The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Here’s an excerpt from Latham’s Jim Barrall‘s news over on “The Conference Board Blog“:

In a very important development in the current proxy disclosure litigation wars relating to annual meeting votes, last Thursday the Santa Clara County Superior Court sustained Symantec Corporation’s demurrer in Natalie Gordon vs. Symantec Corporation dismissing a shareholder lawsuit which had sought declaratory relief and damages against Symantec and its directors based on allegations that the directors had breached their fiduciary duties by failing to provide adequate disclosure to shareholders regarding Symantec’s say-on-pay vote in the company’s August 2012 proxy. (For background on the annual vote proxy disclosure litigation cases, see my recent post and Latham’s commentary.)

While the court’s earlier denial of the plaintiff’s motion to preliminarily enjoin Symantec’s annual say-on-pay vote (in October 2012) was welcome and important news to public companies and their advisors (especially since the same court had previously granted a shareholder’s motion to preliminarily enjoin an equity plan approval vote in Stephen Knee v. Brocade Communications Systems), as a decision on the merits, the court’s Thursday decision will be even more valuable than the injunction denial decision to companies in defending proxy disclosure lawsuits.

In its Symantec complaint, the plaintiff alleged on behalf of shareholders as a class that Symantec’s directors had breached their fiduciary duties to shareholders by failing to provide adequate disclosure in support of the company’s say-on-pay vote proposal, pointing to eight alleged deficiencies. Among the eight alleged deficiencies (proving that no good deed goes unpunished, no matter how well trumpeted) were that Symantec had failed to disclose how the board had determined to shift its executive officer pay targeting from 65th to 50th percentile of its peer group and how it had determined to increase officer ownership guidelines and implement a requirement that officers hold at least 50 percent of their after-tax equity grants.

After dispensing with some procedural issues, the court recited the applicable legal standards governing the adequacy of proxy disclosures, namely that directors have a duty to fully and fairly disclose all material information within their control when seeking shareholder action, and that information is material if there is a substantial likelihood that that a reasonable shareholder would view it as significantly altering the “total mix” of information if it were to be made available. The court then applied these standards to each of the alleged deficiencies and concluded that the additional disclosures sought by the plaintiff were not material in view of all of the other information in the proxy, and that the plaintiff had failed to state a cause of action. The court gave the plaintiff ten days leave to amend the complaint to attempt to state a cause of action.

Jim’s analysis of the possible implications of this development are at the bottom of this blog. Here’s the court correspondence since inception (relates to annual meeting from last year).