On August 2, 2013, a California Superior Court1 struck down a putative class action brought by shareholders challenging compensation disclosures in a proxy statement in connection with an advisory “say-on-pay” vote.
In Gordon v. Symantec Corp.2, Plaintiff alleged the Defendant disseminated “materially misleading and incomplete materials” in a proxy statement when it “failed to disclose a fair summary of the advice, counsel and analyses performed and provided to the Board and/or the Compensation Committee” by the committee's compensation consultant. As a result of these purported omissions, Plaintiff alleged that the votes cast by shareholders regarding executive compensation were uninformed and should be recast.
The relief sought by Plaintiff included (i) declarations certifying the class, (ii) a decree that the proxy was issued in breach of the Defendant’s fiduciary duties and that Defendant aided and abetted the breaches, (iii) a rescission of the prior vote, and (iv) an order that the Defendant issue a new, supplemented proxy and schedule another meeting to vote on the proposal.
The court, however, dismissed the suit, holding that the Defendant adequately disclosed its general compensation strategy prior to the shareholder vote on executive pay. The court reasoned that Plaintiff failed to present sufficient evidence demonstrating how the alleged omissions and misinformation would negatively affect the shareholders’ economic interests or impair their voting rights. It was insufficient for Plaintiff to simply allege the “possibility of harm” and fail to establish how any of the purported omissions caused injury to the Defendant’s shareholders.
Although this suit was dismissed, we expect that plaintiffs’ attorneys will continue to bring, or threaten, litigation against companies following the filing of their annual proxy statements. As such, companies should consider crafting proxy disclosures that better protect them from receiving or being threatened with a complaint, while simultaneously preparing to defend their disclosure in the event of litigation.
If you have any questions regarding this case, proxy disclosures or any other executive compensation-related questions, please contact one of the authors, or the Reed Smith lawyer with whom you usually work.
1. Superior Court of the State of California, County of Santa Clara
2. Natalie Gordon v. Symantec Corp. et al., 1:12-cv-231541, Superior Court of the State of California, County of Santa Clara
Client Alert 2013-217