Monthly Archives: November 2016

November 14, 2016

SEC Enforcement: MD&A Tagged for Faulty Segment Reporting

This blog from Steve Quinlivan notes a recent settled SEC enforcement proceeding against PowerSecure International involving allegedly inadequate segment reporting. Here’s an excerpt:

According to the SEC, PowerSecure’s Form 10-K for the year ended December 31, 2015, outlined errors in prior period disclosures and revised its segment reporting disclosure to reflect information for the years ended 2012 to 2014 on a basis consistent with its 2015 reportable segments. In its 2015 filing, PowerSecure also concluded that its disclosure controls and procedures for that three year period were not effective due to a material weakness in its internal control over financial reporting that it identified in 2015 related to its misapplication of GAAP related to segment reporting.

Segment reporting has long been an area of intensive focus by Corp Fin. Determining the appropriate reportable segments is often a complex process involving a lot of judgment – & this means that staff comments often create some anxiety for a company’s accounting personnel.

In my own experience, I’ve seen a number of clients receive multiple, highly detailed comments probing how they determined their reportable segments. Responding to these comments often results in several rounds of follow-up comments – & has occasionally culminated in a Staff request for a conference call involving several Staff accountants & senior company officials. Those calls are fun. . .

This is another area where a regular review of peer company comments & responses can be a very valuable exercise. Comment letters often provide an early warning of the Staff’s interest in segment reporting practices within a particular industry & allow companies to see how their peers have responded to challenges to their own decisions about reportable segments.

A Climate Change-Related Securities Suit

Here’s the intro from this blog by Kevin LaCroix:

For many years, I have been raising the possibility of climate change-related corporate and securities litigation. However, despite my best prognostication, the climate change-related corporate and securities lawsuits have basically failed to materialize – that is, until now. On November 7, 2016, investors filed a purported securities class action lawsuit in the Northern District of Texas against Exxon Mobil Corporation and certain of its directors and officers.

The lawsuit specifically references the company’s climate change-related disclosures, as well as the company’s valuation of its existing oil and gas reserves. One lawsuit doesn’t make a trend, and many of the lawsuit’s allegations relates specifically to Exxon Mobil and its particular disclosures. Nevertheless, the filing of the lawsuit raises the question whether there may be other climate change-related disclosure cases ahead.

Securities Class Actions: Are We Headed into a Perfect Storm?

Here’s an excerpt from this blog by Lane Powell’s Doug Greene:

Although I don’t know if we’re about to enter a period of quirky cases, like stock options backdating, I’m confident that we’re going to experience a storm of securities class actions caused by a convergence of factors: an increasing number of SEC whistleblower tips, a drumbeat for more aggressive securities regulation, a stock market poised for a drop, and an expanded group of plaintiffs’ firms that initiate securities class actions.

John Jenkins

November 11, 2016

Proxy Access: First Use of Access Bylaw to Nominate Director!

The first Schedule 14N! Back in July, Broc ran a poll asking when we’d see the first proxy access nominee – only 11% of responders thought it would happen this year. The other 89% were wrong – including the 24% who said ‘never’! Here’s the intro from this Gibson Dunn blog:

In what appears to be the first use of a company’s proxy access bylaw, GAMCO Asset Management filed today a Schedule 13D/A and a Schedule 14N announcing that it has used the proxy access bylaw at National Fuel Gas (NFG) to nominate a director candidate for election at NFG’s 2017 Annual Meeting.  According to the 13D/A, GAMCO and its affiliates beneficially own in the aggregate approximately 7.81% of NFG’s Common Stock and yesterday delivered a letter to NFG nominating Lance A. Bakrow to the Board of Directors.

NFG amended its bylaws in March 2016 to include a proxy access bylaw & its terms are pretty typical:

The Bylaws provide that a shareholder, or a group of up to 20 shareholders, owning 3% or more of the Company’s outstanding Common Stock continuously for at least three years may nominate and include in the company’s proxy materials directors constituting up to 20% of the board, provided that the shareholders(s) and the nominee(s) satisfy the bylaw requirements.   Here is NFG’s proxy access bylaw.

In this blog, Davis Polk’s Ning Chiu also lays out the circumstances…

Delaware Says “No” to Director’s Books & Records Request

Every now & again there’s a case that isn’t likely to have a big practical impact, but is worth noting just because it exists – and the Delaware Chancery Court’s recent decision in Bizarri v. Suburban Waste Services is that kind of case. Most corporate lawyers believe that directors have a virtually unlimited right to access books & records. As this blog from Francis Pileggi notes, it turns out that there are some limits after all:

This opinion provides a rare instance in which the court denies a director unfettered access to the books and records of a corporation on whose board he serves, but this case also involves somewhat extreme facts which are not often replicated.

The court found during trial that the director and stockholder, who was also a member and manager of an affiliated LLC, engaged in efforts to compete with and inflict reputational harm on the entities. The plaintiff’s actions in that regard were “driven by his intense hatred of the entities’ other two owners and principals.” Together with the familial relationship of the plaintiff with one of the entities’ main competitors, it makes the “prospect of the plaintiff misusing the books and records both real and troubling.”

There’s a strong presumption in Delaware that a director is entitled to “unfettered access” to books & records – and it’s up to the company to demonstrate an improper purpose. This is one of the rare cases where the company was able to meet that burden.

CEO Succession: Boards Pass Over Corporate “Fredos”

This Stanford study concludes that boards are pretty good about identifying which potential CEO candidates should be “passed over” – like Fredo in The Godfather:

Our data modestly suggests that corporate boards do a reasonable job of identifying CEO talent. Fewer than 30% of the executives passed over among large corporations are recruited by other firms as CEO. Most (over 70%) are not.

If an executive who is passed over has valuable skills that make him or her a viable CEO candidate, it is likely that another corporation would identify and hire that individual. Furthermore, candidates who are recruited to new firms after being passed over appear to perform worse (relative to benchmarks) than those who were selected at the original company.

I guess Fredo also is a good example of the potential dangers of a disgruntled senior executive.

John Jenkins

November 10, 2016

Proxy Access: No-Action Letter Allows Exclusion of “Fix-It” Proposal

Here’s the intro to this blog by Cooley’s Cydney Posner regarding this no-action letter to Oshkosh (we’ll be posting memos in our “Shareholder Proposals” Practice Area):

In September, I blogged about several pending no-action requests seeking exclusion of proposals from the McRitchie/Chevedden group to revise existing proxy access bylaws on the basis that they had been “substantially implemented” under Rule 14a-8(i)(10). As I described it back then, the burning question was whether there would be any “evolution” in Corp Fin’s position in H&R Block, in which the staff refused to grant no-action relief to a proposal to amend the company’s existing proxy access bylaw — a so-called “fix-it” proposal. In particular, there were two pending no-action requests that applied different approaches in efforts to overcome the result in H&R Block (and two more similar requests have subsequently been submitted). Corp Fin has now acted on all four of these letters. One of them received a favorable response.

As you may recall, the fix-it proposal at issue in H&R Block (which also came from the prolific James McRitchie) requested that the board amend its existing proxy access bylaw provisions as specified in the proposal. The company sought to exclude the proposal on the basis that it had already been “substantially implemented” under Rule 14a-8(i)(10), contending that the staff had previously allowed exclusion of dozens of proposals as substantially implemented based on the companies’ representations that the proxy access bylaws that had been adopted addressed the proposals’ “essential objective.” (See this PubCo post.) No-action relief was granted in those cases so long as the companies’ bylaw provisions contained the same percentage and duration of ownership thresholds (3%/3 years) as in the proposal, even though the bylaws also included “certain procedural limitations or restrictions that were inconsistent with or not contemplated by the proposals.”

In the case of the fix-it proposal at issue in H&R Block, however, the Corp Fin staff refused to allow the company to exclude the proposal, responding that it was unable to conclude that the company had “met its burden of establishing that it may exclude the proposal under Rule 14a-8(i)(10).” (See this PubCo post.) As a result, companies that adopted versions of proxy access that McRitchie et al viewed as “proxy access lite” have begun to see new proposals for amendments to those proxy access bylaws. According to Agenda, fix-it proposals have now been submitted to over three dozen companies.

Keep in mind that, where the proposal related to initial adoption of proxy access, Corp Fin has continued to grant no-action relief and permit exclusion under Rule 14a-8(i)(10), even where the proponent has identified specific elements of the proposal that he views to be essential.

Filing Fee Calculations & Form S-8: Two New CDIs (& Two Revised Ones)

Yesterday, as noted in this Cooley blog, Corp Fin issued two new CDIs on Form S-8 & Rule 457 (regarding filing fee calculations) and two revised ones:

Revised CDI 126.06 of Form S-8 (also Securities Act CDI 240.16)

Revised CDI 126.42 of Form S-8 (also Securities Act CDI 240.11; 126.42 is missing from Corp Fin’s New” page)

New CDI 126.43 of Form S-8 (also Securities Act CDI 240.15)

New CDI 126.44 of Form S-8

We’ll be updating our “Form S-8 Handbook” and “SEC Filing Fees Handbook“…

Pay-for-Performance: ISS Supplements TSR With 6 New Metrics

A few days ago, ISS announced changes to its pay-for-performance methodology for companies in the US, Canada, and Europe that will become effective on February 1st. Following feedback from constituents, ISS will present relative evaluations of return on equity, return on assets, return on invested capital, revenue growth, EBITDA growth, and cash flow (from operations) growth to supplement ISS’ legacy (and continued) use of TSR as the key metric for P4P.

Pay-for-performance updates for US companies include:

– A new standardized comparison of the subject company’s CEO pay and financial performance ranking relative to its ISS-defined peer group will be added to ISS’ benchmark policy proxy research reports beginning Feb. 1, 2017. Financial performance will be measured by a weighted average of multiple financial metrics including return on equity, return on assets, return on invested capital, revenue growth, EBITDA growth, and cash flow (from operations) growth. The metrics and weightings will be based on the company’s four-digit GICS industry group, and are based on extensive back-testing over multiple years. The financial performance and pay ranking information will be displayed for all companies subject to ISS’ quantitative pay-for-performance screens. While this information will not impact the quantitative screening results during the 2017 proxy season, it may be referenced in the qualitative review and its consideration may mitigate or heighten identified pay-for-performance concerns.

– Relative Degree of Alignment (RDA) assessment will only be considered in the overall quantitative concern level when the subject company has a minimum of two years of pay and TSR data. Companies that only have one year of data will receive an N/A (not applicable) concern for their RDA test.

ISS’ peer submission window will be open starting on November 28th – and will close on December 9th…

Broc Romanek

November 9, 2016

Wow. Did Dodd-Frank Just Get Repealed?!?

To say that we are in a state of uncertainty is one of the few certainties I know. But I would say that the odds of at least a partial repeal of Dodd-Frank certainly improved, whether it be in the form of the “Financial Choice Act” (see this Cooley blog for a summary of the provisions) – or perhaps even a stronger rebuke to Dodd-Frank. Here are other open questions:

– How fast would a repeal come? Companies are preparing to comply with the adopted pay ratio rules now – even though disclosure wouldn’t be seen until 2018.

– What will be the fate of the SEC’s disclosure effectiveness project? It’s seemingly non-partisan. But the SEC may be busy with rulemakings mandated by this shift in power to deal with projects they started themselves for quite some time…

– Does the sole sitting GOP SEC Commissioner – Mike Piwowar – become the SEC Chair? There is precedent for a non-lawyer in that role (ie. Arthur Levitt; Piwowar is an economist). Piwowar almost certainly will become interim Chair once Chair White vacates her seat. It might take a while for a Trump Presidency to tap new agency heads, as that is the norm. As noted in this WSJ article, former Commissioner Paul Atkins is heading up the President-elect’s transition team that oversees the SEC, CFTC & other financial regulators that historically operate independently of the White House…

– I used to think a “risk factor” for political instability & unrest was reserved only for non-US jurisdictions. Will we see some in the US now?

Poll: A Dodd-Frank Repeal?

Please participate in this anonymous poll:


Broc Romanek

November 8, 2016

Shareholder Proposals: Apple Must Include “Hire Multiple Comp Consultants” Proposal

Recently, Corp Fin posted this no-action response to Apple about “engage multiple outside independent experts or resources from the general public to reform its executive compensation principles and practices.” The retail investor proponent – Jing Zhao – appears to have represented himself in rebutting the company’s (i)(3), (i)(6) and (i)(7) arguments. Corp Fin’s response to the ordinary business argument is that “the proposal focuses on senior executive compensation.”

The proponent’s supporting statement cites Professor Thomas Piketty of France, the darling of the income inequality movement. There likely will be more income inequality-oriented proposals in the coming years…

In this no-action letter, Apple also lost its battle to exclude a proxy access shareholder proposal from Jim McRitchie…

Crowdfunding: So Where’s the Crowd?

This blog from Montgomery McCracken’s Ernie Holtzheimer reviews the first five months of crowdfunding under Regulation CF. So far, the results have been underwhelming:

In its first thirty days, Reg CF got off to a promising start with forty companies raising a total of about $2 million. Although the total amount of money raised was not large by Uber’s standards, the number of offerings was more than double the amount of Reg A offerings made between 2009 and 2012. Since the first month, however, only ten more companies have filed a Reg CF offering, leading to the question – where is the crowd?

Reg CF’s critics point to its $1 million funding cap as a reason for this lackluster performance. And some companies seem to be opting to use new Reg A+ – with its much higher funding limits – instead of Reg CF.

Poll: How Many Comp Consultants Should Apple Hire?

Keying off the shareholder proposal mentioned above, please participate in this anonymous poll:


Broc Romanek

November 7, 2016

FCPA: The DOJ’s “Declinations with Disgorgement”

This DLA Piper memo discusses the early returns from the DOJ’s pilot program to encourage FCPA self-reporting and cooperation, and identifies a new enforcement approach – “declinations with disgorgement.”  Consistent with the previously disclosed terms of the program, companies avoiding prosecution have agreed to disgorge all profit realized from their violations.  Two recent cases in which the DOJ has elected not to pursue FCPA prosecutions also had several other features in common:

In each instance the DOJ cited the fact that the company self-disclosed. But of seeming equal importance were the robustness of the companies’ internal investigations and the sweeping remediation undertaken. Rounding out the reasons for DOJ’s decision to bring no charges were the agreement to disgorge all profits, which each company agreed not to use for any tax deduction or to accept reimbursement from insurance or any other source, and the obligation to continue to fully cooperate.

The obligation to continue full cooperation includes providing “all known relevant facts about the individuals involved in or responsible for the misconduct,” who are expressly carved out of the declination and could still face prosecution.

SEC: Fix Compliance Program Fast to Avoid FCPA Monitor

This BakerHostetler memo shares some important advice from Kara Brockmeyer, Chief of the SEC’s FCPA Unit:

For a company that violated the FCPA, but wishes to avoid a monitor, the company should be making immediate improvements to its compliance program to prevent future violations so that at the end of the investigation it will be able to demonstrate a track record of having an effective program that is working to prevent violations.

Even a state of the art compliance program will not be effective in convincing the SEC not to impose a monitor if the program has been in place only two months. As Brockmeyer noted, “the late to the party company [in implementing effective compliance measures] is much more likely to get a monitor imposed.”

November-December Issue: Deal Lawyers Print Newsletter

This November-December issue of the Deal Lawyers print newsletter was just posted – & also sent to the printers – and includes articles on:

– Disclaimers & Limits on Claims Outside of the Contract
– Due Diligence: Patient Protection & Affordable Care Act Considerations
– FCC Licenses: The Forgotten Stepchildren of M&A
– Reverse Break-Up Fees: Move Along, Nothing to See Here
– The Takeaways: Two Chancery Decisions on Informed, Uncoerced Stockholder Approval

Remember that – as a “thank you” to those that subscribe to both & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online. There is a big blue tab called “Back Issues” near the top of – 2nd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.

And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online.

John Jenkins

November 4, 2016

Glossy Annual Reports: No Longer Need to Furnish 7 Copies to Corp Fin (If You Post Them)

On the heels of Corp Fin’s announcement back in January that it would no longer scan & post glossy annual reports on Edgar, Corp Fin issued this CDI on Wednesday (note that the CDI is unnumbered):

Question: Exchange Act Rule 14a-3(c) and Rule 14c-3(b) require registrants to mail seven copies of the annual report sent to security holders to the Commission “solely for its information.” A similar provision in Form 10-K requires certain Section 15(d) registrants to furnish to the Commission “for its information” four copies of any annual report to security holders. Can a registrant satisfy these requirements by means other than physical delivery or electronic delivery pursuant to Rule 101(b)(1) of Regulation S-T?

Answer: Yes. The Division will not object if a company posts an electronic version of its annual report to its corporate web site by the dates specified in Rule 14a-3(c), Rule 14c-3(b) and Form 10-K respectively, in lieu of mailing paper copies or submitting it on EDGAR. If the report remains accessible for at least one year after posting, the staff will consider it available for its information.

This is good news as there has been a ton of confusion, as evident from a few threads in our “Q&A Forum” over the years (see #8728 and #7894). Companies have had the option to Edgarize their annual report & have that count as furnishing the 7 copies for a while – but that’s a real hassle & can be costly with graphics, etc. So this is an early holiday present from the Staff. I’ll be posting an updated “Annual Report & 10-K Wrap Handbook” next week – including addressing the issue that I just blogged on the “Proxy Season Blog” about “The NYSE Doesn’t Think ‘Proxy Materials’ Includes the Glossy Annual Report?“…

You might wonder what the Corp Fin Staff does with all those glossy annual reports over the years. They’re stuffed into metallic cabinets & rarely touched – at least back in my day (when the ’34 Act reviews were fairly rare). There was a stir back then after Mustang Ranch tried to go public in ’89 – and I can’t remember what the filing was, perhaps the red herring – but it was in a cabinet for some reason & created a stir…

Form S-3’s “Baby Shelfs”: A New CDI

As noted in this Cooley blog, Corp Fin also issued this new CDI 116.25 about Form S-3’s General Instructions I.B.1 to I.B.6 a few days ago:

Question: An issuer with less than $75 million in public float is eligible to use Form S-3 for a primary offering in reliance on Instruction I.B.6, which permits it to sell no more than one-third of its public float within a 12-month period. May it sell securities to the same investor(s), with a portion coming from a takedown from its shelf registration statement for which it is relying on Instruction I.B.6 and a portion coming from a separate private placement that it concurrently registers for resale on a separate Form S-3 in reliance on Instruction I.B.3, if the aggregate number of shares sold exceeds the Instruction I.B.6 limitation that would be available to the issuer at that time?

Answer: No. Because we believe that this offering structure evades the offering size limitations of Instruction I.B.6, the securities registered for resale on Form S-3 should be counted against the issuer’s available capacity under Instruction I.B.6. Accordingly, an issuer may not rely on Instruction I.B.3 to register the resale of the balance of the securities on Form S-3 unless it has sufficient capacity under Instruction I.B.6 to issue that amount of securities at the time of filing the resale registration statement. If it does not, it would need to either register the resale on Form S-1 or wait until it has sufficient capacity under that instruction to register the resale on Form S-3.

17 Years of Cubs Programs

Growing up near Wrigley Field, I’m gloating with this 10-second video displaying my 17 years of Cubs programs (went to Lane Tech High after Walt Disney Magnet for grade school):

Here’s the inside cover of the 1958 program. Back when you could order a cheese sandwich for only a quarter & a beer was just 10¢ more…


Broc Romanek

November 3, 2016

Insider Trading: CEO Has Right to Remain Silent & Make One Earnings Call

In this edition of “Strange But True Corporate Stories,” we present Hexagon – a Swedish company that held its quarterly earnings call last week. The company had good news to report – sales & earnings were both up.  Was there any bad news?  No, nothing really. . . well . . .maybe there’s this one tiny issue that wasn’t worth mentioning during the call:

Swedish measurement technology firm Hexagon has defended the time it took to announce the arrest of its chief executive for alleged insider trading after it came to light he was under arrest during last week’s earnings call with analysts.

After being detained in Sweden on Oct. 26, Ola Rollen was allowed by the Swedish Economic Crime Authority to present Hexagon’s third-quarter results in a conference call on Oct. 28, the agency told Reuters on Tuesday, adding two of its police officers were with Rollen during the call. Analysts on the call were not told Rollen had been arrested or that police were in the room.

The company finally announced – three days after the conference call – that authorities had accused its CEO of insider trading in connection with an investment in a Norwegian company.

My favorite part of this story is the idea of two police officers sitting with the CEO while he was on the conference call. I’m sorry, but I can’t get the picture of Joe Friday & Bill Gannon out of my head.

Board Survey: Positive Trends on Cybersecurity

According to this BDO survey, boards are becoming more engaged on cybersecurity issues, investments to defend against cyber-attacks are increasing, and more companies are putting cyber-breach response plans in place.

Approximately three-quarters (74%) of public company directors report that their board is more involved with cybersecurity than it was 12 months ago and 80% say they have increased company investments during the past year to defend against cyber-attacks, with an average budget expansion of 22 percent. This is the third consecutive year that board members have reported increases in time and dollars spent on cybersecurity. The survey also identified improvements in the number of boards with cyber-breach response plans in place (from 45% to 63%).

That’s the good news. The bad news is that only 27% of companies surveyed are sharing information about cyber-attacks with entities outside of their business – a practice that needs to become more prevalent for the safety of critical infrastructure and national security, particularly at larger organizations.

“You’re Fired!”: Board Governance & CEO Turnover

This Stanford study starts with the proposition that one measure of good governance is a board’s willingness to terminate an underperforming CEO, & then looks into what governance characteristics result in stricter board oversight of the CEO. The study concludes that companies are likely to terminate an underperforming CEO, and identifies the following governance factors associated with stricter CEO monitoring:

– Independent/outside directors

– Experienced/engaged directors

– Significant institutional ownership

– Companies with access to replacement candidates

The study also suggests that “busy boards” – those where a majority of the directors serve on three or more boards – provide worse CEO oversight & are less likely to fire an underperforming CEO.

John Jenkins

November 2, 2016

8 Things I Learned at My “Proxy Disclosure Conference”

Here’s 8 things I learned at my “Proxy Disclosure Conference” last week in Houston (video archives now available):

1. My experiment with post-panel commentaries was well-received. These were 10-minute sessions with two different experts than the ones that were on the original panel – and the duo of post-panel commentators highlighted what was most important. And filled in some holes.

2. For the longer panels, I gave silly musical intros for each panelist. For Brian Breheny, I said that he could “dispense life wisdom in 5 words or less.” Then I asked him to dispense some. His wisdom was spot on: “Oh, I wasn’t ready for that.” Perfect! Isn’t that truly what life is all about!!!

3. During the “SEC All-Stars” panel, I loved listening to the five former senior Corp Fin Staffers analyze what the next composition of SEC Commissioners might look like. It could be a real shake-up and not resemble any past Commission ever – which could truly impact how the SEC does business!

4. I broke up the long morning with a relaxing 5-minute guided meditation for everyone. It should be a “must” for all conferences. It raises the positive energy in the room, brings stress levels down & improves focus.

5. Most of my panelists have worked over 10 years together at this conference. Their chemistry can’t be beat – enabling them to deliver practical guidance within the shorter & shorter timeframes that I provide them. Tough to fit in 17 panels in a 9-hour day (with 75 minutes devoted to lunch). But many of my afternoon panels are quite short – forcing the speakers get right to the point.

6. Similarly, these panelists have mastered the art of providing their written talking points in straight-forward bullet points – resulting in 180 pages worth of valuable course materials. I believe that bullet points are easier to learn compared to long, drawn-out narrative. It’s also easier to take notes on.

7. Each year, Dave & Marty make their annual 10-minute gag session funnier than the last. Last year, it was the “CEO pay ratio” puppet show. This year, we got more cowbell!

8. Nearly all of the in-person attendees are in-house folks – while nearly all of the folks who watch by video are from law firms. Conference trivia!

See ya next year in Washington DC, where the conference will be held in mid-October! It’s gonna be a big one with pay ratio coming online…

Revenue Recognition: Start Planning Now

This blog – and these memos posted in our “Revenue Recognition” Practice Area – make it clear that your accounting teams should be already planning for compliance with the new standard that must be implemented 15 months from now…

Transcript: “Virtual-Only Annual Meetings – Nuts & Bolts”

We have posted the transcript for our recent webcast: “Virtual-Only Annual Meetings: Nuts & Bolts.” The agenda included:

– Overview of Virtual-Only Meetings (& How Many Companies Do Them)
– Options When Holding a Virtual-Only Meeting
– Voting Safeguards for Virtual-Only Meetings
– Concerns Over Holding Virtual-Only Meetings
– Contingency Planning for Snafus
– Location of Inspector of Elections During Virtual-Only Meetings
– Who Should Sign Off on Changing Format to Virtual-Only
– Timeline & Preparations for Virtual Meetings
– Preparing for the Q&A
– Board & Auditor Roles During Meeting
– Shareholder Proposals Against Virtual Meetings
– Lessons Learned

Broc Romanek

November 1, 2016

Governance Ratings: ISS Tweaks “QualityScore” & Verification Has Begun

Yesterday, ISS announced the latest release of its governance ratings product – which also was renamed to “QualityScore” from “QuickScore.” Here’s the 139-page technical document. In addition to board diversity and board refreshment areas being added, one area that appears to have been updated involves proxy access – with subscribers now being able to view the details of a company’s proxy access bylaw provision.

Last year, ISS included a question on proxy access, but that was “zero weighted” & was included for informational purposes only. This year, it counts. The QualityScore will give credit to a company for having proxy access – but the existence of any “problematic provisions”- e.g. counting mutual funds under common management as separate shareholders under the aggregation limit, requiring a pledge to hold shares past the annual meeting date, providing the board with broad & binding authority to interpret the proxy access provision or combinations of other problematic provisions – could be deemed sufficient to “nullify the proxy access right”  & result in no credit being given. See this Gibson Dunn blog for a larger summary of the changes.

As noted in this blog from Davis Polk’s Ning Chiu, the data verification period began yesterday – and runs through November 11th. QualityScores will be published on November 21st.

By the way, with this rebranding to “ISS QualityScore,” it now has made more name changes than Jefferson Airplane. My favorite was GRid 2.0…although CGQ was nice…

“Hulk-O-Mania” Redux: New Questions on 3rd Party Litigation Funding

If you follow high-brow websites like TMZ and “The Hollywood Reporter” as religiously as I do, you’re no doubt up-to-speed on the controversy surrounding billionaire Peter Thiel’s funding of Hulk Hogan’s recent invasion of privacy suit against Gawker Media. The Hulkster rang the bell to the tune of $140 million in that lawsuit, but Thiel’s role in the case has focused new attention on third-party litigation funding – and that attention hasn’t been limited to the media.

As this D&O Diary blog points out, a pair of recent court decisions in Pennsylvania & Delaware have raised new questions about the legal issues that have long surrounded litigation funding arrangements:

One of the most interesting and important recent litigation-related developments has been the rise of third-party litigation funding. An important part of this development has been the more or less general view that there is nothing improper about these kinds of arrangements and, in particular, that litigation funding does not represent improper champerty or maintenance, as long as the actual plaintiff continues to control the case.

However, a recent decision from a Pennsylvania appellate court suggests that the somewhat unusual litigation funding arrangement involved in an attorney fee dispute was “champertous” and therefore invalid. This decision and another recent decision from Delaware nullified the specific funding arrangements presented to the courts in those cases; the question is what these decisions may say about litigation funding in general.

Some of the broad-brush language employed by the courts in these two cases might cause concern to litigation funders. However, each of these cases involved highly unusual circumstances – the funding arrangements the courts were asked to review were very different from the straightforward funding structures that litigation funding firms typically employ.

Our November Eminders is Posted!

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

John Jenkins