Monthly Archives: December 2015

December 2, 2015

Let’s Do This! 34 Pet Peeves About the Proxy Statement Process

Last month, I posted a popular list of “31 Top Pet Peeves for Earnings Releases” as voiced by my advisory board. Because this list was so well received, I collected some pet peeves from the advisory board relating to the proxy statement. Some of the pet peeves related the sometimes painful process of collecting information that feeds into the proxy statement. Others related to the drafting process and the proxy statement content itself. Here are the 34 proxy-related pet peeves that can drive you crazy during proxy season:

A. D&O Questionnaires – Directors & Officers Who:
1. Ask for “pre-completed” D&O questionnaires.
2. Have their admins fill out the questionnaire and then make you get answers to questions using only the admin.
3. Act like they’ve never seen a D&O questionnaire before – even though they’ve completed them many times before.
4. Return questionnaires without reading them carefully or at all (e.g. signed but completely blank, incorrect responses, or missing material information).
5. Need multiple reminders to respond to questionnaires.
6. Provide bios regarding their prior employment (e.g. title or years of service) that clearly conflict with press releases and other publicly available information.
7. Approve their bios every year – then suddenly make changes to the description of their prior employment or other service, which should have been made years earlier.
8. Sign off on bios and then complain after the proxy statement is printed that something is amiss.

B. D&O Questionnaires – Corporate Secretaries Who:
9. Needlessly long questionnaires asking directors and officers to confirm information that company already knows – e.g. current position of officer, base salary, bonus, equity grants, vested equity awards current position, etc.
10. Using the same questionnaires for independent directors and officers. Officers should not have to see questions related to director independence in their questionnaire.
11. Finding out about share transactions, which should have been reported months earlier. To make things worse, realizing that – as a result of these unreported share transactions – the director or officer is no longer in compliance with the company’s stock retention policy, which is touted in the proxy statement.

C. Drafting Process
12. When the Head of HR (or someone else in HR) runs the proxy process.
13. Explaining to the payroll department year-after-year that SCT salary is neither W-2 salary nor current salary rate (at least in cases where there has been a change that takes effect on any date other than first of the year).
14. When the content of the draft compensation tables does not align with what’s actually called for by employment agreements, equity grants, etc. It’s particularly awful when the draft tables are received very late in the process and the inconsistencies require everyone to track back through all of the existing disclosure, underlying documents and calculations to try to decipher and either change or appropriately footnote the controller or HR team’s basis for the numbers.
15. Dealing with admins who incorrectly or sloppily track perquisites (e.g., personal transportation) for officers.
16. NEOs who act like they’ve never heard of the proxy disclosure rules regarding perquisites, even though they are warned of them each year.
17. Getting grilled on perquisite disclosure rules because no one wants to tell the NEO that the perquisite is disclosable in the proxy statement.
18. When the back-up provided for a compensation table consists of a huge excel spreadsheet with endless tabs, requiring multiple phone calls regarding which tabs and columns are relevant.
19. Failing to document executive compensation throughout the year.
20. Anyone who misses a drafting deadline.
21. Certain departments (including lawyers) refusing to give you any responses to info requests or comments until after the 10-K has been filed, adding more time pressure to the proxy process.
22. Drafting the CD&A first and then trying to conform it to what actually happened (versus understanding the compensation committee process & decisions and then drafting).
23. Receiving extensive word-smithing comments to the draft CD&A from multiple departments and having to resolve them sentence-by-sentence due to egos involved.
24. Outside counsel who counsel you as if you just graduated from law school.
25. Outside counsel who don’t read what you wrote the year before.

D. Shareholder Proposals
26. Receiving a nutty social issue shareholder proposal. Worse, receiving multiple nutty social issue shareholder proposals.
27. Receiving a shareholder proposal as part of a mass submission from proponents who do not understand your company and don’t care that the proposal does not make sense for your company.

E. Proxy Statement Content
28. Directors who want the proxy written like “Warren Buffet’s letter to his stockholders.”
29. Wasting valuable real estate in the first pages of the proxy statement on proxy mechanics before presenting the ballot items. Every company describes the same mechanics, which are well known.
30. Using the same confusing and inconsistent boilerplate language every year to describe voting standards, abstentions, broker non-votes, street name vs. record holders, etc.
31. It would be helpful if companies could just provide a link to the SEC website in the proxy statement providing information on proxy mechanics. It could be part of a “green” initiative to reduce printing of unnecessary pages.
32. Being too focused on ISS, presentation, etc. and not focused enough on the actual SEC requirements and positions.
33. Filing the proxy card as an additional filing rather than as part of the proxy statement filing. Although this is common practice, there is no requirement to do so.

F. Post-Voting
34. Not providing percentages in the Form 8-K voting results. It is not required but would be very helpful.

Send me your peeves! And thanks to these members of my advisory board for their input: Cable General’s Luke Frutin; Hunton & Williams’ Scott Kimpel; Krasnow Saunders’ Steven Shapiro; Baker Hostetler’s John Harrington; and our own Julie Kim!

How the SEC Really Works: Commissioner Edition

I rarely accept speaking invites these days as I’m feeling a little old – but when I do, I typically do a spiel about “How the SEC Really Works.” That’s why I was excited to read Commissioner Aguilar’s parting statement entitled “(Hopefully) Helpful Tips for New SEC Commissioners.” It pairs nicely with my 2-minute video: “5 Steps to Becoming a SEC Commissioner“…

Transcript: “How to Draft Meaningful Sustainability Reports”

We’ve posted the transcript for our recent webcast: “How to Draft Meaningful Sustainability Reports.”

Broc Romanek

December 1, 2015

Corp Fin: Ted Yu to Return as OMA Chief

I’ve updated our “Corp Fin Org Chart” to reflect the coming return of Ted Yu, who will replace Michele Anderson as Chief of Corp Fin’s Office of Mergers & Acquisitions in early January. Michele recently was promoted to Associate Director and oversees that office among others. And Ted had left Corp Fin about 11 months ago to join Skadden…

How Many Regulation A+ Offerings Has the SEC Qualified?

In addition to this blog about the largest A+ crowdfunding offering qualified by the SEC (Elio Motors through StartEngine), here’s a blog by Steve Quinlivan:

Registered statements are “declared effective” by the SEC; Regulation A+ offering documents are “qualified” by the SEC, and when it happens an EDGAR document called “QUALIF” is generated. Per my review, the following Regulation A+ transactions that were filed after the effective date of the Regulation A+ rules have been qualified by the SEC.

– Med-X, Inc.: A Tier 2 offering for $15 million.

– ralliBox, Inc.: A Tier 2 offering for $3 million.

– Groundfloor Finance Inc.: This issuer has had two Tier 1 offerings qualified, the most recent for $1.5 million.

– Costal Financial Corp.: A merger proposal categorized as Tier 1 valued at $13 million.

– Strategic Global Investments Inc.: A Tier 1 offering for $2.8 million.

Progress for Venture Exchanges

Here’s an excerpt from this MoFo blog:

We have seen various initiatives intended to promote capital formation for smaller reporting companies and emerging growth companies. Among these initiatives, the development of venture exchanges in the United States appears to be gaining momentum. The exchanges would, in comparison to their larger national exchange counterparts (Nasdaq Stock Exchange, New York Stock Exchange, etc.), allow smaller or earlier-stage companies to list their shares and provide for some liquidity.

Support for the formation of venture exchanges has come from representatives from NYSE MKT and Nasdaq OMX, who in May testified before Congress as to the need and proposed structure of a venture exchange. Additionally, a push for legislation promoting capital formation, supported by testimony from a group of industry professionals, has led to the introduction of the Main Street Growth Act, which sets rules and listing standards for a new venture exchange. In February, SEC Chair Mary Jo White expressed at the SEC Speaks conference that the SEC has been encouraging rule changing that would promote the establishment of venture exchanges, as the SEC has approved of these in the past.

Also see this MoFo blog with notes from the recent ABA Fall Conference during which Corp Fin Staffers discussed capital formation developments – and this MoFo blog about an unlawful crowdfunding case that the SEC brought against an unregistered broker (also see this blog)…

Our December Eminders is Posted!

We have posted the December issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

Broc Romanek