Proxy Litigation Update: Companies Should Prepare for Potential Proxy Disclosure Litigation in Connection with Approval of Equity Compensation Plans and “Say-on-Pay” Vote

Sullivan & Cromwell LLP - March 20, 2013

Plaintiffs’ attorneys have continued to bring, or threaten, litigation against U.S. companies following the filing of their annual proxy statements. These complaints generally allege disclosure deficiencies in connection with the approval of equity compensation plans and/or the advisory shareholder “say-on-pay” vote and, as with merger-related “strike suits,” seek to enjoin the annual meeting. Early cases gained some traction, resulting in settlements yielding additional proxy disclosures and legal fees for the plaintiffs, though most companies have resisted settling. While some companies have taken the heightened litigation risk into account in crafting 2013 proxy disclosure, it seems likely that no level of disclosure can protect companies from receiving or being threatened with a complaint. Accordingly, companies should prepare to defend their disclosure in light of the increase in litigation.