On January 24, 2012, the NYSE issued a notice regarding Rule 452 that establishes new restrictions on broker discretionary voting. NYSE Rule 452 regulates when brokers may cast discretionary votes on uninstructed shares. NYSE Rule 452 permits brokers to exercise their discretion to vote on “routine” proposals when the beneficial owner fails to provide specific voting instructions within 10 days of the scheduled meeting, and prohibits brokers from voting those uninstructed shares on “non-routine” matters. The NYSE notice states that they re-examined broker discretionary voting on certain corporate governance proposals in light of “recent congressional and public policy trends disfavoring broker voting of uninstructed shares.” The NYSE’s rule on broker discretionary voting has come under increasing scrutiny in recent years, as evidenced by recent amendments to Rule 452 prohibiting broker voting of uninstructed shares in the election of directors (other than for the election of directors for investment companies), and the provision in the Dodd-Frank Act directing the SEC to prohibit brokers from voting uninstructed shares on executive compensation and other “significant matters,” as determined by the SEC.
Amendments to Form 10-K and 10-Q
Effective Friday, January 27, 2012, Form 10-K was amended by changing the heading for Part I, Item 4 to read “Mine Safety Disclosures.” Similarly, Part II, Item 4 of Form 10-Q was amended in the same manner. Previously, these item headings had read, “Removed and Reserved,” but as the new headings indicate they will now be used to provide disclosures required under Section 1503 of the Dodd-Frank Act. Amendments were also made to Form 20-F and Form 40-F to provide for disclosures by foreign issuers. The substantive disclosure requirements for these items consists only of a statement whether, if applicable, disclosures required under Section 1503 of the Dodd-Frank Act and under newly adopted Item 104 of Regulation S-K are included as an exhibit to the filing. Those disclosures apply only to an issuer that is an operator, or that has a subsidiary that is an operator, of a coal or other mine covered by the Federal Mine Safety and Health Act of 1977, and require information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. The Commission estimated that only approximately 100 issuers filing Form 10-K will be required to provide the disclosures called for by the new provisions. All other issuers can state that the item is “not applicable,” but will want to note the change in the item headings for their filings.
Duties of Directors of UK Subsidiary Companies – An Introduction
While the duties of directors of unlisted private companies often coincide with the strategy and requirements of the subsidiary’s parent company, this is not always the case, and the circumstances may require a director to act independently of the parent. Directors may risk personal liability as regulators are taking tougher stances especially toward bribery, corruption and anti-competitive behavior, particularly cartel abuses. Directors and prospective directors will therefore want to know the extent to which they can protect themselves against these risks.
Recent Trends in Joint Venture Governance
For the last decade, governance issues have been a priority at public companies and companies planning to go public. Recent joint venture activity reflects a carryover from the public company arena of this intense focus on improving governance. Venture partners are increasingly concentrating on developing and implementing governance best practices within their joint venture vehicles. This summary provides a brief discussion of recent trends in joint venture governance.
SEC Provides Guidance on Disclosure Regarding European Sovereign Debt Exposures
On January 6, 2012, the SEC’s Division of Corporation Finance (the “Division”) issued “CF Disclosure Guidance: Topic No. 4” regarding companies’ disclosures about exposures to European sovereign debt holdings. The Division provided the guidance to bring about “greater clarity and comparability” in companies’ disclosures.
Considerations for Public Company Directors in the 2012 Proxy Season
The past year has been one of change and challenge for public companies and their boards, as companies have moved to implement "say-on-pay" and other provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"). With the 2012 proxy season on the horizon, public companies and their directors will continue to feel the impact of Dodd-Frank as the Securities and Exchange Commission ("SEC") proceeds with its ongoing efforts to implement the law. At the same time, public companies and their boards are operating in an environment where the balance of power between boards and shareholders continues to shift. The traditional, board-centric model of corporate governance continues to gravitate toward a paradigm that includes an increased role for shareholders. Activist shareholders are seeking greater participation in companies’ governance and operations, and they are exerting increased pressure on companies to adopt so-called corporate governance "best practices."
2011 Year-End FCPA Update
2011 marked yet another dynamic year for the Foreign Corrupt Practices Act ("FCPA"), including numerous significant enforcement actions, more trials than in any other year in the history of the statute, and a growing public debate about the policy ramifications of a U.S.-dominated international anti-corruption enforcement field. Those close to the statute can feel the unmatched pace at which the 34-year-old law is now developing. With more litigated decisions, more bills pending in Congress, and more interplay between the FCPA and other international laws prohibiting cross-border bribery, there is a growing sense of urgency amongst FCPA practitioners as to the direction the statute will take in the coming years.
Delaware Court of Chancery Issues Temporary Restraining Order To Postpone Annual Meeting of Stockholders
On December 20, 2011, Vice Chancellor Parsons of the Delaware Court of Chancery issued an opinion and entered a temporary restraining order enjoining ChinaCast Education Corporation from holding its annual meeting, scheduled for later that day, until January 10, 2012. See Sherwood, et al. v. Chan Tze Ngon, et al., No. 7106-VCP (Delaware Court of Chancery). The Court found that ChinaCast’s actions, having removed incumbent director Ned Sherwood[1] from its slate of nominees less than two weeks before the scheduled annual meeting, did not "comport with the ‘scrupulous fairness’ required of corporate elections." The opinion serves as an important reminder for companies that while Delaware law provides significant latitude to create processes intended to facilitate the orderly conduct of annual stockholder meetings and election contests, actions that improperly infringe upon the shareholder franchise will be viewed skeptically by Delaware courts.
SEC Codifies Change in “Net Worth Test” for Accredited Investor Definition
On December 21, 2011, the Securities and Exchange Commission has codified the Dodd-Frank Act’s change to the net worth test for “accredited investors,” a definition used in SEC rules adopted under the Securities Act of 1933, as amended. The accredited investor test is set forth in Securities Act Rule 501(a) and can be met by a natural person with a net worth in excess of $1,000,000. Since its enactment on July 21, 2010, Section 413(a) of the Dodd-Frank Act has excluded primary residences from “accredited investor” net worth calculations. The new SEC amendment clarifies that mortgage debt on an investor’s primary residence generally will not be treated as a liability for the purposes of the net worth qualification, except to the extent that the debt is higher than the estimated fair market value of the residence, thus avoiding double deduction of the residence and the mortgage debt. However, any increase in the amount of mortgage debt secured by a primary residence in the 60 days prior to a sale of securities will count as a liability in an investor’s net worth calculation when the increase is not related to the purchase of that primary residence. The SEC intends this to prevent investors from borrowing against their primary residence and using the proceeds of the newly incurred debt to inflate net worth calculations in order to qualify as an “accredited investor,” while not penalizing individuals who purchase a primary residence prior to the purchase of a security. The revised rule also includes a grandfathering clause providing that the old net worth test will apply to a securityholder’s right to purchase additional securities of the issuer, if such right existed prior to July 20, 2010 and the individual qualified as an accredited investor on the basis of net worth as of the time such right was acquired.
ISS Issues White Paper on New Approach in Evaluating Pay for Performance Alignment
On December 20, 2011, Institutional Shareholder Services ("ISS"), a leading proxy advisory firm, published a white paper titled "Evaluating Pay for Performance Alignment: ISS’ Quantitative and Qualitative Approach." The white paper provides greater guidance on ISS’ new approach to establishing peer groups when conducting the pay-for-performance test described in its U.S. Corporate Governance Policy 2012 Updates and provides a detailed summary of and rationale for the new quantitative and qualitative methodology ISS will implement, beginning February 1, 2012, when assessing executive compensation. The white paper is available at