Wachtell Lipton discusses SEC Guidance on Use of Social Media in Offerings and Proxy Fights

The SEC staff has released new guidance regarding the use of social media such as Twitter in securities offerings, business combinations and proxy contests (as a senior SEC official telegraphed at the Tulane Corporate Law Institute conference). Until now, SEC legending requirements have restricted an issuer’s ability to communicate electronically using Twitter or similar technologies with built-in character limitations before having an effective registration statement for offerees, or definitive proxy statement for stockholders (as the legends generally exceed the character limits). Companies using Twitter and similar media with character limits can now satisfy these legend requirements by using an active … Read more

ISS Publishes Guidance on Director Compensation (and Other Qualification) Bylaws

In the latest instance of proxy advisors establishing a governance standard without offering evidence that it will improve corporate governance or corporate performance, ISS has adopted a new policy position that appears designed to chill board efforts to protect against “golden leash” incentive bonus schemes.  These bonus schemes have been used by some activist hedge funds to recruit director candidates to stand for election in support of whatever business strategy the fund seeks to impose on a company.

In its new FAQ, ISS warns that if a board adopts “restrictive director qualification bylaws” designed to prohibit “golden leashes” without submitting … Read more

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Wachtell Lipton on ISS Addressing Dissident Director Compensation Bylaw

ISS Proxy Advisory Services recently recommended that shareholders of a small cap bank holding company, Provident Financial Holdings, Inc., withhold their votes from the three director candidates standing for reelection to the company’s staggered board (all of whom serve on its nominating and governance committee) because the board adopted a bylaw designed to discourage special dissident compensation schemes.  These special compensation arrangements featured prominently in a number of recent high profile proxy contests and have been roundly criticized by leading commentators.  Columbia Law Professor John C. Coffee, Jr. succinctly noted “third-party bonuses create the wrong incentives, fragment the board and … Read more

Wachtell Lipton discusses Commissioner Gallagher’s Critiques of Proxy Advisory Firms

In a speech last week to the Society of Corporate Secretaries & Governance Professionals, SEC Commissioner Daniel M. Gallagher voiced “grave concerns,” which we have long shared, as to “whether investment advisers are indeed truly fulfilling their fiduciary duties when they rely on and follow recommendations from proxy advisory firms.”   He also said:

“It is troubling to think that institutional investors, particularly investment advisers, are treating their responsibility akin to a compliance function carried out through rote reliance on proxy advisory firm advice rather than actively researching the proposals before them and ensuring that their votes further their clients’ Read more

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Wachtell Proposes Bylaw to Ward Off Threat of Conflicted Directors

This year, the practice of activist hedge funds engaged in proxy contests offering special compensation schemes to their dissident director nominees has increased and become even more egregious.  While the terms of these schemes vary, the general thrust is that, if elected, the dissident directors would receive large payments, in some cases in the millions of dollars, if the activist’s desired goals are met within the specified near-term deadlines.

These special compensation arrangements pose a number of threats, including:

  • undermining Board prerogatives to set director pay and select the timeframe over which corporate goals are to be achieved;
  • creating a

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