Members will be excited to know that we have moved the video archives – and more importantly, the critical course materials, including lots of sample letters, instructions and memos – from our popular conference “Rule 144: Everything You Need to Know – And Do NOW” to our “Rule 144″ Practice Area. Previously, this content was just available to those that paid for the Conference.
As always, we continue to post useful sample documents, either in the relevant Practice Area or in our “Sample Documents” Portal. For example, we just posted this updated chart comparing NYSE and Nasdaq listing requirements.
Latest on Mark-to-Market Accounting
In this podcast, Steve Henning of Marks, Paneth & Shron discusses the latest on mark-to-market accounting, including:
– What is mark-to-market accounting and what is the impact?
– Is mark-to-market subject to flexibility?
– Where do regulators find themselves in the debate?
Thanks to the many members who have sent me the link to this YouTube sensation in which a Southwest flight attendant amuses the company’s annual meeting audience with a disclaimer about non-gaap in the form of rap:
Just because we haven’t been blogging much about the SEC’s pursuit of Mark Cuban on insider trading charges doesn’t mean we’re not interested. It’s just that insider trading is not a big focus for Corp Fin-types like us. Plus, Mark Astarita of SECLaw.com is covering the saga quite well, such as his latest blog about how Mark Cuban has turned around and sued the SEC for violating the Freedom of Information Act.
NBA fans know Cuban well as the prolific owner of the Dallas Mavericks, a guy not afraid to get fined by the league due to being quite outspoken. He’s unlike any other sports owner – he’s extremely active with fans and with the team. Cuban is an entrepreneur, having made billions during the Internet boom and he’s always trying new endeavors – his latest being innovative distribution of films and a failed ShareSleuth.com (which was covering stock fraud stories before it went under). As you might expect from such a personality, Cuban regularly blogs, including this stab at the SEC.
By the way, a loyal Dallas fan noted that I confused sports teams because it was none other than Terrell Owens, formerly of the Cowboys, who famously told the media and fans to “get your popcorn ready.” When I wrote my title for this blog, I completely forgot that T.O. said that…
SEC vs. Cuban: Now Comes the Weird Part…
As noted way back when this story first broke, a complicated aspect of the Cuban case is the strange involvement of a SEC Enforcement Staffer who hadn’t been working on the investigation into Cuban’s alleged insider trading – but yet felt compelled to send emails to Cuban about various aspects of his life while the case was being put together. This eventually led to Cuban responding to this rogue Staffer via email, copying then-SEC Chair Chris Cox.
Yesterday, the WSJ ran this article noting that the Staffer may be subject to discipline. For those that are alumni of the SEC (or any government agency for that matter), memories of former rogue colleagues must surely come to mind. I can think of more than a few. Those curious experiences truly are one of the beauties of working for the Gov…
SEC Approves NYSE’s Reduced Listing Standards Requirements on Pilot Basis
On Monday, the SEC posted an order approving the NYSE’s proposed changes to its listing standards that reduced its $75 million stockholders’ equity and market cap requirements to a $50 million/$50 million standard. These changes are on a pilot program basis through October 31 – and became effective on May 12th.
Companies that are below compliance with the $75 million standard – but above the $50 million Pilot Program standard will be deemed to have returned to compliance. This will be welcome news to those companies that were “below compliance” but are working on remediation plans.
As I blogged recently, majority voting may be forced upon all public companies through Senator Schumer’s governance legislation. Although the voluntary movement to adopt majority voting – although “voluntary” may be a misnomer since many companies adopted those standards under heavy pressure from shareholders – has had long legs over the past few years with larger companies, a study by The Corporate Library indicates that smaller companies have been slow to change and that nearly 75% of the Russell 3000 still use a straight plurality voting standard. In comparison, nearly 50% of the S&P 500 have switched to pure majority voting – and another 18% have adopted the plurality-plus-resignation approach (leaving 32% of the S&P 500 with a straight plurality standard).
When it comes to plurality-plus-resignation – also known as “majority voting light” or “Pfizer-style” – the first lawsuit has been filed against a company that refused to unseat some directors who didn’t receive a majority. According to this complaint filed in the Delaware Chancery Court against Axcelis Technologies, a municipal pension fund has demanded to inspect the company’s books and records relating to the board’s decision to not to accept the resignations of three directors after they failied to receive a majority vote. The backdrop of this case is a failed acquisition.
Mechanics of Broker Discretionary Votes
In this podcast, Steve Bigler of Richards Layton & Finger provides some insight into the mechanics of broker discretionary votes, including:
– What is the difference between “broker discretionary votes” and “broker nonvotes”?
– Can companies tell which votes are being cast by broker discretionary votes?
– How would companies remove broker discretionary voting from their voting results? What is the technical process for a company (i.e. through a bylaw or a charter provision)?
– How might this differ for companies with a majority voting standard that have a director resignation policy?
The Problem with Blank Votes
Broker nonvotes is not the only voting issue being debated these days. A petition for rulemaking was filed recently with the SEC by Jim McRitchie of CorpGov.net to tackle the problems associated with blank votes. Jim writes: “The problem is that when retail shareowners vote but leave items on their proxy blank, those items are routinely vote by their bank or broker as the subject company’s soliciting committee recommends. Current SEC rules grant them discretion to do so. … We believe that when voting fields are left blank on the proxy by the shareowner, they should be counted as abstentions.”
More information on this issue is included in the rulemaking petition and on CorpGov.net.
On Friday, Corp Fin issued two new batches of “CD&Is” (which is an easier acronym than the more accurate term of “C&DIs” that Corp Fin uses) and updated five sets of older CD&Is. The new CD&Is relate to XBRL and Regulation S-T. [The SEC’s Office of Interactive Disclosure also posted this new set of XBRL FAQs.]
As noted in this National Law Journal article, the SEC has settled the trademark infringement lawsuit brought against it by CaseWare International by agreeing to stop using “IDEA.” As I blogged a while back, Caseware has been using the IDEA name for twenty years and registered the name with the Patent and Trademark Office in ’01, well before the SEC began using the term.
In my opinion, this is a blessing in disguise for the SEC since Edgar is well-branded with investors and I thought it was a huge mistake to change the name last year. It looks like the SEC already has purged any vestiages of “IDEA” from its website. I sure hope they just stick with “Edgar” and not pick another new name. Long live Edgar!
If you need a laugh, check out TweetingTooHard.com. Some of these tweets can’t be real! But sadly they can…
Our June Eminders is Posted!
We have posted the June issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
I spoke at a MidAtlantic Chapter meeting of the Society of Corporate Secretaries on this topic in Philly last week, so I thought I’d share my thoughts with you. For quite some time, I’ve been warning companies to be prepared for heated online campaigns related to their annual meetings (remember to read this free issue of InvestorRelationships.com on the topic). As I noted yesterday in my blog about Target’s campaign site, this didn’t happen much during this proxy season – but there were a number of developments that lead me to believe that next year could be a watershed one.
Here are ten things that happened this proxy season worth noting:
1. First Use of Live Internet Voting – In his “IR Web Report,” Dominic Jones brought us the news (and analysis) that Intel decided to tackle the challenges of allowing for “live” voting online at its annual shareholders meeting this season. Intel also has this “Stockholder Forum” to allow shareholders to submit queries in advance.
2. Soliciting Shareholder Feedback on Compensation Practices – Taking a page from Schering-Plough’s efforts to survey investors about pay practices, Amgen is inviting its shareholders to offer comments on TIAA-CREF’s “Ten Questions for Evaluating CD&As.” The invitation is presented on page 51 of the company’s proxy statement (page 59 of the PDF), directing shareholders to a survey questionnaire on the company’s site.
3. Soliciting Shareholder Feedback on Disclosures – Barclays used this “2009 Annual Report Survey” to solicit feedback on its annual report. The company promised provide responses directly to the questioners – and intends to post a selection of them.
4. Emergence of Proponent Sites Designed to Solicit Mutual Funds – ExxonMutualFundShares.org is a new type of site, jointly created by the proponents of four ExxonMobil shareowner proposals (Bob Monks among them). Mutual fund holders who are concerned that ExxonMobil has not done enough to address climate change and address certain corporate governance issues can send a message to the 25 largest mutual fund families through the site.
5. Easier Ability to Track Voting Results – Smart companies like to predict how their voting results will be at shareholders’ meetings so that their board and senior managers are not surprised. Hiring a proxy solicitor that has shareholder intelligence abilities is the most common way to accomplish this – but some of the tools that solicitors use are now freely available. For example, a relatively new site – FundVotes.com – tracks how mutual funds vote on specific types of proposals. And it’s free. The site tracks both management and shareholder proposals – and it tracks voting trends by specific fund families.
6. Use of “RSS Street” to Follow Developments – Dominic Jones blogged about the rise of a group of web monitoring services that help investors track online mentions of companies they follow. Companies should be doing the same to understand what is being said about them as the online media gradually displaces traditional mainstream media.
7. Use of Corporate Blogs (and Third-Parties) to Solicit Questions – As noted by Dominic Jones in his blog, Microvision used its blog to solicit queries for its upcoming earnings call. The same can be done for annual meetings. In fact, Warren Buffett tried something novel this year – soliciting queries by asking Berkshire Hathaway shareholders to send them to three reporters via email. As described in Warren’s annual letter to shareholders, these reporters – independent third parties – then choose the ones they deemed most interesting and important and posed them during the meeting.
8. Use of Twitter to Describe Live Events – Ebay became a pioneer when its resident corporate blogger tweeted the details of its earnings call as it happened, as described by Dominic Jones in his blog. Again, this can be done for annual shareholder meetings – and it helps if the company controls the messaging rather than only have third-parties tweeting during the event (which is becoming more common, like it was during Banc of America’s annual meeting this year. I’m not sure how they enforced it, but I hear that live-tweeting and blogging was banned from Target’s annual meeting yesterday. If it’s true, I think it’s not a good idea as that can garner bad publicity and will happen anyways).
9. Investors Communicating Through Social Sites – Another area where companies increasingly are going to have to keep an eye on are the social sites. Beyond the obvious ones – Facebook and MySpace – there is a new player, Broadridge’s “Investor Network.” It’s too early to tell if their social site will really take off, but it’s safe to say that social sites generally are here to stay and the likely place will a lot of shareholders will be venting in the future.
10. Much Easier Use of Video Changes Everything – With everyone now walking around with a camcorder in their pocket (ie. their cell phone), no one should presume that what happens at the annual meeting, stays at the annual meeting. As brought to my attention by this blog, an embarrassing moment at an annual meeting could cost an inhouse lawyer or corporate secretary their job. Be prepared for zaniness at meetings by being prepared.
This video below from Fortis’ annual meeting – held a few weeks ago – is real and is a “must” viewing. The meeting was delayed a half hour after the management team was pelted with shoes, coins, etc. I particularly liked the dismissive shake of the Chair’s head. Sometimes it’s uncanny the way that corporate life imitates Monty Python (remember this “Stoning” sketch):
My first two blog entries today feature good and bad news. The good news comes from Target, whose annual meeting is being held today. This will be no “regular” annual meeting as William Ackman, whose Pershing Square Capital Management owns a 7.8% stake, is seeking a seat for himself and four other nominees on Target’s board (as noted in this article) as well is seeking the company to use a “universal ballot” (as noted in The Corporate Library blog).
Although it’s become fairly common for dissidents in the throes of a proxy fight to leverage the Web (see this list of examples I have collected), it’s still fairly rare for companies to do the same. That’s why it’s worth noting Target’s annual meeting page to point out how they “get it” when it comes to campaigning online in their defense.
A number of the items posted on the company’s annual meeting home page were recommended in my article from the Spring ’08 issue InvestorRelationships.com entitled “The Coming Online IR Campaigns: The Future of Director Elections” (which is still available for free). To begin with, Target bothered to create an annual meeting home page. That’s a critical first step. They highlight endorsements from proxy advisors. They even post a white paper making their argument why they think one proxy advisor’s report is flawed (as noted in this article).
Have a good look. I predict these types of shareholder meeting sites will become more of the norm for IR departments/corporate secretaries when we live in a proxy access world without broker non-votes (ie. next year)…
You want further proof that the Web is changing the job of a corporate secretary? How about when a shareholder proponent posts a transcript of his remarks from the annual meeting? Governance guru Bob Monks did just that yesterday on his blog, right after he presented five proposals at Exxon-Mobil’s annual meeting.
No Questions Allowed at TDS Annual Meeting: This Year’s Governance Posterchild?
Now the bad news. Remember the hubbub a few years back over Home Depot’s annual shareholder meeting and the then-CEO Bob Nardelli not allowing questions? Well, it looks like that publicity nightmare was forgotton by Telephone and Data Systems.
Here is what Gary Lutinreports in his “Shareholder Forum”:
Yesterday’s annual meeting of TDS shareholders did not provide the expected opportunity for shareholders to consider management responses to their questions. In an unusually restrictive process, the chairman limited business to the formal requirements of presenting matters noticed in the company’s proxy statement and announcing approval or rejection according to the controlling shareholder’s previously reported intentions, followed by a prepared management report of the company’s condition.
The Forum’s four questions for directors were presented at the meeting by a representative of Southeastern Asset Management as part of the legally allowed presentation of their shareholder proposal. The chairman, who had received a copy of the Forum’s questions on May 15, stated that “given other commitments I’ve had, I’m not in a position to speak to the questions the Shareholder Forum raised,” and further that “I also don’t believe it’s the time or place for a director or the chairman to answer those questions.” He did, however, assure a future response.
The chairman subsequently declined to hear other shareholder questions, saying that they could be addressed after the formal part of the meeting. The webcast ended at the conclusion of the formal agenda, though, and it was reported by attendees that shareholders were then simply told that any questions should be sent to the company’s corporate relations officer.
In his report on the meeting, Gary links to the audio archive of the meeting and provides specifics about when the TDS chair blows off the shareholders. Gary also notes that the day job of TDS’ non-executive chairman (who is also the brother of the CEO and co-trustee of the family trust that controls TDS through super-voting stock) is a partner of Sidley Austin, heading its Financial and Securities Litigation Group.
CalSTRS Breaks New Ground Announcing Votes
Yesterday, CalSTRS revealed that it has become the first institutional investor that will regularly announce its voting decisions regarding upcoming annual shareholder meetings on Broadridge’s ProxyEdge, a platform used by nearly all brokers. This is a big deal since it’s a step towards a fully integrated proxy voting system.
Imagine going to vote – and having access to endorsements, etc. at your fingertips just when you’re about to push the button. Useful – and much more influential than the annual meeting campaign sites I described above since this information will be available right at the crucial moment of voting. I certainly could use that type of information when I’m in the voting booth and I’m presented with candidates I’ve never heard of running for County Commissioner…
The battle over the SEC’s future is heating up. Last week, the Treasury Secretary received this letter from 14 pension plans regarding the importance of maintaining the independence and oversight of the SEC.
Below is some interesting commentary from Lynn Turner regarding the latest developments in this battle:
This Bloomberg article highlights the efforts of Treasury Secretary Geithner, Larry Summers and the Obama Administration to strip the SEC of some of its powers. Changes being discussed include taking away the SEC’s regulation of mutual funds. Also perhaps giving a new consumer products commission some of the SEC’s powers.
About three years ago, the Treasury’s Paulson Blueprint Report, one from the Business Roundtable – as well as other reports – recommended that the SEC be weakened, with less protections afforded to investors in an effort to make the US capital markets more competitive and attractive to business. Those efforts seem to be in full swing again. There was a meeting last week in Washington DC between those individuals and others including Paul Volcker, Arthur Levitt and Elizabeth Warren to discuss the issues cited in the article.
The Federal Reserve is the Problem; Not the Solution
The financial meltdown – as the recent Frontline documentary aptly highlighted – was caused by banks making a lot of bad loans and Wall Street firms taking on huge risks and bets when they insured those loans through trillions of dollars of credit derivatives. The Fed stood idly by despite 1994 legislation that permitted the Fed to prevent these unsound lending practices. The Fed was the regulator for some of the biggest institutions that would have failed without taxpayers bailing them out. But then again, the Fed has never protected investors – and strongly advocated for legislation that allowed the creation of banks that became too large to fail and stopped any regulation of derivatives.
Now Treasury Secretary Geithner – who as head of the NY Fed oversaw these very banks that needed bailouts – and who was involved with the decisions on Bear Stearns, Lehman Brothers and AIG, is now proposing to give the Fed even greater powers while stripping those powers away from the SEC. Geithner speaks in the Bloomberg article of enforcement – but the Fed has a terrible enforcement track record and has never protected consumers and investors.
That is specifically why I understand the Congressional Oversight Panel has said the government needs to create yet another government agency to protect consumers – because the Fed and other banking agencies (which are captives of the industry) have refused to do so depite legislation such as the ’94 Hoepa Act and Truth-in-Lending laws. You don’t need the fingers on one hand to count the number of banking executives – whose major banks have required taxpayer-subsized bailouts – that have been targeted by the Fed for their unsound lending practices.
What is the Treasury’s Case?
What the Treasury has not done is make a case as to what problems they are seeking to fix with this change in powers. And explain why – other than for political reasons and due to their close ties to the banking industry – they would make changes to the SEC’s powers. On the other hand, the mutual fund industry has attracted large sums of money away from what use to be deposits at banks during the past two decades. And with those investments, mutual funds have invested in the commercial paper of many public companies, replacing bank financing in some instances. It appears what may be occurring is an effort on the part of the banking industry to get the government to decide “winners” and “losers” and try to bring those deposits back. But it will be costly for investors in terms of their future returns.
What people seem to forget is that there was one and only one money market fund that went under: the Reserve Primary Fund. That fund had invested heavily in Lehman debt in the prior year. Perhaps if the credit rating agencies had properly rated Lehman’s debt, that would not have happened – but that is another issue. (Also as Frontline documented, Geithner failed to understand the major issues associated with Lehman debt when he – along with Paulson and Bernanke – decided to let them fail.) In addition, the Reserve Primary Fund had a few very large institutional investors who withdrew their money, thereby forcing the fund to “break the buck” and create a liquidity issue. (Professor Mercer Bullard, a former SEC Staffer, gave some excellent testimony before the Senate Banking Committee on this issue a few months ago.)
However, this is but one fund. At the end of 2007, according to the ICI 2008 Fact Book, there was $3.1 trillion in money market funds invested in the US, up from $1.3 trillion ten years earlier. There were 38.8 million individual money market accounts. Having just one fund go under in this very severe downturn is a real statement on how well these funds – and the mutual fund industry generally – have weathered the storm.
At the same time, literally over a hundred banks have required a government-backed bailout with actual cash investments, as well as insurance of their debt. Dozens of banks have now failed this year – and without hundreds of billions of taxpayers dollars, other banks (including many deemed to big to fail) would have as well. Clearly mutual funds have turned out to be a safer and better deal for investors.
The Bottom Line: Let Investors Decide “Winners,” Not the Government
Why one would want to strip regulation of money market funds from the SEC and place it with the banking regulators or another agency is highly suspect and questionable. It clearly appears to be a play by the banks to recapture lost deposits, deposits they lost because their product was of an inferior quality to what mutual funds have offered. The government should not interject themselves into this fight between banks and mutual funds, but rather let the customer – the investing public – decide which is the best product. We need less of the government deciding who the winners and losers are, not more.
As the Bloomberg article notes, the current Chairman of the SEC has curiously been excluded from the negotiations and has argued against any changes through the mainstream media.
SEC’s Unpopularity: All-Time High?
Although I’m not convinced this type of survey has been conducted frequently enough so that we can really tell that the SEC’s unpopularity is at an all-time high, I would be surprised if that wasn’t the case given the phenomenal amount of negative publicity that the SEC has received during the past year.
As noted in Michael MacPhail’s blog, a recent Persuasion Strategies survey of potential jurors captured their opinions of six federal agencies. The SEC was the most negatively-viewed agency of the six, with 55% of respondents expressing an unfavorable opinion – compared with 46% expressing an unfavorable opinion towards the oft-despised IRS.
I completely agree with what Tom Gorman wrote in his “SEC Actions Blog” in his piece entitled “Remaking The SEC For Tomorrow” and couldn’t have said it better. The mission of each Division needs to be rethinked, including whether their focus should be broadened or even new Divisions need to be created (think asset-backed securities)…
One of those things I’ve been meaning to blog about – and no one else was blogging about until Mark Borges covered it in his blog recently. A few weeks ago, Ed Durkin and the United Brotherhood of Carpenters Pension Fund has submitted a new shareholder proposal to 20 companies seeking a triennial vote on pay rather than an annual one. The rationale is that this would help shareholders by reducing the number of companies they would have to analyze each year – and would help companies as they wouldn’t have to face an annual battle over their pay practices.
As Mark notes, the triennial executive pay (known as “TEP”) proposal would require:
– In addition to an overall vote on named executive officer compensation, separate votes on a company’s (i) annual incentive plan, (ii) long-term incentive plan, and (iii) post-employment benefits (including retirement, severance, and change-in-control payments); and
– A “forum” between the compensation committee and shareholders on at least a triennial basis to discuss senior executive compensation policies and practices.
In talking to company representatives, they obviously find a vote every three years (with a forum in between periods) more palatable than an annual vote (eg. Intel recently launched a stockholder forum leading up to last Wednesday’s annual shareholders meeting).
I agree with Mark that this idea’s weakness is how to deal with corporate implosions between the triennial votes. My solution would be a safety valve where shareholders could gather and trigger a vote, much like the idea of triggering proxy access. In other words, if a group of shareholders got together that met a ownership threshold and filed some type of certification with the SEC that states they seek a say-on-pay vote (with the filing made by a particular deadline), the company would be forced to put say-on-pay on the ballot for the upcoming meeting.
But note that I’m still dubious whether say-on-pay is really meaningful anyways. I would rather rely on votes “against” compensation committee members as the signal to the board that shareholders are unhappy over pay practices. In a say-on-pay world, I worry that board will routinely get their pay packages blessed (see this recent WSJ article) and that excessive pay practices won’t change.
Welcome to Barbara Nepf!
We’re very excited to have Barbara Nepf join our staff! Most recently, Barbara worked for DLA Piper as a Knowledgement Management lawyer, specializing in all those areas that you find on this site. Barbara will be working part-time from the NYC area. Give her a “shout out” at barbara@thecorporatecounsel.net.
Spring Issue of the Compensation Standards Newsletter
On a complimentary basis, we recently posted the Spring Issue of the Compensation Standards Newsletter. The lead article is entitled “Compensation Arrangements in a Down Market: Insights into Latest Practices.”
Please note that we also have posted all the archives of this publication for CompensationStandards.com members to access.
From Davis Polk: Legislation that creates an independent commission to examine the causes of the financial crisis was signed into law by the President on Wednesday. Section 5 of the “Fraud Enforcement and Recovery Act of 2009” makes only one notable change to the bill discussed in Davis Polk’s May 15th alert. Earlier versions of the bill required only a simple majority vote of the Commission for a subpoena to be issued – but the final version requires at least one affirmative vote of a Commission member appointed by the Republicans.
Congressional Democrats will appoint six members of the ten-member commission and Congressional Republicans will appoint four members. Whether this change has a material impact on the Commission’s operations is uncertain, and will likely depend on the Commission’s ability to secure voluntary production of witnesses and evidence.
“Early Bird” Conference Rates: Expires at End of Today
Note that in response to our generous early bird offer for the “4th Annual Proxy Disclosure Conference” (whose pricing is combined with the “6th Annual Executive Compensation Conference”), we are on pace for a record number of attendees (despite the economy). A true reflection of how important executive compensation is this year! These Conferences will be held at the San Francisco Hilton and via Live Nationwide Video Webcast on November 9-10th.
Act now, as this tier of reduced rates will not be extended beyond the end of today! With the SEC intending to propose new executive compensation rules in the near future – and Congress looking to legislate executive compensation practices this year, these Conferences are a “must.” Register today. If you’re in need of a few days to get a check cut, email me today to hold this rate.
Whistleblower’s Fight over Definition of Risk
As has forever been the case, most scandals see the light of day because someone was brave enough to speak out. I don’t know enough to know the merits of this situation, but this fight between a Deutsche Bank employee and his employer has many lessons for all of us in the corporate world. In this letter, the employee – Deepak Moorjani – shares his perspectives on his firm’s risk policies and the culture and reward structure that he claims encouraged practices that were not in the company’s best interests.
For the third time this decade, the SEC proposed a proxy access rule – Rule 14a-11 – yesterday in an open Commission meeting (Dave blogged about the proposal’s long history last week). The vote was 3-2 – with Commissioners Casey and Paredes dissenting – and there is a 60-day comment period. Here is the SEC’s press release in a nice Q&A format – and here are statements by Chair Schapiro and Commissioners Aguilar, Walter, Casey and Paredes.
Ahead of the proposing release being available, here are the basic of the proposal:
– Sliding Scale Ownership Requirements – The ownership threshold would vary depending on a company’s size: 1% of voting shares for large accelerated filers; 3% for accelerated filers; and 5% for non-accelerated filers.
– One-Year Holding Period – Nominating shareholder (or group) must have held the requisite percentage for at least one year at the time of providing notice to the company.
– Up to 25% of the Board – Shareholders can nominate the greater of one nominee or the number that equals up to 25% of the board. If shareholders nominate too many candidates, it’s “first in, first on the ballot.”
– 120-Day Deadline – Nominating shareholders must provide notice to the company and the SEC at least 120 days before the first anniversary of the date that the prior year’s proxy materials were first released (i.e. the Rule 14a-8 deadline), unless the company has an advance notice bylaw that provides a different timeframe.
– Schedule 14N Certification– Nominating shareholders must file a Schedule 14N reporting the percentage beneficially owned, period of time held, intent to hold shares through date of the shareholders meeting and other disclosures and certifying that the nomination is not intended to result in a change in control or result in more than minority representation on the board.
– Nominee Candidate Must Be Independent – Any nominee must meet state law and stock exchange independence standards and the nominating shareholder can’t have any agreement with the company regarding the nomination. However, there is no restriction on shareholders nominating persons with whom they have a relationship, including themselves.
– Rule 14a-11 Trumps State Law – Rule 14a-11 would preempt any proxy access provisions set forth in state law or in a company’s charter or bylaws (as noted by Prof. Verret).
– More Access Proposals Allowed Under Rule 14a-8 – Revised Rule 14a-8 would allow more shareholder proposals relating to the processes for the nomination and election of directors, requiring inclusion of proposals that would amend a company’s governing documents regarding election procedures.
Here are a few completely random thoughts:
– Regarding nomenclature, I guess “proxy access” is in and “shareholder access” is out.
– Although I didn’t go down to the SEC (I hear not too many did – it’s easy to watch via webcast), I do know that meetings now open with a slideshow warning about what to do in case of emergency, including the SEC’s “Shelter-in-Place” procedures. And that the SEC’s security guards now carry guns.
– A number of folks “live-tweeted” the meeting (eg. @nminow and @simonbillenness), thus putting pressure on the firms that rush out their firm memos hours after meeting to join the Twitter brigade. You can’t beat real-time! You can see a collection of tweets about proxy access using the hash tag of #proxyaccess.
– The “first firm to issue a memo” sweepstakes? Simpson Thacher over O’Melveny and Davis Polk in a sqeaker. I’ve seen a dozen more already. Of course, alacrity doesn’t equal quality…
The First Model Proxy Access Bylaw
Recently, Wachtell Lipton shared this model proxy access bylaw for those companies seeking to take advantage of the new amendments to the Delaware General Corporation Law, which allows companies to pick and choose their own proxy access process. I imagine we’ll see a few other models as we approach the August 1st effective date for the DGCL amendments and we’ll be posting them in our “Proxy Access” Practice Area.
Some Perspective on Shareholder Access
Recently, Ted Allen – RiskMetrics’ Director of Publications – wrote this nice recap of proxy access as it exists today:
Existing Corporate Provisions
A few U.S. companies have access provisions in place. Comverse Technology instituted an access bylaw in 2007 during an overhaul of its governance policies after an options backdating scandal. Under that bylaw, an investor group that owns a 5 percent stake for at least two years may nominate one director to appear on the company’s proxy statement. The Comverse bylaw also bars investor groups from making nominations for four years if its nominee fails to receive at least 25 percent support. (Editor’s note: RiskMetrics Group allows investors who hold a 4 percent stake for two years to nominate a candidate.)
In 2003, California-based Apria Healthcare adopted a policy to allow shareholders to submit names for inclusion on its ballot, but the company’s board can reject those candidates, according to Bloomberg News. In 2005, two shareholder nominees appeared on the company ballot at Gateway Energy, a small-cap natural gas firm based in Houston. UnitedHealth created an advisory committee in 2006 to allow investors to provide input on board nominees. In 2007, Pfizer held a town hall meeting with large investors to solicit their input on directors and other issues. Other firms, such as H-P, allow shareholders to suggest nominees, but investors have no recourse but to wage a costly proxy solicitation if management ignores those suggestions.
Activist investors have sought less rigorous ownership requirements. The proposals filed at H-P and UnitedHealth in 2007 called for allowing two nominations by investors who collectively own a 3 percent stake for at least two years. The Council of Institutional Investors supports a similar standard for access, provided that investors who nominate board candidates adhere to the same SEC disclosure requirements that now apply to proxy contests.
Access in Other Markets
Other major markets, such as the United Kingdom and Japan, allow investors to nominate board candidates to appear on management proxy statements. Under the U.K. Companies Act, investors can nominate candidates at an annual meeting if they collectively own at least 5 percent of a company’s share capital or are part of a group of at least 100 shareholders who each hold stakes worth 100 pounds ($146) or more. Since January 2008, investors have nominated board candidates at nine U.K. firms, according to RiskMetrics data. The most high-profile case was Aegis Group, where the Bollore Group, which now holds a 30 percent stake, nominated two board candidates who were not elected.
In Japan, shareholders who own at least 1 percent of a company’s capital or 300 share units for six months may propose business for a corporate agenda, including nominating board candidates or seeking the removal of directors. Nevertheless, dissident board slates are quite rare; one notable exception is the proxy fight now being waged at Japanese wigmaker Aderans Holdings by the Steel Partners Japan Strategic Fund.
