Tag Archives | petition

SEC Protects the 2%: Qualcomm Example

SEC Protects the 2%

SEC protects the 2%, an absurd meaningless gesture

The SEC protects the 2%. No, I am not writing about the top 2% of America in terms of wealth or income, although there is probably some correlation. I am writing about the 2% of shares that are still registered. While the SEC is protecting shareholders who own that 2% of shares, they are falling down on the job with respect to protecting the rights of shareholders owning the other 98%. Yesterday, I asked the SEC to invalidate the proxy ballot sent out by Qualcomm (QCOM). I’ve raised this issue before, filing a rulemaking petition on the subject in 2009 but can’t let the SEC’s inaction slide. A few examples of previous posts are as follows:

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Vanguard’s Political Disclosure Vote: Wrong!

Vanguard's Political Disclosure Vote is Wrong (2nd from bottom on graph)

Vanguard’s Political Disclosure Vote is Wrong (2nd from bottom on graph)

VanguardLet’s change Vanguard’s political disclosure vote. Our nation’s largest mutual fund voted against all resolutions submitted by shareholders asking for companies to disclose their political spending. Shouldn’t we have the right to know what candidates our investments are supporting?

Vanguard’s Political Disclosure Vote Needs Changed

Join more than 59,000 American’s who have already petitioned Vanguard to change their proxy voting behavior. Support shareholder resolutions that seek disclosure of political spending at companies where Vanguard owns a shares. If Vanguard votes with us, instead of against us, it won’t be long before other large funds like BlackRock start doing the same. Within a few years, we could actually begin to know what companies are funneling how much money to which candidates. Vanguard’s political disclosure vote can be changed – with your help. Sign the petition by U.S. PIRG to change Vanguard’s political disclosure vote. Continue Reading →

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Steris Corporation’s Proxy Voting Deflate-Gate

Steris Proxy Voting Deflate-GateMost companies opposing a shareholder proposal simply rely on an opposition statement, although sometimes they  solicit the votes of their largest shareowners. Steris Corporation (NYSE:STE) took it a bit further. Was it cheating? That depends on your perspective. Like a partially inflated football, a partially stuffed ballot can provide the crucial margin needed to win.

Proxy Voting Deflate-Gate: What Steris Did

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Video Friday: Where is the SEC on Dark Money?

Dark MoneyI think most Americans have a very limited attention span when it comes to investing, the SEC and especially corporate governance. When I came across SECDisclose.org earlier this week, I was delighted with a series of videos they have uploaded on dark money and with their byline: Because the S.E.C. shouldn’t stand for “S-E-C-RET.”

In a few paragraphs below lifted from SECDisclose and a press release from the Corporate Reform Coalition, I hope to perk your interest in this project so that you’ll share their links with your friends. I love their campaign. It is very creative. However, one thing the campaign fails to do, at least as far as I could tell in a quick look, is to call their viewers and readers to action. I’ve practically hounded my readers to death on this issue but will do so once again. Continue Reading →

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Investors Seek Disclosure of Corporate Lobbying Expenses

Citizens United and Pay 2 PlayResolutions Filed at 53 Companies

Disclosure of corporate lobbying expenses remain top shareholder proposal topics for 2015, as more than 60 investors have filed proposals with more than 50 companies asking for reports that include federal and state lobbying payments, political contributions and/or payments to trade associations used for lobbying and payments to any tax-exempt organization that writes and endorses model legislation.

In 2014, resolutions relating to corporate political and lobbying expenses of a company were among the most common shareholder proposal put forth during the proxy season for the fourth consecutive year, and it is expected that these will be among the most popular shareholder proposal topics for 2015 proxy season. The bulk of political spending resolutions fall under two categories, either requesting disclosure of lobbying expenditures or seeking disclosure of political contributions. Continue Reading →

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Political $ Disclosures Turn Corner: Alliant Techsystems & CF Industries Holdings

CitizensUnitedAt Alliant’s annual meeting on July 31st 65% of shares were voted in favor of the ICCR-sponsored proposal on increased transparency on company’s state and federal lobbying activities. That’s an exceptionally high vote for a shareholder-sponsored proposal, today investorsin Alliant Techsystems (ATK) an aerospace and defense contractor and gun manufacturer, voted in favor of a shareholder request for greater transparency on the company’s lobbying activities. Continue Reading →

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Quicker Disclosure of Ownership Petitioned – Updated

NYSE Euronext, NIRI (National Investor Relations Institute) and the Society (Society of Corporate Secretaries & Governance Professionals) submitted a joint petition to the SEC requesting the SEC to reduce the time frame under which investors are required to report their holdings from 45 business days after the end of the quarter to two business days after the end of the quarter. Currently, the Exchange Act requires quarterly reporting, so a further reduction than quarterly reporting would require an act of Congress. Continue Reading →

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SEC to Propose Rules on Corporate Political Spending by April 2013

The SEC recently updated its entry in the Office of Management and Budget’s Unified Agenda to indicate that, by April, it plans to issue a Notice of Proposed Rulemaking to require public companies to disclose their spending on politics. This is huge! Perhaps petitions, accompanied by thousands of e-mails from supporters, actually can have an impact. Congratulations to Bebchuk and Jackson, co-chairs of the Committee on Disclosure of Corporate Political Spending. See their post at HLS corpgov site. Continue Reading →

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Support Petition to Disclose Corporate Political Spending

More than $6 billion was spent on this year’s presidential/congressional elections, too much of it by unknown sources. Are your companies opposing candidates you support or supporting those you oppose?  If so, do those contributions add to the value of your companies?  If they don’t disclose the expenditure, how would you ever know? Sick of that situation?  Want a change?

The WSJ reports that the SEC is actively considering an 8/3/2011 rulemaking petition submitted by a committee of ten law professors that urged the SEC to adopt rules that would require public Continue Reading →

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Shareholder Democracy Summit Coming to Toronto: Blank Vote Issue

The Canadian Society of Corporate Secretaries announces the Shareholder Democracy Summit ─ a Canadian first. CSCS has invited key stakeholders to gather this coming fall on October 24 and 25 in Toronto for an important national summit on shareholder democracy.

CSCS President Lynn Beauregard announced today that invitations to register for the Shareholder Democracy Summit will be issued in the coming weeks to all key participants. The CSCS President remarked that when Canadian shareholders vote, whether they are individual shareholders or one of our largest institutional shareholders, their voice is often not heard or it is misheard. People think it’s like voting in an electoral campaign – once a shareholder fills out Continue Reading →

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Support Rulemaking Petition on Corporate Political Spending

A group of ten very prominent corporate and securities law experts submitted a formal rulemaking petition to the SEC last week urging the Commission to develop rules requiring public companies to disclose the use of corporate resources for political activities to shareowners. Please take a few minutes to join with me writing an e-mail to the SEC in support of their petition and the important issue seeks to address.

The petition was submitted by the Committee on Disclosure of Corporate Political Spending, co-chaired by Lucian A. Bebchuk, Professor of Law, Economics, and Finance at Harvard Law School and Robert J. Jackson, Jr., Associate Professor of Law at Columbia Law School. Bebchuk and Jackson are co-authors of Corporate Political Spending: Who Decides?, and prior posts about the subject of Continue Reading →

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What Would Proxy Access Look Like if Done Right?

The Business Roundtable and Chamber of Commerce made their case and the Court found the SEC rulemaking on proxy access arbitrary and capricious “for having failed once again… to adequately assess the economic effects of a new rule.”

The SEC rules certainly didn’t come out the way Les Greenberg and I envisioned when we petitioned back in the summer of 2002. Ours was a simple proposal, summed up in one sentence:

The intended effect of the suggested modifications is that the solicitation of proxies for all nominees for Director positions, who meet the other legal requirements, be required to be included in the Company’s proxy materials.

I didn’t realize Just how bad the actual language is that got adopted until I read an illuminating paper by Jill E. Fisch of the University of Pennsylvania, The Destructive Ambiguity of Federal Proxy Access. I urge everyone who cares about this critical issue to read Fisch’s paper.  Continue Reading →

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Firms Gone Dark: Another Reason to Abolish Street Name

Thanks to Jesse M. Fried for signing on to our draft petition to the SEC to abolish street name registration. (see also, Co-Filers Wanted on Petition to Eliminate Street Name Registration, 1/13/10 and Street Name Registration: An Antiquated Idea, HLS Forum on Corporate Governance and Financial Regulation, 1/30/2010) More important, Fried reminded us that moving to a system of direct registration would also represent a significant step in ending the abuses that often occur at Firms Gone Dark, which he explored in a paper by that name.

Securities laws generally permit firms to exit from mandatory disclosures even though their shares are held by hundreds (or even thousands) of investors and continue to be publicly traded if two
conditions are satisfied:

  1. trading in the firm’s securities is moved exclusively to the “Pink Sheets” over-the-counter (OTC) market; and
  2. the firm does not have any class of securities outstanding with three hundred or more “holders of record.” (section 12(g)(4) of the Exchange Act)

Since “holder of record” (see 17 CFR Section 240.12g5-1(a)) is the party “identified as the owner” of the security on the firm’s records, a firm with thousands of real (“beneficial”) owners can go dark. Fried describes the phenomenon, considers the desirability of mandatory disclosure and suggests that firms only be allowed to go dark if a majority of public shares (other than those held by insiders) are voted in the affirmative and it meets the two existing conditions.

Fried cites two previous efforts at reform.

  1. A Petition for Commission Action to Require Exchange Act Registration of Over-the-Counter Equity Securities was filed on July 3, 2003 by several institutional investors to include beneficial owner holding securities in “street name” as holders of record.
  2. In 2006, the SEC’s own Advisory Committee on Smaller Public Companies a recommended the SEC change the definition of “holder of record” to “beneficial owner.” (see Final Report of the Advisory Committee on Smaller Public Companies (April 23, 2006).

Either strategy (as well as that of our petition to require direct registration) would significantly reduce the number of firms going dark. However, the proposals “would not eliminate insiders’ incentives to undertake value-decreasing exits in order to expropriate value from public investors.” “Reverse stock splits and repurchase tender offers conduced in the shadow of an anticipated exit from mandatory disclosure can be used to cash out public investors at less that the actual value of their shares.”

While we favor Fried’s requirement that going dark be put to a vote of publicly held shareowners, we do believe acceptance of our petition would dramatically reduce abuses, since it is much easier to get below 300 “registered” owners when most are held in the name of Cede & Co. than it is to get below 300 actual owners under direct registration.

Take a look at some of the cases that have “gone dark.” From the petition by institutional investors:

“When the public’s investment interest was at its peak, SmartDisk was only too happy to access the public markets to finance its ideas. In these times, when capital-raising is difficult for technology companies with little or nothing in the way of earnings, SmartDisk’s management would callously plunge over 6,000 public investors into the dark, depriving them of the ability to monitor the management of the $17 million in total assets remaining from their original investment.”

United Road Services had assets of $100 million and 6,000 beneficial owners when it went dark in 203 with 294 holders of record. From Fried’s paper, “Over a twelve-month period beginning with the announcement, firms going dark experience abnormal negative returns of 16 percent, with these returns becoming more negative as the period lengthens.” The vast majority of firms not required to report provide little or no information to public investors. That makes it virtually impossible to monitor for self-dealing or for even normal business activities.

I encourage readers to sign on to our petition by e-mailing Jim McRitchie or Glyn Holton. Of course, we are also still looking for additional support in the way of papers like Jessie Fried’s Firms Gone Dark. Please let us know of additional examples where “street name” registration is problematic.

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Investors Against Genocide Fighting American Funds, Broadridge and Vague SEC Requirements: More Problems Solved Using Direct Registration

According to Investors Against Genocide, proxies issued directly by American Funds met the SEC standard (Rule 14a-4(a)(3) of the Securities Exchange Act of 1934) by clearly indicating the vote was about not investing in companies that substantially contribute to genocide. However, according to American Funds, 50 – 60% of its shareholders hold their shares in "street name" and receive proxy materials through Broadridge Financial Solutions. Voting instructions issued by Broadridge to those American Funds shareholders simply referenced “a shareholder proposal described in the proxy statement.” Each of the other seven questions were clearly described in Broadridge’s voting instructions. Broadridge’s online voting instructions were similarly vague.

Given that the voting process encourages shareholders to vote with management across the board, and genocide was not clearly flagged to voters as an issue, many shareholders did not know that they had an opportunity to vote on a matter of important social significance. The specifics are more fully described in a letter from Eric Cohen, Chairperson of Investors Against Genocide, to the SEC. More coverage of the issue at Mutual fund activists claim more voting problems, Reuters, 11/23/09. An American Funds spokesman says the most support at any of the funds where ballots were counted Tuesday was about 12 percent. (‘Genocide-free’ measure rejected at American Funds, AP, 11/24/09)

I suspect Broadridge claims they don’t have to follow the rules required for proxies because they use a voter information form (VIF), not a proxy. This is the same logic they gave for turning blank votes into votes for management (See petition to the SEC. Send comments to [email protected] with File 4-583 in the subject line.)

By that logic, based on technicalities, none of us are shareowners either. Almost all shares are owned by Cede & Co., a subsidiary of the Depository Trust & Clearing Corporation (DTCC). For many companies, Cede & Co. is the only shareowner of record. Cede gives participants an "omnibus proxy," that they in turn issue to their customers. Or their customers use the VIF to request voter instructions. We don’t actually buy and sell shares, we buy and sell claims against the accounts of "immobilized" shares held by DTCC and Cede. This method of clearing settlements was imposed by the 1975 Securities Acts Amendments.

It was supposed to be a temporary measure. Brokers were in a panic because they didn’t have the backroom staff necessary to clear the exchange of registered certificates. In response, the markets shortened the trading day and closed on Wednesdays. Still, over a hundred brokerage firms went bankrupt or sold out. The 1975 Act ended the physical movement of securities certificates and the panic. Stocks were "immobilized" at Cede and we began trading something more akin to poker chips, as Glyn Holton characterizes it. The "immobilized" system was supposed to be temporary, until a direct registration system could be developed around "uncertified" or "dematerialized" shares. Legal changes were needed in many states and computer systems needed to gear up and integrate.

That has all happened but too many business earn money off the current system. It has become entrenched because everyone now depends on intermediaries like brokers, banks and Broadridge. Of course, brokers and banks don’t want a direct registration system because they are the only ones who know who owns what at ground level. They have all the names and names are worth money. What we have been stuck with is a system that can’t accurately count ballots because it can’t audit back to the beneficial owner, only to the bank or broker, whom we are supposed to trust to reconcile the voting… and they can do it either before or after the fact.

As a result, there is lots of "empty voting." I imagine it also facilitates tax evasion, although I haven’t seen much written about that. Since voting happens through many layers, the system is overly complex. Rules, like the one cited by Investors Against Genocide with regard to proxy requirements and the issue I petitioned the SEC on (blank votes going to management, instead of being counted as abstentions), are easily circumvented.

A growing number of us think a direct registration system, where all shareowners hold their stock directly, will solve many of these issues. The company will know who their shareowners are. Shareowners would all potentially know each other and be able to communicate directly with each other. Transparency; it is good for the market and is good for knowing who supports or opposes policies, such as those that support or fight genocide.

I’m participating with a group coordinated by Glyn Holton, of the U.S. Proxy Exchange and the Investor Suffrage Movement. We are putting together comments to the SEC advocating direct, rather than "street name," registration, which we hope they will consider as they take up "proxy plumbing/mechanics" issues." We would love to have you join us in this effort. If interested, send me an e-mail.

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October 2002

Webster Named

The US Securities and Exchange Commission voted to approve five members of a new national accounting oversight board to be headed by ex-FBI-CIA chief William Webster whose only experience in accounting, as far as we know, was heading the auditing committee of U.S. Technologies, now bankrupt and facing fraud accusations. Shortly before Webster was appointed he told Harvey Pitt but Pitt chose not to tell the other four commissioners prior to their vote.

Webster edged out the much better qualified pension fund chief John Biggs, who would have done much to restore trust. The vote was 3-2. Webster becomes the first chairman of the Public Company Accounting Oversight Board, expected to get up and running early next year.

In addition to Webster, the commission approved former CalPERS attorney Kayla Gillan; accountant and former SEC general counsel Daniel Goelzer; former congressman Willis Gradison; and SEC Enforcement Division Chief Accountant Charles Neimeier. Continue Reading →

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