Yesterday, SEC Chair White delivered this speech that:
– Warned that someday the SEC might shift its focus on fee-shifting bylaws from concerned only about adequate disclosure to taking action to ensure shareholders aren’t stifled from seeking redress (see this blog; also see this blog about how Prof. Coffee found defects in Delaware’s proposed fee-shifting legislation)
– Noted some activism is “constructive” and said that in “certain situations, activism seeks to bring about important changes at companies that can increase shareholder value” (see this WSJ article & NY Times article about how Delaware CJ Strine wants the SEC to enhance its 13D disclosure rules on activism)
– On the debate over the SEC’s “no view” on Rule 14a-8(i)(9) this season (see this new letter from the Business Roundtable on that topic), she said (see this blog):
If a management proposal is made in response to a shareholder proposal on the same subject matter, does that end the inquiry — and the company may exclude the shareholder proposal because it ‘directly conflicts’ with management’s proposal? What if the proposals have the same subject matter, but the terms differ? What if management’s proposal could be viewed as a proposal that, if adopted, may purport to provide shareholders with the ability to do something, such as call a special meeting or include a nominee for director in a company’s proxy materials, but that, in fact, no shareholder would be able to meet the criteria to do so? If a company excludes a shareholder proposal because it conflicts with the company’s own proposal on the same subject matter, should the company have to disclose to its shareholders the existence of the shareholder proposal? What if the company’s competing proposal was offered only in response to the shareholder’s proposal — should the company have to disclose its motivations for its own proposal? …. In impartially administering the rule, we must always consider whether our response would produce an unintended or unfair result. Gamesmanship has no place in the process.
More on “MD&A Omissions Can Be Actionable in Section 10(b) Claims”
A few months ago, I blogged about a split between the 9th Circuit and 2nd Circuit on whether an alleged failure to make a disclosure required by Item 303 of Regulation S-K is an actionable omission under Section 10(b) and Rule 10b-5. Now, Kevin LaCroix blogs about a recent decision in Tile Shop Holding Securities Litigation, in which District of Minnesota Judge Ann Montgomery followed the Second Circuit’s ruling on the question and held that an alleged failure to make a disclosure under Item 303 can serve as the basis of a Section 10(b) securities claim. The ruling is interesting in a number of other respects as well.
Battle Over SEC’s ALJs Takes a Turn
I’ve blogged before about the controversy over the SEC’s use of administrative law judges. Here’s the intro of this Reuters article:
As the Securities and Exchange Commission follows through with its promise – or threat, depending on how you look at these things – to bring more of its enforcement actions as administrative proceedings before judges employed by the commission, at least a half-dozen defendants have brought constitutional challenges to the SEC’s right to pursue charges outside of federal district court. They’ve asserted two different theories: First, administrative proceedings violate their Seventh Amendment and due process rights because there’s no jury and the evidentiary rules favor the SEC; and second, the entire administrative law judge system violates separation-of-powers doctrine under the U.S. Supreme Court’s 2010 decision in Free Enterprise Fund v. Public Company Accounting Oversight Board.
The good news this week for SEC defendants facing administrative proceedings is that U.S. District Judge Rudolph Randa of Milwaukee believes both constitutional arguments to be “compelling and meritorious.” But the bad news in Randa’s ruling in Bebo v. SEC is bad indeed. The judge dismissed Laurie Bebo’s suit seeking a preliminary injunction to block the SEC from moving ahead with its administrative proceeding against the former CEO of Assisted Living Concepts, concluding that he does not have jurisdiction to resolve the constitutional questions.
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:
– Transition Timeline for New COSO Framework
– Restatements Have Fallen Sharply Since SOX
– Survey: Benchmarking the Accounting & Finance Function
– Directors: Recognizing & Reacting to Red (or Yellow) Flags
– FASB Issues Going Concern Assessment & Disclosure Standard
The SEC announced a whistleblower award of nearly half a million dollars to a former company officer whose report of misconduct resulted in an SEC enforcement action. In order for a whistleblower submission to be considered original information, it must be derived from a claimant’s independent knowledge or analysis, which is generally not applicable if the whistleblower obtained the information as an officer, director, trustee or partner.
The whistleblower in this case was an officer of the company. However, the Claims Review Staff decided that the information provided by the individual was not disqualified from being treated as original information since the officer reported the information internally at least 120 days prior to reporting it to the Commission, and the matter failed to be addressed at the company. We explain the exception in our memo on the rules.
This is the first whistleblower award to an officer. As is their usual practice, the SEC provided no details about the background of the misconduct or the report made by the whistleblower. The SEC has awarded 15 whistleblowers in the last three years, for an eye-popping total of nearly $50 million, which is financed from the sanctions.
More on “SEC Probing How Companies Treat Whistleblowers”
Last month, I blogged how the SEC has sent letters to several companies asking for years of nondisclosure agreements, employment contracts and other documents to investigate whether companies are muzzling corporate whistleblowers. Here’s more from this blog by David Smyth entitled “The SEC Will Be Your Employment Law Agency, Too.” Here’s an excerpt from that blog:
Now the Commission is wading deeper and deeper into the employment law business. We’ve known for some time that the SEC was looking for cases in which to enforce the Dodd-Frank anti-retaliation provisions of the whistleblower rules. It brought such a case against Paradigm Capital Management just last June. Also last year, SEC whistleblower chief Sean McKessy warned against companies writing severance agreements to buy their former employees’ silence with post-employment benefits. “And if we find that kind of language, not only are we going to go to the companies, we are going to go after the lawyers who drafted it,” he said.
But thanks to the Wall Street Journal’s Rachel Louise Ensign, that’s not all. Oh, no; that’s not all. In an article from last week, she reports that the Commission is actively looking for that kind of language. It has sent a request letter asking a number of companies “to turn over every nondisclosure agreement, confidentiality agreement, severance agreement and settlement agreement they entered into with employees since Dodd-Frank went into effect, as well as documents related to corporate training on confidentiality.” The letter also asks for “all documents that refer or relate to whistleblowing” and lists of terminated employees.
Here’s a blog from Mintz Levin on this topic. And also see this blog by Steve Quinlivan entitled “Three Dodd-Frank Whistleblower Anti-Retaliation Claims Fail.” And this blog from Steve about how the 2nd Circuit has upheld the SEC’s denial of a whistleblower award…
Whistleblowers: DOL Adopts Final Rules
The Department of Labor finally has gotten around to adopting final rules for whistleblower procedures as required by Section 806 of Sarbanes-Oxley, which reflects Dodd-Frank-imposed amendments and clarifies OSHA’s procedures for handling whistleblower claims. The DOL & OSHA have been operating under interim final rules since 2011 – and the new rules are similar to those. As reflected in this memo, the new rules provide employees with 180 days to file complaints and now allow allegations to be made orally…
Whistleblowers: NY May Propose Dodd-Frank-Like Law
Recently, the NY Attorney General announced that he intends propose a whistleblower bill – the “Financial Frauds Whistleblower Act” – that would cover securities and financial frauds in New York financial services companies that would be similar to Dodd-Frank’s whistleblower laws…
A few weeks ago, the SEC filed this amicus brief with the Second Circuit in Berman v. Neo@Ogilvy LLC, to defend its position that Dodd-Frank’s whistleblower protections include whistleblowers who internally report their concerns.
As will be covered during our upcoming Tuesday webcast – “Proxy Access: The Halftime Show” (TIAA-CREF’s Bess Joffe just joined the panel!) – there are all sorts of developments, such as:
– TIAA-CREF has quietly sent letters to 100 companies urging them to voluntarily adopt access within the next 6-8 months (see this WSJ article, including my quote at the end)
– At least 4 proxy access shareholder proposals have been withdrawn by the NYC Comptroller as part of a settlement (per this Ning Chiu blog)
– Per Ning’s blog: “Many companies are opposing the proposals in their proxy statements, while at least one company has included the proposal, but with the board in favor of it. Most opposing the proposal are arguing against the need for proxy access at all, or have indicated a willingness to adopt access, but at a higher ownership threshold.”
– And Ning says: “Other companies are offering shareholders a choice between a management proposal (either binding or precatory) along with a shareholder proposal, with different ownership thresholds for the two types of proposals.”
In our “Q&A Forum,” someone asked for a list of the companies listed in Friday’s blog that have adopted the “Prudential” style of renomination ineligibility provision. The list was posted in response (#8370).
Conflict Minerals: Status of Corp Fin Views
Elm Sustainability Partners has posted this interesting note, repeated below:
We spent a very busy and productive two days last week in Washington. One meeting was with the SEC Staff responsible for the conflict minerals disclosure requirements. They were, as usual, generally tight-lipped in responding to our questions, but we did get three interesting bits of information.
– Readers may recall recent comments from CorpFin Director Keith Higgins about his view that many RCOI descriptions were inadequate. The comments did not make clear if he was referring to those who filed a Form SD only, or the RCOI descriptions included in Conflict Minerals Reports (CMRs). The Staff clarified that the comments were aimed at Form SD filers only, which makes sense. Moreover, we suggest that those filing only the Form SD for CY2014 be prepared for additional scrutiny that is likely to come from other stakeholders as well.
– Staff gave no insight into when additional FAQs/Interpretive Guidance will be published. But they did state that the next round consists of approximately 10 questions. This puts to rest the rumor that the Staff was working on a very large number of questions, which is one reason for the lengthy delay.
– A number of issuers have expressed concern about the validity of the Keller and Heckman letter on the Staff’s position that nonmetallic forms of 3TG are not a covered derivative. The Staff stated that the letter does fully represent their formal position on the matter and that issuers should not be wary of relying on it. Further, we note that the letter covers 3TG, not just tin or 3T, so gold salts/plating chemicals are not considered covered derivatives.
Elm also posted this note about how Apple has filed its Form SD for this year already, a few months early…
Transcript: “Private M&A Wake-Up Calls”
We have posted the DealLawyers.com transcript for our recent webcast: “Private M&A Wake-Up Calls.”
Here’s the results from our recent survey on shareholder engagement:
1. For our proxy season-related efforts (ie. not the normal IR stuff), this number of our staffers handles most of the communications with our institutional shareholders:
– More than 3 – 10%
– 3 – 30%
– 2 – 20%
– 1 -30%
– None – 10%
2. Before our annual meeting, our company typically has face-to-face engagement with this number of institutional shareholders:
– More than 12 – 20%
– 7-12 – 10%
– 4-6 – 20%
– 2-3 – 30%
– 1 – 0%
– None – 20%
3. Before our annual meeting, our company typically receives this number of requests for face-to-face meetings from our institutional investors:
– More than 12 – 0%
– 7-12 – 0%
– 4-6 – 10%
– 2-3 – 30%
– 1 -10%
– None – 50%
Aiding & Abetting Defendants: Motion for Amended Complaint Seeks to Add Company Counsel!
OMG! This motion to amend the complaint in Chen v Howard-Anderson (“aka Occam”), CA No. 5878-VCL (Del. Ch.) is sure to raise eyebrows as it indicates a willingness to bring aiding & abetting claims against company counsel and not just financial advisors and counterparties – something rarely seen before in the public company M&A context. The oppositions to the motion filed on March 4th were filed confidentially. Argument on the motion to add company counsel is being held today.
In light of the prisoner dilemma type incentives created by the Delaware Uniform Contribution Among Tort-feasors Law (DUCATL) – as interpreted by the Delaware Chancery Court in Rural/Metro – several commentators have suggested that defendants are increasingly likely to break ranks rather than present a united front in defense of aiding & abetting claims. This likely will contribute to a rise in company counsel appearing as defendants, if not initially included in the complaints filed or in cross-claims filed by co-defendants seeking to preserve and maximize rights of contribution or credit for settlements under DUCATL. This could get real messy.
Like Rural/Metro, the motion to amend the complaint adds new defendants to an action in which discovery is well advanced if not substantially complete, potentially requiring the new defendants – at least Jefferies (like RBC in Rural/Metro) – to go to trial based on a record, particularly discovery – that they may have had little if any role in creating. See paragraph 7 of the motion acknowledging that it is being filed four years after the hearing on a preliminary injunction in the matter.
Form S-8 Share Counting, Fee Calculations and Other Tricks of the Trade
We just mailed the January-February issue of The Corporate Counsel. The issue covers a slew of issues related to Form S-8, such as:
– Deciding Whether Plan Offers Must Be Registered or Exempt
– Eligibility to Use Form S-8
– The Need To Register “Plan Interests”
– The Need To Register Deferred Compensation Plan Obligations
– Calculating Filing Fees
– “Share Counting”: Determining How Many Shares To Register
– A Sample Spreadsheet to Help You Audit Your Plan
Act Now: Try a no-risk trial now to get a non-blurred copy rushed to you. Also tune in for our upcoming webcast with the same title as this issue of The Corporate Counsel..
On Friday, the SEC brought 8 enforcement actions against Schedule 13D filers for failing to amend their Schedules. Here’s a good description from this blog by Steve Quinlivan of Stinson Leonard Street:
It’s well known that Federal securities laws require beneficial owners to promptly file an amendment when there is a material change in the facts previously reported by them on Schedule 13D, commonly referred to as a “beneficial ownership report.” It sounds easy to comply with, but the 13Ds can be on file for years, the obligations can be forgotten and facts can change rapidly in certain circumstances. The SEC has now sent a strong reminder to the world that it takes 13D updating obligations seriously. The SEC charged eight officers, directors, or major shareholders for failing to update their stock ownership disclosures to reflect material changes, including steps to take the companies private. Each of the respondents, without admitting or denying the SEC’s allegations, agreed to settle the proceedings by paying a financial penalty.
The SEC’s orders find that the respondents took steps to advance undisclosed plans to effect going private transactions. Some determined the form of the transaction to take the company private, obtained waivers from preferred shareholders, and assisted with shareholder vote projections, while others informed company management of their intention to privatize the company and formed a consortium of shareholders to participate in the going private transaction. As described in the SEC orders, each respective respondent took a series of significant steps that, when viewed together, resulted in a material change from the disclosures that each had previously made in their Schedule 13D filings. According to the SEC’s orders, some of the respondents also failed to timely report their ownership of securities in the company that was the subject of a going private transaction. In addition, six respondents only disclosed their transactions in company securities months or years after the fact, not within two businesses days, as required for these disclosures by insiders.
Left unanswered is the question of “what can I do before I have to amend my 13D and inform the world?”
These don’t look like broken windows to me, although some will claim they are, but it’s probably more of the SEC’s robo-cop program. How hard is it to identify the universe of going private transactions, who had 13D’s on file and who didn’t amend them. Expect the SEC to continue this approach to pick off more low hanging fruit and send messages in the future.
And here’s this Cooley blog on this development. And Alan Dye has blogged on the Section 16 aspects of this development…
Corp Fin’s Policy Statement: Reg A & D Waivers
On Friday, Corp Fin issued this policy statement on waivers under Regulation A and D. This was just one day after SEC Chair White delivered this speech in which she stated that charging individuals is a more effective tool to deter future misconduct than withholding waivers. In other words, refusing to grant a waiver should not be used as an enforcement tool. She also supported the Staff’s process by which they review waiver requests – noting that it’s “rigorous.”
Lately, the heated battle among the SEC Commissioners over “bad actor” waivers has resulted in the Commissioners themselves deciding whether to grant a waiver rather than the Staff. Here’s an excerpt from White’s speech that sums up how that looks to the outside world:
Unfortunately, the public discussions about the SEC’s waiver decisions sometimes do not recognize these important distinctions and can take on a political tone that can blur the analysis.
Here’s an excerpt from this blog by Steve Quinlivan that nicely sums up where we go from here: “The policy looks fair on its face. Application is another thing.
Initially I think it will lead to lots of those uncomfortable conversations between client and counsel that say “on the one hand these facts are good” and “on the other hand these facts are not.” Should the SEC continue to publish waiver decisions and enough information to ascertain the reasons therefore, eventually the securities bar will figure it out.”
Transcript: “Conduct of the Annual Meeting”
We have posted the transcript of our recent webcast: “Conduct of the Annual Meeting.”
As I predicted in my blog last month, companies that adopt proxy access bylaws in the face of a shareholder proposal are successfully arguing that the shareholder proposal is “substantially implemented” under Rule 14a-8(i)(10). General Electric is the first company to receive a favorable Corp Fin response along these lines (signed by Corp Fin’s Chief Counsel). The now-mooted shareholder proposal sought thresholds of 3%/3 years, with a cap of 20% of the board. GE’s bylaw included these same thresholds, but added a group limit of 20.
And here’s a nice piece of “SEC posting practices” trivia! This was a reconsideration of GE’s initial no-action request that originally argued another exclusion basis (but not (i)(9)) before GE adopted its own proxy access bylaw. So if you’re one of the crazies that looks at the SEC’s chronological list of responses posted every day and didn’t see this one – that’s because it’s included in the “2014 list” of responses because it’s a follow-up to a request made in December 2014. Meanwhile, here’s news how 40% of shareholders supported the proxy access shareholder proposal at Apple…
Speaking of access, although the type of provision that Jim McRitchie criticizes at Pru in his blog was not adopted as part of Rule 14a-11, it’s become standard as part of the “private ordering” that is going on. As of today, 19 of the 24 companies that have adopted proxy access included this type of provision – and 15 of those impose exactly the same provision as Pru (a 25% minimum vote threshold and a two-year delay period). Personally, I think it’s reasonable to cut someone off if they don’t get 25%. Bear in mind that under this limitation, a shareholder who doesn’t cross the 25% threshold can still renominate the candidate – they just have to bear the expense themselves instead of causing the company to be the only one bearing the expense of a contest.
Proxy Statements: GE & Coca-Cola File!
Two of my favorite companies have filed their proxy statements:
Come hear GE’s Aaron Briggs & Coca-Cola’s Jared Brandman (along with Compensia’s Mark Borges & Addison’s Nina Eisenman) during the panel entitled “Disclosure Effectiveness: What Investors Really Want to See” at our big conference in San Diego & video webcast. Register now for the early bird discount and save 33%!
Senators Pat Toomey (R., PA) and Mark Warner (D., VA) have introduced Senate Bill 576, the ‘‘Encouraging Employee Ownership Act.’’ The bill would require the SEC, within 60 days after enactment, to raise the threshold in Section (e) of Rule 701, the exemption from registration for privately held companies for offers and sales of compensatory securities to employees. Currently, Rule 701(e) requires that, if the aggregate sales price or amount of securities sold during any 12-month period exceeds $5 million, the company must deliver additional disclosure to the employees, including financial statements and other potentially confidential information. The bill would raise the disclosure threshold from $5 million to $10 million, and index it for inflation every five years to reflect changes in the CPI.
Warner’s press release explains that “companies that wish to issue more than $5 million in stock to employees must comply with sensitive reporting and disclosure requirements. For new and fast-growing companies, stock compensation is a valuable tool, but many privately-held companies are reluctant to issue their workers more than the $5 million in stock that would trigger mandatory reporting of potentially sensitive information.” According to the WSJ, the “bill’s path through Senate is unclear. There’s no stand-alone companion legislation in the House, but the same changes were included as part of a broad package of financial services bills the House passed in January by a vote of 271-154. The broader House bill included a controversial delay to a provision requiring that banks sell stakes in certain complex securities, a provision many congressional Democrats and the White House oppose.”
Here’s the intro from this Cooley blog by Cydney Posner (and here’s a blog on whether Congress will actually revisit the conflict minerals rule):
According to this article from the Washington Post with Bloomberg, in February, House Financial Services Committee Chair Jeb Hensarling and three other House members (Scott Garrett of New Jersey, Bill Huizenga of Michigan, and Ed Royce of California) sent a letter to SEC Chair Mary Jo White urging that the SEC end its appeal of the conflict minerals case, National Association of Manufacturers, Inc. v. SEC, currently pending in the DC Circuit. Whether the pressure will have any impact remains to be seen. Hensarling asked for a report on the amount of funds and time spent defending the rule.
“Accredited Investors”: Meeting of Advisory Committee on Small & Emerging Companies
This MoFo blog and SIFMA recap covers the latest committee meeting that dealt with the hot button topics for smaller companies – & this discussion draft on the “accredited investor” definition is worth reading…
FASB Eliminates Extraordinary Items Reporting
Here’s a blog from Linda Griggs, Rani Doyle & Sean Donahue of Morgan Lewis:
In January, the FASB adopted a final Accounting Standards Update that eliminates the requirement that preparers report events that meet the criteria for extraordinary classification separately in an income statement, net of tax and after income from continuing operations. Not only was the classification of an event as extraordinary time consuming and somewhat complex for preparers, but users advised the FASB that the extraordinary item classification was rare and not very useful. The FASB’s action was part of its Simplification Initiative, which is intended to reduce costs and complexity while “maintaining or improving the usefulness” of financial information to users. Through this action, the FASB eliminated an inconsistency with International Financial Reporting Standards’ IAS 1, “Presentation of Financial Statements,” which prohibits the presentation and disclosure of extraordinary items on an income statement.
The existing accounting standards define an extraordinary event as one that meets both of the following criteria and is material when compared to income before extraordinary items, the trend of annual earnings before extraordinary items, or some other appropriate criteria:
1. Unusual nature. The underlying event or transaction should possess a high degree of abnormality and be clearly unrelated to, or only incidentally related to, an entity’s ordinary and typical activities taking into account the environment in which the entity operates.
2. Infrequency of occurrence. The underlying event or transaction should be of a type that would not reasonably be expected to recur in the foreseeable future, taking into account the environment in which the entity operates.
The existing standard excludes various gains and losses, such as the write-down or write-off of receivables, inventories, and other intangible assets; foreign currency gains and losses; gains or losses from the disposal of a component of an entity or the sale or abandonment of property, plant, or equipment; and gains and losses from the effects of a strike, including those against competitors and major suppliers. Examples of events that meet the current standard are gains or losses that are a direct result of a major casualty, such as an earthquake or an expropriation.
The elimination of the extraordinary item classification will not reduce information about events that would have been classified as extraordinary. Preparers of financial statements will need to report separately in the income statement as a part of income from continuing operations, or, alternatively, report in the notes to the financial statements events that previously would have met the definition of an extraordinary item. This requirement is consistent with the requirement in existing GAAP for preparers to report the nature and financial effects of material events that are “unusual in nature” or of a type that indicates “infrequency of occurrence,” as each of those terms is explained in the current definition of an extraordinary item noted above.
Accounting Standards Update No. 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A preparer may adopt the standard early, as long as the preparer adopts the standard from the beginning of its fiscal year. In addition, a preparer may adopt the standard on a retrospective basis.
Big news! Prudential has become the first company to adopt proxy access proactively without having a shareholder proposal. Under a bylaw amendment adopted yesterday, Pru adopted a 3%/3-year formula – along with a group cap of 20 shareholders & nomination cap of 20% of board seats. Coincidence that Peggy Foran is the corporate secretary at Pru? Now you know why she has earned the “Lifetime Achievement Award” at the upcoming “The Women’s 100” conference.
Meanwhile, Exelon filed its preliminary proxy statement yesterday and it includes dueling proxy access proposals: the NYC Comptroller proposal and an alternative board proposal with a formula of 5%/3-years (group cap of 20 investors & 20% of board). Interestingly, the board proposal is also precatory. AES Corp and Cloud Peak Energy also have filed their proxy statements with dueling proposals. AES Corp with a management proposal that is non-binding – and Cloud Peak with a binding management proposal (& the proxy includes bylaw text). Hat tip to Cleary’s Nick Grabar & Sustainalytics’ Gary Hewitt for pointing these out!
The SEC’s Investor Advocate Wants Layered Disclosure & Structured Data
The SEC’s relatively new Investor Advocate – Rick Fleming – delivered his first speech, describing his office’s role and providing a view about how companies can make their disclosure more effective with the use of “layered data” and structured data. Here’s an excerpt:
In my view, if the SEC wants issuers to provide effective disclosure to the 21st Century investor, the data needs to be both layered and structured. To understand what is meant by the term “layered data,” simply picture a company website. The company does not put all the information into one long web page that requires users to scroll down endlessly. Rather, the information is split into manageable pieces that utilize appealing graphics, with tabs and hyperlinks to help users quickly find the information that is most important to them. By similarly layering the data in an S-1 or 10-K, the SEC could greatly assist the individual investor who takes it upon herself to research an investment opportunity.
In contrast, structured data could assist the analyst or intermediary who wants to search data dynamically and compare multiple companies by slicing and dicing the data. Millions of investors in pension plans and other pooled investment vehicles could greatly benefit from these enhanced analytical tools, and smaller reporting companies may find greater trading volume in their shares as analysts are able to use data more effectively and cover more companies.
Fleming also questioned the new bill – HR 37, the “Promoting Job Creation and Reducing Small Business Burdens Act” – which was recently passed by the House as it would create an exemption from the XBRL filing requirements for 60% of public companies.
As noted in this memo from the NYSE, the exchange has amended its rules so that companies that don’t timely file their 10-Qs with the SEC – or who has a 10-K or 10-Q that’s materially defective – is considered a “late filer.” Previously, only a late 10-K would cause a company to be deemed “late.” “Materially defective” situations include filing a 10-K without an auditor’s report or the auditor subsequently withdraws its report, or a company discloses that its financials should no longer be relied upon. Hat tip to John Newell of Goodwin Procter!
I’m sad to note the passing of fellow blogger Jim Hamilton. Here’s an “in memoriam” note from his blog.
Disclosure Usability: Guess Which Symbol Matches Which Director Attribute!
As noted in this 40-second video, some companies are using nifty symbols to supplement their director attribute disclosures (note: symbols are fuzzy in the video due to low resolutions in the proxy that don’t work neatly when copying into a vid):
As I blogged yesterday on DealLawyers.com, here’s news from Cliff Neimeth of Greenberg Traurig:
With these proposed amendments, the Delaware legislature is prepared to act over organic fee-shifting and exclusive venue provisions and to consider amending Delaware’s appraisal statute. The proposed amendments – new DGCL Sections 102(f) and 109(b) – would, if adopted, preclude the adoption of fee-shifting bylaws and C-of-I provisions in the case of Delaware stock corporations.
As you recall, the ATP decision involved a non-stock association and its purported (broader) application outside that context has been vehemently criticized by numerous constituents. Several public companies have adopted such bylaws in the wake of the ATP decision and were forced (with considerable embarrassment) to reverse such adoption when they realized that their reading of ATP was a stretch or at least premature, and also due to institutional stockholder backlash and proxy advisor “withhold vote” policies effectively opposing such provisions implemented by unilateral board action.
Here are a few random thoughts on the proposed amendments:
– In the case of exclusive venue bylaws (now commonplace for hundreds of public companies in Delaware and in at least four other jurisdictions), the proposed amendments – DGCL Section 115 – would statutorily validate such provisions on a facial basis. Meaning, they still can be subject to challenge “as applied” given a particular set of facts and circumstances (e.g., adoption after the commencement of subject litigation or in some other context constituting a breach of fiduciary duty).
– The Delaware Court of Chancery recently upheld the adoption by a Delaware corporation of bylaws selecting North Carolina as the exclusive venue for intra-corporate disputes. The proposed amendments to the DGCL would permit such foreign jurisdiction selection so long as the organic language does not 100% foreclose such actions in Delaware courts.
– Under the proposed amendments, stockholder agreements containing such provisions that bind the contracting parties would, however, remain permissible.
– The personal jurisdiction issue raised in the commentary is easily addressed by adding consent to jurisdiction and other language in the relevant bylaw or charter provision. These provisions also are written subject to waiver by the corporation so that there is a “fiduciary out” in the case of a potential “as applied” challenge.
– The initiative to amend Section 262 is in response to the increasing practice of merger arbs and hedge funds to purchase shares post-record date (for the vote on the merger agreement) and assert appraisal rights so long as it can be demonstrated that the record date holder (e.g, CEDE & Co.) holds more shares that were not voted for the merger agreement than the number of shares for which the beneficial owner (the fund) is seeking appraisal. Because Cede & Co. holds shares in fungible bulk for its participant and customer accounts, that condition can be readily satisfied.
– Recent Delaware decisions (Ancestry.com and Merion Capital) have confirmed that the beneficial owner does not need to demonstrate that it’s specific shares were not voted for adoption of the merger agreement.
– In that statutory interest for properly perfected appraisal shares is 500 bps above the prevailing federal discount rate, even if the Delaware Court of Chancery were to determine that the fair value of the appraisal shares was the merger deal price (which a couple of recent cases in fact held), the arb still makes a tidy profit because of the statutory interest rate spread.
– Various inconsistencies in DGCL 262 regarding the procedures for beneficial owners and record date holders to perfect appraisal are the subject of potential legislative clarification.
As always, all remains to be seen, but it is expected that the proposed fee-shifting and exclusive venue amendments will be adopted substantially as proposed.
Glass Lewis has made the 56-minute audio archive from their recent webcast on proxy access freely available, with Glass Lewis’s Bob McCormick moderating a panel of T. Rowe Price’s Donna Anderson, New York City Comptroller’s Michael Garland, TIAA-CREF’s Bess Joffe and CalPERS’ Anne Simpson. Remember that our own webcast is coming up on March 24th – “Proxy Access: The Halftime Show” – during which Morrow’s Tom Ball, Davis Polk’s Ning Chiu, Covington & Burling’s Keir Gumbs, Gibson Dunn’s Beth Ising and Sullivan & Cromwell’s Glen Schleyer will analyze how companies decided to handle the new wave of proxy access shareholder proposals…
Sample Disclosures: Audit Committee Reports
This CAQ report entitled “Enhancing the Audit Committee Report” includes excerpts from various audit committee reports that – in the view of “The Center for Audit Quality” – represent good disclosure. The examples start on page 9 (with an excerpt from the 2013 Mondelez report). Dave wrote a long piece about the CAQ report (and subsequent publications) and the pressure on audit committee disclosures in the Nov-Dec 2014 issue of The Corporate Counsel, so you want to check that out too…
Webcast: “The Top Compensation Consultants Speak”
Tune in tomorrow for the CompensationStandards.com webcast – “The Top Compensation Consultants Speak” – to hear Mike Kesner of Deloitte Consulting, Blair Jones of Semler Brossy and Ira Kay of Pay Governance “tell it like it is. . . and like it should be.”
