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."
Following up on my blog yesterday about the Dodd bill passing the Senate Banking Committee, I forgot to mention that there were two corporate governance amendments that made it into the 114-page Manager’s Amendment on the Dodd bill, both offered by Sen. Menendez (D-NJ):
– Pay Disparity Disclosure – Section 953 (the executive compensation disclosures provision) was amended to add a provision that would direct the SEC to amend Item 402 to require companies to disclose (i) their CEO’s annual total compensation, (ii) the median annual total compensation of their employees (excluding the CEO), and (iii) the ratio between CEO and employee pay. This disclosure would be required in registration statements, periodic reports and proxy/information statements
– Prohibit Use of Broker Non-Votes for Executive Compensation Matters – A new Section 957 was added to prohibit broker voting of uninstructed shares in director elections, executive compensation matters, or any other significant matter as determined by the SEC. While its language is general, this provision appears to be aimed at codifying the recent change to NYSE Rule 452, as well as precluding brokers from voting shares in “say-on-pay” votes (although Mark Borges notes that since it also applies to any shareholder vote involving “executive compensation,” it appears that it could extend to numerous compensation-related matters, such as the adoption of an employee stock plan and the approval of severance agreements).
Here is Davis Polk’s summary of the Manager’s Amendment – and here is some member feedback on the broker non-vote provision that I included today on “The Mentor Blog.”
And speaking of pay disparity, as a follow-up to my blog on the recent spate of shareholder proposals on pay disparity, it appears that the SEC Staff is rejecting requests from companies to exclude them under Rule 14a-8, as noted in this Reuters’ article.
Nostalgic for Options Backdating
Ah, remember the good ole days when citizens were just mad at Corporate America solely over options backdating. Those were the days! Luckily, backdating continues to creep into the news every once in a while. For example, criminal charges were dismissed recently against Broadcom’s former CEO and CFO – this may mark the end of new criminal cases (although there still needs to be a final disposition against the former Comverse CEO; here is an Ideoblog piece on this case) – while a securities lawsuit against Comverse was settled for $225 million (while a separate derivative lawsuit was also settled against Comverse a few weeks later, which includes a $60 million payment by the former CEO).
And this Bloomberg article noted that an investigation conducted by Treasury’s Inspector General concluded that the Office of Thrift Supervision allowed six thrifts to improperly backdate capital injections.
Also, Kevin LaCroix of the “D&O Diary” Blog notes that former McAfee General Counsel Kent Roberts, accused of options backdating-related misconduct, was acquitted following a criminal jury trial and the SEC later dropped its separate enforcement action against him. But that apparently is not enough for Roberts – he wants vengeance and has filed a defamation lawsuit (see this Bloomberg article).
And last September, a three-judge panel of the Ninth Circuit Court of Appeals reversed a District Judge’s order suppressing evidence related to information obtained by a law firm from Broadcom that helped conduct the internal investigation into options backdating by the company’s former CFO. Then, Broadcom settled a backdating-related securities class action lawsuit.
Finally, a new academic study surfaced that purports to show that the practice of backdating may have been significantly more widespread than previously believed – identifying 92 companies that have not previously been publicly associated with allegations of backdating. So maybe more backdating news to come…and not related to backdating, here is a provocative piece from Bud Crystal about opportunistic option timing.
As noted in the “Securities Litigation Watch,” Adam Savett is keeping updated options backdating stats as to how cases are being disposed. Here is an excerpt from that blog: “Of the 39 options backdating cases that have been filed as securities class actions, 30 have now reached a resolution. Of the resolved cases, 9 of those cases have been dismissed and 21 have settled. This is still in line with historical trends, where settlements outnumber dismissals by approximately 2-to-1.
The twenty one settlements total $1.56 billion, for an average of $74.38 million. But, removing the largest settlement (UnitedHealth Group) lowers the average back to $31.82 million. As could have been expected the averages are slowly creeping down over time, as the UnitedHealth settlement can now be viewed as a fairly clear example of an outlier in terms of the size of the settlement.”
SOX Whistleblowing Procedure Axed by French Supreme Court
Below is news from Gibson Dunn (we have posted memos analyzing this decision in our “Whistleblowers” Practice Area):
On December 8th, the French Supreme Court issued a decision impacting companies having operations in France and subject to the “whistle-blowing” requirements provided for by Section 301(4) of Sarbanes-Oxley. In 2004 and 2007, Dassault Systèmes – the holding company of the Dassault group – adapted its “Code of Business Conduct” (the “Code”) to provide for a whistle-blowing procedure.
The Code described the procedure as being “neither mandatory nor exclusive. Any person having knowledge of material breaches of the principles described in the Code of Business Conduct in financial, accounting or banking matters or relating to anticorruption issues and which deems it appropriate may communicate such breach to the designated persons within the DS Group. This procedure may not be used outside these areas. It may be used, however, in areas relating to the vital interest of the DS Group or the physical or mental integrity of a person (in particular in case of … discrimination or moral or sexual harassment).”
The French Supreme Court held that the Dassault whistle-blowing procedure was in breach of the Act on Computing and Liberties dated January 6, 1978 (“Loi informatique et libertés”). As a matter of principle, the Act requires the National Commission on Computing and Liberties (“Commission Nationale de l’Informatique et des Libertés”) (the “CNIL”) to authorize the operation of any automatic data processing system in advance of its implementation. The CNIL, however, has created simplified declaratory procedures in a number of areas. Under a deliberation dated December 8, 2005 on the Unique Authorization on Personal Automatic Data Processing Implemented in Respect of Whistle-Blowing Procedures (the “2005 Deliberation”), whistle-blowing procedures may be subject to a mere prior declaration to the CNIL, provided the procedures do not exceed the scope of the 2005 Deliberation. The 2005 Deliberation limits the possibility to use the simplified declaratory procedure in connection with procedures implemented in connection with “financial, accounting or banking matters or relating to anticorruption issues”.
The Dassault whistle-blowing procedure going beyond these areas, the French Supreme Court decided that it was in breach of the Act as it should have received the CNIL’s prior authorization. The French Supreme Court also held that the Dassault procedure was breaching the Act in that it failed to provide for a right for any person affected by the whistle-blowing procedure to be informed, and have a right of access to, and of rectification of, any information collected in this manner.
Yesterday, the Senate Banking Committee voted along party-lines, 13-10, to send Senator Dodd’s reform bill to the Senate floor. As noted in this NY Times article, the Committee’s Republicans decided not to offer amendments during the bill’s markup, preferring instead to seek changes before the full Senate vote.
As I imagine exists in every Congressional bill – particularly ones that weigh over five pounds – there is some weird stuff in the Dodd bill. One of the odder ones for me is Section 926 which would qualify the Regulation D preemption. Although this Section doesn’t quite reach the level of “complete deletion” of the preemption, it allows the SEC, by rule, to disqualify certain offerings from the preemption – and then any other Reg D offering that the SEC does not review within 120 days after filing loses the preemption.
My reaction when reading this was “What issue is Congress chasing? I can’t think of any problems that seemly caused the financial crisis to warrant this?” I pondered possible answers to these queries – perhaps fraud in the private offerings and hidden shaddy deals that don’t ordinarily get reviewed? Payment of fees to unregistered brokers? None of these really rung a clear bell (but I guess NASAA is behind it per this article).
Anyways, this Section 926 would be a substantial rewrite of Section 18(b)(4)(D) of the ’33 Act (unlike the simple repeal in Section 928 of Dodd’s original draft bill back in November) by:
(1) requiring the SEC to designate certain Rule 506 offerings as not qualifying as “covered securities,” considering the size of the offering, the number of States in which the security is being offered, and the nature of the offerees;
(2) requiring that the SEC review any filing made with regard to a Rule 506 offering within 120 days, and that any filing which is not reviewed within the 120 day period would no longer be a covered security unless a state securities commissioner determines that (a) there’s been a good faith and reasonable attempt by the issuer to comply with all applicable terms, conditions and requirements of the filing, and (b) any failure to comply with such terms, conditions and requirements “are [sic] insignificant to the offering as a whole”;
(3) permitting states to impose notice filing requirements “substantially similar to filing requirements required by rule or regulation under section 4(4) that were in effect on September 1, 1996”; and
(4) requiring the SEC to implement procedures not later than 180 days after enactment of the Act, after consultation with the States, to promptly notify the States upon completion of its review of Rule 506 filings.
Alan Parness of Cadwalader adds these thoughts on Section 926:
– Condition (2) would result in total uncertainty as to the covered security status of a claimed Rule 506 offering for 120 days or more while the SEC and the states mull over the filing, is ambiguous as to whether only one state securities commissioner need determine that the offering qualifies as “covered securities” if the SEC fails to act, is unclear as to when the state’s determination must be made, and doesn’t address the consequences if the offering is determined not to constitute “covered securities.” Thus, does this condition mean that an offering which doesn’t pass muster as “covered securities” could be unwound under applicable Blue Sky laws as a sale of unregistered securities, in the absence of another exemption from registration?
– In Condition (3), the reference to Section 4(4) is incorrect (as of 9/1/96, any state filing requirements for Rule 506 offerings were governed solely by the relevant Blue Sky law, not federal law). Also, what if state filing requirements were imposed by law, and not by “rule or regulation”? And does this mean that a state couldn’t impose a filing fee for a Rule 506 notice filing substantially in excess of what was charged as of 9/1/96?
Help to SaveRegD.com
A site has been launched – by Joe Wallin and Bill Carleton – to push back on Congress keeping this Section in final legislation – see “SaveRegD.com.”
An “Office of Investor Advocate” for the SEC? They Already Have Thousands
Since the SEC was born back in 1934, its mission statement has been the protection of investors. And having worked there twice, I can tell you that the Staffers believe in that mission – even when there sometimes are politically-appointed Chairs and Commissioners who believe otherwise.
So the notion of a new “Office of Investor Advocate” – which would be created under Section 914 of the Dodd bill – seems redundant to me since the entire SEC is supposed to essentially be part of that office already. Creating this new Office just adds another layer of middle-management complexity – and won’t really do anything to check a SEC Chair with an anti-investor viewpoint since the SEC Chair appoints the head of this new Office under the Dodd bill. This is a bad idea, plain and simple.
Congress and Its Study-a-Palooza
As noted in this NY Times article recently, both the Dodd bill and its House counterpart call for dozens of studies. The article correctly notes this is a common technique to punt an issue into oblivion. Maybe I’ll print some T-shirts that say, “I voted for my Congressman and all I got was this lousy study”…
Below is news of a development from Davis Polk (as culled from this memo):
In a recent Second Circuit decision, Law Debenture Trust Co. of New York v. Maverick Tube Corp and Tenaris, the court rejected the plaintiff’s argument that a reference to “a class of common stock traded on a United States national securities exchange” should be read to include American Depositary Shares trading on the NYSE, underscoring the importance of clearly defining terms in indentures.
At issue was the interpretation of the indenture’s “Public Acquirer Change of Control” definition, which depends in relevant part on whether: “a Person who … acquires the Company … has a class of common stock traded on a United States national securities exchange or the Nasdaq National Market.” The trustee argued that “common stock” would include ADSs because they are traded on the NYSE and, as a matter of custom and usage, the trading of ADSs is a form of trading common stock. The trustee also argued that to exclude ADSs from the Public Acquirer definition would be a commercially unreasonable interpretation because there was never any intention to exclude foreign issuers from the Public Acquirer definition.
The court, however, refused to find that ADSs implicitly qualified as “a class a common stock traded on a national securities exchange” for purposes of the Public Acquirer definition. Noting that the indenture included more than 100 defined terms and explicitly referred to ADSs in other provisions, the court asserted that it was not its role to rewrite the Public Acquirer definition to give it a commercially reasonable effect but rather to give effect to intentions expressed in the agreement’s own language, particularly in light of the “pains taken by the parties to have the Indenture set out detailed definitions of numerous terms.”
The phrase “common stock traded on a United States national securities exchange or the Nasdaq National Market” is usually relevant in convertible debt to define repurchase rights or conversion rights (typically at a make-whole premium) upon a “change of control,” “fundamental change” or similar event. Many indentures specifically include ADSs as part of that definition, which is an important term issuers should consider in structuring their convertible debt. More generally, this decision underscores that courts in New York are generally reluctant to apply the “intent” or “spirit” behind a contract provision but instead apply the literal terms of the contract. Companies entering into complicated credit arrangements such as indentures should make sure they hire experienced counsel to ensure that the language does in fact reflect the intent behind the provisions.
Seller’s Key Issues in 2010: Still a Tough Seller’s Market
Tune in tomorrow for the DealLawyers.com webcast – “Seller’s Key Issues in 2010: Still a Tough Seller’s Market” – to hear Wilson Chu of K&L Gates, Mary Korby of Weil Gotshal and Carl Sanchez of Paul Hastings discuss the latest issues for sellers doing deals.
Governance Risk Assessments in M&A
In this DealLawyers.com podcast, Paul Hodgson of The Corporate Library discusses his recent report on “How Governance Could Have Saved $100 Billion: AOL and Time Warner,” which demonstrates how incorporating an assessment of corporate governance risk into due diligence prior to a merger or acquisition could save billions of dollars in shareholder value, including:
– Why was this study undertaken?
– What were the major findings?
– Based on the findings, what do you think companies should consider before entering into a deal?
Here is something I recently blogged on CompensationStandards.com’s “The Advisors Blog“:
Just when “bonus” has become the equivalent of a four-letter word in households across the country, the WSJ ran this article noting that at least 50 companies have recently disclosed plans to pay semiannual bonuses, with more than half of them having adopted the plans since 2008 (fyi, the Hay Group did the research for the WSJ on this). This piece ignited a hailstorm in my world as nearly 2 dozen journalists called me yesterday seeking comment.
My immediate take was that there wouldn’t seem to be justification for such a widespread move and that this short-term approach fostered by more frequent bonuses could cause even more managers to manipulate the numbers and all the other perils of short-termism. And for the most part, that is still my position.
However, I checked in with some of the responsible experts that we deal with frequently and got this feedback:
Semi-annual bonuses were adopted by a small fraction of companies due to those companies’ inability (or unwillingness) to set 12 month financial targets due to the uncertainty of the economy. I’ve seen companies adopt the semi-annual approach and they seem to only pay the bonus when the calendar year is over. I imagine the compensation committees made sure the goals were stretch-based on the best available information at the time the goals were set. Some of these same companies retained the discretion to reduce bonuses prior to payment after taking stock of the year as a whole.
I do not disagree with you that using six-month measurement periods is too short-term, but it’s possible that the compensation committees took comfort in the fact that LTI represented the largest component of pay and most executives have substantial ownership, so the risk of maximizing short-term results at the expense of long-term performance was fairly modest.
This too shall pass, as compensation committees hate negotiating bonus targets two times per year (or even four times if you count the end-of-the-period negotiations on what to include – or exclude – in the final performance calculations).
Another expert noted that the two industries highlighted – tech and retail – are long-time users of semi-annual and quarterly bonuses. Take those out of the data and this is only a handful of companies. See Fred Whittlesey’s blog about “when is a trend not a trend”…
FINRA Files Revised Proposal to Regulate IPO Abuses
In the fall of 2003, the NASD (now, “FINRA”) proposed rule changes to prohibit certain abuses in the allocation and distribution of shares in an IPO – at approximately the same time, the SEC proposed amendments to SEC Regulation M that would have also regulated several of the IPO practices proposed to be regulated by the NASD/NYSE proposed rules. Neither of the proposals have been adopted yet.
Recently, FINRA filed Amendment #3 to the NASD’s rule filing to move this proposal along and the SEC issued this notice to solicit comments (note the comment period is only 21 days long). The revisions proposed by FINRA are intended to address comments submitted so far and to otherwise clarify the proposal- but the scope of the revised proposal is only moderately changed from the original ’04 proposal and would apply to any equity security registered under either Section 12 or 15(d) of the ’34 Act (i.e., the rule is not limited to “hot” IPOs nor does it include the exemptions for REITs, direct participation programs or other securities found in FINRA’s Rule 5130).
More on our “Proxy Season Blog”
With the proxy season in full gear, 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:
– “Executive Officers”: One Con of a Larger Group
– How Socially Responsible Investors View Companies in 2010
– Interview: T. Rowe Price’s Donna Anderson
– Even More Samples: Companies Complying with the SEC’s New Rules
– Even More on “Shareholder Proposals: Chevedden Sued Over Eligibility”
– Understanding the New Director Qualification CDI
– Do Last Year’s Risk Factors Look Good? Not So Fast
As noted in this Politco article, according to a bipartisan poll, voters oppose by a 2-to-1 ratio the US Supreme Court’s ruling in Federal Election Commission v. Citizens United. As I blogged, that decision cleared the way for companies and unions to more broadly run political advertising.
In response to the decision, a large group of shareholder organizations and major investors have announced that they are working together to advance a three-pronged response. Led by ShareOwners.org, the group is targeting legislative changes from Congress and rule changes by the SEC (this topic recently was added to the Investor Advisory Committee’s agenda). Until that happens, the group will focus on submitting shareholder resolutions to companies.
Meanwhile, another group – including the Center for Political Accountability, Council of Institutional Investors and nearly 50 institutional investors and shareholder advocate groups – have started a letter campaign urging companies in the S&P 500 index to adopt transparency and board oversight for political spending. I expect lots of change in this area in a relatively short period of time.
As this Sonnenschein alert notes, Congress already has a range of bills that have been introduced, including three constitutional amendments, that respond to the Citizens decision. And I’m just loving the satirical campaign being waged by Murray Hill Inc. (as noted by this Washington Post article).
Check out Bob Monk’s blog for a series of interesting commentary on the consequences of Citizens. And Larry Ripstein recently blogged this commentary on Ideoblog.
Chamber Outspends RNC & DNC Even Before Citizens United
“For the first time in recent history, the lobbying, grassroots and advertising budget of the U.S. Chamber of Commerce has surpassed the spending of the national committees of BOTH the Republican National Committee and Democratic National Committee,” begins a recent article in the Atlantic. And, of course, that is before the decision in Citizens United. The article goes on to note, “Republican lawyer Ben Ginsberg went so far as to say that the parties would be ‘threatened by extinction.’ And Ginsberg supports the CU decision!”
According to The Center for Responsive Politics, the U.S. Chamber of Commerce and its national subsidiaries spent $144.5 million in 2009, far more than the RNC and more than double the expenditures by the DNC. None of the contributions that made up this $144.5 million were subject to disclosure. The article discusses expenditures around defeating health care and expenditures of about $1 million each in Virginia and Massachusetts.
And this front-page article from yesterday’s Washington Post describes how much the Chamber is planning to spend on this year’s mid-term elections…
My Annual March Madness Predictions: Georgetown over West Virginia in the final; Duke and Syracuse round out the Final Four.
March-April Issue: Deal Lawyers Print Newsletter
This March-April issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:
– The Deal Lawyer’s Guide to Hidden Employee Benefit Issues
– “Testing the Waters” Ahead of Exchange Offers
– Formula Pricing: “Day 20” Pricing Has Finally Arrived for Debt Tender Offers!
– Competitive Bidding in M&A Transactions: Delaware Enforces Deal Protections and Recognizes Common Law Fraud Claims
– Sealing the Deal: Drafting Contracts Today
If you’re not yet a subscriber, try a 2010 no-risk trial to get a non-blurred version of this issue on a complimentary basis.
Recently, CII and others sent a letter to both the Senate Banking Committee and the Senate Appropriations Committee supporting SEC self-funding. Given that self-funding is included as Section 991 of the new Dodd bill, the support may have worked.
As I have blogged before, it’s an idea that is not new (20 years old? 30?) – and in my opinion, long overdue. I simply don’t feel the concerns expressed by academics like in this “blog” are in the realm of reality. The level of fees levied on the filing of registration statements has little impact on the decision of whether to register securities. Ask anyone in the biz…
FASB & IASB Publish Joint Exposure Draft on Conceptual Framework
Recently, the FASB and IASB issued this joint exposure draft on the reporting entity phase of their conceptual framework project (note the existing conceptual frameworks do not include a reporting entity concept). Comments are due by July 16th (learn more in this memo).
Between the aggressive schedule and volume of joint standard-setting projects flowing out of the FASB and IASB Memorandum of Understanding and the FASB’s own separate projects, interested parties will need to significantly increase their involvement in the FASB’s due-process efforts while also planning for implementing the numerous new standards that will result from these efforts. Accountants and lawyers alike will continue to be extremely busy with all the change wrought by reform…
A few weeks ago, the SEC issued this order approving the PCAOB’s changes to its inspections rules.
All the Rage: Tender Offers
We just posted the transcript for the DealLawyers.com webcast: “All the Rage: Tender Offers.”
Given the heft of the 1300-plus pages of Sen. Dodd’s reform bill that was released yesterday, I was inclined to first read the 11-page summary. Unfortunately, the summary is a pretty high-level document and I was forced into the abyss. Yesterday’s draft differs quite a bit from Dodd’s bill released in November – and substantially different from legislation passed by the House in December (and the exec comp provisions differ from Sen. Menendez’s bill that I blogged about on Friday). [We’ll be posting the inevitable onslaught of memos in our “Regulatory Reform” Practice Area.]
As could be expected from such a comprehensive bill, there is a lot of ground covered. Here are most of the highlights that pertain to our community:
– The Table of Contents omits Title IX, Subtitle E “Accountability and Executive Compensation” and Subtitle F “Improvements to SEC’s Management” (ie. Sections 951-966 on pages 868-895) for some reason. Wishful thinking?
– Investor Advisory Committee made permanent (Section 911, pages 760-766)
– Compensation Committee independence and consultant/lawyers independence (including authority to hire and “reasonable” of their compensation)(Section 952, pages 869-876)
– Disclosure of executive pay vs. performance (Section 953, pages 876-877)
– Clawbacks (Section 954, pages 877-878)
– Disclosure of executive and director hedging (Section 955, page 879)
– SEC allowed to adopt proxy access, but not mandated to do so (Section 972, pages 898-899)
– Disclose whether chair and CEO roles split; something SEC has already done (Section 973, pages 899-900)
– SEC self-funded (Section 991, pages 980-996)
Note that the Dodd bill does not include an exemption for non-accelerated filers from Section 404(b) of Sarbanes-Oxley. The bill also no longer includes provisions to require a separate shareholder vote on severance arrangements nor shareholder ratification of classified boards.
The Dodd Bill: How’s the Road Ahead?
Here’s what to expect going forward from Sonnenschein: Chairman Dodd plans to have the Committee begin its markup of his revised bill on Monday, March 22 at 4:00 p.m., and to continue as necessary with the goal of completing the markup by the end of the week. Emphasizing that he wants the Senate to “move quickly” to pass financial regulatory reform, Senate Majority Leader Harry Reid (D-NV) indicated that he wants to bring the bill to a vote on the Senate floor before the Memorial Day recess at the end of May.
If this goal is met, the hope is that a conference committee will reconcile the House and Senate bills by the July 4 recess. Because the House and Senate bills are expected to be considerably different, a difficult conference is anticipated. Signaling his intention to protect the House bill, House Financial Services Committee Chairman Barney Frank (D-MA) stated that he wants all conference committee deliberations to be televised on C-SPAN.
Yesterday, Corp Fin issued Staff Legal Bulletin No. 18 regarding Rule 12h-3 and when companies can suspend their Section 15(d) reporting obligations. This guidance should dramatically reduce the number of no-action requests that the Staff must process – as it’s an increasingly common scenario (the Staff posted two responses just yesterday, including this one) – as the SLB notes:
Because of the routine nature of these requests, the large body of no-action precedent and the guidance in this legal bulletin, the Division is of the view that, on a going-forward basis, an issuer that fits within either of the two situations identified above and satisfies the conditions set forth in this legal bulletin does not need a no-action response from the Division before filing a Form 15 to suspend its Section 15(d) reporting obligation in reliance on Rule 12h-3.
And of course, this relief from seeking no-action relief will reduce the legal bills for the type of companies that probably need it most…
Even though calendar-year fiscal companies are pretty close to finalizing their proxy materials, Corp Fin continues to issue interpretations on the SEC’s new rules. On Friday, these three new CDIs were issued:
In his “Proxy Disclosure Blog,” Mark Borges provides some commentary on these new CDIs.
Something Novel: Proxy Statement Shareholders’ Letter from the Board
We’re all familiar with the glossy annual report’s letter to shareholders from the CEO. But what about an annual letter from the board for the proxy statement? On Friday, Prudential filed its preliminary proxy materials and it includes just such a three-page letter. Plain English, lots of rationale and detail into decisions. Good stuff.
Remember that Prudential also is trying a novel way to increase the level of voting by its registered holders with a novel initiative that ties to its environmental & sustainability program.
What the Top Compensation Consultants Are NOW Telling Compensation Committees
Tune in tomorrow for the CompensationStandards.com webcast – “What the Top Compensation Consultants Are NOW Telling Compensation Committees” – to hear Ira Kay of Ira T. Kay & Company, Mike Kesner of Deloitte Consulting and James Kim of Frederic W. Cook & Co. analyze what types of risk assessments companies are putting into place as well as what are companies doing in the areas of equity grants pay-for-performance and 280G gross-ups.
This just in! In this 20-minute podcast, Dave Lynn and Marty Dunn engage in a lively discussion of the latest developments in securities laws, corporate governance and pop culture, including:
– Analysis of the new shareholder proposal decision in Apache Corporation v. John Chevedden
– What are the proxy disclosure trends under the new rules
– What Marty and Dave would be doing if they weren’t securities lawyers (hint: Marty gets his hands dirty!)
The Senate’s Say-on-Pay Bill: Lots to Chew On
As Senator Dodd races to release his comprehensive financial regulatory reform bill on Monday in the Senate (without Republican support according to this announcement), it is believed that the say-on-pay part of that package has already been unveiled – courtesy of Sen. Robert Menendez, D-NJ – in the form of S. 3049, “The Corporate Executive Accountability Act of 2010.” Senator Menendez, a member of the U.S. Senate Banking Committee, introduced his bill a few weeks ago – and I’ve seen reports that it’s expected to be part of the Democrat’s larger reform package (but it’s possible it could be changed before then of course).
Under the Menendez bill:
– Shareholders at public companies would have a nonbinding vote on the proxy disclosure of compensation packages for the company’s named executive executives
– Shareholders would have a nonbinding vote on the merger proxy disclosure of golden parachute arrangements for the company’s named executive executives
– Investment managers would annually have to disclose how they voted on the two items above
– SEC required to adopt rules eliciting internal pay ratio disclosure from publicly traded companies (ie. disclose the ratio of pay for CEOs compared to the median of all employee’s pay)
– Stock exchanges would required to adopt listing standards giving regulators and investors authority to clawback incentive-based compensation from executives if the company has a restatement due to material noncompliance of the company (the “misconduct” standard would be struck from Sarbanes-Oxley)
– A “senior” executive officer “terminated for cause” (which is defined in this Act) would be barred from receiving a severance package as determined by the company’s board
– Section 16 would be amended to limit executive officers from selling more than certain amounts of vested equity compensation; the bill has a 4-year formula where only 20% could be sold after the first year of vesting, 40% after the second year; 60% after the third and 80% after the fourth)
As noted in this article, one sticking point for the Republicans in a reform bill is proxy access. The prospects for Sen. Dodd’s bill being passed is mixed right now…
Our “Q&A Forum”: The Big 5500!
In our “Q&A Forum,” we have reached query #5500 (although the “real” number is really much higher since many of these have follow-ups). I know this is patting ourselves on the back, but it’s over eight years of sharing expert knowledge and is quite a resource. Combined with the Q&A Forums on our other sites, there have been over 18,000 questions answered.
You are reminded that we welcome your own input into any query you see. And remember there is no need to identify yourself if you are inclined to remain anonymous when you post a reply (or a question). And of course, remember the disclaimer that you need to conduct your own analysis and that any answers don’t contain legal advice.
Just hours after supporters of John Chevedden issued this press release predicting victory, Judge Lee Rosenthal in Federal District Court for the Southern District of Texas delivered this 30-page order and memorandum in an expedited manner allowing Apache Corporation to exclude Chevedden’s shareholder proposal by granting the company’s motion for declaratory judgment (and denying Chevedden’s motion). After the decision, Chevedden supporters issued this press release saying that the bigger picture of the order tilted the “split-decision” in Chevedden’s favor.
As noted in this blog (with follow-ups in this blog), Apache filed this novel lawsuit rather than attempt to exclude the proposal through the normal SEC channels – thereby challenging a position of the Staff regarding the use of introductory letters from brokers as evidence of ownership under Rule 14a-8(b). All the various documents filed in court during this case are in our “Shareholder Proposals” Practice Area.
Post “Apache v. Chevedden”: What Will Companies (and the SEC) Do Now?
With the Apache’s court decision now behind us, one must wonder “What do you think the SEC Staff will do now?” It’s likely that a number of companies received letters from Chevedden with proof of ownership from an introducing broker, but not all of them from the same entity involved here or with the same inadequacies that drove this judge to allow the exclusion (the judge didn’t rule on what Chevedden would have been required to submit to prove ownership under Rule 14a-8).
Since we are late into the proxy season, timing can be an issue even if a company hasn’t mailed its proxy materials yet. Although the shareholder proposal rule has a 80-day deadline for a company to submit an exclusion request, Rule 14a-8(j) provides the SEC with the ability to make an exception if a company demonstrates good cause for not filing the exclusion request earlier as follows:
Rule 14a-8(j): Question 10: What procedures must the company follow if it intends to exclude my proposal?
1. If the company intends to exclude a proposal from its proxy materials, it must file its reasons with the Commission no later than 80 calendar days before it files its definitive proxy statement and form of proxy with the Commission. The company must simultaneously provide you with a copy of its submission. The Commission staff may permit the company to make its submission later than 80 days before the company files its definitive proxy statement and form of proxy, if the company demonstrates good cause for missing the deadline.
In her order, Judge Rosenthal provides a basis for the SEC allowing companies to file late exclusion requests – since the Staff would not have decided those requests if they had submitted earlier anyway due to this pending lawsuit – but it’s possible the SEC could reject companies that file last-minute exclusion requests, partly because the SEC is behind in processing exclusion requests this year due to the snow. Remember that, five years ago, the SEC expounded on what might be “good cause” in Staff Legal Bulletin No. 14B. So this timing issue is an unknown quantity at this point.
Also, it’s unclear what application the case has beyond its specific decision, since the Judge noted her opinion is narrow – and yet it could be argued that some of her reasoning throws into question the SEC’s Hains position and other forms of proof of ownership. So the waters are a little murky here too.
The reality is that it’s too late for most companies that have received proposals from Chevedden as they have already printed or will be printing soon. We’ll be providing more analysis of this decision as it definitely has application beyond this proxy season.
How ShareGift USA Collects Odd Lots for Charity
In this podcast, Barbara Vogelstein of ShareGift USA and Andy Brownstein of Wachtell Lipton discuss how ShareGift USA collects odd lots of shares, aggregates them and gives the money to charity, including:
– What is ShareGift USA?
– How does it work in practice? How can companies get comfort that there are no securities issues?
– What can corporate secretaries and in-house counsel do to help?
