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Here’s food for thought as we await SEC action on the proxy advisor piece of the outstanding proxy plumbing project. This new study by Professors Aggarwal, Erel & Starks entitled “Influence of Public Opinion on Investor Voting & Proxy Advisors” finds that mutual funds voted with management only 54% of the time in 2010 – down from 74% in 2006. The other big finding is that mutual funds are also becoming more independent from ISS recommendations – dropping from a 78% rate in 2006 down to 59% in 2010.

Landmark FCPA Ruling Defining the Term “Instrumentality”

Here’s news from this Morrison & Foerster memo (there are many memos in our “FCPA” Practice Area):

Federal appellate court decisions interpreting the Foreign Corrupt Practices Act (FCPA) are rare. Very rare. Indeed, in the statute’s 36-year history there have been barely more than a handful of appellate court decisions analyzing the meaning of the different provisions of this complex statute with which multinational corporations and scores of business executives must grapple on a daily basis. On Friday, May 16, 2014, the Eleventh Circuit Court of Appeals issued a landmark ruling addressing for the first time the definition of the term “instrumentality” as it appears in the FCPA. That case, captioned United States v. Joel Esquenazi and Carlos Rodriguez, affirmed the convictions and sentences of both defendants, and in so doing, upheld the longest sentence in the FCPA’s history, Esquenazi’s 15-year sentence.

The Department of Justice and the Securities and Exchange Commission understandably view this decision as validating their broad interpretation of who qualifies as a “foreign official” under the FCPA. At a compliance conference held just after the release of this decision, the heads of the FCPA Units at both the DOJ and SEC, Patrick Stokes and Kara Brockmeyer, respectively, described the ruling as an “important,” “seminal” decision on a critical issue and said that they drew comfort from the appellate court embracing the DOJ and SEC’s approach to this issue.

While this is the first time an appellate court has defined the term “instrumentality,” companies hoping for additional clarity through the creation of either a bright-line rule or a clearly defined test will be disappointed, as the Esquenazi court embraced the non-exhaustive multi-factor test endorsed by the government and adopted by a number of district courts that faced the same issue.

PCAOB Staff Guidance: Economic Analysis in Standard-Setting

Recently, the PCAOB issued this Staff Guidance that outlines how it will conduct economic analysis in its standard-setting. The guidance sets forth 4 elements of economic analysis: describing the need for a rule; developing a baseline for measuring the effects of a rule; considering reasonable alternatives to the rule; and analyzing the economic impacts of the rule (and alternatives to the rule), including the benefits and costs. The PCAOB follows the SEC and other federal agencies who have publicly issued this type of guidance in the wake of the proxy access court decision that led us down this path…

– Broc Romanek