The 2013 proxy season appears poised to mark an inflection point in recent trends related to annual meeting proxy litigation. Last years proxy season saw more than two dozen lawsuits filed or threatened alleging inadequate disclosure in annual meeting proxy statements.
Two types of shareholder proposals served as the basis for the overwhelming majority of such claims: advisory say-on-pay proposals and proposals for the approval of equity incentive plans. Following a successful bid in Knee v. Brocade Communications Systems, Inc. to enjoin Brocades April 2012 annual meeting, several high-profile companies were served with similar lawsuits, and Martha Stewart Living Omnimedia Inc., WebMD Health Corp., and H&R Block were reported to have entered into settlements to avoid the threat of injunction and the potential cost and disruption of rescheduling their annual meetings.
The number of reported cases actually understates the size of the litigation wave. In a number of instances, companies have been contacted confidentially regarding a request for settlement, while in others a demand is preceded by the press release of an investigation of the companys disclosures. The lead role of law firm Faruqi & Faruqi in launching such investigations and representing serial plaintiffs such as Natalie Gordon, who was the plaintiff in cases filed against Microsoft, Cisco Systems, and Symantec, have led numerous practitioners to refer to these claims as a business model, and the defendants in one action to describe the lawsuit as a hold-up.
Although 2013 has seen a number of important court victories by defendant companies, investigation announcements by Faruqi & Faruqi and a March 11, 2013, publication under the title Emerging Trends in Say-on-Pay Disclosure on the firms website attacking the current dismissive attitude regarding the say-on-pay vote due to its advisory nature indicate that the plaintiffs bar is likely to continue to bring claims where they identify an opportunity to do so.
