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From Securities Regulation Daily, February 14, 2014

PLI panelists review current proxy developments

By Jacquelyn Lumb

A panel that included former SEC officials discussed the current proxy season at the PLI’s corporate governance master class, agreeing that this season includes more shareholder engagement. Neila Radin, the senior vice president and associate general counsel for JPMorgan Chase & Co., said her firm increased its shareholder engagement and continued to do so throughout the year as it defended its support for maintaining its combined CEO/chair position. It was also important to have the directors’ engage, she said, so they could explain why they felt it was important to keep the positions combined. The directors are not involved in every issue, but the lead director or the chair of the governance committee engages with shareholders more frequently now.

Radin said that her firm typically reaches out to its largest 30 or 40 shareholders, but this year expanded beyond that group to include activist shareholder proponents. Martin Dunn, a partner at Morrison & Foerster, said it often helps to meet with activist shareholders to see what they are really after. It helps to build a relationship.

Supplemental materials. The panelists discussed the use of supplemental materials. Dunn said that regardless of how much outreach a company engages in, it also needs to use supplemental materials to further explain the company’s position. Radin agreed that supplemental materials were useful. For example, JPMorgan wrote a letter outlining its position on the CEO/chair debate and then filed it with the SEC.

Keir Gumbs, with Covington & Burling, said that a number of companies file letters with the SEC because they may be considered solicitations. A company can send a reminder about an issue that is subject to a vote, but cannot do more than that or it is considered a proxy solicitation and must be filed.

Social media. The panelists talked about the increasing use of social media. Lillian Brown, with Wilmer Cutler, emphasized the importance of good disclosure controls and procedures with respect to who can say what. Meredith Cross, also with Wilmer Cutler, believes the use of social media is better suited for proxy purposes than any other and believes it will increase over time.

Shareholder proposals. With respect to shareholder proposals, Dunn said the process has become institutionalized and less like the Wild West. He urged companies to accept the fact that certain proposals cannot be excluded. Companies should decide in advance whether they want to try to negotiate it out.

The staff will not provide a no-action letter if a shareholder is suing a company over its determination to exclude a proposal. Now, a number of companies are seeking declaratory judgments under rule 14a-8. Shareholder activist John Chevedden has been sued a number of times, including a suit by Omnicon regarding confidential voting. Cross said the complaint reads like a letter to the SEC.

The panelists also talked about proxy advisory services. Dunn said that companies must stay informed about what ISS is doing. Radin added that some reports suggest that ISS recommendations influence between 20-30 percent of the vote. Even those who say they vote independently and do not rely on ISS recommendations concede that its recommendations may lead them to look more closely at an issue.

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