New Developments >>> revised 2012.May.15 >>> see also: International News
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2012.May.15 Updated "Failed" Say on Pay Table for 2012
The count in the U.S. has reached 12, with UK shareholder discontent making headlines (see Reuters: "When shareholders topple CEOs").
2012.May.14 Former Dresdner Bankers Win Court Battle Over Unpaid Bonuses
“Commerzbank must pay bankers €50m in bonuses dating back to credit crunch” -- quoting from the Guardian, further reporting that Bonuses for 2008 at City subsidiary Dresdner Kleinwort were guaranteed, high court rules, even though parent company lost €6bn that year in the depths of the financial crisis. The dispute with Germany's Commerzbank, which took over Dresdner, involves some former investment bankers seeking more than €1m each. During the three weeks of hearings, the CEO of Commerzbank had argued that there was a difference between a promise and a contractual agreement. Plaintiffs had been verbally promised the bonuses by their employer in 2008, but the UK high court ruled that this verbal promise constituted a binding contract. >>> Contributed by Jeremie Gicquel, Paul Hastings Paris. See generally Int'l News (UK).
2012.May.9 Copycat "Failed" Say on Pay Class Action - Helix Energy Hit
Will Texas provide a friendlier forum than Delaware for the latest complaint that second-guesses executive compensation decisions by reference to a later say on pay vote? The complaint against Helix Energy begins with the usual refrain: "This is a 'failed' say on pay shareholder derivative action, arising from the Board's unwarranted and excessive spending ... on executive compensation." Within the same paragraph, the complaint contorts applicable corporate law by intimating that the business judgment rule is violated where a majority of shareholders disagree with a board decision (see complaint ¶3: "A majority of the Company's stockholders agree; they rejected the Board's business judgement by voting ..."). More at Failed Say on Pay Litigation / Case Digest.
2012.May.7 Social Media - Employers Should Beware of Requesting Employee Passwords
"Mortified" may be the best word to describe the public and legislative reaction to employers who pressure employees for access to their personal social media accounts (e.g. Facebook). For the latest info, see Lawmakers Defend Personal Social Media Accounts of Employees.
2012.May.4 No Doubt in Delaware - Dismissal Final for Excessive Risk and Compensation Case
In affirming the dismissal of shareholder derivative litigation against officers and directors of Goldman Sachs, Delaware's Supreme Court issued a terse ruling, stating that "To the extent: ... the issues raised on appeal are legal, they are controlled by settled Delaware law, which was properly applied." Overall, Delaware's business judgement rule continues to solidly protect corporate directors with respect to their executive compensation decisions. Unhappy shareholders are likely to continue their trend toward seeking friendlier judges and law in other states. For further information, see Shareholder Litigation re Excess Risk.
2012.May.3 Shareholder Discontent Rises, and Crosses the Pond
The daily headlines signal unprecedented shareholder activism in response to executive pay disclosures. From the UK: "Shareholders Reject Aviva's Pay Policy" (Wall St. Journal, reporting that this "humiliating rebuke" is "only the fourth time that has happened to a FTSE 100 company"). From Zurick: "UBS investors protest against pay plan" (Financial Times, 5/3), reporting as follows ... more at Say on Pay / Banking. See also "Occupy Boardroom" entry below at 2012.Apr.25.
2012.May.1 Litigation versus Former Executives Shows High Stakes ... and Gloves Off
As if we need reminders about the importance of precision in the drafting of executive-level agreements, this week brought the following object lessons:
- Be Precise in Release Agreements. The NFL finally prevailed in a decades-long dispute with Mercury Morris who pursued pension claims based on a 1991 settlement agreement which provided that he would receive "full and appropriate retirement benefits." In our experience, reference to the payment of precise dollar values makes sense in order to defuse later arguments about what was intended.
- Revise Non-competes and Non-Solicits to Reflect Evolving Law. Over the past few years, courts in the U.S. and abroad have been tightening the standards for their enforcement of non-competition and other employer-protective provisions. A French Supreme Court decision recently invalidated an M&A-related non-competition agreement. Similar headlines have also come out along the following lines: "Execs Upbraided for Poaching Clients" and "Execs Blast Noncompete as Over-broad" (Law360, 5/3/2012 and 4/27/2012, respectively; subscription needed). In the alleged poaching case, a NY judge advised that executivs violated a non-solicitation prohibition by ... more at Non-Solicitation.
- Secure Employer's Social Media Rights. PhoneDog is in the midst of litigation with a former executive over who owns a key Twitter account as to which the key employee controlled the user access info. Despite that, a CA court ruled that ... more at Trade Secrets.
2012.Apr.27 Binding Say on Pay? Yea for Transparency, Nay for Shareholder Approval
Today, a UK-USA team of Paul Hastings LLP attorneys filed comments in response to the UK government's binding say on pay proposal. While generally supporting transparency in the disclosure of executive remuneration, the comment letter opposed binding say on pay (BSOP) generally, and proposed two dramatic refinements to the UK governments proposal in the event BSOP moves forward nevertheless; namely (1) the BSOP vote requirement should not be imposed on all UK-quoted companies, but should instead should only apply to those that receive sub-standard shareholder advisory votes in more than one year; and (2) when recruiting new talent, boards should not be constrained by the most-recently approved remuneration policy, as the UK consultation draft suggests. For a copy of the Paul Hastings comment letter, just email Mark. More at Binding Say on Pay.
2012.Apr.25 "Occupy Boardroom: Shareholder Revolt" (CNNmoney)
This article warrants attention because it is not a tale of populist anger, but of pension funds and mutual funds that "are reaching the tipping point" as they "fight back against executive pay packages." The article cites banking sector activism, but the shareholder litigation risks are sure to run to any public company that does not convincingly explain its executive compensation and severance structures and decisions.
2012.Apr.22 Failed Say on Pay Redux? Citi Vote Triggers Shareholder Derivative Lawsuit
About 20% of the failed say on pay votes from 2011 triggered shareholder derivative claims alleging that officers and directors had breached their fiduciary duties. Within a week after Citigroup's favorable say on pay vote plunged from 93% to 46%, its shareholders have followed suit with similar claims "in connection with the award of excessive and unwarranted 2011 compensation" (see Moskal v. Pandit et al, U.S. District Court, Southern District of New York, No. 12-03114). See generally Failed Say on Pay Litigation / 2012 Failed Say on Pay Vote Log.
2012.Apr.21 Say on "Parachute" Disclosure Sparks Bank Shareholders to Sue -- 1st Failed Vote
With bank M&A heating up, the complaint against Encore Bancshares could be symptomatic of what to expect from the new "Say on Parachute" disclosure requirement. Encore filed its special meeting proxy statement on April 12th, and the complaint soon followed with allegations drawn directly from the Say on Parachute disclosure. The complaint basically alleges breaches of fiduciary duties by officers and directors due to the compensation they receive from Encore's sale. This litigation is a healthy reminder that, although the Dodd-Frank Act's Say on Parachute disclosure and vote are not expected to derail transactions, they involve sensitive disclosures that warrant up-front diligence and thoughtful presentations to shareholders. Meanwhile, Advance America became the first selling company to fail to receive majority shareholder support for its say on parachute vote. More at Say on Parachute.
2012.Apr.17 UK Binding Say on Pay - a Proposal Worth Critiquing
UK-incorporated public companies have reason to fear that binding say on pay (BSOP) could become a reality for general shareholder meetings held on and after October 1, 2013. That proposal comes from the UK's Department for Business, Innovation and Skills (BIS), and is set forth in a consultation document released on March 14th. From a business perspective, the BIS proposal threatens to result in a regime under which one failed shareholder vote could derail a company's sound operations. Because governance initiatives in one country have been going global at an increasingly rapid rate, companies ought to consider commenting on the BIS proposal before its April 27th deadline. Highlights of the BIS proposal and some preliminary thoughts appear at ... read more.
2012.Apr.16 KB Home Loses Say on Pay Vote -- Beaten by Too Little Change?
After a less than resounding 61-39 favorable vote in 2011, KB Home only garnered a 46% favorable vote in 2012. Its CD&A acknowledged an "extremely challenging operating environment" and tried to explain successes in the company's business strategy. Further, its executives received no cash bonuses again in 2011, and their total compensation generally declined -- by about 10% for the CEO and CFO. But seven pages into its CD&A, the heading "Consideration of the Results of the 2011 Annual Meeting Advisory Vote" describes little change from 2011. After mentioning consideration of stockholder feedback, the company notes one change: not providing tax gross-ups in new change-in-control agreements. Apparently, that was not responsive enough.
2012.Apr.13 DE Chancery Dismisses Broad Range of 162(m) Claims; Denies Fee Award
In Freedman v. Adams, a shareholder brought derivative claims alleging breaches of fiduciary duty and waste due to the failure of XTO Energy's board to structure over $40 million of executive bonuses in a manner that would be deductible under Code §162(m). The Delaware Court's decision sweepingly rejects all claims, with two of many notable quotations being ... read more.
2012 CLE Events: email for registration info or materials.
May.22 "Employment Agreements and Ex Pats" (Webinar - ABA Joint Committee on Employee Benefits).
June.7 "Benefit Plan Issues relating to Private Equity M&A Transactions" (PLI, NYC)
Oct.8? "Clawbacks" (NASPP Annual Conference, New Orleans)