We continue to post new items on our blog – “Proxy Season Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply entering their email address on the left side of that blog. Here are some of the latest entries:
– Engaging with Vanguard: Shareholder Communications, Even Director Videos Might Suffice
– 14a-8 No-Action Requests: Board Analyses Appear to Help Some, Not All
– Record-Breaking ESG Votes Show That Investors’ Focus is Shifting
– Political Spending Disclosure: Why Your CPA-Zicklin Score Matters
It’s been a while since John blogged about the Long-Term Stock Exchange (LTSE) – it’s backed by several Silicon Valley power players and aims to attract long-term investors. Companies listed on the LTSE commit to strong ESG stances and are expected to promote transparency. The LTSE started trading stocks last September, and until now, there haven’t been any companies listed on LTSE but the WSJ recently reported that it landed its first listings. In August, Twilio Inc. and Asana Inc. will become the fist two companies to dual list on the LTSE, each company is also listed on the NYSE.
In terms of transparency, for companies listed on the LTSE, it means they’re not only expected to make various corporate governance commitments, but they’re also expected to solidify the commitments as policies so that LTSE can monitor them. Even with commitments to ESG and transparency, critics don’t like the dual-class share structure. Reuters reports that Twilio and Asana plan to do away with the dual-class structure sometime in the next 7-10 years, whereas many investors would prefer to see companies ditch the structure within a set amount of time.
Last summer, Liz blogged about the appointment of an independent oversight committee to monitor proxy advisor “best practices.” Last week, the oversight committee issued its first report with an assessment of the extent to which proxy advisory firms adhere to industry best practices. Along the lines of the familiar “exceeds performance expectations”, “meets expectations”, etc., the 61-page report generally says proxy advisors meet “best practices” relating to service quality, conflicts of interest avoidance and management and communications policy but then it also includes suggestions for improvement.
Assessment of proxy advisor practices begins on page 52, and some of the areas for improvement include suggestions for improved proxy advisor disclosures relating to how they manage staff development and staff qualifications, professional staff length of service and information about staff workload. This excerpt touches on proxy advisor quality assurance:
The Committee would like to see more robust disclosures on such internal controls over quality, reliability, independence, and accuracy, including data on alerts to clients concerning errors or revisions. The Committee also sees the need for more expansive reporting on Guidance 1.3(e), which suggests assurance that each Signatory maintains “records of the sources of data used for the provision of services to clients”, and Guidance 1.3(g), which urges Signatories to be “transparent regarding the sources used and content included in the research information they provide to clients”.
For more information about the committee’s work, the report provides background about the committee’s mission, composition and principles and guidance relating to proxy advisor “best practices.” Going forward, the report says the committee intends to launch a survey of stakeholders to gather opinion on the proxy advisory firm industry and it plans to release survey results in October. The committee will then use information from the survey to help inform perspectives on whether to revise its proxy advisor “best practices” principles.
The latest edition of our “In-House Essentials Treatise” is here! The 2022 Edition provides definitive guidance on securities law for in-house lawyers. With over 2000 pages, the Treatise incorporates the most recent SEC guidance, including among other things, updates for the rules simplifying Regulation D, SEC enforcement actions, proxy advisor policies and updated SEC filing fees. Here’s a Detailed Table of Contents listing the topics so you can get a sense of the Treatise’s practical nature.
It’s not every day that you see a headline saying a company adjourned its annual shareholders’ meeting due to lack of quorum but that’s exactly what happened late last week. According to the company’s press release, at the time the annual meeting was adjourned, proxies had been submitted by stockholders representing approximately 40% of the company’s outstanding stock. Under the company’s bylaws, a quorum consists of a majority of the shares entitled to vote.
Earlier this year, Liz blogged on the Proxy Season Blog about TD Ameritrade’s elimination of discretionary voting. One potential impact of TD Ameritrade’s change is on companies that rely on discretionary votes to reach a quorum. We’ve been hearing that over time more companies may encounter difficulty obtaining enough votes to reach a quorum as a result of the rise in retail shareholders, along with historically lower vote returns from retail holders. For the company impacted, it’s not clear what their mix of shareholders might be but it’s an indicator that lack of quorum could be a reality for some. For now, they’ve engaged a proxy solicitor to help reach a quorum and the meeting is adjourned until August 23.
We’ve got a checklist with considerations relating to “Adjournment & Postponement of Annual Meetings” available here on TheCorporateCounsel.net. It’s available to members for free, check it out in the event you ever find yourself in this situation!
This year, some may recall that ISS began including information about board diversity in proxy research reports. In 2022, ISS will take things a bit further by issuing “against” or “withhold” recommendations for nominating committee chairs (or other directors on a case-by-case basis) of companies in the Russell 3000 or S&P 1500 indexes where the board has no apparent racially or ethnically diverse members. ISS already had a similar process in place relating to board gender diversity.
This Aon blog provides a reminder that subjective judgment may come into play with ISS data on director diversity and to help avoid “against” recommendations, this off-season would be a good time to revisit ISS’s research report commentary about a company’s board diversity or lack thereof. ISS commentary about board composition could differ from what a company understands about the makeup of its board. Here’s an excerpt:
We recommend that all public companies — even companies with boards currently thought to be sufficiently diverse — carefully examine the written analysis of director elections in their 2021 ISS report to determine whether it includes any indication of a lack of racial or ethnic diversity on the board. Additional concerns may arise in harmonizing ISS’ definitions of diversity with those of other entities. For example, California identifies LGBTQ+ directors as diverse[2], while ISS does not. Meanwhile, NASDAQ does not consider directors of Middle Eastern descent as racially or ethnically diverse[3] but ISS does[4].
Companies may wish to consider including in their proxy statement a Board Diversity Matrix to clearly indicate the level of gender and racial/ethnic diversity of the board of directors. Firms may also consider providing language around composite board diversity percentages without publicly identifying individual directors.
The May-June issue of The Corporate Executive has been sent to the printer (sign-up and order this essential resource today). It’s also available now online to members of TheCorporateCounsel.net who subscribe to the electronic format – an option that many people are taking advantage of in the “remote work” environment. The issue includes articles on:
– A Call to Action: Climate and ESG Take Center Stage
Last month, Liz blogged about a hoax whistleblower email message that was making its way around public company ethics inboxes. Unfortunately, we’ve recently learned that there are at least two more of these in circulation. Here’s the first:
To Whom It May Concern:
I want to report an incident that I believe is of interest to the ethics board. It has recently come to my attention that a certain employee I work with, which I will leave nameless for the time being (referring to them as Doe), is engaged in an activity I feel is inappropriate. Doe and I both work in one of the company’s sales teams. A while back, a few of us went to grab drinks after work, and a conversation soon ensued. We were discussing work matters, and specifically our client relationships, and things of that nature, when Doe leaned over and whispered so that only I could hear that the best way to retain your clients is to keep them happy if I know what they mean. At the time, I paid no mind to it. Later that evening, while getting back to our cars, Doe and I were by ourselves. I mentioned in passing that this year was not bad considering COVIC from what we initially expected when again they said something along the lines of how they never expected a bad year because of how they take care of their clients. This time I asked what they meant. They kept saying “Cmon, you know what I mean” and stuff like that. They told me that when it comes to lon-lasting clients or important leads, they go above and beyond, making sure they are happy. I agreed with them, saying I do the same. They they said – no no, I mean really take care of them. When I probed, they said that their clients trust them to give them the best possible price, and in return they get favors. When I asked what these favors might be, they were initially coy about it, but gave me a recent example. They said they give some big client the star treatment, because that person’s wife is a deputy superintendent in the county where their kids go to school. They said it’s always good to make friends with people like that, because you never know when you will need a favor, like getting your kids into a good high school or even college, and in fact they already hit that lady up to help get their sister a job, and she said she will see what she can do. I again don’t remember exactly how I responded. I just remember feeling flabbergasted but acting like what tey told me was no big deal and saying something about how our company doesn’t appreciate us (I was trying to make them feel like I’m cool with what they told me). They agreed and said that for the most part, there aren’t that many opportunities available for us, but when they spot something, they always try to think of helping out people that can later help them.
Initially, I was thinking about going with this to HR, but I couldn’t bring myself to do that because I know it will come back to me. I also cannot just tell my boss about this because that person is close to Doe, and I guarantee they will not take my side or at least try to brush it off. I know it’s important to be a team player and support each other, but I’m pretty sure what I’m describing here is a big no-no. Worst of all, I don’t want it to reflect badly on me later on if anyone finds out. A part of me just wants to pretend I didn’t hear it, and act like nothing happened. However, after some thought, I decided to first reach out to you and hear what the committee has to say. I read the material you provided online in the code of conduct, and I realize that in order for you to see this through, I might eventually need to give you their, and maybe even my name, but for the time being, I just want to get your take on it.
Here’s the second:
To members of the anonymous hotline, The location I wrote in the report is false. About a month ago, something was brought to my attention, which I want to report. Before I go into detail, I want to make sure the committee understands I refuse to reveal my identity and choose to remain anonymous. I don’t mind giving out the name of the person I am reporting, but that is only after I am promised that no one can find out I made the claim. The person I am reporting is a long-time employee. Recently, I found out that for invoices in at least one firm, (I found out it happened multiple times) he adds a large upcharge before having us send them out. I have no idea what he claimed under that upcharge, but I’m sure of it, because a buddy of mine working in that firm in their accounting department confirms it. I did a little digging and found that the invoices are always billed to the same customer- a big company we have been working with for a long time. At first, I thought that there’s still a chance nothing fishy is going on, and maybe I’m just not aware of all the details. However, after a while that same friend told me he asked around and turns out the person taking care of these invoices on their end is always the same guy, which my friend tells me is a bad apple. He said he checked, and all invoices are paid promptly and in full- no question asked, and that he personally saw the receipts. I then did some searching on social media (Facebook and Instagram of them and their family members) and found that the our guy and his culprit are actually related somehow. I’m not sure how, as they don’t share the same last name, but I can see that they have lots of pictures with each other attending weddings, fishing, on holidays and stuff like that. I realize how serious what I’m saying is, but I’m only coming to you after making sure that I’m not implicating someone innocent here. My friend at the other firm is someone I trust completely and agreed we shouldn’t do anything so until you guys get back to me. We both decided that no matter what we will not be going to our bosses or anyone on HR on this because we know then people will know it was us that found out. Please contact me as soon as possible and let me know what happens next.
Liz gave some solid advice in her blog about what to do if one of these lands on your desk, and you may want to take another peek at it. I don’t think anybody knows for sure what the game is here, but sending out a bunch of hoax emails seems to be a pretty good way to gum up the works of corporate whistleblower programs.
As Lynn blogged a few weeks ago, the SEC recently approved Nasdaq’s rule proposal permitting direct listings with capital raises. Last week, Nasdaq filed a proposed amendment to that rule that would tweak the pricing parameters for these new listings. This excerpt from the filing summarizes the proposal:
For a Direct Listing with a Capital Raise, Nasdaq rules currently require that the actual price calculated by the Cross be at or above the lowest price and at or below the highest price of the price range established by the issuer in its effective registration statement (the “Pricing Range Limitation”). Nasdaq now proposes to modify the Pricing Range Limitation such that a Direct Listing with a Capital Raise can be executed in the Cross at a price that is at or above the price that is 20% below the lowest price and at or below the price that is 20% above the highest price of the price range established by the issuer in its effective registration statement.
In addition, Nasdaq proposes to modify the Pricing Range Limitation such that a Direct Listing with a Capital Raise can be executed in the Cross at a price above the price that is 20% above the highest price of such price range, provided that the company has certified to Nasdaq that such price would not materially change the company’s previous disclosure in its effective registration statement. Nasdaq also proposes to make related conforming changes
Comments on the proposal are due 21 days after its publication in the Federal Register.
The 4th of July is peak season for songs about America, and there are plenty to choose from. This one was Frank Sinatra’s favorite, and it’s one of mine too. Sinatra’s. . . well. . . Sinatra, but I actually prefer Paul Robeson’s version, so I’m going to give his rendition of “The House I Live In” top billing.
I sure don’t want to slight The Chairman of the Board, who sang this at many of his concerts, so here’s the original version that he recorded for a 1945 short film made as part of an effort to combat antisemitism. Whichever version you prefer – or even if it’s not your cup of tea – have a Glorious 4th!