While the days of being “Lerached” are thankfully long gone, a new potentially litigious trend in the public company world seems to be emerging.
This time the subject is executive compensation. And unlike
those days prior to the infamous class-action lawyer William Lerach getting “Lerached”
himself, this time more than one law firm may be joining the fray.
I’m not one for being an alarmist, so don’t start worrying yet. But one never knows, and perhaps PW Insight will be breaking this story first. Just be aware that after two years of Say-on-Pay being part of the proxy lexicon, it seems that suddenly a number of law firms are launching “investigations” into potential breaches of fiduciary duties by boards of directors, seeking executive compensation approval.
Funny thing is that while the law firms are writing directly to these companies, they also are issuing press releases over the national wire services. So far that we can tell, no company has publicly responded to the allegations. And they shouldn’t.
All of the press releases we have reviewed thus far appear to use the same copycat language. They also have embedded links for interested shareholders to contact these law firms with words like “protect your investments, free of charge,” not to mention “Attorney Advertising” posted on the bottom of each release. Kind of a sick way of soliciting business, don’t you think?
While the 2013 proxy season is still far away, and perhaps nothing will come of this, public companies nevertheless must pay attention.
According to a recently published paper by law firm Paul Hastings titled, “Staying in Front of Shareholder Litigation Challenges to Executive Compensation,” nearly 80 companies failed to receive majority support on executive compensation since the Say-on-Pay rule was enacted. The paper concluded that executive comp issues are “poised to escalate” and advised that companies should consider strengthening reliance upon the advice of independent, outside consultants by adapting “new corporate best practices” and engaging separate, independent compensation consultants for both the compensation committee and the board.
Everyone’s trying to be innovative in making a buck these days. Hopefully, however, we will not see the return of Lerach-style tactics as part of the marketing process.
— Roger Pondel, email@example.com