February 25, 2013

Symantec Wins Dismissal in Say-on-Pay Litigation 2.0

Here’s an excerpt from Latham’s Jim Barrall‘s news over on “The Conference Board Blog“:

In a very important development in the current proxy disclosure litigation wars relating to annual meeting votes, last Thursday the Santa Clara County Superior Court sustained Symantec Corporation’s demurrer in Natalie Gordon vs. Symantec Corporation dismissing a shareholder lawsuit which had sought declaratory relief and damages against Symantec and its directors based on allegations that the directors had breached their fiduciary duties by failing to provide adequate disclosure to shareholders regarding Symantec’s say-on-pay vote in the company’s August 2012 proxy. (For background on the annual vote proxy disclosure litigation cases, see my recent post and Latham’s commentary.)

While the court’s earlier denial of the plaintiff’s motion to preliminarily enjoin Symantec’s annual say-on-pay vote (in October 2012) was welcome and important news to public companies and their advisors (especially since the same court had previously granted a shareholder’s motion to preliminarily enjoin an equity plan approval vote in Stephen Knee v. Brocade Communications Systems), as a decision on the merits, the court’s Thursday decision will be even more valuable than the injunction denial decision to companies in defending proxy disclosure lawsuits.

In its Symantec complaint, the plaintiff alleged on behalf of shareholders as a class that Symantec’s directors had breached their fiduciary duties to shareholders by failing to provide adequate disclosure in support of the company’s say-on-pay vote proposal, pointing to eight alleged deficiencies. Among the eight alleged deficiencies (proving that no good deed goes unpunished, no matter how well trumpeted) were that Symantec had failed to disclose how the board had determined to shift its executive officer pay targeting from 65th to 50th percentile of its peer group and how it had determined to increase officer ownership guidelines and implement a requirement that officers hold at least 50 percent of their after-tax equity grants.

After dispensing with some procedural issues, the court recited the applicable legal standards governing the adequacy of proxy disclosures, namely that directors have a duty to fully and fairly disclose all material information within their control when seeking shareholder action, and that information is material if there is a substantial likelihood that that a reasonable shareholder would view it as significantly altering the “total mix” of information if it were to be made available. The court then applied these standards to each of the alleged deficiencies and concluded that the additional disclosures sought by the plaintiff were not material in view of all of the other information in the proxy, and that the plaintiff had failed to state a cause of action. The court gave the plaintiff ten days leave to amend the complaint to attempt to state a cause of action.

Jim’s analysis of the possible implications of this development are at the bottom of this blog. Here’s the court correspondence since inception (relates to annual meeting from last year).

Off & Running: 1st Say-on-Pay Failure of the Year

As I blogged on’s “The Advisors’ Blog” last week, as noted in its Form 8-K, Navistar International is the first company holding its annual meeting in 2013 to fail to gain majority support for its say-on-pay with only 17% voting in favor since abstentions count as “against.” Lower than anything we saw last year, although perhaps not surprising since nearly 50% of Navistar is held by just 3 investors, including Carl Icahn, who has blasted them for poor governance. Hat tip to Karla Bos of ING Funds for pointing this out!

Transcript: “Rule 10b5-1 Plans Under Attack: The Latest Practices”

We have posted the transcript for our recent webcast: “Rule 10b5-1 Plans Under Attack: The Latest Practices.” This topic clearly has touched the nerves of many members. Here is a note from one such member: “Trades under 10b5-1 plans are by definition structured – and not ad hoc, random trades – and thus the correct comparison is not to market performance generally, but to similar types of structured trades. For example, limit orders are likely to perform better than the market generally because the trade occurs only if the target is achieved. And the absence of trades is due to the fact that the target was not achieved. Those are never reflected because by definition they do not occur.”

– Broc Romanek