Shareholder Activism: Current Trends and Tactics On October 14, 2014, Fredrikson & Byron’s Public Companies Group hosted a seminar to address the current state of public company shareholder activism. Fredrikson & Byron Shareholder John Houston moderated a panel discussion among some of the country’s leading advisors in this evolving and dynamic area. Panelists included:
David A. Katz, Partner, Wachtell, Lipton, Rosen & Katz
James E. Rossman, Managing Director and Head of Corporate Preparedness, Lazard
Richard H. Grubaugh, Senior Vice President of M&A/Corporate Proxy Solicitation, D.F. King & Co., Inc.
Patricia O. Vella, Partner, Morris, Nichols, Arsht & Tunnell LLP
Review a recap of their insights and other key takeaways from the program.
Insider Sales in Advance of SEC Comment Letter Publications
A recent study conducted at Berkeley's Haas School of Business questioned the practice of insiders selling stock shortly before SEC comment letters reviewing their company's disclosure became public. The study reviewed issuers whose accounting practices had drawn comments in the regular SEC review of periodic reports and compared insider sales occurring after comments were received but before the letters were published on the SEC's website. The study found significantly increased insider stock sale activity during the five days leading up to comment letter publication. Importantly, most companies do not bar insider sales during the period when such SEC comment letters are not yet public, unless there is a determination that the comments would be material to investors. According to Gretchen Morgenson of the New York Times, "Corporate insiders already have a lot of advantages over outside investors. Eliminating this one - executives' ability to trade ahead of a potential accounting problem - seems like a no-brainer."
Letters of Intent: Not Binding Means Not Binding In ev3, Inc. v. Lesh, M.D., et. al., the Delaware Supreme Court reversed a jury verdict that had looked to a non-binding letter of intent when interpreting buyer ev3's earnout obligations under its merger agreement with target Appriva Medical. While the letter of intent expressly survived the merger agreement, the court held that non-binding provisions in the LOI did not override contrary provisions in the merger agreement. The court remanded the case for further proceedings consistent with its opinion. The lower court had permitted the jury to consider the non-binding LOI when determining ev3's obligations. However, it had not allowed the jury to consider evidence that the parties had rejected those same LOI provisions when negotiating the final agreement. The case provides important reminders as to both the risks inherent in earnouts and the importance of including all relevant obligations in the final agreement.
More Companies Disclosing Their Political Spending There has been increasing pressure on public companies to be more transparent about political contributions and related policies. The Center for Political Accountability published data on how the top 300 companies in the S&P 500 fared in this area. The report notes a national shift toward more comprehensive disclosure of political spending and related policies such that "more leading companies are establishing political disclosure as a mainstream corporate practice." The report also notes: "Voluntary disclosure is making inroads among even those public companies that have not been engaged by shareholders to disclose." The report rated the subject companies on their disclosure and practices, noting concrete progress towards improved disclosure and accountability as well as gaps needing improvement.
A Call for Alignment Between Global Business Presence and Board Experience Directors with international experience should be in higher demand, according to Egon Zehnder’s recently published 2014 Global Board Index. The study calls into question the disparity between the growth of U.S. companies’ international revenue and the absence from boards of foreign nationals and directors with international work experience. As businesses, particularly those in the technology sector, continue to strive for global growth, it will become more and more important to continue to focus on board evaluation and succession, and to prioritize meaningful international business experience when recruiting candidates.
The Ticker shares recent developments in SEC compliance, capital markets, corporate governance, executive compensation and other matters important to public companies and their officers and directors. It is published by Fredrikson & Byron’s Public Companies Group.