This comes from Delaware Vice Chancellor Glasscock’s opinion in Pogue v. Hybrid Energy, a books & records case. Here’s the setting:
The Plaintiff was an employee of the Defendant Hybrid Energy. He alleges that, at the time he was hired in 2011, the Company issued to him a stock certificate representing one million shares of Hybrid common stock. Despite this fact, the record demonstrates that Hybrid, at the time, had no treasury shares available to distribute; its certificate of incorporation authorized the issuance of only 1,500 shares, which were all then outstanding, held by its principal.
The company responded to the plaintiff’s books & records suit by saying that only a stockholder could assert a right to inspect corporate records under Delaware law, and the plaintiff wasn’t a stockholder. The outrageousness of this position prompted the Vice Chancellor to drop the following footnote:
This Court has defined the useful Yiddish word “chutzpah” as “an audacious insolence; a mixture of nerve and gall.” . . . The paradigm example often given is of a murder defendant, who has killed his mother and father, throwing himself on the mercy of the court as an orphan. Another is alleged here: a company that issues a void stock certificate to an employee to defraud him of his services, defending a books and records request on the ground that said employee is no stockholder.
“Audacious Insolence”? Perhaps. Effective? Definitely – The Vice Chancellor granted the defendant’s motion for summary judgment.
Disclosure Effectiveness: Disclosure Overload Prompts IR Innovation?
This post from “Jim Hamilton’s World of Securities Regulation” highlights NIRI’s comment letter on Corp Fin’s Reg S-K disclosure effectiveness project. NIRI’s concerns center on the problem of disclosure overload, which it attributes to Congressionally-mandated disclosure requirements, fear of litigation, and the desire to satisfy outstanding staff comments or avoid new ones.
Due to its concerns about overload, NIRI urges the SEC to avoid any new disclosure requirements that wouldn’t pass muster under TSC Industries v. Northway’s materiality standard — and to take into account the many voluntary initiatives that companies have undertaken to improve investor disclosure when considering any new mandate.
It’s in discussing these voluntary initiatives that NIRI makes its most interest point — that disclosure overload has prompted companies to innovate in order to give investors what they want:
As a result of this information overload, many companies no longer rely solely on their periodic Exchange Act filings to provide detailed information about their businesses to analysts and investors. Instead, many issuers are presenting professionally designed slide decks during investor day events, non-deal road shows, or at industry conferences.
Many companies have created extensive IR websites with information on the company’s operations, financial metrics, historical stock price performance, company fact sheets, and earnings guidance (where applicable), and to broadcast and replay quarterly earnings calls. In recognition of the importance of these disclosure tools, some companies have hired consultants to improve the readability, visual appeal, and effectiveness of their presentations and/or IR websites.
Attributing most of the IR department’s functions to the fallout from disclosure overload seems like a bit of a stretch — but there’s no doubt that the overall level and quality of investor engagement has risen sharply over the past decade. So NIRI may be on to something when it sees a link between increasingly burdensome disclosure mandates and innovation in voluntary disclosure practices.
Our Executive Pay Conferences: 10% Reduced Rate – Only Two Weeks Left!
Here’s the registration information for our popular conferences – “Tackling Your 2017 Compensation Disclosures: Proxy Disclosure Conference” & “Say-on-Pay Workshop: 13th Annual Executive Compensation Conference” – to be held October 24-25th in Houston and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days.
Discounted Rates – Act by September 9th: Huge changes are afoot for executive compensation practices with pay ratio disclosures on the horizon. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a reduced rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by September 9th to take advantage of the 10% discount.
– John Jenkins
The Business Roundtable recently updated its “Corporate Governance Principles” for the first time since 2012. The updates focus on encouraging more shareholder engagement, boardroom diversity, and cybersecurity. But the most interesting part of the update may be its call for increased shareholder responsibility & accountability.
The BRT contends that an increase in shareholder access to the boardroom requires an increase in transparency regarding the “nature of [a shareholder’s] identity and ownership, even in cases where the federal securities laws may not specifically require disclosure.” But its call for shareholder responsibility goes well beyond that:
More fundamentally, we believe that the responsibility of shareholders extends beyond disclosure. We sense that there is a rising belief that shareholders cannot seek additional empowerment without assuming some accountability for the goal of long-term value creation for all shareholders. Moreover, we believe that shareholders should not use their investments in U.S. public companies for purposes that are not in keeping with the purposes of for-profit public enterprises, including but not limited to the advancement of personal or social agendas unrelated and/or immaterial to the company’s business strategy.
Well, when you put it that way – sure, personal and social agendas that aren’t material to the company’s business have no place in the shareholder dialogue. We can’t argue about that, right?
Should Shareholders Be Engaging Over Social Issues?
Okay, maybe we can argue about that. There are a lot of investors who would take issue with the BRT’s position on advancing “personal or social agendas.” Some heavy hitters contend that the environmental, social and governance (ESG) issues that others would lump into this category are closely linked with long-term value creation. For example, here’s an excerpt of what BlackRock’s Investment Stewardship team says on the subject:
ESG considerations are integral to our investment stewardship activities. Our clients are long-term investors and it is over the longer term that ESG risks and opportunities tend to be material and have the potential to impact financial returns. The best companies ensure that their investors, as well as other constituents of the company, have enough information to understand the drivers of, and risks to, sustainable financial performance.
When it’s put like this, disagreeing with the importance of ESG issues sounds akin to disrespecting mom or apple pie.
The problem with this debate is that vague concepts like “sustainable financial performance,” “long-term value creation,” and the need to avoid agendas “that are not in keeping with the purposes of for-profit public enterprises” don’t add a whole lot to the conversation about where to draw the line between legitimate investment concerns and frivolous personal agendas.
Poll: Should Shareholders Be Engaging Over Social Issues?
Please take a moment to participate in this anonymous poll:
survey services
– John Jenkins
Yesterday, as the latest in Corp Fin’s disclosure effectiveness project, the SEC posted an 8-page “request for comment” on the disclosure requirements in Subpart 400 of Regulation S-K. The scant press release named three topics in particular – management, certain security holders & corporate governance – but it didn’t use the buzz word of Item 402’s executive compensation (probably because the title of Subpart 400 in S-K is “management, certain security holders & corporate governance”).
Item 402 is indeed open for comment! In fact, Item 402 was already open for comment as the SEC made clear in the S-K concept release that it welcomed comments on all aspects of S-K (even though that release focused on business & financial information). Some from the SEC have been saying that Item 402 is a lower priority for the disclosure effectiveness project.
Maybe if enough folks request changes in the 402 area, the SEC will propose something there – but I doubt it given the magnitude of that undertaking & the fact that Item 402 got its last overhaul a mere decade ago (which is why Item 402 is a lower priority for this project). The “request for comment” notes that the comments received will assist the SEC in “carrying out the study of Regulation S-K required by Section 72003(a) of the FAST Act” – that’s probably why the SEC decided to issue this “request for comment” on top of the earlier S-K concept release (as Ning Chiu explains in her blog).
As Broc has blogged before, we have no idea why this is a “request for comment” – and not a “concept release” – but given the short length of the “request for comment,” the difference must allow the SEC to avoid the regulatory trappings of a full-blown concept release.
By the way, the SEC also extended the comment period for the resource extraction/mining disclosures rulemaking a few days ago – the extended comment period ends on September 26th…
Using “Behavioral Ethics” in Compliance Programs
The “Conflict of Interest Blog” provides this roundup of recent articles addressing the use of the emerging field of “behavioral ethics” in corporate compliance programs. Behavioral ethics focuses on how people actually behave when confronted with an ethical dilemma, in order to understand why they so often act in a manner contrary to their best intentions. (Take a look at this Harvard Magazine article for a more in-depth discussion of what behavioral ethics is all about).
According to this blog– from Philip Morris’s Chief Compliance Officer – incorporating insights from behavioral ethics into compliance programs makes them more effective:
Leading behavioral ethics researchers, including Ann Tenbrunsel of Notre Dame and Linda Trevino of Penn State, have shown that concepts such as leader and peer influence, ethical fading, and blind spots have practical implications for compliance programs. This research has firmly established that compliance programs with communications, training and controls informed by behavioral ethics learnings are more successful in reducing the likelihood of misconduct and increasing the likelihood of whistle-blowing behaviors.
Transcript: “How to Apply Legal Project Management to Deals”
We have posted the transcript for our recent DealLawyers.com webcast: “How to Apply Legal Project Management to Deals.”
– John Jenkins
Hello everybody, I’m John Jenkins – the newest editor here at TheCorporateCounsel.net. Some of you may have noticed me lurking around the “Q&A Forums” while Broc has been struggling valiantly to get me up to speed. You’re going to be hearing more from me over the next several weeks, so I thought it would be a good idea to introduce myself.
I’m a partner in the Cleveland office of Calfee, Halter & Griswold, where I’ve worked since I started my career in 1986. I’ve worn a lot of hats over the past 30 years – capital markets, Exchange Act compliance, public and private M&A, SEC & SRO investigations, board and special committee work, etc. I also taught a law school M&A class for 10 years. You tend to cast a pretty wide net in a mid-sized firm – and I hope that’s given me a perspective that you’ll find interesting.
Broc & I first connected back in 2003, when he invited me to join his advisory board after I gave a presentation on some obscure aspect of Sarbanes-Oxley at an ABA meeting. Since then, I’ve done a number of webcasts and written several articles for Deal Lawyers – and even did a bit of blogging on the DealLawyers.com site a few years ago. I’ve always thought TheCorporateCounsel.net family of sites was a great resource, and I’m really looking forward to my new role here.
That brings me to the point of this post – Broc has decided to head out for a real vacation (with no email!). After 15 years or so, everybody deserves a little time off. He told me when to feed the dog & water the plants, gave me his Netflix password & the keys to the Chevy, and then basically said – “You’re on your own, pal. Don’t burn the place down.”
So, for the next few weeks, I’ll be handling the blogging and other duties on this site, DealLawyers.com and CompensationStandards.com. Remember when you were a 16 year-old first learning to drive? Yeah, I’m that kid, except I’m a lot older and have a much slower reaction time. So, I guess what I’m saying is – fasten your seatbelts, because this may be a bumpy ride.
Shareholder Approval: NYSE Revises Bunch of Its “Equity Compensation Plan FAQs”
As Mike Melbinger blogged on CompensationStandards.com yesterday, the NYSE revised its “Equity Compensation Plan FAQs” recently for the first time in nearly a decade. The revised FAQs are the ones that have “Clarified August 18, 2016” written beneath them. As Mike blogs, FAQ C-1 clarifies the NYSE’s position that an amendment of an equity incentive play to allow for maximum tax withholding is not necessarily a “material amendment”…
September-October Issue: Deal Lawyers Print Newsletter
This September-October issue of the Deal Lawyers print newsletter has been posted – & also sent to the printers – and includes articles on:
– “This is the Business We’ve Chosen…”
– Shareholder Votes & Standards of Judicial Review
– Schedule 13G “Passive” Investor Status: When Being a Little Active Is Still Passive!
– Delaware Upholds Decision on Mis-Valuation of Cancelled Stock Options
– A Primer on Private Equity: Basics for Counsel to Middle Market Companies
Remember that – as a “thank you” to those that subscribe to both DealLawyers.com & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online for the first time. There is a big blue tab called “Back Issues” near the top of DealLawyers.com – 2nd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.
And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to DealLawyers.com will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to DealLawyers.com – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online. Try a “Free for Rest of ’16” no risk trial now!
– John Jenkins
