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

First Proxy Access Contest Ends with Nominee Withdrawal

After National Fuel Gas declared GAMCO’s proxy access nomination to be invalid, which we previously discussed here, GAMCO filed amendment no. 10 to its Schedule 13D, announcing that its proxy access nominee has informed the investor that he has decided to withdraw his name as a candidate. The 13D then stated that “GAMCO will not pursue proxy access.”

The company’s deadline for proxy access aligned with its deadline to make director nominations under its advance notice bylaws, with both ending on November 10, 2016. Continue Reading

Company Disputes Validity of First Proxy Access Nominee

National Fuel Gas (NFG) has informed GAMCO Asset Management (GAMCO) that its board has concluded that the company does not need to include GAMCO’s nominee in its 2017 proxy materials because GAMCO did not comply with the proxy access bylaws. We previously discussed the background of the nomination here.

Like other proxy access bylaws, NFG’s bylaws require a shareholder making a nomination to represent that it acquired the shares in the ordinary course of business and not with the intent to change or influence control of the company, and does not presently have such intent. NFG argues that GAMCO has failed this standard by continuing to advocate for a spinoff of parts of its business. Continue Reading

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