For the last four years, the US Chamber of Commerce & Nasdaq have partnered to survey corporate views of proxy advisors. The latest results – from 165 participating companies – come just in time for the SEC’s upcoming ‘proxy process’ roundtable. Here’s a sampling:
– 92% of companies surveyed had a proxy advisor make a recommendation on an issue featured in their proxy statements, nearly identical to 2017, but an 11% increase over 2016.
– 83% of companies carefully monitor proxy advisors’ recommendations for accuracy or reliance on outdated information.
– 21% of companies surveyed formally requested previews of advisor recommendations—a 9% decrease from 2017, but little changed from 2016. For companies that requested a preview, proxy advisory firms provided them only 44% of the time, a 4% drop from 2017.
– 38% of companies asked proxy advisors for opportunities to provide input both before & after the firms’ recommendations were finalized. However, as in previous years, the amount of time companies were given to respond to the recommendations varied. Companies again reported being given anywhere from 30 to 60 minutes to two weeks. In 2018, 1 to 2 days was a common response among companies.
– 39% of companies believed that the proxy advisors carefully researched and took into account all relevant aspects of the particular issue on which it provided advice, up from 35% in 2017.
– 29% of the companies pursued opportunities to meet with proxy advisors on issues subject to shareholder votes, a significant decrease from 52% in 2017. Of those companies that sought a meeting, their request was denied 57% of the time, significantly more often than in 2017. Companies reported mixed results from meetings they had.
– One perceived problem with the proxy advisory system has been a trend toward “robo-voting” where a company’s outstanding shares are voted in line with an ISS or Glass Lewis recommendation in the 24-hour period after the recommendation is issued. With ISS, several companies reported that 10%-15% of their shares would vote automatically in line, while others estimated that between 25%-30% fell into that category. The problem seemed to be less apparent with Glass Lewis, with many companies reporting that less than 10% of their shares would be voted in line within 24-hours.
Quarterly Reporting: SEC Chair Says Here To Stay (For Now)
Back in August, John predicted that the latest push for semi-annual reporting wouldn’t go too far. Yesterday, SEC Chair Jay Clayton seemed to confirm that view for the near-term – except, perhaps, for a remote chance for smaller companies. That’s based on these remarks – reported in this WSJ article and this blog from Cooley’s Cydney Posner:
“I don’t think quarterly reporting is going to change for our top names anytime soon,” Clayton said. “It was good of the president to raise it,” he said, adding that it could make sense to ease the requirements for smaller companies….
“The President did touch on a nerve—which is ‘Are people running their companies too much for the short term in response to pressures?'” Clayton said in a brief interview after the event. “We’ve been hearing that for a while.” …While Clayton lauded Trump and others for raising the issue, he said that other factors like activist investing are also behind companies becoming more focused on the short term.”‘I would not say the driving factor is quarterly reporting.”
Across the Pond: New Governance & Reporting Requirements
From the land of the “original” say-on-pay, the UK is now revamping its “Corporate Governance Code” to encourage the long-term success of its businesses – and improve public confidence following some high-profile scandals. This WSJ blog summarizes a few of the enhanced “comply or explain” requirements:
– Vesting & holding period of 5 years or more for shares awarded to executives under long-term incentive plans
– Disclose when board chair’s tenure exceeds 9 years
– Disclose how the company’s approach to corporate governance contributes to long-term success
– Address cases in which more than 20% of shareholders vote against a management proposal
– Enhance workforce engagement – e.g. by creating an advisory panel
– Describe the nominating committee’s process, the board’s diversity policy and the gender balance of senior management
The code applies to companies listed in the premium segment of the London Stock Exchange – they’ll need to start complying in January. And although the revisions don’t add specific diversity targets or require companies to disclose broader diversity stats, that’s under consideration. This article notes that the UK’s Financial Reporting Council isn’t happy with the status quo and has been contacting companies to encourage more disclosure – though some people worry that will lead to useless boilerplate.
This Stinson Leonard Street blog highlights rule changes that could affect the upcoming proxy season. It says that most companies won’t need to make any changes to their D&O questionnaires for 2019 – though some might add questions on board diversity if the company wants to voluntarily explore that hot topic. In addition, the steady trickle of this year’s SEC guidance & rule changes means that there are plenty of things to watch out for outside of the questionnaires. Among other items, the blog delves into these topics:
– 162(m) disclosures
– Impact of changes to smaller reporting company rules
– Inline XBRL
– Changes to Form 10-K cover page
– Impact of SEC’s disclosure simplification
– Perks disclosures
– Cybersecurity disclosures
As you’re preparing for proxy season, don’t forget to tune in Tuesday, October 16th for the webcast – “Proxy Solicitation: Nuts & Bolts” – to hear a panel of experts discuss the role of proxy solicitors and whether they can help predict activist campaigns. And we’ve already scheduled two January webcasts to help you conquer this crazy time of year:
Investor Meetings: They Aren’t Going As Well As You Think?
Here’s your chance to be a hero and offer practical client advice that doesn’t just reduce risk, but gets money in the door. This blog from Adam Epstein offers a buy-side perspective on why investor meetings chronically falter – even if companies think they’re going well. For example, everyone’s favorite PowerPoint deck might be doing more harm than good. Here are a few tips for improving it:
– Length: Smart investors know that the length of a PowerPoint presentation is often inversely proportional to the quality of the company. Aim for less than 20 slides. Precedent matters, and the number of great small-cap companies with ~ 25+ page decks is not high.
– Information Weighting: Executive bios, market data, service/product description, intellectual property, strategy, risks, competitors, financials, and use of proceeds slides should all be evenly distributed. When key information isn’t equally weighted (e.g., 35%+ of the slides are about the market opportunity), investors know there is a reason why…and it’s never good.
– Accessibility: Investors marvel at why so many companies make their investor presentations so challenging to find on their websites. Always follow the two-click rule for information investors most want: the information should never be more than two-clicks away from the company’s home page. When investors have to try hard to find basic information, it sends a bad message.
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 are some of the latest entries:
– Chart: Rule 144
– Insider Trading Policies: Addressing “Cyber” Info
– Sustainability Progress: “The Devil’s In The Details”
– What Does an “Interested Directors Statute” Do for You?
– Insider Trading: “Big Data” – Big Problem?
As I blogged today in this “Proxy Season Blog,” shareholder support of corporate political spending proposals increased to 28% this year – which is an 8% increase since 2014. With that in mind, here are results from our recent survey on political spending oversight:
1. Oversight of our company’s political spending is conducted by:
– Full board – 13%
– Board committee – 58%
– Committee consisting only of management – 8%
– Individual officer – 17%
– Other – 4%
2. For those overseeing political spending, the type of information they get regarding actual contributions is organized by:
– Individual contributions – 38%
– Particular contributions (e.g. sensitive races or large amounts) – 0%
– Aggregate breakdown (e.g. total annual amount, amount by type of election, political party breakdowns, etc.) – 46%
– No information is provided about actual contributions – 17%
3. If the board or a board committee is involved, their role is primarily:
– Ensure the process is sound from a governance perspective – 55%
– Ensure there is a process & that it’s followed – 36%
– Provide input on the amount or type of contributions – 0%
– Maximize the likelihood that contributions will be consistent with the company’s mission – 9%
Please take a moment to participate anonymously in these surveys:
We haven’t heard as much about proxy access this year. But it’s covered on page 38 of this 110-page report from Shearman & Sterling – which has lots of interesting info about governance provisions & disclosure, executive pay and proxy season trends.
As many have discovered first-hand, it’s an uphill battle to resist shareholder requests to implement proxy access: 90% of companies that received “adopt” proposals in 2015-2018 ended up doing so. And although there’s been a big drop in the number of these proposals, that’s partly because 67% of the S&P 500 and 89 of the largest 100 companies now have a proxy access bylaw in place. Here are some other stats:
– 53 companies adopted proxy access during the 2018 proxy season – compared to 87 during 2017
– Only 22 “adopt” proposals were received this season compared to 100 last year – due to a greater number of companies choosing to voluntarily adopt proxy access and shareholders switching their focus from “adopt” to “fix-it” proposals
– Only 28 “fix-it” proposals were received this season compared to 64 last year – but shareholders continue to advocate for changes to details in proxy access bylaws, as well as restrictions on the shareholder aggregation cap, renominations and the percentage of directors electable via proxy access
– From 2016-2018, only 2 of 103 “fix-it” proposals passed – and those were at companies that used a 5% minimum percentage ownership threshold. However, 37 companies have amended their proxy access bylaws during that time period – which might suggest behind-the-scenes pressure.
– More than 900 meetings have been held by companies with a proxy access bylaw since 2011. Only 1 nomination has been attempted using proxy access – and zero proxy access candidates have ultimately appeared in a company proxy statement
Transcript: “Nasdaq Speaks”
We have posted the transcript for our recent webcast: “Nasdaq Speaks – Latest Developments & Interpretations.”
As a look-back on their first full year as Co-Directors of the SEC’s Division of Enforcement, Stephanie Avakian gave this speech – and Steve Peikin gave this speech – to recap their accomplishments. Stephanie’s speech expands on Enforcement’s “Guiding Principles” for investor protection – and emphasizes that statistics showing a decline in the number of enforcement actions don’t adequately reflect the quality of their efforts. Instead, the goal is to use limited resources to bring “meaningful cases that send clear & important messages.” Here’s the intro:
Last year Steve and I articulated five principles that would guide our decision-making. They are: (1) focus on the Main Street investor; (2) focus on individual accountability; (3) keep pace with technological change; (4) impose sanctions that most effectively further enforcement goals; and (5) constantly assess the allocation of our resources.
I’m going to talk about the Division’s approach to dealing with initial coin offerings (ICO) and digital assets, and second, I will address the Division’s Share Class Selection Disclosure Initiative. These two examples illustrate our approach of identifying challenges and risks facing investors and markets, and developing a response that addresses those challenges in a thoughtful and effective way, and that maximizes our use of resources.
In the context of ICOs, she goes on to discuss non-fraud enforcement actions for ICO registration cases – and says Enforcement isn’t going to shy away from recommending substantial remedies for Section 5 violations. And as I’ve previously blogged, it’s not just issuers who can be the target of an ICO enforcement action. Recent settlements included a hedge fund that violated investment company registration requirements and an unregistered broker dealer.
SEC Enforcement: “Money Isn’t Everything”
John’s blogged that the magnitude of monetary penalties might not be the right way to measure enforcement activity – and Steve Peikin seems to agree. In his recent speech, he elaborated on the full range of relief that the Division of Enforcement recommends to the SEC – and says Theranos is a good example of how customized non-monetary remedies are deployed:
Aspects of the Theranos matter have been covered extensively in other forums. But for today’s purposes, one of the most important elements of the Commission’s settlement with Holmes were undertakings that (1) required her to relinquish her voting control over Theranos by converting her supermajority shares to common shares, and (2) guaranteed that in a liquidation event, Holmes would not profit from her ownership stake in the company until $750 million had been returned to other Theranos investors.
In Theranos, the Commission confronted a situation where, because of the capital structure of the company, Holmes had nearly complete control of the company. And given what we alleged had occurred, it was appropriate to seek relief that protected investors from potential misuse of that controlling position going forward. The undertakings were designed to do exactly that.
Tomorrow’s Webcast: “This Is It! M&A Nuggets”
Tune in tomorrow for the DealLawyers.com webcast – “This Is It! M&A Nuggets” – to hear Weil Gotshal’s Rick Climan, Arnold & Porter’s Joel Greenberg, McDermott Will’s Wilson Chu and Sullivan & Cromwell’s Rita O’Neill impart a whole lot of practical guidance!
Our last “list” blog featured Nina Flax’s morning routine. Now we get to see how Karla Bos starts her day:
OK, here’s the “Bos” edition of the pre-8:30 am accomplishment list. Very different from Nina’s, aside from the requisite coffee and email consumption, but that’s no surprise—she’s a Commuting Supermom and I’m a Work-from-Home Empty Nester. My list looked more like hers when I had a commute and kids at home.
Even so, reflecting on my current list, I realized that 10 years ago I would have read it and totally rolled my eyes, wondering what working person could find the time for all this in the morning and get up so many hours before they really had to. All I can say is that I started to get up earlier and earlier over the years as it dawned on me that doing so allowed me to take control of my day and take care of myself in a meaningful way. So for me, where I am now, this program works:
1. Decide Whether Sleep Will Come Again After 4 a.m. I’ve learned that, as soon as one of my three dogs whimpers or my monkey mind starts jumping, going vertical bears more fruit than chasing a few extra and unlikely minutes of sleep. But if the dogs are quiet, I hold off so the husband can sleep.
2. Get Up by 4:45 a.m. I don’t say “wake up” because I am almost always awake by then. Sometime during the last 10 years I turned into a morning person.
3. Take Dogs Outside. Scan the yard and stand guard for predators (hence, no doggie door) while my little dogs sniff everything as if for the first time. “Oh tree, how I’ve missed you!” I take a moment to enjoy the early morning desert quiet—until the senior dog barks to announce we can go in NOW …
4. Feed the Dogs. For age and health reasons, everyone gets their own custom menu with varying levels of meds and supplements. Start my coffee. Encourage the puppy to eat instead of play.
5. Take Dogs Outside Again. And generally repeat a slightly faster version of step #3. If it’s light enough by now I putter in the yard and make a mental list of what needs attention.
6. Set Out Coffee for My Husband. He’s in the shower about now. He is much less of a morning person (and less of a talker) than I and has a healthy commute. We used to carpool when we worked at the same company, which I thought was great because I could talk and talk and check my email while he drove—but I think he enjoys the quiet time now.
7. Coffee/Digital Content Intake. This means distracting the dogs with dental chews while I drink coffee, check email, and read to get a little smarter about corporate governance and the world. Being in Arizona, I share Nina’s challenge of waking up to east coast days that are already in full swing. Fortunately, our geographically distributed and highly responsive team helps make the time zone balancing act manageable.
8. Throw on Workout Clothes. This is one of the times I listen to a favorite podcast. Once I’d worked from home for a while, I realized I’d stopped doing this, so now I catch up here and there in the morning and whenever I step out of my office for a break.
9. Exercise and Stretch. Some days this means a full-on workout (Empty Nester = spare room for a home gym), some days mostly stretching (which I don’t love because I am not flexible, so podcasts are a great distraction), but it’s a must. It’s key to managing stress, aging, and too much time sitting. Drink water.
10. Check Email.
11. Walk the Dogs. The desert gear required is a separate list but includes big floppy hat, tweezers to remove cactus spines, and a whistle and pepper spray to fend off any aggressive wildlife (which usually keep their distance, but we had a dicey encounter with a group of javelinas and we see coyotes most mornings). Also a headlamp when it’s still dark. Enjoy the stillness and quiet but watch for predators. (You get used to it, rather like walking the streets of NY.)
12. Check Email.
13. Brush Dogs’ Teeth. Owners of small dogs know they require dental vigilance or things get ugly and pricey. Another chance to listen to podcasts.
14. Shower—and Sing! Singing in the shower is another must. Really gets me energized, and I cannot think (worry) about anything when I am belting out a showtune.
15. Meditate for 10-15 Minutes. Mindfulness meditation, which I’m new at, but feels really valuable. One time in the day I don’t make mental lists (well, try not to; like I said, I am new at this).
16. Get Dressed. While I love that this takes far less time and effort now that I work from home, it’s still important to set and adhere to standards, e.g., anything you slept or worked out in is not suitable work attire, and you’re not trying hard enough if your husband comes home and looks startled when he sees you.
17. Eat a Healthy Breakfast. Admittedly this happens at my desk if the preceding 16 activities expanded.
18. Commute to Work. There are things I miss about working onsite with a team, but I adore that my commute simply means walking down the hallway to my home office, where the dogs settle in for a snooze. Power up and get to work!
Nasdaq Proposes Changes to Initial Listing Liquidity Requirements
On Friday, Nasdaq announced that it’s seeking public comment on potential changes to its liquidity requirements for new listings. While all input is welcome, the proposal identifies four topics of particular interest:
– Restricted Shares
– Minimum Investment Value for Holders
– Trading Volume
– Reg A+ Listings & SPACs
Any changes to the rules will apply only to initial listings – not continued listings. Comments are due by November 16th.
Less than a week into his settlement with the SEC over alleged securities law violations relating to his tweets, Tesla CEO Elon Musk took to Twitter to voice his displeasure with the SEC with this tweet:
Interestingly, in a speech that Liz will blog about next week, Steve Peikin – Co-Director of the SEC’s Enforcement – noted a few days ago that one of the remedies that the SEC obtained is a requirement that Tesla add an experienced securities lawyer to its legal department (see the 4th undertaking associated with fn 8; note that requirement wasn’t noted in the SEC’s press release). I can tell you that Tesla has had one of those already for years. And it doesn’t strike me that Musk is the kind of guy that will listen to his lawyers…
According to news reports, Mark Cuban urged Musk to settle. You may recall that Cuban battled the SEC for years over alleged insider trading – and then Cuban even showed up at the annual “SEC Speaks” conference afterwards. And I even had my own touch of fame after I blogged about Cuban’s settlement and he tweeted at me…
New “Disclosure Simplification” Rules: Effective November 5th
Yesterday, the SEC’s “Disclosure Simplification” rules were published in the Federal Register. They’ll be effective November 5th. I blogged last week about transition issues. We continue to post memos in our “Fast Act” Practice Area…
Group of Investors Files “ESG Disclosure” Rulemaking Petition
Recently, as noted in this press release, a group of investors, state treasurers, public pension funds & unions – representing more than $5 trillion in assets under management – and securities law experts and foundations filed this rulemaking petition with the SEC seeking a standard set of rules requiring companies to disclose environmental, social and governance (ESG) risks.
There were many signatories to this petition. Does that matter? Personally, I don’t think so. Unless they happen to align with the SEC Chair’s rulemaking agenda anyway, rulemaking petitions rarely are acted upon. Remember the rulemaking petition about political contribution disclosures that received over 1 million signatures in support that has gone nowhere…
Certain ISS policies, procedures, and products rely on GICS classifications, including executive compensation peer group formation, equity compensation plan evaluation, and Environmental & Social QualityScore. ISS has issued FAQs designed to answer the most frequently asked questions regarding how the adjustment to GICS structure will impact ISS analyses, and when those changes will be effective.
The FAQs address the following questions:
– How will the new GICS code affect the evaluation of equity compensation plans under ISS’ U.S. Equity Plan Scorecard?
– How will the new GICS code affect the evaluation of equity plans under ISS’ burn rate policy for France?
– How will the new GICS code affect the evaluation of executive compensation?
– How will the new GICS code affect the evaluation of director compensation?
– How will the new GICS code affect Environmental & Social QualityScore?
– How will the new GICS code affect ISS policies, such as the director performance evaluation policy, that examine a company’s TSR performance relative to its industry?
– When will Question 130 in Governance QualityScore, which examines each covered company’s burn rate relative to its industry, be updated to reflect the new GICS structure?
I previously blogged about how Hester Peirce’s dissent from the SEC’s refusal to permit the listing of a bitcoin ETF earned her the moniker “Crypto Mom” from crypto enthusiasts. Judging by a recent speech, Commissioner Peirce digs her new nickname – & wants to be regarded as a “free range” mom who “encourages her child to explore with limited supervision, which requires the acceptance of a certain level of risk.” This excerpt elaborates on what “free range parenting” means when it comes to the crypto:
Steering a speeding machine down the highway is an enormously complex and cognitively-challenging task, one that is dangerous for drivers, passengers, and innocent bystanders. Permitting people to drive means people will be injured and, in too many cases, die. Outlawing driving would save lives, but the costs in terms of lost quality of life of doing so would be enormous, albeit difficult to quantify.
Instead of banning it entirely, therefore, we place reasonable restrictions on driving. Some of us may decide to avoid risks the law allows us to take. A speed limit, after all, is not a mandate. Some of us may choose not to drive at night, in bad weather, or at all. But, barring bad behavior on our part, the choice is ours, not the government’s.
It puzzles me that it is so difficult for those of us who regulate the securities markets to understand this concept; after all, capital markets are all about taking risk, and queasiness around risk-taking is particularly inapt. A key purpose of financial markets is to permit investors to take risks, commensurate with their own risk appetites and circumstances, to earn returns on their investments. They commit their capital to projects with uncertain outcomes in the hope that there will be a return on their capital investment. The SEC, as regulator of the capital markets, therefore should appreciate the connection between risk and return and resist the urge to coddle the American investor.
I get the argument for a lighter regulatory touch, but the analogy between cars and crypto falls flat. I mean, even the most gruesome multi-car pileup never helped trigger a global depression – the same can’t be said for innovative financial instruments.
Ironically, Commissioner Peirce’s remarks came during the month marking the 10th anniversary of the financial crisis. Axios’ Felix Salmon commemorated that milestone by tweeting a copy of what may be the most chilling email ever sent – a message in which one NY Fed official told another that Morgan Stanley had informed Tim Geithner late on Friday, Sept. 20, 2008 that it would be unable to open on the following Monday, and indicating that if Morgan Stanley didn’t open, Goldman Sachs was “toast.”
“Crypto Mom” or “Stakeholder Slayer?”
Commissioner Peirce may like her “Crypto Mom” nickname, but I’d venture a guess she might actually prefer “Stakeholder Slayer.” That’s because in another recent speech, she made it clear that she’s not a fan of the idea of corporate “stakeholders.” Here’s an excerpt:
We have a deep and well-developed body of corporate law. It rests on the assumption that the board owes its principal duty to the shareholders collectively, not to an amorphous group of stakeholders. There is no compelling reason to overturn centuries of settled law, and there are many reasons not to.
Although she objects generally to efforts designed to compel directors to consider ESG issues as part of their fiduciary duties, Commissioner Peirce is particularly critical of California’s new law mandating inclusion of women directors on public company boards. She contends that California’s legislation “effectively forces corporations, including non-California corporations, to consider all women as stakeholders,” and argues that it opens a door to get other “favored groups” included in the stakeholder definition.
Cyber Insurance: GDPR Penalties? They May Not Cover It
One of the most intimidating aspects of the EU’s General Data Protection Regulation – GDPR – is the enormous potential penalties the companies can face for violating its provisions. Companies that run afoul of the GDPR could face fines of up to the greater of €20 million or 4% of their gross annual revenue.
For many companies, this regime means that the most significant potential cyber-related exposure they face is GDPR non-compliance. But this Womble Bond Dickinson memo says that if you expect your cyber insurance policy to protect you, you may be out of luck:
Companies with international exposure should check their cyber insurance policies to determine coverage of EU fines. According to an analysis conducted this summer by Aon, GDPR fines were found to be insurable in only two countries – Norway and Finland – out of the 30 European countries surveyed. In fact, in 20 of the 30 jurisdictions, including the UK, France, Spain and Italy, GDPR fines would specifically NOT be insurable. The other eight jurisdictions were less clear, and may depend on whether a GDPR fine is classified as civil or criminal.
The memo says the answer may be different for U.S. domiciled companies – but even here, the availability and scope of GDPR coverage varies from carrier to carrier.
Recently, Liz blogged about the California Assembly’s passage of Senate Bill 826, which requires exchange-listed companies headquartered in the Golden State to have women on their boards. On Sunday, California Gov. Jerry Brown signed that statute into law.
This excerpt from an article in Sunday’s LA Times summarizes the new law’s mandate:
The new law requires publicly traded corporations headquartered in California to include at least one woman on their boards of directors by the end of 2019 as part of an effort to close the gender gap in business. By the end of July 2021, a minimum of two women must sit on boards with five members, and there must be at least three women on boards with six or more members. Companies that fail to comply face fines of $100,000 for a first violation and $300,000 for a second or subsequent violation.
So how many companies are going to need to add women to their boards? Annalisa Barrett has crunched some of the numbers:
I examined Equilar data for the companies headquartered in California which were in the Russell 3000 Index as of June 2017 and found that, based on current board composition, 377 companies will have to add female director(s) their boards in order to be in compliance with SB 826 by December 31, 2021.
– 66 companies would have to add three women to their boards
– 175 companies would have to add two women to their boards
– 136 companies would have to add one woman to their boards
Annalisa notes that there are likely to be many more companies that will need to take action to comply the statute. Many public companies headquartered in California are too small to be in the Russell 3000 – and the majority of microcap companies (i.e., smaller than $300M in market capitalization) don’t have women on their boards. We’re posting memos in our “Board Diversity” Practice Area.
But Is It Legal? “California Über Alles”
In Gov. Brown’s signing statement, he acknowledged that “serious legal concerns” have been raised about the statute, and that its flaws “may prove fatal to its ultimate implementation.” This recent blog from Cooley’s Cydney Posner reviews some of the statute’s potential constitutional flaws. Here’s an excerpt addressing one of the most frequently cited concerns – the law’s “California Über Alles” provision, which purports to apply its mandate to companies that aren’t incorporated under California law:
You may recall that, generally, the “internal affairs doctrine” provides that the law of the state of incorporation governs those matters that pertain to the relationships among or between the corporation and its officers, directors and shareholders. In case you were wondering how California could profess to control the internal corporate affairs of a foreign corporation, you may not be familiar with the long arm of California’s Section 2115, which purports to apply to foreign corporations that satisfy certain tests related to presence in California (minimum contacts), referred to as “pseudo-foreign corporations.”
Cydney points out that the pseudo-foreign corporations statute used to cause severe problems for law firm opinion committees until the provision was amended to exclude from its application companies listed on the NYSE or Nasdaq. However, the new law expressly applies to these “pseudo-foreign” listed companies.
Cydney says that it is unclear whether courts will view the location of a company’s principal executive office as sufficient to overcome the internal affairs doctrine. Keith Bishop is skeptical that courts will sign-off on the statute – and this recent blog lays out his reasoning.
Transfer Agents: Market Share Leaders
This “Audit Analytics” blog discusses its annual review of 2018 market share leaders among transfer agents. Here’s an excerpt about the leaders for IPO market share:
AST has moved to the top transfer agent of IPO market share, putting Computershare/BNY Mellon into second. Two transfer agents that were in the top last year, Wells Fargo and Citibank, are not top competitors in the IPO market this year. Instead, Vstock Transfer, who was last in the top in 2016, has reappeared. Another notable change is from Deutsche Bank Trust Co Americas/TA, which has made an appearance in the top five for the very first time.
That was fast. Elon Musk apparently thought better of fighting the enforcement action that the SEC announced on Thursday over his tweets – because on Saturday evening, the SEC announced that it had reached a settlement with Musk & Tesla.
What, I’ve got to work weekends now? Broc never said anything about this. . . Anyway, this excerpt from the SEC’s press release lays out the deal’s basic terms:
Musk and Tesla have agreed to settle the charges against them without admitting or denying the SEC’s allegations. Among other relief, the settlements require that:
– Musk will step down as Tesla’s Chair and be replaced by an independent Chair. Musk will be ineligible to be re-elected Chair for three years;
– Tesla will appoint a total of two new independent directors to its board;
– Tesla will establish a new committee of independent directors and put in place additional controls & procedures to oversee Musk’s communications;
– Musk and Tesla will each pay a separate $20 million penalty. The $40 million in penalties will be distributed to harmed investors under a court-approved process.
According to this NYT article, Musk rejected a comparable deal before the the SEC filed its lawsuit. The sticking point was Musk’s unwillingness to accept the SEC’s standard “neither admit or deny” language (no, I’m not kidding).
Steve Quinlivan blogged his take on the settlement. This excerpt lays out the message to public companies with tweeters at the helm – and suggests that another prominent organization could learn a lesson here as well (also see our own new “Social Media Handbook” – and this blog by John Stark):
So the message to public companies is clear: If you have executives out there communicating material information on social media, you need to have disclosure controls and procedures in place to review the information before and after publication. Or at least one or the other. It would seem the White House would benefit from a similar rule.
Poll: Did the SEC Let Musk Off Too Easily?
On Friday, we ran a poll asking whether folks thought Musk should be subject to a D&O bar – 43% said ‘yes’ and 36% said ‘no’ (the rest punted). Now please take a moment to participate in a new anonymous poll:
find bike trails
Our October Eminders is Posted!
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