E-Minders June 2016
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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Our Executive Pay Conferences: 10% Reduced Rate: We have posted the registration information for our popular conferences - "Tackling Your 2017 Compensation Disclosures: Proxy Disclosure Conference" & "Say-on-Pay Workshop: 13th Annual Executive Compensation Conference" - to be held October 24-25th in Houston and via Live Nationwide Video Webcast. Here are the agendas - 20 panels over two days.
Discounted Rates - Act by September 9th: Huge changes are afoot for executive compensation practices with pay ratio disclosures on the horizon. 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 September 9th to take advantage of the 10% discount.
Coming Soon - 2017 Edition of Romanek's "In-House Essentials Treatise": Broc Romanek has wrapped up the 2017 Edition of the definitive guidance on securities law for the in-house lawyer and it's been sent to the printers–Romanek's "In-House Essentials Treatise." With over 1500 pages–spanning 21 chapters–you will need this practical guidance for the challenges ahead.
It's Printed: 2017 Edition of Romanek's "Proxy Season Disclosure Treatise": Broc Romanek has wrapped up the 2017 Edition of the definitive guidance on the proxy season - Romanek's "Proxy Season Disclosure Treatise & Reporting Guide" - and it's been printed. With over 1500 pages–spanning 32 chapters–you will need this practical guidance for the challenges ahead. Here's the Detailed Table of Contents listing the topics so you can get a sense of the Treatise's practical nature.
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.
Upcoming Webcasts on TheCorporateCounsel.net: Join us on June 2nd for the webcast - "Yes, It's Time to Update Your Insider Trading Policy" - to hear Chris Agbe-Davies of Spectra Energy, Ari Lanin of Gibson Dunn, Alan Dye of Hogan Lovells and Section16.net and Marty Dunn provide practical guidance on revisiting your insider trading policy, as well as your insider trading training program for officers, employees and directors.
And join us on June 9th for the webcast - "Non-GAAP Disclosures: What Is Permissible?" - to hear Meredith Cross of WilmerHale; Brink Dickerson of Troutman Sanders; Steven Jacobs of E&Y; and Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster provide practical guidance about what to do now with your non-GAAP disclosures given the new Corp Fin CDIs and the attention paid to them by the SEC, media and investors.
And join us on September 8th for the webcast - "Current Developments in Capital Raising" - to hear Manatt Phelps' Katherine Blair, Calfee Halter's John Jenkins and Davis Polk's Michael Kaplan explore the latest developments in the capital markets, including alternatives such as PIPEs, registered direct offerings, "at-the-market" offerings, equity line financing and rights offers.
And join us on October 4th for the webcast - "Board Refreshment & Recruitment" - to hear Wilson Sonsini's Lydia Beebe, Spencer Stuart's Julie Daum, South Jersey Industries' Gina Merritt-Epps and Global Governance Consulting's Susan Wolf analyze the latest director recruitment and board evaluation practices.
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 July 19th for the webcast - "How to Apply Legal Project Management to Deals" - to hear the experts who are on the ABA M&A Task Force for Legal Project Management – Haynes and Boone's Bill Kleinman, QLex Consulting's Aileen Leventon and Verrill Dana's Dennis White - that created a new Legal Project Management Guidebook which contains a variety of new tools for deal lawyers - including the "Deal Issues Negotiating Tool" that you can use to identify key deal points.
And join us on September 28th for the webcast - "Middle Market Deals: If I Had Only Known" - to hear Joe Feldman of Joseph Feldman Associates about how to best avoid post-closing deal surprises for a mid-market deal.
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 June 14th for the webcast - "Proxy Season Post-Mortem: The Latest Compensation Disclosures" - to hear Mark Borges of Compensia, Dave Lynn of CompensationStandards.com and Morrison & Foerster, Ron Mueller of Gibson Dunn analyze what was (and what was not) disclosed this proxy season.
No registration is necessary - and there is no cost - for these webcasts for CompensationStandards.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 firstname.lastname@example.org - or call us at 925.685.5111.
In mid-May, Corp Fin issued 12 new & revised CDIs. These new & revised CDIs are spread throughout this list of non-GAAP CDIs. About half of the 12 are new – and half are revised. The CDI dates are located at the bottom of each CDI. Here's a blackline of Corp Fin's non-GAAP CDIs – courtesy of Simpson Thacher's Yafit Cohn!
These CDIs should help provide guidance in the wake of the saber rattling that various members of the Staff – and Commission – have made in this area recently. And here's the memos posted in our "Non-GAAP Measures" Practice Area.
We have a webcast coming up on June 9th – "Non-GAAP Disclosures: What Is Permissible?" – featuring Meredith Cross of WilmerHale; Brink Dickerson of Troutman Sanders; Steve Jacobs of E&Y; and Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster...
Here's an excerpt from this Cooley blog:
Last week, after five years of outreach, the PCAOB once again attempted to make the auditor's report more relevant and informative to investors by re-proposing the auditor reporting standard, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, and related amendments.
Typically, as you know, auditors just give companies a pass/fail grade and provide no description of any issues or problems that occurred during the audit process; those problems are instead taken up with the audit committee. However, PCAOB Chair Jim Doty commented, "in today's complex economy, and particularly in light of lessons learned after the financial crisis, investors want a better understanding of the judgments that go into an opinion – not a recitation of the standard procedures that apply to any audit, but the specific judgments that were most critical to the auditor in arriving at the opinion."
While the reproposal would retain the standard pass/fail model, it would also provide for the inclusion in the auditor's report of "critical audit matters" and new elements related to auditor independence and auditor tenure. According to the proposing release, the communication of critical audit matters "would inform investors and other financial statement users of matters arising from the audit that required especially challenging, subjective, or complex auditor judgment, and how the auditor responded to those matters." Here is the press release and a fact sheet.
The long-sought insider trading case involving big golfer Phil Mickelson was finally brought yesterday (here's a statement from Enforcement Director Andrew Ceresney). This truly is a high profile case considering Mickelson is so well known & the gambler involved is the most successful gambler in the US.
The kicker for our community is that Mickelson got his trading tips from this gambler who routinely got inside information from a board member – over a period of five years! Mickelson won't be brought up on criminal charges (his civil charges named him as a "relief defendant") – but the director is (and already has pleaded guilty)! Not just the usual civil stuff from the SEC. Great story to tell your directors to scare them straight (this blog by David Smyth analyzes the case nicely).
This Stanford report about "What actions should the board of directors take when the CEO engages in behavior that is questionable but not illegal?" is also worth including in your board materials...
Tune in on June 2nd for the webcast – "Yes, It's Time to Update Your Insider Trading Policy" – to hear Chris Agbe-Davies of Spectra Energy, Ari Lanin of Gibson Dunn, Alan Dye of Hogan Lovells and Section16.net and Marty Dunn of Morrison & Foerster provide practical guidance on revisiting your insider trading policy, as well as your insider trading training program for officers, employees and directors.
With Regulation Crowdfunding becoming "official" in mid-May, Corp Fin issued this "Small Entity Compliance Guide" and these seven CDIs about crowdfunding. As could be expected, a number of players were chomping at the bit when Regulation Crowdfunding became effective. The lowdown of this activity is covered in this blog by Steve Quinlivan – including the 29 issuers who filed a Form C with the SEC (which is the requisite filing to commence crowdfunding) so far.
As noted in this blog by Gunster's Robert White, crowdfunding would even be much more popular if the framework were different – but there are efforts afoot to get the problems fixed.
As noted in this MoFo blog and this blog, the North American Securities Administrators Association (NASAA) has proposed a model rule & uniform notice filing form (Form U-CF) for crowdfunded offerings.
As noted in this blog from "The SEC Institute," there truly is no reason for companies to be procrastinating when it comes to the FASB's new revenue recognition standard (we have a ton of memos posted in our "Revenue Recognition" Practice Area). Here's the blog:
Let's face it, almost all of us procrastinate! And when there is a good reason to procrastinate, well, that is all the better! One of the big rationales for procrastinating dealing with the new revenue recognition standard was that the FASB was definitely going to make changes to the original ASU (ASU 2014-09). As the Transition Resource Group identified and discussed issues in the new standard it became clear that the FASB would clarify certain issues and improve the standard in other areas. In fact the FASB started four discrete projects to make changes.
In mid-May, that rationale came to an end. The FASB released the fourth of the four ASU's. They are:
– ASU 2015-14 - Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date - Issued August 2015
All the core issues are now in the standard as amended! And yes, the TRG and the AICPA's Industry Task Forces will continue to work on specific issues. You can read about the TRG's issues.
This 28-Firm White Paper provides guidance that should facilitate the closing of certain debt restructurings and indenture amendments in the wake of two recent court decisions that interpreted Section 316(b) of the Trust Indenture Act as prohibiting amendments to an indenture that would impair the issuer's ability to pay amounts due on the debt securities even if those amendments are otherwise expressly permitted by the indenture.
The decisions caused uncertainty over whether legal opinions typically required for indenture amendments can be delivered in connection with a debt restructuring or in circumstances where the issuer may be in financial distress. Also see these memos in our "Trust Indentures" Practice Area.
As noted in this press release, in early May, the SEC approved amendments to revise the rules related to the thresholds for registration, termination of registration and suspension of reporting under Section 12(g) of the '34 Act. Broc loves it that the thresholds for savings & loan holding companies are now consistent with those for bank holding companies. He needs balance in his life. Not only did this take care of some of the FAST Act business, it eliminated the last vestiges of outstanding JOBS Act rulemaking from the SEC's plate. Here's the adopting release.
As noted in this MoFo blog by Ze'-ev Eiger (also see this blog), last week, the House of Representatives passed the "Helping Angels Lead Our Startups Act" (H.R. 4498) (aka HALOS Act), which would direct the SEC to limit demo days in certain ways – and to amend Regulation D to make the prohibition against general solicitation or general advertising inapplicable to events with specified sponsors (including angel investor groups not connected to broker-dealers or investment advisers) where:
– Presentations or communications are made by or on behalf of an issuer;
Here's an excerpt from this WSJ article by Andrew Ackerman:
Firms that advise shareholders in corporate elections would be subject to stricter government oversight under bipartisan legislation set to be introduced this week, amid complaints from public companies that such firms hold too much sway over investors. The legislation, sponsored by Reps. Sean Duffy (R., Wis.) and John Carney (D., Del.), would require U.S. regulators to impose new registration and disclosure requirements on firms like Institutional Shareholder Services Inc. and Glass, Lewis & Co. that weigh in on governance debates such as executive compensation or the composition of corporate boards. It is the latest sign of how contentious the roles of such firms have become at a time when corporate elections have grown more competitive amid a rise in activist investing. Proxy advisers analyze corporate proxy statements and make voting recommendations to investors. A "no" recommendation from an adviser can make the difference in a close ballot.
Both ISS and Glass Lewis were at the center of a fierce debate in 2013 about whether to split the chairman and CEO jobs at J.P. Morgan Chase & Co., a proposal the firms supported but which ultimately was rejected by shareholders. They also have played a key role in the successful campaign prodding companies to allow shareholders to nominate their own directors directly onto company proxies. Proxy firms oppose the proposed legislation, saying concerns about their businesses are overblown and that they already operate transparently.
The House Financial Services Committee is expected to hold a hearing on the bill next week, a sign the legislation could advance quickly through the chamber.
In early May – and five months after the PCAOB's adopting release came out – the SEC issued this order approving the PCAOB's new rules requiring disclosure of the identities of audit engagement partners & other audit firms participating in the audit. Let's see those Form APs! These PCAOB rules will be effective as follows:
– Disclosure of engagement partner: for audit reports issued on–or after–January 31, 2017
In early May, the SEC became the last of the six financial regulators to approve the 488-page joint agency proposal to prohibit incentive-based compensation that may encourage inappropriate risks by financial institutions under Section 956 of Dodd-Frank. The other agencies are the FDIC, Federal Housing Finance Agency, Federal Reserve Board of Governors, National Credit Union Administration and Office of the Comptroller of the Currency. Here's the memos that we have been posting about the proposal on CompensationStandards.com in our "Financial Firms" Practice Area.
In 2015, more than 90% of incidents and data breaches fell into one of nine categories. Most commonly, security incidents were caused by miscellaneous errors, such as sending emails or paper documents to the wrong recipients (11,347 incidents); insider and privilege misuse, such as an employee using unapproved hardware like a USB drive to store sensitive information (10,490 incidents); and physical theft or loss of laptops and paper documents (9,701 incidents). The most serious incidents–those resulting in the most confirmed data breaches–however, were web app attacks, including hacking using stolen credentials and installing malware (908 confirmed breaches) and point of sale or "POS" attacks against environments where debit and credit card retail transactions are conducted (525 confirmed breaches).
2015 found attackers are getting faster at compromising their victims. For example, the time to compromise was almost always on the order of days or minutes. One particularly fast method of accessing sensitive data is phishing, which accounted for 9,576 security incidents and 916 confirmed data breaches in 2015. Phishing (a form of social engineering) involves sending an email message containing a malicious attachment or link to a victim with the intent of tricking him or her into opening the attachment or clicking on the link. In the majority of phishing cases, that click allows the attacker to install persistent malware on the victim's computer.
The DBIR analyzes several million results of phishing tests conducted by various information security vendors. Their findings show that we may be getting worse, not better, at recognizing phishing messages; the number of targets who opened the test phishing message rose by 7%, from 23% in 2014 to 30% last year, and about 12% of those who opened the message went further and clicked on the malicious attachment. The median time between sending a phishing message and the first click on its attachment? Under four minutes. In fairness to those who clicked, however, the DBIR notes that the main perpetrators of phishing attacks are sophisticated, with significant time and resources to craft believable "bait": in 2015, 89% of phishing attacks were perpetrated by organized crime syndicates and 9% were perpetrated by state-affiliated actors.
Insider and privilege misuse was also very common, with insiders most frequently motivated by financial gain, followed closely by espionage. The 2016 DBIR looked at how insiders' motivations have changed since 2009, and while incidents motivated by espionage have risen, incidents motivated by the prospect of financial gain have fallen. Other inside actors are motivated by grudges, ideology, and even just plain fun. Even more concerning, actions by insiders are some of the hardest for organizations and law enforcement to detect. In fact, 70% of these incidents are taking months or even years to discover.
Also check out our checklists related to incident response planning, disclosure practices and risk management – as well as a chart of state laws related to security breaches. And see this blog about a Congressional bill that would amp up internal controls over cybersecurity...
As you'll find out in this 40-minute podcast with Gibson Dunn's John Olson, he is a legal giant. In 52 years of practice, he has done it all. Chair of the ABA's Federal Regulation of Securities committee; Advisory Committee for both the NYSE and NASD. Drafting insider trading legislation for Congress. Just to name a few.
John has proven not to just be a leader among securities lawyers – but also in the field of corporate governance. John may have been in more boardrooms during his life than any other lawyer. More recently, John has spent more time with his true love – teaching. Learn all about him.
Spanking brand new. By popular demand, this comprehensive "Escheatment Handbook" covers the entire terrain, from the basics to how to respond to audit requests (including those from contract auditors) & deal with escheatment litigation. This one is a real gem – 22 pages of practical guidance – and its posted in our "Escheatment" Practice Area.
This May-June Issue of the Deal Lawyers print newsletter includes:
– Structuring Considerations for Minority Investments
Remember that – as a "thank you" to those that subscribe to both DealLawyers.com & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online for the first time. There is a big blue tab called "Back Issues" near the top of DealLawyers.com – 2nd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.
And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to DealLawyers.com will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to DealLawyers.com – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online.
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:
– Nominating Committee: Heightened Scrutiny & Responsive Tips
We continue to post new items regularly on our "Proxy Season 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:
– Guide Investors Through Your IR Site Via Quick Links
SEC Commissioners - Two Nominees Passed By Committee (But Still Might Not Be Confirmed): In mid-May, as noted in WSJ article, the Senate Banking Committee approved of the two SEC Commissioner nominees - Lisa Fairfax and Hester Peirce - by a voice vote about six weeks after their hearing was suddenly curtailed, but there still could be trouble in obtaining confirmation on the Senate floor, according to the article.
The SEC's Reg Flex Agenda: Looking Ahead to 2017?: As Broc has blogged many times (here's one), the SEC's Reg Flex Agendas tend to be "aspirational" - and experience bears that out as the SEC often misses its "target" deadlines. Broc actually loathes blogging when a new Reg Flex Agenda comes out - because some folks read too much into it. In fact, he only blogged about it now to try to stave off more misinformation (until just the last few years, the Reg Flex Agenda was completely ignored by everyone)!
Anyway, the latest edition is out - and the following proposed & final rulemaking projects are listed with an April 2017 timeframe:
– Finalize the outstanding compensation proposals (clawbacks/P4P/hedging & pledging/institutional investment manager filing of Form N-PX to disclose their proxy voting- this one has been on the Reg Flex Agenda since 2010!)
There are numerous other rulemakings listed. Given the Presidential election, which often increases the likelihood of a change in who is serving as the SEC Chair, this April 2017 timeframe is even more dubious than usual. A new SEC Chair would take time to be confirmed - and then it takes a while for a new Chair to decide their rulemaking priorities and get the ball rolling.
Drilling Down: What is the "Regulatory Flexible Agenda?": Given that there is so much misinformation out there, Broc laid out what the Reg Flex Agenda is - and isn't: The Regulatory Flexibility Act requires each federal agency - in April and October - to publish an agenda in the Federal Register identifying rules that the agency expects to consider in the next 12 months that are likely to have a significant economic impact on a substantial number of small entities.
The Regulatory Flexibility Act specifically provides that publication of the agenda does not preclude an agency from considering or acting on any matter not included in the agenda - and in fact, an agency is not required to consider on any matter that is actually included in the agenda. As a result, the target dates in the Reg Flex Agenda are fairly meaningless. The SEC may act sooner or later - or even never!
And since the Reg Flex Agenda is not an "official" agenda of what the SEC really will do, all kinds of whacky and aspirational stuff makes it into each Reg Flex Agenda. For example, an SEC Commissioner might have a pet project that gets listed - but the SEC Chair might not have any intention of letting that idea see the light of day.
This bizarre "fictional" stature of the Reg Flex Agenda can cause challenges for the SEC if they get called down to Congress to testify and a member of Congress asks why the agency hasn't hit a target date. It's tough to testify that "Yes, Senator, I know we listed that rulemaking as being completed 'in the Fall' - but you should ignore the Reg Flex Agenda." But this is reality...
Among other new additions, during the last month we have:
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