Current Posts


January 27, 2015 | Ning Chiu

Wal-Mart Stores is appealing to the U.S. Court of Appeals for the Third Circuit to vacate a mandatory injunction that requires Wal-Mart to include a shareholder proposal in its 2015 proxy materials, and the declaration that Wal-Mart should not have excluded the proposal in 2014. 

As we previously discussed here, the U.S. District Court for the District of Delaware held in late 2014 that a shareholder proposal does not deal with matters that relate to Wal-Mart’s ordinary business operations and should not have been left out of the company’s 2014 proxy statement. The proposal requested that the Compensation, Nominating and Governance Committee oversee implementation of policies that would evaluate whether the company should sell a product that endangers public safety, has the substantial potential to impair the company's... Read More

January 26, 2015 | Ning Chiu

The recent statement from Chair White that the SEC staff will not issue any decisions this season on no-action letters asking to exclude shareholder proposals on the basis that a company will be including its own conflicting proposal in its proxy statement, which we discussed here, has thrown into turmoil about 53 companies that have existing requests outstanding. According to a statement from the City Comptroller of New York after the SEC’s announcement, about 18 of those address proxy access proposals. More were probably going to be filed in the coming weeks. 

As these companies evaluate their... Read More

January 22, 2015 | Ning Chiu

Davis Polk partner Ed FitzGerald and I spoke in December with Tapestry’s Compensation Committee Leadership Network (CCLN) on forthcoming SEC executive compensation rules, as summarized in this Tapestry Viewpoints. The CCLN brings together a select group of compensation committee chairs from prominent companies to discuss ways to improve the performance of their companies and communicate effectively with shareholders through their compensation committee work.

The discussion included the Dodd-Frank clawback provisions, which as enacted do not consider fault to be a trigger, unlike the most common clawback policies that have already been adopted by companies. The vast majority of those require some form of misconduct. Just as disturbing, the language in the rules does not provide for compensation... Read More

January 16, 2015 | Ning Chiu

The SEC has issued a statement, which, although no mention of the proxy access proposals is specifically made, addresses the controversy surrounding the SEC staff’s recent decisions to permit companies to exclude shareholder proposals on the basis that companies will be proposing their own conflicting management proposals. Chair White has directed the SEC staff to review the rule and report to the Commission on its review.

In light of Chair White’s statement, the Division of Corporation Finance has decided that it will “express no views on the application of Rule 14a-8(i)(9) during the current proxy season.”

The SEC staff has so far only issued a view on the Whole Foods’ letter. Other companies making the same argument in no-action letters are pending, and may not receive a response in light of the announcement.

Chair White’s statement is here... Read More

January 14, 2015 | Ning Chiu

Vanguard has indicated that they are in the process of adding language to their proxy voting guidelines to communicate their views on proxy access. They intend to conduct outreach to individual companies based on their specific proposals. 

Vanguard believes that long-term investors may benefit from having proxy access, as it enhances the ability for investors to meaningfully participate in director elections and increase board accountability and responsiveness to shareholders. At the same time, they recognize that the provisions should be appropriately limited to avoid abuse by investors without a long-term interest in the company.

As such, while they will review proposals on a case-by-case basis, Vanguard will be most likely to support access provisions that permit a shareholder or group of shareholders representing 5% of a company’s outstanding shares held for at least three years to nominate directors for up to 20% of the seats on the board. They may support... Read More

January 14, 2015 | Ning Chiu

The SEC announced its Office of Compliance Inspections and Examinations’ (OCIE) priorities for 2015, which focus on three areas: protecting retail investors, especially those saving for or in retirement; assessing market-wide risks; and using data analytics to identify signs of potential illegal activity. OCIE’s focus is on issues involving investment advisers, broker-dealers and transfer agents.

In a bit of a surprise, there is also a reference under “Other” initiatives to examining proxy advisory firms and the investors that use their voting recommendations, as follows: “We will examine select proxy advisory service firms, including how they make recommendations on proxy voting and how they disclose and mitigate potential conflicts of interest. We will also examine investment advisers’ compliance with their fiduciary duty in voting proxies on behalf of... Read More

January 13, 2015 | Ning Chiu

Deloitte recently published a 127-page report on SEC comment letter trends that companies may find useful as they prepare their annual 10-K disclosures.

Recognizing that Keith Higgins and other SEC staff members have admonished companies not to provide disclosure merely because it is known to be a “hot button” that may generate an SEC comment, with similar advice from the staff that even the receipt of an SEC letter with specific comments is supposed to be the beginning of a discussion rather than a set of demands, companies should still be aware of the topics that generate the strongest staff focus.

Segment reporting is one of the perennial issues, including the identification of the chief operating decision maker, the identification of operating segments, and the analysis supporting the... Read More

January 12, 2015 | Ning Chiu

According to the Council of Institutional Investors (CII), the 2015 proxy season is off to an “explosive start” because of proxy access.

CII announced that it is sending letters to 16 companies that are known to plan to propose their own proxy access proposals that conflict with the shareholder proposals they received, because all of them seek minimum ownership thresholds at between 5 to 8% (either for one shareholder, a group of shareholders with a maximum cap or any group of shareholders). CII and others view these standards to be “unworkable” and an “unattainable requirement,” and contend that this “high bar” is “wildly at odds” with the 3% shareholder ownership for three years threshold that is broadly supported by shareholders (and that was in the SEC rule that was struck down by the D.C. Circuit).

The list of companies and their shareholding... Read More

January 7, 2015 | Ning Chiu

In late December, the National Association of Manufacturers, the Chamber of Commerce and the Business Roundtable (the Appellants) filed a supplemental brief in the ongoing conflict minerals case, which we previously discussed here. The brief is in response to the Panel order granting rehearing in November to address certain discrete matters, which we listed here.

At issue is whether the SEC’s conflict minerals rule is a “purely factual and uncontroversial” disclosure requirement within the meaning of the Zauderer precedent. The Appellants argue that the statement of whether products are DRC conflict free is not purely factual and uncontroversial because: (a) the statement constitutes an ideological judgment... Read More

January 5, 2015 | Ning Chiu

Although the SEC permitted Whole Foods to exclude a shareholder proposal asking the board to amend its bylaws to allow for proxy access on the basis of a conflicting management proposal that would give such rights only to a single shareholder owning 9% or more shares, as we previously discussed here, the company has filed a preliminary proxy that includes a proposal with a different ownership threshold.

The company intends to ask shareholders to approve amendments to its bylaws to permit any single shareholder or group of funds under common management (but not a group of shareholders) owning 5% or more of the company's common stock for five years to nominate board candidates at annual meetings, limited to the greater of one director or 10% of the board. The company proposal discloses that the company determined the 5%... Read More

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