Over on Cooley’s “Governance Beat”, Broc recently blogged advice from in-house professionals on effective shareholder engagement practices. Here’s an excerpt with some of their recommendations:
– “To be an active listener. On some of these calls, you often go in with an agenda – particularly if you have specific things you’re trying to address on the call or if you’ve got your chair on the phone and they have things that they want to talk about. I think it’s critical to pause and hear what the investors are saying. Are you responding to what is being said as opposed to just sticking to the script that you went in with?”
– “Recognizing the differences among shareholders. An active manager may have very different interests and priorities than a passive manager. Speaking to an active manager as if they are a passive one is not going to go over well.”
– “Be very precise with your language. You may be having a terrific engagement and suddenly one thing is said that gives the impression that you’re not in tune with good governance practices. Recognize if that happens and rectify it. Every word matters. Having said that, tone is key and if you’re new to engagement, make it clear you are just dipping your toe into the engagement waters. You will find many investors to be polite and forgiving.
Other recommendations include the importance of keeping management in the loop about the results of engagement, being willing to take advice from your investors, and using shareholder engagement as part of your disclosure drafting process.
Listening to your shareholders ranked pretty high on the list of advice from investor relations professions set forth in Broc’s “Governance Beat” blog, and this excerpt from Glass-Lewis’s blog on the results of the recent proxy season provides some insight into the downside of not listening to the messages shareholders are sending:
Insufficient response to shareholder dissent grew to be the second most popular driver for an against recommendation from Glass Lewis. Despite the years in which the advisory vote on executive compensation has been part of the lexicon in U.S. corporate governance, there are still companies that pay little heed to shareholders’ display of disapproval. These are joined by companies who seem to believe any change to their pay programs demonstrates adequate response to the drivers of higher disapproval. For instance, companies such as Transdigm reported the adoption of a basic clawback policy as part of their attempt to address shareholder feedback while ignoring the 2023 recoupment policy mandated by NYSE and Nasdaq listing requirements.
Earlier this month, Dave blogged about the perils of companies voluntarily assuming responsibility for their insiders’ SEC reporting obligations & offered some suggestions on controls and procedures that companies should consider implementing to mitigate those risks. WilmerHale’s Greg Wiessner has a suggestion to add to Dave’s list:
Regarding Dave’s comment about further advice for managing Section 16 reporting, the one item I relied on while in-house is creating a strong, two-way relationship with any captive broker team. By establishing a trusting, close communication process, you will know when an insider is considering a transaction. This helped the company (and me!) so that I could head-off a forgetful insider or one who is getting too close to the line of trading while in possession of MNPI. While my experience is that brokers have automated reporting, I went beyond that system by asking the person executing the trades to include me early.
This is good advice – and reminds me of something similar that my former colleagues & I also found to be helpful. Most corporate bigwigs have experienced and smart assistants, and many rely on them to provide order to a large portion of their lives. If you’re the poor soul who is stuck with the task of beneficial ownership reporting compliance, it’s very helpful to ingratiate yourself to these folks and let them know that you need to be contacted before the insider purchases, sells or otherwise transfers any shares.
You can register to attend today’s conference online and receive access to the archive of yesterday’s program by visiting our online store or by calling us at 800-737-1271. Our conferences are bundled together into a single two-day event for registration and pricing, so your purchase will cover both events.
– How to Attend Online: Our conferences are hosted online through the RingCentral Events platform. When you register for the conferences, you’ll receive a registration confirmation email that will contain your personalized “Magic Link.” Just click on that link to be instantly directed to the event. The Magic Link acts as an “access pass” into the event. It is unique to you and cannot be shared with others. It bypasses the need for registered users to sign into RingCentral Events and brings you directly into your RingCentral Events account and into the event.
Once in the event, click the “Stage” button from the menu on the left of the webpage. In order to view the session currently playing on stage, you will need to press the play button on the video. If you need technical assistance, members of our team will be available via email at info@ccrcorp.com to assist you throughout the conferences.
– Access to Archives & On-Demand CLE: Your registration includes access to the conference archives, which will be available until October 15, 2025 – but you’ll need your confirmation email to access them so be sure to retain it! One big reason to make sure you do that is that if you can’t attend the conferences live, you may earn on-demand CLE credit by viewing the archives. See these “CLE FAQs for Archived Conference Sessions (ON DEMAND)” for more information.
– Thanks to Our Sponsors! A huge “thank you” to our sponsors who have helped make these events possible. Our platinum sponsor for this year’s conferences is Goodwin, our gold sponsors are Fredrikson and Kirkland & Ellis, our silver sponsors are Alliance Advisors, Cooley, Fintool, King & Spalding, Latham & Watkins, Morrison & Foerster, The Nuvo Group, and Wilson Sonsini. Our digital partner is Aon. Our media partner is Newsfile, and those of you who are attending in-person should be sure to check out our exhibitor, DragonGC. We are extremely grateful for the support of our sponsors!
If you’ve ever worked on a public offering, you know that as part of those transactions issuer’s and underwriters’ counsel routinely provide a statement in their closing opinions to the effect that nothing has come to their attention that would lead them to believe that the prospectus contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. This statement is sometimes referred to colloquially as a “10-5 letter” or even a “10b-5 opinion”, but a recent New York trial court decision provides a reminder that a 10b-5 letter isn’t a legal opinion, and that some pretty significant consequences result from that conclusion.
In Camelot Event Driven Fund v. Morgan Stanley, (NY Cty.; 9/24), the plaintiff sought discovery of materials provided by the underwriters to their counsel in connection with that counsel’s 10b-5 opinion. In rejecting the defendants’ efforts to avoid producing those documents, the Court observed:
Because the 10b-5 letter is not legal advice or a legal opinion, the documents delivered to [underwriters’ counsel] (and both the written and oral communications with [such counsel]) for the purpose of obtaining the 10b-5 letter were not delivered to or had with [underwriters’ counsel] for the purpose of obtaining or facilitating legal advice. They are thus not privileged and must be produced. Stated differently, the facts and communications that the defendants chose to have [underwriters’ counsel] review and rely on (or not rely) on for the purposes of the 10b-5 letter are validly within the purview of discovery and are not privileged because they are given for the purposes of a business document needed for the transaction and not for the purpose of obtaining a legal opinion or legal advice.
The Court went on to say that non-privileged facts that were communicated from the underwriters to underwriters’ counsel in connection with the preparation of the 10b-5 letter did not become privileged on that basis, and the plaintiff was entitled to “fulsome discovery” concerning information that was disclosed to or withheld from counsel for that purpose. However, the Court said that the plaintiff was not entitled to ask underwriters’ counsel to disclose why the underwrites chose to disclose or not disclose certain facts for purposes of the 10b-5 letter, because that information was privileged.
Last week, Liz blogged about a recent NACD report on technology governance. I thought that an article in the most recent issue of The Boardroom Insider discussing the top AI trends that boards should keep in mind as they perform their oversight responsibilities might be a nice follow-up to that blog. The article follows up a roundtable discussion on this topic that included IBM CTO Khwaja Shaik and Gartner CFO Jackie Lyons. This excerpt highlights the need for boards to change the way they look at risk management of AI issues:
The board should refresh its views on risk management for AI projects. “Set up the governance of AI as a business risk rather than just an IT risk,” says Lyons. This will push management and the board to shape an overall AI integration and risk policy, rather than random AI trials throughout the company, where, as Shaik says “the left hand doesn’t know what the right hand is doing.” Still, a good risk oversight policy should allow for plenty of AI innovation throughout the system. Bottom-up experiments and projects offer a far more productive ecosystem than top-down policies. Shaik says even large, established companies will need to take a more fatalistic, venture capital approach with AI projects. “Nine out of ten will fail, but the one that wins pays for all the rest.”
Other trends identified in the article include the need to appropriately identify the impact of AI energy consumption on a company’s stated ESG and carbon footprint goals and directors’ personal vulnerability to AI-enhanced spoofing or similar scams.
We’re kicking things off today in San Francisco with our “Proxy Disclosure Conference” and we’ll follow that up tomorrow with our “21st Annual Executive Compensation Conference.” The agendas for our conferences include 15 substantive panels over 2 days – as well as an interview with Erik Gerding, the Director of the SEC’s Division of Corporation Finance. Here’s what’s on tap for today.
We’re very excited to be back in-person for the first time since the pandemic, but if you can’t be here in person, you can still register to attend today’s program and tomorrow’s “21st Annual Executive Compensation Disclosure Conference” online by visiting our online store or by calling us at 800-737-1271. Our conferences are bundled together into a single two-day event for registration and pricing, so your purchase will cover both events.
– How to Attend Online: Our conferences are hosted online through the RingCentral Events platform. When you register for the conferences, you’ll receive a registration confirmation email that will contain your personalized “Magic Link.” Just click on that link to be instantly directed to the event. The Magic Link acts as an “access pass” into the event. It is unique to you and cannot be shared with others. It bypasses the need for registered users to sign into RingCentral Events and brings you directly into your RingCentral Events account and into the event.
Once in the event, click the “Stage” button from the menu on the left of the webpage. In order to view the session currently playing on stage, you will need to press the play button on the video. If you need technical assistance, members of our team will be available within the platform and via email at info@ccrcorp.com to assist you throughout the conferences. If you need technical assistance, members of our team will be available via email at info@ccrcorp.com to assist you throughout the conferences.
– Access to Archives & On-Demand CLE: Your registration includes access to the conference archives, which will be available until October 15, 2025 – but you’ll need your confirmation email to access them so be sure to retain it! One big reason to make sure you do that is that if you can’t attend the conferences live, you may earn on-demand CLE credit by viewing the archives. See these “CLE FAQs for Archived Conference Sessions (ON DEMAND)” for more information.
– Thanks to Our Sponsors! A huge “thank you” to our sponsors who have helped make these events possible. Our platinum sponsor for this year’s conferences is Goodwin, our gold sponsors are Fredrikson and Kirkland & Ellis, our silver sponsors are Alliance Advisors, Cooley, Fintool, King & Spalding, Latham & Watkins, Morrison & Foerster, The Nuvo Group, and Wilson Sonsini. Our digital partner is Aon. Our media partner is Newsfile, and those of you who are attending in-person should be sure to check out our exhibitor, DragonGC. We are extremely grateful for the support of our sponsors!
Last week, ISS published the results of its most recent benchmark policy survey, and this year, respondents had quite a bit to say about poison pills. The survey is part of ISS’ annual global policy development process and was open to all interested parties to solicit broad feedback on areas of potential ISS policy change for 2025 and beyond. The survey’s results reflect responses from investors and non-investors. This latter group is comprised primarily of public companies & their advisors. Not surprisingly, the survey found that they differ when it comes to what’s acceptable when it comes to poison pills. Here are some of the highlights:
– When asked if the adoption by a board of a short-term poison pill to defend against an activist campaign was acceptable, 52% of investor respondents replied “generally, no”, while 65% of non-investor respondents replied “generally, yes”.
– When asked whether pre-revenue or other early-stage companies should be entitled to greater leeway than mature companies when adopting short-term poison pills, 56% of investors and 43% of non-investors said that such companies should be entitled to greater leeway on the adoption of a short-term poison pill, as long as “their governance structures and practices ensure accountability to shareholders.”
– When asked about whether a short-term poison pill trigger set by a board below 15 percent would be acceptable, the most common response among investor respondents was “No” (39%), while the largest number of non-investor respondents (38%) said “yes, the trigger level should be at board’s discretion.”
– When asked whether a “two-tier trigger threshold, with a higher trigger for passive investors (13G filers) would be considered a mitigating factor in light of a low trigger, 78% of non-investor respondents said “yes, it should prevent the pill from being triggered by a passive asset manager who has no intention of exercising control.” On the investor, while 41% agreed with the majority of non-investor respondents, 48% considered that “no, all investors can be harmed when a company erects defenses against activist investors whose campaigns can create value, so the lowest trigger is the relevant datapoint.”
Also, it turns out that investors like their pills to be “chewable.” The survey found that nearly 60% of investors found a qualifying offer clause in a pill to be important and a feature that should be included in every pill. A small majority (52%) of non-investors said that this feature was “sometimes important” depending on the trigger threshold and other pill terms.
Check out the latest edition of our “Timely Takes” Podcast featuring my interview with Remy Nshimiyimana and Oderah Nwaeze of Faegre Drinker regarding Delaware’s process for ratifying defective corporate acts. In this 10-minute podcast, Remy & Oderah covered the following topics:
– Overview of Delaware’s statutory procedure for ratifying defective corporate acts
– Examples of the types of defective acts that can be ratified under this statutory procedure
– Limitations on a corporation’s ability to ratify defective acts
– Shareholder approval requirements
– The Role of the Chancery Court
Our discussion was based on Faegre’s recent memo, “Ratification of Defective Corporate Acts: An Overview”, which members of TheCorporateCounsel.net can access in our “Delaware Law” Practice Area. If you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share, we’re all ears – just shoot me an email at john@thecorporatecounsel.net or send one to Meredith at mervine@ccrcorp.com.
Yesterday, the SEC announced a settled enforcement proceeding against DraftKings arising out of the use of its CEO’s social media accounts to disseminate material non-public information. This excerpt from the SEC’s press release announcing the proceeding lays out the factual background of the case:
The order finds that, on July 27, 2023, at 5:52 p.m., DraftKings’ public relations firm published a post on the personal X account of the DraftKings CEO. The post, according to the order, stated that the company continued to see “really strong growth” in states where it was already operating. DraftKings’ public relations firm posted a similar statement that same day on the CEO’s LinkedIn account. At the time of the posts, DraftKings had not yet disclosed its second quarter 2023 financial results, nor had it otherwise publicly disclosed certain information contained in the posts.
Shortly after the public relations firm published the posts, it removed both posts at the request of DraftKings. According to the order, even though Regulation FD required DraftKings to promptly disclose the information to all investors after it was selectively disclosed to some, DraftKings did not disclose the information to the public until seven days later when it announced its financial earnings for the second quarter of 2023.
The SEC’s cease and desist order says that publication of these social media posts violated the company’s social media and Reg FD policies, which prohibited the use of social networks to disseminate MNPI and barred the company’s authorized spokespersons from discussing financial or operational results or guidance during the pre-earnings release “quiet period” specified in its Reg FD policy.
In addition to consenting, on a neither admit nor deny basis, to an order to cease and desist from future violations of Section 13(a) of the Exchange Act and Regulation FD thereunder, the company agreed to pay a $200,000 civil penalty and comply with certain undertakings, including Reg FD training for employees who have corporate communications responsibilities.
