The Proxy Access Battlefront for Next Season? SEC Staff Rejects Attempt to Exclude Proxy Access Shareholder Proposal

The 2017 season that just passed witnessed two kinds of proposals asking companies to amend existing proxy access bylaws. The first type sent to companies earlier in the season sought to amend several provisions, including requesting that the number of board seats available for nomination increase to 25% of the board instead of 20%, and also that an unlimited number of shareholders be allowed to aggregate their holdings to form a nominating group. Companies that had adopted the standard proxy access formulation of permitting a shareholder or a group of no more than 20 shareholders owning 3% or more for three years to nominate up to 20% of the board (known by the shorthand “3/3/20/20”) were denied no-action relief on the basis of substantial implementation. Continue Reading

Comparing the SEC’s Rulemaking Agendas Indicates Potential for Less Rulemaking, but Significant Disclosure Initiatives Remain

Like other federal agencies, the SEC recently released its regulatory agenda. The agenda is published by the Office of Information and Regulatory Affairs at the Office of Management and Budget within the Executive Office of the President (OMB) and purports to reflect the rulemaking initiatives for the coming year. In the past, the agenda was generally not predictive of the rules the SEC ended up either proposing or adopting, but in light of the new administration’s deregulatory objectives, there is increased focus whether the agenda fulfills that mandate.

Mick Mulvaney, the Director of OMB, personally emphasized the importance of the unified regulatory agenda for all agencies on the day it was released. Continue Reading

Report Finds Shareholder Activism Evolving from Niche Strategy to Acceptance Across Investors

With 371 public campaigns against U.S. companies, according to a recent J.P. Morgan report on the new normal in shareholder activism, the 2017 proxy season proved to be fairly active. Although only 19 of the 54 actual contests that were completed by June went to vote, while the same number settled and the remainder were withdrawn, activists were able to obtain at least one board seat 46% of the time, compared to 41% last year.

Settlements continue to be on the rise, even though several major institutional investors have urged companies not to agree with activists so quickly and at least make public the reasons for the settlement.  Continue Reading

SEC Chairman Clayton on His Agenda

SEC Chairman Jay Clayton gave his first public address yesterday, with some meaningful remarks directed at public company regulations.

The long-term interest of the Main Street Investor (the term is not defined but capitalized in his speech) is the cornerstone of how the SEC will measure whether it is being true to its mission regarding the protection of investors, facilitating capital formation and maintaining markets properly. The Main Street Investor is also characterized as “Mr. and Ms. 401(k)” and it is the SEC’s primary responsibility to ensure that they are informed and have the right opportunities to invest in their future. Continue Reading

Investor Group Petitions SEC to Require Disclosure on Human Capital Management

The Human Capital Management Coalition has submitted a rulemaking petition to the SEC to require all public companies to disclose information about its workforce. The petition is signed by Meredith Miller from the UAW Retiree Medical Benefits Trusts, and a list of members is available here.

While the success of any efforts to mandate disclosure through the SEC seems fairly uncertain, the petition represents increasing demands on companies for ESG-related information. The requests, usually in the form of surveys to fill out, may come directly from investors or just as often if not more, from data providers that use whatever information they can gather to assess and rate companies for investors. Continue Reading

NYSE Rule Filing Contemplates Direct Listings Without Concurrent IPO

The NYSE has proposed to change its rules to provide for companies to list without the usual process of an underwritten IPO and registering under the Exchange Act. Various news articles indicate that Spotify is considering a direct listing in early 2018.

The traditional methods of listing on a stock exchange include either an underwritten IPO, transfer from another market or a spinoff. The NYSE also has discretion to list companies that have previously sold common stock in a private placement, at the time a registration statement is filed to allow existing shareholders to sell their shares becomes effective. It considers whether a company has met the $100 million aggregate market value of the publicly held share requirement based on a third-party valuation and the most recent trading price in a private placement market. Continue Reading

Company Drops Plans to Issue No-Vote Share Class

In the midst of the controversy over Snap’s issued no-vote shares, and Blue Apron’s authorized but not issued no-vote shares, one company has discarded its efforts to form a class of stock without any voting rights.

In November 2016, IAC/Interactive Corp. announced a plan to adjust its capital structure through a charter amendment to enable a new class of non-voting capital stock, Class C. The company intended to declare and pay a dividend of one share of Class C for each outstanding share of IAC common stock and Class B common stock. Shareholders were asked to vote on the recapitalization at the company’s December annual meeting. Continue Reading

Financial Stability Board Task Force Releases Final Climate-Related Financial Risk Disclosure Recommendations

The Financial Stability Board’s Task Force on Climate-Related Financial Disclosure (“TCFD”), an industry-led group formed at the request of the G20, released yesterday its Final Recommendations Report for “voluntary” climate-related financial disclosure. The TCFD’s mandate is to ensure sufficient climate risk disclosure is available to avoid catastrophic financial market disruption due to climate change impacts.

Why Important?  While a variety of climate change disclosure frameworks already exist, such as those of SASB, GRI and CDP, as noted in our previous post summarizing the TCFD’s December 2016 draft recommendations, these recommendations are particularly relevant because of the FSB’s status as an international body founded by the G7 which coordinates national financial authorities and international standard-setting bodies, including the U.S. Continue Reading

Independent Chair Proposals and the Relevance of Supporting Statements

So far this season 44 shareholder proposals asking companies to appoint independent chairs of boards are on annual meeting ballots. None of the ones voted on have passed, although eight have received support over 40%, an increase from 2016. This includes several companies with robust lead directors. In the meantime, the number of large-cap companies that combine the chairman and CEO roles have grown, to about 50% of the S&P 500 compared to 43% last year.

In recent years, few companies have submitted no-action requests to exclude these shareholder proposals, since the text of those resolutions and the arguments against them have largely been settled. Continue Reading

The Financial CHOICE Act and the Debate Over Shareholder Proposals

A lively debate is erupting over a provision in the House-approved Financial CHOICE Act that would increase the stock ownership threshold for submitting shareholder proposals in the company’s proxy statement from the current level of $2,000 to 1% of common stock outstanding, and would extend the stockholding duration requirement from one year to three years.

The New York State Comptroller, who manages $186 billion in retirement funds but whose ownership of any particular company is often less than 1%, called it “outrageous and inequitable that we would not be able to make requests of corporate boards through shareholder resolutions.” Other critics of the proposed change have pointed out that even investors with small holdings can have good ideas, and the Wall Street Journal quoted an asset manager’s view that “Shareholder proposals provide an early warning of risks a company may not be aware of, as well as an opportunity to gauge investor sentiment on a wide range of issues.”

These may be valid observations, but they overlook the fact that the owner of a single share is usually able to present a proposal for a vote by the shareholders, and for this reason the by-laws of most companies typically impose no minimum ownership or duration requirements whatsoever. Continue Reading

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