Tag: Proxy materials


Third Circuit Provides Guidance on Excluding Shareholder Proposals

Robert E. Buckholz and Marc Trevino are partners and Heather L. Coleman is an associate at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication by Mr. Buckholz, Mr. Trevino, and Ms. Coleman.

 

 

On Monday, the U.S. Court of Appeals for the Third Circuit released its opinion in Trinity Wall Street v. Wal-Mart Stores, Inc. [1] The Court had issued an earlier order, without an opinion, that Wal-Mart could exclude Trinity’s Rule 14a-8 shareholder proposal relating to the sale of firearms with high-capacity magazines from Wal-Mart’s proxy materials because it related to “ordinary business operations.” At the time, the Court stated it would subsequently issue a more detailed opinion explaining its rationale.

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Shareholder Proposal Developments During the 2015 Proxy Season    

Elizabeth Ising is a partner and Co-Chair of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn client alert by Ms. Ising, Sarah E. Fortt, Madison A. Jones, Gillian McPhee, Ronald O. Mueller, Kasey Levit Robinson, and Lori Zyskowski. The complete publication, including footnotes, is available here.

This post provides an overview of shareholder proposals submitted to public companies for 2015 shareholder meetings, including statistics, notable decisions from the staff (the “Staff”) of the Securities and Exchange Commission (the “SEC”) on no-action requests, and information about litigation regarding shareholder proposals.

I. Shareholder Proposal Statistics and Voting Results

A. Shareholder Proposals Submitted

According to data from Institutional Shareholder Services (“ISS”), shareholders have submitted approximately 943 proposals for 2015 shareholder meetings, which surpasses the total of 901 proposals submitted as of a comparable time last year. For 2015, across four broad categories of shareholder proposals—governance and shareholder rights; environmental and social issues; executive compensation; and corporate civic engagement (which includes proposals regarding contributions to or membership in political, lobbying, or charitable organizations)—the most frequently submitted proposals were governance and shareholder rights proposals (with approximately 352 submitted), largely due to the unprecedented number of proxy access proposals (108 proposals). If not for the dramatic rise in the number of proxy access proposals, proposals on environmental and social issues would have again comprised the largest category of proposals (with approximately 324 submitted), continuing a trend that began in 2014.

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Building Meaningful Communication and Engagement with Shareholders

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s remarks at the national conference of the Society of Corporate Secretaries and Governance Professionals, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I am honored to be with you here in Chicago at the Society’s 69th National Conference. Over the years, the Society has consistently provided thoughtful comments to the Division of Corporation Finance and the Commission on a wide variety of issues and proposed rules. You understand the complexities that can affect multiple parties and recognize the importance of the interests of shareholders. All of you play a critical role in corporate governance. It is the decisions you make, the practical solutions you advance and the views you share with your boards that can, in large part, dictate the relationship between shareholders and companies.

Because of your central roles in your companies, many of the Commission’s initiatives are of interest to you: our disclosure effectiveness review; the audit committee disclosures concept release the staff is working on; and any number of our rulemakings. My hope is that you will see near-term activity in these and other areas, including rules mandated by the Dodd-Frank Act, such as the clawbacks rule as required by Section 954, the pay ratio rule under Section 953(b) and the joint rulemaking on incentive compensation as required by Section 956. So stay tuned for those developments.

But today my focus is on a selection of proxy-related issues, another area of particular interest to you. And my overall theme complements the theme of your conference, “Connect, Communicate, Collaborate.” Be proactive in building meaningful communication and engagement with your shareholders.

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Shareholder Involvement in the Director Nomination Process

Stephen Erlichman and Catherine McCall are Executive Director and Director of Policy Development, respectively, at Canadian Coalition for Good Governance (CCGG). This post is based on a CCGG policy publication, titled Shareholder Involvement in the Director Nomination Process: Enhanced Engagement and Proxy Access; the complete publication is available here. Related research from the Program on Corporate Governance includes Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

Proxy access is the corporate governance cause célèbre in the 2015 U.S. proxy season. There has been a concerted push on the part of institutional shareholders and others to convince companies to adopt proxy access, most commonly in the form of a trigger of 3% of outstanding voting shares held for 3 years. Shareholders have responded very favourably to the proxy access shareholder proposals put forward by institutions such as the New York City Pension Funds through its Board Accountability Project. A surprising (to many) number of companies [1] have adopted proxy access on the 3%/3 year basis, including some of the largest, best known and established of U.S. companies, some voluntarily and without a majority approved shareholder proposal on the matter. In Canada, the Canadian Coalition for Good Governance (CCGG), an organization which represents institutional shareholders that collectively own or manage approximately Cdn $3 trillion of assets and which has a mandate to promote good corporate governance at Canadian public companies, has just released its own proxy access policy. The policy, entitled Shareholder Involvement in the Director Nomination Process: Enhanced Engagement and Proxy Access (available here), has been developing for over a year following widespread input and consultation among CCGG’s members and other market participants.

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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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SEC Releases Proposed Rules on Dodd-Frank Pay vs. Performance Disclosure Rule

Michael J. Segal is partner in the Executive Compensation and Benefits Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Segal, Andrea K. Wahlquist, and David E. Kahan.

On April 29, 2015, the SEC released proposed rules under Section 953(a) of the Dodd-Frank Act, regarding required proxy and other information statement disclosure of the relationship between executive compensation actually paid by a company, and the company’s financial performance. The proposed rules are subject to public comments for 60 days following their publication in the Federal Register. The new requirements could become effective as early as the 2016 proxy season.

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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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Ensuring the Proxy Process Works for Shareholders

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; 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.

Today’s [February 19, 2015] Roundtable on Proxy Voting is certainly timely since over the course of the next several months, thousands of America’s public companies will hold annual shareholders meetings to elect directors and to vote on many important corporate governance issues. The start of the annual “proxy season” is an appropriate time to consider the annual process by which companies communicate with their shareholders and get their input on a variety of issues. Whether it’s voting on directors, executive compensation matters, or other significant matters, the annual meeting is the principal opportunity for shareholders—the true owners of public companies—to have their voices heard by the corporate managers of their investments. At these annual meetings, shareholders can express their support, or disappointment, with the direction of their companies through the exercise of their right to vote.

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SEC to Review Excluding Conflicting Proxy Proposals under Rule 14a-8

The following post comes to us from Robert B. Schumer, chair of the Corporate Department at Paul, Weiss, Rifkind, Wharton & Garrison LLP, and is based on a Paul Weiss client memorandum.

SEC Chair Mary Jo White has directed the Division of Corporation Finance (“Corporation Finance”) to review its position on Rule 14a-8(i)(9), which allows a company to exclude a shareholder proposal from the company’s proxy materials if it “conflicts” with the company’s own proposal to be submitted to shareholders at the same meeting. As a result of this direction, Corporation Finance will express “no views” on the application of Rule 14a-8(i)(9) this proxy season.

The catalyst for this development was a shareholder proposal submitted by proponent James McRitchie to Whole Foods Market, Inc., requesting that the company adopt “proxy access” procedures generally to allow one or more shareholders owning at least 3% of the company’s voting securities for three or more years to nominate up to 20% of the board of directors via the company’s proxy materials. Whole Foods countered with its own proposal that included significantly different share ownership and holding period thresholds and director nominee caps, but nevertheless was granted no-action relief by Corporation Finance, allowing it to exclude the McRitchie proposal under Rule 14a-8(i)(9) on the basis that it conflicted with Whole Foods’ proposal and the proposals would “present alternative and conflicting decisions for the Company’s shareholders that would likely result in inconsistent and ambiguous results”. Thereafter, Mr. McRitchie, the Council of Institutional Investors and others have called for the SEC to review its position on these “conflicts”, which SEC Chair White has now done. Corporation Finance has since effectively rescinded its no-action relief to Whole Foods and stated that it has no view of Rule 14a-8(i)(9).

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Guidance on the Ordinary Business Exception to Rule 14a-8

The following post comes to us from Steve Bochner, partner focusing on corporate and securities law at Wilson Sonsini Goodrich & Rosati, and is based on a WSGR Alert memorandum.

A tenet of corporate law is that directors—not shareholders—manage a company’s business and affairs. Recognizing that proposals adopted through the Rule 14a-8 process could allow shareholders to intrude on matters traditionally within the directors’ discretion and control, Rule 14a-8(i)(7) permits the exclusion of shareholder proposals from a company’s proxy statement that relate to a “company’s ordinary business operations.” This ordinary business exception to Rule 14a-8 is an acknowledgement that certain “tasks are so fundamental to management’s ability to run a company on a day-to-day basis that they could not, as a practical matter, be subject to direct shareholder oversight.”

In interpreting Rule 14a-8(i)(7), the staff of the Securities and Exchange Commission (SEC) has found that proposals otherwise related to an ordinary business matter may not be permissibly excluded from a company’s proxy statement where they also relate to a significant social policy issue. In this circumstance, the SEC’s staff will not provide its concurrence (in the form of a no-action letter) with a company’s decision to exclude a shareholder proposal on the basis of the ordinary business exception if the staff determines that the issue “transcend[s] the day-to-day business matters and raise[s] policy issues so significant that it would be appropriate for a shareholder vote.” The line between a proposal related to ordinary business and one related to a significant social policy issue is often blurry, and it is the subject of intense debate between companies and shareholder proponents.

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