In Situation You Missed It – Interesting Products for Corporate Counsel – Feb 2015
In Situation You Missed It – Interesting Products for Corporate Counsel – Feb 2015
- It’s still the situation that commentators have stated nothing revelationary about “proxy access ,” the current private-ordering push, and also the SEC’s switch-floppery on its Whole-foods no-action letter. “Proxy access” is brief hands for “when can a shareholder pressure a business to place its preferred director around the ballot?” In the past, the solution was “never” for any couple of days the solution was “when the SEC’s rules say so” and today the reply is “after you amend their articles or bylaws to let you know when.” The proxy access saga dates back even sooner than 2003, but that’s whenever we began having to pay attention. Historic commentary on earlier proposals (search “proxy access”) is here now. An abbreviated history follows.2003: SEC proposes shareholder director nomination rules, here. They are questionable. Ultimately, they die.
2007: SEC proposes competing “status quo” proxy access rules (i.e., no proxy access), here, and expanded proxy access rules, here. This really is weird.
2007: SEC abandons expanded access and adopts “status quo” rules, here and here, rejecting the 2nd Circuit’s AFSCM v. AIG decision and re-creating a company’s capability to reject a shareholder proposal that will create a director election contest. Shareholder activists are miffed.
2009: SEC proposes proxy access rules, here, and subsequently extends the general public comment period, here.
2010: SEC adopts 3%, 3-year, 25% from the board rules, here.
2010: SEC stays the guidelines pending a legitimate challenge, here.
2011: ).D. Circuit Court states “nuh uh,” here, to a lot of the SEC rules.
2011: SEC states that although direct proxy access is dead, “private ordering” shows promise, here.
2014: NY Comptroller submits shareholder access proposals to 75 public companies, here, requesting 3%, 3-year, 25% from the board proxy access.
2014: SEC issues no-action letter to Whole-foods, here, saying Whole-foods may exclude a shareholder access proposal if your smaller company counterproposal is created. Many similar no-action demands are filed.
2014: SEC states, here, “whoops, Whole-foods, we didn’t imply that . . . or, a minimum of we’re unsure when we did.” It will not act upon similar no-action letters. Again, weird.
Understandably, public information mill miffed the SEC left all of them with no assistance with whenever a counterproposal trumps a shareholder proposal. See, e.g., the U.S. Chamber of Commerce Center for Capital Markets Competitiveness letter towards the SEC here. The mind from the SEC’s Division of Corporation Finance lately commented around the debate, and also the impossibility of the problem, here, possibly foreshadowing further focus on the subject through the SEC.
The Company Roundtable requested ISS and Glass Lewis to avoid anything rash if your company decides to exclude a shareholder proposal in support of its very own, here. Glass Lewis, and most likely ISS soon, has stated it will require a situation-by-situation approach on proxy access proposals, see here, which presumably means it will not instantly recommend voting against all company directors when the board suggests an acceptable counterproposal.
Options for an organization that will get a legitimate shareholder proxy access proposal are fairly limited: range from the shareholder proposal, incorporate a counterproposal, or include both and let shareholders realize that whichever will get probably the most votes wins. Whether it includes just the counterproposal, a business might preemptively seek a declaratory judgment that excluding the shareholder proposal is alright or it might allow the proponent decide whether to try and pressure the problem in the court. Good guess about how this can shake out follows. (But don’t quote us – you’re by yourself.)
Many will engage shareholder activists, wishing to achieve an agreement using the proponent.
Absent compromise, a business will advise a reasonable counterproposal in the proxy statement. (Perhaps, Whole Foods’ initial counterproposal wasn’t very affordable.) The proxy disclosure will justify the proposal to shareholders and recite the numerous factors reviewed through the board. These will borrow heavily from SEC analyses if this considered proxy access rules. Companies evaluate the voting policies of the big shareholders, if known, when shaping counterproposals most engage proxy advisory firms to assist them to talk to shareholders. We imagine proposals might generally circle around 5%, 5-year, one director or 20% from the board.
The organization will inform the SEC from the exclusion under Rule 14a-8(j), departing it to the shareholder activist to determine whether or not to seek an injunction or sue following the meeting. The greater reasonable the counterproposal, the not as likely a suit. (Also it appears impractical the SEC would pursue enforcement action after saying it wouldn’t against Whole-foods after which saying it’s not saying it wouldn’t – I am talking about, how large a lot of jerks would individuals guys need to be?)
One assumes that as lengthy because the counterproposal is affordable, courts could be less prepared to require that the company range from the shareholder proposal in the proxy statement, and it is not obvious whether many court dockets would even allow action before an organized meeting.
Companies reason that subsequent shareholder proposals might be overlooked simply because they were “substantially implemented” under 14a-8(i)(10), likely with limited success.
More troubling than proxy access, possibly, may be the decision in Trinity Wall Street v. Wal-Mart, here. In Trinity, a shareholder activist suggested amending Wal-Mart’s corporate governance committee charter to want it consider whether Wal-Mart was selling items that will make it look bad – particularly, large magazine firearms. The U.S. District Court in Delaware determined Wal-Mart couldn’t exclude the proposal like a matter coping with ordinary business operations, although the SEC issued a no-action letter saying precisely that, because proposals “focusing on sufficiently significant social policy issues . . . transcend your day-to-day business matters.” And here, the proposal didn’t require Wal-Mart to prevent selling specific products, simply to see whether to market them and, when they choose to sell them, to report about what sort of monsters are running that place. Obviously, almost proposals could be phrased inside a “won’t somebody consider the kids! ” type of way, and no-one is fooling anybody: the aim would be to affect ordinary business operations and stop Wal-Mart from selling guns. The district court decision is on appeal.
Activist shareholders were more active in 2014 than in the past based on Activist Investing, here, and there isn’t any need to assume the tide will ebb.
Glass Lewis suggested enhancements to the pay-for-performance and equity compensation models, here.
ISS released FAQs on its “equity plan scorecard,” here, and FAQs on its independent chair policy, here. A critique of ISS’s holistic overview of independent chair proposals is here now.
Or became a member of the growing crowd of claims that allow intrastate crowdfunding. Oregon’s new rules are here and it is FAQs concerning the rules are here. The exemption enables a company located in Or to boost as much as $250,000 from 100 Or investors, all of whom is restricted to investing $2,500. To entitled to the exemption, a business must (a) first meet personally having a “business technical service provider” to examine their strategic business plan, (b) file a notice using the Condition a minimum of 7 days before advertising or selling any security, (c) file advertising materials using the Condition, (d) get the affirmative declaration in the potential investor that she’s an Oregonian before advertising or making a deal to her and ensure she’s an Oregonian before really selling her the securities (like by checking her driver license), and (e) disclose specified information to potential investors. Following the purchase, the organization must report specified information to investors two times every year and file a study using the Condition. The offering can’t last greater than 12 several weeks, shares purchased can’t be sold again for nine several weeks, and also the exemption isn’t readily available for development stage companies without any specific plan or specified “bad actors.” Exempt offers and purchasers under these rules won’t be integrated along with other offers and purchasers made underneath the rules when they happen six several weeks apart.
The SEC suggested rules, here, requiring disclosure inside a company’s proxy statement about whether employees or company directors are permitted to hedge or offset decreases on the market worth of company securities. A lot of companies already disclose details about hedging policies in their CD&A and also to evidence they’ve followed shareholder service group preferences that such policies maintain place. Policies typically apply simply to company directors and executives, and, when the rule is adopted, we don’t expect a hurry to stop hedging transactions for workers generally whether or not the disclosure winds up being “we don’t stop hedging transactions for workers generally.”
The SEC suggested to amend its rules to follow along with the statutory mandates from the JOBS Act, which increase possession thresholds that pressure you to definitely go public, here.
The SEC granted its second bad actor waiver, here, this time around regarding the settling charges against Oppenheimer & Co. for securities violations. The waiver ties “good cause” for exempting Oppenheimer to the compliance using the conditions in the waiver request letter, including enhancements in the oversight processes.
The SEC released cybersecurity alerts that summarize its analysis of broker-dealers, here, and suggest to investors how you can safeguard their online brokerage accounts from fraud, here.
Finally, Love Day approaches and, of course, youthful security lawyers’ ideas use the timely filing of annual Schedule 13Gs, due Feb 14 (really, the 16th because the 14th is really a Saturday). Remember: nothing states “I own greater than 5% of the public company’s stock” just like a Schedule 13G.