E-Minders August 2014
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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It's Done: 2015 Edition of Romanek's "Proxy Season Disclosure Treatise": Broc Romanek has wrapped up the 2015 Edition of the definitive guidance on the proxy season —Romanek's "Proxy Season Disclosure Treatise & Reporting Guide"—and it's gone to the printer. You will want to order now so that you can get your copy as soon as it's done being printed. With over 1450 pages — spanning 32 chapters—you will need this practical guidance for the challenges ahead.
Just Mailed: Popular "Romeo & Dye Section 16 Forms & Filings Handbook": Good news. Alan Dye just completed the 2014 edition of the popular "Section 16 Forms & Filings Handbook," with numerous new—and critical—samples included among the thousands of pages of samples. Remember that a new version of the Handbook comes along every 4 years or so - so those with the last edition have one that is dated. The last edition came out in 2009.
Act Now: If you don't try a '14 no-risk trial to the "Romeo & Dye Section 16 Annual Service," we will not be able to mail this invaluable resource to you now that it's done being printed. The Annual Service includes a copy of this new Handbook, as well as the annual Deskbook and Quarterly Updates.
Just Mailed: 1st Edition of Morrison & Romanek's "The Corporate Governance Treatise": Wrapping up a project that Randi Morrison & Broc Romanek feverishly commenced two years ago, we are happy to say the inaugural 2014 Edition of Morrison & Romanek's "The Corporate Governance Treatise" was just finished being printed. You will want to order now so that you can get your copy as soon as it's being mailed to those that ordered it. With over 900 pages—including 212 checklists—this tome is the definition of being practical. You can return it any time within the first year and get a full refund if you don't find it of value.
Our Pair of Popular Executive Pay Conferences: We are very excited to announce that Corp Fin Director Keith Higgins will be part of our "Annual Proxy Disclosure Conference" on September 29th-30th. Registrations for our popular pair of conferences (combined for one price)—in Las Vegas and via video webcast—are strong and for good reason. Act now!
The full agendas for the Conferences are posted—but the panels include:
- Keith Higgins Speaks: The Latest from the SEC
Upcoming Webcasts on TheCorporateCounsel.net: Join us on September 16th for the webcast - "Cybersecurity: Working the Calm Before the Storm" - to hear Weil Gotshal's Paul Ferrillo, Hogan Lovells' Harriet Pearson and Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster analyze a host of issues that you need to consider now - before you have a security breach.
And join us on September 22nd for the webcast - "Cybersecurity Role-Play: What to Do & Who Does What, When" - to hear the FBI's Leo Taddeo and Cleary Gottlieb’s Louise Parent, Craig Brod, Richard Kreindler, Pam Marcogliese and Jonathan Kolodner role-play a variety of possible cybersecurity scenarios that could happen to you.
And join us on October 15th for the webcast - "Private Company Trading Markets: The Latest" - to hear NASDAQ Private Market's Greg Brogger, SecondMarket's Annemarie Tierney, ACE Portal's Peter Williams and our own Dave Lynn of Morrison & Foerster discuss how the private company trading exchanges are evolving as the Nasdaq and NYSE have recently got into the game.
And join us on November 5th for the webcast - "Reg D Offerings: What Is Happening Now" - during which McCarter & English's Joe Bartlett, Cohen Gresser's Bonnie Roe and Davis Wright's Joe Wallin will provide a "bring-down" of what's happening now in the Reg D area, including what are the open issues and how are practitioners handling them — as well as provide practical guidance about what you should be doing in this area.
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 October 7th for the webcast - "The Art of Negotiation" - during which Cooley'sJennifer Fonner DiNucci, Perkins Coie's Dave McShea and Sullivan & Cromwell's Krishna Veeraraghavan will teach you how to negotiate with the best of them in a chock-full of practical guidance program.
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.
Corp Fin Director Keith Higgins Testifies: State of the Division's Rulemaking
In late July, Corp Fin Director Keith Higgins delivered this testimony before the House Financial Services Committee's Capital Markets Subcommittee - talking about the state of the Division, with an emphasis on the status of Dodd-Frank and JOBS Act rulemaking. No earth-shattering revelations - but here are notables:
1. Pay Ratio - "Division staff is carefully considering those comments
and is preparing recommendations for the Commission for a final rule"
There were other rulemakings addressed - but you get the idea: "We are working on it." There were also questions asked about the Ackman/Allergan situation.
Keith did talk about the disclosure effectiveness project, noting that the initial set of recommendations would hone in on the business and financial disclosures in the '34 Act area (with coordination with FASB). And noting that subsequent phases "will include compensation and governance information included in proxy statements."
As for operational stats, 4500 companies had their filings reviewed last year - with the Division on the same pace for '14. Over 400 no-action letter requests are processed annually - of which over 300 relate to shareholder proposals.
Conflict Minerals: How Do The 1st Batch of Form SDs Look?
In this podcast, Lawrence Heim of Elm Consulting describes how the first batch of Form SDs look and explains how he uses a set of 20 criteria to assess them, including:
- How many Form SDs have you reviewed so far?
Also check out Lawrence's blog entitled "Tulane's 2011 Conflict Minerals Cost Study Proving Accurate" - and this PwC review of Form SDs of the 50 largest companies. And also read Steve Quinlivan's blog entitled "GAO Says Commerce Department Has Not Complied With Conflict Minerals Obligations."
Conflict Minerals: Does Corp Fin Have a Position on Non-Metallic Forms of Tin?
Does Corp Fin believe that non-metallic forms of tin are not conflict minerals because they are "chemically distinct from the metal derivatives themselves"? Broc has read about Corp Fin's informal position on non-metallic forms of tin (answering this question "yes") - and he has been asked about it many times. Since he haven't seen anything in writing from Corp Fin nor heard about a SEC Staffer publicly addressing it, he has been hesitant to consider it a Corp Fin position.
As noted in Jill Radloff's blog (and as told by Elm Consulting), Keller and Heckman has posted this letter - in the "comments" section on the SEC's conflict minerals rulemaking page - documenting discussion with the Staff. How authoritative is that? That's unclear - and that's why Keller and Heckman posted the letter. They ask the SEC to come out with something in writing...
Proxy Advisors: How Investors Can Diligence ISS
For many years, ISS has posted a host of resources to help investors conduct due diligence, including a set of "questions you should ask" and a "due diligence checklist" in this 11-page due diligence compliance package. In addition, here's a letter from Sullivan & Cromwell about a conflict policy review it conducted in '07. So these materials were not posted in response to the SEC's recent Staff Legal Bulletin that deals with the responsibilities of investment advisers to vote and hire proxy advisors, but they are definitely helpful now.
ISS Seeks Input: Annual Policy Survey
As noted in this Gibson Dunn blog, ISS has opened its annual survey ahead of updating its policies. The survey closes on August 29th - and then the results are released a few weeks later. Then there's an open 30-day comment period in October - with the final policy updates arriving sometime in November typically. The entire policy process is described on ISS' website.
XBRL: SEC Staff Provides First Guidance In Years
Broc was surprised to see this set of "observations" issued by the SEC's Division of Economic and Risk Analysis in mid-July about XBRL exhibits and custom tags, as well as this sample letter from Corp Fin about calculation relationships. It has been nearly three years since the SEC last weighed in on XBRL, so Broc was starting to think that the SEC had given up the ghost in this area. We continue to read stories that not too many investors use XBRL - and then you see media pieces like this Reuters article entitled "U.S. House panel probes obsolete technology at SEC." Another indicator - Broc just checked the links to the XBRL-oriented blogs in our "XBRL" Practice Area and nearly all of them were dead...
For most companies, the SEC's limited liability protection for XBRL has expired - and it will expire entirely for all companies in October 2014. Meanwhile, this MoFo blog reports that NASAA is considering a model rule for electronic blue sky filings (here's the proposed rules)...
Shareholder Engagement: Should Directors Be Politicians? 10 Things to Consider
Here's something that Broc blogged in late July: I know the title of this particular blog sounds sensational - but the opening of this column by Andrew Ross Sorkin about shareholder engagement is "What if lawmakers never spoke to their constituents?" So let me deal with the top 10 points that I see in this column since it created a stir:
1. "Within the clubby world of directors, communicating with shareholders, big or small, is overtly frowned upon"
My take: I agree that it's quite strange that the notion of shareholder engagement is something that only recently is in vogue. Then again, the term "corporate governance" was barely used - or understood - until about 15 years ago. I make fun of this sudden fascination with engagement in this 90-second video entitled "10 Silly Ways Towards Better Shareholder Engagement." I should note that The Conference Board issued a statement yesterday clarifying its position about directors engaging (i.e. they support directors speaking directly with investors, particularly in special circumstances such as when investors have lost confidence in a board or management)- Sorkin didn't characterize their position quite right.
2. "At least 1,000 large United States public companies to receive a letter this month from a group of shareholders representing more than $10 trillion in assets with a demand: Talk to us."
My take: Here's the July 2nd letter if you haven't seen it. The letter doesn't demand direct shareholder-director engagement. Rather, it asks boards to "consider adopting and clearly articulating a policy for shareholder-director engagement, whether through adoption of the SDX Protocol or otherwise." The letter notes that JPMorgan's proxy statement explicitly endorsed the SDX protocol - and that its board met with shareholders representing 40% of its base. The letter notes that less than 25% of the S&P 500 disclosed their engagement efforts in their proxy (I note that even the ones that disclosed their engagement efforts likely didn't mention shareholder-director engagement).
3. "Some directors avoid meetings, worried about speaking with one voice"
My take: This seems like a valid concern on its face - but smart shareholders know that each director has their own views. Those shareholders seeking to meet a particular director typically just want to ascertain whether they are truly independent and capable of doing their job. They are not looking to meet a politician.
4. "Most don't consider it their responsibility"
My take: Directors are supposed to represent shareholders. Although I agree it's not a primary responsibility - and most directors don't have the time to do a bunch of meetings - they shouldn't shun shareholders.
5. "Some are anxious about accidentally disclosing sensitive information"
My take: If a director isn't capable of meeting with someone and not giving away material nonpublic information, they shouldn't serve in that role. Note that Corp Fin has issued Reg FD CDI Question 101.11 which clarifies that directors are not prohibited from speaking privately with shareholders. This CDI should give directors comfort that private meetings are not intrinsically problematic so that they can participate in governance engagement efforts.
6. "Some chief executives are insecure and don't want shareholders to get too close to their boards for fear they will have undue influence"
My take: This is an interesting one. On its face, the CEO shouldn't be insecure as these typically are short and simple meetings (and normally a company officer accompanies the director). But look how lobbying has destroyed Congress. So long as the engagement process is kept in check, this concern isn't a valid one.
7. "Many top executives seem to think that board members cannot be trusted with such interactions"
My take: It's true that most boards will have some directors that are not "camera ready." But smart shareholders will know that and not expect (nor want) a board full of politicians.
8. "If a board becomes too enamored with a particular view from a set of shareholders, it could lead to short-term thinking that undermines long-term performance"
My take: True dat.
9. "Large investors might have the opportunity to meet with directors while small retail investors almost certainly never will"
My take: This is reality. But as I blogged yesterday, companies can post video interviews with directors so that anyone can get a feel for a director.
10. "The shareholders despite saying they want a dialogue, actually aren't interested"
My take: This is a real problem: boards going on governance roadshows with few attendees. At our executive pay conference, my "investors speaks" panels illustrate that there are a variety of views towards whether directors need to meet with shareholders. Shareholders have limited time availability, just like directors. By the way, I just posted this sample Powerpoint that can be used for a governance roadshow...
Our "Shareholder Engagement Checklists"
For Broc, the upshot is that boards should consider adopting shareholder engagement policies - and this is a topic ripe for proxy disclosure (many of the proxies Broc has highlighted in my video series this year included this disclosure). Remember that we have a lot of good practical stuff in our "Shareholder Engagement Checklists":
Accredited Investor Verification: Corp Fin Issues 6 New CDIs
In early July, just a week after SIFMA issued guidance on the topic, Corp Fin issued these 6 new CDIs relating to Regulation D - in particular, verification of accredited investors:
Is the SEC's Enforcement Chasing Companies for Poor Cybersecurity Disclosure?
Ever since the widely-publicized hacking of Target last year, there have been rumors that a SEC enforcement action over that company's cybersecurity disclosure is coming. Now, this Bloomberg article reports that a number of SEC investigations are underway - meaning that more than one company is being focused upon (and we have no idea if Target is one of them). Broc's guess is when we see some of these SEC enforcements reach the point that they indeed are public, it won't just be faulty disclosures that fall under the microscope, but internal & disclosure control deficiencies as well. This Morgan Lewis blog lays out the potential theory for that type of internal controls action...
Tune in on September 16th for our webcast - "Cybersecurity: Working the Calm Before the Storm" - to find out what you should be doing now before you land in hot water...
Our New "Job Board": Free for All
We have launched a new "Job Board" that can help you land a job - or find candidates for a job opening (the first job opening is already posted!). You don't need to be a member to participate - nor does it cost anything to post a job opportunity or search for a new job. Every aspect of it is entirely free. Tell your recruiter friends so they can post jobs. If you're not a member, you do need to "register" for the job board (we require that so the folks on the other end of a job transaction can reach you). Check it out!
Social Media: Seeking Alpha Wins Court Case to Keep Contributors Anonymous
This note posted on Seeking Alpha's site brings us the news that the NY Supreme Court dismissed a case seeking to compel Seeking Alpha to reveal the identity of a pseudonymous contributor who criticized a company and its management. Afterwards, Q4 ran this blog, providing full details about the case and post-case remarks from Seeking Alpha's CEO.
For those that don't know Seeking Alpha, it is an important site for you to familiarize yourself with as many independent analysts, professional investors and retail investors share insights & opinions there about investing in specific companies. Folks that post - known as a "contributor" - can do so anonymously or they can choose to identify themselves (and they get paid for their contributions if they reach a certain number of views). And companies can even participate themselves in the forums, although we're not sure if any actually do like they do on StockTwits. The primary difference between Seeking Alpha & StockTwits is that Seeking Alpha has long-form content, whereas StockTwits has very short pieces (limit of 140 characters like a tweet). Each platform has millions of users as noted in this recent academic study...
Proxy Season: ISS' Preliminary Stats
Here is a blog by Davis Polk's Ning Chiu:
According to the ISS US preliminary postseason update, the win rate for dissidents, measured by whether they won at least one board seat through negotiations or a vote, was 59% at 22 contested elections in the first half of 2014, compared to 24 contests with a 68% success rate by June 2013. The size of the target continues to increase, as seven of the companies had market capitalizations greater than $1 billion. Notable for 2014 were what ISS dubbed "hydra-headed activist challenges," where multiple dissidents targeted the same company but with competing visions, including at Darden and Sotheby's.
Boards were also the focus through 13 "vote no" campaigns. CtW urged investors to vote against nine companies, including several fast food restaurants and retail chains, by invoking the ongoing debate over minimum wage and income inequality, leading to a failed say-on-pay vote at Chipotle. New York City funds and CalPERS blamed board members on Duke Energy's regulatory policy committee for a coal ash spill earlier in the year.
Board elections remained staid affairs generally, however, as directors received 96% average support. Only 34 nominees at 21 companies in the Russell 3000 did not obtain more votes in favor than withheld or against, primarily for failing to respond to majority-supported shareholder proposals or majority opposition to a director in prior years. ISS notes that only one of these director has since stepped down, after poor attendance triggered a resignation due to the company's majority voting policy. Not attending at least 75% of meetings led to eight directors not receiving majority votes, while six directors were criticized for adopting a poison pill without shareholder approval. As say-on-pay continues to take the pressure off compensation committee members, only one such director did not receive majority support after facing several years of compensation issues.
Environmental and social shareholder proponents dominated the filed resolutions for inclusion in proxy statements, with a 15% increase this year for a total of 460 proposals, surpassing governance topics for the first time since the 1980s. 30% were withdrawn through settlements and the SEC no-action letter process excluded about 13%. Corporate political activity resolutions, usually seeking more disclosure, dominated.
Requests for independent chairs comprised the bulk of governance proposals, but passed at only 4 companies. The lack of support obscures the fact that the practice is gaining increased acceptance, as 26% of S&P 500 companies are now led by independent chairs, compared to 20% two years ago. Predictions for widespread proxy access proposals continued to prove false for 2014, as only 13 were voted on. Six of the nine proposals that allowed shareholders owning 3% or more to submit nominations passed.
Should Companies Scrap Earnings Calls?
Here's an interesting blog by Ezra Marbach - based on the findings of this study - about whether companies should just go ahead and do away with their earnings calls if they don't bother to do a Q&A at the end of the calls...
Auditor Rotation: Your Audit Partner's Affair
This Form 8-K filed by Ventas shows how an indiscretion by someone on your independent auditor's team can be costly for the company. Changing your auditor is an expensive endeavor - and here, the auditor forced the change after an auditor independence analysis indicated that it was necessary due to the affair between someone on the audit team and someone who worked at the client company. Can companies insert a provision into their auditor engagement letter to be reimbursed if this happened to them?
Climate Change Disclosure: Ceres' New Search Tool
In early July, Ceres - collaborating with CookESG Research - launched a free search tool that allows easy access to climate change disclosures for the Russell 3000 in SEC filings. The tool can be used to search for companies individually or by industry. And the last column entitled "Reports," quickly enables you to determine whether the company has made a climate change disclosure or not. If the company has made such a disclosure, you view a Ceres report (once you register, which is free) that not only shows you the relevant excerpt from the SEC filing - there is a graphic that indicates the type(s) of disclosure that were made. Pretty nifty. Here's a 1-minute video showing you how the tool operates.
Survey Results: Distributing Proxy Materials Via E-mail to 401(k) Plan Participants
We have posted the survey results regarding how companies distribute proxy materials via e-mail to 401(k) plan participants, repeated below:
1. Does your company or plan provider obtain express consent from
employee-shareholders prior to distributing proxy materials to 401(k) plan
participants via company e-mail (excluding ability to opt out addressed in #2
2. Prior to e-mail delivery of proxy materials to employee-shareholders, does
your company send a "pre-email" asking 401(K) plan participants if they want to
opt out of receiving proxy materials:
3. Other than having an active company email address, does your company take any
further steps to verify that 401(k) plan participants' use of company e-mail is
in the ordinary course of performing their duties:
4. Other than having an active company email address, does your company take any
further steps to verify that 401(k) plan participants routinely log-on to
receive their company e-mail:
5. What email system does your company utilize:
Please take a moment to participate in this "Quick Quick Survey on Earnings Releases and Earnings Calls" - and this "Quick Survey on Ending Blackout Periods."
Our New "SEC Filing Fees Handbook"
Spanking brand new. This comprehensive "SEC Filing Fees Handbook" covers a topic that few are expert at - but yet those that do deals have to consider regularly. This one is a real gem - 51 pages of guidance.
July-August Issue of "The Corporate Executive"
We have mailed the July-August Issue of The Corporate Executive, and it includes pieces on:
- Parsing the House Ways and Means Proposal for Tax Reform
Act Now: Get this issue rushed to when you try a "Half-Price for Rest of '14" No-Risk Trial to The Corporate Executive.
Mailed: May-June Issue of "The Corporate Counsel"
In late June, we mailed the May-June Issue of The Corporate Counsel that includes pieces on:
- Our Rule 14a-8 Off-Season Check-Up Guide
Act Now: Get this issue rushed to when you try a "Half-Price for Rest of '14 No-Risk Trial" today.
July-August Issue: Deal Lawyers Print Newsletter
- Materiality Scrapes Trending Upward in Private Deals
If you're not yet a subscriber, try a Half-Price for Rest of '14 no-risk trial to get a non-blurred version of this issue on a complimentary basis.
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:
- Analysis: Trends in U.S. Board Diversity
People: Who's Doing What and Where
Did He Just Tweet That? SEC Commissioner Gallagher Has a Handle: A while back, Broc was surprised to discover that SEC Commissioner Dan Gallagher has his own Twitter account. Not that there's anything wrong with it. In fact, Broc is all for it. He was just surprised because too many in the business world - and the government - are a tad bit paranoid about social media. The Commissioner has been on Twitter since last October and has tweeted 99 times - and he follows no one and has just under 1000 followers.
At the SEC, Mark Flannery was hired as the Chief Economist and the Director of the Economic and Risk Analysis Division.
What's New on Our Websites
Among other new additions, during the last month we have:
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