In Case You Missed It - Interesting Items for Corporate Counsel - November 2014

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  1. As the year moves to a close, expect lots of chatter about the upcoming 2015 proxy season. Including from us beginning right now. Commentary about preparing for the proxy season is here and here.
  2. Almost certainly because good corporate governance practices just change so darn much, and almost certainly not because shareholder advisory groups must remain relevant from year to year, each of ISS and Glass Lewis released updated 2015 voting policies. ISS’s 15 updated policies are available here, and Glass Lewis’s six updated policies are here. Commentary about the updated policies is here, here, and here. ISS also released Quickscore 3.0, here. Companies have only until November 14 to access and verify the data used by ISS to calculate the Quickscore, which they may do here (click “Data Verification” at the bottom of the pane on the left). Commentary on Quickscore is here and here.
  3. Also regarding proxy season, the NY Comptroller rolled out its first 75 shareholder access proposals (the “holy grail” of corporate governance, according to the Comptroller) as part of its “Boardroom Accountability Project,” described here. Commentary on the Comptroller’s project and proxy access proposals generally is here. The Comptroller materials cite a CFA study, here, that suggests proxy access increases a company’s value and that urges the SEC to dust off its proxy access rule rather than rely on private ordering proposals.
  4. As an unscientific, modest rejoinder to the notion that good governance practices, as defined by shareholder advisory groups, and good financial results are meaningfully linked, see the article here about Oracle, the worst-governed, best-run company around. For those with an insatiable interest in the topic, see also Roberta Romano’s article about the Sarbanes-Oxley Act and “quack corporate governance,” in which she decries the triumph of recycled ideas advocated by corporate governance entrepreneurs, here.
  5. To complete our bashing of commoditized corporate governance, we felt oddly gratified by the rebuttal, here, of ISS’s suggestion that board anti-takeover efforts result in lower company returns compared to alternate investments (see here). A summary of the rebuttal: “BS.” (Admittedly, many at Wachtell subsist on large billings defending companies from takeover attempts, so the rebuttal is best consumed, as always, with a grain a salt. But still, they’re clearly right.)
  6. Following last month’s bevy of cybersecurity items, a few more:
    • Overviews of the increased focus on and board responsibility for managing cybersecurity risk are here, here, here, and here.
    • Information about the Department of Homeland Security’s Safety Act, which could help limit a company’s liability if it is targeted for a cyber-attack, is here and here.
    • A group of trade associations asked Congress to adopt a uniform standard for notifications to customers of data breaches, here.
  7. Two separate studies, see here, found that professional investors who subscribe to a direct feed can obtain access to reports filed with the SEC seconds in advance of the general public, giving them a potential edge on the market. Of course, one assumes this advantage is relatively minor compared to the fact that the professional investors actually read the documents, know what to look for, and are more likely to correctly anticipate how the market might react. Still, timing is everything.
  8. The SEC’s sanction of 10 companies for failing to timely disclose unregistered stock sales that constitute 5% or more of the outstanding shares (1% for larger companies), see here, has caused some to speculate that this is an example of the SEC’s “broken window” policy of enforcement (see, e.g., here), which many aren’t sure is a good idea (see here and here). Others take a different view, for example here (rated PG-13).
  9. Fourteen states have now enacted some form of intrastate crowdfunding exemption, and several more are still thinking about it. See here. Amid this, note the SEC enforcement action, here, against a website that allowed U.S. investors to invest in foreign start-ups without adequately ensuring each investor was accredited, disqualifying the offering from the exemption under Regulation D and violating broker-dealer rules.
  10. The SEC’s Investor Advisory Committee released recommended changes to the definition of “accredited investor,” here, including:
    • relying more on financial sophistication than on the ability to bear the loss;
    • a scaled approach, limiting how much an investor may invest as a percentage of income or net worth; and
    • third-party verification of accredited investor status, perhaps like the safe harbors for Rule 506(c) accredited investors.
    The Committee also recommended more study and more protection for non-accredited investors such as requiring that the purchaser representative not have a personal financial stake in the investment or receive compensation from the issuer. Recall that Dodd-Frank requires the SEC to review the definition every four years but does not mandate changes. The report from the Committee is intended to aid the SEC in its review of the definition. Commentary on the report is here, here, and here.
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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