On July 19, 2012, the SEC approved a proposed change to NASDAQ’s rules regarding membership on a listed company’s audit, compensation and/or nominations committee. NASDAQ sought to modify an exception to its Rule 5605, which allows a non-independent director to serve on such committees “under exceptional and limited circumstances” for up to two years. The amendment provides an exception allowing a non-independent director to serve on a company’s audit, compensation and/or nominations committee, where the director has a family member serving as a non-executive employee of the company, so long as the listed company’s board concludes that the director’s membership on the relevant committee is “required by the best interest of the company and its shareholders.”The SEC’s release is available at here.
Glass Lewis Implements Changes to its Voting Analysis Model
GLass Lewis & Co. has announced that, effective for annual meetings taking place after July 1, 2012, it has implemented a number of revisions to its proprietary pay for performance quantitative model. Glass Lewis uses the quantitative model to analyze the degree of alignment between corporate performance and named executive officer compensation. When making voting recommendations to its subscribers on say-on-pay proposals, Glass Lewis analyzes both the quantitative analysis and a qualitative analysis of the company’s named executive officer compensation program.
FASB Votes Against Continuing Loss Contingency Disclosure Reform Project
At a July 9, 2012 meeting, the Financial Accounting Standards Board (“FASB”) voted against moving forward with its outstanding exposure draft to modify the accounting and disclosure requirements for loss contingencies. The FASB considered two alternatives at the meeting: (1) remove the loss contingency project from its agenda; or (2) continue to explore moderate changes to the loss contingency requirements. The FASB Staff recommended that the Board remove the project from its agenda. Chairwoman Seidman and Board members Buck, Golden, Schroeder and Smith voted to remove the project from the Board’s agenda. The majority agreed that the current requirements under Accounting Standards Codification Topic 450 are sufficient and that addressing any concerns with the adequacy of loss contingency disclosures is an issue of compliance and enforcement rather than standard-setting. Board members Linsmeier and Siegel dissented, with each noting that the project should continue with a focus on providing additional guidance on qualitative disclosures about loss contingencies.
UK Government to Require Mandatory Greenhouse Gas Emissions Reporting
On June 20, 2012, British Deputy Prime Minister Nick Clegg announced at the United Nations Rio+20 Summit that the UK will become the first country to require emissions data disclosure in companies’ annual directors’ reports. Pursuant to regulations to be made under the UK’s Climate Change Act 2008, which must come into force by April 2013, all UK “quoted companies” will be required to report their greenhouse gas emissions. (Quoted companies generally are UK companies whose equity share capital is included in the Official List, officially listed in an European Economic Area (EEA), or admitted to dealing on either the NYSE or NASDAQ.) In 2016, the British government will determine whether to extend this requirement to all large UK companies, including private companies.
Business Roundtable Publishes Principles of Corporate Governance 2012
Business Roundtable (BRT) today issued its Principles of Corporate Governance 2012, which update its April 2010 principles. The principles were updated to “reflect the new circumstances of Dodd-Frank Wall Street Reform and Consumer Protection Act implementation and the continuing evolution of best practices.” The new Principles of Corporate Governance include important updates in five key areas:
34 Questions Concerning the U.S. IPO Market
On June 19, the Committee on Oversight and Government Reform of the U.S. House of Representatives asked the Securities and Exchange Commission to answer 34 questions concerning the initial public offering market in the United States. The Committee’s inquiry came less than three months after the enactment of the JOBS Act, which, among other things, eased regulatory restrictions on initial public offerings by Emerging Growth Companies.
U.S. Securities and Exchange Commission Adopts Rules Implementing Dodd-Frank Requirements for Listing Standards Applicable to Compensation Committees
The SEC today adopted rules to implement Section 952 of the Dodd-Frank Act, requiring stock exchanges to adopt listing standards that:
- impose independence requirements on compensation committee members,
- authorize compensation committees to retain independent advisers, and
- require compensation committees to assess the independence of any consultant, legal counsel or other adviser that provides advice to the compensation committee, other than in-house counsel.
Risk Factors in IPO Registration Statements of Emerging Growth Companies
Nearly eight weeks after the Jumpstart Our Business Startups Act (“JOBS Act”) was signed into law, the first group of Emerging Growth Companies (each, an “EGC”), as defined in Section 101 of the JOBS Act, have publicly filed registration statements to the SEC that include EGC-specific risk factors. In a May 21, 2012 post on The Corporate Counsel blog, Broc Romanek identified nine such companies:
Division of Corporation Finance Permits Notice and Access in Certain M&A Transactions
The Division of Corporation Finance of the Securities and Exchange Commission recently issued a letter that for the first time granted no-action relief for the use of notice and access for a proxy statement in a M&A transaction. The no-action letter, SAIC, Inc. (avail. Apr. 27, 2012), involved the upcoming merger of a holding company into its operating subsidiary to eliminate the holding-company structure. The Division has routinely granted no-action relief from various securities law provisions in similar circumstances. For example, the Division has routinely permitted a post-merger company to take into account the pre-merger company’s SEC reporting history in determining its eligibility to use Form S-3.
NYSE Proxy Fee Advisory Committee Releases Report on Proxy Distribution Fees
On May 16, the Proxy Fee Advisory Committee, formed by the New York Stock Exchange in September 2010 to review the fee structure for proxy distribution fees, released its report and recommendations for changes to the fees banks and brokers charge public companies for forwarding proxy materials to shareholders who hold stock in “street name.” The Committee, which includes issuers, broker-dealers and investors, recommended changes to increase the transparency of the fee structure and streamline proxy fees into three basic categories: a nominee fee, a processing fee and a preference management fee (akin to the former “incentive fee”). The Committee’s recommendations also replace the large/small issuer distinction with respect to processing fees with a more gradual tiered fee structure, reduce the fees charged in connection with managed accounts by half, and subject notice and access fees to regulation under the proxy fee structure. The Committee estimates that its recommendations will result in a 4% decrease in the overall proxy distribution fees paid by public companies.