E-Minders September 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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Just Mailed: 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" - is done and it was just mailed to those that ordered it. 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.
Last Chance — 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's Jennifer 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.
And join us on October 22nd for the webcast—"Anatomy of a Proxy Contest: Process, Tactics & Strategies"—during which experts with different perspectives on proxy contests will catch us up on all the latest: ISS' Chris Cernich, Joele Frank's Dan Katcher, Greenberg Traurig's Cliff Neimeth and MacKenzie Partner's Paul Schulman.
And join us on January 29th for the webcast—"Proxy Solicitation Tactics in M&A"—to hear Okapi Partners' Chuck Garske, Alliance Advisors' Waheed Hassan, Managing Director and Innisfree's Scott Winter discuss the latest techniques used to sway opinion and bring in the vote—including social media—as well as how traditional tactics have evolved.
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.
ISS' New "Equity Compensation Plans" Data Verification Portal: 10 Things to Know
Perhaps as a reaction to the SEC's SLB 20 - or Commissioner Gallagher's continuing war of words against the current state of proxy advisors - in mid-August, ISS announced the upcoming launch of a new "data verification portal" for equity-based compensation plans up for shareholder approval. ISS also released a set of 19 FAQs to help explain this new portal (Broc's pet peeve: if you create a set of FAQs, please number them).
Here are 10 things to know:
1. Portal officially launches September 8th
Shareholder Proposals: 10 Things About NY Times' "Gadflies" Column
In mid-August, the NY Times ran this DealBook column - "Grappling With the Cost of Corporate Gadflies" - by Professor Steven Davidoff Solomon. Here are 10 thoughts that Broc had right off the bat:
1. Never Use the Loaded "Gadfly" Term - It's politically incorrect to call someone a "gadfly." Trust me, it is. Even though the definitions of the term don't appear to be offensive: "A gadfly is a fly that annoys horses and other livestock, usually a horse-fly or a botfly" or "A gadfly is a person who upsets the status quo by posing upsetting or novel questions."
2. Gilbert Brothers Brought Rule 14a-8 to Life - Davidoff calls Evelyn Y. Davis the "doyenne of this business" (yes, I had to look up "doyenne" in the dictionary) - but it was the Gilbert Brothers who were the first individual proponents that absolutely dominated the shareholder proposal scene before - and for decades longer - than EYD. In addition, they were the ones responsible for the shareholder proposal rule surviving in court against business interests a few years after the SEC adopted the rule (the Transamerica Corporation case in '46, frequently referred to as the Magna Carta of the rights of shareholders - see page 221 of Broc's "Shareholder Proposal Handbook"). I will be blogging more about the Gilbert Brothers soon.
3. Most Individual Proponents Don't Like Being Grouped Together - John Gilbert hated being lumped together with EYD in media articles. They didn't act in concert.
4. Remarkable That Anyone Bought EYD's "Highlights & Lowlights" - It's amazing to me that any company would cave to what is essentially blackmail and buy Evelyn Davis' "Highlights & Lowlights" - which essentially was a publication about herself. But it was a smart investment for anyone that didn't want EYD to cause trouble at the annual meeting. Did Ford really give her a Jaguar? Not sure if companies would be buying EYD's newsletter today as I think they would get called out for it in this social media age.
5. What Is a "Successful" Shareholder Proposal? - Davidoff presumes that a shareholder proposal is successful only if it receives majority support from shareholders. But I define it much differently. For the proponent who brought the proposal, the definition of success may vary. They merely might want to force the board to consider the issue of the proposal. They actually might want to use a proposal to gain attention so they can obtain a meeting to discuss a more pressing issue (for which they don't want to publicly disclose).
For many proposals, obtaining support much below the 50% threshold is considered a "success" as it might force the board to act - look what happens if a say-on-pay vote garners 30% support (ie. ISS-mandated consequences kick in). And remember that shareholder proposals are nonbinding. Companies can - and sometimes do - ignore them even if they obtain majority support.
6. Most Recent Court Cases Have Resulted in Losses for Companies - Davidoff brings up the fact that some companies have sued proponents - but he neglects to mention that companies have tended to lose these cases starting this year.
7. $87 Grand for No-Action Requests? Call My Lawyer - The gist of the Davidoff article is that shareholder proposals are costing companies so much money. Of course, that depends on whether a company decides to seek no-action relief from Corp Fin to exclude them. Davidoff throws out that it costs companies $87,000 per proposal for "dealing with them." The link to the Chamber of Commerce page cited for this number is dead. So I have no idea what the basis for this number is, but I can pretty safely say its way off the mark in my experience. To prepare a typical no-action request, research and writing by outside counsel is probably $20k to $30k. It's cheaper if it's done in-house in terms of money laid out - but probably not in terms of resources used. [This Activist Investor blog dug and found the source of this number to be a rudimentary survey from '97.]
8. No-Action Process Ripe for Reform? - Anyways, if the real beef is cost - why not go to the heart of the matter and reduce the costs inherent in the no-action process? One idea is for the SEC to force companies to use a checklist format when seeking exclusion. That would enable research to be much easier, as well as simplify the drafting of the NOA requests. Not to mention it would make it easier for Corp Fin to process them.
9. Do Institutional Investors Support Proposals From Individual Proponents? - It appears that Davidoff didn't bother to talk to any institutional investors to ask their opinion about individual proponents. If he did, I can tell you that most would support the right of these shareholders to submit proposals (in fact, EYD was known to pick topics that would receive wide support on purpose). And that institutions have supported their proposals many times over the years. Some of them actually get very concerned about Corporate America railing so hard against the right of retail shareholders to voice their opinion, wondering whether they have something to hide. This tone clearly doesn't fit in this era of shareholder engagement. [Great quote from The Activist Investor blog: We also object to the idea that companies need to "grapple" with its own investors.]
10. Shouldn't the Topic of the Proposal Matter, Not Who Submitted It? - Yep. Amen. The article piggybacks off this Manhattan Institute study which dissects which individuals submitted the most proposals compared to other individuals. Not that important a topic IMHO.
There are other issues tackled in - and with - the Davidoff piece:
- There is wacky math throughout the Davidoff piece. He says there were 286 no-action requests over a one-year period. And that they cost $87k each. But when he multiplies those numbers, he says the aggregate cost to companies is $90 million? No idea how that works as my calculator comes up with a number that's less than a third of that.
This Activist Investor blog highlights that the majority vote rate of the three proponents highlighted in the Davidoff column fits squarely within the average range if the timeline is enlarged to '06-'14 instead of just calculating that figure for the past year.
And Davidoff points out that 71% of no-action requests are granted - but his denominator is no-action requests - not the # of proposals submitted to companies in total, which is more pertinent to the point he is making in that part of the article (which would lower this percentage to the teens).
- Alter egos continue to be a concern of mine. If someone doesn't meet the minimum ownership standard in the rule - which is pretty low - they shouldn't be eligible to submit a proposal. This continues to be a battle with Chevedden.
- In this blog, Jim McRitchie has weighed in with a lengthy rebuttal to the Davidoff piece.
Shareholder Proposals: Need to Rethink Resubmission Thresholds?
The Davidoff column plays up the fact that AutoNation has gotten a proposal from Chevedden for 14 years in a row. So apparently his proposals are garnering more than 10% to satisfy the resubmission thresholds in Rule 14a-8(i)(12). Maybe it is time to rethink the parameters of that exclusion basis. But remember that opening up the shareholder proposal to reform will not solely go the way that most companies want.
There is no more highly contested area of rulemaking than the shareholder proposal rule. It's been over 15 years since the last rulemaking in this area - and now with social media a factor in campaigns, Broc can see a rulemaking proposal about shareholder proposals garnering half a million comment letters (nearly all of them in favor of changes that benefit shareholders). Not a reason to avoid rulemaking necessarily - Broc just wants to point out that it's not as easy as you would think. There typically are trade-offs - if companies get a rule change that benefits them; then shareholders will also get a change that benefits them. So be careful what you wish for. There are very few companies that perhaps are unfairly impacted by the existing resubmission thresholds...
MD&A: SEC Brings "Known Uncertainties" Case Against BofA
In mid-August, it was big news that DOJ announced a record $16.7 billion settlement with Bank of America to put its mortgage-backed issues - part of the '07 financial crash - behind it. This civil action from the DOJ was brought for violations of FIRREA (Financial Institutions Reform, Recovery, and Enforcement Act of 1989).
Dwarfed by that announcement was that the SEC also secured a civil settlement for MD&A violations (press release & complaint). MD&A cases are not brought all that frequently - read about other MD&A enforcement actions on pages 48-52 of our "MD&A Handbook"
This is the BofA case in a nutshell: BofA admitted that it failed to disclose known uncertainties regarding potential increased costs related to mortgage loan repurchase claims stemming from more than $2 trillion in residential mortgage sales from '04 through '08 by the bank and certain companies it acquired. In connection with these sales, BofA made contractual representations and warranties about the underlying quality of the mortgage loans and underwriting - in the event that a loan buyer claimed a breach, the bank could be obligated to repurchase the related loan. The known uncertainties included whether Fannie Mae, a mortgage loan purchaser from Bank of America, had changed its repurchase claim practices after being put into conservatorship, the future volume of repurchase claims from Fannie Mae and certain monoline insurance companies that provided credit enhancements on certain mortgage loan sales, and the ultimate resolution of certain claims that Bank of America had reviewed and refused to repurchase but had not been rescinded by the claimants.
Meanwhile, Citigroup's settlement with the SEC earlier in the month means that it is now a "bad actor" - and perhaps the SEC won't waive the restrictions this time around as reported by this Reuters article...
PCAOB: Staff's Concept Paper on Accounting Estimates & Fair Value
In mid-August, the PCAOB issued this 47-page "Staff Consultation Paper" about accounting estimates and fair value measurements. What is a "Staff Consultation Paper"? It appears to be similar to the SEC's concept release - except it is issued at the Staff level and not by the PCAOB Board itself. Broc believes this is the first time that the PCAOB has issued this type of thing. Learn more about the paper in the FEI Daily and AccountingWeb.com...
Broadridge's 2014 Proxy Season Stats
In mid-August, Broadridge released its 2014 proxy season stats. Most of the stats were in line with recent years, except mobile voting grew to over 1.5 million shareholders, a 300% increase over since '12 and 70% from '13...
Profanity in SEC Filings? Yes, It Happens
Have you ever wanted to swear when drafting disclosure? Broc has. So exactly when is it acceptable to write f%ck&ng a$$h@le in a prospectus? Perhaps when you are offering shares to raise production funds for a particular type of feature film - see this example from "Lydia Slotnick Unplugged." Profanity sometimes also appears in the SEC's administrative proceedings, like this example.
This Bloomberg article notes that the use of profanity in earnings calls varies with economic conditions...
Survey Results: CEO Succession Planning
1. Our company:
2. Our company:
Please take a moment to participate on this "Quick Survey on Earnings Releases and Earnings Calls" - and this "Quick Survey on Ending Blackout Periods."
Congress & OpenSecrets: You Can Now Track Your Senator's Trades!
This Market Watch article talks about a website - OpenSecrets.org - that allows anyone to follow the stock trades of members of Congress (Senate trades aren't online yet on this site - but they are online as part of a Senate site that doesn't have great navigation). The online database draw on the disclosures now required under the STOCK Act. Pretty scary in this age of little privacy. And definitely will be fodder for the mass media and tweeting members of the public alike...
Poll: How Are You Responding to Your SDX Shareholder Engagement Letter?
In the course of Broc's blog entitled "Shareholder Engagement: Should Directors Be Politicians? 10 Things to Consider," he noted that 1000 companies recently received a letter from SDX asking boards to "consider adopting and clearly articulating a policy for shareholder-director engagement, whether through adoption of the SDX Protocol or otherwise." Although the letter doesn't specifically ask for a response, a number of members have asked what other companies are doing with the letter. Broc ran a poll to address that query and here are the results:
- Responded indicating have adopted shareholder-director engagement policy - 0%
- Responded indicating will consider adopting shareholder-director engagement policy - 0%
- Responded saying ‘thanks for the letter' - 17%
- Decided not to respond at all - 32%
- Undecided; intend to discuss at board meeting what to do - 26%
- Undecided; might not even share with the board - 25%
Regulation A+ Comment Letters: 9 Senators Weigh In
Recently, Broc blogged about some humor in comment letters sent in on the SEC's Regulation A+ proposal. Now, a group of 9 Senators sent in their own comment letter, expressing concern about state regulator preemption. Not a new theme as this blog notes a comment letter along the same lines from 20 members of the House. Here are all the comments so far on this proposal.
SEC Probes Internal Leak: No Smoking Gun
As Broc has remarked on occasion, it's been mindblowing how many times rumors seem to leak from the highest levels of the SEC to the media over the past decade (eg. here's an example). That sort of thing never happened before then. As noted in this CNBC article, the SEC's Inspector General recently spent months trying to uncover who leaked details about a closed Commission meeting about the JPMorgan "London Whale" settlement - but no smoking gun was found. Here's an article from the Hill.
According to the articles, the level of detail in this 16-page report from OIG is pretty wild, even with parts of it redacted. It notes who was interviewed during the investigation (all of the SEC commissioners, 5 staffers of the Office of the Chair and 18 staffers of the Offices of the Commissioners) and much more. In his blog, Steven Quinlivan breaks down some of it too.
Bizarrely, Broc couldn't find this OIG report on the SEC's site. Here's OIG's webpage with all of its available reports if you want to check yourself. Instead, it was released as part of a FOIA request Broc believes was based on the document's URL...
Good Ole Days: The Zany Dash for Filing the First CEO/CFO Certifications
Here's a note from Broc: On August 14th, it was the 12th anniversary of the due date for the first batch of CEO/CFO certifications from the 1000 largest companies (ie. that their past filings contained no material misstatements nor material omissions). It was a wild time as Sarbanes-Oxley had just been enacted a few weeks before. For those practicing back then, you will recall how the passage of Sarbanes-Oxley came out of the blue as reform legislation had little chance of becoming law until WorldCom suddenly failed and Congress acted swiftly in response.
I'll say it again. It was completely unexpected.
The importance of that can't be underscored enough. So there wasn't much lobbying on the bill nor was there much attention paid to the details of the law by the law's drafters since it sailed through Congress in a heartbeat. The law was relatively huge in scope, with a potpourri of topics - and as we all got back from vacation and started to look at it, it became clear that Congress seemed to overlook that one of the key provisions took effect pretty quick as the rest of the law's provisions required SEC rulemaking first. Although the Section 302 CEO/CFO certifications required SEC rulemaking first, that delay did not apply to the initial set of Section 906 certifications due with the next batch of 10-Qs. Yikes! I blogged about this back on July 31, 2002, the day after SOX was signed into law.
So these first certifications were due on August 14th, just two weeks after Sarbanes-Oxley was enacted. And CEOs and CFOs suddenly had to attest to their company's financials, etc. with scant time to prepare - nor did they have the comfort of the sub-certification machinery that many companies have today. Throw in that Section 906 was regulated by the DOJ (which was the principal reason why these certs were not delayed) and had criminal possibilities attached to them. Truly, an anxious time.
And this was during an era before webcasts were born. Instead, I held an impromptu CEO/CFO certification teleconference and folks had to RSVP by fax. My fax machine went berserk for days...
Our New "Annual Report & 10-K Wrap Handbook"
Spanking brand new! Posted in our "Annual Shareholders' Meetings" Practice Area, this comprehensive "Annual Report & 10-K Wrap Handbook" provides a heap of practical guidance about how to deal with Rule 14a-3. This one is a real gem - 43 pages of practical guidance.
More on our "Proxy Season Blog"
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:
- CalPERS Lauds Majority Support for Voting Calculus Proposal
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:
- Study: CEO Succession Planning Preparedness Lags Importance
People: Who's Doing What and Where
At the SEC, SEC Chair White hired Jim Schnurr as SEC Chief Accountant starting in October. Jim recently retired from Deloitte, where he was Vice Chair and senior professional practice director. As noted in this Reuters article, this is an important job as always.
A few months back, Broc blogged about how the battles among the SEC Commissioners has intensified in ways not previously seen before in public. This Bloomberg article profiling Commissioner Kara Stein - entitled "Ghosts of 2008 Haunt SEC's 'Outsider' as She Pushes for Tough Rules" - adds some more backstory to this theme...
This DealBook article really slams the performance of SEC Chair White after one year...
In Corp Fin, former Staffer Greg Belliston has moved in-house to work at Nu Skin Enterprises.
What's New on Our Websites
Among other new additions, during the last month we have:
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