Author Archives: Broc Romanek

As seen on Haight Street in San Francisco…

This sculpture replaces the “Bronze Pink Bunny,” which had been destroyed…

– Broc Romanek

Last week, SEC Chair Clayton danced around the issue of whether the SEC would go through a formal rulemaking process to institute mandated arbitration. This occurred during the Q&A portion of his remarks at CII’s Spring Conference. As we’ve blogged, mandatory arbitration would be a major change to a decades-old policy of the SEC. It perhaps would be the single most anti-investor policy change the SEC could make in several decades – if it happens.

Chair Clayton said he would not commit to going through formal rulemaking, including the public comment & economic analysis under the Administrative Procedure Act. He said instead that the SEC would use some “fair” process to make the change (if the policy change was to occur) – but refused to say if that would include a formal public comment & economic process.

Last week, over two dozen House Financial Services Committee Democrats sent this letter to Chair Clayton asking the SEC to reject mandatory arbitration as a matter of public interest and the law…

Farewell to Julie Yip-Williams

Nearly five years ago, I blogged about meeting Julie Yip-Williams and her battle with cancer. I referenced her popular blog about her battle. I know that she has touched many in our community as I am asked about her all the time. I am sad to report that Julie has finally passed away. Here is Julie’s obit that ran today in the NY Times.

As noted in this recent CBS report, Julie had an amazing – and challenging – life. Here’s an excerpt:

It started 42 years ago in post-war Vietnam. Julie was born totally blind. Immediately, her grandmother intervened. “She set up a meeting between my parents and this herbalist, and had my mother and father take me to this man,” she said.

And her grandma’s intention was what? “To have me killed,” she said, “because I was blind.”

“And she just thought there was absolutely no future in that?”

“There was no future for me, nobody would ever want to marry me, I was an embarrassment to the family,” Julie said.

Spring Awakening: Notes from This Year’s CII Meeting

Here’s the intro from Nell Minow’s blog about CII’s Spring Conference:

The theme I heard most often at the annual spring meeting of the Council of Institutional Investors was ESG: environmental/social/governance risks and investment opportunities. The issues of how best to understand ESG and factor it into assessing investment risk and return and how to respond as investors through proxy voting or engagement came up in a number of contexts. Other issues that were raised more than once included voting rights, crypto-currencies and initial coin offerings, and international investments and investors.

– Broc Romanek

Recently, I blogged about a California bill that would require at least three women on boards. I’ve also mentioned that it’s sad that quotas are the only solution to a problem that would so easily be solved with common sense. But I do think we are at that stage. And I do worry that quotas will set the “high bar” for women on boards – which would just be plain dumb. A member sent in this note with a similar sentiment:

The chest thumping over how proud companies are to have 20% women directors is really getting to me. Perfectly smart people are just over the moon about having two women on an 11-member board – and they want to say it ten different times plus in a giant pie chart. I think we’ve kind of lost our minds.

Maybe the standards are just too low – or when investors say at least one or at least two, people are thinking that’s best practices. But they really should (and do) know better.

Specialty ISS Policies Push for 30% Diverse Board Composition

Here’s an excerpt from this blog from Davis Polk’s Ning Chiu:

ISS has updated its Socially Responsible Investing (SRI) and Catholic Faith-Based policies so that the proxy advisor will recommend against incumbent governance committee members under the SRI policy, and all incumbent board members under the Catholic Faith-Based policy, at boards that are not at least 30% diverse and include at least one woman and one ethnic minority. Given that only 24% of Russell 3000 boards have such composition, the policies are expected to result in a “substantial increase” in the number of negative recommendations for directors. At the current pace, S&P 500 boards are expected to reach 30% diversity by 2028, but not until 2037 for Russell 3000 companies.

State Street: May “Vote No” for Stewardship Principles Non-Compliance

Here’s the intro from this Ning Chiu blog:

The Chief Investment Officer of State Street Global Advisor (SSGA) has sent letters to board chairs and lead directors at S&P 500 companies requesting that they report on their compliance with the principles outlined by the Investor Stewardship Group (ISG). We previously discussed the ISG Corporate Governance Principles.

Starting this month, SSGA will review governance practices at those companies and seek to “proactively engage with companies to better understand the reasons for non-compliance.” If SSGA believes that companies are not adequately explaining their governance approaches, either publicly or through engagement, SSGA may hold the board accountable by voting against the independent chair, lead independent director or most senior independent director up for election.

State Street’s “Fearless Girl” Campaign: One Year Later

As noted in this State Street press release, 152 public companies that the firm reached out to – through either its voice or its vote – that previously had no women on their boards, now have at least one female board member. Hard to believe that there were companies that were ‘all male’ in this day & age…

– Broc Romanek

As noted in the memos posted in our “Rule 701” Practice Area, the SEC recently brought an enforcement case to enforce the $5 million limit in that rule. Here’s the intro from this Steve Quinlivan blog:

Subject to its limits, Rule 701 permits non-reporting companies to grant employees equity without registration under the Securities Act of 1933. One component of Rule 701 requires certain disclosure materials to be delivered to employees if the aggregate sales price or amount of securities sold during any consecutive 12-month period exceeds $5 million. Rule 701 provides that for options to purchase securities, the aggregate sales price is determined when an option grant is made (without regard to when the option becomes exercisable).

In a settled enforcement action, the SEC alleged Credit Karma, which the SEC describes as a “pre-IPO internet-based financial technology company headquartered in San Francisco, California”, blew through the $5 million disclosure limit. Specifically, the SEC alleged “From October 2014 to September 2015, Credit Karma issued approximately $13.8 million in stock options to its employees “ and “failed to comply with the disclosure requirements of Rule 701, even though senior executives were aware of Rule 701”.

Data Breach: SEC Brings “Plain Vanilla” Insider Trading Case

Last week, as noted in this press release, the SEC drove home the point that you have to be mindful of the SEC’s recent cybersecurity guidance – that includes a discussion of insider trading policies – as the agency brought an insider trading case against a former officer at Equifax in connection with their data breach. This was not a complex case. He was fired. The executives covered by the special committee review have not been charged.

Just read the SEC’s complaint and Googled the guy. Threw his career & reputation away for $100k – was literally offered the CIO position and had it yanked when they found out about the trading. A wife and two young kids. I’ll never understand how people think they’ll get away with this stuff…

Don’t forget our upcoming webcast: “Insider Trading Policies & Rule 10b5-1 Plans“…

Dodd-Frank’s Coming Rollback

Last week, as noted in this memo (also see this WSJ article), the Senate approved – by a vote of 67 to 31 – the “Economic Growth, Regulatory Relief, and Consumer Protection Act,” which includes certain limited amendments to Dodd-Frank and other targeted modifications to various post-crisis regulatory requirements. This WSJ article notes that the House might not rubber-stamp the Senate bill…

Due to her frequent scrapes with the law, this article says that Lindsay Lohan is the new face of legal directory Lawyer.com…

– Broc Romanek

The battle over the right to call special meetings intensifies. Here’s an excerpt from this Gibson Dunn memo:

Each year some public pension funds and other institutional shareholders voluntarily file with a Notice of Exempt Solicitation with the SEC under Exchange Act Rule 14a-6(g). This rule requires a person who owns more than $5 million of a company’s securities and who conducts an exempt solicitation of the company’s shareholders (in which the person does not seek to have proxies granted to them) to file with the SEC all written materials used in the solicitation. However, these funds also file these Notices, which appear on Edgar as “PX14A6G” filings, typically to respond to a company’s statement in opposition to a shareholder proposal included in the proxy statement or to otherwise encourage (but not solicit proxies from) shareholders to vote a specific way on shareholder proposals, say on pay proposals and in “vote no” campaigns.

In a new twist, this week John Chevedden (the most prolific individual shareholder proponent given that he submits them in his own name and by using “proposal by proxy” to submit proposals for other shareholders) filed his first “Notice of Exempt Solicitation.” Chevedden’s Notice addresses a proposal included in the AES Corp. proxy materials to ratify the company’s existing 25% special meeting ownership threshold. The SEC staff previously concurred that AES could exclude from its proxy materials Chevedden’s shareholder proposal requesting a 10% special meeting threshold pursuant to Rule 14a-8(i)(9) because the company’s ratification proposal and the shareholder proposal conflicted. See The AES Corp. (avail. Dec. 19, 2017).

Shareholder Proposals: Lobbying

As noted in this press release, corporate lobbying disclosure remains a top shareholder proposal topic. A coalition of more than 70 investors have filed proposals at 50 companies asking for lobbying reports that include federal and state lobbying payments, payments to trade associations used for lobbying and payments to any tax-exempt organization that writes and endorses model legislation.

And as reflected in this no-action response to Citi, Corp Fin doesn’t seem to be interpreting its “economic relevance/(i)(5)” guidance under Staff Legal Bulletin #14I to allow exclusion of these proposals…

The Disney Annual Meeting: Fake News

A few weeks ago, I blogged about a press release from “National Center for Public Policy Research” and the drama at the meeting. At the time, I blogged that this looks like a lot of hard spin to me as this organization likes to stir things up at “liberal” company meetings.

I wanted to follow up to address some of the claims in that organization’s press release that I didn’t blog about – claims about Disney’s CEO Bob Iger. After listening to some of the meeting’s audio archive, I can say there seems to be a lot of “fake new” in that press release. As the audio reveals quite nicely, the organization’s leader is well known to Iger from previous encounters – and was allowed to speak – and his hostile harangue was justifiably booed by the audience. Listening to the audio, I thought that Iger handled an aggressively hostile questioner respectfully, under the circumstances. This episode makes a good case to webcast your annual meeting – so that folks can listen to the audio archive if “fake news” comes your way…

– Broc Romanek

Below is Part 4 of a collection of memories from members about working at the printers (here’s Part 1; Part 2; and Part 3). Please keep them coming and I will only blog them if you give me permission – you can determine whether you want attribution or anonymity:

– Chris Chaffin notes: I started at Vinson & Elkins in Houston in 1995 right as the markets started picking up again. The “Corporate & Securities” section seemed perpetually understaffed so we were thrown right into the fire as first-years. The Spring of my first year, I started dating my eventual wife of now 19 years. After our first date, I told her “I don’t know when I will see you again” which she didn’t understand. I meant of course “well, I’m always at the printer, so I don’t know.”

I was then stuck at the printer and talking about it with one of the salesmen and he suggested that he could order in some really nice food at the printer and I should invite her to dine at the printer. So, I called her up and invited her to a “private” dinner in the corner of the Bowne dining room. Bowne brought in some really nice Italian food with sumptuous desserts and we had a “dinner date” right there at the printer. The rest is history – three beautiful children and we still laugh about our early date at the printer.

– My first night at the printer in 1987 spent proofing, correcting, redrafting, etc. For dinner, I was given a credit card and told to enjoy at the Old Homestead downtown. When I returned, the invoice was examined and it was determined that I had not eaten (or spent) enough, and lobster tails, shrimps and steaks were summarily ordered in. In those days, that was the norm.

– My favorite printer moment was a particularly protracted filing (several days shuttling between the printer and a downtown hotel) – one evening upon submission of hundreds of pages of changes, with time to kill until the turnaround would be complete – traveling uptown to the Beacon Theatre to catch one of the performances of the Allman Brothers during their annual run in March, and thence returning to the Printer to complete the proofing and filing of the documents by morning. All-in-all, a very satisfactory experience.

– In 1986, I was a first year associate at a large prestigious law firm and sent to the printer in Houston for a large bond deal. They had just converted to the computer typesetting and were busy bragging to the attorneys and bankers about how great their system was. About 3 AM, we received what we hoped was the final draft of the indenture to put into the filing package. Turns out that their fancy new system had dropped every “y” in the document. They were horrified. Eventually it was fixed and we had to re-slug a long document. At least I got a few good meals and tickets to the NBA Finals out of it.

– Kent Shafer of Miller Canfield: When I was a kid, I worked part time proofreading for the printer on the next block, which did calendars, advertising fliers, and so on. It was a hot, filthy, noisy place – linotype machines clacking, ink on the floor, and acrid smoke in the air. Shortly after joining our firm, a senior partner dispatched me to “the printer” in New York (Pandick). Having worked at a printer before, I thought I knew what to expect. I was wrong. I will always remember being shown into that elegant, mahogany filled room, with a cheerful fire burning in the fireplace, and being served coffee in a china cup by a uniformed waitress wearing a white apron.

More on “Proxy Season Blog”

We continue to post new items daily 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 inputting their email address on the left side of that blog. Here are some of the latest entries:

– Shareholder Proposals: Trends
– How Do You Count a Multi-Day Board Meeting?
– Shareholder Proposals: 1st “Economic Relevance” Exclusion Since New Guidance
– Shareholder Proposals: CII Jumps Into “Special Meeting” Conflicts Fray
– Shareholder Proposals: No Exclusion for “Independent Chairs & NYSE Standards”

– Broc Romanek

Yesterday, the Walt Disney Company held its annual meeting – and apparently it wasn’t a smooth one. I’m not sure exactly what happened, but here is the intro of this press release from the “National Center for Public Policy Research”:

A veteran of more than 100 corporate shareholder meetings, National Center for Public Policy Research Free Enterprise Project Director Justin Danhof, Esq. is calling out the Walt Disney Company for its shameful manipulation of its annual shareholder meeting held today. Danhof says the company planted adoring fans and company employees in strategic positions in the meeting room so they could praise Disney CEO Bob Iger while blocking investors with serious issues from participating.

“I have never seen anything like the charade that Disney executives executed today. Iger and the rest of Disney’s leadership need to immediately issue a genuine apology to every investor who attended today’s meeting,” said Danhof. “Bob Iger has been called the most powerful person in Hollywood. What a joke that is. Today, he proved he couldn’t even handle a few critical questions from investors.”

Normal protocol for shareholder meetings allows for investors to address CEOs in an open question-and-answer session that follows formal business votes. At today’s meeting – held in Houston, Texas – Disney only allowed questions to be asked by individuals sitting in a few designated rows. Then, in an obvious effort to ensure those questions and comments were complimentary, they allowed members of a specific Disney fan club to enter the arena ahead of regular shareholders. Once inside, these fans occupied nearly all of the designated question-and-answer seats.

The meeting was held in Houston – and news about it got picked up by the papers everywhere (see this article). I have no idea what happened – but let me wager a guess: I would think it likely that Disney imposed a lot of restrictions on its meeting. As noted in this article, there were large protests by Disneyland employees protesting for higher wages who were denied entry. Of course, if it happened, Disney wouldn’t be the first company to plant employees in the audience to lob softballs – but this looks like a lot of hard spin to me. This organization likes to stir things up at “liberal” company meetings. Did it at Apple a few years ago…

This all happened ironically as our own webcast on the “Conduct of the Annual Meeting” was taking place (audio archive now available). Please take a moment to participate anonymously in these surveys: “Quick Survey on Annual Meeting Conduct” – and “Quick Survey on Whistleblower Policies & Procedures.”

SEC Staff’s Guidance on Cryptocurrency Exchanges

A few days ago, the SEC’s Enforcement Division and Division of Trading and Markets issued a joint statement over cryptocurrency exchanges. The statement is the latest effort by the SEC to address potentially fraudulent or manipulative behavior in the burgeoning market for ICOs and token deals – it’s both an informational document for investors using online trading platforms and a warning to operators of those platforms that the SEC is scrutinizing their activities. We’re posting memos about this in our “Blockchain” Practice Area…

7 Ways to Sleep at Shareholder Meetings

I know I blogged about this a few years ago, but it’s own of my favorites – my 2-minute video about “7 Ways to Sleep at Shareholder Meetings”:

– Broc Romanek

Recently, we’ve blogged about CII’s angst over Corp Fin’s recent no-action decision allowing AES Corp to exclude a shareholder proposal on the threshold required for investors to call a special meeting.

Since then Corp Fin has followed it’s AES approach – but with a significant twist. Here’s an excerpt from this blog by Keith Higgins (also see this Cooley blog):

More requests to exclude special meeting proposals such as the one in AES Corp have come in, and the Division’s approach remains essentially the same, recently though with a significant twist. In a letter to Capital One (2/21/18), the Division agreed that the company, which proposed to ratify its existing special meeting bylaw, could omit a shareholder proposal to lower the threshold to call a shareholder meeting from 25 percent to 10 percent, provided that the company’s proxy statement discloses:

– that the company has omitted a shareholder proposal to lower the ownership threshold for calling a special meeting,
– that the company believes a vote in favor of ratification is tantamount to a vote against a proposal lowering the threshold,
– the impact on the special meeting threshold, if any, if ratification is not received, and
– the company’s expected course of action, if ratification is not received.

The Division based its conditions on Rule 14a-9, suggesting that it believes a proxy statement with a ratification proposal that does not provide the required context in which shareholders are being asked to vote for ratification would be materially misleading.

Transcript: “The Top Compensation Consultants Speak”

We have posted the transcript for the CompensationStandards.com webcast: “The Top Compensation Consultants Speak.”

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor 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 inputting their email address on the left side of that blog. Here are some of the latest entries:

– Who Administers Political Spending Policies?
– Energy & Utility Company Governance Issues
– E&S: Sifting Through the Raters Quagmire
– Toll-Free Numbers for Earnings Calls?
– Reg A+: Many are Called, But Few are Chosen

– Broc Romanek

During this proxy season, we’ve blogged a few times about the campaign to stop companies from holding virtual-only annual meetings. As noted in this blog, some companies decided to heed the campaign and announced that they would hold a hybrid meeting instead of a virtual-only.

And this blog announced that the nuns would participate as proponents in the campaign, urging in their shareholder proposals that the topic of virtual-only meetings has become so important as a governance topic that it should no longer be considered “ordinary business” under Rule 14a-8(i)(7). Corp Fin has now issued a response to one of these no-action letter requests – this one to Comcast – and has determined that the topic is still “ordinary business.” And so Comcast can exclude the shareholder proposal…

Please take a moment to participate anonymously in these surveys: “Quick Survey on Annual Meeting Conduct” – and “Quick Survey on Whistleblower Policies & Procedures.”

Tomorrow’s Webcast: “Conduct of the Annual Meeting”

Tune in tomorrow for the webcast – “Conduct of the Annual Meeting” – to hear Bank of America’s Gale Chang, Nielsen’s Emily Epstein, Independent Inspector of Elections’ Carl Hagberg and Verizon Communications’ Dana Kahney discuss how to prepare for your annual shareholders meeting.

Kill The SEC?

Maybe the SEC’s seen its day and we should just start over? That’s what the folks at Competitive Enterprise Institute think. Check out this article…

– Broc Romanek

I’ve been running an executive pay conference for over 15 years now – and I’ve always been loathe to program about “pay-for-performance” because I don’t quite understand it. I’ve always been a hard worker – so I’m the type who gives “my all” in exchange for a salary. That’s all the incentive I really need.

But I certainly can be dis-incentivized. And if that happens, my reaction is to find a new job. And the memo that the United Airlines CEO recently sent to employees – described in this article – would fall into the category of things that dis-incentivized me.

First, there is the tone of the memo – aptly described in the article as tone-deaf. And then there is the subject of the memo: taking away quarterly performance bonuses from many employees (who expected them in the regular course as they hit certain benchmarks) – and instead pooling together that money to give much larger bonuses to those that win a lottery of the bonus money. To capture the essence of that, I’ll use this excerpt from the article:

It’s a curious logic, one that says: “How do we get them to improve? How about taking away their bonus?” To be followed by “heh. heh. heh.”

Can you imagine what the United CEO would say if his compensation was subject to a random drawing. I guess we’ll never know because employee backlash already led to the company shelving this horrible idea…

Comment Letters to the SEC: Having Fun…

For a diversion from your billables, probably the next best thing to reading this blog is perusing the comments submitted to the SEC on various rulemakings. It isn’t too hard to find some written from the couch. For example, in this comment letter, there are harsh words for the SEC from the Mayor of Forest Hills Borough, Pennsylvania (assuming it’s not an impersonation which might be easy to accomplish).

By the way, we do have a nifty checklist about how to craft an effective comment letter to the SEC from Jay Knight of Bass Berry posted in our “Checklists Library.” Please contact me if you would like to contribute a checklist. They are very popular…

Transcript: “Conflict Minerals – Tackling Your Next Form SD”

We have posted the transcript for the recent webcast: “Conflict Minerals – Tackling Your Next Form SD.”

– Broc Romanek