On May 25, 2011, in a 3-2 vote, the U.S. Securities and Exchange Commission (“SEC” or “Commission”) approved its final rules (“Whistleblower Rules”) to implement the whistleblower award program of Section 21F of the Securities Exchange Act of 1934, which was added by Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The Whistleblower Rules establish the standards and procedures the SEC will apply in awarding whistleblowers monetary compensation for providing tips about possible securities law violations that lead to successful SEC enforcement actions and make definitions which set the contours for protections of whistleblowers under the Dodd-Frank Act’s anti-retaliation provisions. The SEC’s press release is available here: SEC Adopts Rules to Establish Whistleblower Program. A copy of the adopting release and the Whistleblower Rules is available here: Final Rules.[1]
Topic: Corporate Governance
The Government of India Issues a New Consolidated Foreign Direct Investment Circular
On March 31, 2011, the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India ("DIPP"), issued a new consolidated foreign direct investment policy, Circular 1 of 2011 ("Circular"), which supersedes all prior press notes, press releases and clarifications issued by the DIPP relating to foreign direct investment in India. The Circular reflects the current policy of the Indian Government with respect to foreign direct investment in India, and has the force of law.
SEC Proposes Rules on Compensation Committee Independence and the Role of Compensation Consultants and Other Advisers
On March 30, 2011, the Securities and Exchange Commission (the “SEC”) voted unanimously to propose rules implementing Section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) relating to: (1) compensation committee member independence; (2) compensation consultant and other adviser independence; and (3) compensation committee authority to retain, and disclosure regarding use of, compensation consultants and other advisers. In our July 21, 2010 client memorandum, available here, we describe in detail Section 952 of the Dodd-Frank Act, which added a new Section 10C to the Securities Exchange Act of 1934 (the “Exchange Act”).
SEC Targets Directors Who Ignore Red Flags
In the past two weeks, the U.S. Securities and Exchange Commission (“Commission”) announced enforcement actions against four independent directors at two publicly traded companies. While these actions reflect the Commission’s interest in bringing actions against these types of directors, they are consistent with the Commission’s historical practice of pursuing cases against independent directors only when it believes that they personally have engaged in violative conduct or have repeatedly ignored significant red flags One of the actions was brought as an administrative proceeding instead of as a complaint in federal court and illustrates how the Commission will choose to use some of its new enforcement powers under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).
The Model Business Corporation Act and Corporate Governance: An Enabling Statute Moves Toward Normative Standards
Washington, D.C. partner John Olson and associate Aaron Briggs are the authors of "The Model Business Corporation Act and Corporate Governance: An Enabling Statute Moves Toward Normative Standards" [PDF] published in the Winter 2011 issue of Law and Contemporary Problems.
Delaware Chancery Court Upholds Airgas Poison Pill
On February 15, 2011, the Delaware Court of Chancery issued an important opinion upholding the continued vitality of the poison pill as an appropriate defensive measure for companies faced with takeover proposals deemed inadequate by the target’s board of directors. Chancellor Chandler’s 158 page decision in Air Products & Chemicals, Inc. v. Airgas, Inc. C.A. No. 5249-CC (Del. Ch. 2011) held that the maintenance of a poison pill by the Airgas board of directors was a reasonable response to an all cash, non-coercive, $70 per share tender offer by market rival Air Products & Chemicals, Inc. Despite the fact that Air Products’ tender offer had been public for more than a year–during which time Air Products won a proxy contest to place three directors on Airgas’s staggered board–and that Airgas stockholders were sophisticated and well-informed, the Court concluded that the Airgas board "acted in good faith and in the honest belief" that the $70 per share offer was inadequate, and therefore did not breach a fiduciary duty by failing to redeem the company’s poison pill. The Court highlighted the fact that the independent directors appointed pursuant to Air Products’ successful proxy efforts "changed teams" once they were appointed to the Airgas board–that is, Air Products’ own nominees voted to maintain the poison pill that prevented the tender offer from going forward.
U.S. SEC Extends the Customer Identification Program No-Action Letter for Broker-Dealers and Changes the Terms
On January 11, 2011, the U.S. Securities and Exchange Commission ("SEC"), in consultation with the Department of the Treasury, Financial Crimes Enforcement Network ("FinCEN"), again extended the Bank Secrecy Act ("BSA") Customer Identification Program ("CIP") no-action letter (initially issued in 2004) relating to broker-dealer reliance on SEC registered investment advisers ("RIAs"). As previously, the extension was granted at the request of the Securities Industry and Financial Markets Association ("SIFMA").
7th Annual Webcast Briefing on Challenges in Compliance and Corporate Governance
While compliance professionals struggle to balance developing, implementing and monitoring effective compliance programs with the reality of shrinking resources and budgets, the risks involved in non-compliance are higher than ever. Join our experienced securities law, corporate governance, white collar defense and investigations, and government contracts attorneys as they discuss practical approaches for avoiding potential pitfalls and developing strong compliance programs in today’s challenging environment.
SEC Adopts Say-on-Pay Rules
At an open meeting held on January 25, 2011, the Securities and Exchange Commission (“SEC”) voted to approve rules to implement the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) relating to shareholder advisory votes on executive compensation (“say-on-pay”), shareholder advisory votes on the frequency of conducting say-on-pay votes (“say-on-frequency”) and shareholder advisory votes on compensation arrangements in connection with significant corporate transactions (“say-on-golden-parachutes”). The SEC did not address its proposed rules regarding disclosure by institutional investment managers of their votes on say-on-pay, say-on-frequency and say-on-golden-parachutes proposals but indicated at the open meeting that it will do so in the coming month. The final rules, adopted by a vote of 3 to 2, with Commissioners Casey and Paredes dissenting, were issued pursuant to Section 951 of the Dodd-Frank Act.
Delaware Supreme Court Reverses Court of Chancery Opinion Concerning Corporations with Staggered Boards
On November 23, 2010, in Airgas, Inc. v. Air Products & Chemicals, Inc., — A.3d —-, 2010 WL 4734305 (Del. Nov. 23, 2010), the Delaware Supreme Court reversed last month’s decision of the Court of Chancery, Airgas, Inc. v. Air Products & Chemicals, Inc., No. 5817-CC, 2010 WL 3960599 (Del. Ch. Oct. 8, 2010), regarding the scheduling of Airgas’s annual meeting and its potential effect on Airgas’s staggered board. The Supreme Court’s decision invalidates an amendment to Airgas’s bylaws backed by Air Products and holds that the "Annual Meeting Term Alternative" adopted by Airgas to define the length of its directors’ terms provides for a three-year term for each director.