The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Here’s an excerpt from a blog by Kevin LaCroix:

A shareholder of Symantec had filed a putative class action on behalf of Symantec shareholders alleging that the compensation-related disclosures in the company’s proxy statement were inadequate to permit the shareholders to cast their advisory “say on pay” vote at the company’s 2012 shareholders’ meeting. The shareholder plaintiff had sought a preliminary injunction to require further disclosure. The court denied the motion for a preliminary injunction. The vote took place in October 2012.

After further proceedings, the Court allowed the plaintiff leave to file her complaint. In her amended complaint, the plaintiff continued to seek supplemental disclosure and also sought to have the court require the company to have another say on pay vote following the supplemental disclosure, asserting that that would allow the “informed shareholders to voice their opinions on Symantec’s executive compensation.”

The defendants filed a demurrer to the plaintiff’s amended complaint. The defendants argued that the plaintiffs amended allegations should be dismissed, among other reasons because the claims plaintiff asserted represented derivative claims, not direct claims.

In an August 2, 2013 ruling (here, refer to “Line 3”) California (Santa Clara County) Superior Court Judge James P. Kleinberg sustained the defendants’ demurrer with prejudice. Judge Kleinberg found that the alleged harm that the plaintiff claimed had occurred or that would occur all represented an alleged injury to Symantec, not to the shareholders, and that any benefit that would be produced by the relief the plaintiff sought would inure to the benefits of Symantec. Judge Kleinberg noted that the plaintiff “does not allege how any of the purported omissions caused injury to the Symantec shareholders, and only alleges possible harm to Symantec.” He concluded that the plaintiff’s action therefore was a derivative suit, not a direct action.

However, Judge Kleinberg went on to say that even if the plaintiff has adequately alleged a direct disclosure claim, the plaintiff has failed to sufficiently allege the materiality of the allegedly omitted information. Both with respect to supposedly omitted performance metrics comparing the Symantec executives’ compensation scheme to the peer group and with respect to the summary of peer benchmarking analyses the board’s compensation committee used, Judge Kleinberg concluded, after a detailed review of the allegedly omitted information, that “none of the compensation related information [in the Proxy statement] is rendered misleading by omission of information.” He held that it is “not substantially likely” that the addition of the allegedly omitted information would have “altered the total mix of information available.”

It should be noted that Judge Kleinberg’s decision is in the form of a “tentative ruling.” Under the California procedural practice that I have always found a little puzzling, the parties have the option of contacting the court to “contest” the tentative ruling, which potentially could lead to further proceedings with respect to the demurrer, including among other things, oral argument or further briefing. I note the following assuming that the demurrer in the Symantec case will stand.