Last week, a seventh company was sued regarding its pay practices – Bank of New York Mellon in a state court in New York (here’s the complaint). One of the big differences in this lawsuit is unlike the six lawsuits filed against companies that failed to garner a majority of votes in support of their say-on-pay, Bank of New York Mellon received overwhelming support for its say-on-pay (although there was a huge number of broker non-votes). Here’s the Form 8-K reporting the company’s voting results.
Mark Borges notes “this lawsuit appears to be fundamentally different from the others that have been filed following a failed say-on-pay vote. This suit alleges that the company’s board (and its Compensation Committee) acted in contravention of the terms of their long-term incentive plans. What’s interesting to me is that the details of the complaint could only have been drawn from the Compensation Discussion and Analysis, so it’s a classic example of the disclosure providing a roadmap for second-guessing the decisions of the directors.” We continue to post pleadings from these cases in CompensationStandards.com’s “Say-on-Pay” Practice Area.
By the way, two of the oldest of the say-on-pay cases have been settled. As noted in this Davis Polk blog: “KeyCorp agreed, according to Reuters, to pay $1.75 million in attorneys’ fees and expenses to settle related suits and Occidental Petroleum, faced with three suits, settled one for an undisclosed amount and had two dismissed.”
Purchasing from a Public Offering: Don’t Forget the SEC’s Credit Limitations
Here’s a tidbit from Suzanne Rothwell: With broker-dealers and their bank affiliates often extending loans to issuers, I am hearing about situations where an officer of an IPO issuer or other intended investor has asked one of the underwriters of the company’s IPO to extend a loan in order to purchase securities from the IPO or an almost simultaneous private placement. Section 11(d) of the ’34 Act prohibits an IPO underwriter from making a loan to anyone to purchase IPO securities from the offering and also in the secondary market for 30 days after the IPO.
The provision even prohibits an underwriter from “arranging” for a loan by any other party. The purpose of the regulation is to prevent underwriters from encouraging the purchase of securities without a market by extending credit to its customers. While generally a loan is permitted to investors purchasing from a private placement, the SEC can take the view that a close-in-time private placement is integrated with the IPO for purposes of the credit limitations.
House Financial Services Committee Approves the “Small Company Capital Formation Act”: Regulation A Revival Closer?
Last week, the House Financial Services Committee on Capital Markets and Government Sponsored Enterprises approved the Small Company Capital Formation Act of 2011. Several amendments were introduced and debated by the full House Financial Services Committee. This Morrison & Foerster memo explains more.
At this time last summer, we were watching the legislative process unfold that gave birth to the Dodd-Frank Act (aka FrankNDodd), and we were anxiously wondering what sort of post-apocalyptic world we might be living in once the various provisions of Dodd-Frank came into effect. With Dodd-Frank’s first birthday fast approaching (I already have some Dodd-Frank birthday gigs on my calendar), we find ourselves in more of a state of limbo than “Mad Max.” The SEC Staff has been working incredibly hard to develop rules to implement many provisions of the Act under difficult circumstances, most notably the ridiculous implementation deadlines set forth in the statute, the perennial problem of understaffing and intermittent threats of government shutdown. With all that, some progress has been made, and there will no doubt be much more progress coming soon. As for the corporate governance and compensation provisions of the Dodd-Frank Act affecting public companies, the lay of the land today is as follows:
1. The SEC has completed rulemaking on the Say-on-Pay provisions and whistleblower provisions of Dodd-Frank. Say-on-Pay turned out to be more like “Y2K” than the apocalypse, with significant support for Say-on-Pay resolutions at most companies.
2. The SEC expects to adopt rules with regard to the compensation committee and adviser independence provisions in the second half of 2011. It seems likely that the final rules on these provisions will be adopted this summer, to be followed by the exchanges’ efforts to establish the applicable listing standards.
3. The SEC expects to adopt rules implementing the “specialized corporate disclosure” provisions (conflict minerals, payments by resource extraction issuers and mine safety) in the second half of 2011. It seems that the SEC wants to treat all of these disclosure provisions as a package deal, otherwise they probably would have adopted the mine safety rules by now, given that mining companies already have to comply with the statutory requirements. The conflict minerals disclosure provisions continue to present many challenges in coming up with workable rules for a potentially very large proportion of the universe of public companies, so we should all be thankful that the Staff and the Commission are taking their time to deliberate the outcome.
4. The SEC currently plans to propose rules in the second half of 2011 regarding pay for performance disclosure, the median employee/CEO pay ratio disclosure, compensation recovery listing standards (and related disclosure), and disclosure regarding employee and director hedging. With the press of other business under the Dodd-Frank Act and otherwise, I could see some or all of these provisions getting pushed back even further, perhaps even past the 2012 proxy season.
5. The SEC has not yet come out with any proposal as to the other significant matters which would be excluded from broker discretionary voting, although that one might be expected some time later this year in anticipation of getting something on the books for the 2012 proxy season.
6. A decision by the U.S. Court of Appeals for the DC Circuit in the lawsuit challenging Rule 14a-11 (adopted in August 2010 after authority issues were cleared up by Dodd-Frank) is still expected this summer.
Will Congress Help?
It doesn’t seem that Congress will have much appetite to pare back the most onerous provisions of Dodd-Frank applicable to public companies, however earlier this week there was at least a sliver of hope when the House Financial Services Committee held a hearing to consider bills which included H.R. 1062, the Burdensome Data Collection Relief Act, which would repeal the pay ratio disclosure requirement in Dodd-Frank. At the hearing, the Financial Services Committee ordered that the bill be reported to the full House. It is anybody’s guess as to whether the bill may ultimately get voted on, but at least it made it out of the Financial Services Committee.
Delaware Addresses Advance Notice For Shareholder Proposals
An interesting advance notice development from Steven Haas of Hunton & Williams:
Recently, the Court of Chancery issued an interesting decision in Goggin v. Vermillion, Inc. applicable to shareholder proposals and annual meetings. In denying a motion to enjoin a stockholders meeting, the court enforced an advance notice requirement for shareholder proposals that was set forth in the company’s 2010 proxy statement rather than its bylaws.
By way of background, the company’s 2010 proxy materials mailed last October provided that the advance notice deadline for shareholder proposals at the 2011 annual meeting was January 1, 2011. At the time, however, it wasn’t clear when the company’s 2011 annual meeting would be held. While the company traditionally had held its annual meetings in June of each year, it had filed for bankruptcy in 2009 and decided to hold its 2010 meeting in December–just weeks before the January 1, 2011, advance notice deadline disclosed in the proxy materials.
In February 2011, more than a month after the advance notice deadline had passed, the company announced that its 2011 annual meeting would be held on June 7, 2011. As a result, the January 1 deadline resulted in a 150-day advance notice requirement for the 2011 meeting–far more than the typical 90 or 120-day requirements found in many bylaws of Delaware corporations.
The court observed that Delaware law does not require that shareholders provide advance notice of proposals or of director nominations to be raised at an annual meeting. It also acknowledged that the company didn’t have an advance notice bylaw, although it had since adopted one applicable to its 2012 stockholders meeting. Nevertheless, the court held that “the Company set forth its notice requirement for the 2011 Meeting in the October 20, 2010 proxy and that the plaintiff was unlikely to prevail on the merits by showing that the advance notice requirement was unreasonably long or unduly restrictive of [his] franchise rights.”
The court seems to have been strongly influenced by the fact that 5 of the 6 directors were independent and there were no clear signs of entrenchment motives (e.g., the plaintiff did not signal his dissatisfaction with management until after the advance notice deadline had passed). Thus, the deadline was established on the “proverbial clear day” and conformed to the company’s pre-bankruptcy practices.
Still, many observers may be surprised to see the court enforce an advance notice provision that was not set forth in the company’s governing documents. It also is notable that shareholders had approximately 2½ months notice of the pending deadline (i.e., the time in between the mailing of the October 2010 proxy statement and the January 1, 2011, deadline), and that the deadline turned out to be 150 days before the then-unknown meeting date. In contrast, many advance notice bylaws provide that, if the date of an annual meeting significantly deviates from the prior year’s meeting date, shareholders can provide notice of proposals or director nominations within 10 days after the announcement of the meeting date.
Tomorrow is the last day for the early bird discount for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” and “The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference.” Save by registering by the end of Friday, June 24th at our early-bird discount rates. Note this early-bird discount will not be extended.
SEC Moves Forward with More Dodd-Frank Rulemaking
Yesterday was another big day in the annals of Dodd-Frankdom, as the SEC adopted rules that require advisers to hedge funds and other private funds to register with the SEC. The rules also establish new exemptions from SEC registration and reporting requirements for some advisers, and change the allocation of regulatory responsibility for investment advisers between the SEC and states. The Dodd-Frank Act directed the SEC to adopt these rules in order to close a perceived regulatory gap, in that certain advisers to large hedge funds and private equity funds had been able to avoid SEC registration over the years. This fact sheet describes the new rules, and the SEC has already published the release for the rules related to the Investment Advisers Act amendments and the release for the exemptions applicable to advisers to venture capital funds, private fund advisers with less than $150 Million in assets under management, and foreign private advisers.
SEC Defines “Family Office”
In a related rulemaking, the SEC adopted a definition of “family offices” for the purposes of excluding them from the application of the Investment Advisers Act. With the package of rules adopted yesterday, the SEC has accomplished the rulemaking relating to the fund-related provisions of Title IV of the Dodd-Frank Act that will become effective on the one year anniversary of the Dodd-Frank Act on July 21, 2011.
Yesterday, the PCAOB issued a concept release on possible revisions to PCAOB standards related to reports on audited financial statements. As noted in this statement by PCAOB Chairman James Doty, the effort to look at the PCAOB standards applicable to audit reports comes out of concern as to “whether audits adequately served investors’ needs in the months and years before and during the [financial] crisis.”
The concept release highlights several alternatives to the auditor reporting model that would facilitate the communication of information from the auditor to investors. The concepts include: (1) an Auditor’s Discussion and Analysis to be included as a supplement to the auditor’s report, in order to provide the auditor with the ability to discuss his or her views regarding significant matters, as well as information about the audit (such as audit risks identified in the audit, audit procedures and results), auditor independence and the auditor’s views regarding the company’s financial statements; (2) required and expanded use of “emphasis paragraphs” in all audit reports that would highlight the most significant matters in the financial statements and identify where those matters are disclosed in the financial statements, such as significant management judgments and estimates, areas with significant measurement uncertainty and other areas that the auditor determines are important for a better understanding of the financial statement presentation; (3) auditor assurance on information outside of the financial statements, such as MD&A, non-GAAP information or earnings releases; and (4) clarification of the standard auditor’s report, whereby clarifying language would be added about what an audit represents and the related auditor responsibilities, including language regarding reasonable assurance, the auditor’s responsibility for fraud, the auditor’s responsibility for financial statement disclosures, management’s responsibility for the preparation of the financial statements, the auditor’s responsibility for information outside of the financial statements, and auditor independence. The PCAOB has noted that these potential alternatives are not mutually exclusive, therefore a revised auditor’s report could include any of these alternative concepts or a combination of concepts, as well as elements of these concepts.
The PCAOB is soliciting comments on the concept release until September 30, 2011, and plans to convene a roundtable in the third quarter of 2011 to discuss these issues.
Unfinished PCAOB Business and Your Proxy Statement
With the PCAOB now taking on such a significant topic as the content of auditor’s reports, it is still important to keep in mind that, 8 years into its existence, the PCAOB continues to slog through many of the auditing standards that pre-dated the creation of the Board for the purpose of adopting new PCAOB standards.
Some confusion can arise, however, because the AICPA (who used to the the principal arbiter of all auditing standards for public and private companies) continues to promulgate its own auditing standards, notwithstanding the fact that the PCAOB has taken over as the sole authority on auditing standards for public companies. In this regard, I continue to see incorrect auditing standard references in proxy statements in the context of the audit committee report required by Item 407(d)(3) of Regulation S-K. Among the items required in the audit committee report is that “[t]he audit committee has discussed with the independent auditors the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.”
In complying with this requirement, some issuers have become confused because in December 2006, the AICPA issued Statement on Auditing Standards No. 114, The Auditor’s Communication with Those Charged with Governance (“SAS 114”). SAS 114, by its terms, supersedes SAS 61, but because the standard was adopted after April 16, 2003 and was not subsequently adopted as an Interim Auditing Standard by the PCAOB, SAS 114 is not applicable to the audits of public companies. As a result of the understandable confusion about the applicability of this standard, some issuers have incorrectly replaced the reference to SAS 61 in their proxy statement with a reference to SAS 114.
To compound the problem, in March of last year the PCAOB proposed a new auditing standard, Communications with Audit Committees, which if adopted would supersede the Board’s interim standards on the topic. The comment period for this proposed standard closed in May 2010, and commenters suggested that the PCAOB needed to gather more information regarding the operation of the proposed standard. The PCAOB conducted a roundtable on auditor communications with the audit committee in September 2010. A final standard has not been adopted to date, and as a result the Interim Auditing Standard pursuant to PCAOB Rule 3200T firmly remains SAS 61 (as in effect on April 16, 2003).
More on our “Proxy Season Blog”
Even though the proxy season is winding down, we still are posting new items regularly on our “Proxy Season 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:
– They Held a Revolution and Nobody Came
– Proxy Season: The Latest Voting Results
– More on “Annual Meetings: The Use of Floor Proposals”
– The Best Annual Report of 2011? Acuity’s “Storybook Year”
– Advisory Votes Help Shield Directors From Investor Dissent
The last round of phase-in for interactive data is now just around the corner, with upcoming quarterly reports for companies below the large accelerated filer threshold now subject to XBRL reporting requirements. Over the last couple of years, the Staff of the Commission’s Division of Risk, Strategy and Financial Innovation (Risk Fin) has completed reviews of interactive data financial statement submissions and has published general observations about those reviews.
In the latest set of observations published June 15th, the Staff addresses a wide range of XBRL issues including negative values, extending elements when an existing US GAAP taxonomy element is appropriate, “axis” and “member” use, and tagging completeness in the context of using parenthetical amounts. All pretty techie stuff, but nonetheless worth checking out and reviewing XBRL practices accordingly.
No Sign of an Interactive Data Reprieve
There is no sign of any XBRL reprieve for smaller companies, or for the need to perform detailed tagging of financial statement notes for larger companies, so it remains full-steam ahead for interactive data implementation efforts, with heavy reliance placed on third-party service providers. Given the reliance on third parties, this upcoming quarter-end could present some challenges for companies, given that so many issuers are seeking to create interactive data files all at once, and many for the first time.
It is a good idea to build some extra time into the filing schedule to account for any potential delays in turning last minute changes to financial statements and notes to financial statements, even if you are an experienced XBRL filer. Also, first-time XBRL filers should not overlook the requirement to post the interactive data files on the company’s website on the same calendar day that the interactive data files are submitted with the periodic report.
First time XBRL filers can also take some comfort in the availability of a one-time, 30-day grace period to submit the interactive data files (as well as a 30-day grace period for the first detailed tagging of the financial statement notes by already phased-in filers), although avoiding having to be in a position to use the grace period is still the best bet.
The most common XBRL question that I receive is who uses the XBRL files that companies go to such great lengths to create? To this day, I still don’t have a good answer for that one.
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:
– Insider Trading Analysis of Sokol Charges
– When Should an Investment Relations Officer Just Quit?
– FASB and IASB Significantly Revise Lease Accounting Proposals
– SEC Extracts Fines, But Not Confessions
– Fourth Circuit Holds Partial Disclosures Must Relate to Misrepresentations to Satisfy Loss Causation
Starting today, due to an upgrade in our database, all individual login and passwords for our various sites have been reset. Your new username will be the email address that was in an email that was sent to on Friday. Your temporary password will be your five-digit, billing zip code. Beginning today, on your first login, you will be asked to reset your password as part of a simple process.
Once you have reset your password, it will automatically carryover to each of the following websites (if you’re a member of them):
Our HQ is handling questions on this (not me – I don’t even have access to our database) and their phone lines are open for extended hours this week: 925.685.5111. They have posted FAQs regarding this change.
If you use our popular Romeo & Dye’s Section 16 Filer software, you will need to download a new version of the software starting today and will automatically be prompted to do so.
Why Were the SEC’s New Whistleblower Rules Published Late in the Federal Register?
A member recently asked why the SEC’s new whistleblower rules were seemingly delayed in being published in the Federal Register until June 13th – since the agency issued its adopting release back in May after the Commission blessed them at a May 25th open Commission meeting (note: link to Fed Reg version is not yet posted on the SEC’s site)? To get something published in the Federal Register, the Office of Management & Budget (OMB) must conduct a review and then the adopting release moves to the Federal Register people (Government Printing Office).
Even though there seemed to be a delay for the whistleblower rules, it’s not really anything to complain about because it just pushed out the effective date for the rules. In other words, a delay would never have any bearing on whether an approved set of rules were indeed final – there would not be a reprieve from the Governor…
Gun-Jumping: Did Groupon Break SEC Rules?
This Forbes’ article notes how the timing of a lengthy NY Times piece on Groupon – that included behind-the-scenes access for the reporter – came out just a few days before Groupon filed a Form S-1 with the SEC for an IPO.
I haven’t seen any other commentary on this fact pattern – probably because most realize that the playing field has changed a bit due to the ’33 Act reform that took place in ’05. You may recall the infamous interview with the Google founders in Playboy a few days before that company filed its Form S-1 back in ’04. At first, Google was determined to fight the SEC regarding gun-jumping allegations – but the company ultimately backed down and included the entire Playboy interview in Google’s IPO prospectus.
Here’s an excerpt from the letter sent by SEC Chair Schapiro to Rep. Issa recently regarding more ’33 Act reform – the excerpt addresses this type of situation:
In April 2004, less than a week before Google initially filed its registration statement for its initial public offering, Google’s two founders were interviewed by Playboy magazine. Google informed the staff of the interview in August 2004 and advised the staff that the interview would appear in the September 2004 issue of Playboy, which was scheduled to hit newsstands after the offering period for Google’s innovative “Dutch auction initial public offering closed.
Under the rules in effect at the time of this offering, the publication of an article such as this in connection with an initial public offering could raise concerns about inappropriate market conditioning and the potential need for a cooling-off period. For a variety of reasons, primarily based on (l) the timing of the release of the article after the completion ofthe offering period for the auction; and (2) Google filing the article as an exhibit to its registration statement (thereby including it as part of its offering materials), the staff determined that the publication of the article would not inappropriately condition the market for Google’s initial public offering.
As such, the staff did not impose any cooling-off period or otherwise delay the offering as a result of the article. Beyond this, it is important to note that, had the 2005 communications rules described above been in effect at the time, even if the Playboy article was published before Google’s offering period for the auction had closed, Google’s initial public offering would not have been delayed.
By contrast, another initial public offering in 2004 had a different result under the rules in existence at the time. Salesforce.com, Inc. had planned to go effective on its registration statement in May 2004 when an article appeared in The New York Times featuring an interview with the company’s CEO. The CEO had invited a reporter to follow him for a day during the road show for the offering, and the article, which was published during the road show, included substantial information about the offering. It appeared to the staff that the interview was granted – and the reporter was given access to the road show process – in an effort for Salesforce.com or its CEO to communicate with prospective investors through the article, which was not permitted under the rules at that time.
To address gun-jumping concerns, the staff imposed a cooling-off period. Under the communications rules adopted in 2005, this media coverage would not have required delay of the offering if certain filings, such as filing a copy of the article or its contents as a free-writing prospectus, were made.
Webcast: “The Latest Compensation Disclosures: A Proxy Season Post-Mortem”
Tune in tomorrow for the CompensationStandards.com webcast – “The Latest Compensation Disclosures: A Proxy Season Post-Mortem” – to hear Mark Borges of Compensia, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn analyze what was (and what was not) disclosed this proxy season.
I’ve got a quote in this interesting column in yesterday’s NY Times by Gretchen Morgenson in which she analyzes a fascinating report that compares CEO pay with a number of different metrics. For example: “24 companies where cash compensation last year amounted to 2 percent or more of the company’s net income from continuing operations.”
On Monday, the US Supreme Court dealt a final blow to the SEC’s theory that third parties may be held to a standard of primary liability under the SEC antifraud rules (called “implied representation”) for statements in a prospectus (we are posting memos in our “Securities Litigation” Practice Area). In a 5-4 decision in Janus Capital Group v. First Derivative Traders, the Court rejected a shareholder class-action lawsuit that argued that Janus Capital Group and a subsidiary should be held liable under the SEC antifraud rules for allegedly false statements in the prospectuses of subsidiary mutual funds.
The Court stated that the “maker of a statement” that violates SEC Rule 10b-5 “is the person or entity with ultimate responsibility over the statement . . . ” and that “One who prepares or publishes a statement on behalf of another is not its maker.” The Court reached this determination despite the close affiliation of the defendants to the mutual funds and their involvement in the preparation of the prospectuses.
Suzanne Rothwell notes that while private investors may be limited in their ability to recover directly from third parties, broker-dealers that distribute offerings later found to be fraudulent nonetheless remain vulnerable to an enforcement action by FINRA (as indicated in Regulatory Notice 10-22) for failure to comply with FINRA product suitability standards and, if the broker-dealer assisted in the preparation of the offering document, the FINRA advertising regulations. In addition to sanctions such as fines and suspensions, FINRA has authority to require that a broker/dealer or a broker make restitution to investors.
If you’re a fan of “The Office,” this video is hilarious. It reengineers the standard opening of the show as if it was an old-fashioned sitcom…
SEC Continues Work on Section 13(d) & (g) Modernization Project
Last week, the SEC re-adopted changes to Rules 13d-3 and 16a-1 to preserve the application of the existing beneficial ownership rules to security-based swaps after July 16th, the effective date of new Section 13(o) that was created under Section 766 of Dodd-Frank. Thus, security-based swaps will remain subject to these rules following the July 16th effective date. As noted in the re-adopting release, the SEC continues to work on its modernization project for Section 13(d) and (g) – and as noted in this press release, the SEC will be “taking a series of actions in the coming weeks to clarify the requirements that will apply to security-based swap transactions as of July 16 – the effective date of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act – and to provide appropriate temporary relief.” This relief began to happen on Wednesday as noted in this press release.
Last Call: Early Bird Discount for our “Say-on-Pay Intensive” Pair of Conferences
There is only one week left for the early bird discount for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” and “The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference.” Save by registering by Friday, June 24th at our early-bird discount rates. Note this early-bird discount will not be extended.
As you can see from our agendas, this year’s pair of Conferences (for one low price) will be workshop-oriented more than ever before in an effort to provide the practical guidance that you need in the new say-on-pay world that we live in:
1. November 1st’s “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” includes:
– Say-on-Pay Disclosures: The Proxy Advisors Speak
– Say-on-Pay: The Executive Summary
– Drafting CD&A in a Say-on-Pay World
– The In-House Perspective: Changing Your Processes for ‘Say-on-Pay’
– Getting the Vote In: The Proxy Solicitors Speak
– Handling the New Golden Parachute Requirement
– The Latest SEC Actions: Compensation Advisors, Clawbacks, Pay Disparity & Pay-for-Performance
– Dealing with the Complexities of Perks
– Conducting – and Disclosing – Pay Risk Assessments
– Say-on-Frequency & Other Form 8-K Challenges
– How to Handle the ‘Non-Compensation’ Proxy Disclosure Items
2. November 2nd’s “The Say-on-Pay Workshop: 8th Annual Executive Compensation Conference” includes:
– SEC Chair Mary Schapiro’s Keynote (via pre-taped video)
– Say-on-Pay Shareholder Engagement: The Investors Speak
– Say-on-Pay: The Proxy Advisors Speak
– How to Work with ISS & Glass Lewis: Navigating the Say-on-Pay Minefield
– Putting Your Best Foot Forward: How to Ensure Your Pay Practices Pass
– Say-on-Pay: Director (and HR Head) Perspectives
– Failed Say-on-Pay? Lessons Learned from the Front
– Say-on-Pay: Best Ideas for Putting It All Together
Last week, a sixth company that failed to garner majority support for their say-on-pay was sued – Hercules Offshore in a district court in Texas (here’s the complaint). We continue to post pleadings from these cases in CompensationStandards.com’s “Say-on-Pay” Practice Area.
Yesterday, I traded tweets with someone regarding the probability that all companies that fail to earn majority support will be sued. I’m not convinced that will happen since these cases are brought in such diverse venues and by different plaintiff’s firms. Does anyone know of any guiding hand behind the scenes of these six lawsuits?
It’s also interesting to note that I haven’t seen a single law firm memo yet about these say-on-pay lawsuits even though it appears they are the talk of the town whenever I am out and about. Let me know if you see one…
Let the Wild Rumpus Begin! Competing Bills to Upsize ’34 Act Registration Threshold
Yesterday, I blogged about a new House bill (HR 2167) that would raise the ’34 Act registration threshold to 1000 shareholders (from 500) and exclude employees and accredited investors. In doing so, I neglected to mention another recent House bill (H.R. 1965) that would raise the threshold to 2000 shareholders and also raise the deregistration threshold from 300 to 1200 shareholders. As noted in Jim Hamilton’s blog, there also is a Senate companion bill (S 556) for this one.
For a view questioning the wisdom of raising the threshold, check out Suzanne Rothwell’s entry yesterday on “The Mentor Blog.”
SEC Enforcement Director Receives Delegated Power to Immunize Witnesses
A few days ago, the SEC Commissioners gave delegated authority to the agency’s Enforcement Director to immunize witnesses. I’m not certain that immunization happens all that happen at the SEC – since these are just civil cases – and in conjunction with 18 U.S.C. sections 6002 and 6004, I think this essentially allows Rob Khuzami to immunize any witness who is “pleading the Fifth” in an SEC investigation, thereby disallowing them to continue to assert the Fifth Amendment with the caveat that their testimony can’t be used against them in any criminal case.
Because he can, Senator Vitter temporarily blocked the nominations of Luis Aguilar and Dan Gallagher yesterday during a Senate Banking Committee hearing because he doesn’t like the pace of recovery for victims of Allen Stanford’s fraud. Strike that. I’m not sure it was “during” the hearing because Senator Vitter didn’t bother to show up to it, as noted in this Reuters article.
Yes, a single senator can hold up a nomination – but just temporarily as the Senate Banking Committee can still advance the nominations to the full Senate (so is that really a “hold”?). Doesn’t this make for some great gaming (last year, one Senator put an extraordinary “blanket hold” on at least 70 nominations)? I’m not sure what parliamentary procedure allows a nomination to be blocked when the Senator doesn’t even attend the hearing, but that surely compounds the waste of time that insincere holds are…
House Bill: Upsizing the 500 Shareholder ’34 Act Registration Threshold
During the past few months, I’ve blogged several times about the SEC’s upcoming capital-raising reform efforts, particularly in the area of pre-IPOs. Perhaps that’s not good enough for Congress as this Fortune article tells of a bill in the House that would boost the number of shareholders that trigger registration to 1000 shareholders, up from 500 – and would exclude exempt employees and accredited investors from counting towards the threshold. The bill was introduced yesterday and has six sponsors from both sides of the aisle. There is no corresponding Senate bill at this time.
Webcast: “Deals: The Latest Delaware Developments”
Tune in tomorrow for the DealLawyers.com webcast – “Deals: The Latest Delaware Developments” – to hear Rick Alexander of Morris Nichols, Stephen Bigler of Richards, Layton & Finger and Kevin Shannon of Potter Anderson discuss all the latest from the Delaware courts and legislature.
We’re very excited to announce the addition of Suzanne Rothwell to our editor staff. Suzanne brings a wealth of experience to our team. She recently retired from Skadden Arps after a decade of service here in DC. Previously, she served for 20 years in increasingly responsible positions with FINRA, including Associate Director and Chief Counsel of the Corporate Financing Department. At Nasdaq, she served as Special Counsel on the PORTAL Market and the development of trade reporting for debt securities. You’ll be seeing Suzanne on this blog – and our other blogs – as well as other parts of our sites.
The On-Going IPO Pricing Discussion: The Issuer’s Responsibility
And here’s a blog from Suzanne:
There has been quite a bit of commentary on the pricing of the LinkedIn IPO, which went public at $45 a share and closed at $94 on the first day of trading (including this entry in our “Mentor Blog”). The stock has traded as high as $122.69 and has since declined to close on June 7th at $77.82. One columnist questioned whether the underwriters of the LinkedIn IPO severely and intentionally underpriced the public offering in order to benefit customers who then immediately sold the stock to lock in the profit. (“Was LinkedIn Scammed?,” Joe Nocera, NY Times).
Another view was that possibly the IPO price for LinkedIn was too high as it resulted in a valuation of $8 billion for a company that made only $15.4 million in 2010. (“Why LinkedIn’s Price May Have Been Right,” Andrew Ross Sorkin, NY Times). Mr. Sorkin correctly points to the inherent conflict of IPO underwriters in meeting the interests of the company they are taking public and of their customers. He states that this is an “untenable position” and asks for a conversation on developing a better method. These statements reflect an on-going disagreement expressed over many years about the IPO pricing process.
The underwriters’ balancing of interests of the issuer and the need to price in some relation to the intrinsic value of the company in the interests of their customers has worked effectively for many years except when the underwriters have decided to game the distribution process or the aftermarket. In my experience, the regulation of IPO pricing is a difficult matter and it is better that the regulators limit their involvement to oversight for possible manipulation of the distribution process and the aftermarket as well as ensuring appropriate disclosures. FINRA’s predecessor, NASD, requested comment in 2003 on recommendations of the NYSE/NASD IPO Advisory Committee on three possible alternative approaches to promote transparency in pricing offerings, including whether to use an auction system–which is an oft-mentioned alternative.
What was not mentioned in the discussions of the LinkedIn IPO pricing was the responsibilities of the LinkedIn board of directors for that pricing, since the general view is that the issuer will accept the pricing determinations of the underwriters. However, this is where a new FINRA rule will likely make changes. Instead of proposing rules to adopt any of the alternative pricing methods, FINRA recently implemented new FINRA Rule 5131, which (among other things) requires that underwriters provide the IPO issuer’s pricing committee or board of directors with a regular report of indications of interest in order to assist the issuer to make an informed decision as to the pricing of the offering. As stated by the NASD in 2003, “. . . greater participation by issuers in pricing and allocation decisions would better ensure that those decisions are consistent with the fiduciary duty of directors and management, and would provide management with more information to evaluate the underwriter’s performance.” Clearly, it was FINRA’s intention to enhance the corporate governance responsibilities of issuers in the setting of the IPO price for the company.
We shall see whether the new rule, which became effective at the end of May, will have an impact on IPO pricing. In any event, any future discussions of the IPO pricing issue will have to take into account the fact that the issuer’s board of directors was part of an informed decision on the final pricing determination.
Supreme Court Rules Loss Causation Need Not Be Proven at Class Certification Stage
In the midst of my computer meltdown last week, the US Supreme Court held that securities fraud plaintiffs need not prove loss causation at the class certification stage in Erica P. John Fund v. Halliburton. We have been posting memos on this decision in our “Securities Litigation” Practice Area.
