New Wave Of Lawsuits Targeting Disclosures On “Say-On-Pay;” Plaintiffs Use M&A Litigation Tactics To Attack Executive Pay

The plaintiffs’ bar has taken new aim at public companies’ annual meetings: filing lawsuits to enjoin annual shareholder approval of stock plan proposals and “Say-On-Pay” (“SOP”) votes, typically arguing that the proxy disclosures regarding these topics are inadequate. Dozens of cases have been filed this year to date. The Santa Clara Superior Court recently denied plaintiff’s attempt to delay Symantec’s SOP vote, finding no precedent for such an injunction. Yet new cases continue to come.

In Symantec, plaintiffs argued that proxy disclosures failed to provide enough information to allow shareholders to make an informed decision regarding executive compensation proposals. Plaintiffs argued that shareholders needed more detailed information, including an analysis conducted by the company’s compensation consultants and any compensation risk assessment undertaken by the company. Symantec v. Gordon, et al., Case No. 1-12-CV-231541 (Cal. Santa Clara County Superior Court). The Symantec Court disagreed.

The Symantec case suggests that judges will look to industry practices in evaluating the adequacy of disclosures on executive compensation. The court considered an expert opinion from a Stanford Professor (Robert Daines) surveying disclosures made by other companies in the industry. Professor Daines concluded that Symantec’s disclosures were at least as detailed as the industry standard. Lacking any factual support or legal precedent for such an injunction, the court denied the motion.

The plaintiffs’ bar is also using such disclosure-based allegations in efforts to enjoin shareholder voting on proposals to increase the number of shares available as incentive compensation for executives and employees. Historically, plaintiffs have used this tactic in merger litigation in an effort to obtain favorable settlement payments so that a shareholder vote on a merger may proceed. In the new suits, plaintiffs hope to use the same form of leverage, except in the context of a shareholder vote on executive compensation issues.

 

Published In: Business Organization Updates, Civil Remedies Updates, Mergers & Acquisitions Updates

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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