Recently, Broadridge reported an increase in virtual meetings in 2016 – see this list of who’s holding them. Of 187 virtual meetings, 80% were “virtual-only” – compared to 67% in 2015. And of the 44 companies that held a hybrid meeting in 2015, 12 of them switched to virtual-only in 2016. Just one company switched from virtual-only to hybrid.
We’ve blogged before about opposition to virtual-only meetings – from New York’s Comptroller and from CII – but we’ve also heard from companies that have escaped criticism by proactively discussing the costs & benefits with shareholders.
Learn more about the “nuts & bolts” of virtual-only meetings from this webcast transcript and “Virtual Shareholder Meetings” Practice Area.
Proxy Access: CII Updates “Best Practices”
In response to widespread adoption of proxy access – and the possibility that some companies may be including provisions that impair proxy access utility – CII has updated its “best practices” for implementing these bylaws (originally issued in 2015).
The 8-page chart weighs in on newly-identified provisions, recognizes where CII’s preferences deviate from prevailing market practices, and explains why CII opposes the following provisions:
– Requirements for nominators to hold stock after the annual meeting
– Restrictions on re-nominations
– Limitations on nominees’ third-party compensation arrangements
– Automatic suspension of proxy access for all shareholders in the event of a proxy contest
– Unlimited indemnification requirements on nominating shareholders
Here’s CII’s member-approved policy:
Companies should provide access to management proxy materials for a long term investor or group of long-term investors owning in aggregate at least three percent of a company’s voting stock, to nominate less than a majority of the directors. Eligible investors must have owned the stock for at least two years. Company proxy materials and related mailings should provide equal space and equal treatment of nominations by qualifying investors.
To allow for informed voting decisions, it is essential that investors have full and accurate information about access mechanism users and their director nominees. Therefore, shareowners nominating director candidates under an access mechanism should adhere to the same SEC rules governing disclosure requirements and prohibitions on false and misleading statements that currently apply to proxy contests for board seats.
Transcript: “12 Strange Things in the Securities Laws”
We’ve posted the transcript for our popular webcast: “12 Strange Things in Securities Laws.” Here’s what we covered:
1. The Section 4(a)(3) Dealer’s Exemption
2. Sometimes Rules Don’t Mean What They Say
3. Transactional Registration & Control Securities
4. How Small Non-Executive Officer Shareholders Can Be Section 16 Reporting Persons
5. The Trust Indenture Act – What Is It?
6. The Need to Know Some GAAP
7. “Legal” Insider Trading
8. Tender Offers for Minority Stakes in Private Companies
9. Statutory Underwriters” and “Public Offerings”
10. A Lot of What Goes Into SEC Filings Isn’t Dictated by Rules or Staff Guidance
11. The Case of the Missing Fourth Quarter
12. Federal and State Filing Notice “Requirements”
If we didn’t get to your favorite “strange thing” – drop us a line!
– Liz Dunshee
Proxy access “fix-it” proposals – which ask companies with mainstream proxy access bylaws to make them more shareholder-friendly – were prevalent during this proxy season. We don’t expect the trend to go away anytime soon – we’ve already seen two versions of the proposals & a third is now on the map!
Companies have been seeking no-action relief to exclude the proposals as “substantially implemented” – but Corp Fin denied many requests. Now a new “fix-it” proposal has emerged, and was also required to be included in the company proxy statement. Here’s a teaser from Ning Chiu’s blog:
Like the later season proposals, this type also asks that a company amend the restrictions on the size of the nominating group, but this time from 20 shareholders to an unlimited number of shareholders, and without any other proposed revisions.
The SEC staff recently rejected a company’s request for no-action relief on the basis of substantial implementation, after extensive correspondence between the parties involving 5 letters from the issuer and what must be an unprecedented 21 letters from the proponent. The volume of correspondence likely led to the staff’s taking more than three months from receipt of the initial no-action letter to publish a decision.
In other proxy access news, a different company changed its aggregation limit to 50 to negotiate a withdrawal on a similar proposal.
So although the proposals that went to a vote have been averaging less than 30% support among shareholders, they aren’t without risk…
Check out our “Proxy Access” Practice Area for more resources on this topic.
Audit Reports: SEC Requests Comment on PCAOB Standard
The SEC recently issued a notice for comment on the PCAOB’s expanded audit report standard – see our earlier blogs announcing the PCAOB’s action – and predicting battles over “critical accounting matters.”
Comments are due this month. If approved by the SEC, parts of the new standard will be effective in 2018.
Name Change: “NYSE MKT” Is Now “NYSE American”
To the delight of “MKT” haters, the NYSE’s previously-announced rebranding to “NYSE American” is now effective, with most of the website now revamped.
The name change was accompanied by other updates designed to facilitate trading in small & mid-cap companies, including expanded trading hours and assignment of an “electronic designated market maker) – with quoting obligations – to each listed security. Hat tip to Goodwin Procter’s John Newell for alerting us to this development!
– Liz Dunshee
We’ve blogged many times about the debate over dual-class share structures. Investors have been voicing concern since Snap’s IPO in March.
Last week, FTSE Russell was the first index to announce that it will exclude Snap & other “dual-class” companies that afford minimal voting rights to shareholders – including existing constituents who don’t conform to the new requirements within 5 years. Yesterday, S&P Dow Jones followed suit with an even more sweeping announcement – however, existing constituents are grandfathered in and not affected.
Here’s the nitty-gritty on Russell’s new policy:
– To be listed on FTSE Russell indexes, more than 5% of a company’s voting rights must be held by unrestricted shareholders (as defined by FTSE Russell).
– For potential new constituents, including IPOs, the rule will apply starting with their September semi-annual and quarterly reviews.
– For existing companies, the rule will apply starting September 2022, thus affording a five-year grandfathering period. About 35 companies would need to increase public voting rights to avoid exclusion.
– The rate at which the hurdle is set, along with its definition, will be reviewed in the light of subsequent developments on an annual basis.
– Companies like Facebook & Alphabet – which have multi-class structures but afford more than 5% of voting rights to shareholders – can still be included.
And for S&P’s policy:
– Effective immediately, the S&P Composite 1500 and its component indices – S&P 500, S&P MidCap 400 and S&P SmallCap 600 – will no longer add companies with multiple share class structures.
– Existing index constituents are grandfathered in and are not affected by this change.
– The methodologies of other S&P and Dow Jones branded indices – including S&P Global BMI, S&P Total Market and indices for particular market segments – remain unchanged at this time.
Both indices conducted surveys on this topic a few months ago. Russell’s survey results showed that 68% of responding investors wanted the index to require some minimum threshold for the percentage of voting rights in public hands. Their final rule will be published at the end of this month – and may incorporate additional feedback that Russell receives following its announcement. As noted in this blog, MSCI has made a similar proposal.
If a company is excluded from the indexes, it’s harder – or impossible – for some fund managers to buy its stock. But it appears that many institutional investors favor exclusion – as it aligns with their policies to support “one share, one vote” proposals.
See this “Proxy Insight” article (pg. 6) for a summary of investor perspectives. Also check out the memos in our “Dual-Class Voting” Practice Area.
SEC Commissioners: Will Robert Jackson Be Nominated?
John blogged a few weeks back about Hester Peirce being (re-)nominated as a SEC Commissioner. Now it’s rumored that Columbia Professor Robert Jackson would be nominated to fill the open Democrat slot on the SEC’s Commission. I would stress that this is merely a rumor.
Here’s an excerpt from this WSJ article by Andrew Ackerman:
If Mr. Jackson is nominated, Senate lawmakers would likely seek to speed up his confirmation by pairing him with Hester Peirce, a Republican tapped earlier this month to fill another SEC vacancy. Both would join an SEC down to just three members: Democrat Kara Stein, Republican Michael Piwowar, and Jay Clayton, the chairman, who is an independent.
Mr. Jackson has written on securities topics such as executive compensation and corporate governance. In 2014, he helped uncover a flaw with the SEC’s corporate-filing system that allowed hedge funds and other rapid-fire investors to gain access to certain market-moving documents ahead of other users of the system. The SEC pledged to correct the flaw.
A 2015 research paper he co-wrote suggests corporate insiders might trade on material, nonpublic information before their companies are required to publicly report the information. He is also among a group of 10 academics to petition the SEC in 2011 to require public companies to disclose their political-spending activities.
Our August Eminders is Posted!
We’ve posted the August issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
– Liz Dunshee