Tag Archives: proxy advisory firms

Considerations regarding the defensive health of newly public companies

As discussed in this December 2016 Cooley Alert, this proxy season, the policies of ISS and Glass Lewis provide that they will recommend voting against the re-election of directors of “newly public” companies that, prior to or in connection with their IPOs, adopted bylaw or charter provisions that these proxy advisory firms consider adverse to stockholder rights, such as supermajority vote requirements to amend the company’s charter or bylaws, classified board structures or multi-class capital structures.

Nevertheless, these protective measures were adopted for a reason:  to protect the company from unsolicited takeover attempts, to deter other forms of activism and to support the company’s general “defensive health.” For an excellent analysis of factors that companies — faced with negative recommendations for director as a result of these policies — should consider before making any changes, see “New Pubcos Should Consider Defensive Health in Light of ISS/GL Recommendations,”  just posted on Cooley M&A.

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It’s baaaack — the Financial CHOICE Act of 2017

by Cydney Posner

A draft of the Financial CHOICE Act of 2017 (fka version 2.0), a bill to create hope and opportunity for investors, consumers, and entrepreneurs — a masterpiece of acronyming — has just been released (and weighs in at 593 pages).   The bill, sponsored by Jeb Hensarling, Chair of the House Financial Services Committee, was framed as a Republican proposal to reform the financial regulatory system and relieve the affliction of Dodd-Frank. In addition to taking aim at much of Dodd-Frank, among other things, the bill places a heavier burden on regulators and proxy advisory firms generally, eliminates a lot of studies and repeals or eases a number of regulations. A hearing in the House has been scheduled for this week. The bill never made much progress when it was originally introduced last year (as version 1.0), but with Congress and the Presidency now in Republican hands, its chances of survival in some form are immensely greater.  Of course, the Senate Dems could filibuster — assuming, that is, that the legislative filibuster survives that long — the Senate version of the bill, or threaten to do so, which could lead to some negotiation.

While the vast majority of provisions in the draft bill relate to the banking provisions of Dodd-Frank and the Consumer Financial Protection Bureau, some are related to new requirements for agency rulemaking, capital formation, compensation and corporate governance matters, and other matters of interest. Selected provisions are summarized below: Continue reading

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Filed under Accounting and Auditing, Corporate Governance, Executive Compensation, Litigation, Securities

Undo Dodd-Frank?

by Cydney Posner

With Congress and the Presidency soon in Republican control, look for the Financial CHOICE Act (or perhaps an enhanced version) to be re-introduced in the next Congress.  The bill, sponsored by Jeb Hensarling, Chair of the House Financial Services Committee, was framed as a Republican proposal to reform the financial regulatory system necessary to undo the burdens of Dodd-Frank, which were characterized as a distraction from the SEC’s basic statutory responsibilities. In addition to taking aim at much of Dodd-Frank, among other things, the bill places a heavier burden on proxy advisory firms, regulators and regulations generally and eases some other regulations. Although the bill was never expected to make much progress this year, the NYT suggested that the bill may “help shape the Republican agenda in the next term.” The bill’s chances of becoming law have, well,… to say that they have substantially improved doesn’t quite do the situation justice. In an interview with the WSJ on November 11, Hensarling said “that he planned to make the bill… his top priority next year.” Of course, the Congress may decide to just take a hatchet to Dodd-Frank and various other statutes and rules altogether. Or, alternatively, the Senate Dems could filibuster the Senate version of the bill, or threaten to do so, which could lead to some negotiation. But if the Financial CHOICE  Act is signed into law in substantially the same form, the question then is: will we see more private ordering? Will governance activists begin to submit shareholder proposals for, e.g., pay-ratio and hedging disclosures? Will some companies continue a form of conflict minerals compliance on their own initiatives?

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Are the days of “I’ll-scratch-your-back” cronyism history?

by Cydney Posner

As discussed in a PubCo post last week, a theory that is currently gaining purchase is that, whether as a result of say on pay or otherwise, the increased influence of proxy advisory firms has led to a kind of homogenization of executive pay packages based on standard metrics.  This piece in the WSJ, by a former CFO, argues that these types of standardized formula pay programs are problematic and, because “the days of ‘I’ll scratch your back’ cronyism are long gone,” more board discretion is warranted. He even spots a trend in that direction. Continue reading

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The unintended consequences of say on pay

by Cydney Posner

This post from the Columbia Law School CLS Blue Sky blog, “Should Say-on-Pay Votes Be Binding?,”  by two executives from the Institute for Governance of Private and Public Organizations  in Canada, in exploring the issue raised in the post’s title, looks at the question of the effectiveness and impact of non-binding say-on-pay votes.  Initially conceived as a way to allow investors to express their views on executive compensation and, presumably, rein in runaway executive pay packages, say on pay has not exactly had the consequences that had originally been anticipated. Continue reading

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Discussion Draft of the Financial CHOICE Act

by Cydney Posner

A discussion draft for the Financial CHOICE Act is now publicly available.  Many of the provisions of interest from a corporate standpoint are in Title  IV—Capital Markets Improvements and Title X—Unleashing Opportunities for Small Business, Innovators, and Job Creators by Facilitating Capital Formation. (It doesn’t exactly unleash opportunities for any acronyming.)

In the discussion accompanying the bill prepared by the House Financial Services Committee, the draft bill is framed as a Republican Proposal to Reform the Financial Regulatory System that is necessary to undo the burdens of Dodd-Frank: “Unfortunately, the Dodd-Frank Act’s answer to the financial crisis was to burden the SEC with myriad responsibilities, many of which were unrelated to its statutory mission. Former SEC Commissioner Daniel Gallagher has pointed out that these additional Dodd-Frank-imposed mandates prevent the SEC from engaging in ‘basic ‘blocking and tackling,’ the fundamentals of our regulatory mission stemming from our threefold statutory mission.’ Because these extraneous responsibilities make it harder for the SEC to meet its statutory responsibilities, Congress has the responsibility to either amend or repeal the provisions in the Dodd-Frank Act that not only divert the SEC from its statutory mission but also force the SEC to expend valuable resources on activities that do not benefit capital markets or investors.”  Continue reading

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Nasdaq survey of corporate interaction with proxy advisory firms

by Cydney Posner

Nasdaq and the U.S. Chamber of Commerce conducted a survey of public companies to gain insight into companies’ interactions with ISS and Glass Lewis, the two primary proxy advisory firms, with regard to the 2015 proxy season.  Over 155 companies of all sizes and industries participated in the survey.  Nasdaq characterizes the survey as part of it advocacy efforts on behalf of its listed companies: “[c]ontinuing efforts to have proxy advisory firms address errors in their analysis identified by companies and disclose their methodologies and conflicts in their business models.”   Continue reading

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