Current Posts

September 28, 2015 | Ning Chiu

ISS has released the results of its survey, which will govern changes to its policies beginning with annual meetings after February 1, 2016. A draft of the updated policy will be issued on October 26, and final policies in November. 412 responses to the survey were received, with 114 identifying as institutional investors. Below is a summary of certain of the survey questions and the responses noted by ISS. 

Proxy access.  The types of “material restrictions” in proxy access provisions adopted by companies where a proxy access shareholder proposal passed in 2015, that would be considered problematic enough to recommend against directors. 

Survey response.  Investors indicated the following provisions would be problematic: 

  • Ownership threshold of more than 3% (72% of investors) or more than 5% (90% of investors)... Read More
September 28, 2015 | Ning Chiu

As has been widely mentioned by SEC Commissioners and Staff, the Staff has been undertaking a broad-based review of disclosure requirements, known as the Disclosure Effectiveness Initiative. The Staff’s initial focus is on business and financial information required in current and periodic reports. On Friday, the SEC published its first request for public comment regarding the financial disclosure requirements in Regulation S-X for certain entities other than a registrant.  

Four rules being considered.  Regulation S-X contains disclosure requirements that dictate the form and content of financial statements to be included in filings with the Commission. The discrete subset of the Regulation S-X disclosure requirements being evaluated for possible amendment include: 

  • Rule 3-05, Financial Statements of Businesses Acquired or to be Acquired (requires issuers to... Read More
September 24, 2015 | Ning Chiu

Those following the latest developments on proxy access may be interested in Jim McRitchie’s recent blog post, where he posted the language of a new version of proxy access that he is submitting to companies, using CII’s recent best practices that we previously discussed here.

The three key differences between proposals that companies faced during the 2015 proxy season from different proponents include reference to: (a) the nomination by a shareholder or “an unrestricted number of shareholders forming a group,” (b) the request that the number of board seats available is the greater of two or 25% of the board and (c) the 3% ownership requirement to include “recallable loaned stock.” There is also a sentence that “no... Read More

September 17, 2015 | Ning Chiu

The importance of the retail shareholder vote came out in force this past season, as 85% of retail shares were cast against proxy access shareholder proposals at over 80 companies. At the same time, 61% of the shares held by institutional investors supported proxy access.

ProxyPulse, a report from Broadridge and PwC’s Center for Board Governance, examined 4,280 companies that held meetings between January 1, 2015 and June 30, 2015. Over the last four years, retail investors have held about 32% of all shares. Unfortunately for companies, retail shareholders voted only 28% of the shares they owned, leaving over 97 billion shares not voted.

This gives institutional investors an undue influence even relative to the size of their holdings, since institutions voted 91% of the shares they own. While institutional investors held 68% of outstanding shares of all public... Read More

September 15, 2015 | Ning Chiu

The SEC’s recent concept release on possible revisions to audit committee disclosure has ignited debate about whether additional information, and the type of information, that would be useful to investors regarding the audit committees’ oversight of external auditors. Our memo on the concept release is here, and our comment letter to the SEC is here.

Regardless of whether the SEC takes formal action, the recent review by EY's Center for Board Matters shows a continuing increase in audit committee disclosures since EY started analyzing these findings in 2012.  After... Read More

September 9, 2015 | Ning Chiu

Oxfam America scored a recent victory when the U.S. District Court in the District of Massachusetts decided that the SEC must file with the Court an expedited schedule for promulgating a final rule on resource extraction disclosure within 30 days of the decision.  The Court intends to monitor the schedule and ensure compliance.  We previously discussed Oxfam's complaint here and our memo on the original resource extraction rules is here.

Section 1504 of Dodd-Frank requires publicly traded oil and gas companies to annually disclose payments made to foreign governments or the federal... Read More

September 8, 2015 | Ning Chiu

NYSE listed companies are currently required to notify the Exchange before disseminating material news so that it can halt trading if needed.  Now the NYSE has proposed, in a rule filing with the SEC, to expand the pre-market hours during which companies are required to notify the Exchange, the circumstances under which it can stop trading and also provide guidance related to the release of material news after the close of trading. 

Currently, Section 202.06 requires listed companies to notify the Exchange at least ten minutes in advance of releasing material news shortly before trading opens or during trading hours (9:30 a.m. to 4:00 p.m. Eastern Time).  The rule proposal would require companies to comply with this policy between 7:00 a.m. and 4:00 p.m. instead, since the Exchange has determined that most companies release news between 7:00 a.m. and 9:30 a.m., and that such news can cause volatility in pre-market trading on other market centers as well as on the NYSE once... Read More

September 2, 2015 | Ning Chiu

ISS counts Tempur Sealy as among the 28 proxy contests during the first six months of 2015, the busiest period for contests since 2009, even though the dissidents waged a “vote no” campaign instead of nominating alternative director candidates. The overall dissident “win rate” calculated by ISS decreased from 67% for all of 2014 to 46% for the first six months of 2015, particularly where the targeted company had a market cap above $1 billion. The firm believes that these results were affected by the absence of notable “heavyweights” in contests owing in part to settlements. 

At Tempur Sealy, according to news reports, H Partners missed the company’s advance notice deadline to nominate its own slate and chose instead to urge investors to withhold votes for three of the company’s nominees, including the CEO, the chairman of the board and the chairman of the nominating and corporate governance committee. Both outside directors were affiliated with private equity firms that had... Read More

August 27, 2015 | Ning Chiu

The SEC Office of Economic and Risk Analysis has made available on its website a lengthy working paper on proxy access, specifically on the trade-offs between universal proxy access through federal regulation and the “private ordering” of proxy access through shareholder proposals. The main question that the paper attempts to address is whether private ordering would be able to realize or surpass the enhancement in shareholder value that could result from universal proxy access. The paper concludes that while private ordering does lead to an increase in shareholder value, since the announcement of the adoption of a bylaw causes a 0.5% boost, it is nonetheless a “second best outcome” that does not efficiently deliver proxy access to the companies that the authors find need it most.

Since this is an economics analysis, the authors focused on market... Read More

August 20, 2015 | Ning Chiu

Our memo on the court’s decision upholding its ruling on the SEC’s conflict minerals disclosure is here.

EY's recent analysis of the second year of conflict minerals reporting concludes that companies are reluctant to conduct additional due diligence amidst an uncertain regulatory environment, so that disclosure did not change much from the prior year. 

In 2015, over 1,200 companies filed a Form SD, a slight decline from the year before, with 88% of the companies based in North America. The average Form SD remained at 3.4 pages while the CMR exhibits lengthened from 4.8 to 6.4 pages due to... Read More