The guidance notes that S&P 500 boards averaged more than 9 formal meetings during 2021 – a 25% increase over 2020 – in light of intensifying challenges & oversight expectations. This means that it’s more important than ever for boards to manage their directors’ time commitments. SSGA has updated its overboarding guidelines to emphasize that Nominating Committees are in the best position to establish, enforce & disclose corporate policies that support director effectiveness.
Starting in March 2022, for non-NEO directors who hold what SSGA deems to be “excessive commitments,” the stewardship team may consider waiving the typical policy to vote “against” the overboarded director. SSGA will consider voting in support of the director if the company publicly discloses its overboarding policy (which may be in corporate governance guidelines, the proxy statement, or on the company website) – and the policy includes:
– A numerical limit on public company board seats a director can serve on (which cannot exceed SSGA’s policy by more than one seat)
– Consideration of public company board leadership positions (e.g., Committee Chair)
– Affirmation that all directors are currently compliant with the company policy
– Description of an annual policy review process undertaken by the Nominating Committee to evaluate outside director time commitments
As a reminder, SSGA’s “standard” policy is to vote against:
– Non-executive board chairs or lead independent directors who sit on more than 3 public company boards
– Director nominees who sit on more than 4 public company boards
– NEOs of a public company who sit on more than 2 public company boards
The new disclosure waiver policy applies only to the first two categories – i.e., directors who are not NEOs. If you want to utilize the waiver, the SSGA team asks companies to share their publicly disclosed director commitment policy (including primary source materials), or intention to establish such a policy in 2022 with our team via email at GovernanceTeam@SSGA.com. If a director is imminently leaving a board and the departure is disclosed in a written, time-bound and publicly available manner, SSGA may also consider waiving its withhold vote.
SSGA also points out that in addition to service on mutual fund boards and UK investment trusts not counting towards the overboarding total, service on a SPAC board won’t be considered when evaluating directors for excessive commitments. However, SSGA does expect these roles to be considered by Nominating Committees when evaluating director time commitments.
On Friday, Vanguard posted its 2022 proxy voting policies for US portfolio companies – which go into effect March 1st. Like SSGA, Vanguard’s updates also address governance & disclosure practices around director overboarding. Here’s an excerpt:
For 2022, the Vanguard funds will also look for portfolio companies to adopt good governance practices regarding director commitments, including the adoption of an overboarding policy and disclosure of how the board oversees policy implementation.
Here are Vanguard’s thresholds for overboarding:
– Non-NEO Directors: Vanguard will generally vote against directors who serve on 5 or more public company boards – at each company except the one where they serve as board chair or lead independent director.
– Directors Who Are NEOs: Vanguard will generally vote against a director who is a current NEO at a public company and sits on more than 2 public company boards (which the new policy clarifies could be either the NEO’s “home board plus one outside board, or two outside boards if the NEO doesn’t serve on their home board). A fund will typically vote against the nominee at each company where they serve as a non-executive director.
In addition, Vanguard’s new voting policy steps up expectations for board diversity and related disclosures, by saying:
Boards can inform shareholders of the board’s current composition and related strategy by disclosing at least the following:
– Statements from the nominating committee (or other relevant directors) on the board’s intended composition strategy, including expectations for year-over-year progress
– Policies related to promoting progress toward increased board diversity
– Current attributes of the board’s composition
Board diversity disclosure should at least include the genders, races, ethnicities, tenures, skills, and experience that are represented on the board. Disclosure of personal characteristics (such as race and ethnicity) should be on a self-identified basis and may occur at an aggregate level or at the director level. Disclosure of tenure, skills, and experience at the director level is expected (see details on “skills matrix” formats below)
New this year, Vanguard will vote against the nominating and/or governance committee chair (or other director if needed) if a company’s board is making “insufficient progress” in its diversity composition and/or in addressing its board diversity-related disclosures. Vanguard will consider applicable market regulations & expectations, company-specific context, diversity of personal characteristics (gender, race, ethnicity, tenure, skills, experience), and believes that boards should reflect a composition that is appropriately representative given their markets and strategies.
Vanguard’s approach to shareholder proposals that call for skills matrix disclosures and board diversity policies is unchanged from last year.
Vanguard’s new voting policies also address factors that funds will consider when assessing climate risk oversight failures (pg. 7) and shareholder proposals calling for “hybrid” or “virtual-only” meetings (pg. 18).
Tune in at 2pm Eastern tomorrow for the webcast – “The Latest: Your Upcoming Proxy Disclosures” – to hear Mark Borges of Compensia, Alan Dye of Hogan Lovells and Section16.net, Dave Lynn of Morrison & Foerster and TheCorporateCounsel.net, and Ron Mueller of Gibson Dunn discuss all the latest issues to consider as you prepare your upcoming proxy disclosures – including say-on-pay trends, shareholder proposals, ESG metrics, clawbacks, director compensation disclosure, pay ratio considerations and more. We are making this CompensationStandards.com webcast available on TheCorporateCounsel.net as a bonus to members – it will air on both sites.
If you attend the live version of this 60-minute program, CLE credit will be available. You just need to fill out this form to submit your state and license number and complete the prompts during the program.
Members of TheCorporateCounsel.net are able to attend this critical webcast at no charge. The webcast cost for non-members is $595. If you’re not yet a member, subscribe now by emailing sales@ccrcorp.com – or call us at 800.737.1271.
Will the SEC’s recent adoption of rules mandating the use of universal proxies change the game for proxy contests? What should companies do now to prepare for the new regime? Join us tomorrow for the webcast – “Universal Proxy: Preparing for the New Regime” – to hear Goodwin Proctor’s Sean Donohue, Gibson Dunn & Crutcher’s Eduardo Gallardo, Sidley Austin’s Kai Liekefett and Hogan Lovells’ Tiffany Posil discuss these and other issues associated with the looming universal proxy requirement. We are making this DealLawyers.com webcast available on TheCorporateCounsel.net as a bonus to members – it will air on both sites.
If you attend the live version of this 60-minute program, CLE credit will be available. You just need to submit our state and license number and complete the prompts during the program.
Most of us can name a few folks whose influence, early in our career, affected the direction of our path. For me, one of those people was Bert Ranum. Bert was (and is) a wise counselor with a strong sense of business & interpersonal practicalities and a thorough knowledge of securities law. Bert’s clients – which included many smaller public companies in the life science space – were often dealing with unique legal issues, raising capital for R&D efforts, and doing whatever they could to get products to market and keep their business going. That was a whole lot more interesting to me than the churn of private equity acquisitions that many of my peers had been sucked into – although I know many people find those deals exciting for their own reasons.
In 2010, after nearly 30 years practicing in Minnesota, Bert picked up his practice and moved to Gainesville, Florida so that his wife – a scientist – could accept a long-awaited career opportunity with the university there. Bert stayed with our firm and wanted to start a Florida office to serve the local biotech community, as well as maintain his existing clients by traveling back to the Midwest on a monthly basis. It was just a few years later, when we weren’t seeing Bert as regularly, that my colleagues & I started to notice changes in his speech. In 2016, he was diagnosed with ALS.
Bert recently published a book called “Clinical Trial: An ALS Memoir of Science, Hope and Love” – which is an account of reestablishing his career in Florida in support of his wife, Laura, as well as his journey with ALS. By a miraculous coincidence, Laura is not just any scientist: she is one of the top in her field, worldwide, for studying neurological conditions – including, specifically, the genetic mutation that causes Bert’s ALS. Here’s Bert’s summary about that aspect of his book, from the Hennepin County Bar Association:
I may be the luckiest ALS patient alive, if you can call someone lucky with a disease that generally causes death three to five years after diagnosis. I’m lucky because my wife, Laura, is an internationally respected scientist who knows more about my particular disease than almost anyone in the world. Her connections resulted in my participation in a clinical trial at Johns Hopkins for a new drug targeting the specific genetic mutation that I have. That may be why I am doing well over five years from diagnosis, still walking, swimming, playing guitar badly, talking slowly and generally enjoying life. Or it may be the paleo diet that we started years ago, or the metformin that I’m taking based on Laura’s research, or the regular exercise we’re getting or the no stress lifestyle that I’ve adopted. I write about all this in the Memoir.
What also may be of interest to this crowd is that Bert’s book details:
– What it was like to take the Florida Bar Exam at age 51
– Overcoming the fear of “starting over”
– Putting your career goals second to support your spouse’s opportunity
– Negotiating a “package deal” with a spouse’s employer that includes introductions to the business community
– How to handle your ego when things don’t go as planned
Here’s one of the concluding passages from the book, and something I’m keeping in mind as we head into a new year:
When we first moved to Florida, I worked hard to be a successful lawyer and spent a fair amount of time worrying about billable hours, client relationships, and income. A significant part of my ego was based upon being a good and successful lawyer. ALS forced me to reevaluate that, and it crumbled quickly under examination.
As you often hear from people reflecting on a life well-lived, Bert notes that it’s the relationships – with his family most of all, but also with colleagues and friends – that have delivered a meaningful life.
That brings me back to the direction that my own path has taken so far. After a pretty enjoyable stint in private practice, I thought that what I’d enjoy most about joining TheCorporateCounsel.net would be sharing analysis of interesting securities & corporate governance issues (and I do enjoy that, because I’m a nerd). But I’ve learned over the past 5 years that it’s the ability to connect with all of the smart, funny and helpful people in our securities & corporate governance community that really make this gig enjoyable. It’s an honor to work with our fantastic CCRcorp team, and to gain insights from everyone who emails with comments, suggestions and – my favorite – personal anecdotes. Thank you to everyone who contributes to our sites and events, and thanks to Bert for alerting me to his book, the proceeds of which go to ALS research.
– Liz Dunshee
Programming note: This blog will be off tomorrow, returning in 2022. Happy New Year!
Last week, the SEC announced that electronic vehicle company Nikola had settled the Commission’s fraud proceedings against it for $125 million. The SEC is establishing a fund to distribute penalties to harmed investors. This is the company that is most well-known for its then-CEO tweeting a video of its truck prototype cruising at a high speed. Then, a short-seller published a report claiming that the truck was just rolling down a hill.
According to the 13-page order, the SEC is holding the company responsible for misleading statements by its founder and former CEO & Executive Chair, Trevor Milton. The company got some credit for its agreement to continuing to cooperate with the ongoing litigation against Milton. Here’s the company’s press release about the settlement – which emphasizes that the company neither admits nor denies the SEC’s findings and that it’s seeking reimbursement from Milton for costs & damages.
This “D&O Diary” blog from Kevin LaCroix recaps interesting takeaways from the settlement:
The most attention-grabbing aspect of this settlement is its size. This settlement involves some serious money, which obviously speaks to the seriousness of the allegations. There are several other interesting features of this settlement, as well.
The first is that the SEC alleged not only misrepresentations against Milton, but also alleged misrepresentations by Nikola itself, apart from those attributed to Milton. The second is that the SEC alleged that many of the misrepresentations were made in Tweets and in other social media communications. These allegations are a reminder that social media communications can be the source of securities law liability. In that regard, it is worth highlighting the fact that the among the allegations the SEC made was the allegation that Nikola had insufficient controls or procedures for monitoring Milton’s social media use, which underscores that, given the risk of securities law liability arising from social media use, companies have responsibility to control and manage their executives’ social media communications.
Another feature of this settlement that is interesting to me is that the settlement involves a company that became publicly traded during the same time frame as the alleged misconduct through a merger with a SPAC. The fact that the alleged misrepresentations were made both before and after the SPAC merger highlights the risks involved with communications by companies that are going to go public through a SPAC merger or that have just become public as a result of a SPAC merger. These risks draw attention to a misperception that may be widespread that the rules and best practices that apply in connection with traditional IPOs don’t apply to SPAC transactions; the allegations here underscore the danger with this misperception. The fact that the alleged misrepresentations continued after the merger highlight concerns that at least some companies that go public through a SPAC merger may not be ready for the burdens, responsibilities, and obligations that go with a public listing.
The statement in Nikola’s press release about its intent to try to seek recoupment from Milton for its costs and expenses is also interesting. This effort is a claim against a former director and officer of the company. Though it is a kind of D&O claim, it is not one that the typical D&O insurance policy would cover, as it would represent the prototypical “entity vs. insured” claim for which coverage is precluded under the policy.
By the same token, the $125 million that Nikola has agreed to pay in the settlement likely would not be covered under the company’s D&O insurance policy; most D&O insurance policies exclude from the definition of insured loss “fines, penalties, and matters deemed uninsurable under applicable law.” However, the company’s defense costs (as well those of Milton) potentially could be covered under the company’s D&O insurance program.
One final note about the settlement amount, and that is that the $125 million settlement is by far the largest amount the SEC has recovered in a SPAC-related enforcement action.
Kevin predicts that this may just be the beginning of the SEC flexing its enforcement power against companies that went public via a SPAC. This is in addition to the spate of private securities litigation against post-merger SPACs. In blogs here and here, Kevin wrote about complaints against two other post-SPAC EV manufacturers, just in the past week!
Dave blogged earlier this month about the SEC’s final rules under the Holding Foreign Companies Accountable Act – and last week, about the continued scrutiny of disclosures by China-based companies. Meanwhile, this CNN article reports that China is also planning to make it harder for their local companies to go public in other countries.
According to this Financial Times article, this regulatory intervention could cause US IPOs of China-based companies to drop off a cliff. US exchanges are looking to replace that absence with listings from other Asian countries, and that pipeline is growing.
The article identifies some Singapore- and India-based companies that could debut here – but predicts it will be an uphill battle to land anything on the scale of Chinese giants like Alibaba. As I blogged yesterday, the NYSE wants to offer more complimentary products & services in order to entice companies to list there and succeed.
A recent WSJ article reported that regulators worldwide – including the SEC & DOJ – are starting to take an interest in Binance, which is the world’s biggest cryptocurrency exchange (and fastest growing financial exchange in terms of users). The wrinkle is that the company denies having any head office or formal address that would subject it to local regulations. According to the article, the company also aspires to eventually go public here.
Although Binance’s CEO says that the company is setting up local offices in undisclosed locations to appease certain regulators, it wouldn’t be the first “fully remote” company to undertake an IPO. John blogged a few months ago about two companies that cleared registration with no headquarters identified on the Form S-1.
As more companies inevitably do this – and as the “homeless” companies get more mature – we’re probably going to start to see regulatory gaps. For example, Rule 14a-8(e)(2) says that shareholder proposals must be received at the “principal executive offices” – does this now mean the CEO’s home address? We’ll look forward to hearing from all the trailblazers out there – and eventually, maybe the SEC Staff – about how to handle these new puzzles.
I blogged earlier this month that Nasdaq’s annual listing fees are increasing January 1st. Now, the NYSE is following suit. The SEC posted this notice of a proposed NYSE rule change that would amend Chapter 9 of the Listed Company Manual to simplify & increase listing fees, as follows:
1. Initial Listing Fees – Replace the per share & one-time fee structure with a flat fee of $295k (which is the current maximum initial listing fee and what a “substantial majority” of recently listed issuers have paid). There would also be a corresponding amendment to apportion this fee, for issuers structured as an UPREIT. If approved, this change would be effective immediately.
2. Annual Listing Fees – Increase the fee from $0.00113 per share to $0.00117 per share and increase the minimum annual fee from $71k to $74k for the primary class of shares. If approved, this change would apply for the 2022 year.
3. SPAC Annual Listing Fees – Replace separate fees for common shares & warrants (which are subject to an aggregate annual limit of $85k) with a flat annual fee of $85k that would cover both common shares and warrants. The NYSE says that most Acquisition Companies currently pay the maximum annual fee of $85k, so this change would have minimal impact and would be easier to implement. If approved, this change would be effective immediately.
Comments are due 21 days after publication of the proposal in the Federal Register – here’s the form.
In addition to the proposed changes to NYSE listing fees, the SEC also posted notice of a proposed NYSE rule change to Section 907.00 of the Listed Company Manual. Companies that list on the Exchange after the rule is approved by the Commission will be eligible to sign up for an expanded list of “complimentary products & services” for 4 years after listing, which include:
– Market Intelligence – Replacing the current offering of “market surveillance,” in light of the fact that the NYSE’s contracted service providers now provide additional info to track investor views and how they change over time
– Web-hosting & Web-casting – Combining two separate services, since the NYSE’s service providers now aggregate them as a single option
– Board of Directors Platform
– Virtual Event Platform
– ESG Tools
– News Distribution Products & Services
If approved, the rule change also would give companies more flexibility to select different levels of services – subject to a maximum overall value of services used. Eligible new listings & eligible transfers with a global market cap of $400 million or more can get:
Products & services with a maximum combined value of approximately $125k annually, consisting of: (i) web-hosting & web-casting, (ii) news distribution, and (iii) a selection among market intelligence, market analytics, board of directors platform, virtual event platform, or ESG products & services.
Companies below a $400 million market cap are limited to:
(i) web-hosting & web-casting, (ii) market analytics, and (iii) news distribution.
The Exchange would extend its existing complimentary whistleblower hotline services from 24 to 48 months for all new listings.
For currently listed companies, the “Tier One” group – companies with more than 270 million shares outstanding – can get (i) web-hosting & web-casting, and (ii) a selection from the other services, up to an annual value of $75k. Tier Two is too complicated for this blog.
Comments are due 21 days after publication in the Federal Register – here’s the form.
