May 14, 2014

Broc’s Mailbag: “These Are Facts Based on Opinion”

Below is a series of responses to questions from members over the past month – feel free to ask me anything (“AMA”) as this is a new regular feature of this blog:

1. Value of Virtual-Only Annual Meetings – First I have to give a hat tip to Jon Stewart and “The Daily Show.” My fave quote from that show is – “These are facts based on opinion” – in the midst of impersonating the news channel that it likes to make fun of the most.

Anyways, in my latest blog noting that last year saw a significant rise in the number of virtual annual meetings (courtesy of Broadridge’s turnkey solution) – 100 of them! – I noted that I had been waffling about whether they were a good thing. I am well aware that the bulk of annual meetings are a waste of time and resources as nothing happens and the company meanwhile has gathered a lot of firepower there (ie. senior managers & the full board). This recent DealBook article entitled “Telling Off the C.E.O., Once a Year” bears this out. Where do I stand now on this topic?

I have been wracking my brain for a framework that would allow shareholders to preliminarily indicate whether they desired a physical meeting. The problem with that approach is that something could come up between the time that shareholders indicate on whether a physical meeting is necessary – and the time that the annual meeting is actually held. The recent discovery of a substantial shortfall of regulatory capital at Bank of America recently proves this point. BofA’s annual meeting was last week – so shareholders who were happy the week before might suddenly be unhappy.

So since the annual meeting is the single time per year that management – and more importantly, the board – is forced to potentially face the music, I am leaning towards the “virtual-only meetings are a bad thing” side. The potential waste of resources is a necessary evil to keep management on its toes. Being challenged virtually can’t compare to being challenged in the flesh.

And then there is the real risk of angering shareholders – as well as the media. For example, PNC Financial and BNY Mellon recently amended their bylaws, which drew the ire of the local Pittsburgh press in this article. And CII’s strong opposition to virtual meetings still stands. So all in all, it’s a risky thing to do in my book…

2. Invoking the Safe Harbor at Annual Shareholder Meetings – Recently, I got this question from a member: “We are preparing for our annual meeting and would like to know how other companies incorporate a “forward-looking statements” disclaimer into presentations by management. Presently, we include the disclaimer on a slide and read it prior to the CEO’s message.”

There are two sides of this debate. One is that a reading of a disclaimer is standard operating procedure and that most shareholders are used to it – and even those that aren’t probably won’t even really notice it as legalese is not something that people tend to tune into.

The other is that this type of legalistic opening gets the AM off to a bad start, with the message that “we are here to CYA rather than have an interactive dialogue and (hopefully) celebrate a good year with the shareholders.” This thinking balances the limited benefits (ie. limited risk unless you go way off the track) outweighed by the negativity of it. Double up on the donuts if you do it perhaps.

Playing devil’s advocate again. The counter to that is that the disclaimer is designed to bolster more fulsome disclosure by management (you can talk about prospects, etc, without fear of ultimately being wrong) – whereas without it, you would feel constrained about saying anything that is forward-looking in nature.

My practical solution is a middle ground. Turn the reading of the safe harbor into a cutesy opening. Dress up a kid in a safe harbor t-shirt at the front of the room, show the language scrolling on big screens – and have everyone follow along as the kid sings the safe harbor. The whole “Pledge of Allegiance” type of thing. Only problem is that the kid likely will steal the show…

3. Phone Voting Still Necessary? – Another member asked: “When can we get rid of phone voting? It’s antiquated, cumbersome, etc. and mobile voting now surpasses it based on volume of voting. Less than 2% of shares are now voted by phone. Getting rid of it would take costs out of the system.”

Definitely send in your rants. Getting them off your chest will improve your health. And I would never identify you without your permission. Personally, I think cutting down on voting opportunities is not sound shareholder relations – and certainly not good optics. But I asked the opinion of the person that sent in the question. Here is her response:

“Most people who receive paper proxy materials now vote through Internet, not mail or phone. Anyways, as I understand it, the phone voting option is time-consuming for all involved since the flow of how those calls go can be so messy, particularly now that the one-stop “Vote With Management” option is gone.

Unfortunately, companies don’t have the ability to turn off phone voting as that is a decision between Broadridge and its clients, the brokers. Companies could choose to turn it off for their registered holders, but that is just a drop in the bucket. Another avenue is that companies could opt not to mention phone voting in their proxy statements, but brokers would still probably offer phone voting.

This may not be a real “problem” to solve, but there are costs of maintaining the phone voting infrastructure that seem unnecessary, particularly since phone voting is so confusing for the average person, even with touch-tone prompts. If phone voting can’t end now, there should be some kind of 5-year plan to phase it out, with the blessing of the SEC of course.”

4. Questions About Registration of Warrants – “Why doesn’t anyone ever answer the questions about registering warrants in the “Q&A Forum” on this site?”

I plead the Fifth!

plead fifth.gif
5. Cybersecurity Roundtable Reenactment – “It would be really cool if your tech savvy staff could take the archive of the SEC cybersecurity roundtable and then edit in part of the beginning of the 1960s TV show: ‘The Outer Limits’.”

Glad to see folks getting into the new videos. My tech-savvy staff is merely myself – and I did the next best thing by playing 8 different roles in this reenactment video:

Corp Fin Grants 1st Foreign Issuer Deregistration No-Action Relief Under Rule 12h-6

Last week, Corp Fin gave no-action relief to Sundance Energy Australia Limited, which is the first busted IPO letter that the Staff has given in the Form 15F/Rule 12h-6 context, which is the special deregistration rule for foreign private issuers. It’s not incredibly remarkable, but it’s a first in the area…

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:

– Form 10-K Length: Does Size Matter?
– Shareholder Proposals: Novel “Good Job” Proposal
– Disney Trades Proxy Access for Change in Board Leadership
– Will Shareholders Ask About the New COSO Framework at Annual Meetings?
– ISS Talks “Issuer Engagement with ISS”
– Shareholder Proposals: 1-Year Holding Requirement Even Applies to IPOs

– Broc Romanek