Status of SEC Staff Decisions on Proxy Access Shareholder Proposals and Aggregation Limits on Nominating Shareholder Groups

SEC staff decisions for no-action letters seeking relief from proxy access shareholder proposals have divided between companies being asked to adopt proxy access for the first time and companies being asked to amend existing bylaws.  Now they have taken a further twist based on the requests in those proposals to amend proxy access bylaws.

Adopt Proxy Access Proposals.  Consistent with last year, this season the SEC staff has continued to affirm that shareholder proposals asking companies to adopt proxy access bylaws are considered to be substantially implemented if companies provide terms permitting shareholders that own 3% or more for at least three years to nominate the greater of two directors, or 20%, of the board.  Continue Reading

Study Examines Boardroom Refreshment Practices Over Nearly 10 Years

In 145 pages, IRRC Institute and ISS teamed up on a study of board refreshment trends at S&P 1500 companies from 2008 to 2016.

Boardroom Demographics.  The study examines the composition of boards in terms of tenure, age, diversity and experience as board members. 

  • Director Tenure.  Average boardroom tenure rose from 8.4 years in 2008 to nine years in 2013 before leveling at 8.7 years. Surprisingly, the average tenure for women directors of 6.4 years is identical to the level in 2008, while male directors currently have average tenures of 9.2 years.
  • Director Age.  The typical director is 62.5 years, which is the oldest age for the 2008 to 2016 study period.
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State Street Advises Boards to Focus on Environment and Social Sustainability

State Street’s letter to board members emphasizes the importance of sustainability in long-term corporate strategy. As they have previously focused at length on the importance of independent board leadership, which we discussed here in 2017 the investor will shift its attention to board oversight of environmental and social sustainability in areas such as climate change, water management, supply chain management, safety issues, workplace diversity and talent development. State Street believes that while each company is different, these areas can pose both risks and opportunities that affect financial returns, citing notable examples from recent scandals related to automotive emissions, food safety and labor issues. Continue Reading

Acting SEC Chairman Seeks Input on Pay Ratio Rule

Acting SEC Chairman Piwowar issued a statement today asking for public comment on any “unexpected challenges” that companies have experienced as they prepared for compliance with the pay ratio rule and “whether relief is needed.”  Chairman Piwowar encourages submission of detailed comments within the next 45 days, which can be submitted here.

Chairman Piwowar’s statement indicates that he has also directed to SEC staff to reconsider the implementation of the rule based on any comments submitted and to determine as promptly as possible whether additional guidance or relief may be appropriate.

The pay ratio rule, the only executive compensation rule required under the Dodd-Frank Act that is in final form, requires disclosure for companies with calendar year-end fiscal years starting with 2018 proxy statements.   Continue Reading

Reconsideration of Conflict Minerals Rule Implementation

Yesterday, Acting SEC Chairman Piwowar issued a public statement that he has directed the staff to reconsider whether the 2014 guidance on the conflict minerals rules is “still appropriate and whether any additional relief is appropriate.” He also encouraged interested parties to submit comments within the next 45 days on all aspects of the rule and guidance. Comments may be submitted here.

Directed under the Dodd-Frank Act, the rules were adopted in 2012, not without controversy. Two years later, shortly before the rules went into effect, the D.C. Circuit Court of Appeals held that the rule violates the First Amendment by requiring that companies report that any of their products have “not been found to be DRC conflict free.”

The SEC staff later instructed companies to file their first reports describing companies’ reasonable country of origin inquiry and supply-chain due diligence, but stated that companies need not characterize any products as “DRC conflict free,” having “not been found to be ‘DRC conflict free,’” or “DRC conflict undeterminable.” For products that otherwise would have merited a label other than “DRC conflict free,” the company should disclose the facilities used to produce the conflict minerals, the country of origin of the minerals and the efforts to determine the mine or location of origin.  Continue Reading

Major Institutional Investors Adopt Corporate Governance Framework

A group of major investors has endorsed a corporate governance framework to go into effect on January 1, 2018. The Investor Stewardship Group (ISG) currently comprises BlackRock, CalSTRS, Florida State Board of Administration (SBA), GIC Private Limited (Singapore’s Sovereign Wealth Fund), Legal and General Investment Management, MFS Investment Management, MN Netherlands, PGGM, Royal Bank of Canada (Asset Management), State Street Global Advisors, TIAA Investments, T. Rowe Price Associates, Inc., ValueAct Capital, Vanguard, Washington State Investment Board, and Wellington Management.

The ISG was formed to enable investors who sign on to “speak with one voice,” resulting in a framework consisting of a set of six corporate governance principles and six stewardship principles for institutional investors. Continue Reading

SEC Notes Company’s Helpful Voluntary Actions in Whistleblower Case

The SEC recently alleged that yet another company violated the whistleblower rules with its standard separation agreement, but the order in the case also noted several positive actions taken by the company which helped determine the SEC’s acceptance of the company’s settlement offer.

For nearly five years, over a thousand BlackRock employees signed separation agreements that the SEC alleged wrongfully included language requiring a departing employee to waive recovery of incentives for reporting misconduct available under federal statues, in exchange for receiving separation payments from the company. The SEC noted that the agreement did not prohibit those former employees from communicating directly with the Commission or any other governmental agency regarding potential violations of law. Continue Reading

CII Advocates for Consequential Majority Voting, a Departure from Common Practice

The Council of Institutional Investors has published an FAQ on majority voting for directors in which it advocates for “consequential majority voting,” a form of majority voting in director elections that essentially removes board discretion if a director receives less than majority support.

90% of S&P 500 companies have a traditional form of majority voting, compared to only 29% of Russell 3000 companies. Most mid-cap and small-cap companies elect directors under a plurality vote system, where the nominees who receive the most “for” votes are elected until all board seats are filled. In an uncontested election, given that the number of nominees is equal to the number of board seats available, a nominee can be elected with one vote. Continue Reading

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