Equilar reports on advances in board gender diversity
Happy International Women’s Day!
According to the latest Equilar Gender Diversity Index (GDI), based on the current rate of growth, board gender parity for companies in the Russell 3000 is now expected to be achieved by 2048, an advance from the estimate published in the inaugural 2017 GDI, which did not project parity until 2055. At that point, women held only 15.1% of board seats for the Russell 3000, compared to 16.5% as of the end of 2017. Should we cheer?
ISS highlights trends in shareholder proposals for the 2018 proxy season
In this article, ISS provides a snapshot of shareholder proposals thus far in the 2018 proxy season. The most salient point is that over two-thirds of the proposals in the ISS database related to social or environmental issues, far outpacing the governance- and compensation-related proposals that historically have dominated the agenda. What’s going on?
SEC approves amendments to NYSE Manual largely eliminating requirement to deliver to NYSE hard copies of proxy materials
On March 1, the SEC approved the NYSE’s proposal to largely eliminate the requirement to provide hard copies of proxy materials to the NYSE. Prior to approval of the amendment, listed companies were required to provide hard copies of proxy materials to the NYSE under Section 204.00(B) and Section 402.01 of the NYSE Manual. Notwithstanding the requirements of Rule 14a-6(b) to deliver hard copies to the applicable exchange (from which the NYSE has obtained no-action relief), the amendment to Section 402.01 provides that listed companies will not be required to provide hard copies of proxy materials to the NYSE, so long as they are included in their entirety in an SEC filing available on EDGAR.
Corp Fin grants relief under “economic relevance” exclusion of Rule 14a-8(i)(5)
You might recall that, in November last year, Corp Fin issued new Staff Legal Bulletin No. 14I, Shareholder Proposals, which, among other things, addressed the “economic relevance” exclusion of Rule 14a-8(i)(5). That rule permits a company to exclude a proposal that “relates to operations which account for less than 5 percent of the company’s total assets at the end of its most recent fiscal year, and for less than 5 percent of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company’s business.” The rule had been largely moribund for several decades, as the staff’s most recent restrictive interpretation generally deterred companies from invoking it. Now we have what appears to be the first successful use of the exclusion since the new SLB attempted to rejuvenate it. The letter is to Dunkin’ Brands Group.
Corp Fin’s new twist on Rule 14a-8(i)(9), the exclusion for conflicting proposals
This proxy season, after the Corp Fin staff permitted AES Corporation to exclude a shareholder proposal on the basis of Rule 14a-8(i)(9)—the exclusion for a proposal that directly conflicts with a management proposal—the Council of Institutional Investors sent a letter to William Hinman, director of Corp Fin, raising objections to the staff’s treatment of the proposal. (See this PubCo post.) The proposal, submitted by John Chevedden, had sought to reduce the threshold required for shareholders to call a special meeting from 25% to 10%. In its letter, CII charged that AES, by including in its proxy statement a conflicting management proposal to ratify the existing 25% threshold, was “gaming the system” and urged the SEC to revisit, once again, its approach to Rule 14a-8(i)(9). But what would be the impact of the CII letter? Would the CII letter induce the staff to revisit its prior position on the exclusion? Now, Corp Fin has issued a new no-action letter, in this instance to Capital One, once again allowing a company, following the same approach as in AES, to exclude a proposal that sought to reduce the special meeting threshold from 25% to 10% on the basis of Rule 14a-8(i)(9)—but with a twist. The question is: Is that the end of the story?
EY Center for Board Matters identifies investors’ top priorities for companies for 2018
The EY Center for Board Matters has identified investors’ top priorities for companies in 2018, based on its annual investor outreach involving interviews with over 60 institutional investors with an aggregate of $32 trillion under management.
Is the SEC about to allow all companies to “test the waters”?
The WSJ is reporting that “people familiar with the matter”—every reporter’s favorite source—say that the SEC is “weighing” expanding “test the waters” beyond just EGCs. You might recall that, in 2012, the JOBS Act allowed IPO candidates that were EGCs to take preliminary steps to determine the potential level of investor interest before committing to the expensive and time-consuming prospectus drafting and SEC review process. That flexibility, together with the new confidential IPO filing process—which allowed EGCs to start the SEC review process on a confidential basis so that sensitive information would not be disclosed if they ultimately determined not to move forward with the offering—was intended to promote and facilitate access to the public capital markets. Since that time, however, the IPO market has not exactly taken off like a rocket, and the hand-wringing over the lack of interest in going public has continued. In June 2017, Corp Fin extended the confidential filing process, permitting non-EGCs to submit confidential draft registration statement for IPOs and for most offerings made in the first year after going public. Will testing the waters be the next step?
It takes a unicorn? SEC approves NYSE rule change to facilitate direct listings
The chatter has it that some unicorns are considering skipping the standard underwritten IPO in favor of a “direct listing.” Essentially, this process involves a registered sale by selling shareholders directly into the public market with no intermediary underwriter and—imagine this—no underwriting commissions and no roadshow or similar expenses. Of course, there’s also the small matter of no proceeds to the company. What’s more, companies may be on their own when it comes to any marketing effort, otherwise typically provided by the bankers, and there may be only limited banker support of the stock price in the aftermarket. And what about that first day pop in the stock that can breed so much excitement? Of course, many companies have taken advantage of the fertile territory for capital raising provided by the private markets—after all, that’s how they got to be unicorns—and may have no need of additional capital at this point. Their motivation for becoming public may have more to do with shareholder liquidity and obtaining the “currency” that publicly traded stock can provide in the context of acquisitions and similar transactions. Whether the “direct listing” route to going public catches fire remains to be seen.
New SEC guidance on cybersecurity disclosure
Yesterday, the SEC announced that it had adopted—without the scheduled open meeting, which was abruptly cancelled with only a cryptic statement—long-awaited new guidance on cybersecurity disclosure. The guidance addresses disclosure obligations under existing laws and regulations, cybersecurity policies and procedures, disclosure controls and procedures, insider trading prohibitions and Reg FD and selective disclosure prohibitions in the context of cybersecurity. The new guidance builds on Corp Fin’s 2011 guidance on this topic (see this Cooley News Brief), adding in particular new discussions of policies and insider trading. While the guidance was adopted unanimously, some of the Commissioners were not exactly enthused about it, viewing it as largely repetitive of the 2011 guidance—and hardly more compelling. Anticlimactic? See if you agree.
SCOTUS says whistleblowers must whistle all the way to the SEC
Today, SCOTUS handed down its decision in Digital Realty v. Somers, a case addressing the split in the circuits regarding the application of the Dodd-Frank whistleblower anti-retaliation protections: do the protections apply regardless of whether the whistleblower blows the whistle all the way to the SEC or just reports internally to the company? You might recall that during the oral argument, the Justices seemed to signal that the plain language of the statute was clear and controlling, thus suggesting that they were likely to decide for Digital, interpreting the definition of “whistleblower” in the Dodd-Frank anti-retaliation provision narrowly to require SEC reporting as a predicate. There were no surprises. As Justice Gorsuch remarked during oral argument, the Justices were largely “stuck on the plain language.” The result may have an ironic impact: while the win by Digital will limit the liability of companies under Dodd-Frank for retaliation against whistleblowers who do not report to the SEC, the holding that whistleblowers are not protected unless they report to the SEC may well drive all securities-law whistleblowers to the SEC to ensure their protection from retaliation under the statute—which just might not be a consequence that many companies would favor.
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