Highlights From The Society And SSA Annual Conferences

You may have noticed that this issue of the OPTIMIZER is way late, as our 2nd Quarter issue usually is – so we can report a few highlights of the industry’s two best conferences:

From the Society’s Conference in Washington, DC:

• A grand round of discussions on the state of corporate governance – and the role of regulators, activist investors and directors in the process – extended over several of the opening panels. We were especially impressed by Lynn Stout (whose book is briefly reviewed under “summer reading”) who warned that activists who hew to a short-term investing model – many of whom look to buy companies on the cheap, expecting to go public again later – may find no takers if long-term investors continue to be ignored - and, to a degree, one could argue that that day is already dawning.
• Delaware Vice Chancellor Travis Laster delivered a de- tailed case study, wherein several conflicted directors were successfully sued for over $1.4 billion – and explained how “cognitive bias”, “group think” and “confirmation bias” – where directors “invest” in a decision too early — and tend to evaluate information in ways that support the decision, rather than to challenge and probe more deeply – can lead to very bad decisions indeed. (We think this explains precisely why the vast majority of corporate acquisitions fail to gener- ate shareholder value.) He urged Corporate Secretaries and others to bring the issues posed by unconscious biases to the attention of boards – and the NY Chapter will almost cer- tainly find an expert to discuss this in more detail at its Fall Conference.
• SEC Commissioner Troy Paredes provided an overview of the over-full SEC case load, expressing his fear that Dodd- Frank was “distorting private-sector decision making”, con- fidence in their new cost-benefit methodologies and, when prodded from the audience, agreed that a move to greatly simplify corporate proxy disclosures “probably should be higher on the list than it is at present.”
• A panel on “Corporations and the Political Process: Why This Issue is Here to Stay” certainly proved its point by turn- ing into a near hair-pulling match. Kudos to moderator Jake Amsbary for keeping order and for valiantly keeping panel- ists mostly on-task as they vied to talk over one another.
• Several of the concurrent panels were on topics that forced this attendee to hop from room to room, like “Managing Roles and Resources” and “The Future of Director Elec- tions.” Better, for sure than to have too few choices…
• The biggest “scoop” we think, was the disclosure by a big activist investor that they had banned two proxy solicitation firms from entering their premises…because of the way they consistently tried to take over discussions that were expected to be conducted and carried by corporate spokespeople… Who ARE those two, we wonder…Bet we’d all have the same short list of suspects!

At the SSA Conference in San Diego:

• Several great discussions, as always with this group, on how to manage supplier relationships and to get as much value as possible for the money spent. Exelon’s Manager of Shareholder Relations, Tom Boin, took a fresh new tack – and challenged the audience to consider whether some of their “cost-saving strategies” were turning out to be penny wise but pound foolish ones – and whether we are really treating shareholders with all the respect and care they deserve to have…More on this in our next issue, we promise.
• Some important issues on Cost Basis Reporting also came up – and just in the nick of time, we’d say: Most companies, and most TAs are using FIFO as the “default method” if sellers through the Direct Registration System and through Dividend Reinvestment and Direct Stock Purchase Plans fail to specify another one, like LIFO or the “specific lot” method. But for a very large number of large and long-run- ning plans – where stock prices tend to rise over time, which is the driving idea – FIFO tends to maximize the tax hit to the selling investor. We urge companies – and their TAs – to take a fresh look at DRP transaction forms (which, in the old days, gave a choice to “sell all shares” or to “Sell X shares”) and to provide space for “specific lots.” Also - to review their websites and telephone sales scripts to be sure that sellers understand their choices – and their confirmation forms too to, to put holders on notice as to the method used…Other- wise, watch out issuers…say 3-5 years from now: If share- holders realize they’ve paid more taxes than necessary they will blame it on YOU! Also, it seems clear that even though cost-basis reporting applies only to shares purchased after the effective date of the law, it is driving investor demand for cost-basis info on ALL their holdings, back to the very beginning, so hold onto your hats here too…