Today’s Blog has two purposes: (i) to add another case to the growing list of recent litigation over executive compensation, and (ii) to invite readers to an eLunch on the topic next week.
- Shareholder Say on Pay – and the litigation resulting from “failed” SSOP votes - has garnered nearly all of the headlines since the Dodd-Frank Act was passed and became effective for proxy statements in 2011. However, readers will recall that Dodd-Frank Act Section 951, also added a “Shareholder Approval of ‘Golden Parachute’ Compensation” provision, which requires in any proxy or consent solicitation material for a meeting of shareholders at which the shareholders are asked to approve an acquisition, merger, consolidation, or proposed sale or other disposition of all or substantially all the assets of the company, the party soliciting the proxy or consent must disclose any agreements or understandings that the party soliciting the proxy or consent has with any named executive officers of company concerning any type of compensation that relates to the transaction and the aggregate total of all such compensation that may be paid or become payable to or on behalf of such executive officer. It will come as no surprise to readers that, despite the fact that Dodd-Frank Act Section 951 explicitly makes the Shareholder Say on Parachute Pay vote non-binding, the strike suit lawyers have been quick to file lawsuits against companies that have made these disclosures. For example, after Encore Bancshares, Inc. filed its proxy statement requesting that shareholders approve of its acquisition by Cadence Bancorp, LLC, Encore “shareholders” quickly filed a class action against officers and directors of Encore alleging, among other things, that they breached their fiduciary duties due to the compensation payments that resulted from Encore's sale, and breached their fiduciary duty of disclosure in connection with the Shareholder Say on Parachute Pay disclosures. The litigation did not seek to derail the transaction, only to collect money from the officers and directors (or their insurance policy).