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."
For those financial institutions participating in the Treasury’s TARP Capital Purchase Program, you will be disturbed to learn that I have heard through the grapevine that some companies might take the opportunity to play it “cute” with how they revise their executive compensation arrangements in response to EESA.
In a perverse irony, these companies would amend their existing “double trigger” change of control arrangements to make them pure single triggers. Single triggers have been widely discredited in recent years and most companies have replaced them with more investor-palatable double triggers (ie. compensation is payable only (i) after a control change actually takes place and (ii) if a covered executive’s job is terminated because of the control change).
Apparently, some view single trigger payments as not being prohibited “golden parachute payments” under the Treasury’s program. I find it hard to believe that a movement back to single triggers is the result that Congress wanted – and I doubt investors will take kindly to this development if it indeed occurs.
Coming Soon: Mandatory E-Proxy
Since the end of last year, larger US companies (ie. large accelerated filers) have been required to post their proxy materials on their corporate websites. Soon, all companies engaging in proxy solicitations will need to do so as the SEC’s mandatory e-proxy rules for smaller companies become effective commencing on – or after – January 1st of ’09.
In this podcast, Matt Dallett of Edwards Angell discusses how smaller companies need to get ready to comply with mandatory e-proxy for the first time, including:
– What is mandatory e-proxy?
– What will be absolutely required and what is still voluntary?
– What do smaller companies need to do to get ready for mandatory e-proxy?
Reforming Securities Class Actions Via Shareholder Proposals
Bruce Carton’s “Securities Docket” includes this interesting piece on how Professor Adam Pritchard has developed this model proposal to reform the class action process through the Rule 14a-8 process (here is a paper on this topic too).
From Davis Polk: Last week, Treasury completed its investment in the nine systemically important banks – and, on October 31st, Treasury posted standardized final documents on its website. The final documents, reflecting comments from the nine systemically important banks, clarify a number of points and contain certain differences from the Term Sheet originally published on October 14th.
Although the final Term Sheet is little changed from the Term Sheet that Treasury originally published, an analysis of the underlying documents – the securities purchase agreement, the Warrant and the certificate of designations for the Preferred Stock – reveals some significant differences between those documents and the published Term Sheet. A revised Term Sheet, which has been marked to reflect the important differences between the Term Sheet and the final documents for the Capital Purchase Program, is set forth as Annex A of this memo (which also reviews those differences and certain other significant issues that financial institutions should consider before applying for funding under the program).
Treasury has stated that it will invest in each publicly-traded financial institution that participates in the program on the same terms in a “one-size-fits-all” approach, without change for individual financial institutions. We believe, however, that Treasury will consider modifications to accommodate important institution-specific issues, but otherwise will not agree to changes. Each financial institution will need to review carefully the final terms and the underlying documents to see if it can and would want to comply with them.
The application deadline for publicly-traded financial institutions is 5:00 pm Eastern next Friday, November 14th. Treasury has stated that it will post application information for privately-held financial institutions at a later date and establish a reasonable application deadline for them. Learn more from this memo (and the many others) posted in our “Credit Crunch” Practice Area.
Also note that Treasury – once the investment agreements are complete and the investment is authorized – will publicly disclose the name and capital purchase amount for each participating financial institution within two business days. The information will be posted here and updated daily at 4:30 pm Eastern as needed.
The Form 8-Ks: Participating in Treasury’s Capital Purchase Program
Below are some of the Form 8-Ks filed so far that relate to the EESA and the CPP. They include all nine of the original banks who “signed on” (the first six were filed on 10/30, the last three were filed on 10/31). Already more institutions have sought government money and their Form 8-Ks are included in our ongoing list in the “Credit Crunch” Practice Area:
During the past few months, a number of members have asked us about the SEC’s ability to rulemake during the White House’s ongoing moratorium on new rules by federal agencies. This moratorium was explained in our blog back in May. The extraordinary exception to the moratorium clearly isn’t responsible for all the SEC’s rulemaking during the past few months because some took place before the heightened crisis.
The issue of the applicability of an executive order to independent regulatory agencies has been a topic that recurs at the beginning – and the end – of every Presidential administration. The SEC has repeatedly tried to walk a fine line by taking the position that executive orders don’t apply, but that the Commission would adhere to the policy to the extent possible. For example, during early 2001, Laura Unger – when she was acting Chair at the start of the Bush Administration – announced that the SEC would abide by a rule moratorium imposed to freeze pending changes issued under the Clinton Administration. At the time, the SEC said that while the moratorium didn’t apply to independent regulatory agencies, the SEC would adhere to it to the extent possible (in fact, I thought that boilerplate for these types of executive orders typically requested that independent agencies follow it, but I don’t see that language in Bush’s May moratorium memo).
What About Rulemaking Before the New President Takes Office?
With the Presidential election upon us, the Congressional Review Act may now play a role (as this article notes, Bush is trying to cram down as many rules as possible now). It’s the law that created the Congressional rescission of an agency’s “major rule.” After rule adoption and publication, major rules must be submitted to Congress for a 60-day review period prior to becoming effective. The 60-day period is tolled
if Congress goes out of session for a 3-day or longer period. Since this is an election year, it’s possible that Congress will go “sine dei” until January, although Congress may well convene a lame duck session given the economic crisis. I think that for a rule to be effective, the SEC has to adopt it and the 60-day period has to run. This could cause a delay if there is no lame duck session.
Note there may be ways around the 60-day delay, such as an exigencies exception where the SEC can show a compelling reason to shorten the delay (there always seems to be this kind of exception). And bear in mind that this entire issue only arises if the rulemaking is “major” – there are alternate criteria, but “major” usually means a greater than $100 million annual economic effect in the aggregate. For example, to apply this litmus test to the SEC’s outstanding XBRL rulemaking, the efficiencies and benefits may be hard to quantify (and Chairman Cox likes to say that XBRL won’t cause much of an adverse impact to corporate bottom lines).
The art of rulemaking is not my area of expertise so some blanks may need to be filled in. If you scroll down on this “OMB Watch,” this legal quagmire may be better explained.
Regarding Bush’s push to adopt new rules before he leaves office, I couldn’t tell from the media reports whether the rules being pushed had been proposed back in June, in which case they would be consistent with his moratorium – or whether they were proposed by independent agencies that could make the same argument as the SEC. To me, aside from all of the technicalities, it’s just bad government to rush regulations just because the clock is ticking. Usually, that ends up with disastrous results…
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With the SEC’s proposed XBRL mandatory phase-in timeline looming – and SEC Chairman Cox likely a short-timer – it’s quite possible that the SEC will adopt final rules pretty soon. As you may recall, the SEC’s proposal would require the 500 largest US companies to start filing XBRL-tagged financial statements in the spring of 2009. A few weeks ago, Chairman Cox was a “no-show” as the keynote for the big XBRL International conference, but that likely had more to do with the demands of the credit crisis than the fate of XBRL. However, if final rules are not adopted soon, they may not get finalized on Cox’s watch (much to his chagrin) – and the SEC almost certainly will need to push back its timeline even they do.
Approximately 100 comment letters were submitted to the SEC on its XBRL proposal. A quick review reveals that the nature of the comments appear to be all over the lot. For example, CII’s comment letter voices concerns about the accuracy and reliability of XBRL (ie. the assurance issue) as well as the weaker standard of investor protection for XBRL compared to the financial data contained in traditional financial reports. Auditing firms – perhaps best reflected in this Deloitte letter – are understandably worried about their potential role in the assurance process.
In comparison, the 20-page comment letter from the ABA’s Federal Regulation of Securities Committee contains much commentary on the proposal’s liability provisions – and this Sullivan & Cromwell letter focuses squarely on this topic – and how they may expose companies to excessive liability. It will be interesting to see if Cox can pull off adopting something before he leaves.
Remember way back when the SEC decided it wouldn’t use “XBRL” anymore and instead use “interactive data” (because “XBRL” is too scary)? The SEC has held true to this change as the term “xbrl” is hardly used in the proposing release…
Whether the SEC Should Mandate Executive Compensation Data in XBRL?
Last week, Dave blogged about a company that has placed executive compensation data in XBRL for 4000 companies. As you may recall, in its XBRL proposing release, the SEC did not officially propose that executive compensation data be filed in XBRL, but it did solicit comment on this concept. Since it did solicit comment, the SEC arguably does have the latitude to adopt rules mandating XBRL for comp data without having to issue a re-proposing release under the Administrative Procedures Act (which is one of the many laws that govern agency rulemaking).
In footnote 94 of its proposing release, the SEC notes that Broadridge issued an XBRL taxonomy for proxy statements way back in December. I’m a member of many of the groups that would normally comment on SEC rulemakings of this nature and I don’t believe this Broadridge initiative hit many radars. Even now I haven’t reviewed this draft taxonomy, mainly because it’s not available unless you give Broadridge information about yourself – and I think that defeats the purpose of trying to obtain public comment on an idea. To date, Broadridge hasn’t provided any indication of what types of comments were collected (nor have I otherwise seen any evidence that anyone submitted comments to them).
Plus I find this reference odd because Broadridge is widely recognized as the leader in fulfillment, but it’s not considered an expert in drafting proxies. This is apples and oranges. In fact, Broadridge just went public last year and is so new of a public company, that it didn’t try e-proxy for its first annual meeting (nor will it do so for its upcoming second annual meeting).
Given the hubbub over the lack of “usability” for Broadridge’s e-proxy notices used during the past proxy season, I’m even more uncomfortable that the SEC is pointing to Broadridge to lead the way here. And it’s unusual that the SEC would seemingly use a third-party to solicit comments on its behalf. For all these reasons, the SEC should exercise restraint and not adopt rules mandating XBRL for executive compensation data until taxonomy in this area is more fully developed and that a more solid proposal is considered and commented upon.
Note that I remain a big Broadridge fan, as I continue to urge you to buy its stock, even though its been clobbered in this market downturn.
Some More XBRL Tools and Guidance
Hitachi has an “XBRL Blog,” which contains a bit of technical commentary. A lot of good stuff there if you want more information on the technical side.
On TryXBRL.com, RR Donnelley has partnered with EOL to tag ten years of data for all public companies. Once a company files financials (on either Form 10-Q or 10-K), this site tags the filings in XBRL within a 24-48 hour period and the information is available thru an Excel-based viewer.
XBRL Survey: Relative Levels of Preparedness
Recently, Compliance Week conducted a survey that revealed that of the 236 companies surveyed:
– 44% – just begun researching XBRL and their companies had done no previous testing
– 15% – no knowledge of XBRL at all
– 79% – no XBRL expert on staff at all
– 19% – have expert on the financial reporting team
– 2% – have expert in the IT department
– 7% – already participate in the SEC’s voluntary filer program
– 6% – done some small pilot tests
– 2% – testing their own systems comprehensively
– 30% – haven’t yet tested XBRL, but been following the topic closely
During our Conferences, I announced that my co-blogger – Dave Lynn – would be taking on a new role as a Partner for Morrison & Foerster, working out of their DC office. We are happy for Dave, particularly because he also will continue to work with us. So you will continue to see him on our sites and print publications – just like Alan Dye splits time with Hogan & Hartson and us.
Not only is Dave a great guy, but he truly is a securities law genius. In my unique role setting up numerous conferences and panels over the years, I’ve worked with all the greats and I can honestly say I’ve never seen anyone quite like Dave. And I’m not the only one who thinks so, many of the greats regularly confer with Dave even though they have more experience. So seek Dave out in his new capacity if you need smart counsel.
Catch-Up Now: Register for Video Archive of the Executive Compensation Conferences
Not only was John White’s speech noteworthy, but every panel made an effort to provide practical implementation guidance for the challenges ahead of us. And given the likelihood that say-on-pay legislation will be adopted soon that will require shareholder votes on executive pay in 2010, the importance of your upcoming proxy disclosure can’t be overstated as investors will use that when they decide whether to include your company on a “watch list” and set your company on a path to not earn shareholder approval. You can still catch-up and register to watch the archived video of the Conferences (and obtain the critical Course Materials).
The Sights & Sounds of the Executive Compensation Conferences
Over 1800 Watch John Olson and Crew
The plenary session for the “5th Annual Executive Compensation Conference” was large (with several thousand more online):
The “We Want Heat” Chant
It got a little nippy during the “3rd Annual Proxy Disclosure Conference,” so I led the audience in a chant:
Baker & McKenzie’s Voodoo Dolls
Our Conference swag is always among the best; this year’s breakout hit was Baker & McKenzie’s voodoo dolls. Attendees were trading them like crazy:
Shiny Swag from Citi Smith Barney
Perfect for New Orleans – so shiny:
Merrill Lynch’s Photos
Many service providers took out clients after our receptions (one hired Howie Mandel for a private gig; another hired the singer Jewel). On Wednesday night, three different parades with marching bands left the hotel to private events. The hotel said that was two more than any other conference held there. Merrill Lynch provided keepsakes for their clients:
‘Living Room’ Exhibit Space
This exhibit booth from Stock & Options Solutions was the coolest I’ve seen in years:
Dude Singing ‘Time to Go’
My personal favorite moment was this dude telling the folks in the exhibit hall that the panels were back in session. Rather than ring a bell, he sang the schedule and more:
As I get on the plane to leave our Conferences in New Orleans, CNBC has this headline on its site: “Furious Stock Selloff Takes Historic Tone.” I believe we are just at the beginning of a dramatic restrucuring of our financial markets, particularly our regulatory framework. I know this is not going out on a limb at this point, but it bears repeating as we all think about our own career paths and immediate situations.
Yesterday’s US Senate Committee on Oversight and Government Reform hearing on the future of regulation was predictably sobering. Former Fed Reserve Alan Greenspan was grilled by angry Senators and Greenspan said he made a mistake for being too deregulatory. Here is the testimony from SEC Chair Chris Cox.
I know there is plenty to blog about regarding daily headline developments, but we are going to try to blog about the many other developments that impact the “bread and butter” of our members’ daily practices – partly to keep the tone from being so darn depressing…
Despite Conviction: Advancement Rights Continue Through Appeal
Travis Laster notes: In Sun Times Media Group v. Black, issued back on July 30th, Delaware Vice Chancellor Strine resolved a single question: Is a guilty verdict a “final disposition” for purposes of mandatory advancement rights, or do advancement rights continue through post-conviction proceedings and appeal? In a thorough 47-page opinion, the Vice Chancellor holds that advancement rights continue until the decision is truly final and not subject to potential reversal on appeal.
This decision resolves an issue that has arisen with increasing frequency in recent years, as corporations have bridled at providing advancements to individuals they believed had breached their fiduciary duties or engaged in bad or even criminal conduct. After a series of decisions from the Court of Chancery making clear that the corporation’s beliefs as to such matters were not a basis to cut off mandatory advancement rights, corporations began to focus on events that might otherwise provide a cutoff point, with guilty pleas and criminal convictions serving as the leading candidates.
In Sun Times, Vice Chancellor Strine holds that advancement rights continue through appeal based on the plain language of Section 145, Delaware public policy, and the unworkable regime that would result from advancement rights that started or stopped at each phase of a proceeding. Prior to this opinion, practitioners had only the language of Section 145 and two transcript rulings from scheduling conferences for guidance. Although these authorities pointed strongly in favor of the outcome reached in Sun Times, the issue has now been definitively resolved.
As I noted in discussing the recent CA decision, the next round on mandatory advancement rights likely will involve a board arguing that a mandatory advancement bylaw cannot compel the directors to provide advancements if they believe that by doing so they would breach their fiduciary duties. This argument was not viable under prior advancement decisions, but it could be asserted in good faith after the Supreme Court’s broad language against mandatory bylaw provisions set forth in CA. The argument also could be made to challenge a contract-based advancement right, but in my view remains non-viable against charter-based advancement rights.
Introducing the Lead Director Network
In this podcast, Jeff Stein of King & Spalding discusses a new group for lead directors, presiding directors and non-executive board chairs, called the “Lead Director Network” (see the LDN’s first issue of Viewpoints) including:
– What is the Lead Director Network?
– What is the exact purpose of the Network? For example, will the Network engage in advocacy on behalf of corporate directors or boards? Why do members choose to participate in the Network?
– So who are the initial members of the Network?
– How does the Lead Director Network differ from other director organizations (for example, NACD and the Millstein Center’s independent chair’s group)?
– What topics did the members of the Network cover in their first meeting, held this past July?
– What are the some of the topics that may be addressed by the Lead Director Network in the future? What do you see on the horizon for the Lead Director Network?
In the September-October issue of The Corporate Counsel – which was just mailed – the primary focus is on issues you need to consider for your upcoming Forms 10-Q and 10-K. It’s a great issue, which includes pieces on:
– Economic Crisis Impacts: Disclosure in 1934 Act Reports
– More Meltdown Fallout—Falling Share Prices Can Affect S-3 Eligibility, WKSI Status, Listing
– SEC Regulation of Investment Banking—R.I.P.
– Legal Opinions in Rule 14a-8 No-Action Letter Requests
– Rule 701 Heads-Ups—Measurement Date(s) for Restricted Stock/RSUs
– New 1934 Act CDIs—Staff Confirms 10-K Delinquency Date Where Issuer Doesn’t File Proxy Statement Within 120 Days After Yearend
– The Recent Short Sale Ban—Impact on Counterparty Transactions
– A Few More Meltdown Thoughts
– It’s Here! Lynn, Romanek & Borges’ Executive Compensation Treatise
If you aren’t a subscriber yet, take advantage of a “Rest of ’08 for Free” no-risk trial to have this issue sent to you immediately. Current subscribers will want to start renewing for ’09 since all subscriptions are on a calendar-year basis.
Trends: Retail Ownership Continues to Drop
Not a big surprise that the concentration of ownership of US companies among institutional investors continues to grow, but it’s nice to get confirmation of this trend via this Conference Board press release with plenty of statistics, including that retail ownership of US stocks has fallen to a record low of 34% of all shares and 24% for the top 1,000 companies at the end of 2006.
Fallout from the Market Dip: Preferred Shareholders Sue
In his “D&O Diary” Blog, Kevin LaCroix notes how preferred shareholders have begun securities class action lawsuits for the first time.
At our “3rd Annual Proxy Disclosure Conference” yesterday, Corp Fin Director John White delivered an important speech – entitled “Executive Compensation Disclosure: Observations on Year Two and a Look Forward to the Changing Landscape for 2009” – during which John talked briefly about how the TARP’s executive compensation provisions could potentially spill-over and impact the many companies not directly subject to TARP. Specifically, John addressed the TARP provision that requires participating financial institution’s compensation committees to meet with the senior risk officers of the institution to ensure that the incentive compensation arrangements do not encourage the senior executive officers to take “unnecessary and excessive risks that threaten the value of the financial institution.” Here is an excerpt from John’s remarks on this topic:
Most of you are not from financial institutions, so let’s talk for a moment about non-participating companies. This new Congressionally-mandated limitation on having compensation arrangements that could lead a financial institution’s senior executive officers to take unnecessary and excessive risks that could threaten the value of the financial institution obviously applies on its face only to participants in the TARP.
But, consider the broader implications and ask yourself this question: Would it be prudent for compensation committees, when establishing targets and creating incentives, not only to discuss how hard or how easy it is to meet the incentives, but also to consider the particular risks an executive might be incentivized to take to meet the target — with risk, in this case, being viewed in the context of the enterprise as a whole? I’ll let you think about what Congress might want. We know what our rules require. That is, to the extent that such considerations are or become a material part of a company’s compensation policies or decisions, a company would be required to discuss them as part of its CD&A. So please consider this carefully as you prepare your next CD&A.
Also, more broadly speaking, I expect that current market events are already affecting many companies’ compensation decisions and thus should be affecting the drafting of their upcoming CD&A’s. Regardless of whether your company participates in the TARP and consequently finds itself having to make new material disclosures, you should not merely be marking up last year’s disclosure. Instead, you should be carefully considering if and how recent economic and financial events affect your company’s compensation program.
For example, have you modified outstanding awards or plans, or implemented new ones? Have you reconsidered the structure of your program, or the relative weighting of various compensation elements? Have you waived any performance conditions, or set new ones using different standards? Have you changed your processes and procedures for determining executive and director pay, triggering disclosure under Item 407? These questions and more should be addressed as you consider disclosure for 2008.
Corp Fin’s ’09 Narrowly Selected Review of Executive Compensation Disclosures
Regarding Corp Fin’s review of compensation disclosures filed during the upcoming proxy season, John said this during his speech:
We also are looking at how we will shape our Corporation Finance review program for 2009 in light of recent market events, including the new executive compensation provisions in TARP and continued investor interest in executive compensation. As you know, our selective review program is guided by Section 408 of Sarbanes-Oxley, which requires that we review all public companies on a regular and systematic basis, but in no event less frequently than once every three years. The Act also sets out criteria for us to consider in scheduling these regular and systematic reviews, including considering companies that “experience significant volatility in their stock price,” companies “with the largest market capitalizations,” and companies “whose operations affect any material sector of the economy.” As you also will recall, in 2007 we did a targeted review of the executive compensation disclosure under our then-new rules for 350 companies of all sizes.
Our plan for 2009 will be responsive to current conditions. In 2009 we will select for review and review the annual reports of all of the very largest financial institutions in the U.S. that are public companies. This group will include the nine large financial institutions that have already agreed to participate in the Treasury’s capital purchase program. Our reviews will include both the financial statements and the executive compensation disclosures of these companies. We also intend to monitor the quarterly filings on Form 10-Q and current reports on Form 8-K of these companies.
Today is the “5th Annual Executive Compensation Conference.” Note you can still register to watch online – and note that the archived video for yesterday’s “3rd Annual Proxy Disclosure Conference” is now available.
– How to Attend by Video Webcast: If you are registered to attend online, just log in to TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter the Conference” on the home pages of those sites will take you directly to today’s Conference.
Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is the Conference Agenda; times are Central.
– How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except Pennsylvania (but hours for each state vary; see the list for each Conference in the FAQs).
Today is the “Tackling Your 2009 Compensation Disclosures: The 3rd Annual Proxy Disclosure Conference”; tomorrow is the “5th Annual Executive Compensation Conference.” Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our Staff (but you can still interface with them if you need to).
– How to Attend by Video Webcast: If you are registered to attend online, just log in to TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter the Conference” on the home pages of those sites will take you directly to today’s Conference.
Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is the Conference Agenda; times are Central.
– How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except Pennsylvania (but hours for each state vary; see the list for each Conference in the FAQs).
– How Directors Can Earn ISS Credit: For those directors attending by video webcast, you should sign-up for ISS director education credit using this form. This is meant to facilitate providing information to ISS; they are the ones in charge of accreditation and any disputes will need to be taken up with them.
Soliciting Queries for Our “Compensation Consultants Speaks” Panel
Among the more popular panels during Wednesday’s “5th Annual Executive Compensation Conference” will be the panel entitled “The Consultants Speak: Straight Talk from the Top Experts.” I am soliciting issues or questions to be addressed by the panel if you want to shoot me an email beforehand (they will be posed anonymously).
Moral Hazard and Executive Compensation
Setting the tone for our big executive compensation conferences, we have posted an important new alert on CompensationStandards.com from Fred Cook, founder of Frederic W. Cook & Co. In his piece – “Moral Hazard and Executive Compensation” – Fred addresses what moral hazard means and lays out a number of steps that you can take to mitigate it. We strongly urge you to read this piece and show it to your CEO and directors.
In response to a no-action request, the SEC’s Corp Fin Staff recently decided that Hain Celestial could not exclude a shareholder proposal calling for the company to reincorporate to North Dakota from its proxy statement (the company had hoped to exclude the proposal on procedural grounds; there don’t appear to be substantive grounds to argue for exclusion). Hain Celestial is incorporated in Delaware; the other two companies with this proposal so far – Oshkosh and Whole Foods – are incorporated in Wisconsin and Texas, respectively. Here is a copy of the proposal.
More companies can expect this type of proposal this proxy season as proponents attempt to leverage the North Dakota Publicly Traded Corporations Act, enacted in mid-’07 to provide for a host of shareholder-friendly measures (as noted in this blog).
As noted in this Reuters article, hold-til-retirement and say-on-pay will be two popular shareholder proposals topics during this proxy season as investors turn their attention to pay practices that encourage excessive risk-taking.
An Opportunity to Comment on RiskMetric’s ’09 Proxy Policies
Last week, RiskMetrics’ ISS Division put up a “Request for Comment” for a number of potential modifications to its policies for 2009. Take advantage of this opportunity to influence these important proxy voting policies through an easy-to-use online form. This year, the topics include:
– Poor Accounting Practices (U.S.)
– Discharge of Directors (Europe)
– Independent Chair (U.S.)
– Names of Director Nominees Not Disclosed (Global)
– Net Operating Loss Poison Pills (U.S.)
– Peer Group Selection for Executive Compensation Comparisons (U.S.)
– Poor Pay Practices (U.S.) Pay for Performance (U.S.)
– Corporate Social Responsibility Compensation Related Proposals (U.S.)
– Share Buyback Proposals (Global)
This Gibson Dunn memo summarizes RiskMetrics’ proposed policy changes. In addition, RiskMetrics has made these survey results from institutional investors available.
