Beware the Universal Proxy Card

One of the most high-profile proxy contests to use a universal proxy card ended on Tuesday, with some last-minute drama thrown in.

The board of SandRidge was engaged in a proxy contest with Icahn Capital.  In May, it announced that it had expanded its board to seven members in order to include two Icahn nominees on its ballot.  Icahn had refused to settle with the company after it offered to appoint those nominees to the board.

The company’s white proxy card contained five company nominees and two Icahn nominees.  Icahn’s gold proxy card included only five of his nominees.  The company stated that both ISS and Glass Lewis supported Icahn having minority, but not controlling, representation on the board, by recommending in favor of four of the company’s nominees and three Icahn nominees. Continue Reading

T. Rowe’s Statement on Shareholder Activism – We Speak for Ourselves

T. Rowe wants to make clear that activists and other investors do not speak for them, in its June ESG Spotlight, as they share their investment philosophy on shareholder activism.  Activism is defined as proxy contests, campaigns to influence management and boards on strategy, capital allocation and/or governance and unsolicited hostile bids.

While the investor believes that companies tend to be better informed about their businesses and will afford management a certain amount of deference, they also stress that management and their boards should “exhibit openness, curiosity, and intellectual honesty” regarding serious and sustained ideas from outsiders.

T. Rowe’s internal policies prohibit their investment professionals from initiating activism campaigns indirectly, such as discussing or pitching ideas to activist investors or other third parties.  Continue Reading

What We Learn from State Street’s Q1 Stewardship Activity Report

State Street released a report on their Q1 focus and activities related to the companies where they vote.  What we learned:

  • They’ve been busy.  State Street voted at 2,596 meetings in 60 countries, weighing in on 18,105 management proposals and 382 shareholder proposals.  They favored management proposals 83% of the time and shareholder proposals about 13% of the time.
  • North America dominates engagement.  Fifteen percent of the voting decisions were made at North American companies, but more than half of engagement discussions took place with companies in this region.  A specific list of the companies that they engaged with are included in the report.
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Everyone Wants to Woo “Main Street,” This Time with Proposed Legislation

It appears that “Main Street” in capital markets is both synonymous with retail investors and private companies, and there is rampant concern that Main Street companies are staying away from IPOs, which is causing Main Street investors to miss out on wealth creation.

On May 23, the House of Representatives Subcommittee on Capital Markets, Securities and Investment, a subcommittee of the House Committee on Financial Services, held a hearing entitled “Legislative Proposals to Help Fuel Capital and Growth on Main Street” to examine 11 bills or discussion drafts of proposed legislation to eliminate perceived regulatory hurdles that harm the ability of Main Street businesses, early-stage companies, smaller companies and emerging growth companies “to access capital, innovate, grow and create jobs.”

The legislation and discussion drafts that have been proposed by the House Committee are set forth below.  Continue Reading

New Coalition Condemns Lack of Retail Investor Influence and Criticizes Current Investor Focus

The Main Street Investors Coalition wants retail investors to have more influence in combating the rise of passive investors.  Retail investors own about 30% of stock issued by U.S. companies, where holdings are dominated by major institutional investors.

The group includes the National Association of Manufacturers, the American Council for Capital Formation, the Equity Dealers of America, the Savings and Retirement Foundation and the Small Business and Entrepreneurship Council and is led by George David Banks, who recently served in the White House as a special assistant to the current administration on both the National Economic Council and National Security Council. Continue Reading

Companies Commit to Including Diverse Candidates in Board Searches

Six shareholder proposals are on ballots this season asking for increased board diversity, or disclosure about board diversity.

Amazon’s proposal asks the board to adopt a policy requiring that the initial list of potential candidates “should include (but need not be limited to) qualified women and minority candidates,” and that search firms or other consultants make those types of candidates part of the first pool of qualified individuals that they create.  The policy is intended to replicate the Rooney Rule in the National Football League, which mandate the inclusion of minority candidates for certain job positions.  The company has three women directors, but the supporting statement argued that the board lacked racial or ethnic minorities.  Continue Reading

Proxy C&DIs Updated by SEC Staff

The SEC staff recently updated Compliance and Disclosure Interpretations (C&DIs) on the proxy rules and Schedules 14A/C.  We understand that the SEC staff intends to review and change other C&DIs that interpret the securities laws and SEC regulations.

Few topics, including the revisions, in the proxy C&DIs affect routine annual meetings.  The C&DIs continue to cover fairly specific situations, including the following annual meeting subjects, along with a sampling of the key interpretations, many of which are not new but serve as useful reminders:

  • Exempt solicitations.  Filing of a Schedule 13D precludes reliance on the 10-person solicitation exemption.
  • Use of discretionary authority.  
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Delaware Court Finds Continued Compensation to Incapacitated Chairman Could Render Directors Liable for Claims of Waste and Bad Faith

In an unusual finding, the Delaware Court of Chancery held that demand was partly excused and claims for corporate waste, bad faith and unjust enrichment could proceed against CBS Corporation for compensation paid to its former Executive Chairman, Sumner Redstone, who later became Chairman Emeritus.  The plaintiff alleged that Mr. Redstone became incapacitated yet continued to receive compensation for work he did not perform.

The court noted that claims of corporate waste and bad faith require a plaintiff to show that the board’s decision was “so egregious or irrational” that it could not be based on a valid assessment of a company’s best interest, and amount to an “extreme factual scenario.”  In making its determination, the court reviewed the salary payments made to Mr. Continue Reading

FSB Task Force Releases Tool to Propel Climate Change Scenario Disclosure

The Financial Stability Board’s Task Force on Climate-Related Financial Disclosure (“TCFD”), an industry-led group formed at the request of the G20, and the Climate Disclosure Standards Board (“CDSB”) announced today at TCFD’s first U.S. Scenario Analysis Conference the launch of the TCFD Knowledge Hub (“Hub”). The Hub is an online platform with peer-to-peer resources to assist organizations in implementing TCFD’s recommendations to public companies on the use of scenario analysis to disclose climate-related risks and opportunities. Our prior posts describing TCFD’s recommendations can be found here and here. The Hub can be accessed at Over 250 organizations have expressed their support for TCFD as of April 2018. Continue Reading

Are the Reports that the DOL Guidance Will Lead to the Demise of ESG-Focused Plans Greatly Exaggerated?

Last week the U.S. Department of Labor (DOL) issued a bulletin (the Bulletin) on its prior interpretations related to considerations of ESG factors by ERISA plan fiduciaries.  Since then there has been some speculation that perhaps the positions outlined in the Bulletin would act as a speed bump to the increasing focus by investors on ESG matters at public companies.

As background, ERISA requires plan fiduciaries to act solely in the interest of plan participants and beneficiaries for the exclusive purpose of providing benefits to such persons and to discharge their fiduciary duties with the care, skill, prudence and diligence a prudent person would use under similar circumstances.  Continue Reading