Broc Romanek is Editor of CorporateAffairs.tv, TheCorporateCounsel.net, CompensationStandards.com & DealLawyers.com. He also serves as Editor for these print newsletters: Deal Lawyers; Compensation Standards & the Corporate Governance Advisor. He is Commissioner of TheCorporateCounsel.net's "Blue Justice League" & curator of its "Deal Cube Museum."
Spanking brand new. And shiny to boot! If you have a director that is resigning, retiring, not standing for re-election, quitting in disgust, being appointed or dying, we have the Handbook for you. Posted in our “Director Resignations” Practice Area, this comprehensive “Director Resignation & Retirement Disclosure Handbook” provides practical guidance – including numerous hypotheticals – about how to handle these situations including how to prepare in advance for them. In particular, the Handbook focuses on the company’s reporting obligations under Item 5.02 of Form 8-K when these inevitable situations arise…
A “Fresh Eyes” Restatement Report
Ahead of next week’s PCAOB roundtable – on March 21st and 22nd – on whether it should propose an auditor rotation requirement for the largest companies, Audit Analytics prepared this report that examines the restatements disclosed by the Russell 1000 – as well as their auditor changes – in an attempt to determine if auditor changes in any way played a part in the discovery of outstanding accounting misstatements and, if so, to what extent. For the report, Audit Analytics reviewed 1,355 companies (a five-year aggregate), 378 restatements, and 173 auditor departures.
Some of the observations contained the report:
– About 7.5% (4 out of 53) of the Annual Restatements linked to an auditor departure were detected, in part, by the “fresh eyes” of the newly engaged auditor.
– About 64% (34 out of 53) of the Annual Restatements linked to an auditor departure were detected prior to the auditor’s departure (“no fresh eyes”).
– About 15% (8 out of 53) of the Annual Restatements linked to an auditor departure were detected by the companies themselves or their regulators, such as the SEC (“no fresh eyes”).
– About 13% (7 out of 53) of the Annual Restatements linked to an auditor departure were restatements that corrected misstatements that occurred after the new auditor’s engagement (no restatement of work during predecessor auditor engagement).
– About 82% (238 out of 291) of the Annual Restatements disclosed by the Russell 1000 were disclosed by companies that did not experience an auditor departure.
– The total auditor changes experienced by the Russell 1000 since January 1, 2005 had a “fresh eyes” restatement discovery rate of no more than about 3.0%.
Lynn Turner notes: “This report highlights just how poor quality audits really are today and just exactly what are they worth. Of 1335 Russell 1000 companies, 291 or 21.8% had errors in their financial statements that went undetected and had to be corrected. These audits are exclusively done by the Big 4 who are suppose to be the best of the best – one can only wonder then what an error rate for the worst is like.
Not only does these findings call into question the quality (or lack thereof) of audits, it also continues to call into question the competence of the CFO/Controller at these companies, the lack of internal controls, and the continuing unreliability and lack of oversight by the audit committees. Why was it the error was not detected at least by the auditors before the original financial statements with errors in them were released to investors? Were the auditors either incompetent or lacking independence or devoid of skepticism? Was the audit committee members merely going thru the motions and what steps did they take to establish accountability for the problems?
What the report is unable to report, as there is often no transparency in SEC 8-K and other reports, is just exactly what did turn up the errors in each of these instances where the restatement occurred prior or subsequent to a change in auditor. While a few instances are noted, such as the SEC finding three of the 291 errors, in most instances how the error is actually found and by whom is not disclosed.
Using Online Video to Announce a Restatement
Thanks to Howard Dicker of Weil Gotshal for turning me onto this restatement announcement study which used executive MBA students as guinea pigs. The study finds that although text-based press releases have been the norm for years, companies have recently begun using online video for such announcements. And that when a CEO accepts responsibility by making an internal attribution for a restatement, investors viewing the announcement online via video recommend larger investments in the firm than do investors viewing the announcement online via text. Pretty wild…
Yesterday, Dave did a great job in describing the JOBS Act and how it would fast-track capital formation reform (we are posting memos on the Jumpstart Our Business Startups Act in our “IPOs” Practice Area). Dave also noted that the Senate was fast tracking the bill – and that some were questioning the measures in the bill.
As I’ve blogged before, count me among those that think this is a wrongheaded thing that Congress is doing in the capital formation area. This bill has nothing to do with jobs and everything to do with fewer protections for investors. I am not the only one who feels that way as noted in these articles (note that last one that argues that the bill won’t even be good for IPOs!):
Yesterday, the SEC posted two sets of recommendations from its Advisory Committee on Small and Emerging Companies – one for reporting obligations and one for market access. And last week, Facebook filed its Pre-Effective Amendment No. 2 to its Form S-1
US Investors as an “Easy Mark”: More Evidence
As noted in this blog, it’s now pretty well known how scores of Chinese companies – that turned out to be fraudulent – listed their securities here in the US because they weren’t able to do so in China. As noted in this article from “The Telegraph,” the London Stock Exchange is exploring ambitious plans to push its junior AIM market into the United States. To be honest, I thought AIM was dead since so many of the companies that have gone public and listed there have since gone down the tubes. As noted in the article: “In 2007, Roel Campos, a commissioner at the Securities and Exchange Commission voiced his concerns that 30% of new firms listing on AIM “are gone in a year.”
Transcript: “Company Buybacks: Best Practices”
We have posted the transcript for our recent webcast: “Company Buybacks: Best Practices.”
In our “Q&A Forum,” we recently got a question (#7007) stating: “It appears the State of Delaware is re-interpreting “period of dormancy.” We have discussed the new interpretation with Delaware and according to the Delaware State Escheator, “period of dormancy means the full and continuous period of time during which an owner has ceased, failed or neglected to exercise dominion of control over property or to assert a right of ownership or possession or to make presentment and demand for payment and satisfaction or to do any other act in relation to or concerning such property.” That is, the statue requires that accounts for which shareholders have not exercised dominion, control or any other act related to the account for three years be turned over to the State of Delaware. As a result of this reinterpretation, several thousand shareholder accounts not considered “lost” under rule 17Ad-17 have now been identified as eligible for escheatment if contact cannot be established with the holder. What is going on here?”
Since this is not my area of expertise, I turned to Bill Palmer – who knows this stuff cold – who answered:
Clearly the State of Delaware is attempting to cast the net out as broadly as possible with its new interpretation, but there are more than a few problems with it. The Unclaimed Property Law (UPL) statutes first purpose is to reunite lost and unknown owners with their unclaimed property, and the secondary purpose is to allow the states an opportunity to make use of the property while the primary purpose is accomplished. As a result, starting with the opening definitions, the statutes require that the individual shareholder or owner actually be “lost” and “unknown” to the financial institution or holder.
A review of the statutes will show that the definition includes the requirement that the shareholder is “lost/unknown” and that the specific dormancy period has run. There’s an important conjunction in the definition with the word “and,” so to the extent that the individual is part of a dividend reinvestment plan, an ESPP, a custodial trust, or any number of scenarios, then it is not reasonable to conclude that the individual is “lost” and “unknown” for purposes of escheating their stock or assets to the various states. Based on the short note below, there are potentially serious statutory and constitutional issues regarding Delaware’s new interpretation of escheat.
Another problem is created by the State of Delaware’s approach is in the area of corporate liability, because it places the holder and its transfer agent in a difficult position vis-à-vis their common law and statutory duties to the shareholders or owners. The corporation is acts under common law, federal and state securities laws that require it to operate with the utmost care regarding the shareholder, and to convey material information to the shareholder. This is the dilemma created by Delaware’s new definition, because “known” shareholders are about to have their stock transferred potentially without proper notice, where the investment will be sold and permanently destroyed so that the funds from the sale may be used by the state.
Mailed: January-February Issue of “The Corporate Counsel”
We mailed the January-February Issue of The Corporate Counsel and it includes pieces on:
– Mine Safety Disclosure Is Here–And The Forms They Are A-Changin’
– New Four-Month Deadline for Form 20-F
– Staff Weighs In on Say-on-Pay Wording on the Proxy Card/Voting Instruction Form
– Proxy Summaries
– Proxy Access Private Ordering (Barely) Up and Running
– NYSE About-Face on Shareholder-Friendly Governance Proposals
– The Staff’s Waiver Position on Item 5.07 8-K/A Evolves
– Global Section 12(g) No-Action Relief for RSUs
– Trading in Securities of Pre-Public/Private Companies
– Loss Contingency Disclosures–Latest Input from the Staff
– The Staff Clarifies New Standards for Confidential IPO Filings for Foreign Private Issuers
Act Now: Get this issue for free when you try a 2012 No-Risk Trial today.
SEC Brings Increasingly Rare Financial Fraud Case
In his “Cady Bar the Door” blog, David Smyth of Brooks Pierce has been doing an excellent job and I’ve been learning a lot about SEC enforcement issues from reading his missives. Here’s a recent one below:
A curious aspect of the SEC’s enforcement program in recent years has been the lack of significant accounting fraud cases. The Enforcement Division has created a number of specialized units, including ones studying structured products and hedge funds, but dismantled its financial fraud task force in 2010, reasoning that accounting fraud was the specialty of the entire staff, and not just one group. Perhaps as a result of that, or maybe as a result of Sarbanes-Oxley or other reasons, accounting fraud cases just have not been brought in the numbers they were in years past.
But the SEC filed an interesting case last month in the Southern District of Florida, one that combines traditional accounting fraud with the problems underlying the most recent credit crisis. The Miami Regional Office sued BankAtlantic Bancorp and its CEO, Alan Levan, for making misrepresentations about the bank’s loan portfolio and then using accounting tricks to conceal the misstatements. The case is not settled, so the facts that follow are unproven, and may not actually be true.
Disclosure Issues
In 2007, BankAtlantic had about $1.5 billion in its commercial residential real estate loan portfolio. The borrowers intended to develop large tracts of land for residential housing construction, and the portfolio included three types of loans: (1) Builder Land Bank loans, in which the borrowers’ sole intent was to “flip” the raw land to a national builder at a later date. The bank usually required the borrower in one of these BLB loans to have option contracts in place in which the builder agreed to give a down payment and close on a minimum number of lots by a specific date; (2) Land Acquisition and Development (LAD) Loans, in which the borrower bought land and conducted “horizontal development” such as building utilities and roads; and (3) Land Acquisition, Development, and Construction (LADC) loans, which were the same as LAD loans, but also included financing for “vertical development,” or houses, as well.
Signs of problems in BankAtlantic’s commercial residential portfolio began to appear in early 2006. Builders were starting to walk away from their option contracts with BLB borrowers at other banks, and BankAtlantic started to scrutinize its own portfolio more closely. By the time BankAtlantic filed its first quarter 10-Q, the bank had granted extensions on eleven loans constituting a book value of $147 million, or 26% of the commercial residential portfolio. For most of these extensions sales had slowed or stopped, and borrowers were having to resort to entirely different development plans to salvage their projects. While these problems were affecting all three types of loans in the bank’s commercial residential book, Levan didn’t say as much publicly. In the bank’s first quarter earnings call, Levan discussed the BLB segment and acknowledged that some problems were developing with the underlying projects. But when asked by an analyst whether the problems extended to the LAD and LADC loans, Levan said no, that those loans were “proceeding in the normal course” and the bank was experiencing no significant problems with them. The bank’s 10-Q for that quarter discussed the commercial residential portfolio in board terms, but did not alert investors to the problems already existing at that time.
BankAtlantic’s loans continued to be downgraded in the second quarter, and the value of the downgraded loans was nearly an even split between BLB and non-BLB loans. The second quarter earnings call continued the pattern from the first, as an analyst again asked if the bank was concerned about the non-BLB loans. Levan said again that the BLB side was the only one forecasting any problems. The 10-Q for that quarter also made no mention of any problems with the LAD and LADC loans, though those loans were having significant problems as well. BankAtlantic eventually released the extent of the bank’s loan difficulties with an 8-K filed on October 26, 2007, that announced a $29 million loss due to the commercial residential loan portfolio. On the third quarter earnings call, Levan said the earnings release would have been very different if it had been done on September 30, 2007, suggesting that the problems were a surprise that came about after quarter-end.
Accounting Issues
This wasn’t the end of BankAtlantic’s problems, though. In the fourth quarter of 2007, the bank began efforts to sell many of its problem loans, and even engaged an investment bank, JMP Securities, in the effort. Unfortunately for the bank, the AICPA’s Statement of Position 01-6 says that once a decision has been made to sell loans not previously classified as “held for sale,” those loans should be transferred to the “held for sale” classification and carried on the books at the lower of cost or fair value. But that is not what BankAtlantic did. Instead, the bank changed its contract with JMP Securities to refer to the sales efforts as a “market test.” At the end of 2007, the bank continued to record as held for investment the loans subject to the JMP engagement. The bank also represented to its auditor that “management had the intent and ability to hold loans classified as held-for-investment for the foreseeable future or until maturity or payoff.” Meanwhile, JMP’s efforts – to “sell” the loans or “test market” them or whatever – continued apace, and eventually some bids for the loans came in, all at 28-50% of book value.
BankAtlantic didn’t like the bids enough to sell, but also did not like having the loans on the bank’s books. So it made a deal to give an inactive subsidiary $100 million, which the subsidiary then gave back to the bank in exchange for the problem loans. For the bank, it was a perfect deal, in that it released the loans from BankAtlantic’s books, and at the same time gave the bank an quick infusion of cash. JMP valued the loans for purposes of this transaction based on appraisals, and ignored the bids that came in at 28-50% of their book value. BankAtlantic continued to try to sell these loans, and even reached agreements to sell some of them, but never reclassified any of the loans as “held for sale.”
The SEC has sued BankAtlantic for violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Levan for aiding and abetting all of those violations. The Commission has also sued Levan for direct violations of Section 13(b)(5) of the Exchange Act.
Lessons from the Case
One thing we can learn from the matter is that accounting fraud is alive and well, and the SEC is still pursuing it. Also, publicly traded banks in particular should take note that the contents of their portfolios have to be characterized accurately, both in public statements to investors and with respect to accounting conventions established by the AICPA. If particular loans are being shopped to other buyers, you have to say as much, or you’re out of compliance with GAAP, and are breaking the accounting rules. Finally, the public misstatements did not go on for a terribly long time. It was only two quarters before BankAtlantic owned up (sort of) to the problems on its books. But that was enough. The case is being litigated; it will be interesting to see what happens as it proceeds.
As noted in this Reuters article, SEC Chair Schapiro testified before the House Financial Services Committee over the SEC’s budget yesterday. The Chair seeks a 18.5% boost from its current fiscal 2012 budget to $1.56 billion to hire more Staff – 46 more Corp Fin Staffers – and implement multi-year technology initiatives including modernizing Edgar. Did you know the SEC’s site gets roughly 20 million hits daily?
As seems to happen over the past decade, the SEC faces an uphill climb for more resources, particularly with recent press like this Reuters piece over how much Booz Allen and other consultants have been charging the SEC to reform its workflows, etc.
As I’ve blogged, the SEC would be freed from this annual dog-and-pony show with Congress if it were self-funded as an independent agency should be. Here is a blog entitled “Free the SEC” from another SEC alumni, accountant John Feeney.
Shareholder Proposals: Corp Fin Rules on Proof of Ownership for DTC Participants
Yesterday, Ning Chiu of Davis Polk wrote this blog:
The SEC Staff made several recent decisions on questions of proof of ownership for submission of shareholder proposals, in light of the requirement under Staff Legal Bulletin 14F, which we previously discussed. SLB 14F makes clear that only DTC participants are viewed as record holders of securities that are deposited at DTC.
The Staff declined to grant no-action relief to companies that argued that the proof of ownership was not from a DTC participant when the brokers’ letters were from TD Ameritrade, Inc. instead of TD Ameritrade Clearing, the entity named on the DTC participant list. The proponents in some of these situations provided an additional letter of support from TD Ameritrade in response to the company’s no-action letter request, but the SEC Staff gave the same ruling even when proponents did not. The Staff noted that the proof of ownership from TD Ameritrade, Inc. was sufficient since it was provided by a broker that provides proof of ownership statements of behalf of affiliated DTC participants.
But even when the Staff agreed with Allergen that the proponent, John Chevedden, failed to provide a statement from the record holder evidencing appropriate documentary support of continuous beneficial ownership, the Staff gave Mr. Chevedden seven additional days to address the deficiency. Mr. Chevedden had provided proof of ownership only from Ram Trust and not the DTC participant. The Staff indicated in its response that the company failed to informed the proponent of what would constitute appropriate documentation in its request for additional information from the proponent, and noted SLB 14F states that they will grant no-action relief to a company on the basis that a proponent’s proof of ownership is not from a DTC participant only if the company’s deficiency letter describes the required proof. It appears from the filed correspondence that while the company clearly pointed out the problem to Mr. Chevedden in its notice, only a copy of Rule 14a-8, and not a copy of SLB 14F, was included with the letter. The Staff denied the company’s request to reconsider its decision.
Improving the Board Evaluation Process
In this podcast, Susan Shultz of the Board Institute describes how the Board Institute’s methodology improves the board evaluation process, including:
– What is the Board Institute’s methodology for board evaluations?
– What is the advantage of this over traditional evaluation techniques?
– How do evaluations that tend to be narrative and somewhat subjective work with numerical scales?
– How can boards best use this type of methodology?
– Why did you decide to write the book?
– What are the most important practical points you make?
– Any surprises while writing it?
– How do you suggest that readers use it?
SEC Warning: Beware the Fake Whistleblower Office
Recently, the SEC posted this warning about someone is impersonating its new Office of the Whistleblower by sending out bogus emails claiming that the recipient has a material misstatement or omission in their public filings or financials. It seems like such a bizarre and narrow topic to attempt to pull a hoax that you would think the bogus email would be sophisticated – but there are just enough oddities in it that I doubt the perpetrator comes from our industry. Here are what the emails said:
Dear customer, Securities and Exchange Commission Whistleblower office has received an anonymous tip on alleged misconduct at your company, including Material misstatement or omission in a company’s public filings or financial statements, or a failure to file Municipal securities transactions or public pension plans, involving such financial products as private equity funds. Failure to provide a response to this complaint within 14 day period will result in Securities and Exchange Commission investigation against your company. You can access the complaint details in U.S. Securities and Exchange Commission Tips, Complaints, and Referrals portal under the following link:
SEC Posts Whistleblower List (Means Little)
In his “Cady Bar the Door” blog, David Smyth of BrooksPierce provides an explanation of why the SEC’s Office of the Whistleblower is constantly updating its list of “potential whistleblower” candidates.
Recently, as noted in this Sullivan & Cromwell memo (other memos are posted in the DealLawyers.com “Antitrust” Practice Area), the DOJ and FTC extracted their first publicized penalty for a corporate executive’s failure to make a Hart-Scott-Rodino Act filing before receiving stock of his employer as part of his compensation. As a result, many members have been researching what the typical practice is for HSR filing fees that the corporate executive would have to pay to comply with the HSR filing requirement. To help in that effort, please take a few moments to participate in this anonymous “Quick Survey on HSR & Executives’ Acquisitions from Equity Compensation Plans.”
Greed is Not Good? Michael Douglas Rails Against Insider Trading
As noted in this NY Daily News article, Michael Douglas – aka Gordon Gecko from the “Wall Street” movies – is featured in a recent one-minute FBI commercial warning about the perils of insider trading.
The StockTwits CEO Explains His Social Media Platform
Recently, I blogged about how StockTwits was a game-changer for investors in the social media world. In this podcast, co-founder and CEO Howard Lindzon explains how to best use his StockTwits, including:
– What is StockTwits?
– When was StockTwits born and what is its growth rate?
– How can companies claim their “ticker page” – and why would they want to do so?
– Why should companies monitor what is being said about them on StockTwits?
On Tuesday, the PCAOB issued a proposed auditing standard that would change how an auditor evaluated a client’s identification of, accounting for, and disclosure about its relationships and transactions with related parties. As noted in this Towers Watson alert, this proposal could bring added involvement of independent auditors into executive pay decisions. Under this proposal, a company’s auditor would have to review its client’s pay programs and determine if they might encourage excessive risk-taking.
I haven’t read the proposal yet myself, but it seems that going down that slippery slope, might it be possible that an auditor would say to a company, “too risky, we can’t sign off on the financials” – so auditors could possibly play a role of essentially pre-approving pay programs? Comments are due by May 15th.
Survey Results: Pay Ratios
We have posted the survey results regarding how companies are preparing now for the SEC’s upcoming pay disparity rulemaking, repeated below:
1. At our company, the board:
– Does not consider internal pay equity when setting the CEO’s compensation – 51.8%
– Does consider internal pay equity as a factor by comparing the CEO’s pay to all employees – 1.8%
– Does consider internal pay equity as a factor by comparing the CEO’s pay to other senior executives – 44.6%
– Does consider internal pay equity as a factor by comparing the CEO’s pay to a formula different than the two noted above – 1.8%
2. Ahead of the SEC’s mandated pay disparity disclosure rulemaking under Dodd-Frank, our company:
– Has not yet considered how we would comply with the rules – 58.9%
– Has begun considering the impact by assessing whether we could comply with the precise prescriptions in Dodd-Frank but we have not yet tested statistical sampling – 35.7%
– Has begun considering the impact by assessing whether we could comply with the precise prescriptions in Dodd-Frank including assessing whether we could use statistical sampling – 5.4%
3. As one of the companies that have assessed the impact of the SEC’s mandated pay disparity disclosure rulemaking, our company:
– Believes we could comply with the precise prescriptions in Dodd-Frank without too great a burden – 13.5%
– Believes we could comply with the precise prescriptions in Dodd-Frank but it would be too burdensome unless statistical sampling is allowed – 13.5%
– Believes we could comply with the precise prescriptions in Dodd-Frank but it would be burdensome even if statistical sampling is allowed – 45.9%
– Believes we wouldn’t be able to ever comply with the precise prescriptions in Dodd-Frank – 27.0%
4. In your own opinion, do you think that statistical sampling would have too high a potential for manipulation or material error:
– Yes – 38.2%
– No – 29.1%
– I don’t have an opinion – 32.7%
Please take a moment to participate in this “Quick Survey on Board Minutes & Auditors” – and this “Quick Survey on GRC Software.”
Transcript: “The Dynamics of Disclosure Claims”
We have posted the transcript for the recent DealLawyers.com webcast: “The Dynamics of Disclosure Claims.”
I was very sad to learn that Ella Phelps passed away on Sunday after a long illness. Ella worked in Corp Fin as a secretary for 15 years – and then worked in the Office of Economic Analysis for another decade – before retiring last year. Ella was one of the secretaries in the banking group when I first started at the SEC out of law school in ’88.
And Ella ran the place. With her great wit, she was always entertaining us. Her desk geographically was in the center of the group – so you joked around constantly with Ella throughout the day. But more importantly, Ella spoke to all of our loved ones as this was in the era before voicemail (and computers) and she knew more about our personal lives than we did! For a while, I dated someone down in Chapel Hill and Ella – hailing from North Carolina – got to know her so well that they remained friends even after we broke up! I remember Ella telling many loving stories about her husband Charles and her two children, as well as her fabulous cooking adventures. She will be missed.
Here is a picture of Ella in the midst of a banking pod party in ’90. And here is a guest book where friends & family can post comments, as well as information about tomorrow’s viewing.
Last week, SEC Commissioner Luis Aguilar delivered this speech – entitled “Shining a Light on Expenditures of Shareholder Money” – urging the SEC to act in the newly hot area of political contribution disclosures (Vanessa Schoenthaler’s blog notes Chair Schapiro’s comments on the topic). Here are other speeches delivered during PLI’s “SEC Speaks” Conference:
I have blogged other notes from the conference, both on “The Mentor Blog” (accounting, enforcement and litigation perspective) – and on CompensationStandards.com “The Advisors Blog” (Corp Fin on Form S-3 waivers for failure to amend Form 8-Ks and report say-on-pay frequency voting results).
By the way, the SEC has redesigned its “Speeches and Public Statements” page so that you can more easily sort out speeches by a specific speaker, etc.
Transcript: “The Exploding World of Political Contributions”
We have posted the transcript for our recent webcast: “The Exploding World of Political Contributions.”
Webcast: “Conduct of the Annual Meeting”
Tune in tomorrow for the webcast – “Conduct of the Annual Meeting” – to hear Kathy Gibson of Campbell Soup, Carl Hagberg of The Shareholder Service Optimizer, Bob Lamm of Pfizer, Barbara Mathews of Edison International and Carol Ward of Kraft Foods explain how they handle the many challenges of running an annual shareholders meeting.
How old were you when you when you found out that ‘Leap Day William‘ wasn’t real? A classic from “30 Rock” if you missed it. Up there with Seinfeld’s creation of Festivus…
Meanwhile, Keith Bishop blogs about a proposed California bill that would allow general solicitations in that state. And his blog today is entitled “Bill Proposes Another Reason Not To Incorporate In California.”
Report: How ESG Will Fare This Proxy Season
Today, Sustainable Investments Institute and As You Sow release their annual Proxy Preview Report. Their proxy season forecast primarily deals with social and environmental proposals and a smattering of governance ones (those with a social twist) and it includes profiles of a bunch of different shareholder activists, plus commentaries from a few other key proxy season players. In addition to the Report, they are holding a webcast later today.
Highlights of the 2012 ESG shareholder proposals include:
– Political Spending: Investors are increasingly concerned about corporate political spending disclosure and have filed twice as many resolutions on this topic for 2012 (109) as they did just three years ago. New is a large group of proposals that focus on spending after elections, through lobbying. Another new feature in 2012 is a call for ending any campaign spending at a couple of companies (3M, Target, and Bank of America), and a few requests for shareholder votes on companies’ political spending practices. Contributions through intermediaries are a critical focus of all the proposals, highlighting public worries about cash and influence in the 2012 election.
– Environment and Sustainability: Shareholder proponents still want companies to address climate change, reduce their impacts on natural resources, and use fewer toxic chemicals. The 117 environmental/sustainability resolutions filed in 2012 express these concerns as part of a roadmap for a new energy future. Coal and fracking dominate the group of 44 natural resource management proposals, with worries about the financial risks of relying on coal-based energy and the implications of shale gas development. A shareholder resolution from the New York City pension funds has helped prompt deals with Apple and other big electronics firms to be more open about conditions in their supply chains, even as investors tell companies they want environmental and social policies that are sustainable over the long term.
– Mortgage Foreclosures: Investors at four of the country’s biggest banks will vote on whether they want more information on loan modifications, foreclosures, and securitization – on the heels of the recent $26 billion settlement that benefits homeowners.
– Diversity: The country’s largest institutional investors want more diverse boards, as the report highlights. And companies increasingly are establishing non-discrimination policies for lesbian, gay, bisexual, and transgender (LGBT) employees, even as they face 38 proposals on this subject. Combined, the board and employee diversity proposals account for 11% of the total number of proposals filed so far, about even with the 2011 tally.
– Labor and Human Rights: About two dozen resolutions request action on labor and human rights, mostly at companies active in global conflict zones, from faith-based investors. But several also raise concerns at private U.S. prison companies, Corrections Corp. of America, and GEO Group. An AFL-CIO proposal to a few companies is about worker safety on oil rigs and refineries, following up on safety audit issues sparked by Gulf of Mexico spill two years ago. And a new Securities and Exchange Commission interpretation just issued means investors now can vote on whether they think companies should provide equal access to all on the Internet.
Transcript: “Alan Dye on the Latest Section 16 Developments”
We have posted the transcript for the recent Section16.net webcast: “Alan Dye on the Latest Section 16 Developments.”
