Proxy Access Shareholder Proposals Are Coming!
Last week, the New York City Comptroller, on behalf of the $160 billion NYC Pension Funds, announced the launch of a national campaign to give shareholders the ability to nominate directors of U.S. public companies using the company’s ballot. These shareholder proposals for proxy access have been submitted to 75 companies so far and are aimed at improving board responsiveness. According to the announcement: “The current election procedures for most corporations would make Boss Tweed blush. We are seeking to change the market by having more meaningful director elections through proxy access... With this right in place, we expect to see better long-term performance across our portfolio.”
SEC Enforcement Actions for Failure to Report Dilutive Unregistered Financings
The SEC settled administrative proceedings against 10 companies that failed to file a Form 8-K as required to report sales of common stock in unregistered transactions that constituted at least five percent of their outstanding shares. The Form 8-K requirements can be found in Items 1.01 (Entry into a Material Definitive Agreement) and 3.02 (Unregistered Sales of Equity Securities). A total of $350,000 in penalties were assessed against the noncompliant companies. According to the SEC, “These enforcement actions reinforce the ongoing need for full disclosure to shareholders concerning an issuer’s entry into highly dilutive financing agreements.”
Debate Continues on Fee-Shifting Bylaws
Earlier this year, the Delaware Supreme Court endorsed the facial validity of a bylaw provision that shifts company litigation expenses to shareholders that bring and lose a claim against the company and its directors and officers. Since that decision, a number of companies have adopted a fee-shifting bylaw provision without shareholder approval or prior to going public. Legal commentators have debated the propriety of these provisions, with some urging the SEC to take action to prevent the practice as contrary to the federal Private Securities Litigation Reform Act. Others have argued that these provisions may benefit investors by discouraging frivolous suits and preserving company resources. It is unclear if the Delaware legislature will act to halt the practice or what other state courts or legislatures might do.
Board Diversity: What Does it Mean?
Despite efforts by shareholder activists and the SEC to improve diversity on public company boards, there has been little change in recent years in the percentage of board seats held by women. According to a Yale Law School professor’s analysis of proxy statement disclosures, that may be because most of the largest public companies are interpreting diversity as having generally varied backgrounds or experiences, rather than true gender or minority diversity. Numerous advocates, including SEC Chair Mary Jo White, have argued that that companies with gender-diverse boards make better decisions and have better financial performance than those that do not. Recently, the Thirty Percent Coalition, an institutional investor initiative led by CalSTRS, sent letters to 100 companies in the Russell 1000 Index that lack women on their boards of directors, urging them to embrace gender diversity.
The Ticker is published by Fredrikson & Byron’s Public Companies Group and shares recent developments in SEC compliance, capital markets, corporate governance, executive compensation and other matters important to public companies and their officers and directors.