When the staff (the “Staff”) of the Division of Corporation Finance of the Securities and Exchange Commission (“SEC”) released Staff Legal Bulletin No. 14I (“SLB 14I”) last fall, it seemed that the Staff was potentially signaling that it would be taking a more issuer-friendly approach in its review of no-action letter requests (“NALs”). In particular, the language in SLB 14I regarding the role of the board of directors suggested that the Staff may defer to the board’s determination of whether a shareholder proposal focuses on a significant policy issue, in the case of the “ordinary business” exception (Rule 14a-8(i)(7)), and whether the shareholder proposal is significantly related to the issuer’s business, in the case of the “economic relevance” exception (Rule 14a-8(i)(5)), as long as the NALs provided a sufficiently detailed discussion of the board’s analysis and the “specific processes employed by the board to ensure that its conclusions are well-informed and well-reasoned.” For example, SLB 14I stated that these types of “determinations often raise difficult judgment calls that the Division believes are in the first instance matters that the board of directors is generally in a better position to determine.” One could read that language to mean that including a well-developed board analysis could significantly influence the outcome for a NAL based on the “ordinary business” exception and/or the “economic relevance” exception. Continue Reading Making Sense of the SEC’s 2018 NALs on Shareholder Proposals for the Proxy Statement
On May 11, 2018, the SEC’s Division of Corporation Finance released new Compliance and Disclosure Interpretations (“C&DIs”) regarding the interpretations of the proxy rules and Schedules 14A and 14C. These replace the telephone interpretations contained in the Proxy Rules and Schedule 14A Manual of Publicly Available Telephone Interpretations and the March 1999 Supplement to the Manual of Publicly Available Telephone Interpretations (collectively, the “Telephone Interpretations”). The C&DIs are available here.
Certain C&DIs reflect minor substantive or technical changes from the telephone interpretations. The SEC has indicated that questions 124.01, 124.07, 126.02, 151.01, 161.03 and 163.01 reflect substantive changes from the answers provided in the Telephone Interpretations. Additionally C&DIs 126.04, 126.05, 158.01 and 158.03 reflect technical revisions. The remaining C&DIs have only non-substantive changes from the versions in the Telephone Interpretations.
For a comparison of the telephone interpretations against the new C&DIs in which substantive or technical changes were noted, please see here.
2017 began with a heightened level of uncertainty as the beginning of the year brought significant change in the legal environment, including a change in administration that promised to significantly alter the tenor of regulation. While certain changes did occur in 2017, in many respects, 2018 is setting itself up as the year to watch for continuing developments in areas that are likely to fundamentally transform how companies operate and interact with an increasingly larger number of vocal stakeholders. The trends discussed in each of the sections of this memorandum will increasingly be a focus of boards of directors and companies in the United States and across the globe, particularly as boards consider how best to assess and assist in mitigating associated risks. The role that the board and its oversight plays in guiding companies in these times will be critical and a strong understanding of the issues and challenges facing boards and companies over the next year and beyond will assist boards in addressing the issues and complexities that will undoubtedly arise in 2018.
We invite you to review these topics by clicking on the links below.
For a PDF of the full memorandum, please click here.
- Board Refreshment and the New York City Comptroller
- Tone at the Top
- Environmental, Social and Governance Focus
- Guidance on Board Effectiveness for Large Financial Institutions
By the end of 2016, the world was facing a considerably greater level of global uncertainty than it had experienced in recent years. It is clear that while some old challenges will continue, new challenges will also be brought into the boardroom in 2017. The trends discussed in each of the sections below will increasingly be a focus of boards of directors and companies in the United States and across the globe, particularly as boards consider how best to assess and assist in mitigating associated risks. A strong understanding of the issues and challenges facing boards and companies over the next year and beyond will assist boards in addressing the issues and complexities that will undoubtedly arise in 2017.
- Global Issues in Taxation
- Privacy and Global Investigations
- Recent Developments in Cybersecurity
- Department of Justice Foreign Corrupt Practices Act Enforcement Initiatives
- Board Refreshment Disclosure
- Claim Extinguishment in M&A Litigation
- Environmental, Sustainability and Governance Activities and Disclosure
- Compensation Considerations
- The Change in Administration in the United States and Brexit and Political Uncertainty in the United Kingdom and Europe
In a case of first impression, GAMCO Asset Management (“GAMCO”) recently nominated a director to the board of National Fuel Gas Company (“NFG”) pursuant to NFG’s recently adopted proxy access bylaw. As far as we know, this is the first time any shareholder has nominated a director using proxy access. Continue Reading Proxy Access in Action: Is This What Everyone Wanted?
Cleary Gottlieb and PwC’s Governance Insights Center have teamed up to create the Executive Compensation Series, which looks at the factors motivating boards to increasingly engage with shareholders about executive compensation. The first edition of the series is now available and discusses issues such as the impact of Dodd-Frank on executive compensation, elements of effective CD&A design and the influence of proxy advisors on compensation. Continue Reading Boards, Shareholders and Executive Pay
The SEC stepped back into the proxy access arena on February 12, 2016, with a volley of 18 no-action letters on a single day that sharply reduced uncertainty about an important tactical point.
At issue was the circumstances under which a company with an existing proxy access bylaw can exclude a shareholder proxy access proposal based on “substantial implementation” under Rule 14a-8(i)(10). Of the 18 companies, 14 adopted a bylaw after receiving a shareholder proxy access proposal for the 2016 proxy statement, and then sought to exclude the shareholder proposal. That tactic was tried only once in 2015, by General Electric; there, the sole distinction between the adopted bylaw and the proposal was that the adopted bylaw imposed a limit (20) on the number of shareholders who may form a group, while the shareholder proposal simply referred to “a group of shareholders,” and the SEC granted no-action relief. Continue Reading Proxy Access: The SEC Re-enters the Arena
After several years that seemed defined by turmoil and uncertainty, 2015 delivered some unexpected and much-needed clarity for corporate directors on issues such as proxy access, compensation disclosure, investor expectations regarding board composition, certain director and financial advisor conflicts of interest, and audit committee processes and related disclosure. The past year also saw corporations adopting a less alarmist and more measured approach toward potential shareholder activism. The task of the director, however, will remain a challenging one in 2016. Much of the welcome guidance received during 2015 remains to be implemented, shareholders and regulators will continue to actively and closely monitor boards, and new complexities will undoubtedly arise. This memorandum discusses issues that we believe will require the attention of boards of directors and management in 2016.
Please click here to read the full alert memorandum.
On Friday, December 18, ISS issued new guidance on how a board implements a majority-supported shareholder proposal for a proxy access bylaw. The guidance is contained in its Frequently Asked Questions on U.S. Proxy Voting Policies and Procedures.
This guidance identifies situations in which ISS may recommend votes against a company’s individual directors, nominating/governance committee members, or the entire board, based on the specific provisions of a company’s enacted proxy access bylaw. Continue Reading ISS Releases Guidance on Proxy Access
Equity Plan Scorecard Updates
Institutional Shareholder Services (ISS) implemented the Equity Plan Scorecard (“EPSC”) last year as a new means of evaluating and recommending votes in favor of or against equity plans submitted for shareholder approval. ISS evaluates a proposed equity plan under a number of different factors and assigns a score for each component, weighting components differently in accordance with its methodology. Plans that receive at least 53 points out of 100 possible will receive “for” recommendations. Continue Reading ISS Gearing Up for the 2016 Proxy Season: Revisions to the Equity Plan Scorecard, Soliciting Updates to Peer Groups, and Delayed Guidance on Proxy Access