FAQ Real Estate Investment Trust Morrison Foerster | 15 In addition, Nasdaq Rule 5210(h) provides that securities issued in a limited partnership roll-up transaction are not eligible for listing unless, among other conditions, the roll-up transaction was conducted in accordance with procedures designed to protect the rights of limited partners as provided in Section 6(b)(9) of the Exchange Act (which section was adopted at the same time as Section 14(h) and requires exchanges to prohibit listing securities issued in a roll-up transaction if the procedures are not satisfied), a broker-dealer that is a member of FINRA participates in the roll-up transaction, and Nasdaq receives an opinion of counsel stating that the participation of that broker-dealer was conducted in compliance with FINRA rules. NYSE Manual Section 105 contains similar provisions regarding the listing of securities issued in a limited partnership roll-up transaction. Are there any recent corporate governance issues that are specific to public REITs incorporated in Maryland? Public REITs confront many of the same corporate governance issues that confront other public companies, such as majority voting in director elections, proxy access (i.e., allowing stockholders to include a nominee for director in a company’s proxy materials) and gender diversity on boards of directors. However, public REITs that are incorporated in Maryland (as most REITs are) are also subject to certain corporate governance issues that are specific to REITs. Beginning with the 2017 proxy season, Institutional Shareholder Services Inc. (“ISS”) began recommending against incumbent directors on a company’s governance committee if there were any undue restrictions on the stockholders’ right to amend the bylaws. Under the MGCL, the charter or bylaws of a Maryland corporation can vest the power to amend the bylaws solely with its board of directors, while Delaware law requires that, in addition to the board of directors, stockholders have the right to amend the bylaws of a Delaware corporation. Until ISS’s policy change, this issue was uncontroversial, and the vast majority of public Maryland REITs gave their boards the exclusive or near-exclusive power to amend the bylaws. Since this policy change, some REITs adopted the ISS position in order to avoid a negative voting recommendation from ISS, while other REITs either took no action or adopted a compromise position (e.g., allowing a stockholder, or a group of up to 20 stockholders, to amend the bylaws but requiring the stockholder or group to have maintained a minimum ownership percentage of 1% or 3% for a holding period of one to three years) due to, among other reasons, that, while directors owe duties to the corporation, stockholders do not have a duty to take action which is in the best interests of a company. ISS will recommend a withhold vote for directors serving on the Nominating and Corporate Governance Committee at companies that have restrictions greater than those imposed by Rule 14a-8 under the Exchange Act (i.e., ownership of at least $2,000 of a company’s stock for one year), but certain institutional investors have been willing to accept some form of a compromise position. On the other hand, many Maryland companies continue to vest in their boards of directors the exclusive power to amend their bylaws. Subtitle 8 of Title 3 of the MGCL (“Subtitle 8”) permits the board of directors of a Maryland corporation to classify (i.e., stagger) the board of directors without stockholder approval, as well as to elect to be subject to certain other statutory provisions, as long as the corporation has a class of equity securities registered under the Exchange Act and at least three independent directors. A classified board is a board of directors that is comprised of different classes of directors, each of which has different service terms—for example, one-third of the directors on a classified board would stand for election each year, whereas all directors of a non-classified board stand for election each year. The ability to classify the board of directors quickly and without stockholder approval provides an important protection against a hostile proxy contest—indeed, it slows the pace of a hostile stockholder by preventing it from replacing the entire board of directors at a single stockholders’ meeting. Classified boards, however, are almost universally viewed unfavorably by proxy advisors, institutional investors and activists that believe classified boards contribute to director entrenchment and result in less accountability to stockholders because not all directors stand for re-election in a given year. As a result, some public REITs (particularly lodging and gaming REITs) have
RkJQdWJsaXNoZXIy NTU5OTQ5