The Society's 2015 National Conference will take place June 24-27 in Chicago, Illinois at the Sheraton Chicago Hotel and Towers. Come to Chicago to "Connect, Communicate, Collaborate" with 800 of your colleagues.  

Conference registration is now open online. Members need to log in to receive member rates.

Note: If you are asked to answer questions regarding your conference selections, you must click "SAVE RESPONSES" on the right side of the screen for each set of questions. You will not be able to check out unless you have answered the required questions and saved your responses.

The conference agenda is posted here. Hotel reservation and other information is here.

SEC Initiates Inquiries into Companies' Whistleblower Practices

Further to SEC Office of the Whistleblower Chief Sean McKessy's warnings last year, subsequent concerns expressed to the SEC by whistleblower lawyers and House Democrats, and related media coverage, the Wall Street Journal reported last week that the SEC has initiated an inquiry of companies' whistleblower practices. Specifically, the SEC purportedly sent letters to a number of companies seeking copies of all types of employment agreements entered into with employees since Dodd-Frank's 2010 effective date, and "documents related to corporate training on confidentiality" that may be indicative of attempts to effectively impede employees' reporting of alleged covered misconduct to the SEC in violation of the law. Dodd-Frank provides that "[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement...with respect to such communications."

In his blog, Keith Bishop discusses the apparently informal nature of the SEC's inquiry, including companies' response options and related implications. See also Morgan Lewis's suggested guidance.

SEC Commissioner Gallagher Paints Picture of Financial Services Industry Regulatory Burden

In a fireside chat at the Institute of International Bankers' Annual Conference on Monday, SEC Commissioner Gallagher addressed the numerous regulations imposed on the financial services industry since the July 2010 enactment of Dodd-Frank. He also shared this revealing diagram that he and his staff prepared depicting the rules applicable to U.S. services financial holding companies since July 2010 - with the objectives of prompting "much-needed debate" about the regulatory burden, and robust analysis going forward.

NY Attorney General to Propose Whistleblower Bounty Program Modeled After Dodd-Frank

Perhaps coincidentally, NY Attorney General Eric Schneiderman announced last Thursday his intent to propose a whistleblower protection bill covering securities and other financial frauds in New York financial services companies that in large part mirrors Dodd-Frank's whistleblower law. Among other things, the proposed Financial Frauds Whistleblower Act would:

• Provide monetary rewards (10% - 30% of the amount obtained) to individuals who voluntarily provide original information that leads to monetary sanctions for financial fraud or misconduct
• Preserve whistleblower confidentiality
• Make illegal employers' retaliation against employees who report suspicious or fraudulent activity to supervisory or internal compliance staff

SEC's Advisory Committee on Small & Emerging Companies Focuses on Secondary Market Liquidity

The agenda for today's meeting of the SEC's Advisory Committee on Small and Emerging Companies is focused on secondary market liquidity, i.e., ways to increase small and emerging company investors' opportunities to resell their shares. An archive of the live webcast of the meeting will be available on the SEC's website.

FASB to Propose Not-For-Profit Accounting/Financial Reporting Overhaul in April

At its February 25 meeting, FASB discussed the results of a review of a proposed Accounting Standards Update (ASU) for not-for-profit entities - as well as the proposed effective date, comment period and transition requirements. Thomson Reuters reports that the proposal - expected to be released for public comment in April - represents an "overhaul" of "how charities, universities, museums, and other not-for-profit organizations convey their financial information to donors and regulators." The Board will consider feedback about these decisions from its Not-for-Profit Advisory Committee at its next meeting on March 4, and then decide whether the expected benefits justify the perceived costs. If so, FASB staff will be directed to proceed with drafting a proposed ASU.

GE "Reimagines" its 10K: Walks the Talk on Disclosure Reform

Further to its plan to enhance its public disclosures, GE unveiled its newly designed Form 10-K last week. Highlights include:

• A strong investor focus - with more forward-looking information and alignment of disclosures with key investor presentations (e.g., earnings calls)
• A new Introduction & Summary, which addresses - in a user-friendly fashion - big picture topics including operating performance against annual goals, actions taken in support of strategic goals, GE's businesses including how they fit together and are performing, strategic investments and divestments, capital allocation, and management and oversight of critical risks
• Disclosures organized by topic, e.g., MD&A, Regulations, Risk Management, Risk Factors, Legal Proceedings, Financials - supplemented by a cross-reference index (pg. 231) to the traditional 10-K line item format
• Extensive use of graphics throughout - aiding communication of a lot of complex information visually, and enhancing overall readability

If you haven't already done so, check it out.

DuPont Rejects Using Universal Ballot in Proxy Contest with Trian 

In a letter yesterday, DuPont rejected Trian's request to use a universal ballot on the grounds that it would not be in the best interests of all of its shareholders, particularly its approximately 600,000 retail shareholders. 

"We believe that using this process could undermine voting access for retail shareholders. For instance, we have been advised that the use of a universal proxy card would limit voting options for our "Street-name" holders, as well as deprive holders of the ability to simply sign and return voting forms without marking a preference. Confusion about universal proxy card voting processes could disenfranchise a significant portion of our retail base with respect to the election of directors."

Citigroup Proposes 3%/3 years/20% Proxy Access  

Citigroup will include a non-binding management proxy access proposal in its proxy statement that reflects a compromise with shareholder proposal proponent, Jim McRitchie. Citigroup's proposal will support proxy access for a shareholder or group of up to 20 shareholders who hold at least 3% of the shares for three years to nominate up to 20% of the board. McRitchie's initial proposal sought no limits on aggregation and the ability to nominate up to 25% of the board.

ISS Posts Equity Plan Scorecard FAQs

ISS published these Equity Plan Scorecard FAQs yesterday, which address, among other things, minimum vesting and change in control.

SEC Reverses Course on Independent Chair Proposal No-Action Relief 

SEC Corp Fin Staff reversed its views last week on companies' ability to exclude shareholder (Chevedden)-sponsored proposals seeking board adoption of an independent chair policy in cases where the proposal would require that the chair's "only nontrivial professional, familial or financial connection to the company or its CEO is the directorship" and the company requires non-employee directors to maintain a significant stake in company stock.  

In December, SEC Staff granted no-action relief based on Rule 14a-8(i)(3)'s "vague and indefinite" exclusion. However, despite its previous position, upon "further reflection," the Staff has since recently denied no-action relief to Johnson & Johnson, Abbott and other similarly situated companies.

Proxy Statement Reminder: Section 16 Reporting Compliance Diligence & Disclosure

In his most recent blog, Winston & Strawn's Mike Melbinger reminds us of the SEC's sweeping September 2014 enforcement actions against numerous officers, directors, major holders and companies for Section 16 reporting and disclosure compliance violations and related implications. The blog advises careful and thorough diligence and review of Regulation S-K, Item 405 proxy statement disclosures in light of anticipated intensified SEC scrutiny of the accuracy of such disclosures going forward.

M&A Litigation Report Reveals Impact of Adoption of Exclusive Forum Bylaws

Cornerstone's new 2014 M&A Litigation report attributes the decline in multi-jurisdictional litigation to the widespread adoption of exclusive forum bylaws. Sixty percent of such litigation was filed in only one jurisdiction in 2014 - compared to approximately 35% in 2012 and 40% in 2013. The release states:

"This decline in the number of courts is likely the result of the widespread adoption of corporate bylaws that specify exclusive jurisdiction," said Adel Turki, a senior vice president of Cornerstone Research and head of the firm's finance practice. "For acquisitions involving Delaware-incorporated companies, the Delaware Chancery Court has gained ground as a preferred filing destination."
 

Additional key trends include:

• Percentage of deals litigated remained high - 96% for larger (>$1 billion) deals, but declined for smaller deals.
• Average number of lawsuits per deal declined from 5.2 in 2013 to 4.5 in 2014 - the lowest annual rate since 2009.
• Percentage of suits resolved before the deals closed fell to 59% in 2014 (lowest level since 2008) - compared to 74% in 2013.
• Similar to prior years, almost 80% of settlements reached in 2014 were disclosure-only; just six involved payments to shareholders.

In her recent blog, Cooley's Cydney Posner discusses the benefits to companies of adopting forum selection bylaws, as well as the counter considerations.

Report: Push for Mandatory CEO/Chair Separation Ignores Board Chair's Inability to Act Solo

In this recent report, AFEP and MEDEF, two French business associations that publish and oversee the French corporate governance code of choice for large-cap companies, make a strong case for retaining board discretion on whether to separate or combine the CEO and board chair positions. The report states that the discretion should be based on the best interests and specific characteristics of the company. The main principles underlying the authors' position apply equally to the U.S. based on the respective powers of the board (a "collegial body") and the chair (who "does not have any decision-making authority of his or her own"), and the different responsibilities of the board and management.

BlackRock Releases Updated Proxy Voting Guidelines; Increases its Transparency

BlackRock recently made numerous noteworthy changes to its Proxy Voting Guidelines - significantly increasing its transparency about its expectations of boards and companies' disclosure about particular practices, and providing companies with much more tangible information for engagement. The changes - which BlackRock's Americas Head Corporate Governance and Responsible Investment Zach Oleksiuk does an excellent job of highlighting in this week's episode of This Week in the Boardroom - include coverage of these topics:

• Board composition and effectiveness (including board evaluations, diversity, tenure) (pg. 4)
• CEO & management succession planning (pg. 5)
• Risk oversight (pg. 7)
• Audit committee performance (pg. 7)
• Bylaw/charter amendments (pg. 13)
• IPO company governance (pg. 15)

Also noteworthy is a new Appendix that lays out BlackRock's approach to executive compensation practices, its say-on-pay analysis framework, and typical approach to say-on-pay engagement and voting.

BlackRock affirms that it seeks to support management in the vast majority of cases; however, the guidelines include a robust list of situations in which BlackRock may withhold votes from certain directors or committee members, including lack of board responsiveness to shareholder concerns about board composition. Importantly, however, Oleksiuk indicates that while the guideline changes are seemingly extensive, they should not result in significant changes in BlackRock's voting - other than perhaps "at the margins."

Vanguard Letter to Portfolio Boards Outlines Governance & Engagement Expectations

Vanguard sent this letter to the boards of several hundred of its largest U.S. portfolio companies last Friday explaining its views on corporate governance and approach to shareholder engagement. Vanguard's Chairman and CEO F. William McNabb III writes:

In the past, some have mistakenly assumed that our predominantly passive management style suggests a passive attitude with respect to corporate governance. Nothing could be further from the truth. We will be investors in your company during good times and bad. We want to see our clients' investments grow over the long term, and good governance is a key to helping companies maximize their returns to shareholders. We have no interest in telling companies how to run their businesses, but we have valuable governance insights to share with the board of directors. In our view, a good governance program is distinguished by the following principles:

• Independent oversight: Board should be substantially independent of management and have independent leadership (i.e., chair or lead director).
• Accountability: Management should be accountable to the board and directors should be accountable to shareholders.
• Shareholder voting rights consistent with economic interests: This means one share, one vote. No special share classes for added voting power.
• Annual director elections and minimal anti-takeover devices: Minimize use of anti-takeover devices such as classified boards or poison pills.
• Sensible compensation tied to performance: Executive pay should be tied to the creation of long-term shareholder value.
• Shareholder engagement: We encourage boards to have a thoughtful process to communicate with shareholders.

On shareholder engagement, while noting that there is "no one-size-fits-all engagement program," the letter makes clear that Vanguard expects boards to be actively involved in their company's engagement program. Specifically, McNabb: (i) emphasizes board "self-awareness" of issues independent of management input and the fact that engagement is a two-way dialogue; (ii) advocates a formal rather than "ad hoc" or "reactive" engagement program (e.g., creation of a "Shareholder Liaison Committee," assignment of engagement to an existing committee); and (iii) addresses and then dispenses with commonly alleged barriers to directors' involvement in engagement.

Note that although direct distribution of the letter was limited to BlackRock's largest companies for logistics purposes, the perspectives presented in the letter are purportedly applicable to all of BlackRock's portfolio companies.

European Pension Funds Lobby Oracle on Proxy Access, Pay

European pension funds PGGM and "Railpen" recently sent this letter to Oracle's board expressing concerns about Oracle's alleged misalignment of shareholder/insider interests and lack of board responsiveness on say-on-pay and director nominations. The letter (allegedly also sent to the SEC) seeks proxy access, changes to CEO compensation, and a policy/means for shareholders' direct engagement with the board. See also this Institutional Investor article. 

Australian Securities Commission Consults on Collective Action by Investors

The Australian Securities and Investments Commission recently published draft updated guidance and a corresponding Consultation Paper to obtain input from investors, companies and others on proposed updated guidance on collective action by institutional investors. The draft explains how the corporation law's takeover and substantial holding notice provisions apply to different types of collective action by investors, and provides guidance on the ASIC's enforcement approach.  

The proposal includes illustrative examples of conduct that is unlikely and likely to trigger the takeover and/or notice provisions such as this one:

Note that while the guidance sometimes refers to institutional investors, by its terms, it applies equally to the actions of other investors.

SEC Raises New Argument in Whistleblower Case Amicus Brief

Proskauer's blog reports that the SEC's amicus brief recently filed in the Berman v. Neo@Ogilvy Second Circuit appeal, makes a new argument that hasn't been raised in its other whistleblower case amicus briefs. The case was dismissed at the district court level (SDNY) because the employee reported his concerns to his employer, but not to the SEC - contrary to what the court said was the unambiguous language of the statute.

In its brief, the SEC now argues that a failure to defer to its interpretation "could arbitrarily and irrationally deny the employment retaliation protections afforded by Dodd-Frank to individuals who, before coming to the Commission, first report potential securities law violations to the U.S. Department of Justice or Self- Regulatory Organizations such as FINRA."

Proskauer comments:

In support, the SEC argues that the Dodd-Frank bounty program requires the SEC to pay an award based on monetary sanctions collected in "related actions."  It contends that because Dodd-Frank's whistleblower protections "complement the related component of the award program" there is no basis to believe that Congress had intended for "disparate treatment based purely on the happenstance of which agency the individual reported to first." Whether the Second Circuit will find the SEC's new argument persuasive remains to be seen.  If the Second Circuit adopts the SEC's position, this could lead to a split with the Fifth Circuit, which could lead to a U.S. Supreme Court decision.

Annual Capital Markets Summit to Address Cumulative Impact of Activism

• Gary Retelny, President and CEO, Institutional Shareholder Services
• Katherine Rabin, Chief Executive Officer, Glass Lewis & Co.
• Adam Emmerich, Partner, Wachtell & Lipton
• Tamara Lundgren, President and CEO, Schnitzer Steel
• Glenn Booraem, Principal, in Fund Financial Services and Controller, Vanguard Funds

The agenda is here and you may register here.

Berkshire Hathaway Warren Buffet's Always Entertaining Shareholder Letter
 

Here's an uplifting excerpt from Berkshire Hathaway Warren Buffet's always noteworthy letter to shareholders:

I would be remiss if I didn't salute another key constituency that makes Berkshire special: our shareholders. Berkshire truly has an owner base unlike that of any other giant corporation. That fact was demonstrated in spades at last year's annual meeting, where the shareholders were offered a proxy resolution:

 

RESOLVED: Whereas the corporation has more money than it needs and since the owners unlike Warren are not multi billionaires, the board shall consider paying a meaningful annual dividend on
the shares.

 

The sponsoring shareholder of that resolution never showed up at the meeting, so his motion was not
officially proposed. Nevertheless, the proxy votes had been tallied, and they were enlightening.

 

Not surprisingly, the A shares - owned by relatively few shareholders, each with a large economic interest - voted "no" on the dividend question by a margin of 89 to 1. The remarkable vote was that of our B shareholders. They number in the hundreds of thousands - perhaps even totaling one million - and they voted 660,759,855 "no" and 13,927,026 "yes," a ratio of about 47 to 1.

 

Our directors recommended a "no" vote but the company did not otherwise attempt to influence
shareholders. Nevertheless, 98% of the shares voting said, in effect, "Don't send us a dividend but instead reinvest all of the earnings." To have our fellow owners - large and small - be so in sync with our managerial philosophy is both remarkable and rewarding.

 

I am a lucky fellow to have you as partners.

Reminder: Society Participating in Proxy Mosaic's "Are Meaningful Shareholder Proposals a Thing of the Past?"

Just a reminder that, as previously reported, Society CEO & President Darla Stuckey will be joining Anne Simpson, Senior Portfolio Manager and Director of Global Governance, CalPERS, and Moderator John Wilcox, Chairman, Sodali, for Proxy Mosaic's Dialogue Series "Are Meaningful Shareholder Proposals a Things ot the Past? Reactions to an SEC Commissioner's Critique of Harvard University and the Whole Foods Proxy Access Situation" this Thursday, March 5th at 11 am ET. Register for the live webcast here.

This week's highlighted question from the Huddle is:

Some of our directors have expressed interest in seeing company operations and management is arranging a visit/tour. This trip is not a board meeting and is voluntary. Should the directors receive any compensation either in stock or cash? I understand that paying compensation is discretionary, but does anyone know what is best practice?

This question generated a lot of activity and many excellent answers (too many to note here) including:

Since this is a voluntary tour, and not associated with a meeting, I would contend that it is covered by the directors' retainer and no meeting fee should be paid. If the tour was in connection with a meeting, I would pay a fee for the meeting, but nothing extra for the tour. Sometimes when I get into these gray situations, I reach out to the board chair to see what he/she recommends.

Check out the Society Huddle.