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LEGISLATIVE & REGULATORY NEWS

New NLRB "Joint Employer" Standard Has Outsourcing & Franchising Implications

In what is being characterized as a "landmark" ruling, a three member majority of the five-member NRLB set a new union-friendly standard for determining joint employer status in its decision in the Browning-Ferris Industries (BFI) proceeding last month. Under the former long-standing test, a company or other entity that didn't directly employ workers who provided it with services would only be deemed a "joint employer" if it shared or co-determined those matters governing the essential terms and conditions of employment, and exercised direct and immediate control over those terms and conditions.

Under the new standard, two or more entities are joint employers of a single workforce if:
  • They are both employers within the meaning of the common law;  and
  • They share or co-determine those matters governing the essential terms and conditions of employment.
In evaluating whether an employer possesses sufficient control over employees to qualify as a joint employer, the NLRB will consider, among other factors, whether an employer has exercised control over terms and conditions of employment indirectly through an intermediary, or whether it has reserved the authority to do so.

In Browning-Ferris, triggered by a union's petition to represent sorters and other workers at BFI's facility, the Board's majority concluded that BFI was a joint employer of over 200 workers employed with a contracted staffing agency despite the fact that BFI didn't directly hire, discipline or fire any of the staffing agency employees. According to the NLRB's release, in finding that BFI was a joint employer, the majority relied on "indirect and direct control that BFI possessed over essential terms and conditions of employment of the employees supplied by Leadpoint as well as BFI's reserved authority to control such terms and conditions."

See also these Haynes & Boone and DLA Piper (addressing franchising) memos, these Associations Now and National Council of Nonprofits articles addressing the potential impact of the new standard on non-profits, and this article from The Hill describing Congressional Republicans' efforts to effectively reverse the ruling.

DOJ Issues New Guidance on Individual Accountability for Corporate Wrongdoing

Last week, the DOJ issued new guidance in the form of this memo from Deputy Attorney General Sally Quillian Yates designed to further its efforts to hold responsible individuals accountable for corporate misconduct. Importantly, the guidance appears to eliminate the potential for partial cooperation credit. By its terms, the guidance - which purportedly reflects best practices as well as new measures - will apply to all future investigations of corporate wrongdoing, as well as pending matters to the extent  practicable.

The memo outlines these six "key steps" to strengthen the DOJ's pursuit of individual corporate wrongdoing:
  • In order to qualify for any cooperation credit, companies must provide to the DOJ all relevant facts relating to the individuals responsible for the misconduct;
  • Criminal and civil corporate investigations should focus on individuals from the inception of the investigation;
  • Criminal and civil attorneys handling corporate investigations should be in routine communication with one another;
  • Absent extraordinary circumstances or approved departmental policy, the DOJ won't release culpable individuals from civil or criminal liability when resolving a matter with a company;
  • DOJ attorneys shouldn't resolve matters with a company without a clear plan to resolve related individual cases, and should memorialize any declinations as to individuals in such cases; and
  • Civil attorneys should consistently focus on individuals as well as the company, and evaluate whether to bring suit against an individual based on considerations beyond that individual's ability to pay.
See also Yates' remarks announcing the new policy, this New York Times article quoting Yates' interview remarks,  this King & Spalding memo, and this MH&L article.

NYSE Amends Rule on Advance Notification of Material News Dissemination

On September 2nd, the NYSE published this Notice for comment on a proposed rule change concerning listed company requirements to notify the Exchange prior to dissemination of material news. The proposed rule was declared immediately effective pursuant to 15 U.S.C. 78s(b)(3)(A). Specifically, the proposal amends Section 202.06 of the Listed Company Manual to:
  • Expand the pre-market hours during which listed companies are required to notify the Exchange prior to disseminating material news from "shortly before" the opening of trading at 9:30 a.m to 7:00 a.m., and
  • Provide the Exchange with authority to halt trading:
    • During pre-market hours at the company's request,
    • When the Exchange believes it is necessary to request certain information from the company, and
    • When an Exchange-listed security is also listed on another national or foreign securities exchange and such other exchange halts trading in such security for regulatory reasons.
The proposal also requests that companies intending to release material news after the close of trading on the Exchange wait until the earlier of the publication of their stock's official closing price, or 15 minutes after the scheduled closing time, on the Exchange, and updates the approved methods for release of material news to be consistent with current disclosure practices and technology.

See also this Gibson Dunn blog.

IIA Calls on SEC to Require Internal Audit Function & Related Disclosures

In response to the SEC's Audit Committee Disclosure Concept Release, the Institute of Internal Auditors (IIA) filed this comment letter last week calling on the SEC to require that all public companies have an internal audit function whose conduct conforms with globally recognized standards or, at a minimum, to require companies to disclose why they don't "support internal audit as necessary to effective corporate governance." The letter also recommends requiring these related audit committee disclosures to help investors understand and evaluate audit committee performance:
  • Whether the internal audit function has the stature, independence, and resources to fulfill its mission "to enhance and protect organizational value by providing risk-based and objective assurance, advice, and insight," and
  • Whether the internal audit function is performing in accordance with globally recognized standards, such as the IIA's International Standards for the Professional Practice of Internal Auditing.
SEC Ordered to Accelerate Resource Extraction Disclosure Rulemaking

On September 2nd, the U.S. District Court for the District of Massachusetts ordered the SEC to file with the Court within 30 days an expedited schedule for promulgating the final resource extraction rule in connection with the Oxfam America vs. SEC proceedings. Section 1504 of the Dodd-Frank Act requires "publicly traded oil, gas, and mining companies," or "resource extraction issuers," to disclose payments made to foreign governments or the federal government for the commercial development of oil, natural gas or minerals.

Section 1504 required the SEC to issue a rule implementing the new disclosure requirements no later than 270 days after the date of enactment of Dodd-Frank, or April 17, 2011; however, as outlined in Davis Polk's blog, the rulemaking became mired in litigation. The SEC's most recent Reg Flex Agenda tagged the rulemaking with an April 2016 date.

Commissioner Gallagher Sets "No Later Than" Departure Date of October 2nd

SEC Commissioner Gallagher announced on September 4th his intent to leave the Commission on the earlier of the appointment of his successor or Friday, October 2, 2015. As previously reported, Gallagher announced in May his plans to leave the SEC upon confirmation of a successor by the Senate in advance of the expiration of his 5-year term, which ends in 2016. SEC Chair White reportedly is uncertain as to when Gallagher's and Aguilar's (whose term expired in June) successors will be appointed, but stated that that there would be "no hiatus in the work of the Commission." See also this Wall Street Journal article and this Bainbridge blog discussing potential successor George Washington University Law School Prof. Lisa Fairfax, and this InvestmentNews article.

Most Institutional Investors Satisfied with Current Standard Audit Scope

The PCAOB Investor Advisory Group meeting on September 9, 2015 covered several topics (archived webcasts and podcasts available here), including the results of an institutional investor survey designed to elicit the high-level views of investors on audit oversight issues for the Board's consideration. Key survey results (reflected on these slides) include:
  • 74% of respondents indicated that the current scope of the standard independent audit is "about right"
  • 55% of respondents reported having either most or all of the information needed to assess the quality of the external audit
  • 61% of respondents indicated complete or "a good bit" of confidence that audit committees adequately represent the interests of investors
In related news, SEC Chair White reportedly told reporters at that meeting that the SEC is "identifying interested and qualified candidates" to chair the PCAOB upon the expiration of Chair James Doty's term in October.

Multi-State, Multi-Industry Business Coalition Backs Regulatory Accountability Act

On Monday, an impressive 52-state, multi-industry coalition of business groups and the U.S. Chamber of Commerce sent this letter to members of the Senate Homeland Security and Government Affairs Committee expressing their support for the Regulatory Accountability Act of 2015, and encouraging them to support the bill. Among other things, the bill reportedly would force federal agencies to conduct a cost-benefit analysis and adopt the least costly or most cost-effective approach when a proposed rule's economic impact exceeds $1 billion annually.

SEC Advisory Committee on Small & Emerging Companies Calls Public Meeting

The SEC Advisory Committee on Small and Emerging Companies announced it will hold a public meeting on September 23, 2015 at 9:30 a.m. at SEC headquarters in Washington, DC.  The agenda for the meeting includes matters relating to rules and regulations affecting small and emerging companies under the federal securities laws. The meeting will be webcast on the SEC's website.

UN Releases Model Guidance on ESG Reporting for Stock Exchanges Globally

Last week, the United Nations released this Model Guidance on ESG Reporting designed to help stock exchanges develop their own, customized voluntary guidance to issuers on reporting ESG information. The guidance purportedly addresses increasing consistency in institutional investors' incorporating material ESG factors into their investment decision-making and their corresponding need for quality ESG information, and includes the business case for reporting ESG data as well as basic principles to guide the reporting process.
Company News

Report Reveals Continued Uptick in Voluntary Audit Committee-Related Disclosures

EY's new report, Audit Committee Reporting to Shareholders, reveals these and other noteworthy findings concerning Fortune 100 audit committee-related disclosure practices during the 2015 proxy season:
  • 71% of companies specified that the audit committee is responsible for the appointment, compensation and oversight of the auditor, compared to 41% in 2012.
  • 61% of companies disclosed that the audit committee was involved in the selection of the audit firm's lead engagement partner. In comparison, no companies did this in 2012.
  • 80% of companies noted that they consider non-audit services and fees when assessing the independence of the external auditor, compared to 11% in 2012.
  • 21% of companies disclosed that the audit committee was responsible for the auditor's fee negotiations. In 2012, none of the companies provided this disclosure.
  • Auditor tenure was disclosed by 59% of companies - compared to 25% in 2012.
  • 58% of companies explicitly state their belief that their selection of the external auditor is in the best interests of the company and/or shareholders, up from 3% in 2012.
  • 41% of companies disclosed that the audit committee considers the potential impact of rotating their external auditor, up from 3% in 2012.
Additional disclosure enhancement trends include grouping audit-related disclosures together, and creation of an "audit-related" section of the proxy statement or inclusion of more audit-related information in the audit committee report.

Original Thinking & Creative Ideas to Improve Disclosure Effectiveness

Argyle's new Disclosure 2020 is a noteworthy addition to the increasingly abundant informal guidance concerning how to improve disclosure effectiveness for the benefit of investors and other stakeholders. This reader-friendly publication proposes new and creative approaches supported by suggested concrete steps that can (and are intended to) be easily tailored to individual companies across a number of key proxy and Form 10-K topic areas including risk factors, directors and the board, key committees and committee reports, and executive compensation. Content suggestions are accompanied by proposed practical, topic-specific and global document design and dissemination considerations that further enhance document readability and appeal.

Equilar Launches BoardEdge to Facilitate Board Succession Planning

Last week, Equilar launched BoardEdge, an online tool designed to facilitate board succession planning. According to the literature, BoardEdge facilitates board composition benchmarking via an online searchable database that identifies key attributes for over 100,000 public company directors including age, tenure, gender, share ownership and industry experience. Database users purportedly also may search for directors and executives with specific experiential and demographic criteria to fill sought-after candidate qualifications, and identify existing connections for potential outreach opportunities.
Proxy Season News

2015 Proxy Season Wrap-Up


PwC & Broadridge released their final ProxyPulse report for the 2015 proxy season for over 4,000 meetings held between January 1 - June 30, 2015. Key results include:
  • As previously reported, retail investors voted against proxy access in significant numbers (85% against, which is generally in line with management's recommendations) compared to institutional investors, which voted predominantly in favor (61% "for")
  • Just 10% of companies failed to garner at least 70% support for their say-on-pay vote, compared to 13% last year
  • Of 57 shareholder proposals to split the CEO/Chair roles, only three received majority support
  • 98% of directors received majority shareholder support, and 82% received at least 90% shareholder support
  • 69% of directors report having direct communication with institutional investors, compared to 66% last year.
Investor News

Institutional Investor Coalition Targets Companies' Labor Practices and Disclosures


The Wall Street Journal reports that The Human Capital Management Coalition is pressing companies such as Gap and Wal-Mart for details about - and potential changes to - their "human capital management" (HCM, or labor) practices. The Coalition, which purportedly includes 24 institutional investors (including, e.g., the Office of NYC Comptroller Scott Stringer, Amalgamated Bank, CalPERS), aims to encourage enhanced disclosure of HCM practices and key performance indicators and improved practices and performance, and elevate board and senior management attention to HCM, in order to preserve shareholder value over the long-term.

Investor Voice Seeks ISS Policy for Simple Majority Vote Counting Standard

In furtherance of its simple majority vote counting shareholder initiative formally launched in March and ISS's 2016 benchmark policy survey (closed September 4th), Investor Voice called on investors to communicate their desire for an ISS policy that would support shareholder proposals seeking a simple majority vote-counting standard by submitting one of two alternative sample supporting comments posted on the Investor Voice website.

As previously reported, the initiative is based on an analysis of the theoretical impact on the vote outcomes of having used a "simple majority" formula (For/For plus Against votes) for all votes cast on shareholder proposals over the past 11 years (6,379 discrete ballots), as compared to other formulas that were actually used for those proposals that counted abstentions in the denominator. However, that analysis doesn't take into account that some investors, such as Vanguard, have historically, deliberately used their abstentions to effectively count as "no" votes on social issues - decisions that they generally believe to be the province of company management.

CII Opposes Appropriations Bill; Seeks More Funding for SEC

CII sent this letter on Monday to the Chair and Ranking Member of the Senate Committee on Appropriations requesting they oppose passage of the current fiscal 2016 Financial Services and General Government Appropriations bill unless and until it is amended to increase the SEC's budget consistent with what Chair White indicated was necessary for the Commission to fulfill its objectives. As previously reported, the bill's level of funding is $222 million below Chair White's and the President's budget request. The letter notes that the SEC - albeit perhaps imperfect - is the only agency explicitly charged with, and focused on, protecting investors.
Cases of interest

Court's Dodd-Frank Whistleblower Interpretation Creates Circuit Split

Last week, the U.S. Court of Appeals for the Second Circuit reversed and remanded a decision of the Southern District of New York concerning the applicability of Dodd-Frank's whistleblower protection provision to internal-only complaints. In Berman v. Neo@Ogilvy, the Second Circuit deferred (in a 2-1 decision) to the SEC's interpretation that Dodd-Frank's anti-retaliation provisions extend to whistleblowers who report only internally within the company and not to the SEC. The District Court had previously dismissed the whistleblower's claim on the basis that the whistleblower protections apply only when violations are reported to the SEC. Notably, the Second Circuit's ruling is at odds with the Fifth Circuit's decision in Asadi v. G.E. Energy (USA), LLC.

Proskauer identifies these potential implications of the Second Circuit's decision: 
  • It creates a clear circuit split that may ascend to the U.S. Supreme Court and may engender uncertainty in the meantime. 
  • Employers can expect more federal complaints under Dodd-Frank from individuals who blow the whistle within the company but not to the SEC. 
  • Whistleblowers may be more likely to invoke Dodd-Frank rather than SOX, thereby bypassing the DOL's adjudicative scheme, because Dodd-Frank offers substantially greater backpay and a much longer statute of limitations than SOX. This implication underscores the risk that this decision effectively eviscerates the SOX whistleblower protection provision.
Inside the huddle

This week's highlighted question from the Huddle is:

Would anyone be able to share with me how other companies handle actions of a parent company in its capacity as the sole shareholder of a subsidiary (e.g., electing subsidiary directors, amendments to the subsidiary's articles of incorporation requiring shareholder consent)? Do you require an action of the parent company board (e.g., via board resolution) or these matters handled by an officer of the parent company?

This question generated a lot of activity and many excellent answers (too many to note here) including:

We hold an annual organization meeting each year after our shareholders meeting during which we conduct the annual meetings of each subsidiary company. For the smaller subsidiaries, the board of the holding company authorizes the CEO to sign the ballot to elect directors, then the directors of each subsidiary act by written consent to elect a chairman, elect officers and affirm prior actions. The whole meeting is scripted and prepared in advance. It takes about 15 minutes to get through the script, and about 5 minutes to gather signatures.

If the subsidiary company board needs to take action during the year, it is generally done by written consent. An action of the sole shareholder is written and signed by the CEO of the holding company.

Check out the Society Huddle.
Articles/postings of interest

See other recently posted Articles of Interest.

Also, just a reminder that you can find additional topic-specific articles and other resources here.
 
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