May 3, 2021

NYSE Wants to Shed Responsibility for Proxy Distribution Fee Schedule

Proxy distribution costs can be a pretty big line-item for corporate secretary departments (or sometimes treasury departments), and a recent rule proposal that could affect them has been flying under the radar. For anyone who hasn’t been tasked with fielding questions about invoices relating to proxy distribution, count your blessings. The invoices include a myriad of charges with the proxy distribution service provider including a key to help explain the fees, with some being fee maximums established by the NYSE.

Last December, in a rulemaking proposal submitted to the SEC, NYSE indicated that it wants out of the business of setting the proxy distribution fee schedule and instead wants FINRA to take on that responsibility.

The portion of proxy distribution fees established by the NYSE haven’t changed since 2013.  Still, questions about the invoices seem to arise nearly every year and among other things, distribution related costs like postage rates, mail class delivery, the number of packages, not to mention the weight of your annual meeting materials can change. Although the maximum fees established by the NYSE have remained stable, depending on what happens with the NYSE’s proposal, the fees established by NYSE could be on the verge of changing too.

As it turns out, FINRA doesn’t want the responsibility either.  The SEC has instituted proceedings to determine whether to approve or disapprove the NYSE proposal and for now responsibility still sits with the NYSE.  Various organizations have submitted comment letters on the proposed rulemaking, with some noting how this proposed change could impact issuers.  Here are a few notable letters:

The comment period on the proposed rulemaking closed last week, although for anyone wanting to weigh in on this hot potato, the SEC typically welcomes comments even late in the process.

Tweaks to NYSE Related Party Transaction Rule

A few weeks ago, I blogged about amendments the NYSE Listed Company Manual relating to shareholder approval requirements.  While that blog focused on amendments relating to equity issuances in private placement transactions, the amendments also tweaked NYSE Listed Company Manual Section 314.00, which requires related party transactions to be approved by an independent board committee. The tweaks to Section 314.00 are important to note before they completely slip under the radar.

Over the years, many have interpreted the NYSE Rule about related parties as being consistent with the disclosure requirement in Reg S-K Item 404. As amended, NYSE Section 314.00 clarifies that for purposes of this rule, the term “related party transaction” refers to transactions required to be disclosed pursuant to Item 404 – but without regard to the transaction value threshold of that provision. The amended rule also requires “prior” review of related party transactions to make sure they’re not inconsistent with interests of the company and its shareholders.

So does the removal of the $120,000 threshold from this rule mean that NYSE-listed companies need to have their audit committee (or whichever independent body of the board that reviews related party transactions) review and approve nearly all potential related party transaction regardless of dollar value? Maybe not. This Davis Polk memo explains how you might be able to get comfortable without it:

The revisions raise the question of whether the audit committee should review and approve even de minimis transactions involving directors, officers and other related parties. Because Item 404 specifies that the related party must have a “material interest” in the transaction—in addition to the transaction value threshold of $120,000—we believe companies may conclude that for many small transactions, there is no such material interest and so prior audit committee approval is not necessary. Depending on the relevant industry and a company’s ordinary business operations, companies may wish to review the types of transactions they regularly engage in with related parties in order to ensure continuing compliance with NYSE’s rules.

For companies that take a more conservative approach to pre-approval, it’s probably worth revisiting your related party transaction policy to consider whether to expand the list of pre-approved transactions. If some common arrangements are omitted only because of their low dollar amount, you would want to consider adding those.

Tomorrow’s Webcast: “The Leveraged ESOP as an Exit Alternative”

Tune in tomorrow for the webcast – “The Leveraged ESOP as an Exit Alternative” – to hear Shawn Ely of Lazear Capital Partners, Steve Goodman of Lynch, Cox, Gilman & Goodman and Steve Karzmer of Calfee, Halter & Griswold discuss benefits and structuring, financing and operational issues to take into account with leveraged ESOP transactions.

We will apply for CLE credit in all applicable states for this 1-hour webcast. You must submit your state and license number prior to or during the program. Attendees must participate in the live webcast and fully complete all the CLE credit survey links during the program. You will receive a CLE certificate from our CLE provider when your state issues approval; typically within 30 days of the webcast. All credits are pending state approval.

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– Lynn Jokela