Whole Foods Granted No-Action on Proxy Access Proposal
The SEC just granted Whole Foods its requested no-action letter in connection with a proxy access proposal submitted by James McRitchie that would have allowed shareholder groups with a 3% stake held for three years access to the company's proxy statement. The company's no-action request was based on its assertion that the proposal directly conflicts with a proxy access bylaw amendment the company plans to submit to its stockholders at its 2015 annual meeting that will permit proxy access for any shareholder (but not a group of shareholders) owning 9% or more of the company's stock for five years. SEC staff agreed - granting the requested no-action based on Rule 14a-8(i)(9).
Pay Ratio Disclosure Rule Moved to October 2015 on SEC's Reg Flex Agenda
The SEC's latest reg flex agenda defers the issuance of rules to implement the Dodd-Frank-required pay ratio disclosure from October 2014 to October 2015. Based on the proposed rule scheme (which the SEC could modify), the disclosures would be required in 2017 proxy statements assuming the rules are effective in 2015.
Also, last week, House Financial Services Committee Chair Jeb Hensarling and Representatives Scott Garrett and Bill Huizenga sent this letter to SEC Chair White expressing their concern about the SEC's recent comments that it was prioritizing completion of the pay ratio rule, which has no rulemaking deadline and "does nothing to address the primary causes of the recent financial crisis." They also criticized the substance and cost implications of the rule.
See also this Wall Street Journal op-ed addressing the rule's "excessive compliance costs on public companies with no discernible benefits to investors," and citing this recent Chamber Center for Capital Markets Competitiveness report.
See also this Gibson Dunn blog.
2014 Whistleblower Report Reveals Program Gaining Steam
The SEC's Office of the Whistleblower recently released its annual report to Congress on the Dodd-Frank Whistleblower Program. Highlights include:
- Nine of a total of 14 awards authorized since program inception were granted in fiscal 2014.
- The magnitude of the award payments in 2014 was record-breaking. In addition to the $30 million awarded to a foreign whistleblower in September (which we reported previously), awards ranged from $150,000 to $875,000. There were also several sizeable additional payments made to individuals who had received awards in previous years.
- The agency continues to receive an increasing number of tips - 3,620 in 2014, a 20+% increase in two years.
The report also identifies these commonalities among the "successful" whistleblower reports:
- The information provided by each award recipient was specific.
- The alleged misconduct was relatively current or ongoing.
- Over 40% of the individuals who have received awards were current or former company employees. An additional 20% were contractors or consultants.
- Of the award recipients who were current or former employees, over 80% raised their concerns internally before reporting their information to the SEC.
- A majority of the award recipients were not represented by counsel when they submitted their tip, but were represented by counsel when they applied for an award.
- Only one of the 14 award recipients to date submitted the information anonymously.
The report also highlights the SEC's first enforcement action brought in June under the anti-retaliation provisions of the Dodd-Frank Act, which we reported on earlier this year.
See also this Proskauer memo discussing the report.
Nasdaq Proposes Staff Discretion for Rule Requiring Companies to Hold Annual Meeting
In contrast to the NYSE standards and rules governing other Nasdaq Rule 5000 deficiencies, Nasdaq Rule 5810(c)(1) requires companies to be delisted if they fail to hold their annual meeting as required by Rule 5620. Staff has no discretion to allow companies additional time to regain compliance.
As noted in this Stinson Leonard blog, Nasdaq has proposed to amend the rule to include limited staff discretion to provide companies with additional time to solicit proxies and hold their meeting. The proposed rule change describes a variety of reasons why a company may fail to timely solicit proxies and hold an annual meeting that support the proposal. Some of those are the company's failure to obtain a quorum (requiring meeting adjournment and rescheduling), misjudging the time required for the SEC's review of a proxy statement, and periodic report filing delinquencies that trigger delays in the proxy statement.
St. Petersburg Exchange to List Foreign Company Shares Without Consent
A new Cleary Gottlieb memo reports that the St. Petersburg Exchange (SPE) plans to list the shares of a number of prominent non-Russian companies - including Apple, Google, IBM, McDonalds, Johnson & Johnson and Disney, on an unsolicited and unsponsored basis - i.e., without the involvement or consent of the foreign company whose stock underlies the listing.
The companies won't be required to comply with Russian disclosure requirements or otherwise be subject to the Russian regulatory scheme; however, the memo suggests they may want to consider disclaiming (in their SEC filings ) any actions - including disclosures - taken by the Russian exchange in connection with these listings. The SPE is required to publish a prospectus summary in Russian at least three days before trading commences.
Germany Advancing Gender Quota for Large Company Boards
Last week, Germany's coalition government backed a 30% quota for women on the boards of the largest listed German companies according to this article from DW. Women currently occupy 19% of supervisory board seats at the top 160 listed German companies - up from 10% in 2011, but still far short of the desired 30%. In Germany's two-tiered board system, supervisory boards appoint and monitor management and are filled by investor and employee representatives.
The new quota is expected to be in effect in 2016. The companies subject to the new candidate requirement will be required to leave vacant board seats open until they appoint suitable women. The draft bill is scheduled to go before the cabinet this month.
SEC Commissioner Aguilar Addresses SEC's Efforts to Support Small Business Capital Formation
SEC Commissioner Aguilar's remarks at last month's Government-Business Forum on Small Business Capital Formation emphasized the importance of small businesses to the U.S. economy and - relatedly - the SEC's past and current initiatives intended to facilitate the ability of small businesses to access the capital markets. Noting the heightened and unique risks associated with small and emerging businesses, he discussed ways in which Congress and the SEC have sought to find the proper balance between enabling these businesses to cost-effectively access the capital markets and protecting investors.
PCAOB Board Member Shares Investor Concerns About Audit Firm Advisory Services
In recent remarks to PLI's Annual Directors' Institute on Corporate Governance, PCAOB board member Steve Harris shared concerns raised by investor groups about the increase in advisory and consulting services by audit firms. After putting the trend in context (e.g., advisory services represent 39% of total revenues across the major U.S. firms - compared to 36% for audit services), he discussed investors' perceived potential threats to audit quality and auditor independence, including:
- Distraction by firms away from audit and its "core values" (e.g., "public watchdog role," "total independence")
- Use of inappropriate performance measurements focused on bottom line profitability and revenue growth
- Independence impairment (due to insufficient monitoring of services and permissible tax consulting work that may "cross the line")
- Rise of internal conflicts between a firm's practice groups
After noting at the outset the PCAOB's limited authority in the area of corporate governance, Harris indicated that the PCAOB will monitor firms' actions for adverse impacts on audit quality resulting from this trend: "It is the PCAOB's role to monitor the firms' systems of quality control, including how firm leadership is managing all threats to audit quality. And, if the firms fail to manage these threats, take action to the full extent of our authority and influence."
As an aside, note also that the PCAOB just posted its 2015 Budget and 2014 - 2018 Strategic Plan. Among other things, the Strategic Plan addresses the PCAOB's near-term priority to enhance its outreach to, and interaction with, audit committees on areas of common interest such as auditor independence and audit quality.
Senate Bill Would Give President Authority to Name NY Federal Reserve President
Jack Reed (D-RI) recently introduced a bill that would require the president of the Federal Reserve Bank of New York to be appointed by the President, by and with the advice and consent of the Senate. The bill has been referred to the Committee on Banking, Housing, and Urban Affairs.
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