ON THE RECORD with
SPRING 2020 CONTENTS 05 A Note to Institutional Investors from Sam Rudman 06 Corporate Governance Roundup 14 Executive Pay Roundup
20 The SEC and the DOL Launch Regulatory Actions to Features Suppress Shareholder Voting and Independent Proxy Advice 05 22 ESG and Sustainable Investing 35 Trustee Spotlight: Gracie Flores 41 Business Roundtable Statement
06 Corporate Governance Roundup 08 Valeant Investors Achieve $1.2 Billion 10 $1.025 Billion Recovery for ARCP Recovery Investors
16 Robbins Geller Defeats Motion to Dismiss in Wells Fargo Securities Case 17 Investors Prevail on Johnson & Johnson’s Motion to Dismiss Fraud Class Action Litigation News 17 Stamps.com Investors Overcome Motion to Dismiss in Securities Class Action 16 18 Robbins Geller Beats Back Motion to Dismiss in CBS Securities Action 19 Plaintiffs Obtain Class Certification in Tableau Software Securities Case 19 Investors Defeat Motion to Dismiss in Toshiba Securities Case 08 Valeant Investors Achieve $1.2 Billion Recovery with Record Settlement Against a Pharmaceutical Manufacturer and Ninth Largest Securities Class Action Settlement News Settlement Ever 10 $1.025 Billion Recovery for ARCP Investors
08 12 First Solar Investors Obtain $350 Million Recovery on Eve of Trial
13 Record-Setting $5.5 Billion Settlement Approved in Visa/Mastercard Interchange Antitrust Case
22 ESG and Sustainable Investing 32 Benchmark Litigation Lauds Robbins 36 Litigators of the Week: Robbins Geller Geller as “One of the Country’s Best- Duo Seals $1B Settlement Known Plaintiff Shops”
32 Benchmark Litigation Lauds Robbins Geller as “One of the Country’s Litigation News Best-Known Plaintiff Shops” Awards and 34 The AmLaw Litigation Daily Names Robbins Geller “The Real Winner” Behind the Walmart Bribery Scandal Settlement Recognition 36 Litigators of the Week: Robbins Geller Duo Seals $1B Settlement 40 12 Robbins Geller Attorneys Named Leading Lawyers in America 32 SPRING 2020 Sam Rudman, Managing Partner of Robbins Geller's New York Offices
A NOTE TO INSTITUTIONAL INVESTORS COVID-19 has rapidly spread throughout communities across our country and around the world, presenting all of us with unforeseen health and logistical challenges. While prioritizing the health and well-being of our employees, clients, and the broader community, Robbins Geller remains vigilant in protecting your portfolio during these unprecedented times – our attorneys and staff remain available to you 24/7/365 as we continue our work remotely.
The coronavirus crisis presents the biggest threat to the global economy since at least 2008. Our retirement plans, schools, businesses, and communities have been profoundly affected by recent events. As this newsletter goes to press, we are in the midst of a rapidly changing legal landscape. For example, while 2019 yielded a modest level of PSLRA recoveries, 2020 has already proven to be more productive for our clients. The Firm has achieved significant settlements for investors in the first three months of 2020, including in cases against Valeant Pharmaceuticals, Inc. (now Bausch Health Companies) – $1.2 billion recovery (subject to final approval), American Realty Capital Properties, Inc. (now VEREIT, Inc.) – $1.025 billion recovery, and First Solar, Inc. – $350 million recovery (subject to final approval). Notably, the settlement in the First Solar case was reached the night before jury selection. We remain diligent in our effort to combat corporate misconduct, help stabilize our financial markets, and protect your retirement savings plans.
Please take care of yourselves and your loved ones.
Warm regards,
Sam Rudman
On the Record | Spring 2020 5 6 rgrdlaw.com Corporate Governance Roundup
Shareholder votes at the Apple and avoiding the more difficult annual meeting: topics, like counseling an underperforming director or not An Apple Inc. shareholder proposal re-nominating someone. Only critical of the company’s app 15% counseled underperforming removals in China received a 40.6% directors or refused to re- vote in favor. A “proxy access” nominate them. proposal got just over 30%. A first-time proposal to tie executive • 43% of directors say it is difficult compensation to environmental to voice a dissenting view on at sustainability metrics got more than least one topic. 12%. • More than half (56%) of Big Funds Fail to Support directors say investors are giving Disclosure of Political too much time and focus to Contributions ESG–nearly twice the percentage saying the same in 2018. This year’s PWC survey of corporate directors has some striking findings:1 • Despite the benefits, director support for board diversity is • 49% of the directors surveyed falling. Only 38% of directors believe at least one of their fellow say that gender diversity is board members should not be very important to their boards, serving. down from 46% in 2018–and the lowest level since 2014. • More boards are doing self- Similar to ESG, directors seem assessments but many boards are to be tired of the issue–63% of focusing on some of the easier directors say investors devote too things to change, such as adding much attention to board gender more expertise to the board diversity, up from 35% last year. or changing up committees,
1. https://www.pwc.com/us/en/services/governance-insights-center/library/annual-corporate-directors-survey.html
Continued on page 30
On the Record | Spring 2020 7 SETTLEMENT NEWS
8 rgrdlaw.com Valeant Investors Achieve $1.2 Billion Recovery with Record Settlement Against a Pharmaceutical Manufacturer and Ninth Largest Securities Class Action Settlement Ever
fter more than four years of boost sales of Valeant products. When case for more than four years. The hard-fought litigation, lead the truth was revealed, Valeant was the team prevailed on several additional plaintiff Teachers Insurance subject of intense media and regulatory motions seeking to appeal the denial of Aand Annuity Association of scrutiny, several of its executives were the dismissals and relating to discovery America (“TIAA”) and Robbins subpoenaed to testify before Congress, matters, amended the complaint Geller secured a $1.21 billion and a former employee and owner of a twice to add additional claims, and settlement in a securities class action distributor were convicted of engaging analyzed more than 11 million pages against Valeant Pharmaceuticals, Int’l, in an illegal kickback scheme and of documents obtained from the Inc. (now Bausch Health Companies). sentenced to prison. In prosecuting defendants and 150 third parties. The settlement has received the claims, Robbins Geller successfully The settlement was reached after preliminary approval and is subject defeated seven motions to dismiss the settlement negotiations and two in- to final approval, currently scheduled action, including those by the directors person mediations that spanned more for May 27, 2020. The settlement is and also by a board member and his than a year. the ninth largest securities class action hedge fund who sought to escape settlement ever and the largest to be insider trading claims. After nearly 400 James E. Barz, Robbins Geller’s reached against a pharmaceutical pages of briefing on the initial motions lead counsel on the case, commented manufacturer. Institutional investors to dismiss and a lengthy hearing, the that: “There is no question in my City of Tucson, together with and on court substantially denied the motions mind that our string of victories in behalf of the Tucson Supplemental on April 28, 2017. The settlement the litigation and our ability to show Retirement System, and IBEW amount is particularly notable given defendants that we could simplify Local Union 481 Defined that Valeant’s stock price, which very complex issues of accounting and Contribution Plan and Trust serve traded as high as $262 per share during pharmaceutical distribution practices as additional named plaintiffs in the the class period, subsequently declined while also explaining how 22 corrective action. to as low as $8.50 per share. Robbins disclosures fit under a single umbrella, Geller negotiated a settlement that is contributed to the defendants’ decision The case was first filed on October larger than Valeant’s last reported to settle prior to exhausting the many 22, 2015. On June 24, 2016, Robbins cash balance, required payments remaining legal challenges they had Geller filed a 280-page complaint to be structured over time and with available through trial and appeal.” against more than 25 defendants. interest, and resulted in the Company The complaint alleged that Valeant’s In addition to Robbins and Barz, the announcing that it would issue Robbins Geller litigation team included securities were artificially inflated from additional debt to fund the settlement. January 4, 2013 through March 15, attorneys Robert J. Robbins, 2016 (the “class period”) due to the “The fact that, after 5 years of hard- Kathleen B. Douglas, Brian E. concealment of, among other things, fought litigation, we secured the largest Cochran, Robert Henssler, Jr., Valeant’s unsustainable and deceptive settlement ever obtained against a Frank A. Richter, and forensic price gouging practices wherein pharmaceutical manufacturer and accountant Brad Sader. one of the top 10 securities class Valeant acquired pre-existing drugs, In re Valeant Pharms. Int’l, Inc. Sec. actions ever, demonstrates our resolve some of them life-saving medicines, and Litig., No. 3:15-cv-07658-MAS-LHG to vindicate the rights of defrauded then dramatically raised prices to boost (D.N.J.) short-term profitability. The complaint investors,” said Robbins Geller partner also alleged that Valeant secretly Darren J. Robbins. controlled a distribution network that engaged in questionable practices to The Firm devoted dozens of attorneys, forensic accountants, and staff to the
On the Record | Spring 2020 9 $1.025 Billion Recovery for ARCP Investors
n January 21, 2020, after five and Annuity Association of REITs, managed by a partnership that years of contentious litigation, America (“TIAA”). ARCP founder and CEO Schorsch and on the eve of trial, controlled and in which CFO Block ORobbins Geller obtained final approval The case was first filed on October was a partner. These transactions were of a record-breaking settlement in the 30, 2014. Plaintiffs alleged that allegedly structured such that related American Realty Capital Properties, Inc. beginning with ARCP’s 2012 financial companies owned and controlled by securities class action. The $1.025 statements, ARCP’s CEO, CFO, and Schorsch and Block’s partnership billion recovery is extraordinary other senior accounting and finance received work for which fees and in several respects. The settlement personnel began manipulating ARCP’s commissions were paid to them by represents the highest percentage pre- operating performance numbers – ARCP. All told, plaintiffs alleged trial recovery in a major securities class Adjusted Funds From Operations that Schorsch and Block enriched action settlement ever. The settlement (“AFFO”) – that ARCP had provided themselves through hundreds of also includes more than $200 million to investors in an effort to meet the millions of dollars in so-called “fees and paid by individual wrongdoers, market’s expectations and the AFFO commissions” paid to their partnership. including American Realty Capital guidance the company had provided Properties, Inc.’s (“ARCP” now known to the market. These misstatements Throughout the course of the litigation, as VEREIT) former Chief Executive allegedly enabled ARCP to complete defendants continuously leveled Officer, Nicholas Schorsch (and the an acquisition spree that transformed attacks on plaintiffs’ allegations and partnership he controls) and former the company from one with a market asked the court to dismiss the case at Chief Financial Officer Brian Block. capitalization of approximately $260 every opportunity. Robbins Geller’s The contributions to the settlement million to a $21 billion behemoth in team fought back against defendants’ are the largest payments ever made by a little more than two years. Plaintiffs attacks and won each battle – including individual wrongdoers in a securities also alleged that ARCP’s former CEO defeating defendants’ 12 motions for class action settlement, dwarfing the and CFO accomplished this incredible summary judgment. Robbins Geller’s next largest settlement contributions growth through a series of related-party team reviewed and analyzed over 12 by individuals of $30 million. The lead transactions in which ARCP acquired million pages of documents; obtained plaintiff was Teachers Insurance other real estate investment trusts, or class certification of nine different 10 rgrdlaw.com claims involving seven separate said Robbins Geller partner Debra J. and the representation of their client securities – common stock, preferred Wyman. “While there were several was zealous.” Because of the work he stock, and multiple bonds – after a full- large institutional investors that chose to did on this case, Robert M. Rothman day evidentiary hearing and contentious pursue individual actions and opt out of has been recognized by the New York objections by defendants; and took or the class, the percentage of damages we Law Journal as a New York Trailblazer. defended over 70 depositions, including were able to recover here is more than Jessica T. Shinnefield and Wyman 17 experts hired by defendants to testify twice what the opt out funds negotiated have also been recognized as Litigators on a variety of subjects, including in settling their individual actions. We of the Week by The AmLaw Litigation complicated REIT accounting obtained this unprecedented result Daily for their work on the case. and auditing issues and questions precisely because of our ingenuity, our concerning whether or not the market creativity, our ability and willingness to Robbins Geller attorneys responsible was fully informed of ARCP’s AFFO try cases, and, more than anything, our for this result include litigation team accounting practices. commitment to the class.” members Darren J. Robbins, Daniel S. Drosman, Robert M. Rothman, The $1.025 billion recovery was In approving the settlement, the court Jonah H. Goldstein, Debra J. reached in the midst of preparing the noted that the case presented “difficult” Wyman, Jessica T. Shinnefield, case for trial in January 2020. Overall, issues of proof concerning falsity Christopher Stewart, Ashley the Firm devoted over 100,000 hours and knowledge, and that the parties Price, and Jennifer N. Caringal; trial to the case and had made preparations presented “a tough adversarial fight” counsel Patrick Coughlin, Michael to move the 20-person trial team to at every juncture. Commenting on the J. Dowd, and Jason A. Forge; New York City for the 6 to 8 week trial. work done by Robbins Geller, the court and forensic accountants Andrew “This historic settlement is a direct stated: “My own observation is that Rudolph and Heather Jennette. reflection of the devotion of the team of plaintiffs’ representation is adequate lawyers and forensic accountants to this and that the role of lead counsel was In re American Realty Capital Properties, case, and the tenacity, inventiveness, fulfilled in an extremely fine fashion by Inc. Litig., No. 1:15-mc-00040-AKH and skill with which each individual [Robbins Geller]. At every juncture, (S.D.N.Y.). approached the obstacles to victory the representations made to me were defendants attempted to construct,” reliable, the arguments were cogent, On the Record | Spring 2020 11 First Solar Investors Obtain $350 Million Recovery on Eve of Trial
fter a long legal battle Lead plaintiffs allege that First A and on the day before Solar not only concealed these jury selection, Robbins Geller defects from shareholders, but Rudman & Dowd LLP secured also misrepresented the cost a $350 million settlement, which and scope of the defects and was preliminarily approved on reported false information March 2, 2020, for the investor on the company’s financial class in Smilovits v. First Solar, statements. Defendants denied Inc., No. 2:12-cv-00555-DGC, all of lead plaintiffs’ claims. pending in the United States District Court for the District The $350 million settlement of Arizona. The shareholder will resolve claims brought class was led by two U.K. on behalf of all persons who pension funds: Mineworkers’ purchased or otherwise Pension Scheme and British acquired First Solar shares Coal Staff Superannuation during the class period. The Scheme. settlement is subject to final approval by the United States First Solar, Inc. is one of the District Court for the District of world’s largest producers Arizona. of photovoltaic solar panel modules. The case alleges that Robbins Geller attorneys First Solar violated §§10(b) Daniel S. Drosman, and 20(a) of the Securities Luke O. Brooks, Jessica Exchange Act of 1934 and SEC T. Shinnefield, Darryl J. Rule 10b-5. Specifically, lead Alvarado, Christopher D. plaintiffs claim that during the Stewart, Hillary B. Stakem, class period (April 30, 2008 to J. Marco Janoski Gray and February 28, 2012), First Solar Ting H. Liu obtained this discovered a manufacturing result for investors. defect that caused its modules to suffer rapid power loss and a design defect that caused rapid power loss in hot climates.
12 rgrdlaw.com Record-Setting $5.5 Billion Settlement Approved in Visa/Mastercard Interchange Antitrust Case
n an order dated December 13, Patrick J. Coughlin, lead counsel professionalism despite the demands 2019, the Honorable Margo K. on the case, said: “The parties believe of the extreme perseverance that this Brodie of the United States District that the concerns expressed by the case has required, litigating on behalf ICourt for the Eastern District of New Court of Appeals in its 2016 opinion of a class of over 12 million for over York granted final approval of the have been fully addressed in this fourteen years, across a changing settlement reached by the parties in new settlement.” As with the earlier legal landscape, significant motion the action In re Payment Card Interchange settlement, this settlement is believed practice, and appeal and remand. Fee and Merchant Discount Antitrust to be the largest-ever antitrust class Class counsel’s pedigree and efforts Litigation, MDL 1720. The cash action settlement. alone speak to the quality of their settlement amount is approximately representation.” $5.5 billion. “We are pleased that the court found the terms of the settlement to Robbins Geller attorneys Patrick Defendants have contributed be fair, reasonable, and adequate,” J. Coughlin, David W. Mitchell, additional funds to the class settlement said Alexandra S. Bernay, one Alexandra S. Bernay, and fund that remains from the earlier of the lead counsel attorneys for the Carmen A. Medici, along with co- settlement in 2012. The district court class. The court praised the litigators, lead counsel, obtained this result for approval of that earlier settlement stating that class counsel “represent the class. in 2013 was vacated on appeal in some of the best plaintiff-side antitrust 2016. The court noted that class groups in the country.” Additionally, In re Payment Card Interchange Fee & counsel “has without question done a the court noted that class counsel Merchant Discount Antitrust Litig., No. tremendous job in litigating this case.” “have also demonstrated the utmost 1:05-md-01720-MKB-JO (E.D.N.Y. Dec. 13, 2019).
On the Record | Spring 2020 13 Executive Pay Roundup
s You Sow released their compensation for S&P 500 who believes that Say on Pay annual Most Overpaid CEOs rose 4% to $12.3 million, has slowed the increase in CEO Executives Report and the according to the latest figures compensation. She does not go into Awebinar presenting and discussing from the Conference Board. detail about the pay-performance it is available online.1 A particularly CEOs at the high end of that link. But she concludes with a telling interesting finding is that BlackRock group were paid more than $22 comment from David Swinford of voted against more pay packages of million, while those at the low compensation firm Pearl Meyer: CEOs who were paid less than $5 end were paid roughly $6 million. “Don’t confuse pay with what people million than they did for CEOs paid are worth. No human being is worth more than $20 million. But why do they make so $20 million, but many executives cost much? And why might one $20 million.” For CNN Business, Jeanne Sahadi CEO make millions more than wrote about “Why CEOs are Paid another? CalPERS Votes Against 1,195 So Much.”2 CEO Pay Plans She discusses peer groups and In 2018, the median total stock awards and cites one source Jim McRitchie reports:3
1. https://www.asyousow.org/report-page/the-100-most-overpaid-ceos-2020-webinar 2. https://www.cnn.com/2019/10/24/success/ceo-pay-packages/index.html 3. https://www.corpgov.net/2019/10/calpers-votes-against-pay-at-1195-firms/
14 rgrdlaw.com Equilar announced, in deeming it well within the business shareholder value but the partnership with CalPERS, the judgment rule. So the decision to required analysis goes far beyond release of the CalPERS P4P direct a challenge to Elon Musk’s the pay ratio. Scorecard in Equilar Insight, the pay package at Tesla is notable. leading executive compensation The ruling turned on Tesla’s 2. Proxy disclosure can be benchmarking software solution. compensation committee, which dramatically improved by the The release of the new scorecard the company conceded was not addition of a single graph. is an extension of the five- independent of Musk, according to 1. The graph is a scatterplot year realizable pay calculation Vice Chancellor Joseph R. Slights’ of relative pay against relative CalPERS and Equilar released opinion. Vice Chancellor Slights said performance showing the earlier this year. Said Simiso he would have dismissed the lawsuit regression trendline and Nzima, Investment Director & had the package been negotiated reporting the slope (“pay Head of Corporate Governance by truly independent directors leverage”), the correlation (“pay at CalPERS: and approved by a majority of alignment”) and the intercept shareholders who were unaffiliated (“the pay premium at industry We introduced our with Musk. proprietary five-year average performance”). quantitative pay for Non-U.S. Investors Object to 4 2. Unfortunately, few performance model in March U.S. CEO Pay: companies are willing to 2019. Today we introduce provide the graph and our CEO and Shareholder Pay deals for top company bosses in the United States face mounting institutional investors don’t ask Financial Outcomes Analysis for it. to enable us to compare the opposition from some of Europe’s financial experiences of the most influential investors, even as 3. Say on Pay voting can be used CEO to those of shareholders, their large American counterparts to assess the governance efforts of over a five-year period. continue to provide solid support for institutional investors including exorbitant executive remuneration the giant passive investors CalPERS, the largest US packages. (BlackRock, Vanguard and State pension fund which manages Street). more than $380 billion in assets, The investment arms of has already started implementing UBS, Axa, Legal & General, 1. Active investors can use their its new compensation framework. BNP Paribas along with APG, excess return to demonstrate In an effort to drive more Europe’s largest pension fund, the value of their stock selection accountability and improved voted against significantly and oversight. pay for performance alignment, more pay awards by S&P 500 CalPERS reports voting against companies in the 12 months 2. Passive investors can’t use 53% of compensation plans at to June 30, according to Proxy returns to demonstrate the portfolio companies during the Insight, the data provider. value of their oversight, but they (and rating services like 2019 proxy season. Additionally, Shareholder Value Advisors CalPERS posted its Executive Morningstar) can use their on Improving Pay Ratio proxy voting to demonstrate Compensation Analysis Disclosures Framework on its website to the value of their oversight. provide total transparency to its A webinar hosted by Stephen F. We’ll show a measure of portfolio companies regarding its O’Byrne of Shareholder Value Say on Pay voting quality pay for performance evaluation. Advisors revealed the meaningful and that measures whether material link between compensation Delaware Judge Says Tesla an investor’s SOP voting and shareholder value, the missing is informed by objective Board Must Face Trial over metric, and what the data show:5 Musk’s Mega-Pay Package measures of pay equity, fair 1. Average employee pay can to management and fair to Delaware courts have consistently provide great insight on the shareholders. been very reluctant to intervene in alignment of employee pay board decisions about CEO pay, with management pay and
4. https://amp-ft-com.cdn.ampproject.org/c/s/amp.ft.com/content/25ce08b4-fb7b-3515-bd5b-361d3eadda7e 5. https://www.theknowledgegroup.org/webcasts/pay-ratio-proxy-disclosure-and-say-on-pay/ 15 On the Record | Spring 2020 15 LITIGATION NEWS
Robbins Geller Defeats Motion to Dismiss in Wells Fargo Securities Case
n January 10, 2020, the customers – without their knowledge – for In largely denying defendants’ motion, the Honorable James Donato of the automobile insurance that the customers court stated that “Wells Fargo and Sloan’s United States District Court for did not want or need. This scheme failure to disclose the auto insurance Othe Northern District of California denied resulted in more than 800,000 Wells problems – specifically, the [collateral in part defendants’ motion to dismiss Fargo customers being defrauded by tens protection insurance] issue – when in Purple Mountain Trust v. Wells Fargo & of millions of dollars, more than 25,000 explicitly asked about the lay-of-the-land Company, a case alleging that defendants customers having their cars wrongfully outside of sales practices is actionable.” Wells Fargo and its former CEO Timothy repossessed, and Wells Fargo eventually Sloan violated the Securities Exchange paying $500 million in fines to government Robbins Geller attorneys Spencer A. Act of 1934. Construction Laborers regulators. As a result, Wells Fargo stock Burkholz, Scott H. Saham, Lucas F. Pension Trust for Southern traded at artificially inflated prices, with its Olts, Dennis J. Herman and Kevin S. California is serving as lead plaintiff in stock price reaching a high of more than Sciarani obtained this result for investors. the action. $59 per share during the class period. The Purple Mountain Trust v. Wells Fargo & public and investors were shocked when Company, No. 3:18-cv-03948, Order re The complaint alleges that defendants Wells Fargo’s insurance fraud was first Motion to Dismiss (N.D. Cal. Jan. 10, made materially false and misleading exposed by a New York Times article on July 2020). statements and failed to disclose that 27, 2017, causing an immediate drop in Wells Fargo had engaged in a decade- Wells Fargo’s stock price. long scheme to intentionally charge its
16 rgrdlaw.com Investors Prevail on Johnson & Johnson’s Motion to Dismiss Fraud Class Action n an order dated December 27, 2019, In its order, the court found that “Plaintiff either failed to adequately investigate the Ithe Honorable Freda L. Wolfson, Chief has sufficiently alleged facts suggesting . . . potential dangers of the Talc Products” Judge for the United States District Court that Defendants’ statements regarding the or “knowingly disseminated false and for the District of New Jersey, denied in safety and asbestos free nature of its Talc inaccurate statements as part of a long part defendants’ motion to dismiss in Hall Products were either false or materially standing fraudulent scheme.” v. Johnson & Johnson. misleading, at the time they were made.” The court also found certain statements Serving as lead counsel, Robbins Geller J&J is a multinational company that regarding J&J’s quality assurance to be attorneys Darren J. Robbins, Arthur develops, manufactures, and sells healthcare actionable. C. Leahy, Robert R. Henssler, Jr., products. The case charges J&J and certain Nathan R. Lindell, Elise J. Grace, of its executives with violations of the In addition, the court held that the “safety of Hillary B. Stakem, and Matthew J. Securities Exchange Act of 1934, alleging J&J’s self-professed flagship product clearly Balotta are litigating this case on behalf of that J&J and its executives misled investors falls within the Company’s core operations” plaintiff and the class. by making false and misleading statements and that plaintiff adequately alleged certain regarding the safety and purported J&J executives, “at minimum, . . . had Hall v. Johnson & Johnson, No. 3:18-cv- “asbestos free” nature of the company’s access to information which would have 01833-FLW-TJB, Opinion (D.N.J. Dec. Baby Powder and other talc-based products alerted them to the allegedly misleading 27, 2019). and J&J’s commitment to safety and quality, nature of their statements regarding resulting in J&J stock trading at artificially the safety of the products.” The court inflated prices. noted that, “[a]s alleged, Defendants Stamps.com Investors Overcome Motion to Dismiss in Securities Class Action n an order dated January 17, 2020, of Stamps.com stock was artificially Ithe Honorable Michael W. Fitzgerald inflated during the class period to more of the United States District Court than $275 per share. for the Central District of California denied defendants’ motion to dismiss In denying defendants’ motion to in Karinski v. Stamps.com, Inc., a securities dismiss, the court stated that the case accusing Stamps.com of scheming lead plaintiff “has sufficiently alleged against the United States Postal that [d]efendants made a material Service (“USPS”). Indiana Public misrepresentation by stating that Retirement System is serving as lead Stamps had a strong partnership with plaintiff in the action. USPS and that USPS fully approved Stamps’ use of the reseller program.” Stamps.com is a provider of Internet- The court likewise found that based mailing and shipping solutions in “[b]ecause [d]efendants touted [the the United States and Europe through company’s] strong relationship with its shipping relationship with the USPS. USPS and USPS’s approval of Stamps’ The USPS accounts for approximately business model, Stamps had a duty 87% of Stamps.com’s earnings. to disclose adverse information that cut against this positive information, The case alleges that Stamps.com including USPS’s opposition to Stamps’ and certain of its officers violated the reseller business practice and its efforts to Securities Exchange Act of 1934 by prevent such practice from continuing.” falsely touting the company’s purported strong financial results and relationship Robbins Geller attorneys Darren J. with the USPS without disclosing Robbins, Spencer A. Burkholz, Eric that the company’s financial results I. Niehaus, Steven W. Pepich, and depended on the manipulation of its Kevin S. Sciarani obtained this result “reseller” program with the USPS, for plaintiffs. and that, consequently, the company’s business was unsustainable and its Karinski v. Stamps.com, Inc., No. 2:19-cv- financial results were highly misleading. 01828, Order re: Defendants’ Motion to As a result of this information being Dismiss (C.D. Cal. Jan. 17, 2020). withheld from the market, the price
On the Record | Spring 2020 17 Robbins Geller Beats Back Motion to Dismiss in CBS Securities Action
n an order dated January 15, 2020, when The New York Times published Ithe Honorable Valerie Caproni of damaging details of a draft report from the United States District Court for the CBS’s investigation into Moonves and Southern District of New York denied cultural issues at CBS. in part defendants’ motion to dismiss in Samit v. CBS Corp., a case alleging In its order, the court found that defendants CBS and its former CEO “[a] reasonable investor could have Leslie Moonves violated the Securities understood Moonves’s statement [at an Exchange Act of 1934. Construction industry event hosted by Variety] to mean Laborers Pension Trust for that he did not have exposure to sexual Southern California is serving as lead misconduct allegations, thus providing plaintiff in the action. reassurance that Moonves, the one executive that the Company and analysts The complaint alleges defendants failed viewed as crucial to CBS’s continued to disclose that they were fostering success, would not be compromised by a hostile work environment marked the #MeToo Movement.” by a culture of sexual harassment, discrimination, intimidation‚ and The court also explained that “[t]he retaliation that exposed the company context of #MeToo . . . is pertinent to the inevitable loss of Moonves because it explains why Moonves and other key executives. Despite would have known that his statement directly participating in decades of was misleading and significant,” as harassment, misconduct‚ and assault, the movement “changed the risks to Moonves made materially false and a company of having a CEO with an misleading statements about the unsavory past.” Despite being “acutely impact of the #MeToo movement on aware of those risks and his own CBS, harassment at CBS‚ and his own personal exposure,” Moonves “tried to misconduct. As a result, CBS shares buy silence from potential accusers.” traded at artificially inflated prices, with Robbins Geller attorneys Samuel H. its stock price reaching a high of nearly Rudman, Spencer A. Burkholz, $70 per share during the class period. David A. Rosenfeld, Vincent M. Following a July 27, 2018 exposé in The Serra, and Juan Carlos Sanchez New Yorker, which revealed extensive obtained this result for investors. allegations of sexual misconduct at CBS and by Moonves, CBS’s stock price Samit v. CBS Corp., No. 1:18-cv-07796, dropped immediately, causing significant Opinion and Order (S.D.N.Y. Jan. 15, harm to investors. CBS’s stock price 2020). dropped further on December 4, 2018,
18 rgrdlaw.com Plaintiffs Obtain Class Certification in Tableau Software Securities Case
n January 16, 2020, the Honorable John knew that large technology companies on the company’s business and its business OG. Koeltl of the United States District with significant financial, technical, and outlook. When the truth about the effect of Court for the Southern District of New York marketing capabilities – including Amazon Tableau’s competition emerged, the price of certified a class of investors in Scheufele v. and Microsoft – had introduced, or were Tableau common stock plunged nearly 50%, Tableau Software, Inc. and appointed Robbins set to introduce, aggressively priced from $81.75 per share on February 4, 2016 to Geller as class counsel. Plumbers and software products that directly competed $41.33 per share on February 5, 2016. Pipefitters National Pension Fund was with Tableau’s products, causing Tableau’s appointed class representative. customers to delay (and later cancel) pending Robbins Geller attorneys David A. license orders. Nevertheless, during the class Rosenfeld, William J. Geddish, and Tableau is a company that sells software for period (February 5, 2016 – February 4, Christopher T. Gilroy obtained this result accessing and visualizing large, complex data 2016), in violation of the Securities Exchange for investors. sets. The case centers around statements Act of 1934, defendants’ repeatedly misled made by Tableau and certain of its executives investors about the true scope and extent of Scheufele v. Tableau Software, Inc., No. 1:17-cv- regarding the competition the company was Tableau’s competitive landscape, claiming 05753, Order (S.D.N.Y. Jan. 16, 2020). facing. The complaint alleges that, by no later competition was having little, if any, impact than the start of the class period, defendants Investors Defeat Motion to Dismiss in Toshiba Securities Case n an order dated January 28, 2020, Toshiba securities declined precipitously, Ithe Honorable Dean D. Pregerson causing significant harm to investors. of the United States District Court for the Central District of California denied In its order, the court found that Automotive defendant’s motion to dismiss in Stoyas Industries Pension Trust Fund sufficiently v. Toshiba Corp., a case alleging that alleged that it purchased unsponsored defendant Toshiba violated the Securities Toshiba American Depositary Shares Exchange Act of 1934 and Japan’s in a “domestic transaction” and that Financial Instruments and Exchange “[t]he allegations plausibly demonstrate Act. Automotive Industries Pension ‘some causal connection’ between Trust Fund is serving as lead plaintiff in [d]efendant’s conduct and the purchase or the action. sale of the ADRs at issue.” The court also concluded that, in light of its finding that The complaint alleges that over a period “[p]laintiffs have sufficiently alleged of at least six years, Toshiba deliberately Securities Exchange Act claims,” the and improperly overstated its pre- doctrines of international comity and tax profits by more than $2.6 billion forum non conveniens did not require and concealed at least $1.3 billion in dismissal of the claims under Japan’s impairment losses at its U.S. nuclear Financial Instruments and Exchange business, Westinghouse Electric Co. As Act. The ruling recognizes that U.S.- a result, Toshiba securities traded at based investors can bring claims under artificially inflated prices. Throughout the Securities Exchange Act of 1934 as a 2015, the truth about Toshiba’s improper result of purchases of unsponsored ADRs. accounting was revealed through a series of events, including the creation of an Robbins Geller attorneys Dennis J. independent investigation committee and Herman, Willow E. Radcliffe, Susan its subsequent report, the resignation of K. Alexander, and John H. George several top executives, restatements of obtained this result for investors. more than six years of reported financial results, and an admission that Toshiba’s Stoyas v. Toshiba Corp., No. 2:15-cv-04194, prior financial statements failed to disclose Order Denying Defendant’s Motion to impairment charges associated with the Dismiss the Second Amended Complaint write down of Westinghouse’s goodwill. (C.D. Cal. Jan. 28, 2020). Following these revelations, the price of
On the Record | Spring 2020 19 The SEC and the DOL Launch Regulatory Actions to Suppress Shareholder Voting and Independent Proxy Advice
n November 5, 2019, the will be watching it very closely and fiduciaries or other fund managers Securities and Exchange filing our own comments. violate their fiduciary obligation Commission issued its by voting for “political agenda” Oproposed rule changes on proxy The SEC’s proposed rules on reasons rather than for the financial proposals and proxy advisors. shareholder proposals and benefit of investors.1 None of them The proposal was widely praised proxy advisors have attracted an point to any specific examples or by corporate executives and unprecedented quality and number documented costs and all of those compensation consultants and of comments, including a petition claims have been conclusively widely criticized by investors. The with 18,000 signatures opposing the rebutted by the data. rulemaking is extremely complex, changes. It is particularly disturbing that with dozens of unanswered The comments in support of the questions posed for comment, and some of the comments claim that proposal mostly reiterate without proxy advisors have conflicts of yet it is on an unusually fast track, substantiation the claims that proxy with a final version expected as interest, for example because ISS advisors make too many errors performs consulting services for early as the spring. This is the most and that their clients “robo-vote” prominent and far-reaching issue the companies it covers, and yet without conducting independent the commenters do not disclose in corporate governance, and we analysis of the issues, or that pension
1. https://www.sec.gov/comments/s7-22-19/s72219-6738826-207680.pdf
20 rgrdlaw.com their far more significant conflicts, simply shields CEOs from especially true in cases, such as including that they are funded accountability to investors. investor proposals to strengthen by the Chamber of Commerce or Whatever problems plague the link between CEO pay and other groups formed by CEOs to corporate America today, too performance, where proxy hide their involvement. much accountability is not one advisors have historically of them, so I respectfully dissent. engaged in the careful, firm- The vote by the Commission specific analysis that such was on party lines, with both * * * proposals require. Democratic Commissioners voting against it. From the statement of Proxy advisors play an Tilting corporate Commissioner Robert J. Jackson, important role in striking the voting toward incumbent Jr.: right balance in allocating management in this way will power between corporate have consequences – including Today the Commission executives and investors. reducing the already-scant proposes rule changes that And it is, indeed, a balance, competition among proxy would limit public-company which is why I’ve supported advisors – that we could and investors’ ability to hold common-sense ideas like rules should have studied extensively corporate insiders accountable. ensuring that proxy advice is before making any other We haven’t examined our rules based on accurate facts. But changes in the balance of in this area for years, so updating under today’s proposal, the power between CEOs and them makes sense – and these SEC is interfering in decades- shareholders. But instead my issues have been thoughtfully long relationships between colleagues are also proposing debated for decades. But rather investors and their advisors changes to the shareholder than engage carefully with the in a way that will significantly proposal process that will evidence produced by those skew voting recommendations further insulate corporate debates, today’s proposal toward executives. That will be
Continued on page 45
On the Record | Spring 2020 21 22 rgrdlaw.com ESG and Sustainable Investing
A new push for environmental solutions are blooming. According activism from tech employees to Chartered Professional Accountants of Canada, “As Bill Weihl, who led sustainability creators, enablers, preservers and efforts at Facebook and Google, reporters of sustainable value, has founded a new organization, accountants can make their ClimateVoice, to help tech employees organizations’ adaptation efforts push executives to lobby on behalf of more effective.” Taken together, legislative efforts around climate. these shifts are leading finance teams to include what were As Barron’s noted, we have reached formerly called “nonfinancials” in 1 a tipping point on ESG. This is their daily jobs. no doubt in part due to what many perceive as abdication of responsibility Other recent highlights: by world governments. But it is also due to increasing recognition that Banks and Climate Crisis: Time environmental risk – and potential for Stakeholder Governance and Reinvention Dina Medland opportunity – are quantifiable 3 financial issues. So, for example, we writes see an article suggesting that climate Sustainable business models rely 2 change is an issue for the CFO: on the ability to transition. It is [C]utting greenhouse gas (GHG) estimated and well documented emissions leads to cost savings. If that without deep and sustained you cut emissions, you cut energy, cuts to greenhouse gas emissions, which is a massive organizational we are on course for a 2 degree cost – something CFOs pay close C increase around 2050. “This attention to. Third, because could mean an increase in the investors are pushing to make global population facing water climate-safe investments, they scarcity of nearly 400 million, and want climate risks to be integrated the cost of annual flood damage within corporate financial losses from rising sea levels of disclosures. Finally, the business more than $11tn” says the report. opportunities for climate change The cost of doing nothing cannot be quantified, or imagined.
1. https://www.barrons.com/articles/esg-investing-hits-the-mainstream-51580245628 2. https://hbr.org/2020/01/your-companys-next-leader-on-climate-is-the-cfo 3. https://www.dinamedland.me/board-talk/x3e2je0k6larcia9n6pddijcd0l0pn
On the Record | Spring 2020 23 ESG and Sustainable Investing (continued from page 23)
Or, as Henri de Castries, the More on ESG: study was conducted by NMG then-CEO and chairman of AXA, Consulting. one of the world’s largest insurers, Fashion Companies Reach said in 2015 and I reported: “A 2 Landmark Sustainability Accord ESG considerations gain 6 degree C world might be insurable. Ahead of G7 Summit. Fashion acceptance is second only to the fossil fuel/ A 4 degree C world certainly would Results show investor not be.” automotive industries in impact on climate change, so this is a significant predisposition towards ESG State Street Tells Companies ESG announcement. investing in APAC is rising rapidly, Moves Are No Longer Optional, but investment adoption and from Bloomberg4 Investors Turn Up the Heat application methods differ across on Companies over Climate the region. Globally, ESG is now State Street Corp. said three Change.7 A group of 515 investors, a central consideration for asset out of four companies haven’t including CalPERS and Allianz, urged owners, with a large majority made meaningful progress policymakers to act with the “utmost building their capabilities in this on environmental, social and urgency” to comply with the goals area. The study shows that two- governance issues, and the asset of the 2015 Paris climate agreement, thirds (67 percent) of APAC manager is putting them on notice. which seeks to limit global warming. respondents now consider ESG an important component within State Street Global Advisors UC to dump fossil fuels holdings the investment process. Across is prepared to take voting action in pension and endowment APAC, 71 percent of asset owners 8 against board members at funds worth $83 billion. The are investing to increase their companies in the major stock- decision followed a faculty vote across ESG knowledge and expand their market indexes that have been the 10-campus system to demand investment capabilities in this area. “consistently underperforming” divestment of the endowment. peers in the asset manager’s ESG Early ESG adopters are confident performance scoring system. New Illinois Law Requires of higher returns That’s according to a letter released Corporations to Report Diversity Tuesday by Cyrus Taraporevala, on Corporate Boards.9 Illinois As ESG considerations gain chief executive officer of the unit follows California, whose law requiring acceptance, there is a high degree that oversees $2.5 trillion in assets. diversity on boards is now being of consensus on the risk benefits, challenged. but differences of opinion on the AstraZeneca commits to being impact on returns. ESG adopters carbon negative by 20305 Asia-Pacific investors more open in Australia and New Zealand to ESG investing10 (ANZ) in particular, no longer The company also said that it is pledging accept that ESG investing must to engage its suppliers to reduce their ESG consideration is gaining mean accepting lower rates of direct emissions through to 2030 and more acceptance from investors return. An impressive 94 percent identify carbon removal options that across the Asia-Pacific (APAC) of ANZ respondents believe that will lead to more carbon dioxide (CO2) region, according to the APAC ESG investments will in fact removed from the atmosphere than results released by Franklin enhance returns. While ANZ leads added to it, recognizing that the total Templeton of a comprehensive in this belief, other Asian countries emissions from its value chain partners global study on ESG adoption, are not far behind with 80 percent are significantly larger than its own implementation and development holding this view across the rest of direct operations. across institutional and wholesale the region. asset owners globally. The
4. https://www.bloomberg.com/news/articles/2020-01-28/state-street-tells-companies-esg-moves-are-no-longer-optional 5. https://pharmaphorum.com/news/astrazeneca-commits-to-being-carbon-negative-by-2030 6. https://fortune-com.cdn.ampproject.org/c/s/fortune.com/2019/08/23/fashion-companies-reach-sustainable-fashion-accord-g7-summit/amp/ 7. https://www.cnn.com/2019/09/18/investing/climate-change-investors/index.html 8. https://www.sandiegouniontribune.com/news/environment/story/2019-09-17/uc-to-dump-fossil-fuels-holdings-in-pension-and-endowment-funds-worth-83-billion 9. https://www.jacksonlewis.com/publication/new-illinois-law-requires-corporations-report-diversity-corporate-boards 10. https://esg.theasset.com/ESG/39228/asia-pacific-investors-more-open-to-esg-investing-
24 rgrdlaw.com ‘Governance’ factors key, Shareholders Urge JPMorgan Bankruptcy Filings Reveal ‘Environmental’ concerns are Chase, Wells Fargo to Act on Previously Concealed Climate rising Climate11 Change Denial Expenditures
The study found that the A coalition of investors – Bankruptcy filings have revealed that, three components of ESG Walden Asset Management, as a company begged for corporate investing (Environment, Social, Presbyterian Church USA, welfare, it spent outrageous amounts on and Governance) have become and First Affirmative Financial CEO pay and climate change denial. interdependent as asset owners Network – led by shareholder Perhaps if it had spent money on globally now view them as linked. advocate As You Sow recently filed sustainable strategic initiatives instead Overall, European asset owners climate-focused resolutions with a of fake science that fools no one and on focus on a broader set of ESG large segment of the U.S. banking overpaying insiders, it might still be a issues, reflecting the region’s industry, including JPMorgan viable business. longer track record on responsible Chase, Wells Fargo, Bank of investing, while APAC and North America, Goldman Sachs, and As his coal mining company American ESG adopters tend to Morgan Stanley. hurtled into bankruptcy, Robert E. have a narrower focus. However, Murray, the former chief executive, in APAC, of the two prioritized Investor concern is growing paid himself $14 million, handed criteria “environment” and regarding banks’ role in his successor a $4 million bonus “governance”, shifts in priority contributing to the climate crisis and earmarked nearly $1 million over time has seen “E” becoming with their lending portfolios. for casting doubt on man-made more important. Seventy Investors are asking these banks climate change, new court filings percent of respondents consider – some of the largest funders of show. environmental factors as their first fossil fuels – to immediately take or second priority among the three tangible steps to measure, disclose, ESG is still very much a nascent and 12 factors. and reduce the greenhouse gas evolving discipline as we see here, emissions associated with their and susceptible to greenwashing by fossil fuel lending. corporations and investment firms
11. https://www.valuewalk.com/2019/11/jpmorgan-chase-wells-fargo-climate-change/ 12. https://www.theguardian.com/business/2019/dec/22/ftse-leaves-coal-and-oil-firms-and-g4s-on-ethical-investment-list
On the Record | Spring 2020 25 Recovering Assets Reforming Business Restoring Confidence
www.rgrdlaw.com Robbins Geller Rudman & Dowd LLP is a leading law firm that has recovered billions of dollars for defrauded investors in global securities litigation. With 200 lawyers in 9 offices, Robbins Geller consistently outperforms other law firms by attaining greater investor recoveries in more resolved cases year after year, including many of the largest securities class action recoveries in history. Beyond the Firm’s unmatched results, Robbins Geller also specializes in implementing meaningful corporate governance reforms, helping to improve the financial markets for investors worldwide. Robbins Geller attorneys are consistently recognized by courts, professional organizations and the media as leading lawyers in the industry. Please visit rgrdlaw.com for more information. ESG and Sustainable Investing (continued from page 25) that claim to be ESG-sensitive but essential for returns, both present Investors agree that a multi- whose policies are not in line with value and long-term, as the subsequent stakeholder commitment sustainability priorities. findings show. is essential. 84% of investor respondents agree that maximizing Some of the world’s biggest And we are going to keep saying shareholder returns can no longer be fossil fuel companies, including this: ESG is simply an adjustment the primary goal of the corporation, Russia’s state oil giant Rosneft, to risk assessment necessary because and that business leaders must commit have been added to the London traditional financial measures and to balancing the needs of shareholders Stock Exchange’s “ethical” reporting requirements are outdated. with those of employees, local investment lists. Underscoring our point that the communities, customers, partners, and inadequacy of traditional financial suppliers. The FTSE4Good indices, run disclosures is the reason for the interest by the London Stock Exchange in ESG/sustainability is the finding that Overemphasizing shareholder Group’s FTSE Russell subsidiary, three of the big four accounting firms returns can lead to multi- are marketed to investors interested fell short in audit quality.14 Three of stakeholder activism. 71% said in environmental, social and the big four consulting firms failed to that companies will make themselves governance (ESG) issues. do enough work to support their audit responsible for employee or consumer However, the LSE has refused opinions on every important aspect of activism if they overemphasize to remove big polluting companies at least one client’s financial reports. shareholder returns at the expense of other stakeholders. Three-quarters say or the security company G4S The corporate regulator’s latest despite allegations of systematic that companies with employee activism audit inspection reports revealed are less attractive investments. labour abuses across the world. that EY failed on all fronts for two Edelman’s 2019 Trust Barometer13 clients, while Deloitte and KPMG Investors are investing more shows a strong swing toward ESG and did so for one client each. in ESG-excelling companies. sustainability from investors. 61% have increased their investment The conclusions of the allocation to companies that excel It cannot be emphasized too strongly Edelman Trust Barometer: when it comes to ESG factors, and that sustainability by its very definition more than half of investors believe that is not a trade-off for returns; it is ESG practices positively impact trust.
13. https://www.edelman.com/sites/g/files/aatuss191/files/2019-12/2019%20Edelman%20Trust%20Barometer%20Special%20Report%20-%20Investor%20Trust.pdf 14. https://www.afr.com/companies/professional-services/0ey-deloitte-kpmg-fall-short-in-audit-quality-20191215-p53k2l
28 rgrdlaw.com Illinois Treasurer Takes the Lead sustainable investing aligns with G-7 meeting in Biarritz, France. on ESG our core fiduciary responsibilities. The companies have Illinois state treasurer Michael W. That’s why we at the Treasurer’s committed to act more assertively Frerichs is one of the most respected Office are raising the bar. We endeavor to address social inequalities in public pension fund fiduciaries in the to take governmental investment society and their workplaces. country. From his thoughtful comments standards to a new level, one A three-year program, on ESG as an essential element in that recognizes that sustainable including a global inclusive growth minimizing investment risk:15 environmental, social, human accelerator and fund, will be capital, business model, and supported by robust measurement Making Prudent Choices. Investing governance practices are strongly and analysis led by the OECD. means making choices. For the related to safer, more innovative, B4IG will focus primarily on G-7 investment officers at the Illinois better-performing companies. countries for now. State Treasurer’s Office, it means choosing investments that are risk- Why it matters. As a large, The organizations will work appropriate, high-performing, and long-term investor to funds and with the OECD across three key meet or exceed the benchmark. corporations around the nation, areas: securing basic human rights, It means making investments we believe we can help raise building inclusive workplaces, that reflect our commitment the bar for the entire industry. and strengthening inclusion in to sustainability, inclusion, and That’s why we’re promoting an company ecosystems. This includes sound corporate governance, investment philosophy that fuses impact investing, active ownership, given that these factors boost our traditional investment objectives and environmental, social, and investment returns and strengthen – optimal risk-adjusted returns, governance principles. A focus will the economic well-being of Illinois low expenses, and diversification be on experimenting, replicating, citizens and institutions. – with a focus on sustainability, or scaling-up inclusive business corporate responsibility, and risk solutions from B4IG companies Sustainability Factors. We at management. By doing so, not to deliver social impact and drive the Treasurer’s Office know that only do we position ourselves to social progress. to fulfill our fiduciary duty and protect shareholder value and maximize returns, we need to focus maximize returns, we can help Participating global businesses on more than just short-term gains foster a business culture that is with a combined market worth of and traditional indicators. Additional more attentive to structural trends, more than $1 trillion and more risk and value-added factors that societal impacts, and long-term than 3 million employees have may have a material and relevant growth. And that benefits all of us pledged their commitment. Nigel financial impact on the safety and in Illinois and beyond. Wilson, CEO of Legal & General, performance of our investments one of the participating firms, said need to be integrated into the Impact Investing in a statement that “delivering decision-making process. These shareholder value and furthering material sustainability factors include On August 22, a coalition of global social progress are not mutually (1) environmental; (2) social capital; leaders and businesses said that they are exclusive. It is the opposite – for (3) human capital; (4) business model launching a new initiative aimed at companies to prosper in the long and innovation; and (5) leadership aligning business interests that term, it is imperative that they be and governance factors. can also deliver social impact. socially as well as economically useful.” Research agrees. Studies clearly The 35 leading international demonstrate that companies with companies joining the Business for sustainable policies are lower risk Inclusive Growth initiative will work investments and frequently provide with the Organization for Economic collateral benefits to investors. So not Cooperation and Development, only is sustainable investing good whose chairman – French President for the community, it’s good for Emmanuel Macron – is expected to business. To put it another way, promote the initiative at the upcoming
15. https://illinoistreasurer.gov/Office_of_the_Treasurer/Raising_the_Bar
On the Record | Spring 2020 29 Corporate Governance Roundup (continued from page 7)
The Saga of WeWork Continues self-dealing, mismanagement, world’s consciousness.” If they did, it and bizarre behavior. Within 33 was not the way they intended. The office space company WeWork days the offering was scuttled, (now known as We) tried to go public WeWork’s valuation plummeted Exposé of TurboTax Lobbying to at a valuation resoundingly rejected 70% or more, and Neumann, who Thwart Free Tax Filing by the market because it was not believed he would become the supported by the overly optimistic world’s first trillionaire, was ousted ProPublica published a stunning valuation numbers and because of the as CEO. What was supposed to exposé of the “sophisticated, outrageous self-dealing of WeWork’s be Neumann’s coronation as sometimes covert war to prevent the co-founder and CEO, Adam a visionary became one of the government” from making tax filing Neumann, and the fact that he wanted most catastrophically bungled simple and free to most Americans.5 his stock to have twenty times the attempted debuts in business voting power of the stock sold to public history. Proxy Access Up 10,000% in Five shareholders. With the valuation Years drastically reduced, the board, The offering price kept dropping and including major investor SoftBank’s the governance conflicts kept getting New York City Comptroller Scott Masayoshi Son, pushed out Neumann cleaned up, but there was no way, Stringer has made remarkable with a $1.7 billion departure package, given Neumann’s control, for the progress on one of his top priorities: including $187 million for consulting. board to remove him. After a series proxy access. It has been adopted by of leaks to the press about their loss of 71% of S&P 500 firms, in significant WeWork wanted to be seen as a gig confidence, he resigned as CEO, but part due to Stringer’s initiatives on economy disrupter like Airbnb, eBay, remains on as Chairman, with no clear behalf of the city’s pension funds. or Uber. But its IPO was one stumble statement about what that means in after another. First, the original terms of his ongoing involvement with CII Asks Delaware for Limits on offering documents were criticized the company. Multi-Class Voting Stock for wildly optimistic valuations. Business Insider called the $47/share Fortune Magazine noted:3 The Council of Institutional Investors offering price “stratospheric.”2 But wrote to the Delaware State Bar just as important, the governance If anything good has come Association urging limits to a one- provisions were outrageous. Not only from the disastrous WeWork share, one-vote standard.6 was Neumann going to maintain IPO controversy that has been control by 20-to-1 super-voting raging since its S-1 filing in mid- CII members approved a shares, but should he die or be unable August and ended yesterday policy in 2016 suggesting that to continue as CEO, his wife would with co-founder and CEO Adam while companies should go determine who would succeed him. Neumann stepping down,4 it is this: public with one-share, one-vote, Furthermore, there were rampant the investing public looked closely those that choose to IPO with conflicts of interest. Neumann owned at serious corporate governance a multi-class voting structure four buildings that leased space to the lapses – not just the company’s should sunset those structures company, and he personally owned financials – and deemed them too “over a reasonably limited the trademark to the “We” name, big a risk to invest at lofty private period.” In recognition, both which he was leasing to the company. valuations. of evolving market practice and academic research suggesting Business Insider wrote: The offering document brashly stated, that multi-class structures “We are a community company become problematic five to nine A steady stream of rapid-fire committed to maximum global years after IPO, we request that headlines detailed Neumann’s impact. Our mission is to elevate the Delaware require a sunset of
2. https://www.businessinsider.com/weworks-nightmare-ipo 3. https://fortune.com/2019/09/25/wework-adam-neumann-we-co-corporate-governance-investors/ 4. https://fortune.com/2019/09/25/the-remarkable-rise-and-epic-fall-of-weworks-charismatic-controversial-founder-adam-neumann/ 5. https://www.propublica.org/article/inside-turbotax-20-year-fight-to-stop-americans-from-filing-their-taxes-for-free 6. https://corpgov.law.harvard.edu/2019/09/24/letter-to-delaware-state-bar-association-limiting-multi-class-voting-structures/
30 rgrdlaw.com seven years or less. favor an analysis conducted at the position of a potential vote against company level. the election of a non-independent As a further compromise, chair solely based on the principle we suggest that the Council Director Overboarding: that the board chair should be consider permitting (but not Investors and non-investors independent. Most investor and requiring) a mechanism to allow diverged on the question non-investor respondents, 89% shareholders, with approval by of measurement of director and 70%, respectively, indicated each class voting separately on overboarding. A plurality of that they would apply the same a one-share, one-vote basis, to investor respondents (42%) approach in European markets extend the multi-class structure indicated four public-company where companies are more likely by terms of seven years or less. boards as the appropriate to combine the roles of CEO This accommodation provides maximum limit for non-executive and Chair as in markets where an appropriate accountability directors. A plurality of investor separating the roles is the norm. moment. It also offers respondents (45%) also responded shareholders an opportunity that two total board seats is an Climate Change Risk to reassess any potential appropriate maximum limit for Oversight: 60% of investor advantages of continued control CEOs (i.e., the CEO’s “home” respondents supported the idea by holders of super-voting board plus one other board). that all companies should be shares for a reasonable period A plurality of non-investors assessing and disclosing climate- going forward. While such an responded that a general board related risks and taking actions extension mechanism has not seat limit should not be applied to mitigate such risks where been deemed necessary by to either non-executives (39%) possible, while 35% of investor the companies that have gone or CEOs (36%), and that each respondents indicated that public with multi-class sunsets board should consider what is climate disclosure and action since 2004, we believe it should appropriate and act accordingly. may depend on company-specific satisfy market participants who factors, including the business believe there should be a choice, Board Chair Independence: model, industry, and location of without saddling markets with Concerning the U.S. market, operations. Only 5% of investors perpetual or long-lasting multi- survey participants were asked to indicated that the possible risks class structures with negative identify factors that suggest the related to climate change are too repercussions years into the need for an independent chair uncertain to incorporate into a future. in the context of a shareholder company-specific risk assessment proposal. Investor respondents model. Results of the 2019 ISS Survey on cited poor responsiveness to Investor Priorities shareholder concerns as the most commonly chosen factor Board Gender Diversity: that strongly suggested the need Majorities of both investors (61%) for an independent board chair. and non-investors (55%) agreed Additional factors included with the view that board gender governance practices that weaken diversity is an essential attribute or reduce board accountability of effective board governance to shareholders (such as a regardless of the company or its classified board, plurality vote market. Approximately 27% of standard, lack of ability to call investors tended to favor a market- special meetings, and lack of a by-market approach to reviewing proxy access right). Concerning board gender diversity, while European markets, 62% of 24% of non-investors tended to investors supported the policy
On the Record | Spring 2020 31 AWARDS & RECOGNITION
32 rgrdlaw.com Benchmark Litigation Lauds Robbins Geller as “One of the Country’s Best- Known Plaintiff Shops”
enchmark Litigation has a Local Litigation Star for recognized Robbins the seventh time; Samuel H. Geller as one of the Top Rudman was named a Local BTen Plaintiffs Firms in America Litigation Star for the eighth and awarded the Firm with consecutive year and a National several Tier 1 rankings for Practice Area Star for the second 2020, including in the categories consecutive year; Spencer A. of Plaintiff and Securities in Burkholz was named a Top California, and Tier 1 in San 100 Trial Lawyer for the third Diego. The Firm was also ranked year in a row, a Local Litigation highly nationally and in New Star for the fifth time, and a York. National Practice Area Star for the first time; Luke O. Brooks In researching Robbins Geller’s was named a Local Litigation track record, Benchmark spoke Star for the third time; Danielle with former opponents and peers S. Myers was named a Future of the Firm. The publication Star for the second consecutive reported that Robbins Geller has year; Randall J. Baron was the “guts to take the good cases to named a National Practice Area trial, and by the time it goes, this Star and a Local Litigation Star firm has made a true investment for the second time; David A. and puts everything on the line.” Rosenfeld was named a Future Additionally, Benchmark called the Star for the fifth consecutive Firm “relentless,” noting that the year; Jason A. Forge was “lawyers really shine.” As a top named a Local Litigation Star plaintiffs firm, the publication for the first time; Lucas F. also commended Robbins Geller Olts was named a Future Star for “excellent work, top-notch for the third year in a row; and communications, responsiveness, Daniel J. Pfefferbaum was knowledge and absolute best-in- named a Future Star for the third class legal services.” consecutive year. Several of the Firm’s attorneys were also honored for their impeccable track records. Darren J. Robbins was named
On the Record | Spring 2020 33 The AmLaw Litigation Daily Names Robbins Geller “The Real Winner” Behind the Walmart Bribery Scandal Settlement
he AmLaw Litigation Daily did it more quickly,” the publication Even though Robbins Geller “had to lauded Robbins Geller for observed. build its case with less information than its efforts in beating the feds the feds,” and despite the government Tto a $160 million settlement in City of The case, which The AmLaw Litigation having “far more leverage to exact Pontiac General Employees’ Retirement System Daily called a good example of efficacy settlement concessions,” the Firm v. Wal-Mart Stores, Inc. and referred to for “those who might question the value and its litigation team succeeded in the Firm as “the real winner” between of a private right of action in securities obtaining a “generous” settlement Walmart, the Justice Department, and litigation,” arose from allegations that will provide “at least 50%” of the SEC. published by The New York Times in damages to shareholders. “It was an article released on April 21, 2012 Walmart’s first-ever securities class “Because while government officials describing an alleged bribery scheme action settlement, as well as the largest in press releases were busy patting that occurred in Mexico. confirmed settlement ever obtained in a themselves on the back (‘The single case against Walmart – a record Department of Justice will continue to “In December, Robbins Geller litigators led by Jason A. Forge that still stands after the SEC and DOJ aggressively investigate and prosecute cut their deals,” stated the article. foreign corruption,’; ‘Through our hammered out a $160 million deal efforts, we delved through layers of with Walmart . . . for covering up “The DOJ and SEC might take a page transactions and uncovered the bribery suspected overseas corruption in from [Robbins Geller’s] playbook.” of foreign officials,’ and ‘The FBI will Mexico,” said the article. “Six months hold corporations responsible when later, the SEC on June 20 announced Along with Forge, Robbins Geller they turn a blind eye to corruption’), that Walmart would pay $144 million attorneys Scott H. Saham, Laura they neglected to mention one thing: to settle charges of violating the Foreign M. Andracchio and Michael Robbins Geller lawyers extracted a Corrupt Practices Act, while the DOJ Albert achieved this result on behalf bigger settlement from Walmart than settled FCPA criminal charges for $138 of the City of Pontiac General either the DOJ or SEC for the same million. The federal cases also covered Employees’ Retirement System. underlying misconduct, and they alleged wrongdoing in India, Brazil and China.”
34 rgrdlaw.com TRUSTEE SPOTLIGHT: GRACIE FLORES
WCA, the oldest and largest multicultural women’s organization in the world, recently recognized Gracie Flores, Pension Plan Administrator of Corpus Christi Firefighters’ Retirement System (CCFRS), for the many accomplishments and Ycontributions that she has made throughout her career. Mrs. Flores and her fellow nominees were honored at the 40th Y Women in Careers Award Banquet held on March 5, 2020, at the Congressional Solomon P. Ortiz International Center in Corpus Christi, Texas.
For more than 20 years, Mrs. Flores has served as the Plan Administrator for CCFRS. Prior to working with CCFRS, she was a Trust Officer with the Financial Management Group at Frost National Bank. Additionally, Mrs. Flores was appointed by Governor Rick Perry to serve on the Texas Emergency Services Retirement System Board where she served for 13 years. Mrs. Flores holds a Bachelor's Degree in Business Administration from Texas A&M Corpus Christi, formerly Corpus Christi State University, and holds a designation of Chartered Pension Trustee with the Society of Pension Professionals in Texas. She also serves on the Legislative Committee of the Texas Local Fire Fighters Retirement Act (TLFFRA) and is an active member of the Texas Public Employee Retirement Systems (TEXPERS). Mrs. Flores also serves as the Treasurer for the Catholic Daughters Court of St. Joseph in Corpus Christi, Texas.
For 40 years, YWCA Corpus Christi has honored Coastal Bend women’s professional accomplishments by inducting them into a hall of fame. Mrs. Flores and her fellow nominees will join the ranks of 291 previous hall of fame inductees. Congratulations to Mrs. Flores!
Something to Look Forward To...
ValueEdge Advisors’ 2020 Public Funds forum
Montage Palmetto Bluff Bluffton, South Carolina September 8-10, 2020
For more information and to register, visit www.publicfundsforum.com or contact Lisa Gorjestani at +1 310 476-8108 or [email protected].
On the Record | Spring 2020 35 From left to right: Debra Wyman and Jessica Shinnefield Litigators of the Week: Robbins Geller Duo Seals $1B Settlement “The bottom line is: if we can take on what we took on, and achieve the result we achieved, we can do anything.”
By Jenna Greene The Litigation Daily Excerpted and reprinted with permission from The AmLaw Litigation Daily featured on January 24, 2020.
ur Litigators of the Week are TIAA is one of the most respected to the market. These misstatements Robbins Geller Rudman financial institutions in the country were alleged to have enabled ARCP & Dowd partners Debra and has approximately one trillion to complete an acquisition spree that OWyman and Jessica Shinnefield, who dollars under management. TIAA transformed the company from one just won final approval of an eye- spearheaded this litigation in light of with a market capitalization of $260 popping $1.025 billion settlement the egregious misconduct, including million to a $21 billion behemoth— in a securities litigation class action the defendants’ significant alleged in a little more than two years. against real estate investment self-dealing and accounting fraud. trust VEREIT, formerly known as Plaintiffs also alleged that ARCP’s American Realty Capital Properties Plaintiffs alleged that beginning former CEO and CFO accomplished [(“ARCP”)]. with the company’s 2012 financial this incredible growth through a statements, ARCP’s CEO, CFO and series of related party transactions in Wyman and Shinnefield discussed other senior accounting and finance which ARCP acquired other REITS the case with Lit Daily. personnel had manipulated the managed by a partnership that AFFO calculations that ARCP was ARCP founder Nicholas S. Schorsch Who is your client and why did providing to the markets in an effort controlled, and in which CFO Brian they bring this suit? to meet the operating performance Block was a partner. Transactions Debra Wyman: TIAA is the client. numbers the company had provided were allegedly structured such
36 rgrdlaw.com that related companies owned and Patrick Coughlin, Michael Dowd team and prepared the case for trial. controlled by Schorsch and Block’s and Jason Forge. And the litigation partnership received work for which team assembled – Dan Drosman, Erin Boardman heads up the fees and commissions were paid to Robert Rothman, Jonah Goldstein, litigation team in the case arising out them by ARCP. Christopher Stewart, Ashley Price of the Grupo Televisa scandal, where and Jennifer Caringal – in addition to the court appointed our firm to serve All told, plaintiffs alleged that Jessica and I – fought tooth and nail as sole lead counsel. And our key role Schorsch and Block enriched against defendants’ attacks. in the effort to address the nationwide themselves through the payment of opioid scandal is being driven by hundreds of millions of dollars in so- Judge Hellerstein complimented partner Aelish Baig, who works out called “fees and commissions” paid to our advocacy in approving the class of our San Francisco office. their partnership. settlement, stating: “The role of lead counsel was fulfilled in an extremely We did not approach any litigation In court papers, you wrote that fine fashion by Ms. Wyman and her decision differently than any other “Defendants were represented colleagues. At every juncture, the lawyer. That is not to say that we were by a host of the finest law representations made to me were not mindful of how we are perceived firms in the City of New York, reliable, the arguments were cogent, by defendants’ counsel and the court. and they pressed every issue and the representation of their client Let’s just say, the practice of law may imaginable.” Tell us a bit about was zealous.” still be largely dominated by men, who was opposing counsel and but we have come a long way since the scope of the five-year fight. Additionally, we were also incredibly Sandra Day O’Connor was offered a fortunate to have on staff two of the job by a large defense firm as a legal Debra Wyman: ARCP, Grant country’s finest forensic accountants secretary even though she graduated Thornton, Schorsch and Block who provided invaluable skill and at the top of her class from Stanford were represented by premier expertise in helping us unravel the Law School. members of the defense bar. ARCP complex and convoluted GAAP and was represented by Milbank, who non-GAAP accounting issues here. In this case, not only were the lead coordinated the defense side, which We would not have been able to lawyers for both the lead plaintiff also included Sidley Austin; Paul build the evidentiary record we did and ARCP women, so too were the Weiss; Weil Gotshal; Kirkland & without them. senior legal officers for both the lead Ellis; and Kellogg Hansen among defendant (ARCP) and lead plaintiff others. There aren’t many women on (TIAA). the plaintiffs or defense side Defendants vigorously opposed first-chairing major securities In the end, credibility with the court plaintiffs’ claims and fought to have cases like this. How did the and opposing counsel is key. We them dismissed at every opportunity. opportunity arise here? Do prefer to be the most knowledgeable They left no stone unturned and you think as women you might people in the room about the law presented a skilled and thorough approach certain situations and the facts. Having respect for presentation of their clients’ differently? and showing civility toward your arguments, conceding no issues along opponents matters. However, the way. Debra Wyman: I can’t speak to what kindness and courtesy should not be happens in other law firms, but at mistaken for weakness. Who were the other members of Robbins Geller, case assignments your team and what individual are made strictly on merit, and so we Jessica Shinnefield: The only thing I strengths did they bring to the have a number of trial teams with key would add here is that not only were representation? Did you also roles filled by the dozens of women the lead attorneys on this case female, work with co-counsel? partners and senior associates at the two of the main associates on this firm. case from start to finish were female Debra Wyman: Robbins Geller as well. And I hope that for them, to assembled a tremendous team to For example, our Trump University see two attorneys who look like them, litigate this case, including skilled trial team included partner Rachel be entrusted by our firm with a case and experienced trial lawyers Jensen, who headed up the litigation of this magnitude and to achieve the
On the Record | Spring 2020 37 Litigators of the Week (continued from page 37) result our team achieved, empowers of maximum recoverable damages historic result. them, and gives them the confidence and almost 4 times the amount that to know that they can run a case like would have been recoverable had we Our team, including Debra, Rob this too someday. limited the case to the time period Rothman and me, from the outset focused on by the government, is were firmly committed to this case. Funds including BlackRock, pretty exceptional, and represents a Robbins Geller spent 100,000 hours PIMCO, Vanguard and Atlas percentage of damages that has been on this case over the last five years. opted out of the class. How did achieved only once before in a major And as the case progressed, many of their non-participation affect PSLRA class action—Household our partners and associates joined us. your strategy? How did the Finance. By the time we were ready to try this recovery of the opt-out plaintiffs case in the fourth quarter of 2019, compare to your settlement? Household was a case prosecuted by our trial team consisted of more than our partners Mike Dowd, Spence 10 attorneys. We did not do this with Debra Wyman: From the outset of the Burkholz, Dan Drosman, Luke teams of lawyers from other law firms case, we were focused on maximizing Brooks and Maureen Mueller who or co-lead counsel. the net recovery for TIAA and the settled that case for $1.575 billion in other class members. We recognize 2016. The Household case recovered The strength of our team gave us the right of investors to remain a higher percentage of maximum the confidence to push this case to in the class or pursue their rights recoverable damages, but there, trial–because we believed we would individually. Sometimes it makes they tried the case and won, and prevail. But when, after more than sense for a putative class member to then, after an appeal, had to prepare four years of difficult negotiations bring an individual claim in order to to try it a second time. In fact, our and hard-fought litigation against a optimize that investor’s recovery. firm settled that case on the day the dozen of the country’s most capable Other times it does not. second trial was set to begin. So yes, law firms, defendants finally placed more than $1 billion on the table, it This time it did not–class members the percentage of damages recovered in this case is extraordinary. was readily apparent that discretion did much better sitting back and was the better part of valor given the letting a very committed and capable One other aspect of this case that is trial risks we faced. lead plaintiff optimize the recovery. equally extraordinary is the amounts The decision to remain a class recovered from the individual Jessica, I gather you moved member or opt-out and bring an defendants who were alleged to have from San Diego to New York in individual claim is a nuanced one benefited from wrongdoing at issue anticipation of the trial. Do you that must be assessed carefully on a in this case. The $237.5 million of often relocate for trials? Do you case-by-case basis. personal contributions here dwarf think doing so underscored how those achieved in any prior PSLRA willing you and the team were to class action, including in cases such try this case? Here, because of the lead plaintiff’s as Enron and WorldCom. Jessica Shinnefield: Both Deb extraordinary effort and the way and I are based in the San Diego the class action was prosecuted and What do you think were some of the key factors in your ability to office, which is where our firm is resolved, class members will recover headquartered. between 2 and 3 times more than the reach such a historic settlement? individual litigants recovered. Jessica Shinnefield: The firm’s Our entire 20-person trial team was commitment to the case, our ability scheduled to move to New York Is it unprecedented to recover the month before trial, so we could 50% of class damages in a major to commit the human and financial resources to the prosecution of the case focus exclusively on trial preparation PSLRA class action settled prior without any distractions. That’s a to trial? and the lead plaintiff’s commitment to holding those who benefited from tradition at this firm; it’s something Jessica Shinnefield: The recovery we the alleged wrongdoing personally we do to ensure we’re focused and obtained here, approximately 50% responsible were all key factors in this ready to go when a case heads to trial.
38 rgrdlaw.com Once ARCP settled, I actually ended made by the former CEO and CFO take on what we took on, and achieve up moving to Phoenix for a month qualify in that regard. the result we achieved, we can do instead to join a separate trial team anything. that was preparing for the trial of Were there objections to the the First Solar class action, which was settlement? Concerns by Judge Debra Wyman: I completely agree scheduled to start on January 7, 2020, Hellerstein? with Jess. The recovery here is remarkable, and NOTHING about but settled the day before the jury was Jessica Shinnefield: There was not empaneled. And I know that Deb this case was straight-forward, or a single objection to the settlement. conceded by defendants. Our team moved to New Jersey for the AT&T The absence of objection in a case of trial many years ago now. tackled it head on in an unrelenting this magnitude is unprecedented. It is fashion. I am proud of this work So like I said, moving to different my understanding that in the 24 years and of every single person who places throughout the country to since the enactment of the PSLRA, contributed to this outcome. prepare for trial is just what we there has never been a case involving do to ensure that we are prepared a recovery of more than $1 billion Jenna Greene is editor of The Litigation and focused when it’s go-time. where an objection (meritorious or Daily and author of the “Daily Dicta” column. Additionally, I think moving to these otherwise) has not been lodged. She is based in the San Francisco Bay Area and can be reached at [email protected]. trial venues a month in advance Judge Hellerstein took all the steps a really convinces the very capable conscientious judge takes to ensure © 2020 ALM Media Properties, LLC. All rights opposing counsel we face (and their that the settlement reached was fair reserved. clients), that we are willing and able and reasonable to the class. And to try our cases, which in turn, helps at the end of a hearing this past us maximize the recoveries we are Tuesday, in which Judge Hellerstein able to achieve for the classes we walked through all those fairness represent. factors very thoroughly, he approved One notable aspect of the the settlement. settlement is that the individual What will you remember most wrongdoers primarily about this case? responsible for the alleged misconduct contributed Jessica Shinnefield: For me, I will financially to the resolution. remember the complexity of it. With Why was this important to your 40 different defendants–various client? What message does it inter-related companies, officers, send? directors, auditors, underwriters and a multitude of claims and offerings, Jessica Shinnefield: Given the nature it looked nothing like an ordinary of the misconduct here, it was very securities case, which is already important that personal contribution complex. be made by those who benefited the most from the defendants’ alleged Most of the depositions I took in misconduct. this case were three days long. Our summary judgment hearing lasted a It was made very clear to the full day, which I guess should be no defendants from the very beginning of surprise given there were more than the case that this case would not settle 12 summary judgment motions to be without significant contributions decided. There were 20 plus experts, from those who profited from the etc. alleged misconduct. I think it’s fair to say that the record contributions here For me, the bottom line is: if we can
On the Record | Spring 2020 39 12 Robbins Geller Attorneys Named Leading Lawyers in America
s the pandemic changes the in America include Robbins Geller Some of the most recent honors the lives of everyone around partners Darren J. Robbins, Paul Firm’s attorneys have a received the world daily, Lawdragon J. Geller, Samuel H. Rudman, include being named Plaintiffs’ Aannounced its Leading Lawyers Spencer A. Burkholz, Daniel S. Lawyers Trailblazers and Litigation in America list, which features the Drosman, Shawn A. Williams, Trailblazers by The National Law lawyers “whose necessary voices Randall J. Baron, Rachel L. Journal; California Trailblazers by The are already beginning to define a Jensen, David W. Mitchell, Debra Recorder; Titan of the Plaintiffs Bar by coherent path forward, advising J. Wyman, and Aelish Marie Baig. Law360; Litigators of the Week by The financial institutions and corporations Additionally, Patrick J. Coughlin AmLaw Litigation Daily; Top Plaintiff as well as hospitals and healthcare was elevated to the Lawdragon Hall Lawyers by the Daily Journal; Leading providers” around the world. This of Fame, which is a permanent Lawyers, Recommended Lawyers, year, 12 Robbins Geller attorneys recognition. He joins the prominent and Next Generation Lawyers by The who will work to “help those in need – ranks with named attorney Michael Legal 500; Band 1 Lawyers by Chambers consumers, small and large businesses, J. Dowd, who received the Hall of USA; and Best Lawyers in America and governments and nonprofits – playing Fame honor last year. Lawyer of the Year by Best Lawyers®. a key role in emerging from the crisis” were recognized. Being recognized as Leading Lawyers in America is one of the many The “legal talent . . . grinding towards accolades Robbins Geller attorneys justice” as 2020 Leading Lawyers have been awarded in recent months.
40 rgrdlaw.com Business Roundtable Statement
CEOs Make a Vague Commitment entrench management. It may also employees, customers, suppliers, to a Vague “Stakeholder” be an indicator that CEOs do not and the community. Long-term Standard think stock-based metrics will support shareholders are increasingly current levels of compensation in committed to ESG investing. What will In September, a statement from a likely recession and they want the CEO signatories to this statement the Business Roundtable (“BRT”) something less quantifiable. And they have in mind? Everything will depend commits to stakeholder interests can only do buybacks so many times, on how specifically and quantifiably instead of making the primary purpose so short-term manipulation options they describe their stakeholder goals of a company shareholder value. are narrowing. and especially how their compensation is tied to those goals. If pay is The last time the BRT was excited As the law and basic economics make exclusively or primarily based on stock about stakeholders was during the clear, stakeholder interests are already price, this statement is just an attempt era of hostile takeovers, and a feint included within the obligation to at distraction. Investors should insist to the interests of anyone other than shareholders; sustainable shareholder on more specifics and more clarity. shareholders was the best way to value requires commitment to
On the Record | Spring 2020 41 Business Roundtable Statement (continued from page 41)
Here is the statement:1 with our suppliers. We are shareholders simply as providers dedicated to serving as of capital rather than as owners.” Americans deserve an good partners to the other economy that allows each person companies, large and small, According to CII, it “believes to succeed through hard work that help us meet our missions. boards and managers need to and creativity and to lead a life of sustain a focus on long-term meaning and dignity. We believe • Supporting the communities shareholder value. To achieve the free-market system is the best in which we work. We long-term shareholder value, it is means of generating good jobs, a respect the people in our critical to respect stakeholders, but strong and sustainable economy, communities and protect the also to have clear accountability to innovation, a healthy environment environment by embracing company owners.” and economic opportunity for all. sustainable practices across our businesses. Jay Coen Gilbert, Andrew Kassoy, Businesses play a vital role and Bart Houlahan, founders of the B in the economy by creating • Generating long-term Corporation movement wrote in Fast jobs, fostering innovation and value for shareholders, who Company:3 providing essential goods and provide the capital that services. Businesses make and sell allows companies to invest, Ensuring that our capitalist consumer products; manufacture grow and innovate. We are system is designed to create a equipment and vehicles; support committed to transparency shared and durable prosperity for the national defense; grow and and effective engagement with all requires this culture shift. But produce food; provide health care; shareholders. it also requires corporations, and generate and deliver energy; and the investors who own them, to go offer financial, communications Each of our stakeholders is beyond words and take action to and other services that underpin essential. We commit to deliver upend the self-defeating doctrine economic growth. value to all of them, for the future of shareholder primacy. They success of our companies, our can do this by making themselves While each of our individual communities and our country. legally accountable to create value companies serves its own for their workers, customers, corporate purpose, we share a Some reactions: suppliers, and communities – not fundamental commitment to all of CFO reports that the Council of just talk about it. our stakeholders. We commit to: 2 Institutional Investors has concerns: * * * • Delivering value to our [T]he Council of Institutional customers. We will further While it is appropriate to Investors (CII) expressed concern note, even celebrate, the Business the tradition of American about the Business Roundtable’s companies leading the way Roundtable’s announcement (BRT) statement, saying that as a sign of an accelerating in meeting or exceeding in its opinion the statement customer expectations. culture shift, it is important to “undercuts notions of managerial recognize that the people who • Investing in our employees. accountability to shareholders.” are demanding this shift are This starts with compensating “CII has a productive demanding action. People want them fairly and providing relationship with BRT that has to buy from, work for, and invest important benefits. It also included discussion on corporate in companies that serve a higher includes supporting them ‘stakeholder’ obligations, but we purpose than maximizing profit at through training and respectfully disagree with the any cost to people, communities, education that help develop statement issued by the BRT and the natural world on which new skills for a rapidly earlier today,” the CII said in a all life depends. People are changing world. We foster news release. “The BRT statement demanding a new social contract diversity and inclusion, suggests corporate obligations to between business and society in dignity and respect. a variety of stakeholders, placing which business and the capital shareholders last, and referencing markets create long-term value • Dealing fairly and ethically for all stakeholders. People are
1. https://opportunity.businessroundtable.org/ourcommitment/ 2. https://www.cfo.com/leadership/2019/08/americas-ceos-pledge-to-rethink-corporate-priorities/ 3. https://www.fastcompany.com/90393303/dont-believe-the-business-roundtable-has-changed-until-its-ceos-actions-match-their-words
42 rgrdlaw.com demanding it, in part, because social good. The private sector today at their peril. they’ve seen a credible alternative creates jobs, delivers paychecks in the B Corp movement that and generates wealth for the many The Economist responded with a cover 9 is leading the transformation Americans who own stocks and story on “what companies are for”: from 20th-century shareholder mutual funds, either directly or “Competition, not corporatism, is the capitalism to 21st-century via their pension or retirement answer to capitalism’s problems.” stakeholder capitalism. accounts. In his daily CEO newsletter for Barry Ritholtz also calls on the CEOs And, as [University of Chicago Fortune, Alan Murray says that there to put their money where their mouth economist Milton] Friedman put are two reasons a broadened focus is, noting that their past policies have it, the role of ethical companies on stakeholders will not diminish been contrary to the stakeholder is to engage in activities designed corporate “dynanism”:10 model, and he has a long, very specific to increase profits. That phrase list of examples: “Scan the list of 181 incentivizes CEOs to invest in But forgive me for saying it: signatories to the recent memo and it’s employees and communities, and this time is different. For one thing, a Who’s Who of corporate behavior take other actions that could be the rapid pace of technological that has burdened and disadvantaged described as socially responsible. change and the onslaught of the very stakeholders they will now Yet those actions also support the disruptive innovation have left champion.”4 companies’ profitability because most big companies anything but they help retain employees, attract complacent. Yesterday, I wrote The Wall Street Journal editorial board customers and develop markets. that UPS CEO David Abney is isn’t buying it. Holman Jenkins is 5 8 more concerned about start-ups sarcastic: From Karl W. Smith on Bloomberg: then legacy competitors. That’s “There isn’t much to object to, unless It certainly sounds enlightened a common refrain in today’s you are Rep. Alexandria Ocasio- – and if Dimon’s goal is merely to business world, and is just one Cortez.” sound enlightened and thereby of many indications we are in a improve JP Morgan’s image, period of Schumpeterian creative Fortune has a collection of reader then his move is a smart one. If, destruction that is driving the 6 responses, like this one: however, he genuinely means best big companies to transform themselves faster than ever before “Every CEO focuses extensively on what he says, then his proposal is misguided. Its implementation will in their histories. I’ve been doing the ‘needs of society’. . . until they have this for four decades, and have a bad quarter.” be at best wasteful and at worst harmful to investors, workers and never seen CEOs less complacent. The Chicago Tribune’s editorial board society. The elephants feel like they have makes a point similar to ours:7 to dance, or else. * * * Companies need a path to Second, the desire to solve profitability or they have no Asking corporate managers to social problems is itself driving reason, or ability, to exist. Serving focus more on improving society dynamism. If you have any doubt shareholders is shorthand for and less on making profits may about that, take a look at Fortune’s saying companies should avoid sound like a good strategy. But Change the World list, published emotional or nostalgic decisions. it’s a blueprint for ineffective and earlier this week. By applying In other words, sometimes a counterproductive public policy their profit-making superpowers to 100-year-old widget company on the one hand, and blame- some of the world’s most stubborn needs to stop making widgets, shifting and lack of accountability problems, companies are driving or sell to a competitor, even if it on the other. This is a truth Milton real social change. It’s been said hurts. Friedman recognized nearly five that companies today are taking decades ago – and one that all on unsolvable problems and Yet companies also contribute corporate stakeholders ignore solving them, while government is
4. https://www.bloomberg.com/opinion/articles/2019-08-21/business-roundtable-shareholder-primacy-shift-judged-by-actions 5. https://www.wsj.com/articles/ceos-for-president-warren-11566341440 6. https://fortune.com/2019/08/20/feedback-on-the-business-roundtable-shift-ceo-daily/ 7. https://www.chicagotribune.com/opinion/editorials/ct-editorial-business-roundtable-profits-milton-friedman-20190820-mwdyex7vrrdb3hn32x3smwlyka-story.html8. https://www.sandi egouniontribune.com/news/environment/story/2019-09-17/uc-to-dump-fossil-fuels-holdings-in-pension-and-endowment-funds-worth-83-billion 8. https://www.bloomberg.com/opinion/articles/2019-08-22/corporations-should-keep-their-focus-on-profit-not-on-doing-good 9. https://www.economist.com/leaders/2019/08/22/what-companies-are-for 10. https://content.fortune.com/newsletter/ceo-daily/?post_id=2687709
On the Record | Spring 2020 43 Business Roundtable Statement (continued from page 43)
staring at solvable problems, and doing nothing. I’m surprised my friends at The Economist don’t see that.
He expands on that theme in a longer article as well.11
Public interest in corporate responsibility is unusually high: A July survey of 1,026 adults for Fortune by polling firm New Paradigm Strategy Group found that nearly three-quarters (72%) agree that public companies should be “mission driven” as well as focused on shareholders and customers. Today, as many Americans (64%) say that a company’s “primary purpose” should include “making the world better” as say it should include “making money for shareholders.”
But CEOs invariably say the constituency that’s truly driving their newfound social activism is their employees. Younger workers expect even more from employers on this front. Though, according to the poll, fewer than half of Americans overall (46%) say that CEOs should take a stance on public issues, support for such action is overwhelming among those ages 25 to 44. Millennials, in particular, may be driving the change more than anyone–and, more important, they’re choosing to work at companies that are driving change too. Among those ages 25 to 34 in the Fortune/NP Strategy poll, 80% say they want to work for “engaged companies.”
11. https://fortune.com/longform/business-roundtable-ceos-corporations-purpose/
44 rgrdlaw.com SEC (continued from page 21)
managers from accountability. choices, if adopted, would shift independent recommendations power away from shareholders of proxy advisors. Indeed, we * * * and toward management. take this precise approach in other contexts, such as with A better approach is to There is nothing inherently examine how these new rules issuer involvement in research wrong in making such a choice, provided to investors by would affect shareholder particularly if data suggests proposals that enhance value analysts. FINRA Rule 2241 the need to correct some promotes objective and reliable by making management more imbalance. But what does the accountable to investors. So research by, among other data show about proxy voting? things, seeking to limit any that’s what my Office did. We That the vote recommended dug into the data to see what prepublication review by issuers by management carries the day to a verification of facts. kinds of investor initiatives some 90 percent of the time. would be excluded by today’s Management’s views nearly * * * rule. And the evidence shows always prevail. That is the that the proposed changes context in which we consider The second proposal remove key CEO accountability these two proposals that would will also have the effect of measures from the ballot. tilt the scales even further suppressing the exercise of against shareholders. shareholders rights – in this case, On average, inclusion of shareholder uniquely those of the smallest proposals from individual investors * * * retail investors – by raising by an American public company eligibility and resubmission tends to be associated with long- I agree with the stated goal thresholds for the shareholder term value increases. But so-called in the proposal that proxy advice proposal process. gadfly proposals–those brought by should be based on the “most the ten most frequent individual accurate information reasonably This process has long submitters each year–appear to available.” What is missing provided a vital mechanism for have the opposite effect, leading in this proposal, however, are shareholders to communicate to long-run value decreases for two critical underpinnings their views to, and engage with, ordinary investors. for the policy choices it management. For decades, reflects. First, it is missing data shareholders have succeeded From the statement of Commissioner demonstrating an error rate in effecting significant Allison Herren Lee: in proxy advice sufficient to improvements in corporate There is a common theme warrant a rulemaking. In fact, governance, including majority that unites the two proposals as the comment file shows, vote rules for the election of before us today: they both assertions of widespread factual directors, staggered board would operate to suppress the errors have been methodically terms, limits on poison pills that exercise of shareholder rights. analyzed and largely disproven. serve to entrench management, and increased adoption of proxy The proposed changes to Second, there is no basis access bylaws. Shareholder our current proxy regime would for assuming that greater issuer proposals often highlight the make it more costly and more involvement would improve need for important corporate difficult for shareholders to cast proxy voting advice. As I have reforms that are later adopted. their votes or even to get their stated before, issuers bring This was the case, for example, issues onto corporate ballots. deep expertise and insight, but with proposals requesting the There is a stark divide between also have a clear stake in the expensing of stock options issuers and shareholders on outcome. Their views are helpful before this was required by the policies reflected here. The and necessary, but already GAAP. bottom line is that these policy easily accessible. They should not be allowed to influence the Activist investor Carl Icahn is
2. https://www.wsj.com/articles/let-proxy-advisers-do-their-work-11574121845
On the Record | Spring 2020 45 SEC (continued from page 45)
critical of the proposal. In a WSJ “misleading,” a much lower When Securities and op-ed, he wrote:2 litigation standard. This is akin Exchange Commission to newspapers facing liability Chairman Jay Clayton handed Investors cast tens of for publishing articles critical a policy win to corporate thousands of votes as owners of an incumbent politician. executives this month, he of public companies in any Even worse, on Nov. 5 the SEC pointed to a surprising source given year. For help with proposed a new rule that would of support: a mailbag full of that formidable task, many require proxy advisory firms to encouragement from ordinary institutional investors pay proxy give a preview of their reports Americans. advisory firms like Institutional to the very companies that are Shareholder Services or Glass the subjects of those reports– To hear Clayton tell it, Lewis for independent advice. this before investors can read these folks are really focused on These research organizations the advice they purchased. This the intricacies of the corporate publish reports with voting odd arrangement would allow shareholder-voting process. recommendations. More often corporations to interfere with “Some of the letters that than not, they end up taking the advisers’ research–a recipe for struck me the most,” he said side of incumbent boards and disaster. at a commission meeting in CEOs. But sometimes proxy Washington, “came from long- advisers have the temerity to For the first time in modern term Main Street investors, criticize incumbents. Now their history the SEC is making it including an Army veteran freedom to criticize is under harder to be a shareholder. and a Marine veteran, a police threat. That would be an unfortunate officer, a retired teacher, a legacy in an administration public servant, a single mom, On Aug. 21, the SEC that has prioritized reducing a couple of retirees who passed new guidance by a 3-2 burdensome regulations. I saved for retirement.” Each vote that would make proxy implore the SEC to rethink this bolstered Clayton’s case for advisers legally liable under misguided proposal. limiting the power of dissenting securities laws. Before the new shareholders. guidance, proxy advisory firms Chairman Jay Clayton cited the could effectively be sued only letters of “Main Street investors” But a close look at the seven if they knowingly published in support of the Commission’s letters Clayton highlighted, false statements. Now any proposal. Unfortunately, they and about two dozen others public company can claim any were bogus letters from K Street submitted to the SEC by omission or fact in a proxy consultants as, revealed by a supposedly regular people, advisory report is “false” or Bloomberg exposé.3 shows they are the product of
3. https://www.bloomberg.com/news/articles/2019-11-19/sec-chairman-cites-fishy-letters-in-support-of-policy-change
46 rgrdlaw.com a misleading – and laughably the interests of participants and The best determiners of clumsy – public relations beneficiaries by: (1) addressing the value of proxy proposals campaign by corporate interests. practices that could present are shareholders and the best conflicts of interest associated determiners of the value of That retired teacher? with proxy advisory firm proxy advisory services are the Pauline Yee said she never wrote recommendations; (2) ensuring financial professionals who are a letter, although the signature that proxy voting decisions freely able to decide whether was hers. Those military vets? are based on best information; to buy the reports, who to buy It turns out they’re the brother and (3) ensuring that proxy them from, and whether to and cousin of the chairman of voting decisions are solely in the follow their recommendations. 60 Plus Association, a Virginia- interest of, and for the exclusive Proxy advisory firms are the based advocacy group paid by purpose of providing plan only independent source for corporate supporters of the benefits to, participants and evaluation of proxy issues. To SEC initiative. That single beneficiaries. reiterate, shareholder proposals mom? Data embedded in the and say-on-pay votes are electronically submitted letter Translation: The Labor Department non-binding, so even if proxy says someone at 60 Plus wrote wants to roll back guidance in place advisors are as powerful as it. That retired couple? Their for 20 years making the simple critics say (but are unable to son-in-law runs 60 Plus. and incontrovertible point that prove as the data is all to the proxy voting rights are a plan asset “I never wrote a letter,” said contrary), and even if there is and subject to the same fiduciary a 100 percent vote against the one of the retirees, Vytautas obligation (“for the exclusive Alksninis, reached by phone wishes of management, the benefit of plan participants”) as the corporation does not have to at his home in Connecticut. decisions to buy, sell, and hold. It “What’s this all about?” do anything about it. Worst is important to remember that the case scenario is that if all of After this article in Bloomberg reason this obvious point had to be the wild (and unsupported) identified many of the “individual made in official guidance back in allegations of proxy advisory investor” comments cited by SEC 1988 is that there was evidence that firm critics are true, there is no Chair Jay Clayton in proposing the fund managers were voting contrary risk of harm other than the hurt onerous new rules for proxy advisors to the interests of investors in order feelings of corporate insiders; and shareholder proponents as fake, to get more business from portfolio and that is literally the reason Senator Chris Van Hollen told the companies. we pay them the big bucks – to chairman: “You’ve been duped.” This pincer strategy against be able to respond to challenges with courage and integrity and, In December, the Department of independent proxy advice was advanced at the Department when their shareholders do not Labor quietly joined the SEC’s support them, to either do a initiatives to suppress shareholder of Labor when the Chamber of Commerce’s “Center for Capital better job of communicating or votes and access to independent change their direction. research in bureaucratic language:4 Markets Competitiveness” filed a comment with the DOL on the The very last people we This deregulatory action subject. The Center’s Director, should ask to evaluate the would modernize fiduciary Tom Quaadman, admitted to worth of proxy advisory services practices related to the his members that they were are the people they evaluate: voting rights associated with disappointed by the SEC’s failure corporate executives and board 5 ERISA plan investments and to act. members. We don’t let students harmonize those regulations grade their own papers, and we with the requirements of other ValueEdge Advisors’ (“VEA”) Vice Chair Nell Minow filed a don’t let manufacturers decide regulators. The goal of this what toxins to pour into the proposal would be to protect detailed response to the Chamber’s comment.6 An excerpt: air and water. We cannot let
4. https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201910&RIN=1210-AB91 5. https://www.sifma.org/resources/general/dec-us-chamber-event-examining-the-role-of-proxy-advisory-firms/ 6. https://valueedgeadvisors.com/2019/10/22/nell-minow-response-to-the-chamber-of-commerces-outrageous-comment-to-dol/
On the Record | Spring 2020 47 SEC (continued from page 47)
the squeamishness of corporate letter there was extensive market to argue on behalf of insiders about assessments documentation of votes that a nanny state regulation like they do not control (plus the benefited the fiduciary’s this proposals. The same goes millions of corporate dollars commercial interest instead for corporations who want to they divert from creating of being cast for the exclusive understand investor priorities shareholder value to spend on benefit of plan participants. and retain consulting services lobbyists and fake front groups) from experts. We would also lead to any impediment to that The full-on avalanche of corporate rather leave the determination independent assessment. The insider-funded efforts to suppress of what is in the best interests of real question the Department, shareholder votes and access to shareholders to the shareholders as vigilant protectors of pension independent research continued. themselves, and not academics value, should investigate here It’s all about killing the messenger. who are funded by corporate is why executives and directors If they can’t convince shareholders insiders. do not want to hear from their on the merits, they will tilt the shareholders in the most low- playing field so sharply it’s just CEO compensation consultant key, low-risk, low-cost manner about perpendicular. Frank Glassner did not like a critical possible. tweet from VEA Vice Chair Nell Longtime apologists – no, Minow about this column. His non- * * * enthusiasts – for excessive CEO substantive response: pay Steven N. Kaplan and David In summary: the F. Larker like the idea of regulating Nell – Like a gadfly Department should not be proxy advisors. They describe the Rumplestiltskin, have you swayed by the complaints of “problem” like this: been asleep the past 15 years? corporate insiders about the sole Look at the hundreds of ISS source of independent research (1) proxy advisory firms lack decisions that have been on proxy issues, given that: transparency; (2) institutional “bad calls,” and the deep investors are influenced by research that David Larcker • well over 90 percent of the proxy advisory firms; (3) and the Stanford team have proxy advisor recommendations corporations are influenced completed on this as well as are to vote with management, by proxy advisory guidelines other their other outstanding – in some cases, hiring the work. • even a 100 percent vote proxy advisors as consultants against on shareholder proposals in an effort to improve ratings; VEA is confident that investors and or CEO pay is not binding, and (4) proxy advisory firm independent research paid for by • proxy advisors produce recommendations may not investors are better at determining reports no one has to buy with be in the best interests of what are “bad calls” than those paid recommendations no one has shareholders. by corporate insiders to come up with ever-bigger pay plans. As she to follow, purchased by the VEA’s response: most sophisticated financial pointed out in her response, around professionals in the world, We are confident enough in 5 percent of CEO comp plans get the free market to believe that a substantial “no” vote (which is • data show that fiduciaries the decision about the value of advisory anyway). If the bottom 5 review the recommendations of proxy advisors is better made percent do not get no votes, what proxy advisors but make their by the sophisticated financial number would the designers of own decisions, and professionals who voluntarily those plans like to see? • neither the Chamber nor choose to purchase the analysis Kaplan and Larker also complain any other lobbying group has and recommendations – and who about boards having to spend time provided a single example of follow those recommendations responding to critical analyses of a proxy issue “wrongly” voted when they agree and don’t CEO pay packages. contrary to fiduciary obligation, follow them when they disagree. while before the 1988 Avon It is hypocritical of those who We are not sure that Robert purport to believe in the free Jackson, Luigi Zingales, and
48 rgrdlaw.com 48 others appreciate the large It is particularly disappointing to see competitors were either bought amount of time that boards academics fail to do basic research or beat. We recommend the spend responding to the proxy and fact-checking. They write: professors look into this; it advisory firms that might be would make an excellent case better spent on other governance In a normal market, study for business students. Or, matters. Having served on companies with a poor service as there are no barriers to entry, several public company boards, record are driven from the Kaplan and Larker are welcome we have seen a number of market. Proxy advisory to open up their own proxy instances in which boards were firms, however, appear to be advisory firm and see if they can rationally influenced by proxy insulated from these forces. persuade sophisticated financial advisory guidelines in ways that The dominance of ISS and professionals that their “calls” did not increase shareholder Glass Lewis – despite evidence on CEO pay are the right ones. value, but did utilize valuable that their recommendations resources. are inaccurate and potentially NOTE: ISS has filed a lawsuit value-destroying to against the SEC. The complaint VEA’S response: shareholders – suggests that a will most likely be amended to market failure has occurred. reflect the overreach and under- This is exactly what board justification of the proposed rule as members are supposed to spend VEA’S response: well. From the complaint: time on. Otherwise, they are in a closed loop of information In fact, this is a normal First, the Release exceeds the provided by the very people market and that is exactly what SEC’s statutory authority under who are paid by the very people happened. There is a third Section 14(a) of the Exchange getting the ridiculous pay firm which meets the stringent Act and is contrary to the plain packages. As for what does or standards of registration as a language of the statute. The doesn’t increase shareholder ratings agency. There was a rival provision of proxy advice is not value or what makes good use firm with an excellent product a proxy solicitation and cannot of valuable resources, again, that failed because it was funded be regulated as such. Whereas a we prefer to leave that decision by corporate insiders and thus proxy adviser offers independent to investors and providers of was not able to persuade the advice and research to its clients independent research. market of its objectivity. Other about how to vote their shares
On the Record | Spring 2020 49 SEC (continued from page 49)
based on the proxy voting policy the problem.” circumstances, the staff is not guidelines selected by the client, taking a position on the merits a person who “solicits” proxies (The SEC’s insistence that it of the arguments made, and the urges shareholders to vote a rescinded the two guidance letters company may have a valid legal certain way in order to achieve a on proxy advisors without any basis to exclude the proposal specific outcome in a shareholder memoranda or meetings, which we under Rule 14a-8. And, as has vote. The text, purpose, history, noted a year ago, should in itself be always been the case, the parties and structure of the Exchange sufficient to support a claim that the may seek formal, binding Act and Advisers Act all confirm action is “arbitrary and capricious,” adjudication on the merits of that proxy advice and proxy the legal standard for overturning a the issue in court. solicitation are fundamentally regulation.) distinct activities that are Investors have written to object to SEC to Give Some No-Action this policy.8 regulated in different ways. The Rulings Orally Only SEC lacks authority to regulate An excerpt: proxy advice as though it were The SEC has announced that a solicitation, and its holding it will not put all of its rulings We recommend that the otherwise in the Proxy Adviser on shareholder proposals in Division rescind the policy Release is contrary to law. writing.7 Some rulings will be oral and retain the process that only. Needless to say, since the has worked reasonably well Second, the Proxy Adviser Code of Hammurabi in ancient for decades. The number of Release is procedurally Mesopotamia, the idea has been no action requests processed improper because it is a that it is a good thing to have the by the Staff has not increased, substantive rule that the SEC rules in writing so that everyone and thus this change does not failed to promulgate pursuant knows what they are and they will seem merited. In the event to the notice-and-comment be consistent. This is a poor decision that the SEC does not rescind procedures of the Administrative with ominous implications. the new policy, we offer the Procedure Act (“APA”). See 5 following suggestions to reduce U.S.C. §553. The staff intends to issue a response the level of uncertainty and letter where it believes doing so Third, the Proxy Adviser conflict resulting from the new would provide value, such as more approaches: Release must be set aside broadly applicable guidance about as arbitrary and capricious complying with Rule 14a-8. 1. Keep the new options as because, even though it marks exceptional. Clarify that in the a significant change in the The staff continues to coming season, the new options regulatory regime applicable believe, as noted in Staff will not be routinely or widely to proxy advice, the SEC has Legal Bulletin 14I and Staff utilized, but instead will be denied that it is changing its Legal Bulletin 14J, that when deployed on a few pilot decisions position at all. The agency a company seeks to exclude until the implications are better has thus flouted the basic a shareholder proposal from understood. This would stay in requirement of reasoned its proxy materials under line with the SEC historically decision-making that it at least paragraphs (i)(5) or (i)(7) of Rule declining to issue a decision display awareness that it is 14a-8, an analysis by its board only in exceptional conditions changing its position. See FCC of directors is often useful. such as ongoing litigation on v. Fox Television Stations, 556 If the staff declines to state a the core legal issue raised by the U.S. 502, 514-15 (2009). The proposal. SEC, moreover, has acted in view on any particular request, an arbitrary and capricious the interested parties should 2. Establish clear criteria manner by entirely “fail[ing] to not interpret that position as for deployment of the new consider an important aspect of indicating that the proposal options. Describe the criteria must be included. In such
7. https://www.sec.gov/corpfin/announcement/announcement-rule-14a-8-no-action-requests 8. https://www.investorrightsforum.com/new-blog-1/five-investment-organizations-to-director-hinman-no-action-process-concerns-and-recommendations
50 rgrdlaw.com for determining when the await a response from the How to Contact Us agency will decline to issue proponent before choosing a no-action decision or issue one of these forms of We welcome your letters, comments, an “oral” determination. An disposition. questions, and submissions. overarching set of guidelines Please direct all inquiries to: 4. Clarify online seems necessary to guide David C. Walton staff decision-making and posting. The Staff has noted (619) 231-1058 or [email protected] inform the market; to the to a reporter for Standard extent that general criteria & Poor’s that it will signify are not possible, we urge online, in some manner, Contributors that the Staff include an these new dispositions, explanation of the use of the together with any letters. options on a case-by-case We request that any James E. Barz Nell Minow basis consistent with prior correspondence from the Richard A. Bennett Eric I. Niehaus proponent’s perspective, as Alexandra S. Bernay Lucas F. Olts practice. For example, in Luke O. Brooks Frank A. Richter declining to issue a decision, well as the issuer’s request, be posted online with the Spencer A. Burkholz Willow E. Radcliffe the Staff might note that the Michael J. Dowd Darren J. Robbins issues are addressed by Staff statement of disposition. Paul J. Geller Robert M. Rothman precedents (include citation 5. Specify procedural Gracie Flores Samuel H. Rudman to exemplary precedents). Tor Gronborg Jessica T. Shinnefield safeguards for oral decisions. Robert R. Henssler, Jr. Debra J. Wyman Similarly, the Staff might Procedures for rendering note that it is declining to oral decisions should decide the issues in a no- ensure fair and symmetrical On the Record is published by Robbins Geller action letter, but that this information and access by Rudman & Dowd LLP, 655 West Broadway, does not preclude later Suite 1900, San Diego, CA 92101, (619) 231-1058 the parties. For instance, or (800) 449-4900. referring the matter for the Staff could conduct a enforcement. conference call in which the Robbins Geller Rudman & Dowd LLP is one issuer and proponent are of the world’s leading complex litigation firms 3. Establish early time representing plaintiffs in securities fraud, antitrust, frames. We recommend that each represented to hear the corporate mergers and acquisitions, consumer the Staff signal a clear and same presentation. As one and insurance fraud, multi-district litigation, and observer has suggested, the whistleblower protection cases. With 200 lawyers routine time limit on when in 9 offices, Robbins Geller has obtained many the “no-determination” Staff could allow the audio of the largest securities, antitrust, and consumer option will be taken. To recording of such a call. class action recoveries in history, recovering tens of billions of dollars for victims of fraud and the extent that the Staff corporate wrongdoing. Robbins Geller attorneys could make determinations are consistently recognized by courts, professional to decline to issue an organizations and the media as leading lawyers in their fields of practice. Please visit rgrdlaw.com for opinion early, e.g. within more information. seven days of receiving a no-action request, it could help avert futile Boca Raton • Chicago • Manhattan • Melville • Nashville efforts and expenditures Philadelphia • San Diego • San Francisco • Washington, D.C. by investors to prepare a proponent’s response for 1800-449-4900 the Staff’s consideration, 0808-238-9902 and allow time to pursue litigation. Conversely, we seek clarification as to whether the Staff will Copyright © 2020 Robbins Geller Rudman & Dowd LLP. All rights reserved. Quotation permitted, if with attribution.
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On the Record | Spring 2020 51 THE RIGHT CHOICE