Current Posts

February 27, 2015 | Ning Chiu

Several shareholder proposals this season ask boards to adopt clawback policies that would be triggered by any misconduct resulting in a violation of law or policy that causes significant financial or reputational harm, where a senior executive either committed the misconduct or failed to supervise subordinates.  The proposals also ask those companies to disclose to shareholders the circumstances of any recoupment and any board decision not to pursue recoupment.

This type of clawback policy, particularly the disclosure component, is unusual.  PwC's study on clawbacks as disclosed in proxy statements found that 90% of clawback policies are triggered by a financial restatement.  73% of those require evidence that the employee caused or contributed to the false reporting.  The clawback amount is usually the... Read More

February 24, 2015 | Ning Chiu

Under its existing policy, ISS will recommend against the election of boards of directors who adopt bylaw or charter amendments that they view as materially diminishing shareholder rights without obtaining shareholder approval. 

In a recent set of FAQs, ISS has clarified that some unilaterally adopted bylaw amendments are not considered materially adverse. Although the proxy advisory firm will evaluate them on a case by case basis, the adoption of exclusive forum provisions when the venue is the company’s state of incorporation, or director qualification bylaws that require disclosure of third-party compensation arrangements, are unlikely to affect ISS’ recommendations for the board.

By comparison, bylaws that actually disqualify shareholders’ nominees who receive third-party compensation, rather than simply mandate disclosure, would be considered a materially... Read More

February 23, 2015 | Ning Chiu

More than half of the 64 investors who responded to a survey conducted by the Stanford Rock Center for Corporate Governance, RR Donnelley and Equilar between September and December 2014, complained that proxy statements are too long.  

80% of those who responded believe proxy voting increases shareholder value, but since 26% hold more than 3,000 publicly traded U.S. stocks and 71% have engaged with about a quarter of those companies in the last year, it is not surprising that investors’ ideal length for proxy statements would be 25 pages, which is a far cry from the average of 80 pages among Russell 3000 companies. This also results in investors saying that they typically only read about 30% of an entire proxy statement.  

Below are some interesting highlights from the survey about the sections investors focus on, examples... Read More

February 19, 2015 | Ning Chiu

In its long-awaited FAQs, ISS indicates that it will generally recommend in favor of management and shareholder proposals for proxy access which allow for nominations to be made by shareholders owning not more than 3% of the voting power for 3 years, with “minimal” or no limits on the number of shareholders permitted to form a nominating group, and allowing nominations for up to 25% of the board. ISS will also review the reasonableness of any other restrictions and may recommend against proposals that are more restrictive than these guidelines.

ISS is tracking 96 shareholder proposals on proxy access. For companies that present both a board and a shareholder proxy access proposal in their proxy statement, ISS will review each proposal separately. Yesterday, we issued a memo on a decision framework for evaluating proxy access, including for those companies that do not have the... Read More

February 19, 2015 | Ning Chiu

The NYSE has proposed amending its rules on the solicitation of proxies through member organizations, as set forth in Section 402.05 of the Listed Company Manual, to make clear that companies or others soliciting proxy materials through brokers must comply with SEC Rule 14a-13 and that the NYSE does not have a process for permitting exemptions. 

SEC Rule 14a-13 sets forth the obligations of issuers in communicating with beneficial owners through banks and brokers. Specifically, the rule requires issuers to conduct broker searches of beneficial owners for purposes of distributing proxy materials for annual or special meetings within specified time frames. The inquiry to brokers must be made at least 20 business days before the record date of the meeting, but if that proves impracticable for a special meeting or a consent solicitation, then it needs to be conducted as many days before the record date as possible. In addition, the rule also allows for a later time as the rules... Read More

February 18, 2015 | Ning Chiu

Amalgamated Bank’s LongView Funds has written to several Delaware representatives, including the state governor, urging immediate legislative action to clarify that the “American rule,” in which each side in litigation bears its own costs, is applicable for stock corporations notwithstanding the decision in the ATP Tour case last year, which we previously discussed here

Noting that they were the lead plaintiff in the Enron case, as one example, Amalgamated states that most securities cases settle after significant discovery has taken place, which requires substantial legal expense. Traditionally, exceptions to the “American rule” that have been made by other legislative branches of... Read More

February 17, 2015 | Ning Chiu

As a result of the SEC decision to withdraw its no-action letter decision granting Whole Foods the ability to exclude a proxy access shareholder proposal on January 16, the company has decided to delay its annual meeting. According to the company’s announcement in an 8-K filed on Friday, the company had planned to file a definitive proxy statement on January 22 for an annual meeting scheduled to be held on March 10. The company views the postponement of the meeting as necessary to allow its board adequate time to review and evaluate the company’s alternatives, and meet applicable deadlines.

We previously discussed the company’s original no-action letter request here and the SEC’s determination regarding Rule 14a-8(i)(9) this season ... Read More

February 12, 2015 | Ning Chiu

We have issued a memo describing the proposed SEC rules on disclosure of company equity hedging policies, as required by Section 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposed rule would require companies to disclose whether they permit any employees, officers or directors, or any of their “designees,” to purchase financial instruments or otherwise engage in transactions that are designed to have the effect of hedging or offsetting any decrease in the market value of company equity securities.  

February 11, 2015 | Ning Chiu

In a recent speech on shareholder proposals, Keith Higgins, the SEC director of the Division of Corporation Finance, indicated that the rights under Rule 14a-8 for shareholder proposals is a fundamental one permitted under state law: to appear at a meeting, make a proposal for a proper purpose and have that proposal be voted on by other shareholders.  

In addressing the Commission announcement about the suspension of the application of Rule 14a-8(i)(9) for this season, which we most recently discussed here, the Division is looking for public comments and has established a special mailbox for that purpose at Higgins’ remarks included commentary on three different Rule 14a... Read More

February 10, 2015 | Ning Chiu

Imperial Holdings’ shareholders have sued the company and its board over a bylaw that the board adopted last November. The bylaw requires that a current or prior shareholder may not initiate a claim in a court of law against the company, its directors or officers, unless the shareholder obtains the written consents of at least 3% of the outstanding shares. 

The plaintiffs allege that the purpose of the bylaw is to reduce the risk of defendants being held liable to the company or its shareholders for violations of law, and that the bylaw creates an onerous obstacle designed to prevent shareholders from exercising their statutory rights. In addition, the bylaw falls outside the scope of authority granted under Florida law since it does not relate to the business or affairs of the corporation. 

The complaint also notes that insiders and related entities control over 21% of the company’s shares. Plaintiffs seek a declaratory judgment that the bylaw was adopted in breach... Read More