Our partner Richard Renck in Wilmington recently posted an entry on our Delaware Business Law Blog regarding the Comverge case decided last month by the Delaware Court of Chancery. Among other things, the Court’s opinion provides practitioners and clients with insight regarding break-up fees as well as a road map of how the Court of Chancery reviews challenges to third-party sale transactions, approved by a disinterested board, under the enhanced scrutiny of Revlon. Please see Richard’s post here.
Prompted by a request for interpretive guidance, on April 1, 2014, the NYSE proposed to relax its bright line director independence tests in certain limited circumstances, so that “a director may be deemed independent of a company that has been the subject of a spin-off transaction regardless of the fact that such director or his employer had a relationship with the former parent of such spun-off company.” The new interpretation is reflected in a rule filing that the NYSE has submitted to the SEC for approval.
Yesterday, ISS issued FAQs explaining its views on director qualification/compensation bylaws. These types of bylaws disqualify from serving as directors persons who receive third-party compensation, typically from activist investors, for their service as directors. Such bylaws have been adopted since last spring by some companies to prevent arrangements similar to those proposed by activist shareholders running minority slates of directors for the boards of Hess Corp. and Agrium, Inc. in early 2013. See here.
The SEC scored a victory in the U.S. Court of Appeals for the District of Columbia Circuit in a case filed in October 2012 by the U.S. Chamber of Commerce, the Business Roundtable, and the National Association of Manufacturers. The plaintiffs challenged the SEC’s rule on disclosure of the use of conflict minerals on grounds that aspects of the rule were arbitrary and capricious under the Administrative Procedure Act and claiming that the disclosures required by the SEC and by Congress run afoul of the First Amendment. In a 63-page decision in favor of the SEC, the Court found no problems with the SEC’s rulemaking and disagreed that the “conflict minerals” disclosure scheme transgressed the First Amendment.
The U.S. Court of Appeals for the Fifth Circuit’s decision last week in Asadi v. G.E. Energy (USA) has been hailed as a triumph for employers because it requires whistleblowers who bring retaliation claims under the Dodd–Frank Wall Street Reform and Consumer Protection Act to show that they suffered retaliation because they reported potential violations to the U.S. Securities and Exchange Commission. The Fifth Circuit rejected the position adopted by the SEC in its regulations implementing Dodd-Frank and by the few district courts that have addressed the issue. That rejected approach interprets Section 922 of Dodd-Frank to apply its enhanced protections to certain whistleblowers even if they had not reported their concerns to the SEC. Although this decision narrows the category of employees who can seek the enhanced protections of Dodd-Frank, it will likely increase the number of whistleblowers who report their concerns to the SEC.
Our firm’s client alert regarding the case can be found here.
In theory, a company could be delisted from a national stock exchange as a result of a chance meeting anywhere and a casual conversation, if a compensation committee member receives any legal advice from independent company counsel. Beginning on July 1, 2013, the listing standards of national securities exchanges and national securities associations mandated by Section 952 of the Dodd-Frank Act become effective. Under these standards, compensation committees of issuers listed on national securities exchanges will be required to consider specified independence factors prior to the committee’s retention of or obtaining advice from a compensation consultant, outside legal counsel or other advisor. If the compensation committee, or a committee member, chooses (or just happens) to discuss legal matters with the issuer’s current outside legal counsel, the exchange’s listing standards require the committee to have gone through the process of considering that firm’s independence prior to obtaining advice from such counsel; and neither the federal securities laws nor the exchanges’ listing standards afford a curative provision.
Yesterday, the Securities and Exchange Commission issued a release and report of investigation announcing that issuers can use social media outlets, such as Facebook and Twitter, to disclose material information in compliance with Regulation FD, so long as investors have been alerted in advance about which social media will be used by the issuer to disseminate such information.
The NASDAQ Stock Market LLC (Nasdaq) recently proposed a rule change to require listed companies to establish and maintain an internal audit function. Of course, many listed companies already have an internal audit function as a matter of best practice. NYSE listed companies have been required to maintain an internal audit function since 2004.
Although the dispute between hedge fund manager David Einhorn and Apple, Inc. is about Apple’s capital allocation strategy, it has brought attention to the SEC rules on “unbundling” of proxy statement proposals. On Friday, the U.S. District Court for the Southern District of New York enjoined Apple from holding a shareholder vote at its February 27 annual meeting on a proposal (Proposal No. 2) to amend its articles of incorporation to “[(i)] eliminate certain language relating to the term of office of directors in order to facilitate the adoption of majority voting for the election of directors; [(ii)] eliminate ‘blank check’ preferred stock; [(iii)] establish a par value for the Company’s common stock of $0.00001 per share; and [(iv)] make other conforming changes . . ., including eliminating provisions in the Articles relating to preferred stock of the Company.”