One of the things that I’ve blogged about more than I would like is how the Reg Flex Agenda is merely aspirational – and people should pay little mind to it (here’s one of my more recent entries). History certainly has borne out the truth – I imagine the SEC has missed it’s predicted timetables for rulemakings listed in the Reg Flex Agenda many more times than not. And not that there’s anything wrong with that, it’s always been viewed as a meaningless regulatory exercise for those “in the know.”
But now – probably due to all the Congressional & media attention being paid to it – SEC Chair Clayton recently told the Senate Banking Committee that he intends to make the Reg Flex Agenda more realistic, including streamlining it (see this Cooley blog).
Kudos if the SEC can pull it off. But I worry that by promising to make deadlines, the SEC is placing a bullseye upon itself. In recent years, the Staff has smartly avoided mentioning any “hard” time frames for conducting rulemaking. That’s because it’s nearly impossible to predict when a rulemaking will come out, even when you’re the one actually writing the rules! It’s difficult to even predict which season of the year it will happen.
There’s a myriad of review layers within the SEC, including:
1. Your superiors within your Division (and there might be quite a few of those)
2. The folks within the SEC’s Office of General Counsel
3. That ever-growing newish Division of Economic & Risk Analysis (DERA)
4. Each Commissioner (and their counsels)
5. Possibly other Divisions or Offices within the SEC, depending on the nature of the rulemaking
6. Possibly members of Congress (or their staff) if it’s a politically-sensitive topic
You think its tough getting your proxy through an internal review? That’s nothing. A proposing/adopting release can easily go through 20 drafts. Anyway, I draw your attention to the transcript of one of my favorite webcasts if you want to learn more: “How the SEC Really Works“…
Some of you might know that I’m rolling into “Week 38” of my second pregnancy…the “home stretch.” For all the parents out there – especially moms – you know that balancing your pregnancy & profession can present some unique issues. Here are 4 things I’ve experienced:
1. To-Do Lists: At this point, these are growing faster than the baby. There’s the work list, the mom/baby healthcare & benefits lists, the nursery list, etc. It can be overwhelming, especially since all the tasks have the same imminent – but unknowable – deadline.
With our firstborn, I managed to wrap up my work projects (and report for jury duty!) just before the baby’s early arrival. But, we were “those people” who didn’t have a name picked out & installed the car seat in the hospital parking lot. This time, I’d love to have 10 minutes of downtime to mentally prepare for the new person who’s joining our family. I’m not there yet – but there’s still hope.
2. Transition Mechanics: I’ve benefitted from good parental leave policies, but there’s an art to making this work. Good colleagues & relationships are key, since it’s scary to entrust your work and clients to someone else. You want to know they’ll do a great job but also that your position is secure and your clients will still want to work with you when you return. You’re also well-aware that you’re asking big favors. Co-workers are taking on extra work – with limited background and without an obvious long-term incentive. Clients are dealing with someone they don’t know, who might not have the entire backstory for on-the-fly questions.
It’s best for everyone if you’re extremely organized going into leave (more to-do lists, plus contact lists). Discuss expectations with clients & colleagues – separately & during intro calls. I also continued to monitor e-mail and was available for questions during leave. People are pretty respectful, but they like knowing you won’t hang them out to dry. Small thank-you gifts also never hurt.
3. Awkward Networking: I don’t like being pregnant in a professional setting. Pretty much everyone stares at and/or comments on your body. This doesn’t bother me much if the other person is relating to me as a fellow parent – maybe it’s even a good icebreaker – but you still need a tactic for redirecting the conversation to any professional topics you wanted to cover. And always have a stock response ready for people who aren’t as smooth. Because the cruel irony is that you can’t just smile and take a big drink of wine…
4. Mixed Feelings: Don’t get me wrong, I love our two-year-old more than life and I’m grateful and excited for the opportunity to care for another little person. But parenthood isn’t always easy or fun, the world isn’t always kind, and experiencing all that love also requires a lot of vulnerability.
On top of that, there’s the postpartum identity crisis – during which you try to reconcile your ambitious, always-available, pre-baby self with the realities of limited time & sleep, as well as whatever you & society think a mother/parent should look like. There’s a tension between proving yourself all over again and setting boundaries that allow you to actually enjoy your family. Both are necessary and evolve over time. As a woman in an historically male-dominated profession, I’m also constantly thinking about how my attitude, day-to-day actions & career decisions might impact my kids’ ambitions and worldview.
But there’s upside: the transition is a chance to examine your goals – and decide how to maximize your potential. Plus, you might be more creative & efficient.
I know I’m not alone on this journey of balancing pregnancy, parenthood & lawyering – email me with any experiences & “lessons learned” that you want to share!
Corp Fin’s “Partial” Global Rule 13e-4 Relief
Here’s something that Broc blogged yesterday on the “DealLawyers.com Blog“: Whenever Corp Fin’s Office of Mergers & Acquisitions posts a new no-action response, I take a gander to see if it’s new or unusual. Typically, they aren’t – and this new response to CBS falls within that category. It’s basically one of the formula pricing variety (albeit in the Reverse Morris Trust exchange offer context).
The Staff’s relief allows for the bidder/issuer to offer a number of shares in exchange based on the dollar amount of securities tendered – and relies on “formula pricing” mechanisms going back to the old Lazard Frères no-action letter from the 1980’s while utilizing the “pricing goes hard at least two days prior to expiration.”
So nothing surprising here, except the last paragraph in the no-action letter which states the Staff will no longer be issuing no-action letters for parts of this area. The global relief is somewhat narrow – it covers only Day 18 VWAP pricing in a RMT. So issuers can go on their own if they fit within the letter’s facts. Be careful – the request doesn’t expressly give global relief for Day 20 VWAP pricing, which has a few more conditions under Staff precedents.
This is clearly a sign that Corp Fin is looking to get out of the business of issuing timing-consuming no-action letters in situations where there is a well-trodden path of letters…
Speaking of the Staff, don’t forget to tune in next Wednesday, October 11th for the DealLawyers.com webcast – “Evolution of the SEC’s OMA” – to hear current & former Chiefs of the SEC’s “Office of Mergers & Acquisitions” discuss what that job is all about. Join Corp Fin’s Michele Anderson and Ted Yu, as well as Skadden’s Brian Breheny, Weil Gotshal’s Cathy Dixon, Alston & Bird’s Dennis Garris and Morgan Lewis’ David Sirignano. This is a unique event!
Do EPS Incentives Discourage CapEx?
This Goldman Sachs video suggests we’re in a period of declining capex – for the first time since the early 90s. Some think that’s because shareholders prefer dividends and buybacks over long-term investments. This Dealbreaker article suggests there’s also a connection to incentive pay structures:
How executives are rewarded has a real impact on capital allocation. When a CEO’s bonus is tied to earnings per share – a metric that can be juiced by gobbling up shares – that company will likely to do more and bigger buybacks. And when companies appear to buy back shares in order to avoid a negative earnings surprise, capex spending tends to be diminished in the following year. Executives whose personal wealth moves in tandem with their company’s stock price show a particular preference for repurchases over capital expenditures. Larry Fink has a term for this.
If this criticism sounds familiar, it’s because the potential use of buybacks to support stock prices became a “hot topic” a couple years ago. Here’s one of Broc’s blogs discussing it.
I was excited to get my “feet wet” by editing the new 2018 Edition of the popular “Proxy Season Disclosure Treatise.” It just came back from the printers – and you can order now so that you receive it hot off the press! This “Detailed Table of Contents” lists the numerous topics so you can get a sense of the Treatise’s practical nature.
It’s huge – 33 chapters & 1650 pages! And so lovable that even a small child can enjoy it, as borne out by this 30-second video:
Links to Exhibits: Where To Put The Exhibit Index
When the SEC amended its rules to require links to exhibits, it also amended Rule 102(d) of Regulation S-T & Rule 601(a)(2) of Regulation S-K to require the exhibit index to “appear before the required signatures in the registration statement or report.” We’ve been getting lots of questions about what this means: Does a separate list still need to precede the exhibits themselves?
Thankfully, Bass Berry’s Jay Knight contacted the SEC’s Office of Chief Counsel – and updated his blog to reflect the Staff’s informal answer to this question:
It’s permissible to combine the exhibit table with the exhibit index and only present one list of exhibits with hyperlinks, and a separate exhibit index is not required.
I think this is a good, practicable outcome and should dispense with the notion of having two lists of exhibits. Here’s an example of the approach applied on an 8-K.
Equifax Data Breach: Securities Class Action Liability?
Last week, Broc blogged about the possible “insider trading twist” in the Equifax data breach. That, along with an alleged 17% decline in Equifax’s stock price following news of the breach, might provide unusually strong fodder for a securities class action.
At least one of these lawsuits has been filed – and more will likely follow. Check out this analysis from Kevin LaCroix:
The recent Equifax securities class action lawsuit arguably represents the exceptional case where the company’s share price declined significantly after the announcement of the data breach. The share price decline following Equifax’s data breach announcement undoubtedly reflected the fact that the company’s business model depends on maintaining the confidentiality of the customers’ sensitive financial information. The sheer magnitude of the breach likely was also a factor; although the Equifax breach is not the largest data breach of all times, it may represent one of the highest profile breaches involving sensitive personal information.
The alleged insider trading may also make the Equifax case more attractive to prospective litigants. To be sure, the company has claimed that the officials were not aware of the breach when they traded. In addition, the sales themselves are relatively small and reportedly only involve small portions of the officials’ holdings. Nevertheless, the plaintiffs undoubtedly will try to argue that the officials sought to capture trading profits by trading in their shares before the news of the breach was publicly released.
The fact that the insider trading took place after the breach had been discovered but before the breach was publicly disclosed highlights the danger involved when a company delays publicly disclosing that it had sustained a cybersecurity incident. The company’s press release states that the company delayed disclosing the breach while it conducted a forensic examination of the breach to determine its scope. One of the issues that undoubtedly will be examined in great depth in the wake of Equifax’s data breach disclosure is the question of how quickly companies should disclose information about the breach, particularly if the cause, scope, and seriousness of the breach is unknown when a company discovers that it has been hacked.
How the Equifax case ultimately will fare remains to be seen; in particular it remains to be seen whether the specifics of the plaintiffs’ allegations are sufficient for the case to survive motions to dismiss. Notwithstanding the lack of success plaintiffs typically have had with data breach-related shareholder derivative lawsuits, Equifax may seek to file derivative lawsuits against company officials as well.
The potential insider trading aspect of this situation also highlights the need for well-implemented pre-clearance & special blackout procedures. Take a moment to participate anonymously in our “Quick Survey on Blackout Periods.” We have over a dozen related survey results posted in our “Insider Trading” Practice Area – as well as other resources, like this timely Dorsey memo.
There are changes afoot in the investment industry. According to this AlphaSense blog, nearly 40% of US equity assets are now held in “passive” funds, and 20% of US equity assets are now using sustainability strategies in investment decisions.
And while most of us have been beating the corporate governance drum for a long time, these converging trends emphasize that there’s an IR opportunity and financial impact. Here’s an excerpt:
The “new” type of activist campaign focuses on corporate governance, and tends to be more successful because the topics align with the proxy voting guidelines of passive institutions. Proxy contests can also benefit from the presence of passive investors because they may be looking to sell poorly performing stocks in their portfolios.
Investors are increasingly interested in expanded communications to include sustainability goals and performance discussions, a.k.a. extra financial, non-financial and other intangible measures.
Between 20-30% of companies have made shifts in their IR strategy as a result of the increase in passive investors and the increasing attention to sustainability. There’s an opportunity for those who can reach this audience.
What aspects of the company’s sustainability story are unknown, unrecognized or misunderstood, that could contribute to value creation if told in compelling and meaningful IR messaging? Where might aspects of ESG be germane to expanded mainstream investor interest and communications? How might developing ongoing relationships with passive investors and sell-side analysts increase shareholder value, not only by increasing demand for the company’s publicly traded equity and debt, but also by decreasing the risk of rogue shareholder votes?
State Street’s Climate Disclosure Guidance
Check out this new “climate disclosure guidance” from State Street. It’s aim is to help investors in “high-impact” sectors – oil, gas, utilities & mining – be able to evaluate climate risk preparedness and business sustainability risks. Consistent disclosures would be a step in the right direction.
State Street also expects companies in “high-impact” sectors to address climate risks in their board committee charters.
1. For our employee determination date, we’re using:
– October 31st (or equivalent for non-calendar year companies) – 26%
– November 30th (or equivalent for non-calendar year companies) – 7%
– Fiscal year end – 36%
– Some other date – 31%
2. When it comes to “CACM,” we’re using:
– Base salary – 24%
– Total cash compensation – 15%
– Total gross compensation – 21%
– Taxable wages – 25%
– Some other measure – 15%
– No CACM, using annual total compensation instead – 0%
3. When it comes to using the de minimis exemption, we’re:
– Yes, we’re using the exemption – 14%
– No, we’re not using the exemption – 51%
– Don’t know yet – 35%
4. When it comes to excluding employees of acquired entities, we’re:
– Yes, we’re excluding – 4%
– No, we’re not excluding – 28%
– We don’t have acquired entities – 48%
– Don’t know yet – 20%
We decided to release these course materials early since so many are grappling now with the type of issues addressed in this “How to” manual. Just like the upcoming “Pay Ratio & Proxy Disclosure Conference” in October will comprehensively address these – and many more – issues. This comprehensive pay ratio event is one that you can’t afford to miss. Also remember that our third pre-conference webcast is September 27th.
Register Now: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days. Register today.
Proxy Season: ISS Corporate Solutions Notes 8 Key Trends
Last week, ISS Corporate Solutions issued a press release detailing 8 key trends for the latest proxy season. Here they are:
1. Shareholder proposals seeking more disclosure on climate change preparedness fared well in 2017, and three such proposals—at Exxon Mobil, Occidental, and PPL Corporation — received majority shareholder support.
2. Proxy access proposals topped the chart of the most commonly filed shareholder proposals, and most of the proposals to adopt proxy access that went to a vote received majority support.
3. Taken as a group, political contributions and lobbying proposals were the second most frequently filed shareholder proposals in 2017, and saw a slight uptick from 2016.
4. There was a spike in the number of directors receiving low levels of support from shareholders; 102 directors at S&P 500 companies, or 2.4 percent, received less than 80 percent shareholder support during proxy season, the highest figure since 2011.
5. Median CEO pay at S&P 500 companies rose by 7%.
6. 2017 was the second time that most companies held votes on the frequency of say-on-pay proposals. While shareholders preferred annual say-on-pay votes at 80 percent of companies in 2011, they preferred annual votes at well above 90 percent of companies this year.
7. Despite the increased shareholder interest in annual say-on-pay votes, the median say-on-pay vote result at Russell 3000 companies remained quite high—96.4 percent, a slight uptick from 2016’s median outcome of 96%.
8. Shareholder rights continue to receive focus. One example is companies’ steady march from plurality vote standards in uncontested director elections to majority vote standards.
Proxy Season: How Retail & Institutional Investors Voted
This 6-page memo from Broadridge & PwC takes a closer look at common shareholder proposals for this proxy season – and highlights that institutional investors drove approval of trending ESG issues. For example, institutional investors voted 66% of their shares in favor of climate change proposals, compared to 13% support among retail shares.
Tune in tomorrow for the webcast – “Non-GAAP Disclosures: Corp Fin Speaks” – to hear Mark Kronforst, the Chief Accountant of the SEC’s Division of Corporation Finance and Dave Lynn of TheCorporateCounsel.net and Jenner & Block provide practical guidance about what to do now with your non-GAAP disclosures given Corp Fin’s CDIs and a year’s worth of Staff comment letters on the topic.
According to “The Conference Board’s” “CEO Succession Practices” report – which analyzes succession events among the S&P 500 – companies are becoming much more communicative about CEO succession plans:
Compared with a year earlier, in 2016 boards were 30 percent less likely to announce that the transition was effective immediately.
Communication practices more commonly include providing earlier notice of the CEO succession event, including the description of the role performed by the board of directors in the CEO succession process, and offering more details on the reasons for the transition.
Check out this handy infographic from Heidrick & Struggles for other notable findings, which include:
– Struggling retailers & wholesalers are driving a record-high succession rate for companies with low TSR.
– Stable succession rates of better-performing companies may indicate that increased scrutiny over executive pay and performance has started to produce results.
– Only six of the 63 CEO positions that became available in the S&P 500 in 2016 were filled by a woman.
– One out of 10 CEO successions in 2016 were navigated by an interim CEO, a role once used only in situations of emergencies and unplanned transitions.
– Only 6.4 percent of the successions in 2016 involved the immediate joint appointment of the new CEO as board chairman, as proxy advisors and the investment community increasingly demand independent board leadership.
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here’s a sampling of entries:
– Boards: Portfolio Managers as New Directors
– LSE: Changes AIM Rules to Reflect “Market Abuse Regulation”
– PwC Violates Auditor Independence Standards – Yet Again
– US Foreign Bond Issuers: Fed Cracks Down on Form SLT Reporting
– Delaware Supreme Court Affirms Chancery’s Lack of Damages Award as Remedial Discretion
ISS announced yesterday that it’s changing hands – for the fifth time in the past 15 years or so. Genstar Capital, a San Francisco-based private equity firm, is buying the company from the previous PE owner – Vestar Capital Partners – for $720 million.
The ISS press release gives a few details on the expected timing & transition plans:
The transaction is expected to close by early fourth quarter, subject to customary closing conditions.
ISS will continue to operate independently once the transaction is completed and the current ISS executive leadership team will remain in place.
Based on the press release, Genstar has some experience in backing service providers in the financial services sector – and plans to continue ISS’s strategic infrastructure & ESG initiatives.
Blockchain: Here Come the Early Adopters
According to this Bloomberg article, Delaware’s enactment of amendments permitting companies to use blockchain technology for corporate records is already attracting potential early adopters among privately-held companies. Here’s an excerpt:
Medici Ventures Inc.—a venture capital arm of online retailer Overstock.com Inc. that invests in blockchain companies—plans to become one of the early adopters. “Medici Ventures is very excited about the possibilities this forward-thinking legislation from Delaware affords corporations, and plans to offer its shares and begin managing its shareholder records on the blockchain as soon as possible,” Medici Ventures President and Overstock.com board member Jonathan Johnson told Bloomberg BNA in an Aug. 10 statement.
Medici Ventures is an investor in Symbiont, a New York-based financial services firm that is working with Delaware on the infrastructure to support corporate record keeping on a blockchain throughout the company’s life. The Overstock.com subsidiary is one of about two dozen private companies that have expressed interest in using Delaware’s blockchain law.
The article says that – so far – it’s law firms that have expressed the most interest in blockchain technology.
Spanking brand new. By popular demand, this comprehensive “Management Proposals Handbook” covers the entire terrain – in a nifty chart format! – from SEC requirements for typical proposals to common questions about proxy statement distribution. This one is a real gem – 31 pages of practical guidance – and it’s posted in our “Annual Shareholders’ Meetings” Practice Area.
Whistleblower Hotlines: Still a Vital Tool?
Here’s the intro from this blog by Matt Kelly of Radical Compliance:
Recently the chief compliance officer of a global company asked me: does a company need a telephone-based whistleblower hotline anymore? In our all-technology, all-the-time world, could a company phase out telephone hotlines in favor of a web-only reporting system?
The answer to that question requires a bit of finesse. The short answer is yes: in the purest, technical interpretation of corporate governance law and SEC rules, a company isn’t required to provide a telephone hotline as one reporting option. But you would need bulletproof arguments demonstrating why your organization no longer needs a telephone hotline, and never will in the future.
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here’s a sampling of entries:
– Confidential Treatment Requests for IPOs: 40% Have Them
– Federal Court Holds Delaware’s Unclaimed Property Estimation Methods Violate the Constitution
The principles are designed to promote fair and accurate cybersecurity ratings – in response to the recent emergence of several ratings companies that collect and analyze publicly accessible data to analyze a company’s cybersecurity risk posture. The ratings are increasingly used by insurers – as well as in M&A and other business decisions.
The data for risk ratings is typically collected without the target company’s knowledge and comes from a variety of sources – e.g. hackers’ forums, darknet data, Internet traffic stats, port-scanning tools & open-source malware intelligence sources. Ratings companies then use proprietary methodologies and algorithms to analyze the data and assign a grade.
Importantly, however, cybersecurity ratings have the potential for being inaccurate, incomplete, unverifiable and unreliable – if, for example, the source data is inaccurate or the methodology doesn’t account for risk mitigations in place at a company.
The principles developed by the consortium were designed to increase confidence in and the usability of fair and accurate cybersecurity ratings by addressing the potential problems. The principles were modeled after the Fair Credit Reporting Act.
We don’t know if cybersecurity risk ratings will become anywhere near as important as credit ratings – but keep them on your radar. The signatories to the principles include Aetna, American Express, Bank of America, Chevron, Eli Lilly, Fannie Mae, FICO, Goldman Sachs, Home Depot, Honeywell, JP Morgan, Microsoft, State Street & lots of other big names.
When is “Hacking Disclosure” Required in SEC Filings?
By now, most companies have a cyber incident response plan – which should include contacting a securities lawyer to evaluate disclosure requirements. As outlined in this Goodwin memo, these decisions continue to depend on a fact-specific materiality analysis:
What is “material” ends up being far less clear, and there is plenty of room for a public company to determine in good faith that a specific cyber incident does not require separate disclosure. Where the obligation is unclear, a company’s reluctance to disclose is understandable: Disclosure may highlight vulnerabilities, and will bring unwelcome attention from customers, regulators and others. The plaintiffs’ bar will also circle, smelling the possibility of a class action, and they will not view the company and its managers as the victims.
While the SEC won’t second-guess a good-faith analysis, they also won’t shy away from investigating disclosure lags – see this WSJ article about whether Yahoo’s data breach should’ve been reported sooner to investors.
The memo identifies factors affecting disclosure decisions – such as the significance of other notice obligations, existing risk factors & potential remediation costs. Since the decision will probably have to be made quickly, it’s not a bad idea to create a decision tree in advance. Our “Cybersecurity Disclosure Checklist” is a good starting point, and check out this blog as well…
Cyber Insurance: Is Everyone Doing It?
According to this AM Best article, companies paid over $1 billion in cyber insurance premiums in 2016 – but the market might grow to $20 billion by 2020! Of course, this depends on whether last year’s 34.7% increase in premiums is a sustainable trend versus a one-off response to noteworthy breaches.
The article also notes ongoing uncertainty among insurers about pricing & risk exposure – so maybe some companies are getting bargains. But standalone policies now account for about 70% of coverage – which (from insurers’ perspectives) is improving the accuracy of their evaluations.
See this “Insurance Journal” article for intel on providers & other trends. And see this article about how Senator Mark Warner has sent a letter to the SEC outlining his concerns about more transparency if market participants get hacked…
Only 42 venture-backed companies went public in the United States in 2016 – including eight incorporated outside the United States – making it the most challenging year by number of IPOs and by aggregate offering amount raised since the recessionary times of 2009. The average offering amount per IPO in 2016 was only $77.3 million—the lowest average since 2003.
Venture-backed IPOs in 2017 are on pace to surpass the levels reached in 2016, both in number of IPOs and aggregate offering amount raised. In the first six months of this year, 31 venture-backed companies have gone public in the United States, including seven incorporated outside the United States. And the Snap IPO in March raised $3.4 billion—nearly $70 million more than all venture-backed IPOs in 2016 combined. Here’s the latest “Venture-Backed IPO Survey” from Gunderson Dettmer, focusing on key governance & disclosure items.
Of the 34 venture-backed companies that the firm reviewed:
– All are incorporated in Delaware
– 52.9% listed on the Nasdaq Global Market, 32.4% listed on the Nasdaq Global Select Market, 11.8% on the Nasdaq Capital Market and 2.9% on the New York Stock Exchange
– Average time from incorporation to IPO was just over eight years
– Average time from initial registration statement submission to the SEC to pricing the IPO was nearly 8.5 months
– 30% included a directed share program component in the IPO
– Only seven of the companies completed follow-on offerings in 2016
Companies were also taking advantage of Jobs Act accommodations – 100% submitted a confidential registration statement & 88% provided two years of audited financials.
Voting Rights: CalPERS Wins “Dual-Class” Suit
Recently, CalPERS notched a win for investors in the battle over “dual-class” voting structures. The pension giant sued Interactive Corp last year when it attempted to create a new non-voting class of stock that would have given perpetual voting control to the board chair – despite the fact that he owned only 8% of outstanding economic rights.
After months of litigation, the company has abandoned its proposed issuance. Here’s an excerpt from this “Harvard Law” blog:
By shedding the light of litigation on IAC’s non-voting share plan, CalPERS achieved a significant victory for shareholders’ core right to vote. This result should make founders and controllers considering copying the trend of non-voting stock issuances think twice – as institutional investors will act decisively to defend and assert their right to vote when faced with these threats. Such protective actions will continue to promote open and responsive capital markets, and the long-term value creation that comes with them.
Tune in tomorrow for the webcast – “Controlled Companies: Trends & Unique Issues” – to hear Jane Freedman, Dorsey’s Cam Hoang and Davis Polk’s Sophia Hudson discuss the unique issues involved with controlled companies.
