Tag: Proxy disclosure


Latest CD&A Template Offers Best Practices, Is Win-Win for Issuers, Investors

Matt Orsagh is a director at CFA Institute.

To help companies produce a more clear and concise executive compensation report that attends to the needs of both companies and investors, CFA Institute has released an updated Compensation Discussion & Analysis (CD&A) Template. It is an update of the 2011 template of the same name and aims to help companies draft CD&As that serve as better communications tools, not simply as compliance documents.

CFA Institute worked with issuers, investors, proxy advisers, compensation consultants, legal experts and other associations to update the manual so it would best serve the needs of investors and issuers. One of the main enhancements in the latest version of the template is a graphic executive summary that presents the main information investors are looking for in a concise format that takes up only one or two pages.

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Optimizing Proxy Communications

The following post comes to us from Ernst & Young LLP, and is based on a publication by the EY Center for Board Matters.

Proxy statements continue to evolve. New disclosure trends are sharpening company messaging to investors, while other disclosure practices leave investors seeking clarification.

To learn what kinds of disclosures are most valuable to investors, EY asked them where they would like to see disclosure enhancements and the kinds of disclosure practices they prefer.

The EY Center for Board Matters recently had conversations with 50 institutional investors, investor associations and advisors on their corporate governance views and priorities.

This post is the third in a series of four posts based on insights gathered from those conversations and previewing the 2015 proxy season. The first post (available here) focused upon board composition; the second (available here) upon shareholder activism. The upcoming final post will focus on the shareholder proposal landscape.

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SEC Proposes Proxy Disclosure Rules for Hedging by Directors, Officers and Employees

Steven Rosenblum is a partner in the Corporate Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell, Lipton, Rosen & Katz client memorandum by Mr. Rosenblum, Andrew R. Brownstein, and Sabastian V. Niles.

Pursuant to Section 955 of the Dodd-Frank Act, the SEC on February 9, 2015 proposed hedging disclosure rules for public comment and review. These rules, if adopted, would require proxy statements involving the election of directors to disclose whether the company permits employees (including officers), members of the board of directors or their designees to engage in transactions to hedge or offset any decrease in the market value of equity securities that are granted to the employee or board member as compensation or otherwise held, directly or indirectly, by the employee or board member, regardless of source.

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Preparing for the 2015 Proxy Season

The following post comes to us from Lawrence R. Hamilton, partner in the Corporate & Securities practice at Mayer Brown LLP, and is based on a Mayer Brown Legal Update. The complete publication, including footnotes, is available here.

It is time for calendar year-end public companies to focus on the upcoming 2015 proxy and annual reporting season. This post discusses the following key issues for companies to consider in their preparations:

  • Pending Dodd-Frank Regulation
  • Say-on-Pay and Compensation Disclosure Considerations
  • Shareholder Proposals
  • Proxy Access
  • Compensation Committee Independence Determinations
  • Compensation Adviser Independence Assessment
  • Compensation Consultant Conflict of Interest Disclosure
  • NYSE Quorum Requirement Change
  • Director and Officer Questionnaires
  • Proxy Advisory Firm and Investment Adviser Matters
  • Conflict Minerals
  • Cybersecurity
  • Management’s Discussion and Analysis
  • XBRL
  • Proxy Bundling
  • Foreign Issuer Preliminary Proxy Statement Relief
  • Technology and the Proxy Season

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Audit Committee Reporting To Shareholders: 2014 Proxy Season Update

The following post comes to us from Ernst & Young, and is based on an Ernst & Young study by Allie M. Rutherford and Ruby Sharma. The complete publication is available here.

The 2014 proxy season saw significant growth in audit committee transparency. Continuing the trend of the past several years, an increased number of Fortune 100 companies are going beyond the minimum disclosures required.

These disclosures are also more robust—providing valuable perspectives on the activities of audit committees, including their oversight of external auditors.

The recent movement toward increased audit committee transparency has been encouraged by a variety of factors and entities. In addition to the ongoing disclosure effectiveness review by the US Securities and Exchange Commission (SEC) involving a holistic review of the US corporate disclosure regime, audit committee disclosures are receiving significant attention from a variety of stakeholders. These stakeholders include US and non-US regulators, investors, and policy organizations.

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Delaware Court Denies Attorneys’ Fees for Alleged Dodd-Frank Disclosure Deficiencies

The following post comes to us from Stewart D. Aaron, partner in the Securities Enforcement and Litigation practice at Arnold & Porter LLP, and is based on an Arnold & Porter publication by Mr. Aaron and Robert C. Azarow. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Under Delaware’s corporate benefit doctrine, a stockholder who presents a meritorious claim to a board of directors may be entitled to attorneys’ fees if the stockholder’s efforts result in the conferring of a corporate benefit. [1] On June 20, 2014, the Delaware Chancery Court considered in Raul v. Astoria Financial Corporation [2] whether attorneys’ fees are warranted under this doctrine when a stockholder identifies potential deficiencies in executive compensation disclosures required by the SEC pursuant to the Dodd-Frank Act “say on pay” provisions. [3] The court held that the alleged omissions at issue failed to demonstrate any breach of the Board of Directors’ fiduciary duties under Delaware law and accordingly the Plaintiff did not present a meritorious demand to the Board. This decision makes clear that the courts will not shift fees to a stockholder (and the stockholder’s law firm) who “has simply done the company a good turn by bringing to the attention of the board an action that it ultimately decides to take.” [4]

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CII Urges SEC to Require Disclosure of Third-Party Director Compensation

Sabastian V. Niles is counsel in the Corporate Department at Wachtell, Lipton, Rosen & Katz, where he focuses on rapid response shareholder activism, takeover defense and corporate governance. This post is based on a Wachtell Lipton firm memorandum by Mr. Niles, Trevor Norwitz, Andrew R. Brownstein, and David C. Karp.

As we have previously written, special compensation arrangements between public company directors and third parties, such as activist hedge funds or other nominating shareholders, pose serious threats to the integrity of boardroom decision-making and have been sharply criticized by commentators and many institutional shareholders. The Council of Institutional Investors (CII), which has previously declared that third-party director incentive schemes “blatantly contradict” CII policies on director compensation, has now taken the additional step of encouraging the SEC to act to ensure investors are fully informed about such arrangements between nominating shareholders and their director candidates.

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Chen v. Howard-Anderson

James C. Morphy is a partner at Sullivan & Cromwell LLP specializing in mergers & acquisitions and corporate governance. The following post is based on a Sullivan & Cromwell publication by Mr. Morphy, Alexandra Korry, Joseph Frumkin, and Brian Frawley. The complete publication, including footnotes, is available here. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here. Additional reading about Chen v. Howard-Anderson is available here.

In a summary judgment opinion issued on April 8, the Delaware Court of Chancery (VC Laster) held that in a change of control case governed by enhanced scrutiny, directors and officers could incur personal liability for a breach of their duty of loyalty if it is established that they acted unreasonably in conducting the sale process and allowed interests other than the pursuit of the best value reasonably available, i.e. an improper motive, to influence their decisions. The Court expressly rejected arguments that directors (or officers) could only be found to have acted in bad faith and thereby be personally liable for a breach of the duty of loyalty if it were determined that they were motivated by an intent to do harm or had consciously disregarded known obligations and utterly failed to attempt to obtain the best sale price, as articulated by the Delaware Supreme Court in Lyondell Chemical Company v. Ryan. Applying the new standard to the case before it, the Court concluded that the evidence against the director defendants was not sufficient to impose personal liability under the new standard, but that the evidence was sufficient to proceed to trial against the officers on the same theory.

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Looking at Corporate Governance from the Investor’s Perspective

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at Emory University School of Law’s Corporate Governance Lecture Series; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Corporate governance has always been an important topic. It is even more so today, as many Americans recognize the need to develop a more robust corporate governance regime in the aftermath of the deepest financial crisis since the Great Depression.

Although the recent financial crisis—aptly named the “Great Recession”—has many fathers, there is ample evidence that poor corporate governance, including weak risk management standards at many financial institutions, contributed to the devastation wrought by the crisis. For example, it has been reported that senior executives at both AIG and Merrill Lynch tried to warn their respective management teams of excessive exposure to subprime mortgages, but were rebuffed or ignored. These and other failures of oversight continue to remind us that good corporate governance is essential to the stability of our capital markets and our economy, as well as the protection of investors.

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SEC Issues Guidance on Use of Social Media in Offerings and Proxy Fights

Trevor Norwitz is a partner in the Corporate Department at Wachtell, Lipton, Rosen & Katz, where he focuses on mergers and acquisitions, corporate governance and securities law matters. This post is based on a Wachtell Lipton firm memorandum by Mr. Norwitz, Sabastian V. Niles, Eitan S. Hoenig, and Matthew I. Danzig.

The SEC staff has released new guidance regarding the use of social media such as Twitter in securities offerings, business combinations and proxy contests (as a senior SEC official telegraphed at the Tulane Corporate Law Institute conference). Until now, SEC legending requirements have restricted an issuer’s ability to communicate electronically using Twitter or similar technologies with built-in character limitations before having an effective registration statement for offerees, or definitive proxy statement for stockholders (as the legends generally exceed the character limits). Companies using Twitter and similar media with character limits can now satisfy these legend requirements by using an active hyperlink to the full legend and ensuring that the hyperlink itself clearly conveys that it leads to important information. Although the SEC guidance does not provide example language, hyperlinks styled as “Important Information” or “SEC Legend” would seem to satisfy this standard. Social media platforms that do not have restrictive character limitations, such as Facebook and LinkedIn, must still include the full legend in the body of the message to offerees or stockholders.

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