Corporate governance - Vigil

Should Canada go the way of the UK and France? A binding vote on executive compensation raises many technical issues: given the manifold complexity of compensation programs nowadays, what are shareholders voting on, what does a negative vote really mean? In case of a negative vote, will the company carry on with its current policies, which may be worse than the proposed and rejected policies?

On July 21, 2016, the Staff of the SEC’s Division of Corporation Finance denied H&R Block Inc.’s request to exclude a shareholder proposal to amend the company’s existing proxy access bylaw. Like many companies earlier this year who adopted proxy access bylaws, H&R Block had sought to exclude the proposal under Securities and Exchange Act Rule 14a-8(i)(10) on the grounds that the company had already “substantially implemented” the proposal, but the Staff denied H&R Block’s request, signaling a potential shift in the Staff’s position on substantial implementation of proxy access.

It is well-known in transactional practice that the magnitude of termination fees has gone up over the past thirty years. What used to be 1-2% of deal value in the 1980s increased to 2-3% by the 1990s and 3-4% by the 2000s. This trend cannot be readily explained by changes in M&A fundamentals: as a percent of deal value, it is not obvious why compensation for search costs, out-of-pocket costs, reputational costs, and opportunity costs should be higher today than they were in the 1980s. The more plausible explanation lies in the nature of transactional practice.

The GC100, the voice of general counsel and company secretaries in the FTSE 100, and the Investor Group (together “the Group”) has published an updated version of its Directors’ Remuneration Reporting Guidance, which will replace the guidance published in 2013. The original publication was designed to assist companies and their investors in the interpretation of UK reporting regulations that came into force in 2013, and which prescribed certain elements of disclosure in conjunction with the introduction of binding vote on pay policies at all UK-incorporated companies.

My paper provides a historical analysis of the rise of the independent director and the related model of a “monitoring board of directors” in the US and the UK. These two jurisdictions are commonly credited with creating the concept of the independent director and exporting it around the world. As of 2016, most Member States of the European Union and virtually all major Asian jurisdictions have rules for appointing at least some independent directors to their companies’ boards. On the supra-national level, the OECD Principles of Corporate Governance of 2015 recommend to assign important tasks to independent board members. The regulatory basis for this obligation is found either in the pertinent company laws, the listings rules and/or the corporate governance codes. Independent directors have obviously become global players. This is somewhat surprising giving the fact that there is only shaky empirical support for staffing boards with independent directors.

In the space of one week, the SEC brought two enforcement actions that reiterate its focus on protecting the rights of whistleblowers. In each case, companies attempted to remove the financial incentives for departing employees to submit whistleblower reports to the SEC. The result instead was a pair of administrative orders (on a neither admit nor deny basis) finding that each company violated SEC Rule 21F-17, which prohibits any person from taking any action to impede a whistleblower from communicating with the SEC about possible securities law violations.

Our recent survey provides an update on shareholder activism activity involving domestically traded public companies with equity market capitalizations above $1 billion during the first half of 2016. Despite the uncertain domestic and international economic and political climates, shareholder activism continues to be common.