E-Minders July 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: Since we've still been getting so many questions about what the SEC Staff expects in the wake of Corp Fin's recent issuance of its new non-GAAP CDIs, we've calendared a new webcast - "Non-GAAP Disclosures: The SEC Speaks!" - for Wednesday, July 6th with Mark Kronforst, the Chief Accountant of the SEC's Division of Corporation Finance! Dave Lynn & Meredith Cross will join Mark as they parse the questions that Corp Fin has been receiving since the CDIs - as well as the type of comments that the Staff has been issuing (those comment letters aren't public yet since the files aren't "closed").
And join us on September 8th for the webcast - "After Brexit! 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 September 27th for the webcast - “Virtual-Only Annual Meetings: Nuts & Bolts" - to hear HP Inc.'s Katie Colendich; Broadridge's Cathy Conlon; Ciber's Tara Dunn; GoPro's Eve Saltman; and Veaco Group's Kris Veaco talk about the nuts & bolts of virtual-only annual meetings.
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.
And join us on November 17th for the webcast - "This Is It! M&A Nuggets" - to hear Weil Gotshal's Rick Climan, Kaye Scholer's Joel Greenberg and McDermott Will's Wilson Chu impart a whole lot of practical guidance!
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.
This recent speech by SEC Chair White not only indicates that a rule proposal regarding board diversity disclosures is coming soon, it highlights that the Corp Fin Staff is actively reviewing climate change & sustainability disclosures - and it could conduct rulemaking in this area soon too. Here's an excerpt:
Currently, disclosure of sustainability information under SEC rules is being addressed by a combination of our materiality-based approach to disclosure, guidance on certain issues, and shareholder engagement on a range of sustainability topics, whether through direct dialogue with management or our Rule 14a-8 shareholder proposal process. Although we are seeing increased disclosure and engagement on sustainability matters, we are taking a more focused look at such disclosures, particularly related to climate change, in our annual filings reviews.
We understand, however, that there are those who do not believe that our materiality-based approach to sustainability disclosure goes far enough. That is one of the reasons we included a discussion of the topic in our recent Regulation S-K Concept Release and solicited input from investors and others on whether we should consider line-item disclosure on certain issues. I encourage you to share your perspectives and give us your input on whether changes are needed, and if so, what specifically should be changed.
When the 'leave' vote stunned the world. Broc did a quick Edgar search and 'Brexit' had been scarcely mentioned in recent 10-Ks & 10-Qs. He found about 20 companies that have disclosed Brexit risk factors - which includes a search of 20-Fs and prospectuses.
As Broc writes on page 23 of our "Risk Factors Disclosure Handbook," macro events or trends can be appropriate risk factors - but he also writes on page 25 that you should illustrate how those macro trends specifically impact your company. How do those known uncertainties impact how your company is thinking about its future? You'll be writing about this for your MD&A & forward-looking safe harbors - so tailor for your risk factors too. See this MarketWatch piece.
The first set of Form 8-Ks, Form 10-Ks & Form 10-Qs mentioning Brexit are dribbling in. And we've been posting oodles of Brexit memos in our "Europe" Practice Area - and here's a few memos on the data privacy implications. Finally, get ready for our upcoming webcast: "After Brexit! Current Developments in Capital Raising."
In late June, the SEC proposed changes to the "smaller reporting company" definition, which would increase the number of companies falling into that reporting category. Here's the 83-page proposing release. The proposed rules would enable:
- Companies with less than $250 million of public float to provide scaled
disclosures as a smaller reporting company, as compared to the current $75
The SEC isn't proposing to increase the $75 million threshold in the "accelerated filer" definition. As a result, companies with a float of $75 million or more that would qualify as smaller reporting companies would be subject to the requirements that apply currently to accelerated filers - including the timing of the filing of periodic reports and the requirement that accelerated filers provide the auditor's attestation of internal controls.
The SEC was on a tear in late June. In addition to proposing the "smaller company" changes, it adopted resource extraction rules. These are the rules that were originally adopted in 2012 - but were then struck down by the US District Court for DC in 2013. The rules were re-proposed in December after being sued by Oxfam America for not moving fast enough - and a court ordered that they be re-proposed. When the SEC re-proposed the rules, it promised to adopt the rules by June 27th - and it did on the nose! Here's the 268-page adopting release. And here's an order from the SEC adopt the rules qualifying for some European Union & Canadian stuff.
We're excited to announce the launch of our new podcast series: "Big Legal Minds." The series will consist of these two types of programs:
- 40-minute interviews with well-known folks
from our community about their illustrious careers (four of these are posted so
The podcasts are available in 3 different ways:
- Posted on
TheCorporateCounsel.net with our other podcasts
So many people listen to podcasts these days that they subscribe to via their phones that we decided to make our podcasts available in this "easy-to-download & listen" format. Let Broc know if you have ideas!
No sooner did Broc blog about a House bill that would make it challenging for the SEC to conduct any rulemaking, than Cooley's Cydney Posner blogs about an executive summary of the "Financial Choice Act" - which would require the SEC to conduct rulemaking to dismantle nearly all of the corporate governance rules that the SEC has adopted under Dodd-Frank over the last six years.
The kicker is that all of this repealing isn't in the executive summary (and the full bill isn't public yet); rather the executive summary just says "repeal non-material specialized disclosures." You can't make this stuff up! But Cydney's blog notes that Cooley's "Government Analytics Practice Group" dug in to uncover what is behind the bill's executive summary:
- Repeal specialized
public company disclosures for conflict minerals, extractive industries and mine
safety (Dodd-Frank Title XV)
As Cydney notes in her blog, it wouldn't quite repeal all of Dodd-Frank's corporate governance provisions - pay-for-performance would still be on the books. The bill would also incorporate about a dozen bills that are floating around in the House these days - and would "streamline" the SEC's Enforcement Division process so that individuals received "fair treatment." Cydney writes:
According to the NYT, the bill "has little chance of passing Congress this year." And, even if it did, President Obama still holds the veto pen, at least until January. Nevertheless, Speaker Ryan has encouraged his Republican brethren to develop affirmative policies and programs, and, as the NYT suggests, this bill "may influence the presidential debate and help shape the Republican agenda in the next term."
Ever since the SEC - and other federal agencies - have been required to conduct more cost-benefit analyses in the wake of the proxy access court decision in 2011, the pace of rulemaking certainly has slowed - despite a huge ramp up in the size of the SEC's relatively new Division of Economic & Risk Analysis (Risk Fin).
Things might get worse before they get better. As highlighted in this CII letter, a House bill from Rep. Garrett - the "SEC Regulatory Accountability Act" (HR 5429) - includes provisions that could really paralyze the SEC's ability to adopt new rules or modify old ones. For example, the bill would require the SEC to revisit a rule within one year of its passage - and then every five years after that.
On its face, we know this sounds reasonable - but it would require more resources than you think to undertake this task. Resources that the SEC doesn't have. Remember that the SEC already is conducting extensive cost-benefit analyses, etc. And bear in mind that all of this doesn't protect us from stupid laws that Congress passes that requires the SEC to adopt stupid new rules. The bulk of the rulemaking conducted by the SEC over the past decade has been mandated by Congress. So if Congress has a beef with the rules that the SEC is adopting, it should look in the mirror...
In mid-June, the SEC proposed rules - in this 296-page proposing release - to modernize the disclosure requirements for mining companies by killing Industry Guide 7 - and updating Item 102 of Regulation S-K to include all mining disclosure requirements in one S-K subpart. As noted in this press release, the proposal would:
- Provide one
standard requiring registrants to disclose mining operations that are material
to the company's business or financial condition
Free stock! As noted in this Wired article, loyal T-Mobile customer may be eligible for a share of free stock starting in early June if they refer a new customer (two shares if they've been a customer for 5 years). Here's T-Mobile's prospectus for this "Stock Up Rewards Plan."
Free stock as a marketing ploy for companies with loyal customer bases is not exactly new - a few existed even before the Internet (eg. Dr. Pepper did one in the early '80s). But they are rare - and for good reason. These FAQs that Broc drafted long ago lay out some of the concerns (and here's a WaPo article about potential tax issues - and an old WilmerHale memo about the SEC cracking down on freebie offerings).
A prime example of unexpected problems comes from the first online free stock offering, which was conducted by Travelzoo.com in April 1998. Reportedly, the company subsequently had difficulty locating the people who received free stock when it sought to conduct an exchange offer - primarily because the only contact information it had for many stockholders was e-mail addresses (many of which had changed and didn't have forwarding information).
Interestingly, Loyal3 is helping to administer this freebie stock promotion for T-Mobile. As you might recall from this blog, Loyal3 is the entity that has been helping companies to create "Customer Stock Ownership Plans" - these are plans that run through on an app for your smart phone, tablet, etc. This is an alternative solution to giving away the stock for free...
Here's other innovative stuff from the '90s: Spring Street Brewing, Wit Beer (Wit Capital), tracking stock, David Bowie bonds, SOES bandits, online brokers and Pearl Jam!
"No, you're a stupid head!" Not to drift into a political discussion, but we hate when some folks in Congress complain about the government being too big & how federal agencies have adopted too many rules - but then Congress goes ahead & forces the SEC to adopt something like this interim final rule that was adopted in early June.
This is the stupid rule required by the FAST Act to allow Form 10-K filers to provide a summary of business & financial information. The fact that the adopting release is only 23 pages says it all. Given its foolishness, the SEC wisely made the rule principles-based - allowing companies to fashion their voluntary summary as they wish.
The new rule doesn't require a summary - it merely allows it. News flash: it was already permissible to do so - as the SEC notes on page 4 of the adopting release. A complete waste of the Staff's time.
In mid-June, the SEC announced that it will allow companies to voluntarily file structured financial statement data in a format known as "Inline XBRL." From what we gather from the SEC's press release, this will enable filers to use XBRL in their HTML filings rather than be forced to file their XBRL as an exhibit to a filing. It's supposed to reduce costs & improve the quality of filings...
Last year, Broc blogged about how Hewlett-Packard became the first big company to hold a virtual-only annual meeting. This year, Intel became the new bellwether. Intel had tried to become the first large company to do this about six years ago - but the resulting bad publicity forced them to turn the meeting into a hybrid. Not so this year. The only bad press Broc saw was this NY Times piece - that didn't come out until after the meeting was over! [By the way, the NYT piece incorrectly states that Intel held a virtual-only meeting in '09 and that it was the first ever. Wrong on both counts - see my list of the true pioneers, starting with Inforte in 2001. The piece is also wrong in that Intel did take questions from the web during the '16 annual meeting.]
Anyway, this is how Intel described how the meeting would work in its proxy statement - compare that to what Hewlett-Packard disclosed in this year's proxy statement when it held a virtual-only meeting again...
The Fundrise Real Estate Investment Trust, LLC (which they lovingly call the "Income eREIT") filed the first-ever "Annual Report on Form 1-K" back in late April. Under Rule 257(b)(1) of Regulation A, Form 1-K is the annual report now required to be filed by Tier 2 companies that conducted their offerings under Regulation A+. The form is due within 120 calendar days of fiscal year covered by the report. Only Tier 2 companies are required to file a Form 1-K, one of trade-offs for not having to register with the states. Since Fundrise made their filing back in late April, there have been four other Form 1-Ks filed.
When Broc served in Corp Fin in the mid-90s, he was tasked for a while with reviewing novel products created by investment banks. Back then, that was handled out of one of the normal Operations groups - now that is done under Amy Starr's "Office of Capital Market Trends." Anyway, Broc wound up looking at some weird stuff and found out that there is even something called a "Form 1" filed with the SEC. That is the form that stock exchanges file to be registered with the SEC as an exchange...
- It is extremely rare for any company to use GAAP earnings for bonus calculation purposes (word searching "non-GAAP" probably missed the other 42% of companies that refer to adjusted EPS, adjusted revenue, etc.).
- Most incentive plan targets are based on operating results, which is why it is common to exclude non-operating items - like FX or asset impairments - from the bonus calculation. It is also common for some industries to exclude non-cash expenses, like equity compensation expense.
- Agree that some items should not be excluded from GAAP results when calculating incentive payouts - and there is typically a very rigorous process that management and the compensation committee use to evaluate what to exclude.
- Lay-off expenses are mentioned as an example of a bad adjustment to GAAP results for incentive plan purposes. If you are the board, would you want to provide management with a financial incentive to delay a lay-off or plant closure until next year to avoid a reduction in the current year's bonus? I can think of many examples where the entire industry faced excess capacity and closing facilities was not anticipated at the beginning of the year. Most boards would want the management team to get out in front on an issue like that - and would be happy to reward them for doing so, rather than create a financial penalty. I recognize that paying big bonuses to management during large layoffs is not a good practice and should be avoided.
- Agree that if management wants relief from FX headwinds one year, they need to exclude FX tailwinds in future years.
As noted in this memo, a webcast poll by Deloitte indicates that fewer than 10% of accounting professionals say their companies are ready for the FASB's new lease accounting standards. They cited the top two challenges as collecting the necessary data in all organizational leases in a centralized, electronic repository - and instituting reporting processes to evaluate quarterly adjustments for the balance sheet. Of the 5,400 respondents, only 15% said they expect compliance to be easy.
This speech by SEC Deputy Chief Accountant Wes Bricker - from early June - contains his views about transition disclosure as the effectiveness of the new revenue recognition standard nears. Here's an excerpt from Wes' speech:
Speaking of disclosures, the SEC staff has long advised that a registrant should provide transition disclosures to investors of the impact that a recently issued accounting standard will have on its financial statements when that standard is adopted in a future period.
The preparation of the transition disclosures should be subject to effective ICFR and disclosure controls and procedures. As management completes portions of its implementation plan and develops an assessment of the anticipated impact the standard will have on the company's financial statements, internal and disclosure controls should be designed and implemented to timely identify relevant disclosure content from the implementation assessments and to ensure, where necessary, that appropriately informative disclosure is made.
Investors should expect the level of transition disclosures to increase as a company progresses in its implementation plans and, when necessary, engage with company management to understand these disclosures.
Spanking brand new. By popular demand, this comprehensive "Stock Buybacks Handbook" covers the entire terrain, from Rule 10b-18 and Regulation M to Rule 10b5-1 and Item 703 of Regulation S-K. This one is a real gem - 83 pages of practical guidance - and it's posted in our "Buybacks" Practice Area.
We have posted the transcript of our popular webcast: "Yes, It's Time to Update Your Insider Trading Policy."
We have posted the transcript for our recent webcast: "Company Buybacks - Best Practices."
We have posted the transcript for our recent webcast: "Legal Opinions: The Hot Issues." This was a great & highly informative program!
This 1-minute video captures the sights & sounds of the "Women's 100" events that wrapped up in DC and Palo Alto in early June.
As part of our Big Legal Minds" podcast series - check out this 35-minute podcast, during which Susan Wolf of Global Governance Consulting describes her vast experience on being an in-house lawyer & corporate secretary, including:
- How did you become a lawyer in this field?
1. Beyond the Phil Mickelson insider trading
case - what that means for all directors & officers
Remember that these podcasts are also available on iTunes or Google Play (use the "My Podcasts" app on your iPhone and search for "Big Legal Minds"; you can subscribe to the feed so that any new podcast automatically downloads...
At the SEC, in mid-June, Chair White testified before the Senate Banking Committee about the SEC's oversight obligations. You might recall that two Commissioner nominees still remain to be confirmed - mainly because some Senate Democrats are angry that the nominees wouldn't commit to adopting rules on disclosing political contributions as noted in this blog.
Anyway, the hearing produced some fireworks as Senator Schumer & Warren criticized Chair White for removing political spending disclosure from the Reg Flex Agenda - and for launching the disclosure effectiveness project (see this blog). In fact, Broc's blog about the Reg Flex Agenda being "aspirational" even made it into this MarketWatch article that describes the testy exchange.
Among other new additions, during the last month we have:
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