The shareholders rejected a shareholder proposal that Abbott’s Board of Directors adopt a policy on Rule 10b5-1 plans with certain restrictions and disclosure requirements, with 48.76 percent of the votes cast voting “For” the proposal.
The proposal was submitted by the NYC Comptroller and called for a policy for Rule 10b5-1 plans that would require:
1. A “Cooling Off Period” of at least 120 days between Plan adoption and initial trading under the Plan.
2. An “Overlapping Plan Prohibition” preventing an individual/entity from having multiple Plans simultaneously.
3. Named Executive Officers and Directors to disclose on the Company’s proxy statement the number of shares subject to a Plan.
4. Whenever a Section 16 corporate officer or director adopts, modifies, or cancels a Plan, a Form 8-K disclosure indicating the name of the affected individual, the number of shares covered, and the date of adoption, modification, or cancellation of the Plan.
5. Disclosure on Form 4 of whether a trade was made under a Plan, and the Plan’s adoption or modification date.
It’s a big deal when the first iteration of a shareholder proposal comes close to passing, even if it doesn’t make it quite all the way there. This one is particularly notable because it was based on the recommendations of the Commission’s Investor Advisory Committee and it includes several features that ended up being part of the SEC’s rule proposal – e.g., a 120-day cooling-off period, a prohibition on overlapping plans, and additional disclosure. ISS and Glass Lewis both recommended voting for the proposal.
Abbott’s board did not support the proposal, saying that they already have policies and limitations in place to guard against insider trading (30-day cooling off period, pre clearance, no trades during blackouts, Form 4 footnotes, etc.) and that the proposal would disadvantage the company by having it go well beyond current market practices for trading plans and, in some ways, beyond the SEC’s pending rule proposal.
Abbott’s statement of opposition doesn’t directly say whether the company supports the SEC’s proposal. But it cautions against over-burdening parameters for trading plans, and that is not out of step with general corporate sentiment – through comment letters on the rule proposal, dozens of other companies & corporate advisors have indicated that aspects of the proposal would be overly burdensome and actually make insiders less likely to adopt & use Rule 10b5-1 plans. The implied consequence to that is diminished predictability & transparency, compared to what we have today.
This Rule 14a-8 proposal shows that shareholders have more than one way to push for changes to insider trading policies & practices. The voting outcome might also reinforce messaging to the SEC that investors support adopting the Rule 10b5-1 amendments substantially as proposed. On the other hand, more than half of Abbott’s shareholders did not support this proposal! And it’s unclear whether adding cumbersome conditions to the affirmative defense will deliver the enhanced transparency & protections that shareholders say they want.
We’ve been posting tons of memos about the SEC’s proposal – along with other resources – in our “Rule 10b5-1″ Practice Area. Members should also make sure to visit the transcript from our webcast about the proposal – Skadden’s Brian Breheny, Davis Polk’s Ning Chiu, WilmerHale’s Meredith Cross, Broadridge’s Keir Gumbs and Morrison & Foerster’s Dave Lynn were kind enough to share their many practical insights about what it will mean if adopted. Also check out this blog contributed by Orrick’s JT Ho, Carolyn Frantz and Soo Hwang about steps companies should consider before the SEC adopts a final rule.
We’ve posted the transcript for our recent webcast for members, “The (Former) Corp Fin Staff Forum.” This was an action-packed discussion among “All-Stars” – Sidley’s Sonia Barros, WilmerHale’s Meredith Cross, Gibson Dunn’s Tom Kim, Broadridge’s Keir Gumbs and Morrison & Foerster’s Dave Lynn – and it was full of useful info. Here’s something Dave shared about sample comment letters, which is all the more relevant in light of the sample letter that Corp Fin published yesterday:
Another interesting area to pay attention to is one of the topics Sonia just mentioned: climate change disclosure. The Staff took the step that’s become a tried-and-true strategy of putting out a sample comment letter. The concept is, while we could all wait around and see what comments the SEC has issued on climate change after the reviews have been completed and correspondence is put up on EDGAR, but by that time you’ve lost the momentum.
For many years, the Staff has pursued this concept of putting up a sample comment letter that addresses the range of issues. As Sonia mentioned, these letters focused on the applicability of the 2010 interpretive guidance that came from the Commission, as well as the relationship between the type of information that companies put in their investor communications on their website, for example their sustainability reports, relative to what information they determine was “material” for the purposes of their SEC filings. One interpretive “shot across the bow” was putting out those comments so that people could see the positions the SEC was taking in real-time through those letters.
Similarly, we’ve seen a sample letter posted regarding China-based companies. That letter is focused on various risks that have been identified and have been a focus of Congress and the Commission over the last few years, including the applicability of the Holding Foreign Companies Accountable Act. The level of detail in the China-based companies’ letter was significant in terms of the disclosure that was expected in the filings regarding the structures employed by these entities and the involvement of authorities in China with respect to the company’s business and the like. There was specific guidance in there around SPACs, as well.
If you are not a member of TheCorporateCounsel.net, email sales@ccrcorp.com to sign up today and get access to the full transcript – or sign up online. With our “100-Day Promise,” during the first 100 days as an activated member, you may cancel for any reason and receive a full refund!
Join us tomorrow at 2pm Eastern for the second event in PracticalESG.com’s 3-part DEI workshop series. This 90-minute session is on the topic of “Understanding and Using Equity Audits and Civil Rights Audits.” Not only will this FREE workshop deliver info to help you understand what civil rights audits, racial equity audits, and pay equity audits are intended to accomplish – you will be hearing from the top leaders in this space. In a “fireside chat” format, you’ll hear from:
– Eric Holder – Senior Counsel at Covington, advising on civil rights audits and complex investigations, and 82nd US Attorney General – the third longest-serving Attorney General in U.S. history and the first African American to hold that office
– Laura Murphy – President of Laura Murphy & Associates, civil rights leader, and pioneer of civil rights audits with work at Airbnb and Facebook
Eric and Laura are not only civil rights trailblazers, they worked together on Airbnb’s audit and will have a lot to talk about. Then, stay for our informative panel discussion, featuring:
– Megan Cacace – Director of Anti-Discrimination & Equity Programs at Airbnb, which in 2016 was the first company to conduct a civil rights audit
– Aaron Lewis – Partner at Covington, leading clients through the process of conducting civil rights audits
– Tejal Patel – Corporate Governance Director at SEIU Affiliates’ Supplemental Savings Plan/SOC Investment Group – which is the proponent behind the McDonald’s proposal and successful racial equity audit initiatives at several big banks and other companies
The accomplished Ruth Umoh will moderate these discussions. Ruth is currently an Editor at Fortune and a former Editor of Forbes, CNBC Reporter, and Producer for Rolling Stone Magazine.
Every person who is doing DEI and ESG work, tasked with managing stakeholder outcomes, or advising boards on shareholder initiatives that could affect the proxy statement and director support, needs to understand this emerging practice. Ngozi blogged last week about the signs that suggest these audits will become more mainstream and inform more DEI and ESG work. Sign up today for this free workshop (it only takes a minute) and join us tomorrow at 2pm Eastern.
If you can’t make the live session, a replay will be available for members of PracticalESG.com. Here’s the replay of the first session, “Collecting Diversity, Equity & Inclusion Data: What to Measure & Why.” That event featured DiversityIQ’s Cheryl Cole, Fossil Group’s Sheri Crosby Wheeler, Aon’s Aria Glasgow, Pipeline Equity’s Katica Roy, Fortune’s Ruth Umoh, and Ngozi – and was full of practical guidance.
If you aren’t already a member, sign up online or by emailing sales@ccrcorp.com or calling 800-737-1271. Our “100 Day Promise” allows you to try a subscription at no risk for 100 days – within that time, you may cancel for any reason and receive a full refund!
It’s impossible to know the internal machinations of any sensitive board decision – but there sure is a lot of speculation about how Twitter’s board arrived at approving Elon Musk’s (initial & only) offer to buy that company. A lot of commentary stems from statements made at an all-hands meeting. In that meeting, the company’s CEO emphasized that the board had to act in the best interest of the shareholders, and determined this offer was the best they could do:
As I’ve said, the board decides based on two factors. We act in the interest of our shareholders and look for value for them in the long term. Our job is to think about the price, and consider any offer on the table. And we compare that against the intrinsic value of the company based on the future-looking outlooks we have financially.
We get a lot of advice from several lawyers and bankers in the process … And when we looked at all the information and all of the data, every one of us concluded that based on our fiduciary responsibility … this offer at the price it ended up at was in the best long-term interest of our shareholders.
So if Twitter’s board had said “Twitter is not worth $54.20 per share and never will be, but we declined Musk’s offer anyway because we think it is bad for users and the product,” that would have been at least a risky move. But if it had said “we declined Musk’s offer because we think it is bad for users and the product, and we think that if we continue to improve the product and user experience then in the long run this obviously important social network should be worth more than $54.20 per share,” that would have been a defensible position even if, like, three-year earnings projections did not really support a $54.20 price.
It would help, in making that case, if Twitter’s board and managers had a long-term plan. What is strange here is that the richest person on earth came in out of the blue with a not-particularly-preemptive offer to buy a service that he is obsessed with and that seems crucial to his success. Hearing that, you might think things like “huh this product must be pretty valuable.” You might sit down and try to think of ways to extract value from it, other than selling it to Musk at the first price he proposed. Twitter’s board had no ideas.
One view is to say that the Twitter deal shows that the BRT statement didn’t change anything. Another view is that it makes long-term strategy even more important.
In this 30-minute LinkedIn interview between Daniela Liscio and Bev Behan (who Courtney Kamlet and I also interviewed late last year for our “Women Governance Trailblazers” podcast), Bev says that the speed and surprise of the Musk/Twitter deal underscores the importance of staying alert to corporate governance practices, director skill sets, and vulnerabilities.
According to Bev, the bottom line is that no matter how safe your board might feel, unanticipated “black swan” events can and will happen. Whether you’re dealing with a small or large company, difficult discussions that the board thought would be private may come to light – and their decisions will be heavily scrutinized with 20/20 hindsight. The fallout of that can go beyond shareholder value and affect director reputations.
– “Protecting Your Board from the Next Maelstrom” – featuring Soundboard Governance’s Doug Chia, Gibson Dunn’s Beth Ising, Cozen O’Connor’s Kathy Jaffari, and Digimarc’s Board and Nom/Gov & Sustainability Committee Chair Alicia Syrett
– “ESG Disclosures – Staying Out of Hot Water” – with Prudential’s Peggy Foran, MoFo’s Dave Lynn, Skadden’s Brian Breheny and Wachtell’s Leo Strine, Jr.
In addition, join us for the “1st Annual Practical ESG Conference.” For both of these events (which can be bundled together for a discount), our seasoned and diverse speakers will be sharing practical guidance in a fast-moving format. Sign up online, email sales@ccrcorp.com, or call 1-800-737-1271.
Sign up today for the best rate, because our “Early Bird” pricing ends June 10th!
The SPAC market has been decidedly cooler this year – due to market conditions that are affecting all IPOs, yes – but also due to SEC skepticism that culminated in a March 30th rule proposal. As noted in this article from Bloomberg’s Preston Brewer, the proposal is causing some underwriters to reconsider work on SPAC deals. John also blogged that at least one deal died because the SEC didn’t act on the acceleration request.
In case all that still isn’t enough to dampen enthusiasm, SEC Investor Advocate Rick Fleming also recently contacted the Nasdaq and NYSE to urge more stringent listing standards for SPACs. This Fried Frank blog explains:
SEC Investor Advocate Rick A. Fleming urged Nasdaq and the NYSE to revise their listing standards so that special purpose acquisition company (“SPAC”) business combinations could only be consummated when 50 percent or more of public shares would be invested in the SPAC post-combination.
In Memoranda to the exchanges, Mr. Fleming, stated that “we have significant reservations about the consequences of the current listing standards that allow for empty voting and otherwise permit significant conflicts of interest.” He highlighted the SEC’s proposed rule to increase disclosure in IPOs by SPACs and in business combination transactions involving shell companies such as SPACs, (see prior coverage).
In the Memoranda, Mr. Fleming asserted that (i) the exchanges’ elimination of a conversion rights percentage threshold and (ii) the replacement of voting protections with registration statement risk disclosures of underfunded business combinations enabled many companies to go public even when most SPAC IPO investors had redeemed their shares. He contended that this allows the occurrence of business combinations even when assets are depleted due to the exercise of conversion rights, which in turn gives early investors economic incentives to allow low-quality deals to happen. The Investor Advocate concluded that these measures (i) enabled “empty voting” and conflicts of interest and (ii) “benefitted SPAC sponsors and sophisticated IPO participants . . . at the expense of public investors.”
For more on the ongoing ins & outs of SPAC deals, visit our “SPACs” Practice Area – where we cover SEC and exchange regulations, de-SPACs, accounting issues, litigation & enforcement, and more.
If you’re not already a member with access to these resources, sign up for TheCorporateCounsel.net online or by emailing sales@ccrcorp.com or calling 800-737-1271. Our “100 Day Promise” allows you to try a subscription at no risk for 100 days – within that time, you may cancel for any reason and receive a full refund!
An observant member posted this question last week in our “Q&A Forum” (#11,109):
Does anyone have insight into when the SEC will be raising the annual gross revenue cap for a company to qualify as an emerging growth company? The JOBS Act requires the SEC to index to inflation the revenue cap every five years, and the last adjustment (from $1.0B to $1.07B) was on March 31, 2017, effective April 12, 2017 when it was published in the Federal Register.
John noted:
I have not heard anything on this, but the 10th anniversary of the JOBS Act was April 5th, so I would expect the SEC to issue something in the very near future.
It’s hard to believe that the JOBS Act is 10 years old. We have Practice Areas for “Emerging Growth Companies” and for the “JOBS Act” (and the related FAST Act) for any members looking for instruction on how to apply these regulations.
Last week on our Proxy Season Blog, I highlighted a Goodwin analysis saying that nearly 80% of Nasdaq companies have included a board diversity matrix in their proxy statement this year, rather than waiting for the August deadline to post on their website.
For those companies that have not yet published a matrix, a new memo from Compensation Advisory Partners runs through example matrices based on the most recent Nasdaq instructions from February of this year. Here are the 6 examples – check out the memo to see what they look like:
1. Matrix showing all required components as well as supplementary info
2. Matrix that excludes categories that aren’t applicable to the company’s directors
3. Matrix that shows all required categories with additional rows below the matrix about director demographics that aren’t included in Nasdaq’s listed categories (e.g., military veterans, etc.)
4. Matrix with accompanying narrative disclosure
5. Matrix for foreign company with supplementary rows below
6. Matrix for foreign company where disclosure of race is prohibited in the home country – the company must still disclose gender stats
For Nasdaq-listed companies that go the “website posting” route for the board diversity matrix, the Nasdaq instructions require completing Section 10 of the Company Event Form (accessed through the listing center) within one day of posting the matrix on your website. You’ll need to include a link to the matrix on that form.
Eagle-eyed members may have noticed that we recently added an “Artificial Intelligence” Practice Area to the site. Shortly afterwards, Debevoise published this 5-page memo – which does a great job of explaining why you’ll need to get your arms around AI if you’re advising boards. Here’s the intro:
As more businesses adopt artificial intelligence (AI), directors on many corporate boards are starting to consider their oversight obligations. Part of this interest is related to directors’ increasing focus on Environmental, Social and Governance (ESG) issues. There is a growing recognition that, for all its promise, AI can present serious risks to society, including invasion of privacy, carbon emissions and perpetuation of discrimination. But there is also a more traditional basis for the recent interest of corporate directors in AI: as algorithmic decision-making becomes part of many core business functions, it creates the kind of enterprise risks to which boards need to pay attention.
The memo goes on to outline current regulatory considerations and how Caremark claims could play out in this area. Especially at companies where use of AI is significant and could present an enterprise risk, the Debevoise team suggests that boards consider:
1. Having AI as a periodic board agenda item – and evaluate whether it’s a topic for the full board or a specific committee
2. Staying aware of the most critical AI systems the company employs – along with risks & steps taken to mitigate risks
3. Getting periodic updates on resources devoted to AI development & operations, along with regulatory compliance and risk mitigation
4. Assigning AI responsibility to a particular management position or committee
5. Directing management-level AI compliance and reporting structures to facilitate board oversight – including procedures for responding to material incidents, whistleblower complaints, and managing vendor risks for critical resources
6. Board briefings on material AI incidents
7. Documenting AI oversight activities and management’s compliance efforts in board minutes and supporting materials
Our new Practice Area covers regulatory developments and guidance on board oversight and AI risks. To get access if you’re not already a member, you can sign up online, email sales@ccrcorp.com or call 1-800-737-1271.
Direct listings attracted a fair amount of excitement back in 2019, which as you might recall was before meme-stocks and SPACs sucked all of the air out of the room. A recent Fenwick memo checks in on whether they’ve become the IPO alternative that some predicted. The answer: not at this time. Ran Ben-Tzur notes:
While direct listings continue to be an attractive option for certain companies, the ‘death’ of the traditional IPO that was predicted just a couple years ago has not materialized, with 2021 showing that IPOs still remain a much more popular way for companies to go public.
The memo explains that direct listings have stayed niche because they work best for companies that already have proven size, profitability and liquidity – and also because of the high standard that a company needs to be able to conduct a simultaneous capital raise.
It probably doesn’t help that the SEC also recently rejected Nasdaq’s proposal that would have allowed more flexibility for the pricing range in these deals. John had previously blogged about that proposal back in January.
