SEC Staff Permits Exclusion of GHG Emissions Proposal

The SEC Staff determined that a shareholder proposal on greenhouses gases (GHGs) could be excluded from Apple and Deere’s proxy statements as relating to ordinary business operations because the proposal seeks to micromanage the companies by probing too deeply into matters of a complex nature. Although routinely argued, the ability to exclude proposals based on micromanagement are uncommon.  The SEC’s 1998 release indicated that this consideration may be implicated where the proposal “involves intricate detail, or seeks to impose specific time-frames or methods for implementing complex policies.”

The proposal asked the companies’ boards to generate a plan to reach a net-zero GHG emission status by the year 2030 for all aspects of each business that are directly owned, including but not limited to manufacturing and distribution, research facilities, corporate offices and employee travel. Continue Reading

Fee-Shifting Bylaw Found Invalid by Delaware Court

The Delaware Court of Chancery recently ruled that a form of fee-shifting bylaw linked to exclusive forum provisions is invalid.

Six months after Delaware adopted DGCL Section 109(b) to restrict fee-shifting bylaws, by providing that the bylaws of Delaware corporations may not contain any provision that would impose liability on a stockholder for the attorneys’ fees or expenses of the corporation or any other party in connection with an internal corporate claim, Paylocity Holding Corporation adopted two new bylaws.

The company adopted an exclusive forum bylaw that requires internal corporate claims to be filed in a state or federal court located in Delaware. Continue Reading

SEC Continues Enforcement Actions Based on Nondisparagement Language in Severance Agreements

Late last year, the SEC issued two orders after finding companies violated its whistleblower rules due to certain language in their severance agreements, including clauses that prohibit employees from disparaging the companies in communications with regulators unless authorized in writing or otherwise required by law.  See our client memo > Continue Reading

ISS Updates Executive Compensation and Equity Plan FAQs

As described in our recent memorandum, ISS will be using other financial and operational metrics in addition to TSR in evaluating say-on-pay. In a recently updated FAQ on its executive compensation policies, this is called the Relative Pay and Financial Performance Assessment.

ISS will introduce this assessment for companies in the Russell 3000E beginning with meetings on or after February 1, 2017. The Russell 3000E Index includes the 4,000 largest publicly traded U.S. companies. According to the updated FAQ, a company’s proxy report will include a standardized comparison of CEO pay and a company’s financial and operational performance rankings relative to the ISS-defined peer group. Continue Reading

Delaware Supreme Court Finds Relationships Taint Director Independence, Promotes Internet Searches

Recently, the Delaware Supreme Court reversed the Court of Chancery in Sandys v. Pincus on findings of director independence at Zynga.  The Court of Chancery had dismissed the suit for failure to make pre-suit demand on the board or alleging that demand would have been futile, but the Delaware Supreme Court found that the plaintiff had created a reasonable doubt that the board could have properly exercised independent, disinterested business judgment in responding to a demand.  If director independence is compromised, then demand is excused.  

The plaintiff had brought suit for breach of fiduciary duties after the board exempted several insiders, both top managers and directors, from its insider trading policy.  Continue Reading

Financial Stability Board’s Task Force Releases Climate Risk Disclosure Recommendations

The FSB’s Task Force on Climate-Related Financial Disclosure (Task Force) released on Wednesday its Recommendations Report for voluntary climate change disclosure. The Task Force is an industry-led group formed in 2015 by the FSB at the request of the G20. Its goal is to ensure sufficient climate risk disclosure is available to enable informed financial decisions to help avert climate change-based financial market disruption.

The Task Force recommendations, based in part on certain existing disclosure frameworks, call for four categories of disclosure: (i) governance of climate risk; (ii) climate risk management; (iii) climate risk metrics and targets; and (iv) impacts of climate risk on business strategy and planning (strategy). Continue Reading

Pay Ratio Rule Leads to Local Tax Increases

We recently published a client alert describing the possibility of a rollback of the pay ratio disclosure rule under the new administration.

The pay ratio rule has already produced unforeseen consequences. Quoting economist Thomas Piketty and citing numerous statistics on income inequality and CEO compensation, the city of Portland, Oregon, recently passed an ordinance authorizing a surtax to the city’s business license tax for public companies doing business in Portland based on their pay ratio disclosure.

In addition to the current 2.2% business license tax, a surtax of 10% of base tax liability will be imposed once the disclosure is effective if a company reports a pay ratio of at least 100:1 but less than 250:1. Continue Reading

Report on SEC Whistleblower Office Discusses Focus on Restrictive Severance and Confidentiality Agreements

The SEC’s 2016 report to Congress on its whistleblower program announced that it paid out $57 million in fiscal 2016, more than the total amount awarded during the entire first five years of the program. Since its inception, 35 whistleblowers have received more than $130 million by helping originate or contribute to enforcement actions that resulted in $584 million in financial sanctions. The number of tips have increased yearly, with more than 4,000 in fiscal 2016.

One section of the report describes the four actions that the Commission took this year related to severance agreements, two of which we previously discussed here. Continue Reading

Status of SEC Staff Decisions on Proposals to Amend Proxy Access Bylaws

Since the SEC staff first decided that a shareholder proposal asking to amend several terms of an existing proxy access bylaw could not be excluded from a proxy statement, which we previously discussed here, not much has changed.

The SEC staff has since made similar rulings in several other no-action letters whenever a company had already adopted a market standard 3/3/20/20 proxy access bylaw, and a shareholder proposal asked that company to amend parts of the bylaw. In the situations addressed by the staff so far, the proposals have sought to eliminate the provision that limits to 20 the number of shareholders who can form a nominating group. Continue Reading

Board Composition at the S&P 500 Companies

The composition of boards continues to be a focus for investors, and companies are responding by paying increased attention both to who sits on their boards and to enhancing their disclosure and engagement with investors. The data reported in the 2016 Spencer Stuart Board Index  on S&P 500 boards highlights emerging practices, compiled from proxy disclosure and a related survey. Overall, the trends have stayed steady from last year but represent a meaningful departure from 10 years ago.

Composition of new directors.  345 new directors joined 233 boards, with 87 boards adding more than one new director. Nearly one-third of the independent directors are serving on their first outside corporate boards, compared to 26% last year. Continue Reading

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