SEC Finalizes New Proxy Access Rule

Posted on August 27, 2010 by Jack J. Gravelle

Earlier this week, the SEC finalized a new proxy access rule for 3% shareholders (or larger) that was first proposed over a year ago. Proxy access refers to the right of a shareholder to use the company’s proxy statement to solicit votes for a nominee for the board of directors. Prior to the new rule, a shareholder that wanted to solicit votes for a nominee had to prepare its own proxy statement at significant cost. Now 3% shareholders (or larger) can use the company proxy statement to nominate directors.

In general, if a shareholder (or group of shareholders) holds at least 3% of the voting power of a company for at least three years, among other requirements, it can include nominees in the company proxy statement for as many as 25% of the seats on the board.

The new rule is in effect for the 2011 proxy season, except it will not apply to smaller reporting companies for three years.

The new rule has considerably more potential to affect smaller reporting companies because it is easier to obtain 3% of a smaller reporting company than a larger company. And, three years is a long time to tie up the estimated $3.5 billion needed to reach the 3% threshold at any of the 20 largest U.S. corporations by market cap. The 3% threshold may ensure that only significant long-term shareholders at large companies will be granted access, which was a stated goal of the Commission, but it could prove more likely to affect smaller reporting companies.
 

Tags: , , ,

Wall Street Reform Legislation Requires Public Companies to Revise Clawback Policies

Posted on August 11, 2010 by Greg Daugherty

President Obama, on July 21, 2010, signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”). Although the Act focuses primarily on banking, the Act does contain a section that requires the Securities and Exchange Commission to publish rules that direct the national securities exchanges and associations to prohibit the listing of any security of an issuer that does not develop and implement an appropriate clawback policy.

The Act requires that the SEC rules require the clawback policy to provide that in the event that the issuer is required to restate its financial statements because of a material violation of any financial reporting requirements under the securities’ laws, the issuer will recover from any current or former executive officer who received incentive-based compensation (including stock options) during the 3-year period preceding the date on which the restatement is required, the amount in excess of what would have been paid to the executive officer under the issuer’s restated financial statements. In other words, public companies must recover the difference between the actual pay-out under the original financial statements and the amount payable under the restated financial statements. The Act also requires that companies disclose this clawback policy to shareholders.

The effective date of the Act is July 22, 2010; however, the clawback policy requirement is not fully effective until the SEC publishes its regulations. The SEC currently is suggesting it will publish these rules to be effective for the 2011 proxy season. As such, all public companies should review their clawback policies now, or if they have not yet developed one, they should begin to develop a clawback policy. Although many companies have adopted clawback policies already, it appears that once the SEC publishes its regulations, all clawback policies may need to be revised.
 

Tags: ,