On December 1, 2014, the Securities and Exchange Commission (“SEC”) issued a no-action letter, much awaited by the corporate community, to Whole Foods Market, Inc., concurring with the company that it may omit a proxy access shareholder proposal from its 2015 proxy materials.  The shareholder proposal, submitted by James McRitchie pursuant to Rule 14a-8, asked the Whole Foods board to amend the company’s governing documents to allow any shareholder or group of shareholders collectively holding at least three percent of the company’s shares for at least three years to nominate directors, which the company would then be required to list on its proxy statement. The proposal added that parties nominating directors “may collectively make nominations numbering up to 20% of the Company’s board of directors, or no less than two if the board reduces the number of board members from its current size.”
Archive for the ‘Practitioner Publications’ Category
As companies prepare for the second year of filings under the Securities and Exchange Commission’s (“SEC”) new conflict minerals rule, many companies are looking for guidance from the first annual filings, which were due June 2, 2014. As expected, the inaugural Form SD and conflict minerals report filings reflect diverse approaches to the new compliance and disclosure requirements. We offer below some observations based on the first round of conflict minerals filings for companies to consider as they address their compliance programs and disclosures for the 2014 calendar year. It is important to note, however, that the shape of future compliance and reporting obligations will be impacted by the outcome of the pending litigation challenging the conflict minerals rule, which also is discussed below, and any subsequent action by the SEC.
Thank you and good morning. I want to start by welcoming the members of the Advisory Committee on Small and Emerging Companies to today’s meeting. I appreciate your efforts and look forward to today’s discussions. I would also like to thank the staff of the Division of Corporation Finance’s Office of Small Business Policy for organizing this meeting.
Since its formation in 2011, this Committee has provided the Commission with advice related to privately-held small businesses and the smaller publicly traded companies. It is well-known that these businesses have an outsized impact on the growth of our country’s economy and on job creation for all Americans.
As you know, today’s meeting will focus on the definition of “accredited investor.” This definition is critical to the Commission’s Regulation D exemption from the registration requirements of the Securities Act of 1933. Regulation D may be the Commission’s most widely used exempted offering. It is regularly used by small businesses to raise funds in the capital markets.
“The scope of [the Sony Pictures Entertainment (SPE)] attack differs from any we have responded to in the past, as its purpose was to both destroy property and release confidential information to the public…. The bottom line is that this was an unparalleled and well planned crime, carried out by an organized group, for which neither SPE nor other companies could have been fully prepared.”
— Remarks by Kevin Mandia, “Sony Investigator Says Cyber Attack ‘Unparalleled’ Crime,” Reuters, December 7, 2014. 
“The days of the IT guy sitting alone in a dark corner are long gone. Cybersecurity has become an obvious priority for C-Suites and boardrooms, as reputations, intellectual property and ultimately lots of money are on the line.”
— Priya Ananda, “One Year After Target’s Breach: What Have We Learned?” November 1, 2014. 
“Resiliency is the ability to sustain damage but ultimately succeed. Resiliency is all about accepting that I will sustain a certain amount of damage.”
— NSA Director and Commander of U.S. Cyber Command Admiral Mike Rogers, September 16, 2014. 
We have definitively learned from the past few months’ worth of catastrophic cyber security breaches that throwing tens of millions of dollars at “preventive” measures is simply not enough. The bad guys are too far ahead of the malware curve for that.  We have also learned that there are no such things as quick fixes in the cyber security world. Instead, the best approach is a holistic approach: basic blocking and tackling such as password protection, encryption, employee training, and strong, multi-faceted intrusion detection systems  really trump reliance on a “50 foot high firewall” alone. But there are also two more things that are critical to a holistic cyber security approach: a strong, well-practiced Incident Response Plan (IRP), and, as Admiral Rogers noted above, the concept of cyber-resiliency, i.e., the ability to take your lumps, but continue your business operations unabated.
In this post, we tackle two questions: (1) What are the essential elements of a Cyber IRP? and (2) Why are IRPs so important to your organization?
Political spending and climate change, key topics during the 2014 proxy season, are expected to feature heavily again in 2015 shareholder proposals. This post reviews the content of the social and environmental proposals voted on most frequently by shareholders of Russell 3000 companies during the 2014 season, including the topics that received the highest average shareholder support. The complete publication provides examples of proposal text and sponsor supporting statements, as well as board responses and related corporate disclosure.
Nearly 40 percent of all shareholder proposals submitted at Russell 3000 companies that held meetings during the first half of 2014 were related to social and environmental policy issues, up from 29.2 percent in 2010, as documented in Proxy Voting Analytics (2010-2014). Social and environmental policy proposals now represent the second-largest category of the subjects in terms of both the number submitted and the number voted, narrowly behind corporate governance.
After a year of “first ever” actions targeting private equity, fund managers should be vigilant, even about seemingly small issues.
In reviewing the results of SEC Enforcement’s fiscal year that ended on September 30, the agency congratulated itself on its comprehensive approach to enforcement and its “first-ever” cases. Private equity fund managers should consider a number of important takeaways.
The SEC Continues to Pursue a Broken Windows/Zero Tolerance Approach
Although the Enforcement Division announced a record number of enforcement actions, and the largest aggregate financial recovery, 2014, unlike in years past, did not include a headline-grabbing case such as Enron, Worldcom or Madoff. More recently, the agency has chosen to emphasize its pursuit of smaller cases as a way of improving compliance in the industry. SEC Chair Mary Jo White and Enforcement Director Andrew Ceresney have each touted the agency’s “broken windows” approach to enforcement. A “broken windows” strategy means that the SEC will pursue even the smallest violations on the theory that publicly pursuing smaller matters will reduce the prevalence of larger violations. Ceresney has described “broken windows” as a zero tolerance policy. This past year illustrated the agency’s commitment to applying enforcement sanctions to what some might consider “foot fault” incidents. For example, in September 2014, the SEC announced a package of three dozen cases involving a failure to promptly file Section 13D and Section 13G reports, as well as Forms 3 and 4. Many of the filers charged were just days or weeks late in disclosing their positions. In announcing the cases, Ceresney emphasized that inadvertence was not a defense to late filings.
Earlier today [Wednesday, December 10, 2014], the Second Circuit Court of Appeals issued an important decision overturning the insider trading convictions of two portfolio managers while clarifying what the government must prove to establish so-called “tippee liability.” United States v. Newman, et al., Nos. 13-1837-cr, 13-1917-cr (2d Cir. Dec. 10, 2014). The Court’s decision leaves undisturbed the well-established principles that a corporate insider is criminally liable when the government proves he breached fiduciary duties owed to the company’s shareholders by trading while in possession of material, non-public information, and that such a corporate insider can also be held liable if he discloses confidential corporate information to an outsider in exchange for a “personal benefit.”
Today’s Wall Street Journal reports that a current SEC Commissioner and a former SEC Commissioner (now a law professor) have published a lengthy paper challenging the scholarly bona fides—and legality—of the recent efforts by the Harvard Law School Shareholder Rights Project (SRP) to cause major American corporations to declassify their boards of directors. During the past three proxy seasons, the Harvard SRP has promulgated numerous stockholder-sponsored precatory resolutions calling for declassification of companies with staggered boards, and has succeeded in causing 98 companies to remove their staggered structure and have all their directors stand for election annually.
The ISDA 2014 Resolution Stay Protocol, published on November 12, 2014, by the International Swaps and Derivatives Association, Inc. (ISDA),  represents a significant shift in the terms of the over-the-counter derivatives market. It will require adhering parties to relinquish termination rights that have long been part of bankruptcy “safe harbors” for derivatives contracts under bankruptcy and insolvency regimes in many jurisdictions. While buy-side market participants are not required to adhere to the Protocol at this time, future regulations will likely have the effect of compelling market participants to agree to its terms. This change will impact institutional investors, hedge funds, mutual funds, sovereign wealth funds, and other buy-side market participants who enter into over-the-counter derivatives transactions with financial institutions.
Among the key features of the Protocol are the following:
Governance of public corporations continues to move in a more shareholder-centric direction. This is evidenced by the increasing corporate influence of shareholder engagement and activism, and shareholder proposals and votes. This trend is linked to the concentration of ownership in public and private pension funds and other institutional investors over the past 25 years, and has gained support from various federal legislative and regulatory initiatives. Most recently, it has been driven by the rise in hedge fund activism.