Yesterday, the SEC posted a 194-page proposing release related to the amendments of its cross-border rules, the first proposed changes to the rules since they were initially adopted in 1999. A departure from recent practice, these proposals were approved by the Commission seriatim rather than in an open Commission meeting.
The proposing release includes many proposed rule changes that would codify existing Staff interpretive positions and exemptive orders – although there are some areas that are proposed to change – as well as some Staff interpretive guidance that the SEC seeks comment on. The SEC’s proposals include:
1. Refinement of the tests for calculating U.S. ownership of the target company for purposes of determining eligibility to rely on the cross-border exemptions in both negotiated and hostile transactions, including changes to:
– Use the date of public announcement of the business combination as the reference point for calculating U.S. ownership;
– Permit the offeror to calculate U.S. ownership as of a date within a 60 day range before announcement;
– Specify when the offeror has reason to know certain information about U.S. ownership that may affect its ability to rely on the presumption of eligibility in non-negotiated tender offers;
2. Expanding relief under Tier I for affiliated transactions subject to Rule 13e-3 for transaction structures not covered under our current cross-border exemptions, such as schemes of arrangement, cash mergers, or compulsory acquisitions for cash;
3. Extending the specific relief afforded under Tier II to tender offers not subject to Sections 13(e) or 14(d) of the Exchange Act;
4. Expanding the relief afforded under Tier II in several ways to eliminate recurring conflicts between U.S. and foreign law and practice, including:
– Allowing more than one offer to be made abroad in conjunction with a U.S. offer;
– Permitting bidders to include foreign security holders in the U.S. offer and U.S. holders in the foreign offer(s);
– Allowing bidders to suspend back-end withdrawal rights while tendered securities are counted;
– Allowing subsequent offering periods to extend beyond 20 U.S. business days;
– Allowing securities tendered during the subsequent offering period to be purchased within 14 business days from the date of tender;
– Allowing bidders to pay interest on securities tendered during a subsequent offering period;
– Allowing separate offset and proration pools for securities tendered during the initial and subsequent offering periods;
5. Codifying existing exemptive orders with respect to the application of Rule 14e-5 for Tier II tender offers;
6. Expanding the availability of early commencement to offers not subject to Section 13(e) or 14(d) of the Exchange Act;
7. Requiring that all Form CBs and the Form F-Xs that accompany them be filed electronically;
8. Modifying the cover pages of certain tender offer schedules and registration statements to list any cross-border exemptions relied upon in conducting the relevant transactions; and
9. Permitting foreign institutions to report on Schedule 13G to the same extent as their U.S. counterparts, without individual no-action relief.
In addition to those proposed rule changes, the Corp Fin Staff provides interpretive guidance or solicit commenters’ views on the following issues:
1. The ability of bidders to terminate an initial offering period or any voluntary extension of that period before a scheduled expiration date;
2. The ability of bidders in tender offers to waive or reduce the minimum tender condition without providing withdrawal rights;
3. The application of the all-holders provisions of our tender offer rules to foreign target security holders;
4. The ability of bidders to exclude U.S. target security holders in cross-border tender offers; and
5. The ability of bidders to use the vendor placement procedure for exchange offers subject to Section 13(e) or 14(d) of the Exchange Act.
If you’re wondering if the lack of an open Commission meeting means that this rulemaking is less important to the SEC, the answer would be “no.” Until a few Chairman ago, most rulemakings were approved seriatim and only the ones that the SEC wanted to get the attention of the mass media were approved at an open meeting. “Seriatim” simply means that each Commissioner signs an order indicating whether they vote in favor of a particular proposing or adopting release.
That trend started to change when Harvey Pitt became Chair and it is my hunch that since the open meetings are more “open” now due to the Web, that trend has continued to today. Plus, the SEC likes the publicity. But it’s a production to hold an open meeting, so some rulemakings have to go seriatim to keep the rulemaking machine humming.
More on Short Sellers and Rumors
My favorite part about blogging is reactions from members, particularly those that add more value to our experiences here. Here is another excellent addition from Keith Bishop following up on my recent blog about the SEC acting on short selling and rumors: There have been two recent cases involving challenges under California law to short selling:
1. Remember Broc’s “Lord Sith” blog about Overstock.com’s analyst call from about two years ago? Overstock.com did file suit. Among other things, Overstock alleged that the knowing and intentional dissemination of negative reports on Overstock.com containing false and/or misleading statements concerning Overstock constituted unlawful, unfair, or fraudulent business acts or practices by the defendants . . ., in violation of California Business and Professions Code § 17200. The Court of Appeal found California’s unfair competition statutes do not exclude securities claims. Overstock.com also alleged violations of California’s Corporate Securities Law. In a victory for Overstock.com, the Court of Appeal affirmed the trial court’s denial of the defendants motion to strike the entire complaint under California’s anti-SLAPP statute (Strategic Lawsuit Against Public Participation, Cal. Code of Civil Procedure § 425.16). Overstock.com, Inc. v. Gradient, 151 Cal. App. 4th 688 (2007).
2. Remember ZZZZ Best Co. and Barry Minkow (See In re ZZZZ Best Securities Litigation, 864 F. Supp. 960, 963 (C.D. Cal. 1994))? In Usana Health Sciences, Inc. v. Minkow (D. Utah, March 3, 2008), a company sued Barry Minkow and the Fraud Discovery Institute alleging that they engaged in a scheme of illegal market manipulation involving a lengthy and uncomplimentary report about the Company. In contrast to the decision in Overstock.com, the Court dismissed the state claims under California’s anti-SLAPP statute.
For years, some issuers have been complaining about the short sellers and rumors. To some extent, Wall Street has dismissed these complaints. See Joe Nocera . “New Crusade for Master of Overstock”, The New York Times, (June 10, 2006) (“Except for a few fellow-traveling Web sites, where Mr. Byrne is viewed as a heroic figure, most people who understand the issue or have looked into it think it’s pretty bogus.”). Overstock.com teaches that it may be possible to pursue these complaints under California’s Unfair Competition Law as well as its securities law. The differing conclusions of the courts in the Overstock and Usana cases make it clear that success in the face of free speech challenges is not assured. Finally, it is important to keep in mind that Overstock.com has not yet won its case – it has only survived a motion to strike. Nonetheless, the SEC’s recent settlement and the Overstock.com decision may burnish the credibility of those who are complaining about short selling and rumor mongering and encourage more litigation in this area.
A Personal Note: 20-Year Law School Reunion
I recently missed my twenty-year law school reunion. Yes, I had a bad attitude since I didn’t “dig” law school – but I was out-of-town anyways. My primary reason for disliking law school was the style – way too serious and not much in the way of “real life.” Isn’t that true of most educational platforms? Anyways, I pose the question to you:
As the end of his term nears – and after six years in office – Republican SEC Commissioner Paul Atkins announced that he intends to leave the Commission “once a successor is appointed and takes office.” Well that may be soon since President Bush has already nominated Professor Troy Paredes as Atkin’s successor (as noted in this article). Given the speed of this nomination, the confirmation hearings may be upon us shortly.
So it looks like the Senate will consider the confirmation of three SEC Commissioners at once – Troy and the two Democratic candidates, Luis Aguilar and Elisse Walter. Three new Commissioners at once is beyond rare; according to this chart, it would be the first time it has happened since the Commission was formed in 1934.
By the way, Peter Schwartz recently wrote a pretty nice piece about Commissioner Atkins in his “Soap Box” (scroll down to April 28th entry).
I think it will be cool to have someone named “Troy” as a Commissioner. You may recall that was Fred Flintstone’s nickname in Episode 140 when Fred became a surfer hipster dude and kept saying “Yeah, yeah, I’m hip, I’m hip.” My friends made me a “Troy” T-shirt in college…
CorpGov.net: The First Governance Site
I’ve been a long-time reader of Jim McRitchie, who is Editor of CorpGov.net, a site that has been up over a decade and where Jim essentially has been blogging that entire time on his “News” page (even before there was blogging software available).
In this podcast
, Jim provides insights into what it’s like to be a long-standing reporter on corporate governance issues, including:
– What led you to create CorpGov.net a decade ago?
– How has the site evolved over time?
– What have been the biggest surprises in managing the site?
The Future of Corporate Law: Symposium Notes
Below is a great example of the useful types of information that Jim McRitchie provides on CorpGov.net:
In the current issue of The Delaware Lawyer, a variety of practitioners and academics (including Lucian Bebchuk, Robert Thompson, Michael Dooley and Charles Elson) present brief appeals for reform of Delaware’s corporate statutes. Many of them, joined by professors Jennifer Hill, Brett McDonnell, Faith Kahn, Elizabeth Nowicki, and Ann Conaway, discussed their proposals for reform at the Delaware General Corporation Law for the 21st Century Symposium on May 5th at the Widener University School of Law in Wilmington.
Most Americans have become “forced capitalists” as companies have moved from traditional defined benefit pensions to 401(k) plans for employees, said Vice Chancellor Leo Strine Jr., a judge in Delaware’s Court of Chancery, at the lunch address. These forced capitalists invest in the market through intermediaries or money managers, Strine said. He calls it “separation of ownership from ownership.” (Experts look at corporate law statute, Delawareonline.com, 5/6/08)
Robert Thompson noted that “self-help” measures are important for shareholders. Delaware statutes have gaps with regard to that need. If Delaware doesn’t address the need directly, it will likely lead to a patchwork of Federal provisions. Shareholders must be able to check directors when they are conflicted or entrenched. There has to be an effective way to exercise their franchise which cannot be redirected by the board. Delaware should write statutes which make Federal preemption less likely.
Charles Elson said that times change. As great as the Delaware corporate law scheme is, we need changes to better protect investors. Forty years ago, we were in a different era. Now, stock is aggregated and held by largely by institutional investors who are more sophisticated. They don’t need protected by management. Shareholders need a way to replace directors, not just vote them down. Shareholders don’t have the right to direct day to day operations and shouldn’t. However, for directors to be accountable to shareholders, we need the threat of a real election. Make the election a vibrant process by allowing reimbursement for short slate contests instead of the current asymmetry where corporations only pay for one side. I get nervous when managers view themselves as the corporation. Elson has proposed a statute that would reimburse shareholders for the cost of putting forth a competing slate of directors if they are successful or nearly successful in getting people on the board.
Rick Alexander argued that five mergers were shot down by shareholders recently. The market is doing its job. Directors have a lot of information that isn’t publicly available. There are legitimate differences. We’re not going to maximize the economy by going with what 51% of stockholders think. What about the rights of the other 49%? Directors take their jobs very seriously. They know that failure to adopt resolutions that get a majority may cost them their jobs because ISS will recommend voting against them.
Jennifer Hill said the US hasn’t looked much to developments in other countries. The federalist system provides competition for corporate charters in the US. Common law may be better than civil law. However, the idea that the US operates similarly to other common law countries is a misconception. In the UK and Australia changes happens much more frequently. SOX didn’t give shareholders participatory rights, only some additional protection of their rights through disclosure and liability. In Australia and the UK a raft of recent laws have strengthened rights with provisions such as “say on pay.” Bainbridge and Stout argue shareholders don’t want rights. However, for Hill, News Corporation’s move from Adelaide was instructive. Institutional investors wanted charter provisions to render inapplicable certain Delaware laws in order to maintain Australian rights where corporate constitutions can be changed by shareholders, meetings can be convened by 100 members, and no poison pills are allowed.
With Aflac’s annual meeting results now in, “say on pay” is in the news. Here are five items to consider:
1. Aflac’s Pay Package Gets 93% Support – As noted in this NY Times article, Aflac’s meeting on Monday was uneventful with the company’s executive pay package getting overwhelming support.
2. RiskMetrics’ Aflac Report – ISS kindly has given us permission to post its analysis of Aflac’s “say on proposal.” It is interesting comparing that to the PIRC report that I posted last week.
3. Shareholders Not Supporting “Say on Pay” As Much This Year – As noted in this Washington Post article, the level of support for “say on pay” proposals is down this year compared to last year (bearing in mind that last year’s levels were remarkable for a “first year” type of proposal). So far, only proposals at Apple and Lexmark have garnered majority support.
Compare the Washington Post’s conclusions with those of ISS from this article. Here is an excerpt: “This year, pay vote proposals have averaged 42.1 percent support at 21 companies so far. That is in line with results for calendar 2007, when 52 such proposals received 42.5 percent average support. Surprisingly, however, the measure received less support at a number of financial companies this season, including Citigroup, Morgan Stanley, Wachovia and Merrill Lynch, where many observers expected the measure would fare better than last year given investor anger over subprime-related losses.”
As noted in the ISS piece, I’m also hearing that levels of support for proposals generally are down. I’m not sure of the reason, although some claim it’s partly due to the lower level of retail holders voting under e-proxy (I’m not sure I buy that given that relatively few companies are doing e-proxy).
4. Two More Companies Agree to “Say on Pay” – Littlefield and MBIA have joined the group of companies that have agreed to allow their shareholders to vote on executive pay, bringing the total number to seven. MBIA’s vote will occur in 2009 and Littlefield’s vote is in a few weeks, where its shareholders will vote on two management resolutions that ask shareholders whether the total compensation received by the CEO, president, and directors in 2007 “is within 20 percent of an acceptable amount,” according to its proxy statement. Hat tip to this ISS article for uncovering these two!
5. RiskMetrics’ Own “Say on Pay” Proposals – A few weeks ago, RiskMetrics Group filed its first proxy statement and it includes three separate resolutions for shareholder approval, which may become the model for future “say on pay” proposals. These three proposals are: (1) the company’s overall executive compensation philosophy; (2) whether the board executed these principles appropriately in making its 2007 compensation decisions; and (3) the board’s application of its compensation philosophy and policies to the company’s 2008 performance objectives.
Canada Revises Its Executive Compensation Proposals
Recently, the Canadian Securities Adminstrators re-published their executive compensation disclosure proposals. The original proposals were made a year ago – and interestingly, many Canadian companies have already voluntarily changed their disclosures to match the proposals. Here is a memo explaining how the proposals have changed.
The PCAOB Speaks: Latest Developments and Interpretations
We have posted the transcript from our recent webcast: “The PCAOB Speaks: Latest Developments and Interpretations.”
In the wake of the two recent Delaware Chancery Court cases (Levitt Corp. v Office Depot; JANA Partners v. CNET) regarding advance by-laws, some companies are taking the memos posted in our “Advance By-Laws” Practice Area to heart. Essentially, the memos urge companies to specify in their Notice that the agenda item on director elections applies only to the election of director candidates described in the company’s proxy statement; not to nominations generally. For example, when Wal-Mart filed its proxy statement recently, it limited its state law notice to only those nominees “named in the attached proxy statement.” Compare Wal-Mart’s notice from last year.
Another example is the proxy statement filed by the Canadian company, Storm Cat Energy Corp. Interestingly, Storm Cat is incorporated in British Columbia, so it’s not directly impacted by the recent Delaware decisions. (By the way, it’s a cool name for a company, although I have a beef with them – when you click on “Annual Reports” on their IR web page, the 2005 glossy is the latest!)
J-SOX is On!
A few years in the making, Japan now has it’s own version of the Sarbanes-Oxley Act. The J-SOX rules became effective on April 1st and they apply to about 3,800 Japanese listed firms, their large subsidiaries and affiliates. The new rules are bound to have their own challenges. Learn more in our “J-SOX” Practice Area.
2008: The Year of the Hedge Fund Activist
Join DealLawyers.com tomorrow for the webcast – “2008: The Year of the Hedge Fund Activist” – to learn about the latest strategies and tactics used by hedge fund activists, as well as latest planning tips employed by those that seek to stave off these attacks. The panel includes:
– David Katz, Partner, Wachtell Lipton Rosen & Katz
– Ron Orol, Senior Writer, The Deal and The Daily Deal
– Damien Park, President & CEO, Hedge Fund Solutions, LLC
– Veronica Rendon, Partner, Arnold & Porter LLP
– Professor Randall Thomas, Vanderbilt University Law School
– Christopher Young, Director of M&A Research, RiskMetrics Group
The Williams Act – 40 Years Later!
On May 21st and 22nd, Georgetown University Law Center will be hosting a conference to commemorate the 40th anniversary of the adoption of the Williams Act takeover regulations. The speakers and panelists will include members of the SEC staff, academics, financial journalists, international takeover regulators, practitioners, bankers, and Delaware judges. It’s free – but you still need to register (here is the agenda). If you have questions, contact Larry Center at center@law.georgetown.edu.
Earlier that week, Corp Fin will be hosting a meeting of international takeover regulators at the Commission’s headquarters – so representatives from the UK, Germany, France, Hong Kong, Australia and Japan will likely be at the Georgetown conference, lunch and reception if you want to rub elbows with a group of regulators.
We just put the finishing touches and mailed the March-April ’08 issue of The Corporate Counsel, which includes guidance on the process for obtaining issuer-specific and interpretive guidance from the Corp Fin Staff. For those that haven’t tried a no-risk trial, try one now to get this issue rushed to you. In an upcoming issue, we will discuss the process for obtaining informal legal guidance and relief from Corp Fin’s Office of the Chief Accountant.
The March-April ’08 issue includes analysis of:
– Obtaining Staff Guidance Today
– Staff Response Process
– What Staff Relief Means
– The New 8-K Item 5.02 CDIs
– Current Disclosure of Cash Bonus, Etc. Plans (Item 5.02(e))
– Officer and Director Appointments, Resignations, etc. (5.02(b)–(d))
– Bebchuk’s Shareholder Proposal—Follow-Up
– Expect More Full 1934 Act Reviews
– Non-AFs—Failure to Include the SOX 404(a) Report in the 10-K
– SEC–0; Short Sellers–3—More Thoughts on Mangan, Etc.
Happy 6th Anniversary to Me!
Today marks six full years of blogging for me. It’s definitely personally and professionally rewarding, but it can tend to rule your life (but doesn’t cause death like this NY Times’ article intimates). That’s why I’m so glad Dave joined me on this blog last year.
And I’m excited that Steve Haas of Hunton & Williams has joined me on the DealLawyers.com blog. On Friday, Steve posted his first entry. Any other M&A practitioners out there interested in blogging? I’m hoping to add a half-dozen others willing to post something once or twice per month. If interested, give me a buzz or email me. You too can “be somebody”!
Nasdaq: Housekeeping the Rules
Recently, Nasdaq submitted a proposal to the SEC that would reorganize the rules applicable Nasdaq-listed companies. These rules would be moved from the Rule 4000 Series of the Nasdaq manual to the Rule 5000 Series – and would not change the substance of any rule. According to Nasdaq, the reorganization is necessary because the rules have become complex over time and difficult to navigate.
I applaud the Nasdaq for recognizing the need to clean up its “house.” We are in the process of doing the same for our sites, which have grown heavy with content over the years and are in need of some reorganization. Recently, Section16.net and CompensationStandards.com have undergone a “tune up.” Let us know if you have suggestions about how improve our sites.
The interest in our inaugural issue of InvestorRelationships.com has been overwhelming. As Yoda would say, investor relationships are very strong in this one.
No doubt that one reason for the interest is the lead article entitled “The E-Proxy Experience: Practice Pointers and Pitfalls to Avoid.” Sign-up for free copies of this new quarterly newsletter and see what you think of the pointers.
Broadridge’s Latest E-Proxy Stats
In our “E-Proxy” Practice Area, we have posted the latest e-proxy statistics from Broadridge. As of March 31st:
– 283 companies have used voluntary e-proxy so far (a big leap from 103 at the end of February – understandable since proxy season is in full swing)
– Size range of companies using e-proxy varies considerably; all shapes and sizes (eg. 25% had less than 10,000 shareholders)
– Bifurcation is being used more as the proxy season progresses (but still not all that much); of all shareholders for the companies using e-proxy, now over 10% received paper initially instead of the “notice only” (up from 5% last month)
– 0.45% of shareholders requested paper after receiving a notice; this average is down from 0.70% at the end of February
– 55% of companies using e-proxy had routine matters on their meeting agenda; another 30% had non-routine matters proposed by management; and 14% had non-routine matters proposed by shareholders. None were contested elections.
– Retail vote goes down dramatically using e-proxy (based on 92 meeting results); number of retail accounts voting drops from 19.0% to 4.5% (over a 75% drop) and number of retail shares voting drops from 31.4% to 13.9% (a 56% drop)
This recent WSJ article entitled “Shareholder Voting Declines as Companies Adopt Web Ballots” muses on various reasons why retail voting has declined when e-proxy is used. I doubt it’s a “temporary phenomenon as shareholders make the adjustment.”
Our May Eminders is Posted!
We have posted the May issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
“Witches Brew”: SEC Accuses Trader of Rumormongering on Deal
As noted in this NY Times article on Friday (and this Wilson Sonsini memo), the SEC settled a case with a former securities who allegedly spread false rumors to profit from a pending buyout of Alliance Data Systems by the Blackstone Group (the deal tanked later due to other reasons). The SEC said this was its first “rumormongering” case.
According to the NY Times article, the trader allegedly “fabricated a rumor that Alliance Data’s takeover was being renegotiated to $70 a share from $81.75 a share. The trader said that Alliance Data’s board was meeting to discuss the revised proposal. At the time, Alliance Data’s board members were on a plane and could not be reached for comment.” Trading in Alliance Data’s stock was suspended due to heavy volume caused by the rumor, which the trader had sent via instant messages to 31 other traders and other market participants. He was short selling the stock at the time.
Reading the SEC’s complaint, it’s not clear if the trader knew that the board was on a plane and unavailable – my guess is that he didn’t know (and thus was unlucky because if they had been reached and quashed the rumor more quickly, the damages would have been reduced and perhaps this case wouldn’t have been brought or the penalty would be been less than the $130,000 he ended up paying).
In the SEC’s press release, SEC Chairman Cox noted ““The commission will vigorously investigate and prosecute those who manipulate markets with this witch’s brew of damaging rumors and short sales.” It will be interesting to see if the SEC’s Enforcement Division will be bringing more of these cases, particularly due to the heightened interest in hedge funds and their failures to adopt adequate insider trading compliance programs (see Dave’s recent blog on the SEC’s Section 21(a) Report involving the investigation of the Retirement Systems of Alabama).
On the one hand, SEC Chairman Chris Cox has been under fire, mostly due to his comments just before the Bear Stearns deal was announced (and more generally due to the crisis on Wall Street). On the other, he is being mentioned as a possible running mate for John McCain, as noted in this ABC poll. This is the world of “inside the Beltway” in a nutshell.
In the face of the market crisis, Chairman Cox recently gave testimony before the House Subcommittee on Financial Services/Appropriations regarding the President’s proposed SEC budget for fiscal year 2009. Noting that the agency’s budget has not been increased for three years, Cox is seeking a 4% increase over two years. Trust me, this ain’t much because after taking inflation into account and the impact of pay raises, the head count for the Staff would remain basically the same.
It’s hard to imagine how the SEC will be able to regulate new markets (eg. rating agencies), delve into the complicated derivatives and securitization morass and chase the seemingly ever-increasing number of wrong-doers with its current level of staffing (this op-ed from yesterday’s NY Times by three former SEC Chairs agrees). Not to mention the challenges of integrating a global regulatory framework. If that’s not enough, maybe this will get your attention – there is a total of one person in the SEC’s Office of Risk Assessment today.
Even some in the government are skeptical that the President’s budget for the SEC makes sense. According to this article in the FT.com, the GAO will examine the SEC’s Enforcement Division to ensure it has adequate recources; looking at the SEC’s budget justification (page 13), you can see that the percentage of enforcement cases filed within two years of an inquiry first being made has markedly declined over the past few years. And in this speech, Senator Reed discusses his views on the topic.
SEC Filing Fees: Going Way Up
In yesterday’s fee rate advisory, the SEC announced that filing fees will be going up after October 1st (or whenever Congress approves the SEC’s budget, which historically is significantly later than October 1st) to $55.80 per million from $39.30 per million of securities registered with the SEC.
This is a 42% hike, after a 28% hike last year. Before this period, there had not been a hike for quite some time. Note that there is no mention in the SEC’s press release of a reason for the hike. Actually, the press release doesn’t even mention that this is a hike from last year (but we still remember how Chairman Cox was quite proud of the steep drop in ’06, with a lot of fanfare in that press release). You may recall that the SEC’s fee rates aren’t related to the amount of funding available to the SEC; instead, the money goes to the US Treasury.
The Leap Year Curse
In typical leap year fashion, word on the street is that many companies missed the 120-day proxy filing deadline on Tuesday. Apparently, some service providers had the due date as Wednesday on their “filing calendar.” Yikes, a “failure to communicate“?
Warning, today’s blog is cranky. If you’re not in the mood for moping, turn this channel off. For starters, I am bummed the “new” Wall Street Journal is less business and more politics/world affairs. In my opinion, Rupert Murdoch is killing the brand and the unique WSJ experience. In Monday’s edition, it seemed like only one article in Section A was devoted to business and the other two sections were limited to two pages in length. Looks like a fast – rather than a slow – death for those that read the WSJ for their business updates.
Moving on, I got a chuckle reading Prof. Steven Davidoff’s observation that most of the mainstream media mistook a registration rights offering registered with the SEC by employees of Apollo Global Management as a filing by the fund to go public. As the Professor noted, “it’s nothing of the sort.”
I definitely can relate since I deal with journalists on a daily basis in this job. Understandably, many of them don’t know the intricacies of SEC filings compared to those of us that have lived with them for our entire careers. Nor should they; their jobs force them to become generalists on dozens – if not hundreds – of topics.
The ability of bloggers to provide analysis of developments in their narrow niches is what makes the Web so great – and threatens the viability of mass media. Wearing my journalist’s hat a few months ago, I sat on a panel with major business reporters in New York and had some mild disagreements about whether bloggers could provide real value since they typically aren’t trained as journalists. Clearly some can (and of course, some can’t since there is no barrier to entry to become a blogger). Perhaps proving the point that some can, Professor Davidoff’s blog has recently become part of the NY Times’ DealBook empire. I imagine we will see more of the melding of non-traditional and “real” journalists in the near term…
Another thing I’ve noticed with old media: As all the traditional newspapers have undergone severe cuts in staffing over the past few years, the number of errors – both large and small – seem to have tripled. Check out this recent – and novel – press release from the SEC. It’s purpose is to point out an error in a NY Times article. It’s a rare type of press release and thankfully so, because if the SEC issued a press release for every error committed by a journalist covering this “space,” I imagine there would be more than a handful of folks in the SEC’s Office of Public Affairs.
Speaking of the NY Times, SEC Enforcement Director Linda Thomsen responded to a recent NY Times article that was critical of the Division’s efforts by delivering this public statement. Given that the SEC likely disagrees with all sorts of things written in the media, I imagine that this response is directed more broadly to the various quarters (including some members of Congress) that have been critical of Enforcement lately.
And speaking of the SEC’s Office of Public Affairs, I wonder who put them up to issuing this odd press release yesterday to announce that Corp Fin has made its recommendations to the Commission regarding proposals on the cross-border tender, exchange offer and business combination rules? That’s a new one – and I doubt we shall see a press release each time a rulemaking is sent to the 10th floor for consideration. Maybe OPA did add some bodies…
Survey: Auditors Asking to Review Board Minutes
Recently, in our “Q&A Forum,” a member asked what is the common practice when an independent auditor asks a client to review their board minutes. I provided my own thoughts on what that practice might be – but I pose the question to you to see if we can build a consensus:
Hat tip to Jim McRitchie’s CorpGov.net for pointing out that PIRC – one of the proxy advisors in the United Kingdom – has issued a research report that recommends that shareholders vote against Aflac on its say-on-pay proposal at the company’s annual meeting. Given that the UK is one of those countries with experience regarding say-on-pay, I believe this is noteworthy for all of us. We have posted a copy of the PIRC report in the “Say on Pay” Practice Area on CompensationStandards.com.
So why is this development noteworthy? It probably won’t impact Aflac’s ability to garner majority support at next week’s meeting since it’s reported that RiskMetrics has recommended a vote in favor of Aflac’s pay package – but it might cause some companies that were contemplating allowing this type of non-binding resolution on their ballot to reconsider. And maybe the publicity of the PIRC report will cause Aflac to adjust its pay practices for next year (but I doubt it unless Aflac’s proposal doesn’t get majority support given what the CEO Dan Amos has said in his flurry of recent interviews where he is asked about his executive pay views). Both the RiskMetrics and Glass Lewis policies regarding “say on pay” are posted in the “Say on Pay” Practice Area.
Recently, I blogged my thoughts about “say on pay” – this WSJ article from yesterday quoted a number of governance experts that have similar concerns about unintended consequences from say on pay.
Say on Pay in Europe: Heating Up?
As noted in this RiskMetrics article, shareholders in the United Kingdom are challenging executive pay practices more than ever before during this proxy season. BP had 9% voted “against” and another 27% “withheld” – which is a high level compared to what has been happening in the UK during the past few years.
And in March, shareholders of Philips, a Dutch electronics company, rejected an amended executive pay plan; which was the first time that has happened. But it wasn’t a “first” for long as VastNed lost a vote a few weeks later and Corporate Express pulled its plan from the meeting agenda after pressure from shareholders, as noted in this IR Magazine article.
AFL-CIO’s “Executive PayWatch”
In this CompensationStandards.com podcast, Vineeta Anand, Chief Research Analyst for AFL-CIO Office of Investment, talks about the AFL-CIO’s popular online tool “Executive PayWatch,” including:
– What is Executive PayWatch?
– What is the theme this year and what do you hope to accomplish?
– How do people typically use it?
Recently, I blogged about a case brought in the US District Court, Southern District of Texas, by Apache Corporation, who sought a declaratory judgment supporting its exclusion of a shareholder proposal submitted by the New York City Employees’ Retirement System. The case sought to enjoin a lawsuit brought by NYCERS in the Southern District of New York over the exclusion of a employment-related proposal by the Corp Fin Staff under the “ordinary business” basis of the SEC’s shareholder proposal rule (ie. 14a-8(i)(7)).
A few days ago, Judge Miller of the US District Court, Southern District of Texas ruled from the bench for Apache, granting Apache’s declaratory judgment. We have posted the Order and related Memo – even the trial transcript! – from the court in our “Shareholder Proposals” Practice Area.
Interestingly, Judge Miller’s opinion appears to stake out new territory from a judicial point of view. For the first time, a court has endorsed Corp Fin’s view that a proposal that involves some significant policy matters can nonetheless be excluded under Rule 14a-8(i)(7) to the extent that the proposal also deals with core ordinary business matters; here for example, advertising, marketing, sales and charitable giving. We’ll see if the Second Circuit ultimately follows suit (I believe the Texas case isn’t binding on the SDNY one, but under a res judicata theory, it’s likely the Second Circuit would recognize the SDTX’s decision and rule in favor of Apache).
Also interestingly, the Texas court didn’t take the bait offered by Apache with respect to the appropriate standard of review for SEC Staff no-action: Apache asked the court to find that a company that excludes a shareholder proposal in reliance on a no-action letter is entitled to a rebuttable presumption that such exclusion was proper. The court declined to adopt such an approach, however, concluding that Staff no-action letters are only persuasive – but not binding – authority.
Shareholder Proposals: Debunking a Conspiracy Theory
Recently, RiskMetrics ran a piece entitled “Spike in No-Action Requests Worries Investors.” In the article, Subodh Mishra notes that “issuers had challenged 33% of all governance-related proposals filed this year, compared with just 20% in calendar 2007. Challenges by issuers also are more likely to be successful this year than last. For example, 48% of last year’s requests for no action were granted, while this year’s figure so far stands at 69%, according to RMG’s analysis.”
It is interesting to look at the rate of success for exclusion requests – and I don’t remember seeing this type of analysis conducted for other proxy seasons. It’s good stuff. I do think companies were more willing to fight proposals this year. Anecdotal evidence indicates that more exclusion requests under Rule 14a-8(b) regarding proof of ownership were made compared to year’s past. In other words, companies used to be more willing to overlook the “technicalities” of whether a proponent was eligible to submit a proposal (eg. amount of securities held; length of holding period; proof of ownership). Not this year.
But I don’t buy into the notion that there was some sort of conscious SEC Staff decision to be more pro-management this year, even though that’s where the numbers could lead you. Rather, I would argue that the exclusion rate is a direct product of the types of proposals submitted this year and the types of arguments made. So I would not rush to judgment using a conspiracy theory (which other bloggers and journalists have done).
For example, one reason for the increase of exclusion requests granted likely relates to the fact that more companies implemented shareholder proposals when they were received – thus, quite a few proposals were allowed to be excluded as “moot” under Rule 14a-8(i)(10). So ironically, the number of exclusions may have risen because more companies did what shareholders wanted. Another likely factor for the higher exclusion rate is that Corp Fin granted more exclusions under Rule 14a-8(b) this year because companies were more picky about whether the proponent was eligible as noted above.
Perhaps all of this stuff would make for a fine academic paper that delves beyond the numbers into the specifics…
JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues
Tune in tomorrow for our DealLawyers.com webcast – “JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues” – during which Professors Elson, Cunningham and Davidoff will analyze the novel Delaware issues presented by the Bear Stearns transaction, including:
– What significant anti-takeover provisions are in the amended merger agreement?
– How does the provision work that calls for the parties to work in good faith to restructure the deal if Bear Stearn’s shareholders turn it down?
– What is the JPMorgan Chase guarantee – and how does it work? How about the NYC building option and the Section 203 provision?
– How valid are the attacks against the fairness opinions delivered in the deal?
– Why was there a discussion of a 39.5% share exchange and what would be the Delaware law on it?
– How about the abandoned, uncapped 19.9% option – was that valid under Delaware law?
To warm up for the program, check out Professor Davidoff’s analysis of the Form S-4 filed for the deal (which the SEC declared effective on Friday) as well as this WSJ article indicating that post-deal details will be announced soon.
