As I’ve blogged before, the United Kingdom has been on a path to revise its executive compensation laws to rein in excessive pay. Yesterday, the UK announced a slew of proposals that would push the envelope in the executive pay area – here are the proposals (or the closest thing I could find to them), as well as British Business Secretary Vince Cable’s oral statement, a summary of responses to the related discussion paper and a comparison with the High Pay Commission’s report that came out a few months ago (note that the HPC is not an independent commission; it’s a left wing charity). And here is a Towers Watson memo, ISS blog and NY Times article discussing these proposals.
The proposed major changes include:
– Say-on-pay votes would be binding
– Approval threshold increased to 75% from 50%
– At least two compensation committee members would have no prior board experience
– Clawbacks of bonuses if executives failed
– Enhanced disclosures
It’s notable that Britain’s opposition party is quoted in media reports as criticizing these proposals as not going far enough! Is this looking at tea leaves for the US? Remember Australia’s new “two strikes” law…
New Shareholder Initiative Seeking Disclosure of Lobbying
Here’s something that I blogged last week on our “Proxy Season Blog“: As reflected in this press release issued yesterday, AFSCME has filed 40 shareholder proposals urging companies to report on lobbying expenditures, including indirect funding of lobbying through trade associations. This is an extension of the activist movement in the political contribution transparency area that is the hottest governance topic this proxy season – but instead of seeking information about how a company may be involved in influencing elections, these proposals seek transparency about how companies seek to influence regulation and laws.
The press release includes a sample of AFSCME’s shareholder proposal and supporting sample at the end, as well as a list of the companies that have received the proposal so far.
Proposed Legislation: Disclosure of Corporate Political Contributions
As Pat McGurn noted during yesterday’s proxy season webcast (audio archive available), political contributions is the hottest topic of this season. Not only shareholders are interested in this topic, but politicians as well (see Keith Bishop’s blog about a new bill that would mandate corporate political disclosures). With so many members asking questions about how their companies need to rethink their political contribution policies and procedures so they don’t violate pay-to-play or other laws or run afoul of what their major shareholders demand from them, I just scheduled a webcast – “The Exploding World of Political Contributions” – that will be held in two weeks.
Webcast: “Alan Dye on the Latest Section 16 Developments”
Tune in tomorrow for the Section16.net webcast – “Alan Dye on the Latest Section 16 Developments” – to hear Alan Dye of Section16.net and Hogan Lovells discuss the most recent updates on Section 16, including new SEC Staff interpretations and Section 16(b) litigation. Try a no-risk trial to catch this program.
In this podcast, Joe Lindfeldt of DG3 Group discusses how QR codes can be leveraged for shareholder communications, including:
– What are QR codes?
– How hard are they to generate?
– How can companies use them for shareholder communications?
– Can you give examples of how they have been used so far?
– What do you see as a likely future for QR codes?
Nasdaq Proposes Updated Initial Listing Standard
Last week, the SEC published notice of a proposed rule change by Nasdaq. The exchange is seeking to adopt a $2 or $3 initial listing bid price as an alternative to the current $4 initial listing bid price on its Nasdaq Capital Market. The change would allow the Nasdaq Capital Market to compete for listings with NYSE Amex, the only other exchange that currently has a $2 or $3 initial listing bid price. Hat tip to Vanessa Schoenthaler for her blog on this…
Transcript: “The Latest Developments: Your Upcoming Proxy Disclosures-What You Need to Do Now!”
We have posted the transcript for the CompensationStandards.com webcast: “The Latest Developments: Your Upcoming Proxy Disclosures-What You Need to Do Now!”
Last week, Corp Fin indicated that it has updated its Financial Reporting Manual for issues related to reporting requirements of an acquired business in a step acquisition, disclosures of subsidiary guarantee release provisions, auditor location issues, ICFR audit report modifications due to a scope limitation, revisions pursuant to effective dates of the Foreign Issuer Reporting Enhancements release, as well as other changes.
Corp Fin has posted a confusing “summary of changes” that comprise the current update because the opening few sentences make reference to the last update – but the chart on the “summary of changes” page is new. Last revised in October, Corp Fin has been updating the Manual much more frequently than in the past, deciding to do so a little bit at a time rather than major rewrites.
Last week, the NYSE reminded its staff in this memo that Super Bowl pools are strictly prohibited…
Carlyle Group Seeks to Prevent Shareholder Claims from Reaching a Courtroom
Those interested in preserving shareholder rights have been emailing me with complaints about the most recent amendment to Carlyle Group’s Form S-1 (under which the company hopes to go public by selling limited partnership units). As Kevin LaCroix explains in his “D&O Diary Blog,” the company specifies in its partnership agreement that all limited partners must submit any claims to binding arbitration. See Kevin’s blog for a fuller analysis – as well as this Securities Law Prof Blog.
Webcast: “Pat McGurn’s Forecast for 2012 Proxy Season: Wild and Woolly”
Tune in tomorrow for the always entertaining webcast – “Pat McGurn’s Forecast for 2012 Proxy Season: Wild and Woolly.” Pat McGurn, Executive Director of ISS and the proxy season expert, will recap what transpired during the 2011 proxy season and what to expect for 2012. Here is Pat’s PowerPoint presentation that you should print off in advance of the program…
Here’s something that I recently blogged on CompensationStandards.com’s “The Advisors’ Blog“: According to this memo from Wachtell Lipton:
In a decision reaffirming directors’ authority to determine executive compensation, the United States District Court for the District of Oregon has ruled that a suit against bank directors arising out of a negative “say on pay” vote should be dismissed. The court determined that plaintiffs failed to raise a reasonable doubt that the challenged compensation was a reasonable exercise of the board’s business judgment. This is the first federal court decision to dismiss such an action, a number of which have been filed in state and federal courts across the country in the wake of the Dodd-Frank Act. Plumbers Local No. 137 Pension Fund v. Davis, Civ. No. 03:11-633-AC (Jan. 11, 2012).
At issue in Davis was a decision by the compensation committee of Umpqua Holdings Corporation to pay increased compensation to certain executive officers for 2010 — a year in which the bank’s performance had improved and met predetermined compensation targets, but total shareholder return was allegedly negative. In a subsequent advisory “say on pay” vote, a majority of the shares voted disapproved of the 2010 compensation. Plaintiffs claimed that it was unreasonable for the Umpqua board of directors to increase compensation and that the shareholder vote rejecting the compensation package was prima facie evidence that the board’s action was not in the corporation’s or shareholders’ best interest.
The court rejected both of plaintiffs’ arguments. Applying Delaware and Oregon law, the court determined that plaintiffs’ “essential position . . . that if a simple comparison reveals a level of compensation inconsistent with general corporate performance, the business judgment presumption is necessarily overcome, [is] a position that is unsupported by the applicable standards.” The court also held that the Dodd-Frank Act did not alter directors’ fiduciary duties and that a negative “say on pay” vote alone does not suffice to rebut the business judgment protection for directors’ compensation decisions. In so holding, the court expressly declined to follow a prior federal court decision which had denied a motion to dismiss in a “say on pay” action in the Southern District of Ohio, NECA-IBEW Pension Fund v. Cox, No. 11-451 (S.D. Ohio, Sept. 20, 2011).
Davis is a powerful reminder that directors of both financial and non-financial companies may base compensation on long-term goals and choose the yardsticks by which to measure executive performance with confidence that courts will respect their good faith business judgment.
Developments in Private Ordering
Professor Larry Hamermesh gives us some food for thought in his recent blog about “two ostensibly unrelated events in the last two weeks implicate deep questions about the basic role of private ordering and regulation in relation to publicly traded equity securities.”
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:
– STA Goes After Broadridge on Separately Managed Accounts
– Another Survey: What Companies are Doing in Wake of Whistleblower Rules
– Black Friday: Fraud Auctioning Style –
– Unlisted Companies: Watch Out for Rule 10b-17 Compliance
– Another Court Decision: Importance of Oral Safe Harbor Warnings Before Conference Calls
As noted in this Bloomberg article, the SEC unanimously approved the PCAOB’s ’12 budget last week in the amount of $228 million, a 11% hike as the PCAOB takes on new duties overseeing broker-dealer audits. Unlike past years, this approval was not contentious – see Chair Schapiro’s and Commissioner Aguilar’s remarks – as it appears that new PCAOB Chair Jim Doty is handling his new duties nicely, such as better oversight of the IT development process at the agency.
Meanwhile, this Reuters article discusses rumors of two candidates vying for a PCAOB Board slot…
Political Spending Disclosure: CalPERS and CalSTRS Join the Bandwagon
Recently, CalPERS and CalSTRS amended their corporate governance guidelines to call on companies to disclose their policies regarding political contributions. Here’s CalPERS’ press release – and here’s CalSTRS’ press release.
This January-February issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:
– M&A in 2012: Out with the Old, in with the New?
– Forward-Looking Statements: Deal Market Trends for 2012
– Joint Development Agreements: A Primer
– Tax Diligence and Tax-Related Provisions in Acquisition Agreements
– Delaware Court of Chancery Seeks To Narrow VeriFone With Potential Unintended Consequences
If you’re not yet a subscriber, try a no-risk trial to get a non-blurred version of this issue on a complimentary basis.
We’re now in Round 3 of Apache vs. John Chevedden. Here is Apache’s exclusion notice sent to the SEC last week indicating that the company intends to exclude a Chevedden proposal based on eligibility grounds. Apache went the “exclusion notice” route because it’s suing relying on newly minted SLB No. 14F rather than making the typical no-action request (Exhibit H is a separate attachment – and here’s the lawsuit’s complaint). It will be interesting to see if other companies follow this atypical route going forward.
Round 1 was Apache suing Chevedden in 2010 and won its case in the Federal District Court for the Southern District of Texas. As noted in this blog, Apache decided to forego a lawsuit last year in Round 2 and decided to exclude a proposal from Chevedden based on that court win, combined with the fact that KBR sued Chevedden (here’s last year’s exclusion notice filed with the SEC).
SEC Inspector General to Leave His Job
Wow. The original title of this blog was “SEC Inspector General Buys NFL Tickets from Radio Show Host: Does It Matter?” – then came the news yesterday that SEC Inspector General David Kotz was leaving the Commission. So maybe his departure answers the question posed in my former title? That’s not clear. Anyways, here’s what I wrote for this blog entry before the news:
A few weeks ago, I blogged about how SEC Inspector General David Kotz was being investigated by the SEC’s General Counsel for providing a 75-minute interview on a semi-infomercial website. Now, the mass media is reporting how Kotz purchased NFL tickets from a radio show host after appearing on his program. I don’t know enough about the ethics rules to opine on whether this is truly newsworthy. But I am fascinated that the mass media is ready and willing to report on such things. I harken back to a decade ago when things that were SEC-related rarely got coverage. Now, anything related seems to be newsworthy…
Board Effectiveness
In this podcast, Catherine Bromilow of PwC’s Center for Board Governance discusses a new book by PwC and the Institute of Internal Auditors entitled “Board Effectiveness: What Works Best” – which includes anecdotes from active directors about their personal experiences, including insights on their interactions with investors, media, and regulators – including:
– Why did you write the new book?
– What are some of the practical nuggets in it?
– Any surprises when writing it?
– Where can people get a copy of the book?
We have posted the survey results regarding the latest stock buyback trends, repeated below:
1. Does your company use a Rule 10b5-1 plan for corporate buybacks:
– Yes – 58.1%
– No – 41.9%
2. If your company uses a Rule 10b5-1 plan for corporate buybacks, does the company publicly disclose the adoption of the plan:
– Yes – 31.6%
– No – 68.4%
3. If your company uses a Rule 10b5-1 plan for corporate buybacks, is there a waiting period between execution of the Rule 10b5-1 plan and the first repurchase:
– No – 57.9%
– Yes, and it is the same waiting period that our insiders use in connection with their Rule 10b5-1 plans – 31.6%
– Yes, we have a waiting period – but it’s not the same as the waiting period for insiders – 10.5%
4. If your company uses a Rule 10b5-1 plan for corporate buybacks, what is the typical duration of the plan:
– Approximately equal to the blackout period – 42.1%
– 2 months to less than 6 months – 21.1%
– 6 months to less than 12 months – 31.6%
– 12 months or greater – 5.3%
5. If your company uses a Rule 10b5-1 plan for corporate buybacks, are purchases made only during the company’s blackout periods:
– Yes, plan purchases are made only during the blackout periods – 36.8%
– No, sometimes we make plan purchases outside the blackout periods too – 63.2%
6. If your company uses a Rule 10b5-1 plan for corporate buybacks, does it enter into a plan:
– Once per year that covers all of the blackout periods for the year – 5.3%
– More than once per year, one for each blackout period – 15.8%
– On an ad hoc basis – 78.9%
7. If your company uses a Rule 10b5-1 plan for corporate buybacks, has it implemented more than one plan at a time for repurchases:
– Yes – 5.3%
– No – 94.7%
8. Has your company used accelerated share repurchase (ASR) programs for corporate buybacks:
– Yes – 38.7%
– No – 61.3%
9. If your company has used ASRs, has your company announced the ASR programs separately from any general announcement of a buyback authorization:
– Always – 35.7%
– Never – 35.7%
– Depends on size of the ASR – 28.6%
10. If your company has used ASRs, has there been a waiting period between execution of the ASR and the start of its valuation period:
– Yes, and it is the same period we use for 10b5-1 buyback plans – 7.7%
– Yes, but it is not the same period we use for 10b5-1 buyback plans – 15.4%
– No – 76.9%
11. Has your company used other derivatives (e.g. call options, capped calls, “Sub-VWAP forward” or other forward purchases) for corporate buybacks:
– Yes -10.0%
– No – 90.0%
Please take a moment to participate in this “Quick Survey on Blackout Periods” – and this “Quick Survey on Pay Ratios.”
Chinese Hackers Breached US Chamber of Commerce Computers for Possibly a Year
As noted in this Reuters article, Chinese hackers breached the Chamber’s computers and gained access to everything stored on its systems, including information about its three million members. According to the article, the complex operation involved at least 300 Internet addresses and was discovered and shut down in May 2010. It is possible the hackers had access to the network for more than a year before the breach was uncovered. Security failures continues to be one of the primary challenges for companies today…
Webcast: “Activist Profiles and Playbooks”
Tune in tomorrow for the DealLawyers.com webcast – “Activist Profiles and Playbooks” – to hear Bruce Goldfarb of Okapi Partners, Dan Katcher of Joele Frank Wilkinson Brimmer Katcher, Damien Park of Hedge Fund Solutions LLC and Darren Wallis of Alara Capital identify who the activists are – want what makes them tick. Over 20 activists will be dissected!
With significant publicity, as noted in this Sidley Austin alert, the SEC announced several weeks ago that it had filed the most enforcement actions in a single year in SEC history. For the fiscal year ending September 30th, the SEC stated it filed a record 735 enforcement actions – a 9% increase from 2010 – with more than $2.8 billion in penalties and disgorgement ordered. As noted in the Pepper Hamilton alert, Enforcement Director Khuzami recently gave remarks which indicate that this number will go even higher this year…
Hands down. The best video featuring a dog (he’s hip, man!) ever…
Unconstitutional! Canada’s Highest Court Strikes Down Proposed Federal Securities Regulator
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:
– Distortions In Baffling Financial Statements
– 2011 Spencer Stuart Board Index: Board Composition, Organization & Process and Director Comp
– ABA Declines to Embrace Majority Voting as Default Standard
– The Second Circuit Curbs ERISA “Stock Drop” Class Actions
– How to Conduct a Board & Director Evaluation
Below is Part 2 of a collection of memories from anonymous members about working at the printers (here’s Part 1). Please keep them coming and I will only blog them if you give me permission:
– Worst time at the printer? Being in-house at the same time as Joe Flom. Our deal sat totally ignored until Joe’s was done and out the door!! Imagine that!!??
– Been at Bowne around the clock for a week on a very difficult public offering. Needless, I was on a first-name basis with everyone employed at Bowne at that time. About night 5, our group is by far the largest group in-house. When I emerge from a meeting in smaller conference room about 3:00 AM, the night receptionist goes absolutely pale. She says, “Harry, I’m so sorry, I did not realize you were still here.” I say, “Thanks, but why?” She hesitates, and then says, “Well, your wife called about 30 minutes ago and I told her not only that you were not here now, but also that you had not been here tonight.” I calmly replied, “Now guess who you are going to call and wake up to correct that small gaff??!!” She did, and my long-suffering lawyer bride thought it was hysterical . . . . Now many years later still one of her favorite war stories.
– I remember slugging proof on a Merrill Lynch deal and being astonished at how fast their people could say “Merrill no com Lynch com Pierce com Fenner ampersand Smith no com Incorporated six up.”
– 3:00 a.m., eight months pregnant and recalculating a Beneficial Ownership Table for the 400th time because the bank kept changing the offering size. And then falling asleep on the couch only to wake up to the nauseating (to a pregnant woman) smell of eggs and lukewarm pancakes and some banker telling me we needed to change the table again. All while listening to the slam-whirr, slam-whirr of the ball on the Golden Tee machine. Good times.
– I graduated from law school in 2001, so I was pretty much at the end of “The Printer Era.” While you could submit changes to documents via e-mail in 2001, in order to proof what I refer to as the “Blueline” (ready to print) “book version” of the document, you had to actually go to Donnelley’s or Bowne’s offices (Bluelines could not be transmitted over PDF back then).
I am from New Orleans, so large quantities of alcohol assembled in one location do not shock me. There was one 6:00 a.m. morning at The Printer (I forget which one) where I may have confused a refrigerator full of beer with a vision of Heaven. We had just cleared to print, and The Printer Rep invited us into their darkened kitchen while opening their refrigerator. Perhaps it was the warm glow of light shining through a refrigerator stocked with beer, but I nearly dropped to my knees. I ended up (very quickly) downing a beer, running back to my apartment, showering/dressing and zooming back to the office for an 8:00 a.m. meeting with the client.
My former employer shall remain unnamed. The beer, I recall, was delicious.
I’ve certainly been remiss in not highlighting Latham & Watkins “Weekly Words of Wisdom” Blog that has been around for nearly two years. The group at Latham responsible has been doing great work in their weekly writings. It’s informative, particularly for attorneys not deeply involved in securities law (which is true for the bulk of in-house lawyers since they often wear many hats) – and written in a style that is easy to understand. One of the things I like about the blog is that the topics tackled are not ripped from the headlines. Rather, they cover bread and butter stuff that is more likely to get them attention from potential clients. Check it out!
Sara Hanks’ “Capitol Capitalist” Blog
I’m also excited to note that Sara Hanks – former Corp Fin Chief of the Office of International Corporate Finance – has launched the “Capitol Capitalist” Blog. Check that out as well!
We certainly ended the year with a bang, as the 44th company to fail to receive a majority vote for say-on-pay only obtained 6.4% of the votes cast in favor. 6.4%! As noted in its Form 8-K, American Defense Systems had many more votes voted in opposition (51%) or abstention (43%). The only director up for election had even more “withheld” votes than were cast against the company’s say-on-pay. Note that this company is a smaller reporting company (whose annual meeting was held on December 30th but the 8-K states the date of event was August 3rd)…
A list of the Form 8-Ks filed by the “failed” companies is posted in CompensationStandards.com’s “Say-on-Pay” Practice Area.
Webcast: “The Latest Developments: Your Upcoming Proxy Disclosures – What You Need to Do Now!”
Tune in tomorrow for the CompensationStandards.com webcast – “Your Upcoming Proxy Disclosures – What You Need to Do Now!” – to hear Mark Borges of Compensia, Alan Dye of Hogan Lovells and Section16.net, Robbi Fox of Exequity, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn discuss all the latest guidance about how to overhaul your upcoming disclosures in response to say-on-pay–including the latest SEC positions–and the other compensation components of Dodd-Frank, as well as how to handle the most difficult ongoing issues that many of us face.
As the grace period has ended – and all memberships expired on December 31st – if you haven’t yet renewed your membership for CompensationStandards.com for ’12, you will not be able to access this program. Renew now.
OECD’s Report on Board Practices in Setting Executive Pay
Here is something that I blogged on CompensationStandards.com’s “The Advisors’ Blog“: I haven’t seen anything on this – so I guess we all missed this OECD report on board practices in setting executive compensation that was published back in August. Among the many interesting parts of this report is the UK section, particularly Section 7.1.6 regarding shareholder engagement. The UK has had say-on-pay for a decade – so the US can look to the Brits to see what might lie ahead here perhaps. Observations about the undue influence by a couple of groups and feelings of distrust and hostility do not bode well. Of course, maybe we can do better here. Hope springs eternal.
