Without much fanfare – or maybe I accidentally found them? – Glass Lewis has posted its “Guidelines for the 2015 Proxy Season,” which includes a summary of the changes to its policies for the upcoming proxy season on pages 1-3. I haven’t seen anyone else mention this development – including silence on the Glass Lewis Blog – but when I get some commentary, I’ll let you know…
Meanwhile, ISS released their ’15 policy updates this morn…
SEC Brings 10 Enforcement Actions for Failing to File “Stock Dilution” 8-Ks
Yesterday, the SEC announced enforcement actions against 10 companies for failing to file Form 8-Ks about financing deals and unregistered sales that diluted their stock. Companies are required to file a 8-K when stock is sold in transactions that are not registered and constitute at least 5% of their outstanding stock. Companies also must file a 8-K when they’ve entered into a financing agreement not made in the ordinary course of business. Each of the 10 companies failed to make the required 8-K disclosure – and 3 additionally failed to use accurate numbers when later reporting the dilution in 10-Qs/10-Ks. All of the companies settled the SEC’s charges, each paying $25-50k for a total of $350k in penalties among the group.
According to the SEC’s press release, the following regs were implicated:
– Item 1.01 of Form 8-K, a registrant must disclose within four business days its entry into a material definitive agreement.
– Item 3.02 of Form 8-K, a smaller reporting company must disclose within four business days the unregistered sales of equity securities unless they constitute less than 5% of the number of last reported shares outstanding of the class of equity securities sold.
– Form 10-Q or 10-K, issuers must disclose the number of outstanding shares of their common stock as of the latest practicable date, and the information must be true, correct, and complete.
Here’s an excerpt from this blog by Steve Quinlivan: “The majority of the charged issuers appeared to be sitting ducks, with the increases reportedly being between 95% and 35,000%, with others at 7%, 15%, 25% and 50%. Seven percent may be a “broken window” but it seems hard to take that position with some of the others. It is also interesting no one was charged for disclosure controls and procedure violations and no individuals were charged.”
Proxy Access: Many Shareholder Proposals Coming!
Did you see this NY Times article that notes that 75 companies will be receiving shareholder proposals seeking proxy access from a group of institutions led by the New York City pension funds? Wow! Here’s the NY Comptroller’s press release, a list of the companies receiving the proposals – and a sample proposal. The initiative is called the “Boardroom Accountability Project.”
Also, as noted in this blog by Davis Polk’s Ning Chiu, the CFA Institute recently came out with a study that is being cited in shareholder proposals that proxy access has the potential to raise U.S. market capitalization by between $3-$140 billion. As Ning notes, by examining 16 companies that have adopted proxy access globally, including 4 US companies, the study concludes that slightly more than half of the companies experienced positive one-day returns following proxy access, 63% had positive returns in the year following the adoption, and around 71% outperformed their industries. Some of the other studies analyzed demonstrated negative outcomes – and a few were not included due to what the study deemed to be faulty methodology.
By the way, there’s a free lunch event on Monday, November 17th co-sponsored by the CFA Institute at the Ronald Reagan Building in Washington DC to go over the study. Here’s the agenda – and here’s the registration page.
– Broc Romanek