If you are an issuer that will be submitting a request for additional shares for your stock plan to a shareholder vote in the upcoming proxy season, you need to read this blog. I’m filing this under “don’t say I didn’t warn you.”
What Does Martha Stewart Have to Do With This?
A while back, a short blurb about Martha Stewart Living Omnimedia caught my eye and I put it in my back pocket for a future blog entry if I ever figured out what the heck it was about. The blurb appeared in Mark Borges’ proxy disclosure blog on CompensationStandards.com:
Martha Stewart Living Omnimedia Inc. was the target of a shareholder class action lawsuit alleging that the company’s disclosure in connection with a proposal to increase the share reserve of its omnibus stock plan was inadequate.
This intrigued me because:
- In my other, non-stock compensation life, I secretly want to be Martha Stewart (but with better hair and no insider trading scandal), so I’m fascinated by anything involving her. (Don’t scoff–I’m very crafty! I make all my own window treatments, can refinish a dining room table, and can whip up some pretty tasty jams and jellies.)
- It involved the company’s stock plan, which falls squarely into the category of “things I care a lot about.”
Now, thanks to Mike Melbinger’s Oct 26 blog entry on CompensationStandards.com, I’ve finally figured out the implications of the lawsuit and determined that, if you are an issuer, it should be something you care a lot about as well.
Lawsuit Over Stock Plan Disclosures Could Delay Shareholders Meeting
There have now been several similar lawsuits filed. The lawsuits allege that the company’s disclosures relating to stock plan or Say-on-Pay proposals are inadequate and seek to delay the shareholders meeting. As Mike explains it:
[Companies] are forced to decide between (a) paying the class action lawyers hundreds of thousands of dollars of attorneys’ fees and issuing enhanced disclosures or (b) fighting the matter through a preliminary injunction hearing, which may have the effect of delaying [their] shareholder meeting (and create additional legal fees).
One company has already paid $625K to plaintiff attorneys to settle a similar lawsuit and, while they didn’t have to delay their entire annual meeting, they still had to delay the vote on their stock plan and file a supplement to their proxy statement with additional disclosures about the plan.
What Can You Do?
Mike asks “Does that sound like Armageddon?” and I’d say that it sure sounds like that me. Mike says that it is too soon to panic but suggests taking extra care in drafting your disclosures relating to any stock plan proposals and your Say-on-Pay propoals. A recent memo we posted from Orrick has suggestions for fortifying both types of disclosures against attack. Here are their suggestions for disclosures relating to any stock plan proposals:
-
Disclose the number of shares currently available for issuance under the stock plan and explain why the existing share reserve is insufficient to meet future needs. Consider citing your current burn rate and anticipated shares needed for new grants over the next year.
-
Explain how the remaining shares in the reserve and the new shares will be used and how long the new share reserve is expected to last.
-
Describe how you determined the number of shares you are requesting approval of.
– Barbara
Tags: disclosures, lawsuits, lawyers, plaintiff attorneys, proxy, shareholder approval, shareholder vote, stock plan proposals
With the NASPP Conference just barely behind us, today I highlight some tips I picked up on working with your lawyers from one of the sessions at the Conference. While most of us dread having to run projects past legal, the fact is that your lawyers (both in-house and outside counsel) can be an important and helpful member of your team, as demonstrated by the session “Face Your Demons: How You and Your Stock Plan Lawyer Can Work Together More Effectively” (a complete production with skits, props, and even audience participation, the session also demonstrated that even lawyers can have a sense of humor).
Face Your Demons: How You and Your Stock Plan Lawyer Can Work Together More Effectively
Negotiating Vendor Service Agreements / Business Contracts
Your lawyers provide valuable assistance in reviewing vendor service contracts. For one thing, they are probably better at reading fine print than you are (and you don’t really want to read those contracts yourself anyway, do you)?
The salesperson may present the contract as a form agreement, but this is rarely the case. Your lawyers can spot important service limitations that might impact your business–such as limited customer support hours–or gaps in the services that are provided that might later prove critical and can help you modify the contract to better meet your needs.
Lawyers also make excellent partners in negotiations. While many of us are uncomfortable with negotiating, lawyers are typically good at it. Let them play the bad cop to your good cop and take some of the pressure off yourself.
Reduce Exposure of Audits and Litigation / Secure Better Value from Outside Counsel
Of course, one of the tasks lawyers do best is compliance–look to your lawyers for assistance with understanding the potential risk of an audit or litigation–including the likelihood of such an event occurring, possible penalties, and even “softer” impacts, such as public perception and employee morale. This allows you to make informed decisions when evaluating procedures and plan designs. Should you become aware of a compliance failure, your lawyers should be one of your first phone calls (after your manager, of course); they can help you assess the gravity of the situation and strategize an appropriate response.
And, because your lawyers are working with many different clients (and also know other lawyers that have lots of clients), they can be a valuable source of information on industry trends and best practices. Before deciding on a process or design, check with outside counsel to find out if there is a better way.
Solicit More Proactive Legal Advice
When implementing new plans or programs, don’t wait until it’s too late to talk to your lawyers. Get their input early in the process, while you can use their input to shape the program (e.g., making sure there aren’t any unexpected compliance pitfalls or better approaches). And don’t be afraid to push back–working with your lawyers should be a back and forth process.
Navigate Evolving International Issues
I’ve said it before, but it bears repeating–a global stock plan is not a do-it-yourself project. No matter how few employees or countries are involved, never offer stock compensation to non-U.S. employees without consulting outside counsel. (Think about it, you would never implement a plan in the United States, even for just a handful of employees, without legal assistance. The laws aren’t any less complex outside the United States.)
In addition to seeking their advice when new programs are implemented, consider meeting with your outside counsel on a regular basis (e.g., quarterly) to review developments outside the United States that might impact your plans so you can determine if further research is needed.
Did you miss this session? It’s not too late to hear the presentation; purchase the audio and materials today!
It’s Renewal Time
All NASPP memberships expire on a calendar-year basis. Renew your membership today and avoid the last minute rush on December 31.
Join Now and Get Three Months Free!
If you aren’t currently an NASPP member, now is the time to become one! Join the NASPP for 2011 and you’ll get the rest of 2010 for free. Tell all your friends!
Don’t Miss Out–Conference Audio Available
If you weren’t able to attend the Conference or did attend but couldn’t get to all the sessions you wanted to (and with over 40 sessions, who could?), you can download the audio from any and all sessions in MP3 format. Purchase just the sessions you want or save by purchasing a package of sessions.
NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog.
– Barbara
Tags: administration, compliance, contracts, lawyers, service providers