Here are the latest survey results about annual meeting conduct:
1. To attend our annual meeting, our company:
– Requires pre-registration by shareholders – 6%
– Encourages pre-registration by shareholders but it’s not required – 16%
– Requires shareholders to bring an entry pass that was included in the proxy materials (along with ID) – 10%
– Encourages shareholders to bring an entry pass but it’s not required – 10%
– Will allow any shareholder to attend if they bring proof of ownership – 71%
– Will allow anyone to attend even if they don’t have proof of ownership – 17%
2. During our annual meeting, our company:
– We hand out rules of conduct that limit each shareholder’s time to no more than 2 minutes – 32%
– We hand out rules of conduct that limit each shareholder’s time to no more than 3 minutes – 31%
– We hand out rules of conduct that limit each shareholder’s time to no more than 5 minutes – 5%
– We announce a policy that limits each shareholder’s time to no more than 2 minutes (but rules are not handed out) – 2%
– We announce a policy that limit each shareholder’s time to no more than 3 minutes (but rules are not handed out) – 2%
– We announce a policy that limit each shareholder’s time to no more than 5 minutes (but rules are not handed out) – 0%
– There is no limit on how long a shareholder can talk (subject to the inherent authority of the Chair to cut off discussion at any time) – 29%
3. For our annual meeting, our company:
– Provides an audio webcast of the physical meeting, including posting an archive – 25%
– Provides an audio webcast of the physical meeting, but does not post an archive – 2%
– Has provided an audio webcast of the physical meeting in the past, but discontinued that practice – 6%
– Is considering providing an audio webcast of the physical meeting but haven’t decided yet – 0%
– Provides a video webcast of the physical meeting (or is considering doing so) – 5%
– Does not provide an audio nor a video webcast of the physical meeting – 63%
4. At our annual meeting, our company:
– Announces the preliminary results of the vote on each matter (unless special circumstances arise such as a very close vote) – 99%
– Doesn’t announce the preliminary results of the vote on each matter – 1%
5. For our annual meeting:
– Our CEO makes a presentation and takes Q&A from the audience – 90%
– Our CEO makes a presentation but no Q&A from the audience – 5%
– We are considering revising next year’s format to eliminate the CEO presentation – 6%
– We are considering revising next year’s format to eliminate the Q&A – 3%
– We are considering revising next year’s format other than the CEO presentation and Q&A but haven’t decided yet – 2%
Please take a moment to anonymously participate in our “Quick Survey on Conflict Minerals” and “Quick Survey on Deferred Compensation Election Timing.” As noted in this blog, the SEC has filed its brief in the appeal of the conflict minerals lawsuit that it won at the lower court level…
PCAOB Issues Staff Audit Practice Alert on Internal Control Deficiencies
Tune in next Tuesday, November 12th for the webcast – “Audit Committees in Action: The Latest Developments” – during which PCAOB Board Member Jay Hanson, Morgan Lewis’ Linda Griggs, Home Depot’s Stacy Ingram and Deloitte’s Bob Kueppers will analyze all the latest developments impacting the audit committee.
Transcript: “The Use of Social Media in Deals”
We have posted the transcript for DealLawyers.com’s recent webcast: “The Use of Social Media in Deals.”
Last week, NASAA – the organization for state securities regulators – proposed a coordinated review program for Section 3(b)(2) offerings (known as “Reg A+”) in an effort to maximize efficiency and coordination among the states. The comment period runs until November 30th. As noted in this press release, a streamlined multi-state review system would ease compliance costs for small companies attempting to raise capital under Title IV of the JOBS Act.
As noted in this MoFo blog, Corp Fin is in the process of finalizing A+ offering rule recommendations under Title IV for the Commission’s consideration.
Enforcing Form D Filings: A Misguided State Policy
Here’s an interesting blog from Keith Bishop about some insights by Alan Parness about the relatively high number of enforcement actions taken by states for a failure to file a Form D. “Relatively” given the fact that a failure to file the Form doesn’t result in the loss of the ability to use Rule 506. Note this blog was written quite a while ago, well before the SEC’s new changes to the rules…
Now Available: Electronic SEC Confidential Treatment Orders
Here is one that I’ve been meaning to blog about for years (I have all sorts of draft blogs that never see the light of day) – not pressing because it’s not of much significance – Corp Fin’s confidential treatment orders are now available electronically on Edgar. For example, here is an order issued in connection with a CT request made by Antigenics.
The last time I blogged about ISS being sold, I noted that ISS had been sold 4x within a decade. I almost don’t believe myself! Perhaps a hot potato phenomenon? More recently, I blogged about an activist hedge fund buying a 5% stake in MSCI, the company that owns ISS. Anyways, MSCI now has posted an announcement that it’s exploring strategic alternatives regarding ISS, including a “full separation.” Here’s a Reuters article.
This news comes on the heels that Ontario Teachers sold 20% of its stake in Glass Lewis to an institutional investment manager as I blogged about in the “Proxy Season Blog.”
Global Proxy Advisory Firms Seek to Develop Best Practices
Meanwhile, a group of six proxy advisors from around the world – ISS, Glass Lewis, IVOX, Manifest, PIRC and Proxinvest – recently announced a consultation entitled “Best Practice Principles for Governance Research Providers” in an effort to come up with principles for their industry. This initiative follows a similar effort by the European Securities and Market Authority (on the “Proxy Season Blog,” I’ve covered ESMA’s efforts several times – including this one and this one). Comments are due by December 20th – with the goal to finalize principles in February.
Wild! This story about a lawsuit filed against Twitter for – allegedly – fraudulently using an aborted sale to set a $10 billion valuation for itself and a floor price for the IPO is pretty shocking. Although maybe the lawsuit’s angle doesn’t quite make sense because some executives want a low valuation so that the IPO pops out of the gate…
Our November Eminders is Posted!
We have posted the November issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Recently, Meredith Cross delivered these heartfelt remarks at Paula Dubberly’s going-away party and it reminded me of why working at the SEC is such a special experience. And I thought I would try to explain it to those that have never had the opportunity. [Note that Paula technically retired but she is young and will resurface soon enough with a private sector job.]
Although some aspects of a going-away party of the SEC varies depending on the circumstances, the constant is that a supervisor (or others) makes some kind remarks – and then the person leaving speaks. That alone is quite powerful and something that I haven’t experienced among my numerous jobs during my career. These are not big drinking events. In fact, they traditionally are done on the SEC’s premises at the end of the workday and end by 6 pm. So they are short and simple – but they are a stark reminder that everyone that works at the SEC is on the same team…
Remember “Mr. SEC”?
Here’s some good SEC history. Somebody that was way before my time. Orval L. DuBois (pronounced “Duboise”) joined the SEC Staff when it was organized in 1934 and served as Secretary of the agency from 1942 until he retired in 1971 (and he passed away in ’94). He was widely known as “Mr. SEC.” He served as the SEC’s Secretary even longer than Jack Katz!
In 1931, Orval moved to Washington and went to work at the Federal Trade Commission as a stenographer. He later was secretary to James Landis, an FTC official who helped draft the ’34 Act establishing the SEC and then became one of the founding Commissioners.
If you know any anecdotes about Orval, please share! It’s scary how much of this origin stuff is being lost. I just found a reference that only exchange-listed companies in the early ’60s had to file 10-Ks with SEC – and they also had to file semi-annual reports on Form 9-K…
Can you believe the SEC used to put out an annual report listing all the changes in its rules and regulations, enforcement actions and even stock market stats? There’s even stats about how many broker registrations were made effective, denied, suspended, etc.! Here is the 1954 annual report containing 170 pages…
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:
– California Legislature Passes Resolution to Encourage Board Diversity
– FASB Standard-Setting Update
– FINRA Proposes Amending Spinning Rule on Written Representation Procedures
– The Need to Diligence CFOs & Controllers Before Hiring
– FINRA Files Amendment to Spinning Rule on Written Representation Procedures
Good news! According to this article, Twitter may add a woman for its board soon after its IPO. On my various blogs, I’ve provided news about board diversity numerous times – about how gender diversity has flatlined this decade in the US, the growing push for it, proposals for minimum levels of female directors and for at least interviewing a woman when a board seat is open. Plugging “diversity” into my various blogs retrieves a few dozen results (and admittedly they often deal with gender diversity – not racial or other diversity problems that loom even larger).
With the topic increasingly in the news – the latest being the flap about Twitter’s all-male board – I’m not sure I’ve ever done the topic the justice it deserves like this Huffington Post piece (also see this blog by Akin Gump’s Kerry Berchem, Fortune article, DealBook article and Forbes one). The purpose of diversity is not for diversity’s sake. It’s because it produces a better board – and hence a better company…
I’ve read – and heard – a lot of folks that were quite angry at Twitter. And they were reaching out to Twitter in different ways. Here’s an example from Sara Hanks’ blog….
BoardProspects: A New Director Recruiting Tool
In this podcast, Mark Rogers discusses his new service, BoardProspects, including:
– How does BoardProspects compare to traditional director recruiting?
– How does it work for those seeking director candidates?
– How does it work for those seeking to become a director?
Particularly if you are in NYC, SF and LA, check out “SweatGuru,” which launches today and was voted San Francisco’s hottest startup. Our very own Alyse Mason Brill is a co-founder. The site helps you manage reservations in fitness classes – and helps those running classes to communicate easily with their clients (including collecting fees) – learn more in this article. Great site and coming to your city soon!
Corp Fin Updates Financial Reporting Manual (Again)
Yesterday, Corp Fin indicated that it has updated its Financial Reporting Manual for issues related to FRM guidance for the JOBS Act – and issues related to Form 8-K age of interim financial statements, acquisitions of selected parts of an entity that may result in less than full financial statements, Form 8-K requirements in reporting a disposition, the effect of retrospectively applied changes in accounting principles on the significance test for equity method investees, and registrations on Form S-8 for a new employee benefit plan.
Hats off to Ross Kerber of Reuters for taking the time to write this lengthy profile of John Chevedden (along with this slideshow)! In our community, John is discussed a lot – but we knew so little about the man. Until now. In our “Shareholder Proposals” Practice Area, I’ve added it to other profiles of proponents…
For stats on how various shareholder proposals fared this year, see the entry I just posted on the “Proxy Season Blog“…
Transcript: “The Shareholder Proposal Process: Practice Pointers”
We have posted the transcript for the webcast: “The Shareholder Proposal Process: Practice Pointers.”
Webcast: “Tender Offers Under the New Delaware Law”
Tune in tomorrow for the DealLawyers.com webcast – “Tender Offers Under the New Delaware Law” – during which the primary drafters of the new Delaware law that facilitates the use of more efficient tender offer structures – Potter Anderson’s Mark Morton and Morris Nichols’ Eric Klinger-Wilensky – along with Latham & Watkins’ Brad Faris will help us understand how it should be best interpreted as well as describe the early experience under the new statute.
I’m excited to announce a new blog on this site: “Mike Gettelman’s Blog.” Until recently, Mike was one of the primary authors for our pair of popular print newsletters – The Corporate Counsel & The Corporate Executive – for decades. His style will be “long form” blogging, just like he used to write for the newsletters.
Ahead of the news that the case voluntarily dismissed on appeal (see this blog – also see Wachtell’s Ted Mirvis’ blog about it), I ran a survey on what companies are doing pending news of an appeal in the area of exclusive forum by-laws. Here are the results:
1. In light of Chancellor Strine’s opinion in Boilermakers vs. Chevron, should Delaware corporations:
– Adopt a forum selection bylaw soon – 53%
– Defer considering adoption of a forum selection bylaw until the Delaware Supreme Court rules on the issue – 46%
– Never adopt a forum selection bylaw – 1%
2. Does your answer above change if the company is not incorporated in Delaware:
– Yes – 41%
– No – 29%
– I don’t know – 30%
Please take a moment to anonymously participate in our “Quick Survey on Usable Disclosure for Proxy Statements” and “Quick Survey on Deferred Compensation Election Timing.”
Are you a Forum Shopper?
I’m loving Jane Freedman’s new blog – including her latest entitled “Are you a Forum Shopper?” Check it out!
After deliberation since the NYSE revised its proposed changes to the proxy distribution fee framework back in February, the SEC approved a new proxy distribution fee framework earlier this week. The result should be lower reimbursement costs for companies, depending on their circumstances (Broadridge estimates 4% savings on average – fees for smaller companies with fewer than 300k beneficial owners may see their fees actually increase). As you may recall, the NYSE’s revised proposal was based on recommendations by its Proxy Fee Advisory Committee, which spent three years contemplating changes. Going forward, the NYSE has to come up with an implementation plan – I’m not sure when that will happen.
Here’s an excerpt from the Society of Corporate Secretaries‘ weekly newsletter with more details:
The changes include for a five-year test period a one-time, supplemental fee of 99¢ for each new account that elects, and each full package recipient among a brokerage firm’s accounts that converts to, electronic delivery while having access to an enhanced brokers’ internet platform (EBIP). Proponents hope that retail investors may be encouraged to vote if they receive notices of corporate votes and can access proxy materials through their own broker’s web site, which the EBIP fee will support.
The new structure eliminates fees for managed accounts that hold five or fewer shares of an issuer’s securities, and reduces the incentive fee for suppression of print material in managed accounts (now to be called a “preference management fee”) to half the rate charged for other accounts. There will be no fee distinction based on whether or not a managed account is referred to as a “wrap account.”
The new structure takes more account of economies of scale, with tiered rates for basic mailing/processing fees, and more tiers for supplemental intermediary fees (for coordination of proxy distribution for multiple nominees), replacing a poorly structured cliff structure for that element of the fees at present. Broadridge estimates that fixed costs – not dependent on distribution volume – conservatively represent 25% of total costs. The NYSE says the proposed fee schedule still does not fully reflect the benefits of economies of scale to large issuers, as the exchange seeks to limit impact of fees on small issuers.
The fee structure codifies current notice and access fees based on a tiered structure, but with one clarification.
For the most part, the new structure follows the recommendations of the PFAC, chaired by Time Warner Corporate Secretary Paul Washington, a former chairman of the Society. The SEC acted after extended review under an Order Instituting Proceedings, and observers had some doubts on whether the SEC would move ahead. The SEC found that the proposed rule change is consistent with Section 6(b)(4) of the Securities Exchange Act of 1934, which requires that exchange rules “provide for the equitable allocation of reasonable dues, fees and other charges among its members, issuers and other persons using its facilities.”
Catch Up Now: “Latest Corp Fin Comment Letter Trends” Spreecast
On Tuesday, Keir Gumbs of Covington & Burling spent 15 minutes on this spreecast – “Latest Corp Fin Comment Letter Trends” – explaining the latest comment letter trends from the SEC’s Division of Corporation Finance. Here is Keir’s related deck. The archive is now available – with over 300 views already!
JOBS Act 2.0 Taking Shape?
Here’s news from Dave and Anna Pinedo in this MoFo blog:
On October 24th, the House Subcommittee on Capital Markets and GSEs will hold a hearing on “Legislative Proposals to Reduce Barriers to Capital Formation.” The hearing was originally scheduled for earlier in the month and was cancelled due to the government shutdown. As discussed in the Subcommittee memo, various bills will be considered that address somewhat disparate issues, from BDCs to M&A broker-dealers, to tick size, that affect capital formation. Perhaps the hearing will lead to a broader discussion of additional measures beyond those addressed by the proposed bills that would facilitate capital raising. SEC Chair White in a recent speech commented on the Commission’s intention to review disclosure requirements with a view to modernizing and streamlining these. If we had our own JOBS 2.0 “wish list,” in addition to modernizing disclosure requirements and modernizing the requirements applicable to offerings by BDCs, we might add the following (and then some):
– Reviewing the accommodations made available to smaller public companies;
– Adding knowledgeable employees to the definition of accredited investor;
– Acting on the JOBS Act mandate to implement rules under Title IV for “Reg A+”;
– Conducting a study of equity research;
– Eliminating the IPO quiet period;
– Reviewing existing communications safe harbors in order to modernize these and make available safe harbors for a broader array of companies;
– Address CFTC “general solicitation” issues;
– Revisit the WKSI standard in order to see if similar measures can be made available to a broader universe of companies;
– Work with the securities exchanges to review their “20% Rules” (requiring a shareholder vote for private placements completed at a discount that will result in an issuance or potential issuance of securities greater than 20% of the pre-transaction total shares outstanding); and
– Review the 1/3 limit applicable to primary issuances off of a shelf for companies under $75 million in public float.
As I blogged a few days ago, the SEC calendared an open Commission meeting on short notice to propose “Regulation Crowdfunding” – the overdue crowdfunding rules under Title III the JOBS Act, which was proposed yesterday by a unanimous vote. There is a 90-day comment period.
Best reaction I received yesterday from a member: “585 pages on crowdfunding? Kill me now.”
In addition, FINRA proposed rules yesterday regarding crowdfunding funding portals, with a comment period that expires on February 3rd. The text of FINRA’s rule is 50 pages in itself (and here’s the proposed forms). Here is FINRA’s proposing release.
Analysis: SEC’s Crowdfunding Proposal
Here’s some initial analysis of the SEC’s proposal from Hunton & Williams Scott Kimpel:
Crowdfunding is a subset of the crowdsourcing movement. At a typical crowdsourcing website, the party seeking financing typically posts a project proposal online and states a funding goal. Potential contributors then visit the website and donate funds to support the project. Sometimes, but not always, the patrons get free samples of the entrepreneurs’ products in exchange for their donations. Proposals have included everything from funding books to movies to mechanical inventions to software apps to charities.
If and when projects meet their funding goals, the websites takes a small percentage of the funds generated and transfer the balance to the projects’ creators. Some popular crowdsourcing websites include Kickstarter, IndieGoGo, GoFundMe and SoMoLend. At this time, these sites generally prohibit the offer or sale of securities, and they thus do not run afoul of the securities laws.
Some features of the SEC’s proposal, which tracks Title III of the JOBS Act, include the following:
– The total amount sold by the issuer to all investors, including amounts sold in reliance on this crowdfunding exemption, during the preceding 12 months may not exceed $1 million. There is no limit on the number of unaccredited investors that may participate.
– The total amount sold to any single investor by the issuer, including amounts sold in reliance on this crowdfunding exemption, during the preceding 12 months may not exceed:
o If either the annual income or net worth of the investor is below $100,000, the greater of $2,000 or 5% of the annual income or net worth of that investor.
o If either the annual income or net worth of the investor is $100,000 or more, 10% of the annual income or net worth of the investor (up to a maximum aggregate amount sold of $100,000).
– The transaction must be conducted through a broker or a new kind of intermediary known as a “funding portal”. The SEC and Finra will be proposing rules that govern these new funding portals.
– Depending on the size of the offering, issuers must provide financial disclosures to potential purchasers. For offerings that, together with all other crowdfunding offerings by the issuer in the past 12 months, have, in the aggregate, target offering amounts of:
o $100,000 or less: the issuer must provide income tax returns for its most recently completed year and financial statements certified by the principal executive officer;
o More than $100,000 but less than $500,000: the issuer must provide financial statements reviewed by a public accountant that is independent of the issuer; and
o More than $500,000 (or such other amount as the SEC establishes by rule): the issuer must provide audited financial statements.
– Issuers must also provide investors a host of other mandatory disclosures, including information about its capital structure and the intended use of proceeds.
– Issuers will have an ongoing requirement to provide a kind of annual report to the SEC (including financial statements) until the issuer becomes subject to a reporting obligation under the Exchange Act.
Given these onerous requirements, I and many observers have real doubts as to how vibrant a market will develop in the SEC crowdfunding space. An issuer seeking to raise funds by means of a general solicitation has a much simpler path under the new Rule 506(c) offering mechanism, so long as the universe of actual purchasers is limited to accredited investors. Nevertheless, quite a few businesses have sprung up in anticipation of the crowdfunding rules’ adoption and hope to capitalize on this new fundraising technique by offering their services to issuers and investors.
Because there has been some confusion in the marketplace, it is worth a reminder that an issuer may not conduct a crowdfunded securities offering to the masses until such time as the SEC adopts final rules. Simply put, a typical crowdfunding offering would include both a general solicitation and the participation of unaccredited investors, and there is likely to be no Section 5 or blue sky exemption for such an offering. (The SEC staff has given no action relief to certain crowdfunding portals that only target accredited investors, and these cites may currently operate because unaccredited investors are barred from investing.) in 2011, the SEC shut down “buyabeercompany.com” because in effect it was conducting an unregistered crowdfunded offering to the public.
I ran a trio of blogs last month that noted potential problems with crowdfunding, including the expenses involved…
Poll: How Long Will It Take to Read a 585-Page Release?
Here’s a poll about how you intend to read the SEC’s 585-page crowdfunding proposing release:
Last week, Andrea Electronics became the 62nd company to fail its say-on-pay in ’13 – see the Form 8-K – with 41% support. Hemispherx Biopharma became the 63rd with just 43% support (Form 8-K), a microcap that voluntarily put up its SOP for a vote the past 3 years (failing in both 2010 and 2011 but passing last year).
And the 64th failure is LookSmart, which received ZERO votes in support of its say-on-pay. You say “bull”? Take a look at the company’s Form 8-K. The company is a former search engine from the dot.com era that is now an online ad enterprise. As gleaned from the company’s proxy statement, the NEOs don’t own any stock in the company. Here’s the analysis:
Apparently, there was a complete board turnover in early 2013 (following a tender offer takeover), with the proxy explicitly stating that the former directors and executives were “terminated for cause or removed for cause or otherwise ceased to hold any office or position with the Company” (wow) – and the new board actually recommended AGAINST the company’s say on pay proposal. The proxy actually states “The current directors of the Company and the current compensation committee members believe that the executive compensation and the related practices of the former directors and former executive officers were ineffective and inappropriate and that the former directors and former executive officers consistently awarded themselves excessive compensation without regard to performance or what was in the best interests of the stockholders.” (double wow)
With 64 failures, this year now surpasses last year’s 61 failures. And we had three failures later in the year than at this time in 2012, so stay tuned. Thanks to Karla Bos of ING for the heads up on these!
Tomorrow’s Webcast: “Drilling Down: Statistical Sampling for Pay Ratios”
Tune in tomorrow, Thursday, October 24th for the CompensationStandards.com webcast – “Drilling Down: Statistical Sampling for Pay Ratios” – so you can hear Pearl Meyer’s Jan Koors, Towers Watson’s Rich Luss and Frederic Cook’s Mike Marino get into the nitty gritty about how to conduct statistical sampling under the SEC’s pay ratio proposal. This program will not be an overview of the SEC’s new proposal on pay ratio disclosures; we have posted plenty of memos to get you up-to-speed. Among other topics, this program will cover:
1. When sampling makes sense (large dispersed workforce, multiple pay databases, etc.)
2. What might be unintended consequences of identifying a “median employee” using pay definition different than ultimate SCT-based calculation of that person’s compensation for use in ratio
3. Selecting a sampling technique, which is best
– Random sampling? Stratified sampling? Other?
– Ability to provide explanation of process chosen and implications of decisions (eg. stratified sampling may produce more reliable or valid answers but may also involve quite a few decisions of where/who to oversample)
4. Determining sample size, how much precision is required
– The square root of n+1? Other?
– Data availability or comparability issues for global firms?
5. Reliability & validity, how are they relevant
– Constant results
– Accurate results
Transcript Posted: “Doing Your Pay Ratio Homework Now: A Roadmap”
I have posted the transcript for the recent CompensationStandards.com webcast: “Doing Your Pay Ratio Homework Now: A Roadmap.”
ISS Releases Draft 2014 Policy Updates for Comment
Yesterday, ISS posted its draft 2014 Policy Updates, with a comment deadline of November 4th. That’s just two weeks – so no time to procrastinate. There are two proposed changes – changes to the pay-for-performance quantitative screen and board responsiveness to majority-supported shareholder proposals, as noted in Ning Chiu’s blog.
