January 18, 2019

“Arbitration” Shareholder Proposals: Man Bites Dog

This recent Bloomberg Law blog describes a shareholder proposal – and a company’s response – that you definitely don’t see every day. Here’s the intro:

The recent no-action request from Johnson & Johnson to exclude a shareholder proposal from its proxy materials creates a rather unique dynamic. It is indeed an unusual day when a shareholder submits a proposal that could curtail investor rights, and the company responds with a full-throated defense of the shareholders’ right to file suit against it.

That peculiar set of circumstances resulted from an investor request to have the Johnson & Johnson board adopt a bylaw requiring the arbitration of all claims brought by investors arising under the federal securities laws, and providing that any such claims may not be brought as a class and may not be consolidated or otherwise joined.

Geez, and I thought it was odd when Steelers fans were rooting for the Browns to beat Baltimore a few weeks back. . . Anyway, the shareholder proponent is Hal Scott, an emeritus Harvard Law School prof who’s a long-time opponent of shareholder class action litigation.

This situation has produced some very strange bedfellows – check out the signatories to this recent letter to SEC Chair Jay Clayton urging it to grant the no-action relief that J&J’s requested and to reaffirm the SEC’s position that arbitration clauses violate the securities laws.

ESG: Why Boards Should Care About the SASB’s Sustainability Standards

I recently blogged about the SASB’s adoption of he first-ever industry-specific sustainability accounting standards designed to facilitate communication of financially-material sustainability information to investors. This BDO memo reviews the new standards and provides an overview of both SEC-mandated sustainability disclosures & the information increasingly demanded by investors.

The memo acknowledges that sustainability has been a back-burner issue for many corporate boards, but says there are reasons that companies should embrace the new standards and the enhanced sustainability disclosure they contemplate. Potential benefits of this approach include:

Realization:Tangible returns being realized in adoption of sustainable practices
Competitive differentiator: Use of voluntary disclosure as opportunity to tell unique stories to the marketplace which can serve as competitive differentiators
Capitalizing on investment trends: Cultivation and incorporation of evolving investing practices in companies that can demonstrate long term value creation initiatives
Demonstration of connected corporate strategy: Strengthening corporate strategy with forward-thinking, sustainable practices
Engagement of shareholders: Getting out in front of the threat of increasing shareholder proposals focused on ESG
Protect reputation and improve public relations: Communicating fulfillment of a deemed duty by the market as a “good corporate citizen”
Attraction and retention of talent: A potential further differentiator in war for attracting and retaining good talent

If these reasons aren’t enough, this Davis Polk blog offers another one – rating agencies are increasing their focus on ESG risks.

SEC Shutdown: ALJs Ordered to Stand Down

Yesterday, the SEC issued this updated statement on its operations during the shutdown. Among other things, that update says that the agency is still at work on “emergency enforcement matters,” including “investigations of ongoing fraud or conduct that poses a threat of imminent harm to investors, such as ongoing fraud or misconduct.”

But it’s far from business as usual on the enforcement front. In fact, pending SEC administrative proceedings are among the government shutdown’s latest casualties.  On Tuesday, the SEC issued this order staying all pending administrative proceedings.  This excerpt gives you the gist of it:

The Commission stays all pending administrative proceedings initiated by an order instituting proceedings that set the matter down for a hearing before either an administrative law judge or the Commission. The stay is effective immediately and shall remain operative pending further order of the Commission.

The order permits parties to ask that the stay be lifted, but only in very limited situations, such as in the case of “emergencies involving the safety of human life or the protection of property.”

John Jenkins