March 27, 2013

A Plaintiffs’ Firm View of Say-on-Pay 2.0 Lawsuits

The law firm of Faruqi & Faruqi LLP, which has been by far the most active firm filing the new breed of proxy statement disclosure lawsuits since this time last year (over 30 now at this point), recently published a detailed piece on developments in Say-on-Pay 2.0 litigation. If you haven’t spent much time reading the materials filed in these lawsuits to date, this piece describes the arguments that have been advanced on both sides and some of the results to date (as well as mounting a defense of these lawsuits in general). The piece concludes:

The current dismissive attitude regarding the say-on-pay vote due to its advisory nature essentially pilfers from shareholders the ability to signal their content or discontent with executive pay practices, thus making the vote far less likely to lead to potentially necessary and constructive pay reforms. Indeed, the Delaware Court of Chancery has held that “[t]he strengthening of shareholder interest in monitoring the activities of officers and directors only further emphasizes the importance of the shareholder franchise as the bedrock foundation upon which the legitimacy of directorial power rests.” State of Wisconsin Inv. Bd. v. Peerless Sys. Corp., No. 17637, 2000 Del. Ch. LEXIS 170 (Del. Ch. Dec. 4, 2000). Thus, shareholders must not be deprived of their right to cast an informed vote on a company’s executive compensation.

The peripheral legal attacks described in this article (claims that the vote is non-binding and thus related information is immaterial, federal law preempts the allegations and that portions of the information are publicly disclosed) are likely nothing more than legal red herrings, unlikely to affect the outcome of a given case. In the end, the relevant legal question will be whether or not the information is material.

Class Action Suits Against Auditors Go Global

While on the topic of getting sued, this recent Reuters article about the global trend toward suing auditors noted that while lawsuits against auditors have been on the decline in the United States as court rulings – especially the 2008 U.S. Supreme Court decision in Stoneridge Investment Partners v Scientific-Atlanta – have made it more difficult to sue a company’s auditors, lawsuits against auditors have been on the rise in other countries. At the same time that the U.S. has significantly raised the bar on class action lawsuits, the number of countries allowing class action lawsuits around the world has grown to more than twenty, thereby facilitating the filing of more lawsuits against auditors globally.

More on our “Proxy Season Blog”

We continue to post new items regularly on our “Proxy Season Blog” for 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:

– Investors Demand CEO Face Time
– 2013 Shareholder Proposal Campaigns Shaping Up: Board Issues & Shareholder Rights
– Seattle Times Live Tweets Microsoft’s Annual Meeting
– AARP Survey May Influence Efforts to Alter ERISA Rules Affecting E-Proxy
– National Fuel Sues Harvard Law Project Over Proof of Ownership (And Then Proposal Withdrawn)

– Dave Lynn