We have posted the survey results regarding the latest stock buyback trends, repeated below:
1. Does your company use a Rule 10b5-1 plan for corporate buybacks:
– Yes – 58.1%
– No – 41.9%
2. If your company uses a Rule 10b5-1 plan for corporate buybacks, does the company publicly disclose the adoption of the plan:
– Yes – 31.6%
– No – 68.4%
3. If your company uses a Rule 10b5-1 plan for corporate buybacks, is there a waiting period between execution of the Rule 10b5-1 plan and the first repurchase:
– No – 57.9%
– Yes, and it is the same waiting period that our insiders use in connection with their Rule 10b5-1 plans – 31.6%
– Yes, we have a waiting period – but it’s not the same as the waiting period for insiders – 10.5%
4. If your company uses a Rule 10b5-1 plan for corporate buybacks, what is the typical duration of the plan:
– Approximately equal to the blackout period – 42.1%
– 2 months to less than 6 months – 21.1%
– 6 months to less than 12 months – 31.6%
– 12 months or greater – 5.3%
5. If your company uses a Rule 10b5-1 plan for corporate buybacks, are purchases made only during the company’s blackout periods:
– Yes, plan purchases are made only during the blackout periods – 36.8%
– No, sometimes we make plan purchases outside the blackout periods too – 63.2%
6. If your company uses a Rule 10b5-1 plan for corporate buybacks, does it enter into a plan:
– Once per year that covers all of the blackout periods for the year – 5.3%
– More than once per year, one for each blackout period – 15.8%
– On an ad hoc basis – 78.9%
7. If your company uses a Rule 10b5-1 plan for corporate buybacks, has it implemented more than one plan at a time for repurchases:
– Yes – 5.3%
– No – 94.7%
8. Has your company used accelerated share repurchase (ASR) programs for corporate buybacks:
– Yes – 38.7%
– No – 61.3%
9. If your company has used ASRs, has your company announced the ASR programs separately from any general announcement of a buyback authorization:
– Always – 35.7%
– Never – 35.7%
– Depends on size of the ASR – 28.6%
10. If your company has used ASRs, has there been a waiting period between execution of the ASR and the start of its valuation period:
– Yes, and it is the same period we use for 10b5-1 buyback plans – 7.7%
– Yes, but it is not the same period we use for 10b5-1 buyback plans – 15.4%
– No – 76.9%
11. Has your company used other derivatives (e.g. call options, capped calls, “Sub-VWAP forward” or other forward purchases) for corporate buybacks:
– Yes -10.0%
– No – 90.0%
Chinese Hackers Breached US Chamber of Commerce Computers for Possibly a Year
As noted in this Reuters article, Chinese hackers breached the Chamber’s computers and gained access to everything stored on its systems, including information about its three million members. According to the article, the complex operation involved at least 300 Internet addresses and was discovered and shut down in May 2010. It is possible the hackers had access to the network for more than a year before the breach was uncovered. Security failures continues to be one of the primary challenges for companies today…
Webcast: “Activist Profiles and Playbooks”
Tune in tomorrow for the DealLawyers.com webcast – “Activist Profiles and Playbooks” – to hear Bruce Goldfarb of Okapi Partners, Dan Katcher of Joele Frank Wilkinson Brimmer Katcher, Damien Park of Hedge Fund Solutions LLC and Darren Wallis of Alara Capital identify who the activists are – want what makes them tick. Over 20 activists will be dissected!
With significant publicity, as noted in this Sidley Austin alert, the SEC announced several weeks ago that it had filed the most enforcement actions in a single year in SEC history. For the fiscal year ending September 30th, the SEC stated it filed a record 735 enforcement actions – a 9% increase from 2010 – with more than $2.8 billion in penalties and disgorgement ordered. As noted in the Pepper Hamilton alert, Enforcement Director Khuzami recently gave remarks which indicate that this number will go even higher this year…
Hands down. The best video featuring a dog (he’s hip, man!) ever…
Unconstitutional! Canada’s Highest Court Strikes Down Proposed Federal Securities Regulator
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:
– Distortions In Baffling Financial Statements
– 2011 Spencer Stuart Board Index: Board Composition, Organization & Process and Director Comp
– ABA Declines to Embrace Majority Voting as Default Standard
– The Second Circuit Curbs ERISA “Stock Drop” Class Actions
– How to Conduct a Board & Director Evaluation
Below is Part 2 of a collection of memories from anonymous members about working at the printers (here’s Part 1). Please keep them coming and I will only blog them if you give me permission:
– Worst time at the printer? Being in-house at the same time as Joe Flom. Our deal sat totally ignored until Joe’s was done and out the door!! Imagine that!!??
– Been at Bowne around the clock for a week on a very difficult public offering. Needless, I was on a first-name basis with everyone employed at Bowne at that time. About night 5, our group is by far the largest group in-house. When I emerge from a meeting in smaller conference room about 3:00 AM, the night receptionist goes absolutely pale. She says, “Harry, I’m so sorry, I did not realize you were still here.” I say, “Thanks, but why?” She hesitates, and then says, “Well, your wife called about 30 minutes ago and I told her not only that you were not here now, but also that you had not been here tonight.” I calmly replied, “Now guess who you are going to call and wake up to correct that small gaff??!!” She did, and my long-suffering lawyer bride thought it was hysterical . . . . Now many years later still one of her favorite war stories.
– I remember slugging proof on a Merrill Lynch deal and being astonished at how fast their people could say “Merrill no com Lynch com Pierce com Fenner ampersand Smith no com Incorporated six up.”
– 3:00 a.m., eight months pregnant and recalculating a Beneficial Ownership Table for the 400th time because the bank kept changing the offering size. And then falling asleep on the couch only to wake up to the nauseating (to a pregnant woman) smell of eggs and lukewarm pancakes and some banker telling me we needed to change the table again. All while listening to the slam-whirr, slam-whirr of the ball on the Golden Tee machine. Good times.
– I graduated from law school in 2001, so I was pretty much at the end of “The Printer Era.” While you could submit changes to documents via e-mail in 2001, in order to proof what I refer to as the “Blueline” (ready to print) “book version” of the document, you had to actually go to Donnelley’s or Bowne’s offices (Bluelines could not be transmitted over PDF back then).
I am from New Orleans, so large quantities of alcohol assembled in one location do not shock me. There was one 6:00 a.m. morning at The Printer (I forget which one) where I may have confused a refrigerator full of beer with a vision of Heaven. We had just cleared to print, and The Printer Rep invited us into their darkened kitchen while opening their refrigerator. Perhaps it was the warm glow of light shining through a refrigerator stocked with beer, but I nearly dropped to my knees. I ended up (very quickly) downing a beer, running back to my apartment, showering/dressing and zooming back to the office for an 8:00 a.m. meeting with the client.
My former employer shall remain unnamed. The beer, I recall, was delicious.
I’ve certainly been remiss in not highlighting Latham & Watkins “Weekly Words of Wisdom” Blog that has been around for nearly two years. The group at Latham responsible has been doing great work in their weekly writings. It’s informative, particularly for attorneys not deeply involved in securities law (which is true for the bulk of in-house lawyers since they often wear many hats) – and written in a style that is easy to understand. One of the things I like about the blog is that the topics tackled are not ripped from the headlines. Rather, they cover bread and butter stuff that is more likely to get them attention from potential clients. Check it out!
Sara Hanks’ “Capitol Capitalist” Blog
I’m also excited to note that Sara Hanks – former Corp Fin Chief of the Office of International Corporate Finance – has launched the “Capitol Capitalist” Blog. Check that out as well!
We certainly ended the year with a bang, as the 44th company to fail to receive a majority vote for say-on-pay only obtained 6.4% of the votes cast in favor. 6.4%! As noted in its Form 8-K, American Defense Systems had many more votes voted in opposition (51%) or abstention (43%). The only director up for election had even more “withheld” votes than were cast against the company’s say-on-pay. Note that this company is a smaller reporting company (whose annual meeting was held on December 30th but the 8-K states the date of event was August 3rd)…
Webcast: “The Latest Developments: Your Upcoming Proxy Disclosures – What You Need to Do Now!”
Tune in tomorrow for the CompensationStandards.com webcast – “Your Upcoming Proxy Disclosures – What You Need to Do Now!” – to hear Mark Borges of Compensia, Alan Dye of Hogan Lovells and Section16.net, Robbi Fox of Exequity, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn discuss all the latest guidance about how to overhaul your upcoming disclosures in response to say-on-pay–including the latest SEC positions–and the other compensation components of Dodd-Frank, as well as how to handle the most difficult ongoing issues that many of us face.
As the grace period has ended – and all memberships expired on December 31st – if you haven’t yet renewed your membership for CompensationStandards.com for ’12, you will not be able to access this program. Renew now.
OECD’s Report on Board Practices in Setting Executive Pay
Here is something that I blogged on CompensationStandards.com’s “The Advisors’ Blog“: I haven’t seen anything on this – so I guess we all missed this OECD report on board practices in setting executive compensation that was published back in August. Among the many interesting parts of this report is the UK section, particularly Section 7.1.6 regarding shareholder engagement. The UK has had say-on-pay for a decade – so the US can look to the Brits to see what might lie ahead here perhaps. Observations about the undue influence by a couple of groups and feelings of distrust and hostility do not bode well. Of course, maybe we can do better here. Hope springs eternal.
Posted: Winter Issue of Compensation Standards Newsletter
We’ve heard such tremendous feedback from our week of executive pay conferences that was held back in November that we have decided to share this lengthy transcript from our plenary session entitled “Say-on-Pay Shareholder Engagement: The Investors Speak” in the form of this lengthy Winter 2012 issue of our Compensation Standards newsletter, which was just posted on CompensationStandards.com. The practical guidance provided during this panel from those that vote proxies at thousands of companies is timely as we gear up for another interesting proxy season.
Federal Court Sides with SEC, Orders Hearing on SEC’s Subpoena to Deloitte
Here’s news pulled from this White & Case memo: On January 4th, a magistrate judge granted the SEC’s request for a hearing to decide whether to order the Shanghai office of Deloitte Touche Tohmatsu CPA Ltd. (“Deloitte Shanghai”) to produce documents related to its work as the outside auditor of Longtop Financial Technologies, Ltd. This proceeding will decide important issues bearing on the SEC’s ongoing enforcement action against Longtop, a publicly traded Chinese company. The magistrate judge’s decision closely follows the SEC’s deregistration of Longtop on December 14th for failing to file required annual reports and audited financial statements with the SEC. Longtop’s securities are now substantially worthless.
The hearing will also highlight tensions between the SEC and Chinese issuer and auditor regulators who have failed to reach a written agreement on mutual assistance in securities investigations and supervision of audit firms despite talks during the summer of 2011. This sets the stage for either resolution of those tensions through negotiation or increased conflict between the two regulatory systems with unknown consequences for issuers and auditors in both capital markets.
On Friday, Corp Fin issued the latest in its “CF Disclosure Guidance Topic” series with Topic No. 4: European Sovereign Debt Exposures due to concerns that banks aren’t consistently disclosing their direct – and indirect – exposure to the sovereign debt crisis in Europe. This guidance provides a long laundry list of what the Staff is seeking from financial institutions in this area, including noting that recent comments sought enhanced disclosure – on a country-by-country basis on:
– Gross sovereign, financial institutions, and non-financial corporations’ exposure, separately by country;
– Quantified disclosure explaining how gross exposures are hedged; and
– Discussion of the circumstances under which losses may not be covered by purchased credit protection.
I remember how some of the banks were criticized back during the financial crisis in ’08 and ’09 for a lack of transparency – so this guidance is timely ahead of what may be a challenging year for banks…
SEC Changes “Neither Admit Nor Deny” Settlement Policy (When There is a Parallel Criminal Case)
As noted in this NY Times article, the SEC has modified its newly controversial “neither admit nor deny” settlement language policy in the wake of pressure from Judge Jed Rakoff (see this blog) and Congress (see this blog about an upcoming hearing).
On Friday, SEC Enforcement Director Rob Khuzami issued the following statement about the Staff’s recent policy change:
Following a review by senior enforcement staff that began this spring and separate discussions with the Commissioners over the last several months, last week we modified our settlement language for cases involving criminal convictions where a defendant has admitted violations of the criminal law. As explained below, the new policy does not require admissions or adjudications of fact beyond those already made in criminal cases, but eliminates language that may be construed as inconsistent with admissions or findings that have already been made in the criminal cases.
Under our traditional “neither admit nor deny” approach, a defendant could be found guilty of criminal conduct and, at the same time, settle parallel SEC charges while neither admitting nor denying civil liability. This approach has reflected that the goals, objectives and other factors in the civil settlements that we and other federal and state agencies enter into often are distinguishable from those at issue in criminal proceedings. It nevertheless seemed unnecessary for there to be a “neither admit” provision in those cases where a defendant had been criminally convicted of conduct that formed the basis of a parallel civil enforcement proceeding.
The change applies to cases involving parallel (i) criminal convictions or (ii) NPAs or DPAs that include admissions or acknowledgments of criminal conduct. Under the new approach, for those settlements we will:
– Delete the “neither admit nor deny” language from the settlement documents.
– Recite the fact and nature of the criminal conviction or criminal NPA/DPA in the settlement documents.
– Give the staff discretion to incorporate into the settlement documents any relevant facts admitted during the plea allocution or set out in a jury verdict form or in the criminal NPA/DPA.
– Retain the current prohibition on denying the allegations of the Complaint/OIP or making statements suggesting the Commission’s allegations are without factual basis.
The revision applies in the minority of our cases where there is a parallel criminal conviction (by plea or verdict) or criminal NPA/DPA involving factual or legal claims that overlap to some degree with the factual or legal claims set out in the Commission’s complaint or OIP.
This policy change does not affect our traditional “neither admit nor deny” approach in settlements that do not involve criminal convictions or admissions of criminal law violations. In particular, it is separate from and unrelated to the recent ruling in the Citigroup case, which does not involve a criminal conviction or admissions of criminal law violations. We have appealed that ruling and the reasons for that appeal are described in the public statement I issued at that time.
As many former Staffers have emailed me, this settlement language saga is small potatoes since once a defendant has admitted criminal culpability in a DOJ case (or has been convicted), it won’t care much about admitting in the SEC’s civil case. One member shared this view: “The reason the SEC shouldn’t care much about the loss of injunctions under the Rakoff approach (and he actually opposes only injunctions, not settlements more broadly) is that they have developed the far more effective tool of the non-prosecution agreements.”
Here’s some good analysis from David Smyth about this latest development in his “Cady Bar the Door” blog. And here’s other commentary that I blogged a few weeks back on “The Mentor Blog”…
Webcast: “The ‘Former’ Corp Fin Staff Speaks”
Tune in tomorrow for the webcast – “The ‘Former’ Corp Fin Staff Speaks” – to hear former Senior Staffers from the SEC’s Division of Corporation Finance Brian Breheny of Skadden Arps, Marty Dunn of O’Melveny & Myers, Linda Griggs of Morgan Lewis and Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster weigh in on what you need to be doing for the upcoming proxy season, and provide a “bring-down” of what’s happening now in Corp Fin.
As the grace period has ended – and all memberships expired on December 31st – if you haven’t yet renewed your membership for TheCorporateCounsel.net for ’12, you will need to able to access this program. Renew now.
With the official pushing of the SEC’s expected rulemaking timetable into the first half of this year from late ’11, many were resting easy that there would not be any new SEC executive pay positions to worry about this proxy season. Think again as this article from yesterday’s WSJ was an eye-opener, noting that Verizon has agreed to make additional pay disclosures in the Summary Compensation Table of its next proxy statement after a total of 11 Corp Fin comment letters and responses – dated between June and November – were recently posted on the SEC’s site (you can see these by looking at the “Upload” and “Corresp” documents in this Verizon filing stream, or look at these SEC comments and Verizon responses).
Here’s how Cleary Gottlieb characterized the news of this WSJ article:
An article on page B1 of today’s Wall Street Journal, entitled “Verizon Details $20 Million More in Pay,” discusses an interpretive position taken by the staff at the SEC, in correspondence with Verizon Communications Inc, regarding the reporting of performance-based equity awards under plans that reserve significant discretion for the compensation committee to adjust payouts based on non-objective criteria, in the Summary Compensation Table of a proxy statement. The position relates to a current issue that may affect the staff’s view of proper reporting of 2011 compensation in some of your 2012 proxies. The specific position taken by the staff does not appear to have been previously publicly reported. We are sending this quick note to alert you to the interpretive issue. Applying the staff’s position to a particular plan may require judgment of the specific plan terms, as well as accounting expertise.
Here is the WSJ article repeated below:
Verizon Communications Inc. has agreed to increase by $20 million the total disclosed pay for former Chief Executive Ivan Seidenberg, but the recently retired executive won’t be getting any more money. Verizon will recalculate Mr. Seidenberg’s compensation for 2009 and 2010 after the Securities and Exchange Commission said the company hadn’t properly disclosed discretionary grants of restricted stock given to Mr. Seidenberg in 2007 and 2008.
Verizon maintains its disclosures were proper, but agreed to make the changes in its forthcoming proxy statement to resolve the SEC’s concerns. “The SEC did not suggest that anything was improper in past disclosures, but they wanted a new method of disclosure going forward,” said Verizon spokesman Peter Thonis in a statement. “We have simply complied with a reasonable request, given that all of the information we provided was accurate and transparent.” The dispute relates only to Verizon’s disclosure of Mr. Seidenberg’s pay, and won’t change his actual compensation.
Mr. Seidenberg, who stepped down after 11 years as Verizon’s CEO on July 31 and as chairman on Dec. 31, was long one of the nation’s best-paid CEOs. He earned more than $130 million total from 2006 through 2010, according to Standard & Poor’s Capital IQ unit. The total includes salary, bonuses, and the value of restricted stock and stock options at the time they vested, including the $20 million at issue with the SEC. His pay was also a flashpoint for unions and Verizon critics. In 2006, the nation’s largest labor-union group, AFL-CIO, sought to oust directors on Verizon’s compensation committee, calling Verizon “the poster child for pay for pulse.” Last summer, amid a labor dispute, union representatives organized a candlelit “funeral for the middle class” outside Mr. Seidenberg’s home.
The clash highlights tougher SEC scrutiny of regulatory filings by big companies, as well as the challenge of valuing different flavors of executive pay. “It is becoming increasingly common” for the SEC to question details in quarterly and annual reports about executive compensation, corporate taxes and non-standard accounting measures, says John Olson, a partner at Gibson, Dunn & Crutcher in Washington, D.C. Still, pay consultants say it’s unusual for a company to change an already-reported compensation total.
The dispute between Verizon and the SEC has been brewing since June, though it only recently became public, when the 11 letters exchanged between the company and the agency were posted on the SEC’s website. SEC rules call for such letters to be posted 45 days after an issue is resolved, which occurred in early November in Verizon’s case.
At issue was how the company should disclose grants of restricted stock given to Mr. Seidenberg in 2007 and 2008. The grants were tied to the performance of Verizon’s stock over three-year periods, as well as the board’s assessment of Mr. Seidenberg’s performance on several strategic initiatives, such as revenue growth and subscriptions to Verizon’s fiber-optic video service.
Verizon reported the grants in its proxy statements for 2007 and 2008, as SEC rules require. At the time, it valued the grants based on the performance “target,” though it specified that Mr. Seidenberg could receive more shares if his, and Verizon’s performance, exceeded the targets. In 2008, the company said that the grant if Verizon were to meet its targets through the next three years would be 355,210 shares of Verizon stock, then valued at $13.1 million. After the three-year period ended in 2010, Verizon directors awarded Mr. Seidenberg 838,457 shares, then valued at $30 million.
Verizon’s stock performance accounted for some of the increase, but SEC staffers said Verizon should have included the discretionary portion of the award, roughly $13.8 million, in the “summary compensation table” of the proxy statement filed last March. That’s the convenient headline number often cited in media reports and by some investors. The summary compensation table reported Mr. Seidenberg’s 2010 compensation as $18.2 million. Including the discretionary grant would have increased the total 76%, to $32 million. For 2009, the SEC wanted Verizon to boost Mr. Seidenberg’s reported total compensation by $6.5 million, to $24 million. Verizon’s calculation method “has had and, may in the future, have the effect of under reporting compensation” in the summary table, the SEC said in an Aug. 5 letter. An SEC spokesman didn’t respond to requests for comment.
Mark Borges, a principal at Compensia, a management consulting firm, says there’s room for interpretation in the SEC’s rules for reporting performance-based awards, because company plans differ. But he says the SEC increasingly has been pushing companies for more disclosure. “The staff really wants companies, particularly when it comes to CEO compensation, to be as forthcoming as possible,” he says. Verizon’s Mr. Thonis says the company had disclosed the range of values for the grant in 2008, the amount ultimately awarded, and highlighted the figures in its proxy statement and in letters sent to some big shareholders.
One Cincinnati Bell Say-on-Pay Case Settled, Second in Limbo
Cincinnati Bell has agreed to settle one of the say-on-pay law suits which is pending against it in the Hamilton County Court of Common Pleas. The lawsuit arises out of the shareholder’s “say on pay” vote taken at Cincinnati Bell’s May 2011 annual meeting. The Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law in July, 2010, requires that all public companies solicit an advisory shareholder vote on executive compensation. We previously reported on a related case here and here which survived a motion to dismiss.
According to Phillip R. Cox, Chairman of Cincinnati Bell’s Board of Directors, “The proposed settlement includes features which will clarify the Company’s executive compensation policies and which will more clearly communicate these policies to our shareholders. Importantly, the changes represented by this agreement should better assist our shareholders’ understanding of how these policies are applied to covered employees.”
One of Plaintiffs’ Counsel, Ed Korsinsky, adds that: “The longer-term and perhaps most important aspect of the settlement is that it provides a binding agreement that executive compensation decisions remain consistent with the Company’s pay for performance philosophy and that the Board of Directors will continue to clearly articulate the Company’s philosophy to its shareholders.” As part of this settlement, Cincinnati Bell will, among other things, reaffirm its pay for performance practice and provide for an annual discussion of its philosophy related to executive compensation.
Many may conclude the failed say-on-pay law suit which is settled for disclosure relief will become a shake down for an attorney fee award, much like numerous cases filed to block an acquisition. It will be interesting to see what kind of fee award the court grants for this type of “success.” That may drive how many of these litigations are filed in the future.
But the case settled is a different one than the case which survived a motion to dismiss. The effect of the settlement on that case, pending in the United States District Court for the Southern District of the Western Ohio Division, is unclear. However, that case has taken some unusual twists and turns.
After the court denied the defendants’ motion to dismiss, the defendants learned that diversity jurisdiction did not exist. Plaintiffs failed to identify itself as a citizen of Georgia and one of Cincinnati Bell’s defendant directors was a citizen of Georgia. Plaintiffs attempted to correct the subject matter jurisdiction by amending the complaint to drop the director which resides in Georgia and voluntary dismissal of the director. The court granted defendants motion to strike the amended complaint and voluntary dismissal as procedurally improper. Apparently the plaintiffs can still a motion to amend the complaint following the proper procedures.
But there is another twist to the case that can only make the defense bar smile. The court sua sponte issued an order to the plaintiffs attorney to show cause why the attorneys should not be sanctioned under Rule 11 for failure to conduct a reasonable inquiry into the factual contentions as to the alleged diversity. The court ultimately concluded it was an honest mistake but found the attorneys “incomplete answer to the Court’s direct question of him at oral hearing represented misbehavior of an officer of the Court in his official transactions.” As a result, the court revoked the attorneys pro hac vice admission in the case.
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:
– Views of Former SEC Chairs on Auditor Rotation
– Survey: Boards Vulnerable to Hacking and Information Theft
– Bob Monks: What Occupy Wall Street Means for Corporate Governance
– Survey: Boards & Risk Management
– A Corporate Governance Framework for Emerging Markets
Bummer: SEC Approves Bundling of IR Services for Nasdaq and NYSE
As noted in this article, the SEC has granted this order so that the Nasdaq can offer complimentary IR services worth up to $169,000 a year to newly listed companies and to those switching their listing from the NYSE. The ruling follows approval several months ago of a rule change at the NYSE allowing up to $100,000 worth of services for all Big Board-listed companies, not just new listings like the Nasdaq.
Both of these SEC rulings should prove to be formidable hurdles for “independent” providers of services, thereby diminishing innovation – and ultimately will probably result in higher prices for companies once the Nasdaq and NYSE kill off any third-party competition.
But the bigger tragedy in my opinion is the probable loss in shareholder communication quality. US companies continue to provide a limited IR web page experience for investors, mainly due to the type of woeful IR services that major providers are providing companies. Yet, the main blame lays at the feet of the many companies that simply don’t care what their IR web page looks like – or that their online SEC filings are not all that “usable.” So much for shareholder engagement.
Despite our profession being all about “disclosure,” there remains a shocking lack of knowledge about how humans “read” online in the profession – and thus few really know how documents are best written and presented online. To my knowledge, this Insights article that I wrote over a decade ago is the only one securities law piece that even uses the term “usability” despite it long being a mainstream term for those that design web sites. The SEC should be writing rules requiring a minimum experience on IR web sites and a minimum standard of usability for online proxy statements and annual reports, if not all SEC filings. Instead, the agency is approving listing standards that stifle any progress in this direction.
Mailed: November-December Issue of “The Corporate Counsel”
A few weeks ago, we mailed the November-December Issue of The Corporate Counsel and it includes pieces on:
– 2012 Proxy Season Items
– SLAB 14F–And the Shareholder Proposal Process Gets Much Simpler
– Crafting Issuer-Specific Shareholder Voting Outcome Requirements
– Late 8-K Reporting of Board’s Say-on-Pay Frequency Determination
– The Staff’s Opinions on Opinions
– The End of an Era–Confidential IPO Filings for Foreign Private Issuers
– Section 12(g) No-Action Relief for RSUs–The Windy Road from Facebook to Zynga/Twitter
– The Staff Clarifies the Rule 3-10 Consequences of Customary Subsidiary Guarantee Release Provisions
Below are some interesting thoughts from Vince Pisano of Troutman Sanders:
It is normal in a certificate of designation for preferred stock to provide that dividends and redemptions will be made out of funds legally available therefore. Interestingly, there is not a legal definition of “funds legally available,” despite the Delaware Chancery Court’s decision last year in SV Investment Partners v. ThoughtWorks, in part because of new confusion caused by the opinion of the Supreme Court affirming that decision on November 15, 2011.
The facts are fairly simple. The plaintiffs had purchased preferred stock of ThoughtWorks which entitled them to have their shares redeemed at their request five years from issuance, out of funds legally available therefore. Plaintiff’s position was that “legally available therefore” meant that ThoughtWorks needed to have sufficient surplus (net assets minus net liabilities and the par value of stock), with net assets to be determined, pursuant to the terms of the preferred, at the highest legally permitted value, to make the payments.
ThoughtWorks and Chancellor Laster disagreed and each concluded that funds legally available meant that you actually need to have available funds and that there be no legal restriction on their use. Legal restrictions include the surplus requirement in the Delaware GCL but also include other well known restrictions, including that payments not impair the payors’ ability to continue as a going concern and pay its debts as they become due. Whatever ThoughtWork’s statutory surplus may have been, Laster deferred to the Board’s conclusion that funds were not available to the company to pay the redemption price in any case since it neither had nor could it borrow the necessary funds and each quarter determined what funds were available and would, after payment, permit the company to pay its debts.
Chancellor Laster’s opinion is crystal clear and may even be correct. The Supreme Court, though affirming, just confused the question. They held that since Laster found that payment need not be compelled even if the plaintiff’s position were correct – that funds legally available meant surplus – it did not have to decide whether f plaintiffs were correct. The only problem is that Laster never made that ruling. He simply ruled that plaintiffs’ position was incorrect and looked instead to the “plain meaning” of the words.
If Laster or the Supreme Court had ruled that funds legally available for redemption was equivalent to surplus, judgment would have had to be entered for the plaintiffs since no one disagreed that the company had adequate statutory surplus. If you think I confuse easily, here is one of the concluding lines from the Supreme Court’s opinion: “We find that the record in this case supports the Court of Chancery’s conclusion that SVIP failed to prove that ThoughtWorks had ‘funds legally available’ (i.e.,surplus) to satisfy SVIP’s redemption demand.” This is the same court that on page one of its decision said: “We need not address SVIP’s argument that the court below erred by not equating “funds legally available” with the definition of statutory surplus under the Delaware General Corporation Law.”
One thing I do understand – when drafting terms of preferred stock – we need to stop using a term we only think we know the meaning of, be precise and consider adequate remedies.
“60 Minutes” Tackles Internal Controls
From a member: A few weeks ago, CBS’ “60 Minutes” ran a segment on the prosecution of Wall Street (or lack thereof) as well as the lack of internal controls at firms such as Countrywide and Citi, which raises questions about how auditors could have been giving “clean” unqualified opinions on the internal controls at such institutions and whether investors can rely on such reports as being credible.
Transcript: “iPads in the Boardroom: 20 Issues to Consider”
We have posted the transcript from the recent webcast: “iPads in the Boardroom: 20 Issues to Consider.”
In this podcast, Dave Lynn and Marty Dunn engage in a lively discussion of the latest developments in securities laws, corporate governance, and pop culture. Topics include:
– The SEC’s cybersecurity disclosure guidance
– Staff Legal Bulletin No. 14F
– Dave’s and Marty’s views on Springsteen
This blog by Mark Suster – of “Both Sides of the Table” fame – is a great read on how to start the new year. It doesn’t even mention the term “resolution” – but it does provide some insight into how one might live their life.
Judge Rakoff Getting Testy Over SEC-Citigroup Case
As noted in this NY Times article on Friday, “Judge Jed Rakoff of the Federal District Court in Manhattan issued a supplemental order saying that the SEC appeared to file a “materially misleading” request with the Court of Appeals for the Second Circuit earlier this week, when the commission sought an emergency halt to further proceedings in the case.”
Before then, as noted in this blog by David Smyth, the US Court of Appeals in Manhattan had agreed to the SEC’s request to delay the Citigroup settlement case until at least January 17th. This is the latest SEC settlement that Judge Rakoff has objected to – and he had set on a path of an accelerated timeline. As noted in this Bloomberg BusinessWeek article, Rakoff has now ordered the SEC and Citigroup to file with everything they file with the Second Circuit also with him. This case is getting quite nasty.
Even before all this, in this article from the Atlantic, Rakoff gave this lengthy interview to Howard Fineman in the Huffington Post. The Atlantic article does a good job of analyzing some of Judge Rakoff’s critical comments about the SEC.
Meanwhile, a Wisconsin judge has questioned whether the SEC has sufficiently clawed back money for the relevant period under a different set of circumstances, as noted in this Bloomberg article.
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