Week in Review: Dec. 6, 2013

Week in Review: Dec. 6, 2013

December 6 2013

SEC Holds Roundtable on Proxy Advisory Services

Dealbook:
On Thursday, the Securities and Exchange Commission hosted a round-table discussion that examined the influence of proxy advisers, potential conflicts of interest, and the transparency and accuracy of their recommendations. The agency has not proposed any rules, but it is considering if any regulation is needed.

“Proxy advisory firms clearly play an important role in the proxy process by, among other things, assisting investors in analyzing and considering how to vote their shares,” said the S.E.C. chairwoman, Mary Jo White.

But she added that as the influence of proxy advisers has grown, so have questions about the fairness of their recommendations and decision making.  Read more…

Reuters:
Studies support both sides of the debate. But even proxy adviser executives and some of their clients seemed receptive to making practices more transparent, particularly if it means avoiding new regulations.

Glass Lewis Chief Executive K.T. Rabin for instance noted her firm is working with European regulators on areas like providing more details about its dealings with public companies.  Read more…

Corporate Counsel:
Facing a growing chorus of concerns about proxy advisory services, the industry’s major players on Thursday defended the advice they give institutional investors on shareholder voting, telling the U.S. Securities and Exchange Commission that their consulting is critical and ethical.

Participating in a roundtable discussion at the SEC in Washington, D.C., the heads of leading proxy advisory firms Glass, Lewis & Co. and Institutional Shareholder Services Inc. (ISS) emphasized the steps they take to bring transparency to their services and avoid conflicts of interest, two matters that have made some companies uneasy. Glass Lewis chief executive officer Katherine Rabin and ISS president Gary Retelny noted that their firms make frequent public disclosures about their advisory activities and work in the best interest of their clients.  Read more…

Nasdaq Proposes Tweaks to Independence Requirements for Compensation Committee Members

Clearly Gottlieb:
On November 26, 2013, the Nasdaq Stock Market filed a proposal to amend its listing rules implementing Rule 10C-1 of the Securities Exchange Act of 1934, governing the independence of compensation committee members.  Currently, Nasdaq Listing Rule 5605(d)(2)(A) and IM-5605-6 employ a bright line test for independence that prohibits compensation committee members from accepting directly or indirectly any consulting, advisory or other compensatory fees from the company or any subsidiary subject to certain exceptions.  Based on the potential burden the bright line approach places on companies’ ability to recruit eligible directors, Nasdaq has proposed to replace this rule and its exceptions with a requirement that all compensation received from a company be considered in the independence determination.  Separately, Nasdaq has also proposed some minor revisions to the affiliation prong of the compensation committee independence test under Rule 10C-1, which requires that consideration be given in independence determinations to whether a compensation committee member is affiliated with the issuer, a subsidiary of the issuer or an affiliate of a subsidiary of the issuer.  All of these changes would align Nasdaq’s approach to compensation committee independence with that employed by the NYSE.  The linked memorandum summarizes the proposed changes in greater detail. 

Link:  Clearly Gottlieb Alert Memorandum

70 Companies have Failed Say on Pay in 2013

  • 3,236 companies have held Say on Pay votes in 2013
  • 70 companies have failed with an average 60% ‘Against’ vote
    • Two additional company received less than 50% ‘For’ but considered the vote a win because ‘For’ votes outnumbered ‘Against’ votes due to abstentions
    • One company, Looksmart, received 100% ‘Against’ on their Say on Pay vote
      • Board recommended shareholders vote ’Against’
        • “The current directors of the Company and the current compensation committee members believe that the executive compensation and the related practices of the former directors and former executive officers were ineffective and inappropriate and that the former directors and former executive officers consistently awarded themselves excessive compensation without regard to performance or what was in the best interests of the stockholders.”
    • 15 companies have failed previous votes
      • Three companies have failed all three of their say on pay votes (2011, 2012 & 2013)

2013 Say on Pay Voting Results
List of companies that have failed Say on Pay in 2013

SEC Comment Letter of the Week

This week ended the comment period for the proposed Pay Ratio Disclosure rule.  This week we present our firm’s comment letter as the letter of the week.

Dear Ms. Murphy,

This letter sets forth the comments of Steven Hall & Partners regarding the proposals of the United States Securities and Exchange Commission (the “Commission”) relating to the pay ratio disclosure, as set forth in Release No. 33-9452 (September 18, 2013) (the “Proposing Release”).

Steven Hall & Partners (“SH&P”) is a nationally recognized compensation consulting firm headquartered in New York, focusing on executive compensation, board remuneration and related corporate governance matters.  SH&P was formed in 2005 and is comprised of highly experienced compensation professionals with experience and expertise in the areas of accounting, law, and regulatory issues.  We serve clients of varying size in a range of industries; this diversity of exposure coupled with our expertise forms the foundation for our advice.

Along with many of our clients, we have a great interest in the topics covered in the Proposing Release.  While we appreciate the Commission’s thoughtful approach to implementing the pay ratio disclosure mandated under Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Pay Ratio Mandate”), we feel that in certain instances the Proposing Release does not go far enough to maximize flexibility.  As a general matter, we share the concerns of several of the Commissioners and other commenters as to the questionable usefulness and reliability of this disclosure.

Our comments reflect our position that the final rules should: maximize flexibility; reduce the burden of compliance; permit registrants to select the approach most appropriate to the registrant’s circumstances; and allow adjustments to promote the comparability of data used in this calculation.  We respectfully request your consideration of the following comments in connection with the Proposing Release.

Link: SH&P Comment Letter to the SEC on the Proposed Pay Ratio Disclosure