|June 11, 2014|
Previously published on May 22, 2014
The debate about so-called “golden leash” arrangements has picked up again. The Council of Institutional Investors (“CII”), an influential association of institutional investors, recently wrote a letter to the U.S. Securities and Exchange Commission (“SEC”) expressing its concerns regarding the transparency of compensation paid in “golden leash” arrangements.
As discussed in our previous post, “golden leash” arrangements arise when a shareholder activist privately offers to compensate its nominee directors in connection with such nominees’ service as a director of a target corporation. In January, 2014, Institutional Shareholder Services Inc. provided its views on by-laws designed to prohibit “golden leash” arrangements but did not specifically express any concerns about the appropriateness of such compensation for nominee directors provided the arrangements are disclosed.
In its letter to the SEC dated March 31, 2014, CII asserted that the current U.S. “disclosure rules that apply to contested proxy solicitations fail to sufficiently address compensation arrangements between a nominating group and a board nominee”.
Specifically, CII highlighted that there is no specific requirement under the current U.S. securities rules for the disclosure of (i) compensatory arrangements between a board nominee and the nominating shareholder, or (ii) conflicts of interest presented by compensatory arrangements between a nominee and a nominating shareholder. To resolve this, CII requested that the SEC consider issuing interpretive guidance or amendments to the U.S. proxy rules to require shareholder contestants in a proxy contest to disclose, at a minimum:
CII’s request for more disclosure related to third party compensatory arrangements for board nominees appears to be, at least in part, an attempt to bring such disclosure in line with that ordinarily required of U.S. publicly traded companies with respect to compensation, including director pay.
CII’s requested amendments to the U.S. proxy rules appear to go further than what’s currently required in Ontario. For example, although under Ontario securities laws there is a requirement to “briefly” describe any arrangement or understanding between nominee directors and a third party (and to name such third party), Canadian regulators have not otherwise taken a definitive position in this debate. We wouldn’t be surprised if CII encourages Canadian regulators to look more closely at this issue — it has previously offered its views on the Canadian Securities Administrators’ Review of Proxy Voting Administrators.