Current Posts


December 22, 2014 | Ning Chiu

RR Donnelley's survey from last year on how investors view proxy statements continues to be worth considering now, as companies begin preparing their public disclosure documents for the 2015 proxy season. The survey results show that a mix of presentation and substantive issues are compelling for investors, and boil down to five key points. 

Impressive online appearance.  A key consideration, often overlooked, is to recognize that major institutional investors are using online platforms to review proxy statements. Many companies have spent vast amounts of resources to make their documents more readable, but the... Read More

December 17, 2014 | Ning Chiu

Professor Joseph Grundfest of Stanford Law School and SEC Commissioner Daniel Gallagher have co-authored an academic paper with the provocative title “Did Harvard Violate Federal Securities Law?  The Campaign Against Classified Boards of Directors.”  The paper pointedly criticizes the work of the Harvard Shareholder Rights Project, which assists several pension funds and other investors in submitting shareholder proposals to declassify boards of directors.

These proposals are the most frequent governance topic and they are often cited as the primary reason that the number of S&P 500 companies with classified boards have declined 80% since 2000, from 300 to 60 in 2013.  The Harvard Project claims responsibility for the overwhelming majority of S&P 500 declassifications since it started the program in 2010.

The crux of the paper is to question whether Harvard violated... Read More

December 16, 2014 | Ning Chiu

The NYSE has proposed to amend its listing requirements related to a company filing delinquent reports with the SEC. The proposal expands the NYSE’s existing late filer rule to include Form 10-Qs, clarifies how the NYSE will treat companies whose annual or quarterly reports are defective at the time of filing or become defective later, and establishes further procedures for handling these delinquencies.  

Currently, the rule only applies to late annual reports (Form 10-K, 20-F or 40-F). The proposal would add Form 10-Qs to its late filing rules, so that a company would be considered a delinquent filer once it misses the deadline of a Form 10-Q or annual report. In addition to past due quarterly or annual reports, the NYSE also considers any of the following events as delinquent filings: an annual report is filed without an audit report; the auditor withdraws its audit report or the company... Read More

December 12, 2014 | Ning Chiu

As requested by the D.C. Circuit Court of Appeals on the conflict minerals case, the SEC has filed a brief addressing the three questions that the Court asked, which we previously discussed here.

The SEC asserts that the disputed disclosure requiring issuers to describe their products as not “found to be ‘DRC conflict free’” fits within the newly interpreted Zauderer standard by being “purely factual and uncontroversial,” since it provides objectively determinable facts and is not tantamount to a statement of viewpoint, belief or ideology. According to the SEC, the contentious statement is made in the context of disclosures regarding the steps that an issuer has taken to exercise due diligence on the source and chain of custody of minerals used in its products. The required disclosure measures those diligence results against an “objectively... Read More

December 10, 2014 | Ning Chiu

The SEC Office of Chief Counsel has determined that Whole Foods can exclude a shareholder proposal asking the board to adopt a proxy access bylaw to allow one or more shareholders owning at least 3% of the company’s shares continuously for three years to nominate candidates, for up to 20% of the board, which we previously discussed here. The SEC staff agreed that the company’s own proxy access proposal that it will be asking shareholders to vote on at the 2015 annual meeting, which would permit proxy access for one shareholder owning 9% for five years to nominate one director or 10% of the board, presents alternative and conflicting decisions for shareholders. 

While this is the first SEC staff decision made... Read More

December 9, 2014 | Ning Chiu

After a bruising proxy contest, Darden Restaurants announced last month several meaningful changes to its corporate governance practices, some of which will be voted on by shareholders at the 2015 annual meeting. 

Majority Voting for Director Elections. The company amended its bylaws to require a majority voting standard for uncontested director elections. The company previously had a director resignation policy, which this board also changed. Rather than providing for board discretion to accept or reject a director resignation if the director does not receive majority support, a director who is not elected by a majority of votes cast will remain on the board only until the board appoints another director. 

Shareholder Right to Call Special Meetings at 10% Ownership Threshold. The board will ask shareholders to... Read More

December 5, 2014 | Ning Chiu

The U.S. District Court for the District of Delaware determined that Wal-Mart should not have excluded a shareholder proposal from its 2014 proxy statement, even after it received a favorable SEC no-action letter.

Trinity, an Episcopal parish headquartered in New York City, submitted a proposal for Wal-Mart’s 2014 annual meeting requesting that the Compensation, Nominating and Governance Committee charter be amended to add oversight of 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 reputation or would be considered offensive to the values that are integral to the company’s brand. Trinity wanted the committee to consider whether or not the company should sell guns equipped with magazines holding more than 10 rounds of ammunition.

In March 2014, the SEC staff agreed with the company that it could exclude the proposal under Rule 14a-8(i)(7), as... Read More

December 2, 2014 | Ning Chiu

Last week, House Financial Services Committee Chairman Jeb Hensarling (R-TX), Representative Scott Garrett (R-NJ) and Representative Bill Huizenga (R-MI) sent a letter to SEC Chair White urging her to delay finalizing the pay ratio rule. The Congressmen indicated that they were “troubled” by recent comments suggesting that the SEC has made it a priority to complete the pay ratio rule, which we previously discussed

The letter expresses concern that the Commission is “... Read More

December 1, 2014 | Ning Chiu

The 2014 Spencer Stuart US Board Index for S&P 500 companies focuses on board composition, turnover and director succession planning. The report concluded that companies that added three or four new directors in a three-year period outperformed their peers, and although the worst performers included those companies with no change in board composition at all during that time, boards that added five or more new directors also fared poorly. 

Attention continues to intensify around the length of board service. At the largest companies, the average director tenure is 8.4 years, while 16% have tenure of 11 or more years. It appears that directors are older, with the average age being 63. 45% of companies have an average age of 64, compared with 16% of boards 10 years ago. 

One way to ensure turnover is the use of mandatory retirement ages. 361 boards (73... Read More

November 24, 2014 | Ning Chiu

Jay D. Hanson, a board member of the PCAOB, recently spoke about the PCAOB's efforts to address issues raised by audit committees.  

The board of the PCAOB began its outreach to audit committees in 2012, and has heard that audit committees are concerned about the PCAOB adding to their already overburdened set of responsibilities.  Audit committees would also like to learn about trends and concerns from the PCAOB as they occur rather than after the inspection reports are released, given that by then those reports cover audits that are almost two years old. 

The PCAOB is seeking to include in each inspection report information that may be relevant to the audit committee of the company, regarding what actions the committee may want to consider taking in response.  They are also clarifying that the deficiencies or “audit failures” noted in the report... Read More

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