On November 1, 2017, the Division of Corporation Finance (Division) of the Securities and Exchange Commission (SEC) released Staff Legal Bulletin No. 14I (SLB No. 14I) to offer guidance on the scope and application of Rules 14a-8(i)(7) and 14a-8(i)(5), each of which provide a substantive basis for excluding shareholder proposals from a company’s proxy materials for shareholder meetings. SLB No. 14I also discusses a new policy requiring documentation when shareholders submit “proposals by proxy,” along with the Division’s views on the use of graphs and images in the supporting statements for shareholder proposals.
This week we highlight a report by Ernst & Young based on three years of research on the linkages between nonfinancial performance and investor decision-making. The data concludes that with regards to environmental, social and governance (ESG) reporting, there is a global trend toward increased interest in nonfinancial information on the part of investment professionals.
As we enter the new year, please note the following recent changes made to state and federal lobbying, gift and campaign finance laws:
Federal: Effective January 1, 2017, federal executive branch employees must obtain permission to attend “widely attended events” in writing from the designated agency ethics officer rather than relying on a verbal approval. Additionally, political contribution limits for individuals and non-multicandidate political action committees (PACs) will be adjusted for inflation in Q1 2017 for the 2017-2018 election cycle.
The Securities and Exchange Commission (SEC) announced on March 13, 2015, that it had charged eight officers, directors and major shareholders for failing to file amendments to their Schedule 13Ds to disclose steps to take their respective companies private. The respondents agreed to settle the proceedings, without admitting or denying the SEC’s allegations, by paying financial penalties.
Section 13(d)(1) of the Exchange Act and Rule 13d-1(a) require any person or group who has acquired, directly or indirectly, beneficial ownership of more than 5 percent of a class of registered equity securities to file a Schedule 13D with the SEC no later than 10 days after it accumulated beneficial ownership of more than 5 percent. Section 13(d)(2) and corresponding Rule 13d-2(a) require the prompt filing (within two business days) of an amendment when there is a material change to the facts contained in the Schedule 13D.
The prosecution of corporations always makes good headlines. But the emerging trends in these corporate prosecutions tend to be at the margins and therefore less reported—prosecutors commit to sustained and vigorous enforcement of white collar criminals; defense attorneys push back that sentences are overly harsh and that innocent conduct is increasingly characterized as fraud. These messages all played out among the largest annual gathering of lawyers focusing on white collar crime, the ABA White Collar Institute in New Orleans, Louisiana, earlier this month.
The Foreign Corrupt Practices Act (FCPA) was front and center at the conference, as it has been for the last decade. But at least three relatively new messages were included in the discussion.
Apparently, about $1 million if you are the CEO of Johnson Controls, Inc. At least, that is one possible takeaway from the action of the board of directors of Johnson Controls with respect to the behavior of its CEO, Alex Molinaroli. According to the Company’s 2014 proxy statement, Mr. Molinaroli’s annual bonus for fiscal year 2014 was reduced by 20 percent as a consequence of his actions in connection with an extramarital affair.
The short story is that Mr. Molinaroli and his wife of 28 years were apparently having marital difficulties. Mr. Molinaroli began an affair with the principal of a consulting firm that had a long-standing relationship with Johnson Controls. According to published reports, Mr. Molinaroli’s wife found out and reacted in a very public way. The executive committee of the board (sans Mr. Molinaroli) undertook an investigation, which resulted in Mr. Molinari being cleared of any actual wrongdoing, such as misuse of funds or improper influence. It was determined, however, that Mr. Molinaroli “failed to comply with the Company’s Ethics Policy, which required Mr. Molinaroli to timely alert the Audit Committee to a situation that could be perceived to raise issues of conflict of interest.” The consulting relationship was terminated, and, reportedly, so was the affair. Nonetheless, the board expressed its continuing faith in the leadership of Mr. Molinaroli, who had been with the company for 30 years and was promoted to CEO at the start of 2014.
Earlier this month, a federal judge in New Jersey held that a secretly recorded conversation between a former chief executive officer and his general counsel may be used by prosecutors as evidence against the former executive in a bribery trial. The ruling serves as an important reminder regarding the limitations of the attorney-client privilege.
Joseph Sigelman, former CEO of PetroTiger Ltd., has been charged with violating the Foreign Corrupt Practices Act (FCPA) by his alleged participation in a conspiracy with two former colleagues to obtain kickback payments and to pay bribes to a Colombian official in connection with a multimillion-dollar business deal. Sigelman and two of his former colleagues, former co-CEO Knut Hammarskjold and former general counsel Gregory Weisman, allegedly conspired to obtain kickbacks in connection with PetroTiger’s acquisition of another company and pay bribes to a Colombian official to secure a $39 million contract to perform services for Colombia’s national oil company. Sigelman and his co-conspirators allegedly paid more than $330,000 in bribes and attempted to disguise them as payments for phony consulting services allegedly performed by the Colombian official’s wife.