January 31, 2013

Which Way is Up? Describing the Economy in Risk Factors and MD&A

One of the perennial challenges arising this time of year is trying to update Form 10-K disclosure about the state of the economy and the impact on a company's business, results of operation and financial condition. While your 10-K is by no means meant to be a version of The Kiplinger Letter, some discussion of present, past and future economic conditions is usually necessary, particularly in the context of the MD&A and Risk Factors sections of the 10-K.

As we discussed in November-December 2008 issue of The Corporate Counsel, the SEC is of the view that required disclosure need not be firm-specific or not otherwise publicly available; therefore, disclosure about matters such as the economy, industry-specific trends and financing conditions are fair game, even if you would have to be living under a rock not to know that trends in these areas are having an impact on the overall business climate and the business of individual issuers.

The disclosure challenges with regard to these matters became readily apparent in 2008 and 2009, as rapidly deteriorating financial markets and the onset of a severe economic recession caused many issuers to revisit what they said in their periodic reports and registration statements about the economy and their access to capital, and the resulting effect of trends in those areas on their business. A challenge since that time has been what to say in MD&A and Risk Factors in particular about the aftermath of those events, as the economy and financial markets have improved, but underlying concerns remain.

This topic has remained of interest to the SEC Staff in the post-financial crises era, as we continue to see comments from the Staff requesting that issuers address macroeconomic or financing conditions as part of their MD&A. A representative comment that we see from time to time is:

Please consider expanding your overview in future filings to provide insight into material opportunities, challenges and risks, such as those presented by known material trends and uncertainties, on which the company's executives are most focused for both the short and long term. Refer to Section III.A of SEC Release 33-8350. For example, please tell us what consideration you gave to discussing in your overview the impact on your financial condition of the continued weakness in the macro economy and the expansion of your international operations.

The particular challenge that issuers are facing this year is the fact that while the economic recession has ended, the economy remains weak and we are still plagued with high unemployment, shaky consumer confidence and diminished consumer spending. At the same time, we see improvements in the housing sector that run counter to this trends. On the financing front, we are now roughly four years past the financial crisis, and arguably markets have settled for now into what seems like a "new normal." All that said, the macroeconomic and financial markets still seem quite fragile, so significant optimism in disclosures may be going too far. With all of that in mind, here are some tips for revisiting MD&A and risk factors this 10-K season:

1. Are you still describing the financial crisis as if it just happened yesterday? Improvements have occurred since 2008-2009, although access to capital remains a concern. If anything, the financial crisis demonstrated that financing alternatives can be cut off in the blink of an eye, so that is something that remains worth talking about.

2. Are you still describing the macro economy as experiencing a recession? In some cases we have seen disclosure that has not kept pace with the turnaround in the economy, although it should be noted that recent economic data has suggested a contracting economy again (although not long enough to be considered a recession). Given the uncertainty as to the direction of the economy, it is best to balance the discussion of the post-recessionary economy with a description of the uncertainty as to continued economic growth and the possibility of another recession, including a discussion of the potential impact of these trends on the issuer.

3. Are you adequately addressing the potential trends in the global economy? Given the potential impact of the global economy and world market conditions on issuers (including those whose business is principally in the US), it may be appropriate to address conditions abroad, including the continued impact of European debt concerns.

4. As you overemphasizing economic or market trends? As noted in the November-December 2008 issue of The Corporate Counsel, one particular concern is the potential for overemphasis on external economic, market and credit conditions as a source for adverse business trends specific to an issuer. In some instances, issuers may be tempted by the fact that it is much easier to blame or credit the economy than analyze the underlying business considerations. Given this concern, issuers need to strike a balance in discussing both company-specific and macro-economic trends and uncertainties and the potential impact of those trends and uncertainties on the issuer.

An Iran Sanctions Disclosure Risk Factor?

With the clock ticking on issuers trying to determine whether they have to disclose any covered activities involving Iran under new Exchange Act Section 13(r) (see, e.g., the November-December 2012 issue of The Corporate Counsel and Broc's latest blog on the topic), we understand some issuers have been considering whether to add a new risk factor into this year's 10-K about the possibility of having to disclose this information, even if no particular disclosure is required under Exchange Act Section 13(r) after the February 6th effective date. At this point, there doesn't appear to be a one-size-fits-all approach to this sort of risk factor disclosure, although I would suspect that it would only be relevant for those issuers who consider themselves at risk of having their activities (or the activities of affiliates) subject to the disclosure and notice provisions specified in Section 13(r).

More on "The Mentor Blog"

We continue to post new items daily on our blog - "The Mentor Blog" - for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

- CAQ Issues Guide on PCAOB Inspections
- Do LLC Managers and Controlling Members Have Default Fiduciary Duties? Maybe.
- Proposed EU Board Gender Quotas Delayed
- Analysis: Supreme Court Arguments in Amgen Case
- Chamber of Commerce Attacks PCAOB, Asking SEC to Reject Auditor-Audit Committee Rulemaking

- Dave Lynn

January 30, 2013

Supreme Court Will Review Scope of Federal Preclusion of State Securities Claims

As noted in this Dechert update, the Supreme Court granted certiorari last week to resolve a circuit split concerning the extent to which the Securities Litigation Uniform Standards Act of 1998 ("SLUSA") preempts state law claims that indirectly arise out of securities claims. The case could have important implications for investor suits against hedge funds and other investment funds that are not themselves covered by SLUSA, but that are set up for the purpose of investing in equities, options, and other covered securities.

Meanwhile, the briefs are pouring in on the Gabelli v. SEC case before the Supreme Court, including this brief from the SEC. Here is the page containing all the proceedings, orders and filings related to that case...

Webcast: "Activist Profiles and Playbooks"

Tune in tomorrow for the DealLawyers.com webcast - "Activist Profiles and Playbooks" - to hear Bruce Goldfarb of Okapi Partners, Dan Katcher of Joele Frank Wilkinson Brimmer Katcher, Chuck Nathan of RLM Finsbury and Damien Park of Hedge Fund Solutions identify who the activists are - and what makes them tick.

Transcript: "Pat McGurn's Forecast for 2013 Proxy Season: Wild and Woolly"

We have posted the transcript for the webcast: "Pat McGurn's Forecast for 2013 Proxy Season: Wild and Woolly."

- Broc Romanek

January 29, 2013

ISS' New "QuickScore": Companies Should Verify Data by February 15th

I know. Probably the last thing you want to be doing during proxy season. As I blogged recently, ISS has changed its governance rating service from "GRId" to "QuickScore" (the upshot is that it's more like the predecessor CGQ now).

And now ISS is in the process of getting its data verified, with a deadline of input from companies by February 15th - but the real deadline is February 8th because any verification after that won't get ISS feedback til some later date (whereas verification by 2/8 will get you feedback by 2/15). The 44-page technical document is now available - albeit a little dense - and it applies globally so only certain questions apply to US companies, as noted by Davis Polk's Ning Chiu in this blog.

"Whistleblower!: The Movie

Gotta love this brief movie from David Smyth of the "Cady Bar the Door" blog. Love the use of air quotes...

Webcast: "Alan Dye on the Latest Section 16 Developments"

Tune in tomorrow for the Section16.net webcast - "Alan Dye on the Latest Section 16 Developments" - to hear Alan Dye of Section16.net and Hogan Lovells discuss the most recent updates on Section 16, including new SEC Staff interpretations and Section 16(b) litigation.

- Broc Romanek

January 28, 2013

NYSE Revises Its Proxy Distribution Fee Proposal

Last week, the NYSE revised its proxy distribution fee proposal. The revised proposal is intended to move forward the NYSE Proxy Fee Advisory Committee's recommendations and address certain technical changes that were made to the NYSE's initial filing based on comments provided by the SEC.

The new proposal also addresses two Committee recommendations that were not included in the NYSE's initial filing:

1. The NYSE proposes a new "success fee" to encourage brokers to adopt an investor mailbox/enhanced broker internet platform (EBIP). The Committee recommended the NYSE further explore this idea as a possible means to increase voting participation by retail shareholders.

2. The NYSE proposes a new rule related to issuer requests for record date-related NOBO lists where positions above or below a certain level can be eliminated at no extra charge and issuers would only be charged for the positions requested. The NYSE will also codify certain fees already in place in the industry for NOBO list requests.

The revised proposal is subject to further review and comment by the SEC and other interested parties. If the revised proposal was approved by the SEC, the net effect of these proposed changes will result in a modest decrease in overall proxy distribution fees of approximately 4%, with the impact varying depending on your circumstances.

Our Pair of Popular Executive Pay Conferences: A 33% Early Bird Discount

We are excited to announce that we have just posted the registration information for our popular conferences - "Tackling Your 2014 Compensation Disclosures: The Proxy Disclosure Conference" & "Say-on-Pay Workshop: 10th Annual Executive Compensation Conference" - to be held September 23-24th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas for the Conferences.

Early Bird Rates - Act by March 8th: Huge changes are afoot for executive compensation practices and the related disclosures - that will impact every public company. We are doing our part to help you address all these changes - and avoid costly pitfalls - by offering a special early bird discount rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by March 8th to take advantage of the 33% discount.

FINRA Updates Private Placement FAQs

As noted by Nilene Evans of Morrison & Foerster in the "MoFo JumpStarter Blog":

FINRA recently posted two updates to its Private Placement Filing Requirements FAQs. In the first update, FINRA clarified that the Rule 5123 filing obligation applies to private placements to any individual accredited investor, which includes officers, directors and general partners of the issuer (Rule 510(a)(4)) and entities in which all the equity owners are individual accredited investors (Rule 501(a)(8)).

In the other update, it stated that private placements sold solely to accredited investors that satisfy the Regulation D four categories of accredited investors that are not natural persons (Rule 501(a)(1), (2), (3) and (7) are exempt from the Rule 5123 filing requirements. Those categories include the following:

- bank, insurance company, registered investment company, employee benefit plan or small business investment company;
- private business development company;
- charitable organization, corporation or partnership with assets exceeding $5 million; or
- trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

- Broc Romanek

January 25, 2013

Obama Taps a New SEC Chair: Mary Jo White

Yesterday, President Obama named Mary Jo White as the new SEC Chair. Mary Jo served for nearly a decade as the US Attorney for the Southern District of New York, the first woman to hold that post - and more recently has served as the head of Debevoise & Plimpton's litigation practice. It's been a while since a "cop" has been the SEC Chair (maybe ever, as this NPR piece says she is the first former prosecutor to be the Chair) so it should be interesting to see how her tenure might differ from recent Chairs. The confirmation hearings could be interesting due to revolving door concerns, as noted in this article - but also see this article that praises her from all corners. Note that Mary Jo is married to Cravath's John White, who was Corp Fin Director not all that long ago...

When Mary Jo is confirmed, Elisse will go back to her Commissioner job. During her short tenure, Elisse began to lay out her priorities, as noted in this article and this article.

By the way, former SEC General Counsel Dan Goelzer - who was a founding member of the PCAOB (and a long-serving member) - is rejoining Baker & McKenzie in Washington.

The SEC at a Crossroads: Can Things Be Turned Around?

I'm a guest blogger on Columbia Law School's new blog - called "The CLS Blue Sky Blog" - with an entry entitled "The SEC at a Crossroads: Can Things Be Turned Around?" Check it out!

Meanwhile, Keith Bishop weighs in on legal issues he's detected about how the Investor Advisory Committee has functioned so far...

January-February Issue: Deal Lawyers Print Newsletter

This January-February issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:

- Billion Dollar Companies: Not Too Big for Hostile Shareholder Activism
- News from the SEC: Tender Offer Funding Conditions & Dual Track Processes
- Runaway MAC Carve-Outs
- Delaware Enjoins "Don't Ask, Don't Waive" Standstill Provision & Holds Not Per Se Unenforceable (But Use & Effect Should Be Disclosed)

If you're not yet a subscriber, try a 2013 no-risk trial to get a non-blurred version of this issue on a complimentary basis.

- Broc Romanek

January 24, 2013

Checklists: Conflict Minerals Step One

As the Chamber's lawsuit against the SEC's conflict minerals rulemaking remains pending - with briefs being filed recently - companies need to continue gearing up for compliance. We continue to post many resources in our "Conflict Minerals" Practice Area, including this Checklist for Step One...

Court Rules for CFTC & Against ICI & the Chamber of Commerce

Speaking of Chamber lawsuits, the US District Court for DC delivered this decision last month arising from the Chamber of Commerce and Investment Companies Institute (the trade organization for the mutual fund business) suing the CFTC to stop Dodd-Frank rulemaking involving commodity pool operators. The decision has been appealed, along with a motion for expedited consideration of the appeal.

Meanwhile, as noted in this Reuters article, House Oversight Chair Darrell Issa and Rep. McHenry have written to the PCAOB as part of its probe into whether sufficient cost-benefit analysis is being conducted by the PCAOB...

SEC Staff Developing "Accounting Quality Model"

Here's news from Tom White of WilmerHale in his new "Focus on Audit Committees, Accounting & the Law Blog":

In a recent speech, Craig Lewis, the SEC's Chief Economist and Director of its Division of Risk, Strategy and Financial Innovation, described an initiative to develop an "Accounting Quality Model." According to Mr. Lewis, the model will seek "to provide a set of quantitative analytics that could be used across the SEC to assess the degree to which registrants' financial statements appear anomalous."

The model will be designed to identify possible instances of "earnings management," though Mr. Lewis is quick to say that earnings management (as he defines it) is not necessarily indicative of fraud but may reflect permissible applications of GAAP. Without delving too much into the technicalities, the model will identify "total accruals" (difference between cash flow and income before extraordinary items), and then seek to determine, based on a large set of factors, which of those accruals are discretionary and which are non-discretionary. If the discretionary accruals are out of line compared to peer companies, then the company may be flagged for further analysis.

Mr. Lewis indicates that the model's analytics can be used for various purposes, including informing the Division of Corporation Finance's filing review process, use by the Enforcement Division to focus its investigative process, and evaluating claims by tipsters. For most companies, this new model is unlikely to have much impact. But the fact that the Commission staff is developing this model illustrates the SEC's continuing efforts to enhance its ability to carry out its regulatory objectives by "integrat[ing] rigorous data analytics into the core mission of the SEC."

- Broc Romanek

January 23, 2013

Governance Ratings: ISS Changes "GRId" to "QuickScore"

One of the greater challenges last proxy season was ISS rolling out an updated governance ratings service - GRId 2.0 - in the late stages of the proxy season. Last week, ISS sent out the letter below to companies explaining how GRId is changing - including its name - along with a timeline of the new QuickScore launch (it seems there is potential for another "midst of the proxy season" surprise; I'll ask Pat about this during tomorrow's webcast):

Most public companies in established markets worldwide are familiar with Institutional Shareholder Services (ISS) and the corporate governance research and proxy voting services we provide to global investors. One of those services is our Governance Risk Indicators (GRId) database, which was designed to assess companies' governance practices, assigning low, medium and high risk concern levels across practices related to board, executive compensation/remuneration, audit and shareholder rights.

Effective late February/early March 2013, ISS will replace GRId with ISS Governance QuickScore™, which is the first in a suite of ISS QuickScore solutions designed to identify risk within portfolio companies. The ISS Governance QuickScore, which identifies governance risk within a company, will be made available to institutional investors and companies in late February.

Although similar to GRId in concept, ISS Governance QuickScore™ differs in the following ways:

- Methodology - ISS Governance QuickScore uses a quantitatively-driven methodology that looks for correlations between governance factors and key financial metrics, with a secondary policy-based overlay that aligns the qualitative aspect of governance with ISS policy. The methodology is based on best practices across various governance factors, with the number of factors applied varying by region. Details regarding regional factors will be included in a forthcoming technical document.

- Scoring - Moving away from GRId's color-coded concern levels, ISS Governance QuickScore uses a numeric, decile-based score that indicates a company's rank relative to region. Companies will still be assessed on four independent dimensions: board, compensation/remuneration, shareholder rights, and audit, and will also receive an overall Governance QuickScore and assessment. In the latter half of the year, scores relative to industry sector will be introduced.

- Coverage - Initially, ISS QuickScore coverage will encompass 4,100 companies in 25 markets, including the largest 3000 U.S. companies by market cap, the largest 250 Canadian companies by market cap and UK, Europe, Japan and Asia Pacific companies in the MSCI-EAFE index.

Companies within this QuickScore coverage universe will have access to ISS' free data verification site, beginning Monday January 28. At that time, companies can begin to review the data ISS has collected on the QuickScore factors. Note that during this period, only the governance profile for your company will be available for review until Governance QuickScores are published in late February/early March. If you need a log-in ID to the free data verification site, please email us.

ISS Governance QuickScore Implementation Timeline

- January 24 - QuickScore Technical Document and FAQ available for download

- Today through January 25 - GRId data and concern levels remain in effect and are displayed through all current distribution channels.

- January 28 - Data review and verification site opens for companies to review their data against the Governance QuickScore factors. GRId data and concern levels are unavailable.

- February 15 - Data review and verification site closes (although the site will open again and remain open after QuickScores are calculated and released in late February/early March)

- Late Feb/early Mar - ISS Governance QuickScore launches. Governance QuickScores are applied to all 4,100 companies in the coverage universe. GRId is retired. We anticipate a Governance QuickScore launch date on or around February 25, but will confirm/update that date in subsequent communications.

For all covered companies, the ISS Governance QuickScore will be displayed on ISS' proxy research reports beginning with the late February/early March launch.

Over the coming weeks, you will receive a series of informative communications providing additional details about ISS Governance QuickScore that should answer most of your questions. Look for communications next week that will include access to the ISS Governance QuickScore Technical Document, FAQs and sample reports. If you still have questions after receiving these materials next week, you can email us.

Starting in late February/early March, GRId subscribers will see their current GRId view within ICS' Governance Analytics platform replaced with modeling and analytical tools based on the new ISS Governance QuickScore methodology.

ISS Updates P4P Methodology Whitepaper

Hat tip to Ed Hauder of Exequity for notifying us of this development: ISS recently posted its whitepaper detailing its pay for performance (P4P) methodology:

The Evaluating Pay for Performance white paper provides an overview of ISS' approach in evaluating Pay for Performance alignment. Originally published prior to the 2012 proxy season [Note: a revised version of the whitepaper was published in February 2012], the document incorporates further updates for 2013 that describe ISS' new peer selection methodology and approach to measuring realizable pay.

Webcast: "Pat McGurn's Forecast for 2013 Proxy Season: Wild and Woolly"

Tune in tomorrow for the always entertaining webcast - "Pat McGurn's Forecast for 2013 Proxy Season: Wild and Woolly" - Pat McGurn of ISS and the proxy season expert, will recap what transpired during the 2012 proxy season and what to expect for 2013. Please print off these "Course Materials" in advance.

- Broc Romanek

January 22, 2013

Battle Lines Being Drawn: Political Spending Disclosures

Despite the Presidential Election now far behind us, interest in disclosure of political spending continues to be very high by a group of investors. Recently, I blogged about how the number of comments on the rulemaking petition seeking political spending disclosures is now up to 320,000. I also blogged about the likelihood of the SEC proposing rules in this area by sometime in April, as blogged about by Prof. Lucian Bebchuk. The prospect of a rulemaking drew great interest in the media, with over 20 newspapers carrying the story a few weeks back (here is a list of links to those stories). And on "The Mentor Blog," I noted New York State Comptroller has filed a Section 220 books & records lawsuit in Delaware against Qualcomm a few weeks ago. So investors are pressing for more disclosure on numerous fronts.

Now, the Chamber of Commerce has fired back by submitting this 30-page comment letter on the rulemaking petition. As noted by Ning Chiu in this blog, the Chamber's response sounds the alarm by noting that: "A number of recent Commission regulations have been set aside by the courts for failing to satisfy this standard--the Commission should not waste precious public resources on a rulemaking exercise that is similarly doomed to failure." Perhaps some of the Chamber's concerns would be addressed if the DISCLOSE Act ("Disclosure of Information on Spending on Campaigns Leads to Open and Secure Elections Act of 2013") were enacted. Rep. Chris Van Hollen (D-MD) reintroduced the bill - HR 148 - just after the New Year. This battle likely has just begun (although the war has spanned decades)...

Here's an example illustrating the methods being used to attract so many comment letters on this petition. Credo uses this page to facilitate the submission of a form comment letter. Online campaigning continues to grow as I have predicted for years...although I thought it would happen in the annual shareholder meeting context...

Political Spending: What Can You Do Now? Our Checklists & Samples

In our "Political Contributions" Practice Area, I have posted a number of items that can help you navigate this hot topic, including three checklists and a sample monitoring memo. Check them out!

Corp Fin Updates Financial Reporting Manual (Again)

On Friday, Corp Fin indicated that it has updated its Financial Reporting Manual for for issues related to significance testing for related businesses, auditor responsibility for cumulative period from inception amounts, PCAOB requirements for auditors of non-issuer financial statements, and other changes.

- Broc Romanek

January 18, 2013

Meredith Cross to Return to WilmerHale - & the Latest SEC Chair Rumors

Recently departed Corp Fin Director Meredith Cross has decided to return to her old firm, WilmerHale. I'm sure they are very glad to have her back.

And the latest "next SEC Chair" rumors are circulating - although there is a good chance that Elisse Walter may keep the job in my opinion - with Mary Jo White, the former US attorney in Manhattan being reported as under consideration. My own poll of who might be tapped as the next Chair resulted in CII's Ann Yerger getting the most votes (sadly, the poll results have vanished along with the web polling software I was using). I'm sure we will hear many more rumors as Elisse is likely to stay in the job at least through most of this year...

Meanwhile, the debate over crowdfunding continues. See this Huffington Post piece entitled "JOBS Act Rule Poses Early Test of SEC Chairman Walter's Leadership."

Draft Recommendations: Advisory Committee on Small and Emerging Companies

Recently, the Advisory Committee on Small and Emerging Companies posted its recommendations in draft form, including a number of interesting items (eg. setting up of a stock exchange for small companies). There will be a public meeting of the Advisory Committee on February 1st...

How to Do Board Succession Planning

In this podcast, Kris Veaco of the Veaco Group runs down some frequently-asked questions about how to conduct board succession, including:

- Why should boards be thinking about their own composition and succession planning?
- What are some ways boards go about this?
- Who does this work, the board itself?
- How are the results used?

- Broc Romanek

January 17, 2013

Done Deal: SEC Approves "Compensation Committees & Advisors" Listing Standards

Yesterday, the SEC finalized the NYSE & Nasdaq listing standards related to compensation committees and their advisors (here's the NYSE order & Nasdaq order). Last Friday, both exchanges amended their listing standards, as noted in this blog. Here are the effectiveness timetables, as noted in this Cooley news brief:

- NYSE companies will have until the earlier of their first annual meeting after January 15, 2014, or October 31, 2014, to comply with the new standards for compensation committee director independence. All other provisions will become effective on July 1, 2013 for NYSE companies (e.g., provisions relating to the authority of a compensation committee to retain and fund compensation consultants, legal counsel and other compensation advisers and the responsibility of the committee to consider independence factors before selecting or receiving advice from these advisers).

- Nasdaq companies will be required to establish the committee's authority and responsibility under Rule 5605(d)(3) in the committee charter, resolutions or other board action by July 1, 2013. Nasdaq companies will have until the earlier of their first annual meeting after January 15, 2014, or October 31, 2014, to comply with the remaining provisions (including a mandatory charter amendment to establish the authority noted above).

Tune in today for CompensationStandards.com's webcast - "The Latest Developments: Your Upcoming Proxy Disclosures - What You Need to Do Now!" - to hear what you should be doing now in the face of these new rules...

IASB, FASB Chairs Address Possible IFRS Option in US

In FEI's "Financial Reporting Blog," there is news about the latest thinking on the use of IFRS from the Chairs of the IASB and FASB...

More on "The Mentor Blog"

I continue to post new items daily on our blog - "The Mentor Blog" - for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

- SEC's Enforcement Going to Trial More Frequently: Consequences?
- History Speaks: First LLC Registered with the SEC
- The SEC's Role in Enforcing the Federal Securities Laws
- How Much Information Should you Give VCs for Due Diligence?
- Sample: Audit Committee Evaluation of Auditor (& It's PCAOB Inspection)

- Broc Romanek

January 16, 2013

End of the Year Lists: How Was the SEC's Enforcement's Year?

As with the end of every calendar year, lists are made and analyzed. This Reuters article counts the number of settlements by the SEC's Enforcement Division. Meanwhile, this National Law Journal article penned by Enforcement Director Rob Khuzami and Deputy Director George Canellos supports their legacy. The article starts like this:

In his December 3, 2012, column, "SEC enforcement: What has gone wrong?," Columbia Law School professor John C. Coffee Jr. makes a series of claims about U.S. Securities and Exchange Commission enforcement cases. These claims are inaccurate and paint a distorted picture of an enforcement program that has achieved record results in recent years. As a solution to the problems he sees, Coffee proposes that the SEC outsource its biggest cases to private contingency-fee lawyers -- a suggestion that ignores critical differences between the SEC's goals as a regulator and those of a litigant seeking monetary damages.

Finally, it's worth noting this Reuters article entitled "SEC probes Ernst & Young over audit client lobbying."

SEC Approves NYSE's "Methods for Providing Notice" Amendment

Here's news from Cooley's Cydney Posner:

The SEC has just approved an amendment to the NYSE rules regarding the method for providing notices to the NYSE of matters or events where timely notification is essential for investors to take certain actions. Currently, the Manual provides for various methods of notice. Now, the NYSE is providing, in Section 204.00, a new, uniform method of notification through a web-based communication system - either a web portal (egovdirect.com ) or an email address - specified by the NYSE in a prominent position on its website.

The new method will be applicable to notices regarding the following events:

- Closing of transfer books;
- Notice of dividend action or action relating to a stock distribution;
- Meetings of shareholders, notice of the fixing of a date for the taking of a record of shareholders or for the closing of transfer books;
- Redemption of listed securities;
- Notice of corporate action which will result in, or which looks toward, either the partial or full call for redemption of a listed security; notice of dates set in connection with the calling of any meeting of shareholders; and
- Notice by transfer agents of the number of shares outstanding at the end of each calendar quarter.

In emergencies, such as technical problems at the NYSE or the company, companies will be able to provide notifications by telephone and confirm by fax. In addition, where a material event or a statement dealing with a rumor that requires immediate release is made shortly before the opening or during market hours, companies must notify the NYSE using the telephone alert procedures set forth in Section 202.06(B). Under those procedures, the company must give ten minutes notice to its NYSE representative by telephone (along with transmission of the written text) prior to release of the announcement; under the new rule, the written text must now be transmitted using the web-based communication system.

For the remaining notification provisions in the Manual that do not direct companies to follow the new notification methods, companies may use the methods provided for in Section 204.00 or any other reasonable method. (In these other events, more flexibility is permitted because, while the NYSE needs to be informed promptly, the NYSE believes that a company's failure to notify the NYSE immediately would not significantly disadvantage investors.)

The NYSE is also making some technical, clarifying and conforming changes to the "Guide to Requirements for Submitting Data to the Exchange." Finally, the number of hard copies of proxy materials required to be provided to the NYSE is being reduced from six to three.

Webcast: "The Latest Developments: Your Upcoming Proxy Disclosures -
What You Need to Do Now!"

Tune in tomorrow for CompensationStandards.com's webcast - "The Latest Developments: Your Upcoming Proxy Disclosures - What You Need to Do Now!" - to hear Mark Borges of Compensia, Alan Dye of Hogan Lovells and Section16.net, Robbi Fox of Exequity, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn discuss all the latest guidance about how to overhaul your upcoming disclosures including these topics:

- Overview of key lessons from the 2012 proxy season
- The rise of the proxy summary
- Developments with CD&A and executive summaries - including realized/realizable pay
- The impact of the compensation committee and advisor independence rules in 2013
- Hedging and pledging policies in the wake of the 2013 ISS policy change
- Engagement strategies for 2013
- Compensation and governance shareholder proposals

- Broc Romanek

January 15, 2013

The Handbooks: All of Them in One Place

Over the past year, I have blogged about a number of comprehensive Handbooks that we have posted on the site. Many members have asked if we have housed the Handbooks in one spot - and indeed we have. There is a "Handbooks" Practice Area, listed alphabetically among the hundreds of Practice Areas on the left side of our home page. And there are many more Handbooks than I blogged about last year. Take a gander...

Where to List: NYSE or Nasdaq?

I love to note when new securities law blogs emerge and "The Securities Edge" by Gunster's David Scileppi & his colleagues looks very promising. For example, here is a recent entry on a common topic - which stock exchange should a company list upon...

Webcast: "The 'Former' Corp Fin Staff Speaks"

Tune in tomorrow for the webcast - "The 'Former' Corp Fin Staff Speaks" - to hear former Senior Staffers from the SEC's Division of Corporation Finance Brian Breheny of Skadden Arps, Marty Dunn of O'Melveny & Myers, Linda Griggs of Morgan Lewis and Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster weigh in on what you need to be doing for the upcoming proxy season including tackling these topics:

1. Status of conflict minerals & resource extraction rulemakings
2. Status of IFRS
3. Proxy access proposals
4. Cybersecurity disclosures
5. Corp Fin's new Office of Disclosure Standards and possible impact on comments
6. Status of COSO's internal controls project
7. Other shareholder proposals
8. Iran & Syria disclosures
9. Comment responses as part of your disclosure stream
10. Mandatory auditor rotation & other PCAOB rulemakings
.
- Broc Romanek

January 14, 2013

NYSE & Nasdaq File New Amendments to Proposed "Compensation Committees and Advisers" Listing Standards

With the SEC staring at yesterday's deadline for its extension to approve the NYSE & Nasdaq proposals to comply with Rule 10C-1 under the Exchange Act comes this news from Davis Polk's Ning Chiu on Friday:

Both the NYSE and Nasdaq have filed further amendments to their proposed listing standards on compensation committees and their advisers. The amendments copy directly from the exception in Item 407(e)(3)(iii) of Regulation S-K with respect to the proxy disclosure rules for compensation consultants.

The amendments clarify that a compensation committee is not required to conduct the independence assessment of an adviser whose role is limited to (a) consulting on any broad-based plan that does not discriminate in scope, terms, or operation, in favor of executive officers or directors, and that is available generally to all salaried employees or (b) providing information that either is not customized or that is customized based on parameters that are not developed by the adviser, and about which the adviser does not provide advice.

The SEC enhanced proxy disclosure rules in December 2009 permitted these exceptions in response to commentators who suggested that broad-based, non-discriminatory plans and the provision of information, such as surveys, that are not customized, should not be treated as compensation consulting services that would raise conflict of interest concerns.

The NYSE amendment also added language indicating that nothing in the section requiring a compensation committee to consider the specific adviser independence factors is intended to limit compensation committees from selecting or receiving advice from any adviser that they prefer, including ones that are not independent. NASDAQ already had a similar statement.

My ten cents: Given that the SEC's deadline to act was yesterday - and a statement is in both the exchange's latest amendments saying they don't consent to an additional extension for the SEC to act - maybe the SEC will approve the amendments today or soon enough. Since a portion of the new rules will be effective July 1st, they have to give companies time to comply...

FINRA Releases Interim Form for Crowdfunding Portals

Here's something blogged on Friday by Vanessa Schoenthaler in the "100 F Street" Blog:

Last week, FINRA announced that it would begin accepting information on a voluntary basis from prospective crowdfunding portals. FINRA will use the information to better understand the funding portal community and to develop specific funding portal rules.

Prospective crowdfunding portals are encouraged to submit an Interim Form for Funding Portals ("IFFP") as well as any additional information or documentation that might be helpful to FINRA at: fundingportals@finra.org. FINRA will treat the information submitted on a confidential basis.

The IFFP covers general business information, ownership structure, sources of funding , information about management, compensation and a prospective crowdfunding portal's business model.

Once the SEC and FINRA adopt final crowdfunding portal rules any prospective funding portals that file an IFFP will still have to file an application to become a FINRA member.

Mailed: November-December Issue of The Corporate Counsel

We recently mailed the November-December issue of The Corporate Counsel that includes pieces on:

- Say-on-Pay Arrives for Smaller Reporting Companies: Compliance Tips
- D&O Questionnaire Changes
- Hedging and Pledging Policies
- An Update on Say-on-Pay 2.0 Proxy Litigation
- Complying with the New Iran Sanctions Periodic Reporting Disclosure: New Staff CDIs Offer Guidance
- Affiliate-Donor's Form 144--Staff Says Affiliate Should Include Aggregated Donee Sales in Table II
- Effective Date of the Audit Letter
- Our SEC Rulemaking Status Chart
- New Auditing Standard Adopted: No Changes to the Audit Committee Report Yet

Act Now: Get this issue rushed to when you try a 2013 No-Risk Trial today.

- Broc Romanek

January 11, 2013

Survey Results: Compensation Consultant Conflicts Disclosure

As you know, a new SEC rule (Item 407(e)(3)(iv) of Regulation S-K) requires disclosure if a conflict of interest has arisen in connection with the work of a compensation consultant (whether selected by management or the compensation committee). To satisfy this disclosure requirement, companies will need to conduct a conflicts of interest assessment. This raises the question of whether companies will include voluntary disclosure (so-called "negative disclosure") in their proxy statement when a determination of "no conflict" has been made. Here are the results from our recent survey regarding what companies are preparing to do:

1. For our next proxy statement, when it comes to the newly required conflicts of interest disclosure about compensation consultants (ie., Item 407(e)(3)(iv) of Regulation S-K), assuming that no conflict of interest is identified, our company:
- Has made a decision, at least at the staff level, whether to make voluntary negative disclosure (eg., as an anticipatory "best practice" or simply to signal to the SEC Staff and our shareholders that we were aware of the new disclosure requirement) - 62%
- Hasn't yet figured out whether it will make any voluntary negative disclosure - 35%
- I hadn't realized that there is a new conflicts of interest disclosure (and assessment) requirement! - 3%

2. For those of you who know which approach your company will take, our company intends to:
- Only provide disclosure if a conflict of interest is identified - and not provide any voluntary negative disclosure - 25%
- Provide voluntary disclosure that a conflicts of interest assessment was conducted and that no conflict of interest was identified - 67%
- Provide voluntary negative disclosure that works through one or more of the six non-exclusive factors supporting a "no conflict of interest" conclusion - 8%

Please take a moment to participate in our "Quick Survey on Internal Audit" and "Quick Survey on Shareholder Engagement."

SCOTUS Oral Argument: Gabelli v. SEC

On Tuesday, the Supreme Court heard oral arguments in Gabelli v. SEC, a case about the SEC seeking civil penalties after exceeding the usual time limit for fraud investigations. Here are articles about how the hearing went:

- Reed Smith's "The Clock Is Ticking for the SEC... (Or Is It?)"
- SCOTUS Blog's "Argument preview: Too bad both sides can't lose this one"
- Pension & Investment's "Supreme Court hears arguments in Gabelli case on SEC enforcement clock"
- Reuters' "Supreme Court skeptical of SEC power in Gabelli case"
- WSJ's "Justices Skeptical of SEC"
- Securities Law Prof Blog's "U.S. Supreme Court Hears Oral Argument in Gabelli v. SEC"

As noted in this Reuters article, the SEC is being investigated by a House committee for spending on outside consultants during its efforts to streamline the agency.

Conflict Minerals Navigation Checks

In this podcast, Lawrence Heim of The Elm Consulting Group International explains CM CheckPoint (sm), a new rapid and highly cost-effective conflict minerals program assessment method/deliverable facilitated on-site

- What should companies who have already initiated conflict minerals programs be doing now in terms of benchmarking their efforts?
- What is the "CM CheckPoint"?
- How does it stack up to the alternatives?
- What are the reactions from clients so far?

- Broc Romanek

January 10, 2013

The Exodus is Complete: SEC's Enforcement Director Khuzami to Leave

So the rumor was true. Yesterday, the SEC announced that Enforcement Director Rob Khuzami would be leaving the agency after a 4 year tenure. No word as to his next employer - but I imagine it will be lucrative as Enforcement Directors typically earn the most once they depart the agency (which is why Bill McLucas' 8-year stint was always a surprise). Rumored replacements are named in this DealBook piece. Rob's departure means that 3 Division Directors and the General Counsel have all announced departures since Chair Mary Schapiro announced her exit. Wow...

Exodus, movement of Jah people...

Will the SEC Propose Rules on Corporate Political Spending by April?

Ning Chiu of Davis Polk asks the question that I received from so many of you after Prof. Lucian Bebchuk blogged yesterday that the SEC would propose rules in the political spending area by this April (you may recall that Lucian's co-sponsored rulemaking petition in this area has drawn over 320,000 comments!). Lucian's prediction was based on some language in the Office of Management and Budget's Unified Agenda. As Ning blogged, the OMB Unified Agenda includes a list of potential SEC rulemakings with fairly extensive and ambitious timetables.

I think the key term here is "ambitious." All kinds of whacky and aspirational stuff makes it into the Reg Flex agenda, which then winds up as part of the OMB Unified Agenda (in this blog, Keith Bishop explains what the OMB Unified Agenda is). So it's hard to read the tea leaves on this one - although the massive turnover among the SEC's senior staff and the 2-2 split among political parties in the Commission itself makes this bet one where you should seek long odds when it comes to an April timetable for an actual proposal. Then again, this topic is white hot right now...

More on "The Mentor Blog"

I continue to post new items daily on our blog - "The Mentor Blog" - for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

- Delaware Holds Insured's Payment of Defense Costs Doesn't Trigger Excess Insurer's Obligations
- Should You Really Sit on Other Boards When You're a Startup Founder?
- Delaware Court Addresses Caremark, Race to the Courthouse
- Survey: Boards on Auditor Rotation, Proxy Advisory Firms & More
- A Comprehensive Survey of ESG Studies

- Broc Romanek

January 9, 2013

Federal Agency Workplace Survey: SEC's Rank Is #4 Worst Mid-Size Agency

The SEC's status continues to take a hit in the "Best Places to Work" rankings, a survey that evaluates job satisfaction among federal agency employees - hovering at #19 this year out of 22 (note the agency was 5th in '07) and being named the 4th worse place to work among mid-size agencies. Here are the '12 rankings; here's a Washington Post article. The SEC ranked near the bottom in many categories including 18th for leadership; 17th in pay and dead last in performance-based rewards and achievement. The best it did was 13th in the work/life balance category...

GAO Report: Dodd-Frank Cost-Benefit Analysis Finds Some Agencies Not Consistently Following OMB Guidance

A few weeks ago, the GAO issued this report on the cost-benefit analysis conducted by those federal agencies charged with implementing Dodd-Frank. The OMB has cost-benefit guidance but the SEC and some of the other independent agencies are not required to follow OMB's guidance - although they attempt to follow it in principle. As noted in this Compliance Week blog, the GAO's review of 54 Dodd-Frank related rules found that some regulators did not consistently follow key elements of the OMB guidance and did not evaluate their chosen approach compared to the benefits and costs of alternatives.

Webcasts: "Dissecting the Quarterly Earnings Process"

Recently, there have been a large number of earning release snafus - some highly publicized, some not. And then we have these findings from the recent NIRI 2012 Guidance Survey:

- 88% of respondents provide some form of guidance (either financial, non-financial or both), compared to 90% in 2010 and 93% in 2009
- 76% report providing financial guidance compared to 81% in 2010 and 85% in 2009
- 44% provide non-financial (broad market) guidance in 2012, a decrease from 48% reported in 2010 and 55% reported in 2009
- For those that do not provide guidance, the majority (60%) have never done so

Tune in tomorrow for the webcast - "Dissecting the Quarterly Earnings Process" - to hear Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster, Ron Mueller of Gibson Dunn, Ginny Fogg of Norfolk Southern, Robert Lindsey of Dell and Eileen McCarthy of Jet Blue talk about the latest developments in managing the quarterly earnings process.

- Broc Romanek

January 8, 2013

SEC's New GC Hails from the CFTC: Something New

Sock it to me baby! That's something old. Something new is the SEC hiring a former CFTC Staffer for its own senior staff. That happened yesterday as Geoffrey Aronow was tapped to become the SEC's new General Counsel. Geoffrey comes from Bingham McCutchen but he had served as the CFTC's head of Enforcement in the late '90s. As far as I can remember, Geoffrey is the first senior SEC Staffer with a CFTC background. Maybe a merger of the SEC and CFTC is not far behind...

John Polise used to work at the CFTC and is now an Associate Director in OCIE. But he wasn't originally hired at the SEC as senior staff.

Will the SEC's New GC Earn More Than the SEC Chair? Not Likely But Other Staffers Do!

For 2013 - beginning the first applicable pay period beginning after March 27th - the SEC Chair, an Executive Schedule Level III position, will be paid $166,100, and the other Commissioners (an Executive Schedule Level IV position) will be paid $156,300 - and the GC job is an Executive Schedule position that makes less than the Chair. But some mid-level Staffers who have been around a long time make more than $200k (eg. long-tenured SK-17 Staffers) ...

The SEC has a special pay schedule comparable to the Federal banking regulators - the S-K pay scale; not the GS scale that most federal employees get paid under. Plus Staffers receive pay plus a locality percentage based on their office location.

Webcast: "The Litigation Explosion in Executive Compensation"

There has been so much going on with the wave of "Say-on-Pay Litigation 2.0" (although the lawsuits are more than just say-on-pay related) that I have been tempted to blog about it daily (see this Mark Borges' blog and this D&O Diary Blog - as well as this list of cases posted by Faruqi & Faruqi and our own list & memos in CompensationStandards.com's "Executive Compensation Litigation Portal").

But I have held off blogging because I knew you could tune in tomorrow for the CompensationStandards.com webcast - "The Litigation Explosion in Executive Compensation" - to hear Orrick Herrington's Rick Gallagher, Simpson Thacher's Joe McLaughlin and Paul Hastings' Mark Poerio discuss what is involved in the rash of new executive compensation-related lawsuits, as well as how to handle them. Please print off these "Course Materials" in advance.

- Broc Romanek

January 7, 2013

Delaware's New Voluntary Disclosure Program: Is Delaware Really Going Soft on Escheatment?

Last year, I blogged about how Delaware was getting greedy when it came to escheatment. As noted in this memo, in an effort to stem the backlash from Fortune 500 companies incorporated in Delaware, the state is attempting to save face by adopting a sweeping new Voluntary Disclosure program. This new program potentially differs substantially from the approach of the contingent fee contract auditors that Delaware has long relied on for audit enforcement of its unclaimed property laws. For companies that meet the new Voluntary Disclosure requirements and enroll by June 30th, Delaware will reduce the liability reachback period by 15 years, from 1981 to 1996, and waive all interest and penalties.

However, it remains to be seen whether this new VDA program is in fact a legitimate path for fully and finally resolving outstanding unclaimed property obligations, or instead a mechanism by which Delaware secures information to be used in a future audit - a criticism that has often been levied at Delaware's precursor VDA process.

IFRS Foundation Staff's Analysis of SEC Staff Final Report on IFRS

Last month, the IFRS Foundation Staff released analysis of the SEC Staff's July 2012 final report on incorporating IFRSs into the U.S. financial reporting system. The analysis concludes that "[w]hile the size of the US economy relative to other jurisdictions presents significant challenges in transition that are unique to the US, the experience of other countries suggests that many of the challenges can be overcome with the appropriate political will to make a commitment to the mission of a single set of global standards." Here is the IASB's press release.

Transcript: "How the SEC Really Works"

We have posted the transcript for the recent webcast: "How the SEC Really Works."

- Broc Romanek

January 4, 2013

Should the SEC Be Giving Investment Advice?

Maybe this has been happening for a while but this bulletin from the SEC's Office of Investor Education & Advocacy caught my eye because it provides year-end investment considerations. It dishes out advice similar to the type you get from your broker - asset allocation, rebalancing and tax considerations (even mentioning the fiscal cliff). Is this the type of thing that a federal agency should be doing? And as long as the SEC is going over the basics of conventional wisdom, shouldn't it mention to "buy low and sell high"?

CII Petitions SEC for Rule 10b5-1 Guidance

Last week, the Council of Institutional Investors submitted this rulemaking petition to the SEC to tighten rules on 10b5-1 plans (here's a Cooley news brief that describes the petition). Personally, I think we need to see more evidence of abuse beyond the recent WSJ article that piggybacked on this academic study. Anyways. learn more about what you can do to protect yourself know if the wake of all this interest during our upcoming webcast: "Rule 10b5-1 Plans Under Attack: The Latest Practices."

Renew Now for '13: Grace Period Ends Late Today!

As all memberships expired on December 31st, please renew now if you haven't yet renewed your membership for TheCorporateCounsel.net for '13. The grace period for this site will end on Monday night - and you will need to renew to access these upcoming programs:

- "Dissecting the Quarterly Earnings Process" (1/10)
- "The 'Former' Corp Fin Staff Speaks" (1/16)
- "Pat McGurn's Forecast for 2013 Proxy Season: Wild and Woolly" (1/24)
- "Rule 10b5-1 Plans Under Attack: The Latest Practices" (2/5)
- "Conduct of the Annual Meeting" (3/5)

- Broc Romanek

January 3, 2013

Corp Fin's New Position on Use of "Vote All of Board's Recommendations" Button

Recently, Broadridge sent this letter to companies explaining a big change going forward over how voting choices will be displayed. Here is an excerpt from the letter:

Broadridge, transfer agents and other service providers in the proxy distribution industry were recently informed of a new interpretive position being taken by the staff of the SEC that will affect the 2013 proxy season. Under that position, Broadridge and other service providers can no longer present shareholders with a "Vote with the Board's Recommendations" button when soliciting proxies or voting instructions online, over the telephone, or through Broadridge's unique mobile voting platform, unless they are also presented with a "Vote Against the Board's Recommendations" button.

Over the course of the last several months, Broadridge has engaged in an extensive dialogue with the Broadridge Independent Steering Committee, as well as with the SEC, to better understand the SEC's new interpretive position and to explore ways that it could accommodate the SEC's new position in light of its potentially negative impact on retail voting. Due primarily to technical complications presented by director election proposals and the Dodd-Frank required say on pay frequency vote, the presentation of a "Vote Against the Board's Recommendations" option was not currently feasible. Accordingly, after careful consideration, we have developed a new structure to implement this new interpretation to ProxyVote.com, our online voting platform, Mobile ProxyVote, our mobile voting platform and to IVR, our telephone voting platform. Under this new structure, ProxyVote, Mobile ProxyVote.com and IVR will be revised as follows:

ProxyVote.com - The "Vote with the Board's Recommendations" button has been removed and ProxyVote.com has been revised to more closely track the presentation of voting options on proxies and voting instruction forms (VIFs). Specifically, as is currently the case with respect to proxies and voting instruction forms, shareholders are presented with the option of voting on each item individually and are informed of the Board's voting recommendations with respect to each of the items for which their votes or voting instructions are being solicited. Shareholders are encouraged to vote individually and are informed that if they select the "Submit" button without selecting any items individually, their proxies and voting instructions will be cast in accordance with the recommendations of the board of directors.

Mobile ProxyVote - The "Vote with the Board's Recommendations" button has been removed and shareholders are presented with the option of voting on each item individually. Shareholders also are informed of the fact that their votes or voting instructions will be cast in accordance with the recommendations of the board of directors as a consequence of their not voting on each item individually. Shareholders are presented with a link to another page where they can see the recommendations of the board on an item-by-item basis and vote in accordance with such recommendations by selecting the "Submit" button without voting on each item individually.

IVR - Telephone voting will be revised to encourage shareholders to vote individually but will allow shareholders to submit votes or voting instructions without voting individually. Shareholders will need to affirmatively elect not to vote individually. If they do so, they are informed that their votes and voting instructions will, as a consequence, be cast in accordance with the recommendations of the Board of Directors.

This change in position is important as it has the potential to swing more votes than nearly any disclosure in the proxy statement would...

Please take a moment to participate in our "Quick Survey on Internal Audit" and "Quick Survey on Shareholder Engagement."

How Corp Fin's "Voting Button" Position Could Impact the Upcoming Crowdfunding Rulemaking

Perhaps how the SEC tackles crowdfunding will be a sign of whether its regulatory approach is evolving more broadly when it comes to regulating the online display of disclosures since crowdfunding naturally lends itself to the Web, social media and the Internet in general. An evolution is not evident in its proposed rulemaking under Section 201 of the JOBS Act (here's a recent NY Times article about a delay in that rulemaking) - but it still could happen over the next few years since crowdfunders are likely to innovate online in ways that traditional investment banks haven't...

Cybersecurity Act Dies for Second Time

In my opinion, one of the biggest risks to companies - and our country for that matter - is cybersecurity. Disclosure along these lines has improved since the SEC's interpretive guidance a year ago, but I do think more needs to be done. But I wasn't surprised that "The Cybersecurity Act of 2012" failed for the second time in the Senate despite calls from the Administration to pass a bill. It will probably take a major catastrophe to pass something. It is unclear whether the President will issue an Executive Order to create a voluntary set of security standards for major infrastructures, etc. Meanwhile, Fortune 500 companies still need to respond to Senate Rockefeller's letter.

- Broc Romanek

January 2, 2013

The New EDGAR Form Type Called "IRANNOTICE"

Don't get me started on my pet peeve of the way Edgar displays form types using lingo that only a securities lawyer could understand. At least the newest form type somewhat reflects what it's about - this SEC announcement identifies a new EDGAR form type called "IRANNOTICE" for the notices that companies will be filing if they make a disclosure called for by the Iran Threat Reduction and Syria Human Rights Act (which amends Section 13 of the Exchange Act to add new subsection (r)). This separate notice will be separate from the '34 Act filing which includes the disclosure elicited by this new law - and the notice will be part of a company's filing stream on Edgar. More on this notice in this Blank Rome blog.

The SEC's 2012 Fiscal Report: Insights Into the SEC

Been meaning to blog about the SEC's recently released '12 fiscal report and then Davis Polk's Ning Chiu beat me to it with this blog:

The SEC released its 151-page financial report for its fiscal year ended September 2012. The report discusses all of the different areas that the SEC is responsible for, but the governance community is likely most interested in the following in terms of historical and anticipated activities, and some of the more intriguing factual details:

- Enforcement is the headline item noted in the report. The SEC brought 734 enforcement actions, the second highest number filed in a single year (735 were filed in 2011). The report credits innovations, including priority focus on cultivating in-depth expertise in financial markets and products, flatter management structures, better use of technology and enhanced ability for using tips. 21 months is the average amount of time between opening an inquiry and commencing an enforcement action.
- Corporation Finance's Disclosure Operations focused on several key elements of pre-IPO disclosures, including the use of non-GAAP measures and disclosure of dual-class structures, non-financial metrics used by the company, stock valuations and shareholder rights. It takes an average of 25 days to issue initial comments on a filing.
- The new SEC website increased daily hits by almost 300%, to 39 million a day. 48% of public companies were reviewed in 2012.
- Nearly 4,000 people work at the SEC, and the SEC has adopted a "pay for performance" approach for its non-bargaining unit employees.

2013 initiatives cited include the Commission's intention to:

- "Propose and adopt" rules to implement the four executive compensation-related provisions of the Dodd-Frank Act, including clawback policy, pay and performance disclosure, pay ratios and employee and director hedging.
- Develop recommendations for an interpretive release addressing issues raised in the "Proxy Plumbing" concept release.
- Prepare a concept release to seek comments on modernizing 13(d) and 13(g) reporting.

Our January Eminders is Posted!

We have posted the January issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

- Broc Romanek