Normalized deception in the world of politics has spread to proxy voting controversies. A recent white(wash) paper by the Spectrem Group purports to be “providing a voice to retail investors on the proxy advisory industry” by employing a ham-handed survey, which seeks to “educate” respondents through leading questions. The report’s catchy title is Exile of Main Street: Providing a Voice to Retail Investors on the Proxy Advisory Industry. Continue Reading →
Tag Archives | Verret
Check out the fellow 43 minutes in. He goes to Amazon, pulls up liberal books and gives them one star. No need to actually read them or contribute more than a shout down to the debate. Do those “liberal” books contain flawed facts or reasoning? That would require evidence and analysis. Apparently, that goes against his grain and perhaps against the grain of Continue Reading →
I’m very honored to have made an NACD Directorship list. No, not the illustrious “Directorship 100,” billed as “the veritable who’s who of the American corporate governance community.” Instead, I’m on a “short list of movers and shakers who merit serious attention as potential boardroom influentials. This new feature of the Directorship 100 recognizes a few outstanding individuals who, by virtue of what they do and how they do it, bear watching.”
Thanks to whoever nominated me. Great to be on a list that includes Vineeta Anand (AFL-CIO) Kenneth Bertch (Morgan Stanley), Francis H. Byrd (The Altman Group), Paul Lapides (Kennesaw State University), Gary Lutin (Shareholder Forum), Frank Partnoy (University of San Diego), Francis G.X. Pileggi (Blogger on DE Courts) and several others, some of whom I have admired and followed many years.
Coming up with the short list or the Directorship 100 would appear to be a tough job. Someone highly influential will always be missing, even if they’ve been there in years past. For example, this year where is Nell Minow? She’s still the queen of quotes and as influential as ever, as far as I’m concerned. And if they are going to consider bloggers like me, where is Broc Romanek? Doesn’t everyone read theCorporateCounsel.net? What about Jay Brown’s theRacetotheBottom.org?
Anyway, thanks NACD… I’m watching you too and honored to be on your short list. NACD does good work. Proxy access offers them an opportunity to provide training on how to be or how to word with “dissident” board members.
While I’m on the topic of lists and watching each other, I also made J.W. Verret’s list of My Favorite Corporate Law Blogs. “Corpgov.net. Always good to keep an eye on what the other side is up to. Jim McRitchie blogs about the latest developments in shareholder activism.”
I feel the same way about Verret. For example, his Defending Against Shareholder Proxy Access: Delaware’s Future Reviewing Company Defenses in the Era of Dodd-Frank feels too much like providing advice on how to circumvent the law to me. I’m not nuts about paying taxes but I certainly see it as a moral duty and don’t look for every possible loophole, especially anything of borderline legality.
Boards that use many of his “defenses” will simply stir unwanted animosity among their shareowners. Better to try to work together. (For example, see Proxy Access: Be Sure Your Board Is Ready by Beverly Behan, BusinessWeek, 8/31/10 and/or 2011 Proxy Season: The First 100 Days—How to Get Ready for the Brave New World of Say on Pay and Proxy Access, BoardMember.com)
However, from “the other side,” it is good to know what loopholes may need plugged. Verret’s on my blogroll too, under Truth on the Market.
The other day I included mention of a project by J.W Verret (Truth on the Market) who promises 16 posts in a series of strategies on how to avoid complying with proxy access once it is enacted. His postings are defended by someone I normally consider at least somewhat rational, Stephen Bainbridge. One of Verret’s latest, suggests that if directors are elected through proxy access at a company, the majority board members could set up an executive subcommittee to do all the substantive work of the board, thus freezing out directors nominated and the elected by shareowners from any significant decisions.
To me, this smacks of a violation of the duty of good faith. After working on proxy access for so long (Les Greenberg and I submitted our original petition in the summer of 2002), Verret’s tactics seem especially venal to me, so I posted a bit of a rant (New Resources: Sustainability Quotes, Crisis Timeline, Cal Corp Law & Proxy Access Avoidance and here in response to Bainbridge.
Verret apparently plans 13 more posts on the subject, although he posted something of an answer to critics on July 29th (Corporate Blog Smack Down 2010 over my Proxy Access Defenses). Those critics were Nell Minow (see Another Misguided Piece from Professor Bainbridge) and J. Robert Brown (Access and a Desperate Response). Both are well worth reading.
It looks like Bainbridge may be entering with a series of his own recommendations. For example, see Using Board Qualifications to Defang Proxy Access, 7/29/10, where he proposes companies could limit directors to those holding $250,000 worth of stock. As one commentator wrote,
How would this work in practice when most companies simply grant new directors sufficient shares of stock to meet their minimum ownership requirements within the required period of time (e.g. five years)? A board would be hard pressed to do so for all its members except for those elected via access.
Of course, in most cases involving proxy access we can expect the company to be under some financial distress, since shareowners aren’t likely to invoke access at a company that is doing well. If Bainbridge is expecting all director’s to pony up their own funds to purchase substantial shares in the company, he may not only be limiting access candidates but others as well. For example, I was once asked onto a board where the company was entering bankruptcy. Both nominating committees and shareowners seeking access would likely be blocked by Bainbridge’s suggestion.
Part of me says we shouldn’t give the ideas of Bainbridge or Verret to circumvent proxy access laws any more publicity, since maybe there are company leaders crazy enough to take their advice. However, after reading Brown response, I’m almost thinking that any such challenge may just add strength to the movement for greater shareowner democracy because it would likely lead to further preemption of Delaware law, should the courts there go along with these “defenses.” Dodd-Frank gives the SEC broad authority regarding proxy access requirements. Circumvention could easily lead to a real push for further access and to more than 25% of the seats.
In yesterday’s post (Proxy Access Blog Wars, And Introducing PA Defense #4), Verret recommended that boards adopt instant runoff voting (IRV) for their elections, which he calls the “Chinese Menu Ballot.” (One might assume from the name that he would require choices from various columns, whereas in fact, he call for IRV type ranking, so I am somewhat confused by the name he uses.) He appears to argue in favor of IRV, since it “would in some circumstances eliminate candidates for which a majority of shareholders have a strong preference against.” I find myself in actual agreement with this recommendation. I too, want consensus candidates and think IRV has a great many advantages for corporate elections. (see my May 2003 comment letter to the SEC)
In fact, for many years I have been advocating that CalPERS use IRV in its own elections. Several local governments already use IRV. Once the Secretary of State certifies ballot counting equipment at the state level, I think it is highly likely that CalPERS will adopt it for their board elections. Once they do, they may become strong advocates for IRV in contested corporate board elections.
Verret promises to “save the best for last.”
The final two defenses I will offer stand to completely subvert any of the benefits of proxy access. The final two defenses I will propose will ensure that no investor will have any remaining incentive to nominate directors onto the corporate proxy under the SEC’s proxy access regime, and they will be certain to withstand challenge in both Delaware and the federal courts.
We’ll see. In the meantime I hope for more constructive suggestions, like post #4, for the posts in between.
Quotes – The Business Case for Sustainability & CSR Reporting: Selected Quotes from the Business Community July 2010. Tim Smith of Walden Asset Management, offered up a helpful resource providing a selected set of quotes from CEO’s and company CSR reports on the business case for Sustainability and CSR reporting highlighting how they contribute to shareowner value. Business leaders explain in their own words why their companies are stepping up on Sustainability issues and how they contribute to the business and its bottom line. The research was done by Carly Greenberg, a Summer Associate at Walden and a student at Brandeis University. You can download it from the Socially Responsible Business/Investments section of our Links page.
Sullivan & Worcester recently announced a free resource for law and corporate librarians, researchers and reporters. The Financial Crisis Timeline is a full chronological directory of the Federal Government’s actions relating to the financial crisis since March 2008. Links take the user to government press releases or government web pages. You can also find on our Links page in the History section, for future reference. (Hat tip to Dan Boxer, University of Maine School of Law)
Keith Bishop, a partner in Allen Matkins, recently started a blog devoted to California corporate and securities law issues. For future reference, you can find it on our Links page in the Law section. As I recall, Bishop first came to my attention after 1991, when the Rules Committee of the California Senate appointed him the Senate Commission on Corporate Governance Shareholder Rights and Securities Transactions.
In Selectica, summarized by Pileggi here, the Court held valid a poison pill with a 4.99% trigger. At first glance this seems to be a great twist for those of us who remain skeptical of the federal government’s intrusion into this foundational issue of state law. Boards could just lower the pill trigger to 4.99%. Then even to the extent shareholders could afford to obtain a 5% interest in a company, those who did not already own a 5% interest at the time of the pill’s adoption would not be able to obtain an interest sufficient to nominate onto the corporate proxy.
Even after enactment of Dodd-Frank, Verret speculates this tactic might work at most companies, since the threshold being considered by the SEC for small companies is 5%. The latest strategy offered up by Verret in Proxy Access Defense #2 is even more insidious:
The Delaware General Corporation Law gives the board and the shareholders the co-extensive authority to adopt bylaws setting the qualification requirements necessary to become a director. There is very little case law interpreting this provision, other than the general rule from Schnell v. Chris-Craft that powers granted to the corporation may not be used in an inequitable manner. Qualification requirements based on experience, education, and other background-like variables would likely survive scrutiny, particularly where they are adopted well in advance of a threatened proxy fight.
The key element in such a bylaw would be that the Board would serve as the ultimate interpreter of the provisions. For example, a qualification provision could require directors to have 20 years of experience at a comparable company in the same line of business. The Board, then, would determine whether that requirement has been met, and only after the proxy contest has actually happened. Under the holding in Bebchuk v. CA, a shareholder challenge to such a facially neutral bylaw would likely not even be justiciable until a shareholder nominee actually won the contest. And yet, the prospect that the Board will invalidate the director may discourage nominees in the first instance.
I wonder if Professor Verret also offers advice on how to circumvent tax codes, the Occupational Safety and Health Act, or the Americans With Disabilities Act. Harvard must be pleased to have such a distinguished scholar. Hopefully, most companies will seek to work with their shareowners but I suppose there will always be companies like Apache that may find Verret’s strategies appealing. No, I’m not adding these posts to our Links page. Hopefully, they will fall under the category of fantasy.