Individual shareholder proposals—why do they do it?

by Cydney Posner

This recent paper from the Rock Center for Corporate Governance at Stanford University, “Gadflies at the Gate: Why Do Individual Investors Sponsor Shareholder Resolutions?” attempts to answer a question I’ve been wondering about for quite a while: why do individual investors invest their time and energy pursuing shareholder proposals? Given how prolific some of these shareholders are—reportedly, the group associated with John Chevedden and James McRitchie accounted for approximately 70% of all proposals sponsored by individuals among Fortune 250 companies in 2014—these investments must be substantial. Since, in most cases, there’s not really any financial incentive involved, what drives them to do it? Continue reading

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Some successful approaches to increasing board gender diversity

by Cydney Posner

A lot has been written about the benefits of gender diversity on boards. As discussed in Bloomberg, while “[e]quality is a worthy goal on its own terms, of course….for the corporate world, the better rationale for gender diversity is financial…. Companies with at least one female director had better returns for six straight years.” According to this Bloomberg Quicktake, a Credit Suisse study showed that companies with at least one woman board member saw an average return on equity of 14.1% from 2005 to 2015; all-male boards’ average returns were only 11.2%. (See this PubCo post.) Nevertheless, in the U.S., there is no getting around the continuing underrepresentation of women on boards. Bloomberg reports that  women make up less than 20% of directors of S&P 500 companies, and growth in female representation has actually slowed. (See this PubCo post.) This article in the WSJ suggests some companies are trying new approaches in an effort to reverse that slide. Continue reading

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SEC Whistleblower Office charges that prospective waiver of whistleblower award in severance agreements violated securities laws

by Cydney Posner

In a new whistleblower protection case, the SEC’s Office of the Whistleblower settled charges against BlueLinx Holdings, Inc. that the company’s severance agreements violated the securities laws. The agreements included confidentiality restrictions without exclusions for whistleblower reporting and required terminating employees to waive possible whistleblower awards or risk losing their severance and other post-employment benefits.  Rule 21F-17 prohibits any action to impede an individual from communicating directly with the SEC staff “about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.” Continue reading

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Consultants report on conflict minerals due diligence and disclosure for 2015. But has it made a difference for the DRC?

by Cydney Posner

Two consulting firms, Assent Compliance and Source Intelligence, have published their studies on conflict minerals (tin, tantalum, tungsten and gold) reporting for 2015, the third year of required SEC reporting.  For 2015, there were slightly over 1,200 filers, representing a decrease of about 50 filers from the prior year (reflecting business combinations, going-privates and other activity, offset in part by new filers). Both studies conclude that, while the level of transparency has increased, after three years of due diligence and reporting, the vast majority of reporting companies are still unable to determine the origin of the conflict minerals that were necessary to the functionality or production of their products, let alone whether they contributed to financing armed groups in the DRC or contiguous countries. Continue reading

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Study shows more restatements and internal control weaknesses among “heavy users” of non-GAAP measures

by Cydney Posner

The non-GAAP financial measures pile-on continues. Certainly, the SEC has recently been making the public-speaking rounds and issuing CDIs warning companies of its concern about abuses of non-GAAP metrics, such as substituting individually tailored revenue recognition and measurement methods for those of GAAP or using a non-GAAP measure inconsistently between periods without adequate explanation. (See, e.g., this PubCo post and this PubCo post.) Now, this article in the WSJ suggests that there may be even more to it than just potentially misleading numbers: according to a study by consultant Audit Analytics, conducted for the WSJ, companies that lean heavily on non-GAAP measures to significantly pump up their earnings  “are more likely to encounter some kinds of accounting problems than those that stick to standard measures….” Continue reading

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Corp Fin issues revised CDI regarding disclosure about selling shareholder entities

by Cydney Posner

Last week, Corp Fin revised a CDI regarding disclosure about selling shareholder entities and withdrew another CDI on the same topic. Continue reading

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Corp Fin refuses to permit exclusion of proposal to amend proxy access bylaws under Rule 14a-8(i)(10). Who is gaming the system?

by Cydney Posner

Just when we thought we had a handle on the new rules of the game for exclusion of proxy access shareholder proposals comes this new letter to H&R Block, issued on July 21. The proposal, from the prolific James McRitchie (one of the group working with John Chevedden), requested that the board amend its existing proxy access bylaw provisions as specified in the proposal.  The company sought to exclude the proposal on the basis that it had already been “substantially implemented” under Rule 14a-8(i)(10). The Corp Fin staff refused to allow the company to exclude the proposal. Continue reading

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