Current Posts

July 22, 2014 | Ning Chiu

As politicians spar over whether the seminal Dodd-Frank Act has achieved its objectives on its fourth anniversary that passed on Monday, and attempts continue to repeal many of its provisions, Davis Polk reviewed the status of its implementation in our Dodd-Frank Progress Report.

As of July 18, 2014, 280 Dodd-Frank rulemaking requirement deadlines have passed. Slightly more than half, 153, or 54.6%, have been met with finalized rules. Many of the rulemaking requirements do not contain deadlines, as the Act includes a total of 398 requirements. Overall, 208, or 52.3%, rules have been finalized and adopted, while 94, or 23.6%, have only been proposed, including rulemaking on disclosure of the ratio of CEO pay to average employee compensation. Roughly the same number, or 95 rules, have not yet been proposed. 

The SEC is only one of several regulators... Read More

July 17, 2014 | Ning Chiu

For actively helping two public company clients lobby congressional staff members about pending legislation, the SEC charged Ernst & Young (EY) with violating the auditor independence rules by unlawfully advocating on behalf of audit clients. Although the clients were involved with EY in the lobbying activities, neither were named in the SEC cease-and-desist proceedings against EY, and there appears to be no impact on the companies’ financial statements.   

Prior to 2009, Washington Council EY (WCEY) helped an audit client communicate with House leadership about a pending bill. WCEY passed along a letter from a top executive at the client addressed to House leadership and supporting passage of the bill to congressional staff. On another occasion, WCEY sent letters signed by the client to Senate and House leadership, listing specific provisions to include in pending legislation. WCEY... Read More

July 15, 2014 | Ning Chiu

According to the ISS US preliminary postseason update, the win rate for dissidents, measured by whether they won at least one board seat through negotiations or a vote, was 59% at 22 contested elections in the first half of 2014, compared to 24 contests with a 68% success rate by June 2013.  The size of the target continues to increase, as seven of the companies had market capitalizations greater than $1 billion.  Notable for 2014 were what ISS dubbed “hydra-headed activist challenges,” where multiple dissidents targeted the same company but with competing visions, including at Darden and Sotheby's.

Boards were also the focus through 13 “vote no” campaigns.  CtW urged investors to vote against nine companies, including several fast food restaurants and retail chains, by invoking the ongoing debate over minimum wage and income inequality, leading to a failed say-on-pay vote at Chipotle.  New York City funds and CalPERS blamed board members on Duke Energy's regulatory policy... Read More

July 10, 2014 | Ning Chiu

The numbers keep changing, but the latest report indicates that six public (or soon-to-be-public) companies have adopted fee-shifting provisions in charters and bylaws since the Delaware court ruling in May that such provisions may be valid, in a case involving a non-stock company. 

All are small, and none are in the Russell 3000 index at the moment. Two of the companies have only recently filed IPO registration statements, with the information contained in risk factors or general information disclosure and those incorporation documents are not available yet.  One company just went public in June as a limited partnership.

Only Biolase Inc. appears to be rated by ISS QuickScore. Biolase is one of two companies that has adopted these bylaws after facing litigation over board composition this year. Echo Therapeutics settled its suit with a dissident... Read More

July 8, 2014 | Ning Chiu

85% of directors at Russell 3000 companies who failed to receive majority support for their election remain on those boards two years later, a recent study by the Committee on Capital Markets Regulation found.  The Committee recommends that the SEC require boards that retain directors who did not achieve majority support publicly disclose in some form the specific reasons for the boards’ decisions that those directors should remain.    

The Committee indicates that its mission is dedicated to enhancing the competitiveness of U.S. capital markets and ensuring the stability of the U.S. financial market, and its membership includes a former SEC commissioner and a range of business leaders as well as those in academics.

Analyzing results over three years from 2010 to 2012, the... Read More

July 7, 2014 | Susan Peters

Davis Polk lawyers have authored the “Global Overview” chapter of Getting The Deal Through – Corporate Governance 2014, an annual guide that examines issues relating to board structures and directors’ duties in 33 jurisdictions worldwide.

Corporate governance continues to be a hot topic worldwide this year, but for different reasons in different regions. In the U.S. portion of the chapter, we discuss the continuing influence of proxy advisory firms, the increasing willingness of large institutional investors to engage in governance outreach and recent trends in governance bylaw amendments and shareholder proposals.

We also speculate where the tides may be heading on board tenure and other governance topics. In the Europe and Asia portions of the chapter, we consider new reform measures (some recently adopted and some just beginning... Read More

July 2, 2014 | Ning Chiu

On, Broc Romanek and I prepared a 13-minute podcast summarizing Keith Higgins’ remarks made at the Society of Corporate Secretaries and Governance Professionals’ national conference last week.  On the podcast, we describe Keith’s discussions about the SEC pay ratio and other Dodd-Frank rulemaking, the disclosure reform (or disclosure effectiveness) project, a 14a-8 shareholder proposal stakeholder meeting held by the SEC staff, the controversy over interim vote tallies and whether the SEC staff intend to review conflict minerals filings and provide further interpretations. 

At the conference, Keith indicated that the SEC will soon issue guidance regarding the use of proxy advisory firms.  That guidance in the form of a staff legal bulletin was released late Monday, and we talk about the content briefly in our podcast.  See the Davis Polk... Read More

June 30, 2014 | Ning Chiu

Among the usual exhortations regarding directors’ responsibilities for setting the correct “tone at the top” and establishing a strong compliance culture in Chair White’s recent speech on what directors should know about the SEC, she also made recommendations pertaining to directors’ role in shareholder engagement and shareholder proposals.

The role of directors as "essential gatekeepers upon whom...investors, and frankly, the SEC rely” was emphasized several times by Chair White, given directors’ fiduciary responsibilities that require them to oversee the company. She stated that directors need to understand the company's business model, associated risks, financial condition, industry and competitors, and not only listen to what senior managers say but "also listen for the things they are not saying." 

Chair White wants directors to talk to shareholders. She... Read More