E-Minders December 2015
In This Issue:
E-Minders is our monthly e-mail newsletter containing the latest developments and practical guidance for corporate & securities law practitioners.
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Catch-Up Now: "Proxy Disclosure/Pay Ratio Conference"
The video archive of this week's pair of Conferences - "Pay Ratio Workshop/Proxy Disclosure Conference" - are posted. Hopefully, you've talked to some of the many that attended this event and heard how much practical guidance was imparted. Our panels really delivered this year - and it's not too late to watch them as you can still register and watch the panels now or when you are gearing up to draft your proxy materials.
Here are all of the agendas. The panels included:
- Keith Higgins Speaks: The Latest from the SEC
The Course Materials included 22-pages of annotated model pay ratio disclosures (in Word to facilitate your starting point) — and 128-pages of detailed analysis of executive pay disclosures made during the 2015 proxy season. Register to catch-up now.
It's Done! 2016 Executive Compensation Disclosure Treatise - With a "Pay Ratio" Chapter! We just wrapped up Lynn, Borges & Romanek's "2016 Executive Compensation Disclosure Treatise & Reporting Guide" — and it's done being printed! This edition has two new key chapters — one on the new SEC's pay ratio rules, with over 60 pages of practical analysis & model disclosures — and one with over 120 pages of sample proxy disclosures and detailed analysis from the 2015 proxy season!
How to Order a Hard-Copy: Remember that a hard copy of the 2016 Treatise is not part of a CompensationStandards.com membership so it must be purchased separately. Act now as this will ensure delivery of this 1600-page comprehensive Treatise as soon as you can. Here's the Detailed Table of Contents listing the topics so you can get a sense of the Treatise's practical nature. Order Now.
2015 Edition of Romanek's "In-House Essentials Treatise": Broc Romanek has wrapped up the 2015 Edition of the definitive guidance on securities law for the in-house lawyer and it's done — Romanek's "In-House Essentials Treatise." With over 1000 pages—spanning 18 chapters—you will need this practical guidance for the challenges ahead.
2015 Edition of Morrison & Romanek's "The Corporate Governance Treatise": We are happy to say that Randi Morrison & Broc Romanek have wrapped up the 2015 Edition of Morrison & Romanek's "The Corporate Governance Treatise" — and it's just back from the printers. Here's the "Table of Contents" listing the topics so you can get a sense of the Treatise's practical nature. You will want to order now so you can receive your copy as soon as you can. With over 1100 pages—including 239 checklists—this tome is the definition of being practical.
Upcoming Webcasts on TheCorporateCounsel.net: Join us on January 14th for the webcast - "Audit Committees in Action: The Latest Developments" - to hear Morgan Lewis' Rani Doyle, Deloitte's Consuelo Hitchcock and Gibson Dunn's Mike Scanlon catch us up on a host of new SEC & PCAOB developments that impact how audit committees operate - and more.
And join us on January 20th for the webcast - "Proxy Drafting: Mid-Cap & Smaller Company Perspective" - to hear Gunderson Dettmer's Richard Blake, Denbury Resources' Sarah Wood Braley, Covington & Burling's Keir Gumbs, KBR's Adam Kramer and JetBlue Airways' Eileen McCarthy provide practice pointers on what approaches to preparing the proxy for mid-cap & smaller companies work best.
And join us on January 26th for the webcast - "Pat McGurn's Forecast for 2016 Proxy Season" - when Davis Polk's Ning Chiu and Gunster's Bob Lamm join Pat McGurn of ISS and the proxy season expert to recap what transpired during the 2015 proxy season and what to expect for 2016.
And join us on February 4th for the webcast - "Conflict Minerals: Tackling Your Next Form SD"- to hear our own Dave Lynn of Morrison & Foerster, Schulte Roth's Michael Littenberg, Elm Sustainability Partners' Lawrence Heim and Deloitte's Christine Robinson discuss what you should now be considering as you prepare your Form SD for 2016.
There is no cost for these webcasts if you are a member of TheCorporateCounsel.net. If you are not a member, take advantage of our no-risk trial to access the programs. You can sign up for this no-risk trial online, send us an email at firstname.lastname@example.org - or call us at 925.685.5111.
Upcoming Webcasts on DealLawyers.com: Join us on January 28th for the webcast - "Best Efforts Offerings: Nuts & Bolts" - to hear about from Hunton & Williams' Greg Cope, Arnall Golden Gregory's Bob Dow and Pillsbury's Bob Robbins to learn the nuances of Rule 10b-9 and "best efforts" offerings.
And join us on February 3rd for the webcast - "Activist Profiles and Playbooks" - to hear Bruce Goldfarb of Okapi Partners, Dan Katcher of Joele Frank Wilkinson Brimmer Katcher and Damien Park of Hedge Fund Solutions LLC identify who the activists are - want what makes them tick.
No registration is necessary - and there is no cost - for these webcasts for DealLawyers.com members. If you are not a member, take advantage of our no-risk trial to access the programs. You can sign up online, send us an email at email@example.com - or call us at 925.685.5111.
Upcoming Webcasts on CompensationStandards.com: Join us on January 15th for the webcast - "The Latest Developments: Your Upcoming Proxy Disclosures" - to hear Mark Borges of Compensia, Alan Dye of Hogan Lovells and Section16.net, 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 in response to say-on-pay-including the latest SEC positions-and the other compensation components of Dodd-Frank, as well as how to handle the most difficult ongoing issues that many of us face.
And join us on February 10th for the webcast - "How to Get Your Equity Plan Approved By Shareholders" - to hear Towers Watson's Jim Kroll and Brian Myers, Fenwick & West's Shawn Lampron and Alliance Advisors' Reid Pearson explain how to navigate the NYSE & Nasdaq rules - as well as the proxy advisor and institutional investor policies - to obtain shareholder approval for your equity compensation plans.
And join us on March 3rd for the webcast - "Key Steps to an Effective Compensation Committee" - to hear Pay Governance's Diane Lerner and Shearman & Sterling's Doreen Lilienfeld untangle the complex issues that compensation committees face in exercising their fiduciary duties against a backdrop of increased shareholder activism, potent proxy advisor policies, an active plaintiff's bar and heightened media scrutiny.
Upcoming Webcast on Section16.net: Join us on January 27th for the 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.
– For most directors except for standing CEOs, maximum number of public company boards that a director can sit on before being considered "overboarded" reduced from six to five.
For board actions that significantly reduce shareholder rights without approval by shareholders (so-called unilateral board actions), the policy is being updated to distinguish between (1) unilateral board adoptions of bylaw or charter provisions made prior to or in connection with a company's IPO and (2) unilateral board amendments to those documents made after the IPO.
On executive pay and transparency, the "Problematic Pay Practice" policy will be updated to add "Insufficient Executive Compensation Disclosure by Externally Managed Issuers (EMIs)" to the list of practices that may result in an adverse voting recommendation on executive compensation. This will apply when an EMI fails to provide sufficient disclosure to enable shareholders to make a reasonable assessment of compensation arrangements for the EMI's named executive officers.
In mid-November, Corp Fin Director Keith Higgins delivered this speech entitled "Executive Compensation: Looking Beyond the Dodd-Frank Horizon." It's definitely worth reading - and an easy read. It looks ahead to the SEC's Disclosure Effectiveness project and it covers the executive pay disclosure waterfront (see Mark Borges' blog on it), including:
- Item 10 of Schedule 14A
Without much fanfare, Glass Lewis posted its "Guidelines for the 2016 Proxy Season" on Friday, which includes a summary of the changes to its policies for the upcoming proxy season on pages 1-2. We say it was done "quietly" because I see no mention of it on the Glass Lewis blog or GL's home page...
By the way, page 5 of the Glass Lewis policy updates includes a link to this 26-page "Shareholder Initiatives Guidelines" from earlier this year. There is no change in their look at proxy access on a case-by-case basis....
Recently, Broc canvassed his advisory board for their concerns about quarterly earnings releases. Some of the pet peeves related to Regulation FD or other compliance concerns. Some were merely drafting or process issues. Here are the top 31 pet peeves (there might be some overlap but Broc thought it was important to couch a few of these in different ways to ensure the point was made):
1. Failure to pre-announce a scheduled earnings call.
2. Failure to pre-announce a change in the date/time of the scheduled earnings call (or merely selectively announcing the change).
3. Failure to identify forward-looking information & providing tailored cautionary language.
4. Including boilerplate cautionary language regarding forward-looking statements.
5. Including safe harbor language that has been cut & pasted from a different document and has little relevance to the forward-looking statements that actually are in the earnings release (and do not identify them adequately).
6. Including statements that say that the company "will" do something when it's more appropriate to say they "expect" or "anticipate."
7. Failure to update PSLRA risk factors/meaningful cautionary statements for the specific forward-looking statements that are made in the earnings release or are to be made in the earnings call.
8. Guidance/outlook that isn't included in the earnings release; only provided orally on the earnings call.
9. No mention in the earnings release that management plans to discuss matters other than past results on the earnings call (like guidance).
10. Not remembering that there are multiple constituencies that read earnings releases. Even though earnings releases are targeted toward the investor community, they are obviously accessible to your employees, customers, etc.
11. Reconciling with your earnings release & your periodic report. Many companies provide more "color" in the release than in MD&A, which then can draw a comment from the Corp Fin Staff that you should have disclosed the same "trends" in your MD&A.
12. Missing non-GAAP reconciliation.
13. Including non-GAAP financial measures without addressing the requisite Reg G/Item 10 required information, such as not complying with Instruction 2 to Item 2.02 of Form 8-K, which states that the requirements of paragraph (e)(1)(i) of Item 10 of Regulation S-K shall apply to disclosures under this Item 2.02. This is for when the earnings release is furnished as Item 2.02 to Form 8-K.
14. Not fully complying with Item 10(e) by using the non-GAAP numbers with greater prominence & not presenting with "equal or greater prominence" the most directly comparable GAAP measure.
15. Highlighting a non-GAAP measure in the earnings release headline. This raises an unsolvable equal prominence problem since there is no way you can give the GAAP measure comparable equal prominence unless it also is in the headline.
16. Including non-GAAP measures in the bullet points, an equal prominence problem (but a more solvable one compared to headlines as you might be able to live with including the GAAP measures in the first textual paragraph before the bullets).
17. Way too many non-GAAP measures and an inconsistency from period-to-period in using them.
18. Failure to explain why certain non-GAAP measures are useful to investors.
19. Including a full non-GAAP income statement. As reflected in CDI 102.10, Corp Fin clearly does not like this.
20. Failure to update - or comply with - Item 10(e) of Regulation S-K for non-GAAP numbers. For instance, they may use non-GAAP numbers in the call and then say the reconciliation is in the release attached to the 8-K but sometimes it is not there or there is an incomplete reconciliation.
21. Incorrectly stated explanation of a change in financial metric.
22. Including text from a concurrent filing (e.g., the 10-Q or an 8-K) without conforming "the Company" to "us" or "we" (or vice versa).
23. Earnings releases that simply are too long. If it is more than a couple of pages, even for the large companies, the incremental information starts to become marginal.
24. Earnings releases that highlight only the positive news that will be published in the 10-Q. Mostly happens with development stage companies, but surprisingly there are some S&P companies that seemingly try to "manage" expectations carefully by how they structure their releases.
25. Selective emphasis in the headline from quarter to quarter to exclude any "bad news." For example, if the company had a net loss for the quarter, the headline might say only "XYZ Reports Record Revenues" (only the good news and not any bad news). But the next quarter, if the company had income, the release would say "XYZ Reports Earnings Per Diluted Share of $0.12 in Second Quarter." This practice becomes even more worrisome when a company uses selective emphasis from quarter to quarter when non-GAAP measures are involved, particularly when there are new types of excluded charges.
26. Comparisons between periods that are unnecessarily complex and hard to follow (e.g., "Sales for the twelve months ended September 30, 2015, were $100 million, or and increase of $10 million, or 11%, compared to sales for the twelve months ended September 30, 2014" versus "Sales for the twelve months ended September 30, 2015, increased by 11%").
27. Statements suggesting a mere transaction signing represents the closing of the transaction.
28. Quotes from CEO or other senior managers that are "lame" and don't add value.
29. Draft earnings releases prepared by the IR department or IR vendor that don't match up with a draft MD&A prepared by the internal accounting/finance team. The two groups need to communicate with each other and coordinate before they send out any drafts.
30. Audit committee not reviewing earnings releases or not having adequate time to review.
31. Ignoring comments from the Legal Department or the outside lawyer who reviewed the earnings release.
This list doesn't cover the earnings release mistakes that sometimes happens, such as hacking incidents; accidentally releasing them early or posting them online on a URL that is not so hidden. Send Broc your peeves! And thanks to these members of my advisory board for their input: Troutman Sanders' Brink Dickerson; Faegre Baker Daniels' Amy Seidel; Hunton & Williams' Scott Kimpel (& his friends at H&W); Weil Gotshal's Howard Dicker; Orrick's Ajay Koduri; Maslon's Marty Rosenbaum and Gibson Dunn's Jim Moloney.
In early November, by a 3-1 vote, the SEC adopted its final crowdfunding rules - "Regulation Crowdfunding" is born! - in this 686-page adopting release. Humongous (and it doesn't include this related DERA white paper analyzing unregistered offerings). We're posting memos in our "Crowdfunding" Practice Area.
Meanwhile, as noted in this blog, FINRA has proposed the Funding Portal Rules and related forms that would apply to SEC-registered funding portals that become FINRA members pursuant to the JOBS Act and the SEC's "Regulation Crowdfunding."
In early November, the SEC proposed amendments to Rule 147 and Rule 504 in this 168-page proposing release. As noted in this blog, Rule 147 currently provides a safe harbor for compliance with the Section 3(a)(11) exemption from registration for intrastate securities offerings. The proposal would modernize the rule and establish a new exemption to facilitate capital formation, including through offerings relying upon recently adopted intrastate crowdfunding provisions under state securities laws - and eliminate the restriction on offers and ease the issuer eligibility requirements, while limiting the availability of the exemption at the federal level to issuers that comply with certain requirements of state securities laws.
And as noted in this blog, the SEC's Rule 504 proposal that would increase the aggregate amount of securities that may be offered and sold in any twelve-month period pursuant to Rule 504 from $1 million to $5 million and to disqualify certain bad actors from participation in Rule 504 offerings.
As noted in the intro of this Cooley blog: The D.C. Circuit issued a per curiam order denying the petitions of the SEC and Amnesty International for a rehearing en banc in Natl Assoc. of Manufacturers v. SEC, the conflict minerals case. No member of the court even requested a vote. The order leaves standing the decision of the three-judge panel, decided in August of this year (see this PubCo post). In that case, the panel, by a vote of two-to-one, reaffirmed its earlier decision, concluding that the requirement in the conflict minerals rule to disclose whether companies' products were "not found to be DRC conflict free" amounted to "compelled speech" in violation of companies' First Amendment rights.
Will the SEC file a petition for cert? Given that the panel viewed the more lenient standard of review for compelled commercial speech under the First Amendment (announced in Zauderer v. Office of Disciplinary Counsel) to be applicable only to disclosures in connection with voluntary advertising or product labeling — a position the SEC asserted in it brief "was unprecedented" — it would seem surprising for the SEC to let the panel decision remain without a further challenge.
Also see this Cooley blog entitled "Is a lot more at stake in the conflict minerals case than the conflict minerals disclosure rules?" - and this Elm Sustainability alert. It's unclear whether Corp Fin now needs to act - they have been saying that the April 2014 statement by Keith Higgins continues to be operative. But maybe now that will change...
A few years ago, it looked like the SEC's Enforcement Division was on the verge of bringing at least one climate change disclosure cases as a number of companies responded to informal inquiries. But nothing has resulted from those investigations so far. As noted in this blog by Kevin LaCroix, perhaps a state attorney general will be the first to bring an action in the end. Here's an excerpt from the blog:
However, in the past month, the service of a subpoena on Exxon Mobil Corp. by New York Attorney General Eric T. Schneiderman has raised the possibility that an enforcement action against the energy giant relating to its climate change-related disclosures may be in the works. The Attorney General's action also raises the question whether other companies and industries could also be targeted. These possibilities highlight possible corporate climate change-related enforcement and liability exposures.
In a November 5, 2015 press release, Exxon acknowledged that it had received a subpoena from the New York Attorney General "for production of documents relating to climate change." The service of the subpoena follows a series of articles in the Los Angeles Times about the company's climate change-related disclosures. The articles, and similar articles that appeared on the Inside Climate News website, suggest that Exxon knew of the climate change risks from fossil fuel use from its own research since the 1970s, yet extensively funded politicians and campaigns that expressed doubt over climate change science.
Recently, Morningstar announced that it's "retiring" 10-K Wizard - and it looks like ThomsonReuters could be shutting down LivEdgar (aka "Business Law Research") soon too. That would mean that the remaining Edgar-enhanced service providers would be Intelligize, Lexis Securities Mosaic, Wolters Kluwer's RbSourceFilings, Bloomberg Law's Edgar tool, RR Donnelley's Edgar Pro and Westlaw's Business Law Center.
There was a healthy discussion about pricing & alternatives in Topic #8586 of our "Q&A Forum" that is worth reading if you're scrambling to figure out what to do now. Of course, the SEC's site is free. And as one member posted in the Forum: "Why doesn't the SEC invest a little in EDGAR and provide some basic form filtering for investors. Would be used much more than XBRL..."
In mid-November, the DOJ revised the chapter on the "Principles of Federal Prosecution of Business Organizations" in the United States Attorneys' Manual - commonly known as the "Filip factors" - to incorporate previously announced "Yates" guidance addressing the accountability of individual employees in civil and criminal investigations of corporate wrongdoing. The new policies require that to receive any cooperation credit, a company "must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the Department all facts relating to that misconduct." The new policies also clarify issues relating to the attorney-client privilege, timely self-reporting, foreign data privacy restrictions, and the prosecution of individuals.
FERF recently released this Audit Fee Report that reveals audit fee information for 7,000 SEC filers over the past four years, in addition to information gleaned from over 220 survey responses including 76 public companies, 92 private companies and 57 nonprofit organizations.
Key public company survey findings include:
We have heaps of additional resources in our "Audit Fees" Practice Area.
The recently released 2015 CPA-Zicklin Index reveals some noteworthy findings about the political spending-related practices of the S&P 500 that would appear to counter the perceived need by some for SEC rulemaking in this area (legitimate concerns about the information meeting any requisite disclosure materiality threshold notwithstanding), including:
- Majority of companies have a political spending webpage: 54%, or 270
companies, had a dedicated webpage or similar space on their websites to address
political spending and disclosure.
Access heaps of resources on this topic in our "Political Contributions" Practice Area.
Deloitte recently issued this report on SEC comment letters, which contains (among other helpful information) extracts of SEC comment letters, links to relevant related resources, an analysis of staff comments to help companies understand trends and improve their financial statements and disclosures, and a best practice checklist for managing unresolved SEC comments. Disclosure topics covered include MD&A, non-GAAP measures, disclosure controls & procedures and ICFR, and executive compensation and other proxy disclosures.
This report is among the many useful resources in our "SEC Comment Process & Analysis" Practice Area.
Spanking brand new. By popular demand, this comprehensive "Corporate Secretary's Department Handbook" covers how to run a corporate secretary's department, from how it's organized and staffed to potential conflicts with other roles within the company. This one is a real gem - 30 pages of practical guidance.
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:
- Board Risk Committee Considerations
- Industry Group Proposes XBRL Guidance
At the SEC, SEC Commissioner Luis Aguilar has notified President Obama of his intent to leave the SEC as of the earlier of December 31st or such time as his successor assumes his position. A successor has been tapped but hasn't been confirmed by the Senate yet.
In Corp Fin, we've updated our "Corp Fin Org Chart" to reflect the coming return of Ted Yu in January, who has replaced Michele Anderson as Chief of Corp Fin's Office of Mergers & Acquisitions. Michele recently was promoted to Associate Director and oversees that office among others. And Ted had left Corp Fin about six months ago to join Skadden...
Among other new additions, during the last month we have:
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