who recently stood for a semester before a group of bright young students at a Top 25 law school – a group who knew they had very little chance of getting a job in law anytime soon – I can tell you that view can’t be correct. They simply don’t have any meaningful opportunities because they don’t exist – not because they aren’t trying hard enough.
It’s true that this protest is not as clear cut as opposing a war. But it’s also clear that these protestors are angry about something – and it’s a movement that will continue to grow as the media reports on boards doling out multi-million dollar severance packages to fired CEOs (eg. NY Times article) while laying off and cutting the pensions of the general workforce. Bailed out banks taking actions just to enhance the paychecks of senior management (eg. “article). There certainly are plenty of reasons to protest these days.
Andrew Ross Sorkin penned this piece yesterday, positing this about the protest’s message:
At times it can be hard to discern, but, at least to me, the message was clear: the demonstrators are seeking accountability for Wall Street and corporate America for the financial crisis and the growing economic inequality gap. And that message is a warning shot about the kind of civil unrest that may emerge – as we’ve seen in some European countries – if our economy continues to struggle.
“Ultimately this is about power and greed, unchecked,” said Jodie Evans, the co-founder of Code Pink. She, too, said she wanted to see Wall Street executives go to jail. Consider the protests a delayed reaction to the financial crisis that has now reached a fever pitch as the public’s lust for scalp has gone unfulfilled. In Chicago on Monday, one sign read: “If corporations are people, why can’t we put them in jail?”
Are Institutional Investors Part of the Problem or Part of the Solution?
A few days ago, the Committee for Economic Development (CED) and the Millstein Center at Yale’s School of Management published this paper – “Are Institutional Investors Part of the Problem or Part of the Solution?” – authored by former GE General Counsel Ben Heineman and Stephen Davis. The paper argues that institutional investors have a significant impact on the market but not enough is known about how they are governed – and calls for construction of a database on the governance and practices of institutional investors.
SEC’s OCIE’s Report on Rating Agency Exams: “Apparent Failures”
Last Friday, as noted in this press release, the SEC’s OCIE released this report based on exams of the 10 credit rating agencies – as required by Dodd-Frank – which created a stir because all 10 had “apparent failures” as noted in this Reuters’ article. The SEC has requested remediation plans from each of the agencies within 30 days and is continuing its investigation. The good news is that OCIE reported that the Big 3 rating agencies have devoted sufficient resources to deficiencies identified in a ’08 SEC report.
This Bloomberg article analyzes the current Board composition of the PCAOB – and notes how long-time Board Member Dan Goelzer’s replacement may well tip the balance regarding new PCAOB Board Chair’s Jim Doty’s ambitious reform efforts (also see Francine McKenna’s article on the topic). Here’s input that I received from a member:
As this article indicates, the SEC Chairman is now faced with a clear decision – does she appoint a person who is dedicated to investor protection or does she select the candidate the accounting profession is supporting? The profession has put forward a candidate, a partner from one of the firms, a firm that recently hired the top advisor to Schapiro and who Schapiro has hired other senior staff from. Investors, including the CII, have also weighed in with their candidate as well.
And while it is a vote of all Commissioners, given the current composition of the SEC with just four – this is clearly the decision of the SEC Chairman. During the past year, Chairman Schapiro and the SEC have picked three members of the PCAOB. One was a partner from one of the firms who has expressed pro audit firm views, a law partner who defended the Big 4 firms and has expressed similar views, and Chairman Doty whose views to date have been pro-investor protection.
By the way, the PCAOB published Staff Audit Practice Alert #8 yesterday to increase auditors’ awareness of risks when performing audits of companies with operations in emerging markets.
STA’s Beneficial Ownership Processing Study
Yesterday, the Securities Transfer Association (STA) released this study that evaluates the costs of beneficial owner proxy processing services, as compared to providing those same services to registered shareholders. After evaluating 20 Broadridge invoices, the study concludes that transfer agents can probably do it cheaper if the model was one of competitive pricing rather than a regulatory fixed rate. Having visited Broadridge’s processing facilities myself a few years ago, I imagine it would be hard for anyone to realistically compete with Broadridge’s actual processing of accounts – but it seems that there could be pricing issues that the NYSE needs to address.
Webcast: “Materiality: The Hardest Determination”
Tune in tomorrow for the webcast – “Materiality: The Hardest Determination” – to hear Linda Griggs of Morgan Lewis, John Huber of FTI Consulting, Eric Olson of Morrison & Foerster, and Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster provide practical guidance about how to make “materiality” determinations for disclosure purposes, as well as how to make those determinations after-the-fact (i.e., the litigator’s perspective).