Several times over the past six months, I have noted potential issues with New York’s new power of attorney law (egs. this blog – and this one). Cravath, Swaine & Moore recently informed me that it has been considering various issues raised by law and has concluded that, based on principles of statutory construction, this new statute is best understood as not applying beyond powers of attorney that convey to the agent power over the principal’s money and property. Understood in this light, the statute does not apply to powers of attorney that only authorize signatures required in SEC filings. These include powers of attorney used in registration statements and annual reports on Form 10-K, as well as Section 16 filings. Here are more thoughts from Cravath:
The Statute speaks of two types of power of attorney – the “statutory short form power of attorney” and a “non-statutory power of attorney” – and then directs that, among other requirements, these two types of power of attorney must contain the “exact wording of the ‘Caution to the Principal'” that is set forth in the Statute. The “Caution to the Principal” reads: “As the ‘principal,’ you give the person whom you choose (your ‘agent’) authority to spend your money and sell or dispose of your property during your lifetime without telling you.”
The Statute does not provide that these two types of power of attorney are the only types of power of attorney recognized in New York, nor does the Statute define “non-statutory power of attorney”. The obligation to include the “Caution to the Principal” legend with any power of attorney governed by the Statute reveals the necessarily limited scope of the term “non-statutory power of attorney” and thus the limited reach of the Statute.
Cravath’s analysis concludes that, in light of the legend, the Statute should be interpreted to regulate only powers of attorney that convey authority to the agent to spend the principal’s money and to sell or dispose of the principal’s property. Otherwise, one would have to accept:
(a) that the Statute requires the inclusion of a false legend, which would be an absurd result and a reading that is inconsistent with basic principles of statutory construction, or
(b) that the Statute requires that every power of attorney executed by an individual in New York must convey power over the principal’s money and property, which would be an absurd result in the absence of any evidence in the Statute or legislative history of the legislature’s intent to effect such a dramatic change in the law would be even more absurd given the clear intention of the legislature in enacting the Statute to protect individuals from the abuse of that power by their agents, or
(c) that notwithstanding the plain words of the Statute a valid “non-statutory power of attorney” does not require the “Caution to the Principal” legend unless it includes power over the principal’s money and property.
Rather than be forced to adopt any of these absurd interpretations or ignore the plain words of the Statute, our analysis suggests a more straight-forward result – the otherwise undefined term “non-statutory power of attorney” should be interpreted not to cover powers of attorney unless they convey authority to the agent to spend the principal’s money and to sell or dispose of the principal’s property.
Treasury Proposes “Volcker Rule” Legislative Text
On Wednesday, the Treasury Department proposed legislative text to implement the “Volcker Rule” announced by the Obama Administration back in January. This Davis Polk memo briefly summarizes the provisions of Treasury’s proposal, which takes the form of new Sections 13 and 13a of the Bank Holding Company Act of 1956.
Below are the results from a recent survey we conducted on the topic of proxy drafting responsibilities (including items such as the amount of time consumed):
1. The following takes the lead in drafting the proxy statement at our company (excluding the executive compensation disclosures):
2. The following takes the lead in drafting the CD&A/other executive compensation:
– In-house Securities Attorney – 45.9%
– In-house Human Resource Staff – 29.4%
– In-house Accounting Staff, including CFO – 1.8%
– General Counsel – 12.8%
– Corporate Secretary/Assistant Corporate Secretary – 11.0%
– Outside Counsel – 4.6%
– Outside Consultant – 1.8%
– Other – 1.8%
3. The following provides significant assistance in drafting the CD&A/other executive compensation disclosures:
– In-house Securities Attorney – 32.4%
– In-house Human Resource Staff – 32.4%
– In-house Accounting Staff, including CFO – 18.1%
– General Counsel – 14.3%
– Corporate Secretary/Assistant Corporate Secretary – 17.1%
– Other NEO(s) – 0.9%
– Outside Counsel – 21.0%
– Outside Consultant – 8.6%
– Other – 4.8%
4. The following are involved in reviewing and providing comments on the draft CD&A/other executive compensation disclosures:
– In-house Securities Attorney – 38.6%
– In-house Human Resource Staff – 46.6%
– In-house Accounting Staff, including CFO – 54.6%
– General Counsel – 54.6%
– Corporate Secretary/Assistant Corporate Secretary – 37.5%
– Other NEO(s) – 38.6%
– Outside Counsel – 60.2%
– Outside Consultant – 42.1%
– Communications Staff – 19.3%
– Independent Auditor – 20.5%
– Other – 15.9%
5. For the lead drafter, the following is the estimated amount of time devoted to drafting proxy disclosures for this year:
– Less than 100 hours – 14.5%
– 100-200 hours – 53.0%
– 200-300 hours – 16.9%
– 300-500 hours – 6.0%
– Too many hours to even estimate – 9.6%
6. For all those involved in drafting proxy disclosures (including the lead drafter as well as people outside the company), the following is the estimated amount of time devoted to drafting proxy disclosures for this year:
– Less than 100 hours – 3.5%
– 100-200 hours -14.9%
– 200-300 hours – 32.2%
– 300-500 hours – 24.1%
– 500-700 hours – 9.2%
– Too many hours to even estimate – 16.1%
Please take a moment to respond anonymously to our “Quick Survey on ‘More on Blackout Periods’.”
Warren Buffett’s Annual Letter to Shareholders
As noted by Kevin LaCroix in his “D&O Diary Blog,” Warren Buffett’s annual letter to shareholders is now available. Straight talk at its best…
CII’s White Paper on Proxy Plumbing
Recently, CII issued this 48-page White Paper – entitled “The OBO/NOBO Distinction in Beneficial Ownership: Implications for Shareowner Communications and Voting” – that reviews a number of the problems with the current proxy processing system and discusses several of the reforms which have been proposed by various stakeholders. This is a good read as it serves as one of the better outlines of proxy mechanics and the issues involved in today’s debate over the process. Interestingly, the paper’s authors are from a law firm (Cleary Gottlieb’s Alan Beller, Janet Fisher and Rebecca Tabb).
We just posted the registration information for our popular conferences – “Tackling Your 2011 Compensation Disclosures: The 5th Annual Proxy Disclosure Conference” & “7th Annual Executive Compensation Conference” – to be held September 20-21st in Chicago and via Live Nationwide Video Webcast. Here is the agenda for the Proxy Disclosure Conference (we’ll be posting the agenda for the Executive Compensation Conference in the near future).
Special Early Bird Rates – Act by April 15th: With anger over CEO pay at record levels, Congress and the regulators are intent on shaking things up and huge changes are afoot for executive compensation practices and the related disclosures – that will impact every public company. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a special early bird discount rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by April 15th to take advantage of this discount.
Corp Fin Revises the Non-GAAP Section of Its “Financial Reporting Manual”
Yesterday, Corp Fin posted a revised version of its “Financial Reporting Manual” with revisions to “Topic 8: Non-GAAP Measures of Financial Performance, Liquidity and Net Worth” to include “Section 9500: Critical Accounting Estimates-Goodwill Impairment” and other changes.
On Friday, the SEC posted the 334-page adopting release related to amending Regulation SHO and short selling.
Delaware Chancery Court Finally Rules in Selectica
On Friday, the Delaware Court of Chancery issued its long-awaited opinion in Selectica v. Versata Enterprises, addressing the first modern triggering of a rights plan. The court provided judicial validation of NOL poison pills, upholding the directors’ adoption and implementation of the rights plan and their subsequent decision to dilute an acquiring person who deliberately crossed the pill’s threshold.
The court delivered a well-reasoned opinion that employed a very straightforward Unocal analysis. It found that the NOLs were a valuable corporate asset and, therefore, an “ownership change” which might jeopardize their value constituted a valid threat to corporate policy and effectiveness. It made clear that because “NOL value is inherently unknowable ex ante, a board may properly conclude that the company’s NOLs are worth protecting where it does so reasonably and in reliance upon expert advice.” Central to the Court’s analysis was the board’s reliance on outside financial, tax, and legal advisors.
The Court then found that the plan, with a 4.9% trigger, was not preclusive or coercive, notwithstanding the acquiring person’s argument that no stockholder would run a proxy contest against Selectica’s staggered board. The Court explained that “[t]o find a measure preclusive…, the measure must render a successful proxy contest a near impossibility or else utterly moot….”
The Court went on to find that the use of the rights plan fell within Unocal‘s “range of reasonableness.” It rejected the acquiring person’s argument that, among other things, the Selectica board should have adopted a more narrowly tailored response. “[O]nce a siege has begun,” the court stated,” the board is not constrained to repel the threat to just beyond the castle walls.” It concluded that “[w]ithin this context, it is not for the Court to second-guess the Board’s efforts to protect Selectica’s NOLs.”
While Selectica is not the Chancery Court ‘s first foray into the world of poison pills, this opinion marks the first time the Court has upheld a modern pill that has been actually triggered by an acquiror.
Yesterday, RiskMetrics announced it had been sold to MSCI at a price not far from RiskMetrics’ IPO price level when it went public two years ago. Based on the conference call related to the deal, MSCI’s CEO stated in response to questions that the ISS corporate governance services are considered a “non-core” unit that will be operated to generate cash flow for debt reduction. MSCI is a provider of investment decision support tools.
My guess is that nothing much will change for those of us that deal with ISS – but you never know. I do think the ISS branding will come back to where it used to be (ie. without the “MSCI” label before it). By my count, this is the fourth sale of ISS during this decade…
One thing that could change now that RiskMetrics will no longer be a public company is a company that pushed the envelope with it’s own corporate governance practices. RiskMetrics really help itself up to high governance standards once it went public. As one member noted: “Did you know that MSCI’s CGQ is better than 2.3% of S&P 400 companies and 22.7% of Diversified Financials companies?”
US Sentencing Commission Proposes New Requirements
Below is news taken from Sullivan & Cromwell‘s memo on the topic:
On January 21st, the U.S. Sentencing Commission proposed important amendments to the Sentencing Guidelines applicable to organizations, including the definition of what constitutes an effective corporate compliance program. Because the Sentencing Guidelines serve as a principal reference point under federal law for minimum standards in the design and structure of compliance programs, corporations should examine their programs to determine whether they comply with these proposed standards.
As described in our memo, the proposed amendments address four important areas: (1) the steps a corporation should take when responding to the discovery of criminal conduct; (2) document retention policies; (3) the use of independent corporate monitors; and (4) the governance of corporate compliance functions.
Our March Eminders is Posted!
We have posted the March issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Now that the SEC’s new rules went into effect over the weekend (ie. February 28th), Corp Fin cleaned up all of their Compliance & Disclosure Interpretations this morning that deal with the old Summary Compensation Table reporting scheme. It’s unusual to see CDI activity so early in the morning. That certainly woke me up!
In this podcast, David Calusdian of Sharon Merrill Associates explains the importance of investor perception studies, including:
– In a nutshell, what is an investor perception study?
– What types of companies should conduct one?
– Can you provide more details about how one is conducted?
– What ways do you recommend that a company use the study once it’s conducted?
– Should there be a follow-up study?
More on our “Proxy Season Blog”
With the proxy season in full gear, we 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:
– More on “Registered Holders: Broadridge vs. Transfer Agent?”
– Proponents Wanted: Blatant Online Ads for Alter Egos
– Survey Results: Proxy Access Issues
– Now Available: Glass Lewis’ Policies
– Diversity Policies: Do You Need One? Samples Available
– More on “Shareholder Proposals: Chevedden Sued Over Eligibility”
– Determining Who is “Most Highly Compensated”: More Complicated Than You Think
Highlighting the high profile of the issue, the SEC voted unanimously to issue a Statement at an open Commission meeting on Wednesday regarding its current plans regarding IFRS. It’s interesting that the open meeting format was used to approve a statement. Here’s Chair Schapiro’s opening remarks.
– Reaffirms the SEC’s support for a single, globally accepted set of accounting standards (although the SEC still hasn’t made a final decision to move to IFRS yet)
– Describes six categories of issues that need to be analyzed in an upcoming SEC Staff Workplan (there will be progress reports given on the Workplan, starting no later than this October)
– Describes milestones that need to occur before 2011 (including the SEC’s study of certain issues and completion of convergence projects under the FASB-IASB Memorandum of Understanding) if the SEC is to move to IFRS
– Notes the first time that US companies would report under such a IFRS system (if one was adopted) would be no earlier than 2015 (the Work Plan will further evaluate this timeline)
PCAOB Staff Posts FAQs on Engagement Quality Review
Last week, the PCAOB published a “Staff Question and Answer” on the documentation requirements of Auditing Standard No. 7, the engagement quality review standard that provides a framework for the engagement quality reviewer to objectively evaluate the significant judgments made and related conclusions reached by the engagement team in forming an overall conclusion about the engagement. This set of FAQs was encouraged to be created by the SEC when it approved AS #7 last month.
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:
– Canadian OSC Staff Urges Better IFRS Disclosure
– Social Media Policies: No Paranoia Necessary
– Analysis: Ability to Backdate Board Resolutions
– An Auditor’s Claim of Privilege: The Latest
– An Effete Corps of Governance Snobs
Yesterday, the SEC issued this technical corrections release related to its proxy disclosure enhancement rules adopted in December (actually the release was posted Tuesday – taken down for a while – and then reappeared Wednesday morning). The release corrects Forms 10-Q and 10-K to retain the current numbering of the items appearing in each form to avoid confusion that might otherwise arise from references to the numbering from other rules, etc.
So what does this mean for your Form 10-K? For Form 10-Ks filed on or after this Monday – March 1st (actually, it’s filings until 5:30 pm EST on Friday – even though filings are accepted until 10 pm, they are considered filed the next business day) – the title and substance of Part I – Item 4 should be deleted, the word “Reserved” should be inserted in the place thereof and the remaining items of Form 10-K should not be renumbered.
In addition, the SEC made three changes to Form 8-K, including adding an instruction that corresponds to an instruction contained in Forms 10-Q and 10-K that allows certain wholly-owned subsidiaries to omit the disclosure of shareholder voting results and to amend the regulatory text to make it consistent with the discussion of the amendments to that form contained in the adopting release.
NYSE: Annual Corporate Governance Letters Now Available
RR Donnelley Buys Bowne: You May Lose Your Free Lunch
As a former employee of RR Donnelley (I launched RealCorporateLawyer.com for them when it was a different type of site), I closely follow the financial printer industry. Thus, I wasn’t surprised to see Donnelley’s announcement that it had bought Bowne yesterday.
As the printers have been struggling for quite some time, I had expected industry consolidation long ago. It will be interesting to see whether this will have an impact on the “freebies” for lawyers and bankers. I would imagine that narrowed margins for the industry and less competition in the space will combine to make that so. No more fifty-yard line…
SEC Adopts An Alternative Uptick Rule
At an open Commission meeting yesterday, the SEC voted 3-2 to adopt a new uptick rule, one that has a circuit breaker restriction on short sales in stocks that experience a price decline of 10% or more from the prior day’s close. The uptick rule had been eliminated in July 2007 amid some controversy. Commissioners Casey and Paredes strongly opposed the new rule. The new rule will be effective 60 days after the publication of the release in the Federal Register – but it will then have a six-month implementation period (so essentially it will be 8 months until the rule takes effect).
Under the new rules, once the circuit breaker is triggered for a stock, short selling in that stock will only be allowed at prices above the current national best bid for the rest of the trading day as well as the following trading day, subject to certain exemptions. However, the SEC did not adopt an exemption for bona fide market making activity.
During our recent snow-in here, I spent some time pondering how to get more people to vote in corporate elections. As I blogged yesterday, I believe one necessary first step is enhancing the usability of communications to shareholders. But as we all know, even that will only improve shareholder participation on the margins.
As I struggled with this diIemma – so desperate I was perusing old Dale Carnegie books about how to win friends and influence people for inspiration – I just happened to hear from Peggy Foran about a novel program that Prudential is trying this proxy season. I think what they are trying is pure genius. By tying the act of voting to the environment & sustainability movement, the company is trying to make people feel good about themselves when they vote. It will be interesting to see how it pans out in practice.
In this podcast, Peggy and Ed Ballo of Prudential explain their company’s novel initiative that ties its environmental & sustainability program to bringing in the vote for its annual shareholders meeting (here are two items that will be used in Pru’s mailings: program notice postcard and proxy materials insert), including:
– How does Pru intend to engage registered holders this season?
– What exactly will be sent to registered holders?
– Is there an online component to this initiative?
– What are the benefits to the company of this initiative?
Speaking of getting creative, this is one of the more unusual promotions I’ve come across in a while, courtesy of Smith & Wollensky…
The Latest on Fairness Opinions
We have posted the transcript for the DealLawyers.com webcast: “The Latest on Fairness Opinions.”
Judge Reluctantly Approves SEC-Bank of America Settlement
A few weeks after the SEC announced it had settled (again) with Bank of America over its two actions against the company regarding alleged disclosure deficiencies in connection with BofA’s acquisition of Merrill Lynch (one action regarding bonus amounts; the other over operating losses), Judge Rakoff from the Southern District of New York ended his game of “will he or won’t he” and approved the settlement on Monday. As noted in this NY Times article, the Judge still expressed displeasure with the settlement – he called it “half-baked justice at best” – even as he issued this order.
Below is an excerpt from yesterday’s “Proxy Disclosure Blog” from Mark Borges that explains the changes to the SEC’s announced settlement:
As part of the Court’s order, he modified several of the remedial corporate governance and disclosure measures that BofA must follow for the next three years. Specifically, with respect to the requirements to engage an independent auditor to assess whether BofA’s accounting controls and procedures were adequate to assure proper public disclosures and to engage independent disclosure counsel to report solely to the audit committee on the adequacy of the bank’s public disclosures, the Bank’s choices must be fully acceptable to the SEC (not simply selected in consultation with the SEC), with the Court making the final selection if the parties cannot agree.
Interestingly, the Court also proposed that the selection of an independent compensation consultant to advise BofA’s compensation committee be made jointly by the compensation committee, the SEC, and the Court (rather than solely by the compensation committee) The Court gave the following reason for this suggestion:
The reason for this suggestion was the Court’s perception that too many compensation consultants have a skewed focus when it comes to executive compensation, concentrating on what they perceive is necessary to attract and keep “talent” (however defined), and more generally favoring ever larger compensation packages, while rarely taking account of limits that a reasonable shareholder might place on such expenditures.
However, in the face of BofA’s objection, the Court conceded the point, explaining that the matter should not be a “deal breaker,” especially in light of the “Say-on-Pay” vote that the Bank must conduct for the next three years.
While it’s possible that some of these remedial measures may be superseded by the legislative initiatives that are currently pending before Congress, the fate of these legislative proposals is still very much up in the air. Consequently, BofA’s disclosure practices may prove to be a very interesting “laboratory” over the next three years on the merits of these enhanced disclosure techniques.
Below is an excerpt from the NY Times’ article, noting that BofA still faces a battle with the New York Attorney General:
“The bank still faces a complaint filed last month by Andrew Cuomo, the attorney general of New York. The judge, after studying some of the evidence in Mr. Cuomo’s case, left room for that case to reach a different conclusion than the SEC’s.
In particular, the judge said the SEC had substantial evidence to support the bank’s claim that the dismissal of its general counsel, Timothy Mayopoulos, “was unrelated to the nondisclosures or to his increasing knowledge of Merrill’s losses.” That is the position the bank and its executives have argued since last spring, but Mr. Cuomo’s office asserts that the firing was related to advice from Mr. Mayopoulos.
Judge Rakoff said he had not determined which was right, but he said he was comfortable that the SEC’s conclusion was reasonable. “It is important to emphasize, with respect not just to the Mayopoulos termination but with respect to all the events that the attorney general interprets so very differently from the SEC, that the court is not here making any determination as to which of the two competing versions of the events is the correct one,” the judge wrote.
Mr. Cuomo’s complaint differs from the SEC’s in that it charges the bank as well as its former chief financial officer, Joe Price, and the chief executive, Kenneth Lewis, who retired early in part because of the mounting investigations into the merger.”
As noted in this press release, the SEC issued an adopting release yesterday to tweak the e-proxy rules it proposed last October (it was adopted via the SEC’s seriatim process like the proposal was made). The new rules become effective 30 days after being published in the Federal Register.
As calendar year-end companies are in the midst of the proxy season, it’s hard to tell if they will take advantage of the new rules this time around – particularly because there is no discussion in the adopting release regarding transition issues (ie. whether companies can adopt early on a voluntary basis). Many members have already asked me whether they can rely on the new rules early – I don’t know the answer.
Here is my math if companies aren’t permitted to rely on the rule changes early: the SEC gets the adopting release published in the Federal Register within a week and the new rules become effective in late March or early April – then with notice and access requiring 42-45 days (as the SEC didn’t reduce the number of advance notice days to 30 from 40 as proposed and Broadridge needs a few days to process a mailing) in advance of the meeting, companies with annual meetings in mid-May or later would be able to use the new rules. I will follow-up on this blog soon once we know more specifics…
Learn the latest practice pointers on e-proxy – and the factors to consider about how and whether to use it – in the transcript of our recent webcast: “How to Implement E-Proxy in Year Three.”
The SEC’s New “Plain English” Spotlight on Proxy Matters: My Ten Cents
Yesterday, the SEC also made a big splash about a new “Spotlight” page for investors about how they can vote – as well as issued this investor alert on the topic. This is a fine small step – but it’s really small potatoes as I doubt many investors will get motivated by the SEC’s educational content to cast their votes (as few investors are ever likely to come across the content).
I think the SEC should be taking steps that will have a much greater impact on voter participation. Starting with improving the usability of proxy cards, voting instructions – and the communications that go along with them. Most communications are laden with legalese and use 200 words when 20 will suffice – a critical mistake when using e-mail to get someone to act. Check out my DealLawyers.com blog entry today for more on my beef here. And I know many corporates are unhappy that they still aren’t permitted to send a proxy card or voting phone number in their e-proxy notice mailings…
All the Rage: Tender Offers
Tune in tomorrow for the DealLawyers.com webcast – “All the Rage: Tenders Offers” – to hear Alex Gendzier of Jones Day, Josh Korff and Christian Nagler of Kirkland & Ellis and Jim Moloney of Gibson Dunn discuss the latest dynamics – and processes – of conducting tender offers, particularly debt ones…
A few weeks ago, the IRS issued a proposed policy (in the form of IRS Announcement 2010-9) that would require corporate taxpayers to make broad disclosures on a schedule regarding their tax uncertainties, pulling information derived from FIN 48. The schedule would require a concise description of each “uncertain tax position” and information about its magnitude, but would not require disclosure of the taxpayer’s risk assessments or tax reserve amounts.
If this controversial proposal is adopted, it could impact those of us who have to evaluate these positions to draft disclosures to be flied with the SEC. Notable is IRS Commissioner Doug Shulman’s recent speech that discusses this proposal. We have been posting memos regarding this development in our “Tax Uncertainties” Practice Area.
The Last Samples: Companies Complying with the SEC’s New Rules
In our “Proxy Season Blog” on Friday, I posted another batch of proxy statements filed under the SEC’s new rules, courtesy of Kevin O’Neil of Vorys and Jackie Lasaracina of Perkins Coie.
Here’s my last word on the subject – a preliminary proxy statement filed by Umpqua Holdings that uses a grid for director qualifications. I wonder how many others will follow this format compared to those that insert the information directly into the director biography section…
Note that the SEC has announced an open Commission meeting for this Wednesday to consider publishing an IFRS statement.
More on “One Hot Potato: Climate Change Disclosure”
Recently, I blogged about how the SEC’s climate change interpretive guidance was a political hot potato. To bolster that statement, House Republican Spencer Bauchus (R-Ala), ranking member of the Committee on Financial Services (the committee that oversees the SEC), wrote this letter to the SEC recently, asking if the White House pushed the climate guidance. I’m sure there will be more to come…
Check out Kevin LaCroix’s analysis in his blog about whether the new climate change disclosure requirements could lead to more climate-related lawsuits.
