October 17, 2019

Shareholder Proposals: Corp Fin Issues 12th Staff Legal Bulletin

Yesterday, Corp Fin issued Staff Legal Bulletin No. 14K – which makes an even dozen SLBs devoted to shareholder proposals. It follows up on some of the topics addressed over the past two years in Staff Legal Bulletin 14I & Staff Legal Bulletin 14J.  Among other things, the new SLB provides guidance on:

– Rule 14a-8(i)(7)’s “ordinary business” exclusion, the role that the board’s analyses of why the policy issues involved in a proposal are not significant plays in the Staff’s consideration of a no-action request, and the board analyses that the Staff has found – and not found – to be persuasive.

– The factors considered in determining whether a proposal may be excluded under Rule 14a-8(i)(7) on the basis that it would involve “micromanagement” of the company, including circumstances that may result in even precatory proposals being deemed to raise micromanagement issues.

In addition, the SLB sets forth the Staff’s view that companies should refrain from an “overly technical” reading of proof of ownership letters in a effort to avoid including a proposal. In particular, the SLB points out that the Staff has not required proponents to adhere strictly to the suggested format for those letters contained in Staff Legal Bulletin 14F in order to avoid having their proposals excluded under Rule 14a-8(b).

Hey, remember those whistleblower proposals I blogged about yesterday?  The SEC also announced that it has scheduled an open meeting on October 23rd to consider adopting the proposed amendments.  Based on the SEC’s recent track record when it comes to cancelling open meetings, I sure wouldn’t recommend buying non-refundable tickets if you’re planning to head in to DC to attend.

Naming Audit Partners: No Audit Quality Impact?

Several years ago, the PCAOB adopted a rule requiring the public identification of the audit firm’s engagement partner on each public company audit. This rule went into effect for audit reports issued after January 31, 2017. It was intended to promote improved audit quality by enhancing auditor accountability. But according to this article, so far, there’s no evidence that it’s moved the needle on that front, but there’s at least some evidence that investors are using the information as a screening tool. Here’s an excerpt:

One of those new studies found that despite slightly positive trends in audit quality, the improvement is not yet convincingly attributable to the adoption of the audit partner-naming rule. That research, entitled “What’s in a Name? Initial Evidence of U.S. Audit Partner Identification Using Difference-in-Differences Analyses,” by Lauren M. Cunningham of the University of Tennessee, Chan Li of the University of Kansas, Sarah E. Stein of Virginia Tech, and Nicole S. Wright of James Madison University, is in the current issue of The Accounting Review, a peer-reviewed journal of the American Accounting Association.

The study by Cunningham and her colleagues also cites another ongoing study that finds investors are less likely to invest in a company when the partner is linked to another client with a restatement. Another working paper finds no evidence of significant trading activity in the days surrounding PCAOB Form AP disclosure, even in cases of a change in audit partner in the second year of mandatory disclosure.

Director Onboarding: Board Governance Guidebook

Clients frequently ask for resources to help new directors get up to speed on governance during the onboarding process – and this 12-page “Guidebook to Boardroom Governance Issues” that Wilson Sonsini has put together seems to fit the bill nicely.  It covers a lot of ground in a concise & informative way. Check it out!

John Jenkins