JPMorgan Chase & Co. has (unsuccessfully) tried to get permission from the Securities and Exchange Commission to exclude from its proxy statement a shareholder proposal that would require bonuses to be paid over a period of three years rather than as a lump sum.
The idea, put forward by AFSCME, is intended to tie bonus payments more closely to a long-term horizon for performance. Under the proposal that now must be included in the proxies, if performance slumps before the second or third installments of an incentive bonus, the bank will be able to make a cut.
If AIG had had such a system in place, the present controvery over its bonus system might be muted a bit. For the outrage isn't merely at the fact that "this is taxpayer money you're spending." The outrage at AIG, I think, has something to do also with the perception that bonuses pay good deal makers. It is the sheer making of the deals, and their quantity, that is often rewarded, not their long-term workability.
At any rate, if anyone involved in the AFSCME proposal is reading: congratulations. Your proposal seems to me to be an intelligent way of protecting the pensions of your members workingt hrough the existing proxy system.
Showing posts with label AFSCME. Show all posts
Showing posts with label AFSCME. Show all posts
Tuesday, March 17, 2009
Monday, July 21, 2008
Director Centered? Not Really, Part 2
There's another side to the AFSCME case.
Although the incumbent directors won that particular lawsuit and avoiding the meta-proxy contest that offended their sensibilities, they also inspired the Delaware Supreme Court to provide a road map for shareholder proponents in the future.
The court's opinion makes clear what is required for such resolutions to pass muster and get into the proxy materials. They must demand the reimbursement only of "reasonable" expenses -- which the AFSCME resolution did; and they must leave discretion in the board to withhold even reasonable reimbursement on "fiduciary" grounds.
One might initially react that any resolution that meets the second of those tests will be toothless. But that is, I think, to misunderstand the significance of the word "fiduciary." A fiduciary isn't "someone who has discretion to run the business as he damn well pleases." A fiduciary is somewho under enforceable obligations.
The courts suggestion, then, is that if AFSCME re-words its resolution to allow for fiduciary denials, resubmits it, and wins on that basis, and if after some future proxy contest a board of CA refuses to pay reasonable expenses despite the passage of this resolution, THAT decision will be subject to judicial review.
The decision is available here.
On page 23 there, in footnote 35, you'll find a plain statement of fact: "A decision by directors to deny reimbursement on fiduciary grounds would be judicially reviewable."
And don't say it's "only a footnote." The famous language of the Carolene Products case, about "discrete and insular minorities," is only a footnote too. It has had weighty consequences.
The Anglo-Saxon common law principles of contract and property, as they've developed in the corporate law of pertinent jurisdictions, aren't especially director centered. Directors, like other fiduciaries, are to be kept watch over. They are the employees of the real owners of a company, the equity investors.
That's a simple truth, but appears to need regular re-affirmation.
Although the incumbent directors won that particular lawsuit and avoiding the meta-proxy contest that offended their sensibilities, they also inspired the Delaware Supreme Court to provide a road map for shareholder proponents in the future.
The court's opinion makes clear what is required for such resolutions to pass muster and get into the proxy materials. They must demand the reimbursement only of "reasonable" expenses -- which the AFSCME resolution did; and they must leave discretion in the board to withhold even reasonable reimbursement on "fiduciary" grounds.
One might initially react that any resolution that meets the second of those tests will be toothless. But that is, I think, to misunderstand the significance of the word "fiduciary." A fiduciary isn't "someone who has discretion to run the business as he damn well pleases." A fiduciary is somewho under enforceable obligations.
The courts suggestion, then, is that if AFSCME re-words its resolution to allow for fiduciary denials, resubmits it, and wins on that basis, and if after some future proxy contest a board of CA refuses to pay reasonable expenses despite the passage of this resolution, THAT decision will be subject to judicial review.
The decision is available here.
On page 23 there, in footnote 35, you'll find a plain statement of fact: "A decision by directors to deny reimbursement on fiduciary grounds would be judicially reviewable."
And don't say it's "only a footnote." The famous language of the Carolene Products case, about "discrete and insular minorities," is only a footnote too. It has had weighty consequences.
The Anglo-Saxon common law principles of contract and property, as they've developed in the corporate law of pertinent jurisdictions, aren't especially director centered. Directors, like other fiduciaries, are to be kept watch over. They are the employees of the real owners of a company, the equity investors.
That's a simple truth, but appears to need regular re-affirmation.
Sunday, July 20, 2008
Director Centered? Not Really
Advocates of a director-centered understanding of corporate law are going to make -- or are already making -- a huge to-do about a decision of the Delaware Supreme Court Thursday.
You might as well hear about it here first, from an equity-centered fellow like me.
The case is AFSCME v. CA, and it arose (unusually) not from in-state litigation but because the Securities and Exchange Commission referred the key questions between the union pension fund and the issuing corporation to that court, as the highest authority on Delaware law.
AFSCME has sought to wage a proxy context with CA, which used to be known as Computer Associates but which has adopted the initials as the name, a common habit these days (and one I find annoying, but never mind) sought to engage in a meta-proxy-fight, pressing a shareholder's resolution that would have obliged the board of directors to reimburse stockholders for the reasonable expenses of a short-slate proxy solicitation.
In the case of a successful full-slate proxy solicitation, the issue doesn't really arise. By definition, success means the dissidents have taken over the board. But a short-slate solicitation means that dissidents are asking shareholders to put some new blood on the board, short of a majority. If they do so, then should the majority be able to deprive them of compensation for the reasonable expenses of that campaign? That was the issue.
The Delaware court said "yes, they can."
A memo issued by the law firm Wachtell Lipton on the very day of the decision heralded this as an "unequivocal and welcome holding [that] should discourage further efforts by stockholder activists to erode the fundamental prerogatives of the board of directors."
Whoa cowboys. Not so fast. The entrenched incumbent boards of the world have won a victory here but it is a less sweeping and unequivocal one than such language suggests.
I'll say some more about the other side of this coin tomorrow.
You might as well hear about it here first, from an equity-centered fellow like me.
The case is AFSCME v. CA, and it arose (unusually) not from in-state litigation but because the Securities and Exchange Commission referred the key questions between the union pension fund and the issuing corporation to that court, as the highest authority on Delaware law.
AFSCME has sought to wage a proxy context with CA, which used to be known as Computer Associates but which has adopted the initials as the name, a common habit these days (and one I find annoying, but never mind) sought to engage in a meta-proxy-fight, pressing a shareholder's resolution that would have obliged the board of directors to reimburse stockholders for the reasonable expenses of a short-slate proxy solicitation.
In the case of a successful full-slate proxy solicitation, the issue doesn't really arise. By definition, success means the dissidents have taken over the board. But a short-slate solicitation means that dissidents are asking shareholders to put some new blood on the board, short of a majority. If they do so, then should the majority be able to deprive them of compensation for the reasonable expenses of that campaign? That was the issue.
The Delaware court said "yes, they can."
A memo issued by the law firm Wachtell Lipton on the very day of the decision heralded this as an "unequivocal and welcome holding [that] should discourage further efforts by stockholder activists to erode the fundamental prerogatives of the board of directors."
Whoa cowboys. Not so fast. The entrenched incumbent boards of the world have won a victory here but it is a less sweeping and unequivocal one than such language suggests.
I'll say some more about the other side of this coin tomorrow.
Tuesday, November 20, 2007
Proxy Rules Debate
The ongoing debate over the SEC rules and "proxy access" reached the banking committee of the US Senate last week.
As regular readers of my other blog, Pragmatism Refreshed, (cfaille.blogspot.com) know, I'm all in favor of the Second Circuit's AFSCME decision, and in favor of letting it stand. The decision opened the doors for a sort of meta-election, in which dissident stockholders can get on a proxy ballot asking the whole body of shareholders to determine rules for directorial elections.
I'm happy about AFSCME not despite the possibility that it will prove a "slippery slope," to other avenues for shareholder democracy, but largely because it might.
By itself, this is a small matter. I can't imagine a lot of election-rules tinkering breaking out in corporate America as a result of anything the SEC does or doesn't do, nor do I think a lot of good would be accomplished it it did.
Still, the shareholders own the company, and it is good to remind the company management, their employees, of that simple fact.
At any rate, the SEC has under consideration two rule proposals which would (to differing degrees) cut back on the AFSCME precedent. Those rules were the subject of the banking committee hearing last week, and SEC chairman Cox gave the usual bureaucratic on-the-one hand but on-the-other-hand sort of testimony.
I think the very fact that the SEC is short handed now will prevent it from doing anything rash in the immediate future. Its good to know, though, that the members of that agency know that the legislature, with its oversight responsibilities in mind, is looking over their shoulder.
As regular readers of my other blog, Pragmatism Refreshed, (cfaille.blogspot.com) know, I'm all in favor of the Second Circuit's AFSCME decision, and in favor of letting it stand. The decision opened the doors for a sort of meta-election, in which dissident stockholders can get on a proxy ballot asking the whole body of shareholders to determine rules for directorial elections.
I'm happy about AFSCME not despite the possibility that it will prove a "slippery slope," to other avenues for shareholder democracy, but largely because it might.
By itself, this is a small matter. I can't imagine a lot of election-rules tinkering breaking out in corporate America as a result of anything the SEC does or doesn't do, nor do I think a lot of good would be accomplished it it did.
Still, the shareholders own the company, and it is good to remind the company management, their employees, of that simple fact.
At any rate, the SEC has under consideration two rule proposals which would (to differing degrees) cut back on the AFSCME precedent. Those rules were the subject of the banking committee hearing last week, and SEC chairman Cox gave the usual bureaucratic on-the-one hand but on-the-other-hand sort of testimony.
I think the very fact that the SEC is short handed now will prevent it from doing anything rash in the immediate future. Its good to know, though, that the members of that agency know that the legislature, with its oversight responsibilities in mind, is looking over their shoulder.
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