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."
With a government shutdown averted – at least for two weeks – SEC Staffers still have plenty to be concerned about. One of the Dodd-Frank studies – required by Section 967 of the Act – is being prepared by an independent consultant, the Boston Consulting Group. Expected to be published soon, the study’s stated purpose is to “examine the internal operations, structure, funding, and the need for comprehensive reform of the SEC, as well as the SEC’s relationship with and the reliance on self-regulatory organizations and other entities relevant to the regulation of securities and the protection of securities investors that are under the SEC’s oversight.”
Given that this study was commissioned at a time when it was expected that the SEC would receive more funds and would be in full hiring mode – and now the opposite is true – it will be interesting to see how the study handles this dramatic change in the current Congressional-regulatory environment.
And speaking of an underfunded SEC, you should read this editorial by former SEC Commissioner Bevis Longstreth entitled “Congress and the SEC’s Starvation Diet.” Here is an excerpt:
A horse forced to carry too heavy a load collapses. So too an agency. Far better, in such circumstances, for the public not to be misled, not to be lulled into complacency by reliance on the Government, but rather to be informed that the Government should not be counted on as a source of protection — in short, to be told that one must fend for one’s self.
Study: A Disconnect in Growing Shareholder Engagement
Last week, the IRRC Institute issued a study entitled “The State of Engagement Between US Corporations and Shareholders” that was conducted by ISS and shows that engagement is increasing. As Jim McRitchie notes, the study reveals there is a bit of disconnect for shareholder engagement practices so far. And that engagement is either a priority or a non-event for investors – asset owners and asset managers were most likely to report either that they had engaged with more than ten companies in the previous year or that they had not engaged at all.
Based on what I am hearing on the street, that certainly seems to be the case as many are trying new avenues of engagement for the first time due to say-on-pay with mixed results. I’m sure we will be seeing more of these studies after the proxy season is over, reporting many of the same things…
As noted in this Wachtell Lipton memo by George Conway, a federal district judge in New York last week threw out most of a securities class action jury verdict that plaintiffs’ lawyers had estimated was worth $9.3 billion. The jury’s verdict was rendered 13 months ago – before National Australia was decided, and thus under now-overturned law – upheld claims that were predominantly “foreign-cubed” (asserted by foreign investors against a foreign issuer for losses on a foreign exchange) and “foreign-squared” (asserted by American investors against a foreign issuer for losses on a foreign exchange). In categorically dismissing all the claims of those investors, the decision in In re Vivendi Universal, S.A. Securities Litigation, according to Vivendi and its counsel, eliminated at least 80%, and perhaps up to 90%, of the liability that the verdict could have produced.
As George notes in his memo, this case marks the culmination of a series of district court decisions that have consistently rejected attempts by the securities class-action plaintiffs’ bar to find loopholes in National Australia. Both of the main theories that have been advanced by plaintiffs’ lawyers to evade the Supreme Court’s decision have been repudiated by the courts, now repeatedly and sometimes scathingly.
Why Would Corp Fin Ever Deny a Registration Statement Withdrawal?
Last week, BlogMosaic ran this blog about how the SEC recently denied the withdrawal of a registration statement. It’s a rare occurrence and might lead you to wonder why Corp Fin would do such a thing. I believe it happens when the SEC suspects foul play and by denying the withdrawal, it helps them maintain jurisdiction over a potential action.
More on our “Proxy Season Blog”
With the proxy season in full swing, we are posting new items regularly on our “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:
– Updated: Links to Fortune 100 Investor Web Pages
– Proxy Impact Offers New Advisory Services
– Goodbye Proxy Governance! And Then There Were Two…
– A Final Review of 2010 ESG Shareholder Proposals
– Top 10 Questions for Audit Committees
Over the past two days, the SEC’s beleaguered Enforcement Division has brought separate earth-shattering cases that go straight to the boardroom. On Monday, the SEC charged three of Point Blank Solutions’ former outside directors (and audit committee members) for their complicity in a massive accounting fraud. Then yesterday, the SEC charged a former McKinsey head of using his position as director for Goldman Sachs and Procter & Gamble for being a tipper in the Galleon insider trading scandal. Here’s an interesting excerpt from this NY Times article:
The case against Mr. Gupta has an unusual procedural twist. Under the Dodd-Frank Act, the S.E.C. can seek a full range of penalties against people not employed by a financial services firm through a relatively streamlined proceeding before an S.E.C. administrative law judge. Historically, if the agency sought penalties against a public company director like Mr. Gupta, it had to sue in federal court, where the defendant has full discovery rights of the SEC’s case, including all of its witnesses.
And here is a sidenote – a quote from Preet Bharara, US Attorney for the Southern District of New York, that I shortened and tweeted last week: “Unfortunately from what I can see, from my vantage point as US Attorney, illegal insider trading is rampant” (this quote was lifted from this insider trading memo by Morrison & Foerster).
Webcast: “Conduct of the Annual Meeting”
Tune in tomorrow for the webcast – “Conduct of the Annual Meeting” – to hear Bret DiMarco of Coherent, Peggy Foran of Prudential, Carl Hagberg, an independent inspector of elections and Editor of The Shareholder Service Optimizer, Kathleen Salmas of Northrup Grumman and John Seethoff of Microsoft discuss all of the thorny annual meeting issues, such as what to do if you need to adjourn the annual meeting, how to handle common and troublesome tabulation issues and how to handle meeting attendees that act inappropriately. Carl has contributed this fantastic set of practical articles on annual meetings as course materials.
Conducting Meaningful Board Evaluations
In this podcast, Denise Kuprionis of Governance Solutions Group explains how to best handle board evaluations, including:
– What are the key elements of a board evaluation?
– What role should the corporate secretary/chief governance officer play in this review process?
– What are the metrics? How should the board measure itself?
– What’s the “so what” after the evaluation is complete?
With Friday’s deadline for a government shutdown looming, it seems fair to start wondering how our community will function without the agency. Will EDGAR be operational? Will registration statements be declared effective so that deals can go forward? Will no-action requests related to shareholder proposals be processed?
I don’t know the answers to these questions – but I imagine most of the news wouldn’t be good. This article notes that the SEC is engaged in contingency planning – and this note to SEC union employees indicates that relatively few SEC Staffers are deemed “essential” (100-250) and would remain on the job. I presume Corp Fin will provide us with news about the impact of the shutdown if it does indeed occur. As this article notes, the House votes today on a temporary funding measure – but that may merely put off the shutdown for two weeks.
Interestingly enough, there is no precedent for the SEC here – at least not in the modern era – as the SEC somehow found funding to keep open back in 1995 when the government was last shut down. And I end with this note from a member:
Am I the only one who has noticed that the deadlines for the government shut-down and the NFL lock-out are both on March 4? I would think that political and sports pundits alike would revel in such a congruence of the stars. But maybe I just follow less informed pundits.
A New Shareholder Proposal Database: ProxyMonitor.org
One question I get asked often enough is where can one find a database that tracks shareholder proposals and their stats. Sites like this have existed but they tend to disappear within a year or two. Now there is a new one. In this podcast, Jim Copland of the Manhattan Institute’s Center for Legal Policy provides some insight into ProxyMonitor.org, a new shareholder proposal database, including:
– What is ProxyMonitor.org?
– How long did it take to create?
– Who do you envision using it?
Our March Eminders is Posted!
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I just got this one from a member: A few weeks ago, Corp Fin issued two interesting no-action responses to Goldman Sachs regarding the evaluation of risk. Through them, I think the Corp Fin Staff is trying to define the contours of the risk assessment guidance provided in Staff Legal Bulletin 14E back in ’09. As you’ll recall, the Staff indicated in that SLB that it will evaluate whether a proposal is excludable under 14a-8(i)(7) by focusing on the type of risk that the proposal seeks to address (i.e., climate change risk is not excludable but proposals relating to ordinary business risk are).
Interestingly, the first Goldman letter seems to turns this concept on its head. In that letter, the Staff concluded that Goldman could not exclude a proposal requesting:
“that the board prepare a report disclosing the business risk related to developments in the political, legislative, regulatory, and scientific landscape regarding climate change.”
That did not sound like ordinary business risk to the Staff. In denying exclusion, the Staff noted that:
“We are unable to concur in your view that Goldman Sachs may exclude the proposal under rule 14a-8(i)(7). In arriving at this position, we note that the proposal focuses on the significant policy issue of climate change. Accordingly, we do not believe that Goldman Sachs may omit the proposal from its proxy materials in reliance on rule 14a-8(i)(7).”
In contrast, the following day, the Staff addressed a proposal in the second Goldman letter that:
“the board report to shareholders the risk management structure, staffing and reporting lines of the institution and how it is integrated into their business model and across all the operations of the company’s business lines.”
Given the role that risk played in the collapse of so many Wall Street firms – and the issues that Goldman has had to address with the SEC – I think some might have expected the Staff to take the position that this proposal raises significant policy issues. But not so as the Staff allowed the exclusion, noting that:
“There appears to be some basis for your view that Goldman Sachs may exclude the proposal under rule 14a-8(i)(7), as relating to Goldman Sachs’ ordinary business operations. We note that the proposal relates to the manner in which Goldman Sachs manages risk.We further note that the proposal addresses matters beyond the board’s role in the oversight of Goldman Sachs’ management of risk.”
It will be interesting to see how these tough judgment calls continue to play out…
Warren Buffett’s Annual Letter to Shareholders
We now have the always fascinating annual shareholders’ letter from Warren Buffett. Here are reactions to the letter from WSJ’s Deal Journal and Kevin LaCroix’s analysis – and here is a Bloomberg article with notable excerpts from the letter…
In his “Proxy Disclosure Blog,” Mark Borges gives us the latest say-when-on-pay stats: with 291 companies filing their proxies, 55% triennial; 5% biennial; 35% annual; and 5% no recommendation. Mark notes that last week was the first in which annual exceeded triennial recommendations during a single week – and that out of the 104 companies that have reported voting results, 9 have had 30% or greater “against” votes for their SOP.
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:
– Some Seek SEC Guidance on Disclosing CEO Illness
– ICAS Report: Auditors Should Sign Off on Directors’ Decision-Making Process
– Canada’s Regulator Report on Corporate Governance Disclosure: Not Good News
– SEC Proposes Rules on Private Fund Reporting
– In Watershed Decision, Federal Court Dismisses Class Action Against Failed Bank D&Os
As noted on Responsible-Investor.com, Australia’s government recently adopted legislation strengthening its say-on-pay requirements. One change was the adoption of a “two strikes” test, meaning that shareholders would have the opportunity to remove directors if the company’s remuneration report had received a ‘no’ vote of 25% or more at two consecutive annual general meetings. Another change is the prohibition of directors, executives and their “closely related parties” from voting on executive pay.
Also notable is that Novartis – a large Swiss company – garnered a 40% “against” vote on its first say-on-pay vote on Tuesday, as mentioned in this article.
The Debate Over Whether to Ignore Say-When-on-Pay Results So Far
So I would bear these developments in mind as companies weigh how much engagement they should be doing with shareholders. I was a little surprised at the reactions that Mark Borges and I have received to our advice that – given the voting results so far – companies may reconsider recommending a triennial vote for say-when-on-pay (egs. Marty Rosenbaum and Amy Muecke; compare Dominic Jones who asks whether boards are using triennial recommendation as a diversion).
I know many boards have pondered long and hard and decided that triennial is in the best interests of shareholders – but if shareholders are clearly saying it’s not in their best interests, that surely must count for something? I say “pick your battles” in an effort to start off with a less confrontational engagement in this new “say-on-pay” world. With a statistically relevant number of results in, it’s becoming pretty clear that shareholders want an annual SOP even if the company has stable management and sound pay practices. For shareholders, those factors appear relevant as to how they vote on say-on-pay – but not relevant for say-when-on-pay.
Like I said in my original blog on this topic, the fact that so many companies are ignoring the clear will of shareholders over this minor topic (“minor” in comparison to SOP itself) will likely further galvanize shareholders to more closely scrutinize pay practices. As I hear from shareholders, they feel like companies are deciding what is in the “best interests of shareholders” without taking into account what shareholders have clearly said is in their best interests. Looking at this situation from their perspective, I can see why they might get upset.
Here is something from Paul Schulman of MacKenzie Partners that was just on CompensationStandards.com’s “The Advisors’ Blog“: Glass Lewis recently concluded a client-only presentation regarding updates to their policies for 2011 and what they see as trends for the upcoming year. As you probably know, Glass Lewis will not speak to you about your proxy, taking the approach that “if you have something you want us to consider, put it in a public filing.” They recently purchased the smaller advisory firm Proxy Governance and depending on the makeup of your shareholder base, you should be aware of their policies and likely vote recommendation if you’re facing a potentially close vote.
Courtesy of Glass Lewis, here is a summary of their presentation (the full presentation is not publicly available). Some of the points you might pay attention to:
1. What will drive their decision to vote Against Say on Pay votes?
-Misalignment of pay with performance (P4P grade of D or F)
-Insufficient disclosure
-Poorly formulated peer group(s)
-Guaranteed bonuses & high fixed pay
-Poorly-designed incentive plans with excessive payouts and unchallenging goals
-Too much reliance on time-vesting equity awards
-Egregious contractual commitments (tax gross-ups, golden parachutes, death benefits)
-Internal pay inequity
-Excessive discretion afforded the board in granting awards and adjusting metrics
2. When will they go beyond say on pay and vote against comp committee members?
-Behavioral issues: For example, option repricing without shareholder approval, or the granting of excessive and unjustified golden handshakes or golden parachutes
-Sustained Poor Pay-for-Performance: Judged by a history of “D”s and “F”s in the GL model
3. What were the major U.S. Policy updates?
Most were relatively minor and won’t apply to a broad spectrum of companies. Some of the more noteworthy were:
-Classified Boards: If we maintain concerns with affiliates or insiders who are not up for election, we will consider recommending voting against such directors at their next election if the concerning issue is not resolved.
-Excessive Audit Committee Memberships: We may exempt certain audit committee members from our standard threshold (i.e. serving on more than 3 public company audit committees) if, upon further analysis of relevant factors, we can reasonably determine that the audit committee member is likely not hindered by multiple audit committee commitments.
-Board Interlocks: We will also evaluate multiple board interlocks among non-insiders (i.e. multiple directors serving on the same boards at other companies) for evidence of a pattern of poor oversight.
-Stock Option Repricings: We recommend to vote against all members of the compensation committee when the company completed a “self tender offer” without shareholder approval within the past two years.
More on our “Proxy Season Blog”
With the proxy season in full swing, we are posting new items regularly on our “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:
– Director Qualifications: SEC Comments and Example Disclosures
– CalPERS Responds (Slowly) To Records Request for Rule 14a-8 Letters
– An Early Look at 2011 Governance Shareholder Proposals
– The “Fifth Analyst Call” Request
– Latest on Environmental Disclosure in SEC Filings
Related to my recent blog drawn from a Willkie Farr memo covering comments made by Corp Fin’s Chief Accountant at a conference, here is a note from Stan Keller of Edwards Angell Palmer & Dodge (repeated from this memo):
There has been some confusion over the role of lawyer audit response letters under the ABA Statement and related AICPA auditing standard (together the so-called “Treaty”) and the relationship of those response letters to the accounting standards governing the accrual and disclosure of loss contingencies. This confusion is reflected in reactions to the FASB’s proposal to revise the accounting standard for loss contingencies and to a recent statement by Wayne Carnall, Chief Accountant of the SEC’s Division of Corporation Finance, warning companies against over-reliance on the Treaty in reporting litigation contingencies in financial statements. If the Treaty is properly understood, that statement should not, itself, be cause for concern.
The Treaty is an auditing standard designed to provide audit support for a company’s accounting for loss contingencies in accordance with applicable accounting standards, principally Accounting Standards Codification 450-20 (formerly Financial Accounting Standard No. 5). As an auditing standard, the Treaty addresses the lawyer’s response to the auditors and is just one part, though a key part, of the auditing process in which auditors gather and verify information. It does not address the disclosure requirements for the company’s accounting for loss contingencies, but rather deals with the information lawyers are to provide to the auditors. The Treaty was carefully constructed so that it provides audit comfort to the auditors, as a third party, while preserving the confidentiality of client communications and the fundamental protections of attorney-client privilege, thereby encouraging consultation by the client with counsel as critical to promoting voluntary legal compliance.
Thus, the information provided by lawyers in the audit response letter to auditors is more tailored than the information companies may be required to disclose pursuant to the accounting standards. The Treaty does not foreclose the auditor from obtaining additional information from the company consistent with the underlying purposes of the Treaty. Nor does the Treaty address the advice lawyers give their client companies regarding the company’s disclosure obligations. Significantly, audit response letters under the ABA Statement reaffirm the role of lawyers, when appropriate in connection with their engagement, in advising clients regarding disclosure.
The lawyer’s audit response letter provides meaningful information to the auditors by identifying overtly threatened and pending claims being handled by the lawyer and unasserted claims as to which the client specifically requests comment. In this way, the auditors are alerted to the existence of claims against the client. By confirming that the lawyer fulfills his or her professional responsibility, the audit response letter permits the auditor to rely on the continued involvement of the lawyer.
To illustrate the distinction between lawyer audit responses and company financial statement disclosures, lawyers in their audit response letter do not speculate on the amount of potential loss. Under the Treaty, they provide an estimate only if the risk of error in the estimate is “slight.” On the other hand, under ASC 450-20, a company may have to estimate the potential loss or range of losses and, if it cannot, explain why it cannot. The SEC has made this disclosure requirement clear as it seeks to ensure compliance with the existing accounting standard. Compliance with this requirement is the best way to convince the FASB that adoption of revised standards, which are likely to be more problematic, is not necessary.
The Battle Over the SEC’s Budget: Reaching a Crisis Stage
I’ve blogged frequently over the need for the SEC to be self-funded and the more recent efforts by Congress to limit the SEC’s budget (here’s one of many blogs on the topic). As noted in “The Hill” blog, House Democrats blasted Republicans recently in a hearing during which SEC Chair Schapiro testified as to the needs of the SEC. During the hearing, Rep. Barney Frank noted he will try to find $131 million from other sources to help fund the SEC.
As it stands, President Obama’s proposed budget would increase the SEC’s budget by 28%, to $1.428 billion from $1.118 billion. In comparison, the SEC would receive $1.069 billion under the House Republican’s plan – which is a reduction of over $70 million from the continuing resolution that the SEC presently is operating under (and a $337 million or 24% decrease, from what the SEC originally requested). As noted in CorpGov.net, there is a letter-writing campaign by investors to maintain the SEC’s budget.
In its “2012 Congressional Budget Justification,” the SEC tells the story of how its budget has fared in recent years. From it, you can see that the SEC had 3748 full time equivalent staff last year – down 103 from 2005 (and in 2005, the SEC had received increased funding as a result of earlier financial scandals). Since 2005, the need for increased funding for the SEC has been highlighted in two separate GAO reports to Congress, including how the SEC has lost key staffers due to lack of funding. In fact, for many years during the 1990s – while the country experienced an economic boom – many SEC staffers went for years without a pay raise. When I left the SEC at the end of ’98 – then working for a Commissioner – I made an annual salary in the mid-70s. True.
After receiving an increase in funding in 2005, the SEC experienced three years of frozen and reduced budgets. This resulted in a forced reduction in SEC staff from the 3851 in 2005 to 3465 in 2007, as the turmoil in the markets was beginning to grip the nation. The SEC has also reported that its investments in IT systems underwent a forced decline of about 50% from 2005 to 2009.
If the House Republicans have their way and the SEC’s 2011 budget is reduced by $70 million – the SEC will have only 7 months to make its cuts since its fiscal year ends on September 30th. To do that, I imagine some drastic measures will have to be made. This sure seems like complete madness since Dodd-Frank was enacted less than a year ago. What financial crisis?
Here’s an interesting DealBook column commenting upon the possible ramifications on SEC enforcement cases if the SEC’s budget remains limited.
Recent Developments Regarding Fairness Opinions, Valuation Analyses and Related Topics
We have posted the transcript for our recent DealLawyers.com webcast: “Recent Developments Regarding Fairness Opinions, Valuation Analyses and Related Topics.”
My condolences to those that knew Joe Flom, one of the founders of Skadden Arps and beyond a giant in corporate law. As I understand it, Joe was working until near the end despite being the advanced age of 87. Amazing.
In this podcast, Dave Lynn and Marty Dunn engage in a lively discussion of the latest developments in securities laws, corporate governance, and pop culture. Topics include:
– The latest FAS 5 developments, including recent Staff comment trends
– A debate on Say-on-Pay voting standards
– Fond memories of life at the Commish
Evolving Disclosure Practices in Response to the Repeal of Rule 436(g)
A few months ago, I blogged several times about the repeal Rule 436(g) and how practices were evolving to deal with the implications of the repeal and the SEC Staff’s interpretive guidance. As noted in this Dewey & LeBoeuf memo, new practices have developed for disclosure of credit ratings information in periodic reports and the conduct of investment grade securities offerings.
Mailed: January-February Issue of The Corporate Executive
The January-February Issue of The Corporate Executive includes pieces on:
– The SEC’s Final Say-on-Pay Rules
– Implementing the Dodd-Frank Act Requirements
– Exemption for Smaller Reporting Companies
– Say-on-Pay Votes
– Say-on-Frequency Votes
– Additional Say-on-Pay/Say-on-Frequency Requirements
– Say-on-Golden Parachute Vote
– Transition Guidance
– Best Practices for Drafting Proxy Statements this Season
– Fixing Long-Term Incentive Grants
– A Wake-Up Call for More Performance or Lower Grant Value?
– Designing More Effective Long-Term Performance Share Plans
– Calibrating Equity Grant Values
– Follow-up: Grants Contingent on Shareholder Approval
Act Now: Get this issue rushed to you by trying a No-Risk Trial today.
From CompensationStandards.com’s “The Advisors’ Blog“: Here’s something that I kept putting off blogging about until someone else wrote about it – but no one ever has. In our “Airplane Use” Practice Area, I have posted final guidance that the FAA issued on December 30th about its reconsideration of the “Schwab” interpretation regarding executives not being allowed to reimburse for corporate aircraft use under certain circumstances (here’s my blog about the FAA’s proposal).
Here’s one member’s reaction to this guidance:
It is a another example of bureaucrats standing in the way of common sense and sound policy. If an executive wants to pay for personal use of corporate aircraft, there is no reason the FAA should stand in the way.
Based on my reading of the policy, the FAA would allow CEO to fully reimburse XYZ for the personal use of corporate aircraft, but only if it is possible he could be called back on company business or forced to cancel his trip ( i.e., a normal vacation). On the other hand, if he is going to a wedding or funeral, FAA has declared it would not be reasonable to assume the company would – or could – force him to alter his plans. Thus, if he uses the plane for a wedding, he could only reimburse a limited amount of the expense under FAA guidelines ( i.e., fuel and landing fees), whereas he could pay all the incremental costs associated with a normal vacation.
If his wife or kids used the plane when CEO was not present, you could read the guidelines to limit the reimbursement to the limited FAA guideline level. If the company wants to establish a written policy that makes reimbursement of personal use of corporate aircraft mandatory, the policy will have to include a caveat that any reimbursement must comply with FAA restrictions.
More on “Say-on-Pay Frequency: Confusion Over Vote Counting”
As a follow-up to my recent blog regarding “Say-on-Pay Frequency: Confusion Over Vote Counting,” here are a few interesting items:
1. As reflected in this nifty chart from CompensationStandards.com’s “Say-on-Pay” Practice Area, ExeQuity’s Robbi Fox has been tracking the proxy statements for the S&P 500 companies who have filed so far (as compared to voting results filed in Form 8-Ks) and out of the 36 S&P 500 companies that have filed proxies:
– Abstentions count as against, broker nonvotes have no effect -15 companies (42%)
– Abstentions and broker nonvotes have no effect -18 companies – (50%)
– Abstentions and broker nonvotes count as against – 3 companies – (8%)
3. Here’s an interesting piece called “Doing The Math On Proxy Odds,” which analyzes the potential use of vote modeling – in the form of “voting power analysis” – typically used in political campaigns in some proxy battles at public companies.
4. I agree wholeheartedly with Mark Borges’ blog last Friday entitled “Is it Worth Making a Triennial Vote Recommendation?” As I wrote in the Winter 2011 issue of the Compensation Standards newsletter in early January, most institutional investors have been vocal about their preference for an annual frequency – even if they didn’t really care about having it from a substantive perspective, they still wanted an annual vote to facilitate their ability to run their own peer comparisons (difficult to do if companies are holding SOP votes in different years). So these institutions decided to seek it from a process perspective.
So I’m not sure why companies continue to recommend triennial now that the early meeting results bear out that shareholders will often reject that frequency (as noted in ISS’s blog on Friday). As Tim Smith of Walden Asset Management emailed me over the weekend, he was initially angry about Dodd-Frank’s midnight addition of a frequency vote – but he’s now glad that frequency is on the ballot because rejecting the triennial recommendation has woken up many shareholders to the power that they now have with say-on-pay. It’s a reminder of what shareholder engagement is all about – listen to your shareholders and act on what they say. Clearly, many companies are choosing to operate in a bubble…
In his “Proxy Disclosure Blog,” Mark Borges gives us the latest say-when-on-pay stats: with 248 companies filing their proxies, 57% triennial; 6% biennial; 32% annual; and 5% no recommendation.
Webcast: “Developments in Debt Restructurings & Debt Tender/Exchange Offers”
Tune in tomorrow for the DealLawyers.com webcast – “Developments in Debt Restructurings & Debt Tender/Exchange Offers” – to hear Casey Fleck of Skadden Arps, Ward Winslow of Jones Day, Jay Goffman of Skadden Arps and Richard Truesdell of Davis Polk discuss how to conduct debt tender and exchange offers and restructure debt – including how these deals have changed in the current economic climate.
Yesterday, Corp Fin announced that it has hired Lona Nallengara as Deputy Director for Legal and Regulatory Policy – replacing Brian Breheny who left the SEC a few months ago. Lona joins the SEC from Shearman & Sterling’s NYC office and he hails from Canada. Although many deputy director hires for the various SEC Divisions are done from within the agency, hiring a deputy from the outside certainly is not unprecedented (think Michael McAlevey).
Have you seen this new BBC show called “Rastamouse“? Fits into my long-awaited dream to open up a chain of bowling alleys called “RastaBowl” in which all employees wear dreadlock wigs…
Shareholder Proposals: Corp Fin Rejects First Chevedden Handwriting-Based Challenge
Recently, I blogged about how a number of companies have taken the traditional route of seeking no-action relief from the Corp Fin Staff to exclude proposals submitted by Ken Steiner, who in turn has listed John Chevedden as his proxy. These eligibility challenges allege that Steiner’s ownership verifications appeared to be pre-signed by the introducing broker and they allege that Chevedden then filled in the company name, shares owned and date of ownership on the blank form that had been pre-signed with an October 12, 2010 date (I also noted that some of the no-action requests included a handwriting expert certification).
Corp Fin has now posted the first response to one of these challenges – this American Express response – that doesn’t allow exclusion by the company. Here is the notable excerpt from Corp Fin’s response:
We are unable to concur in your view that American Express may exclude the proposal under rules 14a-8(b) and 14a-8(f). In this regard, we note that American Express raises valid concerns regarding whether the letter documenting the proponent’s ownership is “from the ‘record’ holder” of the proponent’s securities, as required by rule 1 4a-8(b)(2)(i). However, we also note that the person whose signature appears on the letter has represented in a letter dated January 21,2011 that the letter was prepared under his supervision and that he reviewed it and confirmed it was accurate before authorizing its use.
In view of these representations, we are unable to conclude that American Express has met its burden of establishing that the letter is not from the record holder of the proponent’s securities. In addition, under the specific circumstances described in your letter, we are unable to concur in your view that the proponent was required to provide additional documentary support evidencing that he satisfied the minimum ownership requirement as of the date that he revised his proposal. Accordingly, we do not believe that American Express may omit the proposal from its proxy materials in reliance on rules 14a-8(b) and 14a-8(f).
SEC’s Rating Agency Proposals: Some Investment Grade Debt Issuers Would No Longer Qualify to Use Shelfs
Here is news from Davis Polk:
In response to requirements in the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC issued proposed rules last week that would revise the Form S-3 and Form F-3 transaction eligibility criteria so that issuers of non-convertible debt securities could no longer qualify to use Form S-3 and Form F-3 by issuing investment grade securities.
This transaction criterion would be replaced with a new transaction criterion which would allow companies to use Form S-3 or Form F-3 to register primary offerings of non-convertible securities if the company has issued, for cash, more than $1 billion in non-convertible securities, other than common equity, through registered primary offerings over the prior three years and meets the registrant requirements. This is modeled on the standard used to determine whether a company that does not meet the public equity float requirement qualifies as a well-known seasoned issuer (“WKSI”) based on its debt issuances.
To be eligible to file short-form registration statements on Form S-3 or Form F-3, a company must meet (1) registrant requirements (for example, a company must have been a reporting company for at least a year and be timely in meeting these reporting requirements), and (2) at least one of several alternate transaction requirements. Companies can currently meet these transaction requirements by primarily offering, for cash, non-convertible securities that are rated investment grade.
Companies often rely upon this transaction requirement to establish their Form S-3 or Form F-3 eligibility for issuances of corporate debt when they do not meet the alternate transaction requirement that they have at least $75 million in common equity held by unaffiliated shareholders. The proposed rules would not change this $75 million threshold or the registrant requirements, and so will generally only impact investment grade issuers that do not have publicly traded equity.
The proposed rules are effectively a reissuance of a substantially similar proposal issued by the SEC in 2008 but never finalized. Many commenters opposed the 2008 proposal on the basis that it set too high a threshold and would reduce the number of issuers eligible to use shelf registration statements for primary debt offerings. (See the Davis Polk comment letter on the 2008 proposal expressing these concerns here). At the open meeting, SEC Commissioners and staff recognized these concerns and urged commenters to suggest an alternate Form S-3 and Form F-3 transaction eligibility criterion. Although Dodd-Frank requires the SEC to remove references to credit ratings in their rules and forms it does not set out alternate standards. Comments on the proposed rules are due by March 28th.
