On January 27, the SEC announced that it will host a roundtable to discuss ways to improve the proxy voting process, focusing most specifically on universal proxy ballots and retail participation in the proxy process. Divided into two panels, the roundtable will focus on (i) “the state of contested director elections and whether changes should be made to the federal proxy rules to facilitate the use of universal proxy ballots by management and proxy contestants;” and (ii) “strategies for advancing retail shareholder participation in the proxy process.” The roundtable is scheduled to take place on February 19 in Washington, D.C.
On December 16, the FDIC issued Financial Institution Letter FIL-60-2015 announcing the final rule amending filing requirements and processing procedures for notices filed under the Change in Bank Control Act. The final rule applies to all FDIC-supervised institutions, including those with assets under $1 billion. Some of the changes brought by the rule, effective January 1, 2016, include (i) consolidating and conforming the change-in-control regulation of state savings associations and rescinding prior regulation and guidance transferred from the Office of Thrift Supervision; (ii) adopting presumptions of acting in concert with the other federal banking agencies; (iii) defining terms that were previously undefined, such as “voting securities”; (iii) establishing reporting requirements for stock loans held by foreign banks and their affiliates, and for a CEO and bank director following a change of control; and (iv) subject to waiver, requiring a person who was approved to and has acquired control of a covered institution to file a second notice if that person’s ownership, control, or power to vote will increase to 25% or more of any class of voting securities.
On September 8, the Court of Chancery of the State of Delaware upheld a bylaw of a Delaware corporation that designated an exclusive forum other than Delaware for resolution of actions against the company and its directors. City of Providence v. First Citizens BancShares Inc., No. 9795-CB, 2014 WL 4409816 (Del. Ch. Sept. 8, 2014). The company adopted the forum selection bylaw on June 10, 2014, the same day it announced a merger agreement with a holding company incorporated and based in South Carolina. The clause states that any (i) derivative action or proceeding brought on behalf of the company, (ii) claim of breach of fiduciary duty brought against a director, officer, or other employee, (iii) action brought under the General Corporation Law of Delaware, and (iv) action brought under the internal affairs doctrine must be brought in the Eastern District of North Carolina (or, if that court does not have jurisdiction, any North Carolina state court with jurisdiction). The plaintiff challenged that provision as invalid under Delaware law and/or public policy. The court granted the defendants’ motion to dismiss, relying on analysis used in Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A.3d 934 (Del Ch. 2013) (upholding a forum selection clause requiring litigation relating to internal affairs of a company take place in Delaware). The court held that the forum selection clause was facially valid, explaining that the fact that the forum selected was outside of Delaware did not raise any concerns about the clause’s validity, noting that North Carolina was the “second most obviously reasonable forum” because the company is headquartered there. Further, the court noted that the clause stated it was enforceable “to the fullest extent permitted by law,” meaning that any claims that may only be asserted in Delaware were not precluded by the bylaw. The court also rejected the plaintiff’s argument that the company’s board breached its fiduciary duties in adopting the bylaw in question and determined that the plaintiff had failed to demonstrate that it would be “unreasonable, unjust, or inequitable” to enforce the forum selection clause.
AABD Makes Suggestions to Regulatory Agencies Regarding The Burdens Placed On America’s Bank Directors
On September 2, David Baris, President of the American Association of Bank Directors (AABD) and a Partner at BuckleySandler LLP, and Richard Whiting, Executive Director of the AABD, submitted a comment letter to the Nation’s federal bank regulatory agencies in connection with the OCC, the Board of Governors of the Federal Reserve System, and the FDIC’s (the Agencies) request for public comment on their review of “regulations to identify outdated, unnecessary or unduly burdensome regulations for insured depository institutions.” In 2006, the Agencies completed a similar review and the AABD determined it was an “unsatisfactory and flawed process,” and wants to ensure that the same mistakes are not made during this review. Specifically, the AABD urged that during this review, the Agencies should “review regulatory guidance in light of the practical effect of such guidance on the behavior of both bank board of directors and the Agencies.” On behalf of the AABD, Baris stated in a press release that the current laws, regulations and guidance “create a huge and counterproductive impact on bank directors that causes them to divert their attention away from the essential job of being a bank director – that is meeting their duty of care and loyalty by overseeing the institution.” In an effort to address the effects of the “current regulatory system on the Nation’s bank board of directors,” the AABD’s letter included the following recommendations to the Agencies: (i) review current regulations and written guidance to determine their effect on bank directors; (ii) incorporate into their current procedures a requirement that “future regulatory actions consider the impact of proposed rules and guidance on bank directors and not add new burdens unless the benefits of the proposed action clearly outweighs the burdens place[d] on bank directors”; (iii) identify, consolidate, and clarify the provisions that place burdens on bank directors; and (iv) implement rules that allow the board of directors to “delegate management duties to management and rely reasonably on management.”
Comptroller Curry Addresses Senior Management’s AML Compliance Responsibilities, Criticizes “De-Risking”
On March 17, Comptroller of the Currency Thomas Curry reaffirmed his agency’s views with regard to BSA/AML compliance and the responsibilities of senior bank managers and boards of directors. Mr. Curry asserted that BSA infractions “can almost always be traced back to decisions and actions of the institution’s Board and senior management” and that the deficiencies underlying those infractions tend to involve failures in four areas: (i) the culture of compliance at the organization; (ii) the resources committed to BSA compliance; (iii) the strength of information technology and monitoring process; and (iv) the quality of risk management. Mr. Curry reported a recent positive trend, particularly at OCC-regulated large banks, which have increased spending and added BSA/AML compliance staff. He stated that such actions are one aspect of banks’ efforts to align “good compliance practices and the bank’s system of compensation and incentives.” The Comptroller criticized a separate trend of “de-risking”, in which banks avoid or end relationships with types of businesses deemed too risky. He warned that any business can be used for illicit purposes and “de-risking” is not a shortcut to circumvent a bank’s obligation to evaluate risk on an individual basis. He encouraged banks not to avoid high-risk businesses, but rather to apply stronger risk management and controls as necessary.