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 tcfdhub.org. 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

Sustainalytics ESG Ratings Publicly Available on Company Yahoo Finance Page

Some companies may not be aware that since February, their Yahoo Finance web page includes a separate tab with the ESG scores from Sustainalytics.  The Sustainalytics quote page shows a company’s numerical rating for three categories, environment, social and governance, along with the overall ESG score.  Scores range from 1 to 100.

There is also a graphic representation of the score that, according to the press release from Sustainalytics, will be tracked against the average in each category and plotted over time.  The graph, currently reflecting data from 2014 to now, is intended to display trends of how a company ranks against industry peers. Continue Reading

What the SEC Staff Said When They Denied Exclusion of Shareholder Proposals Under SLB 14I

  1. Not enough detail to support an argument that the proposal was not significant to the company

In December, the first letter was denied for failure to explain the board’s reasoning.

  • The Staff indicated that “We are unable to conclude, based on the information presented in your correspondence, including the discussion of the board’s analysis on this matter, that this particular proposal is not sufficiently significant to the Company’s business operations such that exclusion would be appropriate.”  The company’s letter stated that the matter was “integral” to the company.
  • Significance was referenced twice in the same explanation, as the Staff concluded with the following: “[T]he board’s analysis does not explain why this particular proposal would not raise a significant issue for the [c]ompany.”
  1. Quantitative or other factors could help.
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Company Prevails in Court Case Disputing Advance Notice Bylaws

HomeStreet received a notice, numbering 133 pages, the day before the advance notice deadline in its bylaws alerting the company that Blue Lion intends to nominate two directors and submit two proposals, seeking annual elections and a binding resolution for an independent chairman. Both the company and the shareholder acknowledged years of engagement that culminated in a decision by the board not to nominate a representative from Blue Lion as a director.

Less than a week later, the company announced that the notice was deficient, attaching a five-page letter to a Form 8-K that it sent to the shareholder. The letter stated that the notice provided by the shareholder failed to meet several of the bylaw’s disclosure requirements, including providing information related to the holder of shares that would be disclosed in a proxy statement governing a solicitation as well as deficiencies in the D&O questionnaires returned by the shareholders’ nominees. Continue Reading

ISS Updated FAQs Focus on Proxy Reports and Engagements

U.S. proxy reports are issued 13 to 30 calendar days before a shareholder meeting, but closer to 13 to 18 days during April to June due to the volume, according to the most recent ISS FAQs on U.S. Proxy Voting Research Procedures and Policies. Updated Q&As are highlighted in the report.

Several revisions relate to engagement with ISS and changing vote recommendations, both timely topics for the current stage of the proxy season. ISS already provides guidance on how issuers should engage with them. A few insights from the FAQs include:

  • Requests for engagement should be made by emailing the Research Helpdesk with (a) a detailed agenda, (b) a list of the company’s participants and (c) preferred dates and times.
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SEC Rulemaking Petition Advocates for Retail Investors to Provide Standing Voting Instructions for Corporate Election in Order to Increase Voter Participation

Retail investors own about 30% of shares but only vote 29% of the time, compared to institutional investors voting 91% of the shares they own, according to a rulemaking petition to the SEC by the American Business Conference (ABC) that asks the Commission to facilitate advanced voting instructions (AVI), also known as client directed voting or standing voting instructions. According to its website, ABC was founded in 1981 by Arthur Levitt and is focused on advocating for mid-sized companies.

ABC laments that the views of retail shareholders are not adequately represented even as corporate ballots contain increasingly contentious governance issues. Continue Reading

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