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."
Ah, Cracker Barrel. A decade ago, the biggest Corp Fin-related controversy was the shareholder proposal’s “ordinary business” exclusion basis and the SEC Staff’s Cracker Barrel no-action letter under Rule 14a-8(c)(7) (the basis has since been renumbered to 14a-8(i)(7)). Those were much simpler times. Back then, the SEC’s dealings in corporate governance matters were pretty much limited to the shareholder proposal rule.
The Cracker Barrel saga arose due to a ’92 no-action letter under which Corp Fin allowed that company to exclude a anti-sexual orientation discrimination proposal by stating that all employment-related proposals raising social issues were excludable. Enough fuss was raised so that the Commission specifically overruled its Staff’s position in a ’98 rulemaking and returned the agency’s position on social issues to a “case-by-case analytical approach.” Corp Fin has been making this case-by-case determination when deliberating on social proposals ever since.
Now, a similar case has been brought in the US District Court, Southern District of Texas, by Apache Corporation, which is seeking a declaratory judgment supporting its exclusion of a shareholder proposal submitted by the New York City Employees’ Retirement System. This case seeks to enjoin a lawsuit brought by NYCERS in the Southern District of New York. The facts are as follows:
– For the last two years, NYCERS has submitted proposals to companies in a campaign designed to fight discrimination against gays/lesbians and transgendered people (eg. asking companies to amend their EEO statements a la Cracker Barrel).
– This proxy season, NYCERS submits a proposal to Apache asking for the implementation of a program based on “equality principles” that include additional steps to avoid discrimination against this group of people.
– On March 5th, Corp Fin provides no-action relief allowing Apache to omit the proposal on ordinary business grounds, noting that some of the principles in the proposal relate to ordinary business.
– On April 8th, Apache filed for a temporary restraining order to try to prevent NYCERS from delaying its annual meeting and mailing supplemental materials.
– On April 9th, NYCERS files a lawsuit in SDNY, arguing – among other things – that Corp Fin had denied no-action relief for similar proposals in the past (specifically citing these no-action responses: Armor Holdings ((i)(7) denied on burden grounds) (4/3/07) and Aquila ((i)(10) denied)(3/2/06)) and that the Court doesn’t owe deference to Corp Fin’s positions anyways.
– After it filed its lawsuit, NYCERS subsequently filed for a temporary restraining order, but then quickly changed its request to an affirmative/mandatory injunction to force Apache to deliver supplemental proxy materials ahead of its May 8th annual meeting.
This is where this battle stands today, although it promises to move quickly. We have posted all of the documents filed in the SDTX and SDNY so far in our “Shareholder Proposals” Practice Area.
Corp Fin Tweaks Form 8-K Interps Again
For the second time since their issuance, Corp Fin has tweaked its new Form 8-K Interps to fix a conflict. As had been addressed in our “Q&A Forum” last week, new Interp 202.01 seemingly conflicted with Item 601 of Regulation S-K – with the Staff’s fix, that is no longer so.
John Newell has updated his three sets of redlined 8-K Interps against the old guidance that the Interps updated. John has also provided this redlined version of the new Form 8-K Interps against what the Staff originally issued on April 2nd – which will help those of you that printed them out back then to see what was changed on April 3rd and April 10th.
Closing Time: When the Founder is Ready to Sell
Tomorrow, catch the DealLawyers.com webcast – “Closing Time: When the Founder is Ready to Sell” – to hear about the special issues that come into play when the founders of a privately-held company want to sell out to a private equity firm or a professional roll-up operator. Join these experts:
– Brad Finkelstein, Partner, Wilson Sonsoni Goodrich & Rosati LLP
– Don Harrison, Senior Counsel, Google
– Armand Della Monica, Partner, Kirkland & Ellis LLP
– Geoffrey Parnass, Partner, Parnass Law
– Sam Valenzisi, Vice President, Lincoln International LLC
SEC Tweaks Form S-11 to Permit Incorporation By Reference
Last week, the SEC issued this adopting release indicating it had adopted the amendments to Form S-11 to permit companies using this form to incorporate by reference previously filed ’34 Act reports.
From Travis Laster: On Wednesday, Vice Chancellor Parsons of the Delaware Court of Chancery stayed an action filed in Delaware to enjoin the Bear Stearns-JPMorgan Chase merger, deferring to a parallel action in New York. Here is VC Parsons’ opinion.
The following quote says it all: “I have decided in the exercise of my discretion and for reasons of comity and the orderly and efficient administration of justice, not to entertain a second preliminary injunction motion on an expedited basis and thereby risk creating uncertainty in a delicate matter of great national importance.” There are references throughout the opinion to the involvement of the Federal Reserve and the Treasury Department in the deal.
The opinion does not shed any meaningful light on how the Court would view the exceptional lock-ups that are part of the deal package. The opinion does say that “the claims asserted in the Complaint only require the application of well-settled principles of Delaware law to evaluate the deal protections in the merger and the alleged breaches of fiduciary duty” (14). The Court then described the factual situation as sui generis (16). The Court concluded that the involvement of the federal players rendered the situation rare and unlikely to repeat – and therefore not one in which Delaware had a paramount interest.
On April 29th, join DealLawyers.com for the webcast – “JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues” – as Professors Elson, Davidoff and Cunningham analyze a host of novel provisions in the JPMorgan Chase/Bear Stearns merger agreement (as well as this – and any other – court opinion).
Proposed: California’s Climate Change Disclosure
Lately, more and more investors are clamoring for the SEC to enhance its disclosure requirements related to climate change (eg. see this rulemaking petition). Keith Bishop notes: As you know, California has for several years imposed special disclosure requirements on publicly traded corporations (including corporations incorporated in other states that are qualified to transact business in California). Last month, a California legislator introduced a new bill that would require disclosure of climate risk and opportunities.
Specifically, this bill would require the California Secretary of State to develop a climate change disclosure standard for use by “listed companies” doing business in California. The standard would provide guidance on disclosure of climate change risks and opportunities and would, at a minimum, need to address six different factors (i.e. emissions, the company’s position on climate change, significant action by the company to minimize risk and maximize opportunity associated with climate change, corporate governance actions, assessment of physical risks, and an analysis of regulatory risks).
As introduced, the bill specifically states that no listed company is required to meet the standard created by the Secretary of State. Thus, it is unclear what the legal impact of the standard would be. Another interesting aspect of the bill is the fact that it includes a legislative finding that cites a law firm “opinion.” While technically not an opinion, I believe that the bill is referring to a study prepared by Freshfields for the United Nations Environment Programme Initiative.
Board Portal Developments
In this podcast, Joe Ruck, CEO of BoardVantage, explains how the board portal processes have changed to make them more effective, including:
– How many boards now use board portals?
– Have you been surprised in some ways that they are used?
– How are your offerings different than competing providers?
– How do you address the challenges of discoverability?
– What are the latest trends in the board portal space?
– Besides online access, what are the other benefits of a board portal?
– What is the role of portal technology in the area of corporate governance?
As noted in this article, Sara Lee and Coach recently amended their by-laws so that a shareholder who nominates a director or submits a proposal must also disclose if it has “hedged its ownership” or has “any short position” in the stock. These revised bylaws should enable other shareholders to make better informed decisions as the interests of a shareholder who has hedged its ownership may not align with the interests of other shareholders.
For example, a shareholder can eliminate or reduce its economic risk through hedging or other derivatives – or be motivated to focus on short term gains at the expense of long-term wealth creation. Alternatively, a shareholder may have a much greater economic interest in the company than is evident from its SEC filings (in my opinion, an area that the SEC should be tackling). The revised by-laws should provide increased transparency – but of course, may still not deter a shareholder from making a nomination or submitting a proposal.
Interestingly, both Sara Lee and Coach are incorporated in Maryland – but they are not the first to take this action. A fund family did it for 11 funds back in December and these did it within the past month: Five Star Quality Care; Redwood Trust; and HRPT Properties Trust. Here is a Form 8-K filed by Sara Lee – and the Form 8-K filed by Coach – with their amended by-laws.
Delaware Chancery Court: Denial to Dismiss a Bullet-Dodging Case
One of these senior moments – didn’t I already blog about this case? I thought so, but apparently not. Here is a recent Delaware decision – Weiss v. Swanson – from Delaware Vice Chancellor Lamb that held that directors who approved spring loaded and bullet dodged stock option grants may have breached their fiduciary duty and forfeited the protection of the business judgment rule since the spring-loading and bullet-dodging practices constituted material information that should have been disclosed to the shareholders. VC Lamb also ruled that the alleged stock manipulation supported a claim of corporate waste.
Company Communications with Investors During the Proxy Season
Dave and I are off to Dallas to attend the ABA’s Business Law Section Spring Meeting (with a pitstop before the Dallas Chapter of the Society of Corporate Secretaries) for the next two days. Look for an old dude wearing a mullet…
Every few years, we survey the practices relating to blackout and window periods (there are results from five others in our “Blackout Periods” Practice Area). Here is the latest survey results, which are repeated below:
1. Does your company ever impose a “blanket blackout period” for all or a large group of employees?
– Regularly before, at, and right after the end of each quarter – 74.1%
– Only in rare circumstances – 17.2%
– Never – 8.6%
2. Our company’s insider trading policy defines those employees subject to a blackout period by roughly:
– Stating that all Section 16 officers are subject to blackout – 6.8%
– Stating that all Section 16 officers “and those employees privy to financial information” are subject to blackout – 5.1%
– Stating that all Section 16 officers “and others as designated by the company” are subject to blackout – 18.6%
– Stating that all Section 16 officers “and those employees privy to financial information and others as designated by the company” are subject to blackout -47.5%
– All employees – 5.1%
– Some other definition – 16.9%
– Our company doesn’t have an insider trading policy -0.0%
3. Does your company allow employees (that are subject to blackout) to gift stock to a charitable, educational or similar institution during a blackout period?
– Yes, but they must preclear the gift first – 52.5%
– Yes, and they don’t need to preclear the gift – 8.5%
– No – 20.3%
– Not sure, it hasn’t come up and it’s not addressed in our insider trading policy – 18.6%
4. Does your company allow employees (that are subject to blackout) to gift stock to a family member during a blackout period?
– Yes, but they must preclear the gift first – 39.7%
– Yes, and they don’t need to preclear the gift – 8.6%
– No – 24.1%
– Not sure, it hasn’t come up and it’s not addressed in our insider trading policy – 27.6%
5. Are your company’s outside directors covered by blackout or window periods and preclearance requirements?
– Yes – 98.3%
– No – 1.7%
Don’t forget that we have posted a new “Quick Survey on Rule 144 Practices.” Please take a moment to weigh in!
Being In-House
In this podcast, Mike Cahn, a former Senior Associate General Counsel of Securities at Textron, talks about what’s it like to be in-house and how that role has changed over the years, including:
– When did you start and what were your duties as they evolved over time?
– Over time, how much more did you need to rely on outside counsel?
– Did you work more hours as the regulatory environment became more complex?
– What advice would you give to someone going in-house today?
Citigroup’s Director Search: A New Recruiting Method?
As noted in this WSJ article, Citigroup’s lead director posted this statement on the company’s website, noting that the board seeks new finance-savvy directors. The statement appears to be from the company’s Chair of the “Nomination and Governance Committee,” who also serves as the board’s lead director.
I was quite surprised by the statement for several reasons. First was just the novelty of it – one of the largest companies in the world recruiting publicly? I can’t recall that happening before. However, the purpose of this statement likely was not to recruit; rather it was likely posted to assure the market that the company knows changes on the board are necessary (on the same day, a management shake-up was announced). Even if boards generally are increasingly having trouble finding willing – and capable – candidates, I would never imagine Citigroup to be in that boat.
Another striking item though is that the statement – at least, implicitly – comes from a member of the board. It is rare to have broad communications addressed to investors from a director. Most companies shy away from having directors as authorized spokespersons (except from the Chair in limited circumstances).
I do recognize that Citigroup has novel circumstances, with a major crisis at hand – but I’m still surprised by the statement for a third reason. From a litigator’s perspective, the call for “finance-savvy” directors seems a tacit admission that the current board was ill-equipped to oversee the type of operations that the company is engaged in.
The bottom line is that I chalk up the statement to “things you are willing to do when shareholders threaten to withhold or vote against your director nominees.”
As an aside, here is an article criticizing the notion of a board packed with financial-savvy people.
In the March-April ’08 issue of The Corporate Executive – that was just mailed – there is extensive analysis of why every company should now be switching from cashless exercises to “net exercises.” This important issue provides guidance – and explains all the benefits of implementing “net exercises” now.
Every detail of what you will need to implement “net exercises” is addressed, including how to review outstanding plans and agreements and (where necessary) how to modify them to permit net exercises. Every in-house and outside lawyer (and stock plan administrator, CFO, etc.) needs this March-April issue to be on top of the details necessary to understand and implement this important new development.
Here is a blurred version of the issue to give you a sense of the substance if you aren’t a subscriber. Try a no-risk trial to get the March-April issue rushed to you today.
Lesson Learned: Avoid California
One of our in-house members recently listened to Keith Bishop’s podcast on “E-Proxy and California Law” from a while back and came up with this takeaway: If possible, non-California companies should avoid holding any board meetings in California since Cal. Corp. Code Sections 1600 and 1602 expressly extend shareholder and director inspection rights to foreign corporations that “customarily” hold board meetings there.
Even assuming the e-proxy stuff gets worked out in California (which it sounds like it will per this blog; it’s not a “done” deal yet as first hearing on the “urgency” bill isn’t until next week), if holding board meetings in California provides any sort of a “hook” for California law to apply to non-California companies, you might consider avoiding holding board meetings there in the first place…
Where Art Thou “Billy Broc” and “Dave the Animal”?
After a six-month hiatus, “Billy Broc” and “Dave the Animal” are back by popular demand in this video: “Dave’s Going Through Some Changes.” Too early for Academy Award consideration?
On Friday, I blogged about a redlined version of Corp Fin’s new Form 8-K Interps and noted that to do the new interps justice, they really needed to be redlined against the three old sources of interps. Well, John Newell of Goodwin Procter has saved the day and provided us with just that – here are his redlined versions as compared against the ’97 Phone Interps; ’03 Non-GAAP FAQs and the ’04 8-K Interps. These gems – along with Howard Dicker’s redline against the ’04 FAQs – are posted in our “Form 8-K” Practice Area.
Quite a task, two words come to mind: “dissect” and “autopsy.” Lawyers playing doctors…
New Quick Survey: Rule 144 Trends
A member recently asked to pick our brain as to what we’re seeing in the market under new Rule 144 regarding the practice of law firms giving legend removal opinions for securities of reporting issuers held more than six months – but less than twelve months – after issuance. In other words, they were curious how firms are dealing with the obligation to report on a timely basis for twelve months with respect to opinions rendered prior to the end of the twelve month period.
We haven’t heard of a settled practice. There is a footnote in the adopting release that could support waiting to the end of the one year period, but it isn’t entirely clear if that is black letter law as the SEC also said the issue is one to be resolved by contract and state law.
We have posted a new “Quick Survey on Rule 144 Practices” to ask your anonymous views on this issue, as well as another one on registration rights. Please take a moment to weigh in!
The New Business Combination Accounting
On DealLawyers.com, we recently posted the transcript from the webcast: “The New Business Combination Accounting.”
Yesterday, Corp Fin posted a revised version of its spanking new “Form 8-K Compliance and Disclosure Interpretations,” so be sure to print out this revised version dated April 3rd. It looks like the Staff eliminated Intepretation 206.02, which conflicted with Question 106.04 (carrying over Question 25 of the ’03 Non-GAAP Measures FAQs).
Thanks to Howard Dicker of Weil Gotshal, we have posted this Blacklined Version of the new Interps against the ’04 FAQs. Note that it’s “over-blacklined” because the exec comp questions were moved from Item 1.01 to 5.02. It’s still helpful because the Staff tagged every Interp as “new” even though most aren’t (a byproduct of the Staff deeming the Interps as their new brand of informal written guidance: the “Compliance and Disclosure Interpretations”).
Note that to comprehensively understand the changes the Staff made to the 8-K interps, you actually need three redlines: one for the old Phone Interps, one for the ’04 FAQs and one for the ’03 Non-GAAP FAQs.
– 103 companies have used voluntary e-proxy so far
– Size range of companies using e-proxy varies considerably; all shapes and sizes (eg. 36% had less than 10,000 shareholders)
– Bifurcation is not being used as much as I would have thought; of all shareholders for the companies using e-proxy, only 5% received paper initially instead of the “notice only”
– 0.70% of shareholders requested paper after receiving a notice
– 60% of companies using e-proxy had routine matters on their meeting agenda; another 32% had non-routine matters proposed by management; and 8% had non-routine matters proposed by shareholders. None were contested elections.
– Retail vote goes down dramatically using e-proxy (based on 80 meeting results); number of retail accounts voting drops from 19.2% to 4.6% (over a 75% drop) and number of retail shares voting drops from 30.1% to 23.3% (a 23% drop)
Our April Eminders is Posted!
We have posted the April issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
With Congress, the SEC Staff, investors and the media scrutinizing this year’s disclosures, it is critical to have the best possible guidance for addressing next year’s proxy statement compensation disclosures. This pair of full-day conferences will provide the essential – and practical – implementation guidance that you need going forward.
Like last year’s blockbuster conferences, an archive of the entire video for both conferences will be right there at your desktop to refer to – and refresh your memory – when you are actually grappling with drafting the disclosures or reviewing/approving pay packages. Here are FAQs about the Conferences.
For those choosing to attend by coming to New Orleans, I encourage you to also register for the “16th Annual NASPP Conference,” where over 2000 folks attend 45+ panels. And if you attend the NASPP Conference, you can take advantage of a special reduced rate for the Exec Comp Conferences.
Register by May 20th for Early-Bird Rates: Whether you attend in New Orleans or by video webcast, take advantage of early-bird rates by registering by May 20th. You can register online or use this order form to register by mail/fax.
Note that we have combined both of our popular Conferences – one focusing on proxy disclosures and the other on compensation practices – into one package to simplify registration.
If you have questions or need help registering, please contact our headquarters at info@thecorporatecounsel.net or 925.685.5111 (they are on West Coast, open 8 am – 4 pm).
Corp Fin Posts New Form 8-K Interpretations
Yesterday, Corp Fin posted the long-awaited “Form 8-K Compliance and Disclosure Interpretations,” which is a continuation of the Staff updating the Telephone Interpretations Manual and other odds & ends of guidance it has issued over the years. These new interps specifically update the Phone Manual Interps, as well as the Non-Gaap FAQs from ’03 and the 8-K FAQs from ’04. [I say “long-awaited” because the SEC had a note on its site that these were “coming soon” for quite some time.]
REITs and Their Form 10-Ks
I really dig it when law firms write memos with nuggets they heard at conferences. It’s rarely done – but I find them to be very practical. This recent Goodwin Procter memo is no exception, covering a finer point about what REITs need to be doing in their Form 10-Ks as covered by a point raised by the Corp Fin Staff at the NAREIT Law and Accounting Conference. Good stuff (just like these 41 pages of “SEC Speaks” notes from Sidley Austin – 41 pages!)…
My only quibble with the memo is that the Staff’s point about the need to disclose property operating data should not come as a surprise – since the Staff has always considered the operating data material to the business disclosure in a 10-K.
I’m pretty excited to announce our latest blog on CompensationStandards.com: “The Consultants Blog.” This blog will feature wisdom from respected compensation consultants.
So far, these consultants have agreed to kick off the vibrant conversation on the issues, developments and trends faced by those seeking to implement responsible compensation practices: Don Delves, Mike Kesner and Fred Whittlesey. In the coming weeks, I expect to add more consultant bloggers willing to share their thoughts. Check out the blog and input your email address on it so that you can get an email whenever an entry is posted…
Evelyn Y. Davis: Catch Her in Action
Perfect timing for today’s webcast about conducting annual meetings, here is a CNBC interview with Evelyn Davis. CNBC should make her a regular commentator; I doubt it would impact the quality of their reporting. Thanks to ProxyMatters.com for digging this gem out…
SEC’s New – and Free – Edgar Feeds
Recently, the SEC has added news feeds for every issuer and reporting person who files on Edgar. You can now track what is being filed without having to use a paid subscription service. Note that the SEC has not yet touted this new feature via a press release or its various guides about how to search filings.
On his “IR Web Report,” Dominic Jones explains the potential ramifications of this development on Business Wire, PR Newswire, Edgar Online, etc. My guess is that their businesses won’t be too damaged – yet – since the Edgar feeds include only generic filing headings, dates and internal tracking numbers, which is less useful than providing a summary or the full text of each filing. Dominic also explains how this allows companies to ensure widespread syndication of their news to the masses simply by filing their news releases on Edgar.
By the way, Dominic had a beauty of an April Fool’s joke posted on his site yesterday…
Now that we have the 212-page Blueprint Paulson Report, we all can start drilling down into what it means. More analysis will follow over the next few weeks; today, I want to focus on a narrow aspect of the report’s long-term recommendation: the demise of the US Securities & Exchange Commission.
This is not an April Fool’s joke. The Paulson Plan recommends an overhaul of the regulatory framework for the markets, which includes moving the responsibilities that the SEC currently has into other agencies. The Corp Fin and other accounting responsibilities that the SEC presently has would be rolled over to a new “Business Conduct Regulator.”
Yesterday, I already whined about excessive change, so no need to drag you through that mud again. I’m just nostalgic about the prospect of the term “SEC” being a fading footnote in history, given that my career continues to revolve around the place and I have fond memories of working there. Interestingly enough, quite a few securities regulators in other countries have used some derivation of the name – or even the identical name – for themselves (eg. Bandgadesh’s regulator has the same name). Here is a partial list of securities regulators from around the world.
Speaking of April Fools: The NASPP has posted an alert highlighting a new study regarding option exercise behavior. The study unearthed some very interesting and surprising trends in how employees exercise options.
Conduct of the Annual Meeting
Tune in tomorrow for the webcast – “Conduct of the Annual Meeting” – during which a panel of experts will give practical guidance about all the issues that may arise during your upcoming annual meeting. This is a reprise of a similar webcast that we did four years ago that still remains one of my all-time favorites. This promises to be a gem as the speakers will spend some time on the nitty gritty of how the voting process works, demystifying the chain of voting through intermediaries, etc.
Corp Fin’s “Sample Letter” on Fair Value Measurements
Last week, Corp Fin posted this sample letter to remind companies of their MD&A obligations when applying SFAS 157 – regarding fair value measurements – for their upcoming Form 10-Qs. The letter was sent to companies that “reported a significant amount of asset-backed securities, loans carried at fair value or the lower of cost or market, and derivative assets and liabilities” in the financial statements in their recent Form 10-Ks.
