Much discussion here at our Conferences about the role of proxy solicitors during the say-on-pay process (here is the video archive from yesterday’s “The Say-on-Pay Workshop: 9th Annual Executive Compensation Conference”). Here are survey results on the use of proxy solicitors:
1. Does your company use a proxy solicitor for the proxy season:
– Yes, every year – 64.9%
– Only in years of special need – 24.3%
– No, we don’t use proxy solicitors – 10.8%
2. If a proxy advisor (ie. ISS/Glass Lewis) recommended a vote ‘against’ your company’s say-on-pay proposal, your proxy solicitor’s SOP projection (at record date vs. final voting results) was:
– Less than 3% (small margin between what estimated and what occurred) – 4.2%
– Within ± 3% – 5% – 16.7%
– Within ± 5% – 10% – 8.3%
– Within ± 10% – 15% – 12.5%
– More than 15% (large margin) – 0%
– Other/Don’t know – 58.3%
3. If your proxy solicitor’s say-on-pay projection substantially missed the mark during your latest proxy season, do you feel it was:
– Likely due to a good reason (eg. unforeseen circumstances) – 18.2%
– Not likely due to a good reason (ie. they just blew it) – 9.1%
– Don’t know – 72.7%
Please take a moment to participate in this “Quick Survey on Conflict Minerals” and this “Quick Survey on Delegation of Authority.”
Day Trading During Proxy Contests
In this DealLawyers.com podcast, Chuck Nathan of RLM Finsbury discusses an interesting – and potentially novel – situation in a proxy contest in which The Clinton Group (led by Greg Taxin, formerly a Glass Lewis founder) is seeking to remove 6 out of 7 directors through a written consent campaign and replace them with five new directors of Clinton’s choosing. Clinton seems to be day trading Wet Seal stock, which may be the first instance in which an activist investor day traded the stock of a company during a proxy contest it was sponsoring.
An Update for Internal Audit Standards
Recently, the Institute of Internal Auditors (IIA) announced changes to the International Standards for the Professional Practice of Internal Auditing Standards effective January 1st. In total, 18 revisions were made.
Today is the “Say-on-Pay Workshop: 9th Annual Executive Compensation Conference”; yesterday was the “7th Annual Proxy Disclosure Conference” – and the video archive of that Conference is already posted. Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our staff. Both Conferences are paired together; two Conferences for the price of one.
– How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (a prominent link called “Enter the Conference Here” on the home pages of those sites will take you directly to today’s Conference (and on the top of that Conference page, you will select a link matching the video player on your computer: Windows Media or Adobe Flash Player).
Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is today’s Conference Agenda; times are Central.
– How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few – but hours for each state vary; see the CLE list for each Conference in the FAQs.
M&A Lawyers and New Careers
In this DealLawyers.com podcast, Chuck Nathan of RLM Finsbury discusses his big life change, including:
– Why did you make the move?
– What will you be doing?
– How has the practice of law in M&A evolved over the years?
US Supreme Court to Decide Potential Landmark Case on Application of Statute of Limitations to SEC Civil Penalties
As noted in this Akin Gump alert, in Gabelli v. SEC, No. 11-1274, the U.S. Supreme Court has agreed to determine whether the “discovery rule,” the concept that a statute of limitations is tolled until the underlying harm is discovered, applies to SEC enforcement actions seeking civil penalties.
Today is the “Tackling Your 2013 Compensation Disclosures: 7th Annual Proxy Disclosure Conference”; tomorrow is the “Say-on-Pay Workshop: 9th Annual Executive Compensation Conference.” Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our staff. Both Conferences are paired together; two Conferences for the price of one.
– How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter the Conference Here” on the home pages of those sites will take you directly to today’s Conference (and on the top of that Conference page, you will select a link matching the video player on your computer: Windows Media or Adobe Flash Player).
Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is today’s Conference Agenda; times are Central.
– How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few – but hours for each state vary; see the CLE list for each Conference in the FAQs.
ISS’ 2013 Voting Policy Survey Results Now Available
Last week, ISS posted the results from its policy survey – 370 responses were received. Not surprising, executive compensation is the top area of focus across the globe. A summary of ISS’s summary is in this Davis Polk blog…
Study: 20% of Companies Smooth Earnings
As noted in this WSJ article – which dissects this study – around 20% of CFOs interviewed believe that companies smooth earnings. Here is an excerpt from the piece:
Taken in isolation, this finding isn’t that surprising. It is an open secret that companies play around with “cookie-jar” reserves, accruals, and other accounting instruments to flatter, or even depress, earnings.
The tricks are well-known: A difficult quarter can be made easier by releasing reserves set aside for a rainy day or recognizing revenues before sales are made, while a good quarter is often the time to hide a big “restructuring charge” that would otherwise stand out like a sore thumb.
What is more surprising though is CFOs’ belief that these practices leave a significant mark on companies’ reported profits and losses. When asked about the magnitude of the earnings misrepresentation, the study’s respondents said it was around 10% of earnings per share.
Here is something I blogged yesterday in CompensationStandards.com’s “The Advisors’ Blog“:
Mark Poerio of Paul Hastings reports: Last week, the application of Delaware law principles has led courts in Colorado (Janus Capital), North Carolina (Dex One), and California (Hewlett-Packard) to dismiss shareholder challenges based on alleged disconnects between pay and performance, failed say-on-pay votes, and alleged waste through payment of $53 million of severance. In each case, the underlying complaints failed to excuse a pre-suit demand because none of the allegations created a reasonable doubt that the questioned transaction was entitled to protection under the business judgment rule.
Corp Fin Updates Financial Reporting Manual (Again)
Yesterday, Corp Fin indicated that it has updated its Financial Reporting Manual for a JOBS Act note and clarification of guidance related to proxy statement requirements for the disposal of a business, auditor association with amounts from inception, the application of PCAOB auditor requirements in a reverse merger, reporting requirements in a reverse acquisition with a non-shell company, and other changes.
Can the SEC Eliminate the Prohibition on General Solicitation Retroactively?
Keith Bishop continues to blog provocatively – the latest being this gem about whether the SEC can give its upcoming rulemaking on general solicitation retroactive effect…
Meanwhile, state regulators are not too happy about the SEC’s proposal, as noted in this article…
Part of being the highest profile company in the land means that more attention is paid to what you do. From a compliance standpoint, Apple hasn’t always embraced that attention. For example, the fact that their announcements might move markets (eg. Steve Jobs health) – or even perhaps what they say about their financial performance during product announcements – as illustrated by this recent blog by Gus Schmidt of Gunster entitled “Did Apple violate Regulation FD at its iPhone 5 release conference?“.
In addition, as this blog notes, Apple recently received a shareholder proposal asking the company to publish a report explaining how its board is overseeing privacy and data security risks. Note that one thrust of this proposal is about personal information privacy. That can encompass issues such as what personal information is collected by apps, where it is stored, how it is used and shared, and how user consent is obtained.
The SEC’s cybersecurity disclosure guidance from last year did not mention the word privacy, although federal and state privacy laws can be implicated in the context of a data breach involving personal information (what the SEC described as a cyber incident). In light of the recent legislative focus on privacy and data security topics, and increased media focus on Big Data and companies’ privacy practices, the SEC might conclude that shareholder proposals related to information privacy risks or cyber security risks raise significant policy issues and therefore are not excludable under Rule 14a-8(i)(7) for the reasons discussed in Staff Legal Bulletin No. 14E. In the coming proxy season, more companies may see shareholder proposals focused on cyber security and privacy risks. So, now is a good time for their management and boards to focus on their risk management in those areas. Thanks to Jim Brashear of Zix Corp. for his insight!
Now Effective: Higher Filing Fees at the SEC
Don’t forget that fees to register securities at the SEC went up effective October 1st. Here is my blog about the rate increase from last month…
I’m bummed the baseball team here – the Washington Nationals – let the Teddy mascot win the daily race against his fellow Presidential mascots during yesterday’s game. Having him consistently lose was starting to become a national “thing” – and that’s great branding. No more. But I have “Natitude” for the coming playoffs…
How to Transition Existing Draft Registration Statements to Edgar
Yesterday, Corp Fin posted this sample letter that it has sent to companies whose draft registration statements are under review so they can transition them to the new Edgar process – using Form DRS – explained in this blog.
A member recently sent me the following: Recently, there has been a marked increase in the number of public offerings of preferred stocks and many of those securities are listed. We understand that NYSE Staff has applied a heightened level of scrutiny to the provisions of these preferred issuances, in particular those relating to voting rights of the preferred stockholders. Consequently, it seems timely to share some perspectives gleaned from recent transactions reviewed by the NYSE Staff.
It may be worth noting as an initial matter that the requirements discussed below are not applicable to trust preferred securities, which are not listed under the preferred stock listing requirements set forth in Section 703.05 of the Listed Company Manual. Trust preferred securities are listed under Section 703.19 (“Other Securities”) and are analyzed by the Exchange as structured products rather than as preferred stocks.
The applicable rules are found in Section 313(C) of the Listed Company Manual. The provisions that have generated comments from the NYSE Staff typically relate to the voting rights of preferred stockholders when the issuer proposes to amend the terms of the preferred stock in a manner that would “materially affect” the rights of the holders of the preferred stock.
The threshold question is what constitutes an amendment that ” materially affect[s]” the rights of the preferred stockholders? The NYSE Staff has made it clear that this voting requirement is triggered only in the event of a material adverse effect on the rights of the preferred stockholders and that, generally, these would be changes that relate to the economic rights pertaining to the preferred stock (such as its dividend rate, its liquidation preference, or the creation of a senior issue) or the voting rights of the preferred stock. However, this is not necessarily an exclusive list and you should consult with NYSE Staff if there is any question as to whether a proposed amendment requires a vote.
The area which has generated most confusion, and has led to the NYSE Staff requesting changes to transaction documents, relates to who gets to vote in the event of a material change. Section 313(C) provides as follows:
– Approval by the holders of at least two-thirds of the outstanding shares of a preferred stock should be required for adoption of any charter or by-law amendment that would materially affect existing terms of the preferred stock.
– If all series of a class of preferred stock are not equally affected by the proposed changes, there should be a two-thirds approval of the class and a two-thirds approval of the series that will have a diminished status.
The NYSE Staff has indicated that the above provisions should be understood as follows:
– For matters which affect multiple classes or series of preferred stock, the first bullet above requires that at a minimum the terms of the listed preferred must provide that the listed preferred has the right to vote along with all other outstanding classes or series of preferred stock (either listed or unlisted) that have voting rights and are similarly affected by the proposed action. The proposal must be approved by the votes of two-thirds of all such classes or series considered in the aggregate.
– The second bullet requires that the listed preferred must have the right to vote separately on any proposal which affects the listed preferred in some respect that is more negative than its effect on other classes or series, with a required vote for approval of two-thirds of the listed preferred. If the negative effect is on the listed preferred alone, then the holders of the listed preferred must have the right to vote as a separate class; if it affects multiple classes or series (either listed or unlisted) in the same way, then it is appropriate for all of the affected classes or series to vote together. While it is not explicitly stated in the rule text, the voting requirements of the first bullet can also always be met by providing for a separate vote of the listed preferred, as this is more protective of the holders than a vote in which they share the right to approve the proposal with other classes or series of preferred.
More Fallout in ISS-Proxy Solicitor Leak Case
Back in April, the New York Post revealed the persons involved in a scandal involving the leaking of confidential shareholder votes for money. Now, Reuters reports that ISS has received a Wells notice from the SEC related to a whistleblower complaint made against an employee. Here is MSCI’s related Form 8-K.
Baldness Is Powerful: Yeah, Baby!
In honor of this WSJ article about how baldness can be an advantage in the business world, below is the second pic in my series of bald men in the corporate world (here is the first pic), featuring Pfizer’s Bob Lamm and Alliance Advisor’s Reid Pearson with me at the recent Southeastern Chapter meeting of the Society of Corporate Secretaries:
For the many of you that have registered for our Conferences coming up in less than one week, we have posted the Course Materials (attendees received a special ID/PW yesterday via email that will enable you to access them; but copies will be available in New Orleans). The Course Materials are better than ever before – with over 40 sets of talking points comprising 160 pages of practical guidance. We don’t serve typical conference fare (ie. voluminous memos and rule releases); our conference materials consist of practical bullets and examples. Our expert speakers certainly have gone the extra mile this year!
For those seeking CLE credit, here’s a list of states in which credit is available for watching the Conferences live in New Orleans and by video webcast. And for those attending by watching video online, you can test your access now.
Act Now: As happens so often, there is now a mad rush for folks to register for these Conferences that begin next Monday, October 8th. With an aggregate of over 50 panels (including the “20th Annual NASPP Conference”), if these Conferences don’t help get you prepared for the upcoming proxy season, nothing will. You can either register for the three days of the “20th Annual NASPP Conference” (in New Orleans) – or the two days of the “7th Annual Proxy Disclosure Conference” & “Say-on-Pay Workshop: 9th Annual Executive Compensation Conference” (in New Orleans or by video webcast, or a combination of both). Register Now.
NYSE Amends Its Compensation Committee Proposal From Last Week
Here’s news from Kyoko Takahashi Lin and Ning Chiu in this Davis Polk blog:
The NYSE has published an updated rule filing submitted to the SEC on the recent proposed listing standards related to compensation committees. The rule filing notes that “Amendment No. 1 corrects a single error in the rule text in Exhibit 5 as originally filed. The error was in Section 303A.00 under the heading ‘Transition Periods for Compensation Committee Requirements.'”
To be clear, listed companies will have until the earlier of their first annual meeting after January 15, 2014, or October 31, 2014, to comply with the new director independence standards with respect to compensation committees. Other proposed changes, including those related to compensation committee advisers, will become operative on July 1, 2013.
Transcript: “Hot Topics for Smaller Company Legal Depts”
We have posted the transcript for our recent webcast: “Hot Topics for Smaller Company Legal Depts.”
On Friday, Corp Fin posted 13 more FAQs related to the JOBS Act – Questions 42-54 – some of which relate to the confidential submission process that moves over to Edgar today, as I blogged about last week…
Recently, on “The Mentor Blog,” I included an audio clip from a recent earnings call that went awry when someone accidentally blurted out some profanity in what may have been a cross-call (I have since deleted the audio clip in case the person’s name could be made out). Many members responded with their own stories or analysis including:
– In my many years here, I have only had one interruption which was caused by an inexperienced operator – to wit, the operator inadvertently connected her “management line” into the call so that while my CEO was speaking the operator and an IR person came over the line discussing the volume on the call. No harm done and almost immediately corrected, but I think the most common way it can happen is for either the operator or the inside IR person to accidentally hit that button (I suggest that perhaps it would best if they labeled it with giant “Dr. Evil” lettering, “DO NOT PUSH” or something similar).
– While this has never happened to me or any former client, I have heard narratively of management teams not remembering to “turn off” their mikes following the end of the call so that extraneous commentary is accidentally added to the recording. As politicians and newscasters know, don’t make jokes or add commentary while “on set” regardless of whether or not you believe that you aren’t being recorded.
– On one of our first calls after going public a while back, our CFO kicked the speaker connection under the table and we were dropped. The conference call service did a great job of asking people to hang on the line and we called back in. He got a lot of grief internally for a while (we told him to sit away from the speaker connection, etc.). As far as the listeners knew, it was just a glitch in the system (we were probably off for 2 minutes or so).
– We’ve only had one in 11 years due a power failure on our end. Being in the Northeast, we do sometimes get more concerned during the winter.
– I wonder how many people are recording the “prepared remarks” in advance for playback and then only fielding questions “live.” We’ve contemplated it but are never done far enough in advance to pull it off. Plus, we don’t have enough quality recording equipment in house to make it work. With that said, with an iPhone, I’m sure it would sound 100x better than a high quality recording from 2002.
– In my experience, I would say that it’s because the telephone/web conference coordinators and the investor relations personnel who are literally physically running the meeting are fairly skilled about running the call itself, handling the question sequencing and maintaining muting and other similar functionality (and reminding others of this too).
– Could the process be spoofed? I.e., could I dial in and register as if I were an analyst known to the company? I suppose so, but if two callers registered as the same person, that would obviously raise suspicions.
– Jim Brashear noted: “The reason you don’t see more disruptions is that companies only allow questions and comments from credible, known analysts and investors. They don’t take random calls from just anyone. My companies have allowed anyone to dial in and listen to earnings calls, but if someone wants to be able to ask a question or make a comment they have to register their name and organization. When the caller presses the button to be added to the queue for asking a question, we can see in the conference room their name and organization in a list of everyone that was added to the queue. We can choose to prioritize or ignore the names, as we choose. ”
Transcript: “JOBS Act Update: Where Are We Now”
We have posted the transcript of the popular webcast: “JOBS Act Update: Where Are We Now.”
Instead of “Just Vote No” Campaign – “Just Stay Home” and Don’t Vote…
With elections on everyone’s mind, I thought it was appropriate to point out this interesting blog from Keith Bishop from a few months back about the use of a strategy to prevent quorum from being reached rather than just voting no against a board…
1. “Product” Determination: A key element in Step 1 in the conflict minerals disclosure process requires issuers to determine whether it manufactures or contracts to manufactures products. Is it clear what a product is? For instance, what product is a cable television company selling? The entertainment or the set top box leased to customers? How about an airline? Use of seat?
2. Examples of Product Manufacturing: There has been a number of interesting fact patterns regarding whether a company is manufacturing a product. For instance, does a company that assembles products, such as a computer systems integrator that sets up a network with off-the-shelf components, “manufacture” a product?
3. Degree of Influence for “Contract to Manufacture”: There have also been a number of questions regarding when a company has the degree of influence necessary to trigger the “contract to manufacture” provision in the rule. For instance, if a manufacturer sets performance requirements for the components it buys that will naturally require certain materials to be used in the product, is that enough? And what if you sell a product that includes your intellectual property, such as a Mickey Mouse doll that includes a voice recording supplied by the company?
4. Tricky “Functionality” Conclusions: Is it possible to conclude that the packaging used for a product is not “necessary to the functionality or production” of the product? For instance, are the cans used for soft drinks necessary to the functionality of the drink? How about the tin boxes that certain cookies are delivered in?
5. Various Approaches to Preparation: What steps should companies take now to prepare for reporting on 2013? Should they send letters to suppliers now? If so, will they need to resend letters next year? And what should companies be asking suppliers to disclose to the company? Does the answer to this question depend on the conflict mineral involved?
6. Differences in Approach By Industry: What is the approach to preparation in particular industries? Includes discussion of electrical, gold industries.
7. Changes to Sourcing Policies: The SEC’s adopting release for the new rules states that “[a]n issuer’s policies with respect to sourcing of conflict minerals will generally form a part of the issuer’s reasonable country origin inquiry.” Are companies changing sourcing policies to assist with compliance with the new rules? For instance, are companies restricting sourcing from the covered countries? Or, if a company sources from a covered country should it only source from large mining companies, as opposed to artisanal mining sources?
8. Whether Audit is Required (and How): Have companies started to consider what auditor they will use, if an audit is required? The SEC made it clear that a company’s existing financial statement auditor can be used, but is that a good or bad idea? Are there auditor independence considerations?
9. Disclosure Issues: Is there any part of the required disclosures in the Form SD that will be most problematic for companies to make? And what happens if an issuer does not file its Form SD? Or if it files the Form SD late? Does it impact Form S-3 eligibility?
10. Possibility of Lawsuit to Stay Rules: What’s the possibility that a lawsuit will be filed that will block the effectiveness of the new rules? If so, how will that process work?
JOBS Act: Draft Registration Statements To Be Filed on EDGAR Starting Monday
Yesterday, the SEC announced that draft registration statements can be filed on Edgar starting Monday, October 1st using submission form types DRS and DRS/A. This is a significant logistical development for those emerging growth companies and foreign private issuers that qualify for a confidential SEC Staff review. These companies can choose to continue to use the SEC’s secure email system for an unspecified period of transition time rather than use Edgar. The SEC will announce later when use of Edgar for draft registration statements will be mandatory.
Yesterday, the SEC posted this 32-page guide – mainly consisting of screen shots – on how to file draft registration statements on Edgar.
Hot Off the Press! Nasdaq’s Compensation Committee Proposal
Yesterday, I blogged about the NYSE proposal – 58 pages – implementing the Rule 10C-1 requirements for compensation committees was posted. Then later in the day, I updated the blog to note that Nasdaq’s proposal – 97 pages – was posted yesterday morning. Folks have 21 days to comment once the proposals are published in the Federal Register. We’ll be posting the inevitable slew of memos in CompensationStandards.com’s “Compensation Committees” Practice Area.
What You Need to Do Now: These soon-to-be-adopted new rules will be a hot topic during our “7th Annual Proxy Disclosure Conference”” (and the combined “Say-on-Pay Workshop”) coming up in just over a week – October 8-9th in New Orleans and via Live Nationwide Video Webcast. If you haven’t been to our Conferences before, give it a try – particularly this year when New Orleans needs the tourism dollars. Here are the agendas for the combined conferences. Register Now.
