January 29, 2020

SEC’s Proxy Advisor Interpretive Guidance on Hold

Last fall, Liz blogged that ISS was suing the SEC to overturn the Commission’s August 2019 interpretations saying that proxy voting advice is “proxy solicitation” under SEC rules. As reported in Bloomberg Law, that lawsuit is now on hold.

As part of the stay, the SEC has indicated that its guidance issued last August doesn’t have the effect of law and it won’t be invoked while the stay is in place. All of the underlying court filings are available on Pacer.

Insider Trading: Bharara Task Force Weighs In

A few years ago, I blogged over on The Mentor Blog about the establishment of a task force led by former SDNY chief Preet Bharara to make recommendations about reforming insider trading law.  The task force recently issued its report, which recommends enactment of a new statute setting forth the elements of insider trading.  Here’s an excerpt from the executive summary summarizing what the task force thinks that statute should include:

The language and structure of any statute should aim for clarity and simplicity.

– The law should focus on material nonpublic information that is “wrongfully” obtained or communicated, as opposed to focusing exclusively on concepts of “deception” or “fraud,” as the current case law does.

– The “personal benefit” requirement should be eliminated.

– The law should clearly and explicitly define the knowledge requirement for criminal and civil insider trading enforcement, as well as the knowledge requirement for downstream tippees who receive material nonpublic information and trade on it.

The task force’s report includes specific language that it would like to see included in any statute, including this definition of what it means to “wrongfully” obtain MNPI:

“Wrongfully shall mean obtained or communicated in a manner that involves (a) deception, fraud, or misrepresentation, (b) breaches of duties of trust or confidence or breach of an agreement to keep information confidential, express or implied, (c) theft, misappropriation, or embezzlement, or (d) unauthorized access to electronic devices, documents, or information.”

There’s a lot to unpack in this definition, but among other things, the inclusion of language covering the breach of an NDA would address one of the key weaknesses in the SEC’s failed enforcement action against Mark Cuban, while the language in clause (d) would shore up insider trading cases against data hackers, which also face some impediments under existing law.

Building Better Board Evaluations

Over the years, some boards have become pretty good at implementing effective & insightful self-evaluation schemes.  But others struggle with a formulaic, “fill-in-the-blanks” process that leaves many directors wondering just exactly what this all was supposed to accomplish.  If you advise any boards that fall into this latter category, this Weil memo laying out a framework for more effective board evaluations may be a helpful resource.  Check it out!

John Jenkins

January 28, 2020

Board Diversity: Goldman Says No More “Boys Club” IPOs

Goldman Sachs’ CEO David Solomon made news at Davos last week by announcing that his firm would no longer help companies go public unless they had “at least one diverse board candidate, with a focus on women.” I knew women were underrepresented on IPO boards, but Solomon’s statement made me wonder exactly what the gender composition of IPO boards was like. So, I did a little digging, and now I’m kind of sorry that I asked.

Last May, this Quartz article looked at the gender diversity of the 10 biggest IPO filings of 2019. While it was early in the year, the list included Uber, Lyft, Pinterest, Slack, Chewy, WeWork & CrowdStrike – so the kind of unicorns that banks like Goldman court were all in the mix. The results were pretty dismal:

Of the 10 biggest companies that have gone public or filed to go public this year, none is led by a woman, and the average number of women on their boards is less than two. Excluding WeWork, which filed its registration confidentially, the average number of women on the list of the highest paid executives, disclosed in each company’s S-1 filing, is 0.56.

WeWork’s public filing disclosed one woman on the list of its highest paid executives, but it also didn’t have a single woman serving on its board. Uber and Lyft were the medalists in the group, with both companies having 3 women on their board. In terms of overall percentage of women board members, Pinterest topped the list with 2 women serving on its 6 member board.

This isn’t just a problem among tech unicorns. According to this Equilar report, in 2018, the 4 most popular IPO industry sectors all averaged fewer than 2 female board members. Tech & Consumer companies led the way with an average of approximately 1.3 women on their boards, while Financial companies averaged 1.0 women and Healthcare companies brought up the rear with an average of less than one woman per board.  Healthcare’s not necessarily an outlier.  A 2018 Equilar report said that only about 60% of recent IPOs had a woman on their boards.

It remains to be seen how scrupulously Goldman Sachs will stick to its pledge and whether any of its cohorts in the “bulge bracket” will follow its lead, but the numbers indicate that there’s a lot of work to be done. Check out this Cydney Posner blog for more on Goldman’s decision.

This Bloomberg Law analysis says that Goldman’s decision has the potential to cost it more than $100 million in underwriting fees – and that’s nearly 1/3rd of the fees that it earned from underwriting U.S. IPOs last year.

Brexit: FAQs

I guess I’ve been paying a lot more attention to Megxit than to Brexit lately. But while Harry & Meghan sip on free Tim Horton’s coffee & plot to seize the Canadian throne, Britain’s withdrawal from the EU becomes effective on Friday – and that means after the end of an 11 month transition period, the Continent will be cut off!

In case you haven’t been paying as much attention to Brexit as you should, then you’ll find this Hogan Lovells memo helpful. It’s a series of FAQs designed to help businesses sort out the legal consequences of the UK’s departure from the EU. Topics include the provisions of EU law that will continue to apply during the transition period, the consequences of a failure of the UK & EU to reach a trade agreement before the end of the transition period, and the impact of Brexit on the enforceability of UK judgments in EU states.

The NYSE’s Annual Compliance Letter

The NYSE has sent its “annual compliance letter” to remind listed companies of their obligations. There aren’t any new rules this year – but the letter highlights the enhanced functionality of the NYSE’s “listing manager” app, which replaced the website last spring & is now the way that companies submit materials to the Exchange.

John Jenkins

January 27, 2020

That Pesky 3rd Year: Corp Fin Issues 3 New MD&A CDIs

On Friday, Corp Fin issued three new Regulation S-K CDIs addressing interpretive issues arising out of last year’s Fast Act rule changes that, under some circumstances, permit companies to exclude the discussion of the earliest of the 3 years covered by the financial statements from their MD&A. Here they are:

Question 110.02

Question: A registrant providing financial statements covering three years in a filing relies on Instruction 1 to Item 303(a) to omit a discussion of the earliest of three years and includes the required statement that identifies the location of such discussion in a prior filing. Does the statement identifying the disclosure in a prior filing incorporate such disclosure by reference into the current filing?

Answer: No. A statement merely identifying the location in a prior filing where the omitted discussion can be found does not incorporate such disclosure into the filing unless the registrant expressly states that the information is incorporated by reference. See Securities Act Rule 411(e) and Exchange Act Rule 12b-23(e). [Jan. 24, 2020]

Question 110.03

Question: May a registrant rely on Instruction 1 to Item 303(a) to omit a discussion of the earliest of three years from its current MD&A if it believes a discussion of that year is necessary?

Answer: No. Item 303(a) requires that the registrant provide such information that it believes to be necessary to an understanding of its financial condition, changes in financial condition and results of operations. A registrant must assess its information about the earliest of three years and, if it is required by Item 303(a), include it in the current disclosure or expressly incorporate by reference its discussion from a previous filing. [Jan. 24, 2020]

Question 110.04

Question: A registrant has an effective registration statement that incorporates by reference its Form 10-K for the fiscal year ended December 31, 2018. In its Form 10-K for the fiscal year ended December 31, 2019, the registrant will omit the discussion of its results for the fiscal year ended December 31, 2017 pursuant to Instruction 1 to Item 303(a) and include a statement identifying the location of the discussion presented in its Form 10-K for the fiscal year ended December 31, 2018. The filing of the Form 10-K for the fiscal year ended December 31, 2019 will operate as the Section 10(a)(3) update to the registration statement. After the company files the Form 10-K for the fiscal year ended December 31, 2019, will the company’s discussion of its results for the fiscal year ended December 31, 2017 be incorporated by reference in the registration statement?

Answer: No. The filing of the Form 10-K for the fiscal year ended December 31, 2019 establishes a new effective date for the registration statement. As of the new effective date, the registration statement incorporates by reference only the Form 10-K for the fiscal year ended December 31, 2019, which does not contain the company’s discussion of results for the fiscal year ended December 31, 2017 unless, as indicated in Question 110.02, the information is expressly incorporated by reference. [Jan. 24, 2020]

We’ve gotten a few questions on our “Q&A Forum” about the mechanics of omitting the discussion of the earliest year from a company’s MD&A, and one of the things I’ve learned from them is that I’m not the only one who finds that process a little disorienting. Fortunately, this recent SEC Institute blog includes a bunch of MD&A examples from companies that opted to take advantage of the new rule, so now we all have plenty of precedent to look at.

Farewell to Bob Bostrom

All of us here at were saddened to learn of the passing of Bob Bostrom, and extend our sincere condolences to his family. Bob enjoyed a distinguished & award-winning legal career and generously shared his expertise with other practitioners. Here’s a remembrance from ACC President Veta Richardson.

Transcript: “Pat McGurn’s Forecast for 2020 Proxy Season”

We have posted the transcript for our recent webcast: “Pat McGurn’s Forecast for 2020 Proxy Season.”

John Jenkins

January 24, 2020

More on “The (Very) Pregnant Securities Lawyer”

Some of you might know that we’re soon moving to “zone defense” in my house – my husband & I are expecting our third child any day now. We also took on parenthood later in life, and we love a challenge, so they’re all under age 5.

At about this point with our second, I went way out of my comfort zone and blogged about some of the issues I was facing. I loved that many of you responded with your own anecdotes, words of encouragement and advice. Even more gratifying was that a few people confided that they were facing similar issues and felt less alone after reading that post. I’ll say that most of the things in that list still apply the third time around, but I have a few more to add:

1. Living the Cliche: The biggest difference this time around is my “time flies” mindset. With our oldest starting kindergarten next year and our “baby” (soon-to-be middle child) well into the toddler phase, I’m really starting to grasp how quickly this all goes. I’ve barely accepted the fact that I’m pregnant and it’s already over!

2. ESG Is Everywhere: People are mad at Fisher Price/Mattel and the Consumer Product Safety Commission for failing to share stats about infant deaths caused by the Rock ‘n Play, a super popular product that we used for both of our kids. The info came to light, and the product was recalled, only because the CPSC accidentally shared product-specific info with Consumer Reports. So that’s not too reassuring. Only read the report if you can stomach the tragic human element of the story. This truly is a “buyer beware” world – which is scary when you’re desperate, sleep-deprived, faced with loads of conflicting info and in charge of keeping a defenseless human alive.

Will there be long-term legal or reputational fallout for the company or the agency? At least one well-known “baby sleep” author (yes, that’s a thing – she also runs a 45,000-member Facebook group) has renounced her trust of any products and is rewriting her book. I’m left wondering what kind of info the company’s board was getting and whether there’s an advisory board that will get more attention in future disclosures, since there don’t appear to be any pediatricians or child safety experts on the board itself. This WaPo article about “voluntary safety standards” set by companies is also…interesting. I guess that’s good for shareholders, at least in the short-term?

3. My Kids Make Me Better: I suspect that many in our community – myself included – can identify with this HBR article about overworking. Sometimes I try to do some “light work” around the family on nights & weekends. But lately, my 2-year-old walks up, shuts my laptop and carries it away – then he grabs my phone too, saying, “No more, mommy!!” Unfortunately, that’s the kind of “tough love” that I need right now to be able to live in the moment. Among other things, our kids are also constantly teaching me patience, new perspectives, organization, appreciation for beauty in small things and a nuanced understanding of bathroom humor. After seeing the two of them interact over the last couple years, I’m even more excited to see how the new baby’s personality will fit into the mix.

4. Transitions Aren’t Easy: I blogged last time about “transition mechanics,” which are very important. This is more about the “transition mindset.” I’m lucky in being afforded an opportunity to take leave – not everyone has that. However, I feel I’m not “optimizing” that benefit because – rather than gradually ramping down – I tend to work excessively until the moment it’s physically impossible. I know from personal experience that this makes the birth and recovery much more difficult and I’ll spend a few weeks or months afterwards regaining the ability to function and beating myself up for not taking better care of myself and the baby during pregnancy. I also have to set really firm boundaries for myself during leave, because I know I’ll struggle with not feeling “productive” (despite producing a brand new person and having the primary responsibility to feed and keep that new, helpless person alive).

I recall that returning from leave can be pretty rough too, though I’m not in that moment yet. Whether you’re “leaning in” or “leaning out,” it takes a while to find a rhythm – and this NYT piece points out that for many, the “push-pull” doesn’t ever fully disappear. I try to remind myself that – while parenting continues forever – leave itself is such a short time period in the big picture and it’s best to stay healthy and present. Parenthood is also just one example of a big transition – everyone has “life” stuff going on throughout their career, and we’re doing ourselves a disservice if we glorify robotic compartmentalization.

5. Cultural Shift: Last time around, I blogged that professional networking while pregnant is particularly awkward. I do enjoy bonding over the shared parenting journey, but I know there are other things that we can also talk about, and regularly fielding “body” comments can make even the most confident person self-conscious. I’ve experienced much less of that this time, which I love. One person was surprised when I mentioned I was expecting and said they now look at people only from the neck up – bravo!

Another positive change I’ve noticed in the last few years is that many more men are unapologetically – even proudly – taking parental leave. One fellow lawyer has been posting daily updates about the time away from his “easier” job and told me that the expectation at the firm these days is that everyone (birthing & non-birthing parents) will take their full leave – it’s frowned upon to do otherwise. Shortly after that, I received a to-the-point auto reply from another male contact – “I’m out on parental leave and will not be responding to messages” – with contact info for colleagues. Two thumbs up to that team approach.

I (still) know I’m not alone on this journey of balancing pregnancy, parenthood & lawyering. I’d welcome more emails with any experiences & “lessons learned” that you want to share – just don’t be surprised if you get an auto reply! I’m extremely grateful to John, Lynn, Dave, Alan, Mike, Mark and the folks in our HQ for being so on top of their game and willing to handle some “extras” these next few months.

California’s “Board Gender Diversity” Law: FAQs

It’s official – California-headquartered companies are now required to have at least one female director. This WSJ article says that 244 California-based companies have added a woman to their board since the law went into effect, and 41 companies added two. For companies with five or more directors, the law requires having 2-3 female directors by the end of next year. This Wilson Sonsini memo provides some up-to-date info on how reporting and enforcement will work in the days ahead. Here’s an excerpt:

Are there any reporting obligations for companies under SB 826? Yes and no. Because the California secretary of state has not yet adopted implementing regulations under SB 826, there is currently no official regulatory mechanism for reporting that would result in a fine (see list in next section). However, the secretary of state has modified the current annual Corporate Disclosure Statement for publicly traded companies to include questions regarding the number of female directors currently serving on a company’s board (see question 5 in the statement).

Based on our conversations with an individual handling SB 826 matters at the secretary of state’s office, during calendar 2019 and as of the date of this Alert, responding to those questions on the Corporate Disclosure Statement is the only current way a company can inform the secretary of state’s office regarding compliance with SB 826. We do not expect the secretary of state’s office to review a company’s annual report on Form 10-K, proxy statement, website, or any other documentation to determine whether a company had a female director serving during a portion of calendar 2019.

The memo goes on to say that it’d be unlikely at this point for a company to be fined for being out of compliance based on 2019 board composition. However, there’s a “public shaming” factor that could motivate companies to comply:

If there are currently no official reporting obligations, why should my company report on the Corporate Disclosure Statement? SB 826 requires the California secretary of state to publish on its website a report documenting the number of companies whose principal executive offices are located in California and who have at least one female director. An initial report was published in July 2019, and with no official reporting mechanism there were a number of anomalies reported.

No later than March 1, 2020, and then on an annual basis, the secretary of state must publish a more detailed report on its website regarding the number of:

• companies subject to SB 826 that were in compliance with the law during at least one point during the preceding calendar year;
• publicly held corporations that moved their U.S. headquarters to California from another state or out of California into another state during the preceding calendar year; and
• publicly held corporations that were subject to SB 826 during the preceding year, but are no longer publicly traded.

Based on our conversations with an individual handling SB 826 matters at the California secretary of state’s office, the March 2020 report is currently being prepared based on responses received during 2019 from the Corporate Disclosure Statement. If companies want to be named on the secretary of state’s annual report as being compliant because a female director has served on their board for at least a portion of the calendar year, they will need to inform the secretary of state’s office through the Corporate Disclosure Statement.

California isn’t the only state to be taking a closer look at board diversity – New York is the latest jurisdiction to adopt a law on the topic. Starting in June of this year, companies will be required to report the number of directors on their boards and how many of those people are women. See this Ogletree Deakins memo for more info…

Auditor Independence: Proposed Rule Changes are Good News for Dealmakers

Here’s something John recently blogged on (and also see this four-part piece in Francine McKenna’s newsletter about the SEC’s auditor independence proposal): This recent blog from Weil’s Howard Dicker & Lyuba Goltser reviews the potential benefits to PE funds, IPOs & participants in M&A transactions associated with proposed changes to the SEC’s auditor independence rules. This excerpt discusses how the rule changes would address inadvertent independence violations that can arise in M&A transactions when the buyer’s auditor has also performed impermissible non-audit services for the target:

The SEC proposes a transition framework to address these types of inadvertent independence violations. An accounting firm’s independence will not be impaired because an audit client engages in a merger or acquisition that gives rise to a relationship or service that is inconsistent with the independence rules, provided that the accounting firm:

– is in compliance with applicable independence standards from inception of the relationship or service;

– corrects the independence violations arising from the merger or acquisition as promptly as possible (and in no event later than six months post-closing); and

– has in place a quality control system to monitor the audit client’s M&A activity and to allow for prompt identification of potential independence violations before closing.

The blog also points out that for PE funds, rule changes would codify Staff practice concerning independence issues that arise when sister companies with a common PE fund owner have engaged an audit firm to provide non-audit services that could impair the independence of the audit firm with respect to another sibling company. The rule changes would also shorten the look-back period for auditor independence from three years to one year, which would provide increased flexibility for IPO companies to address potential disqualifying relationships with their audit firms.

Liz Dunshee

January 23, 2020

Congress Moves to Close the “8-K Trading Gap”

Last week, the House passed the “8-K Trading Gap Act” by a vote of 384 to 7. This Troutman Sanders memo explains how this bill could impact insider trading policies if it becomes law. Here’s an excerpt (also see this Cooley blog and this Davis Polk memo):

A public company currently has up to four business days after the occurrence of a material corporate event before it must file or furnish a Form 8-K (the 8-K Gap Period). Current law does not prohibit insider trading per se during the 8-K Gap Period, absent a showing that the insiders have traded on material nonpublic information in their possession or violated the prohibition against “short swing” trading under Section 16(b) of the Exchange Act.

The purpose of the Act is to address this perceived loophole by directing the SEC to issue rules, no later than one year after its enactment, to require a reporting company under the Exchange Act to “establish and maintain policies, controls, and procedures that are reasonably designed to prohibit executive officers and directors of the issuer from purchasing, selling, or otherwise transferring any equity security of the issuer, directly or indirectly” during the 8-K Gap Period.

Under the current version of the bill, the SEC would be permitted to exempt transactions under Rule 10b5-1 plans that were adopted outside of the gap period – and the prohibition wouldn’t be triggered when an event is announced in a press release or publicly disseminated in a Reg FD-compliant way. A similar bill has been introduced in the Senate.

This follows another insider trading bill that the House passed last month. Meanwhile, a former Congressman was just sentenced to 26 months in prison for insider trading (a case that Broc and John blogged about when it broke).

XBRL: Check Your Public Float!

Time to double check your XBRL data. Here’s a recent announcement about XBRL “scaling errors” from the SEC’s Division of Economic Risk & Analysis:

DERA staff has observed that some filers are inconsistently reporting public float values. For example, one filer reported a public float of $800 million in its HTML filing, but reported a public float of $8 billion in its XBRL data. Filers should carefully review their XBRL data to ensure scaling accuracy. Furthermore, filers should verify that information in their HTML filing is consistent with their XBRL data.

See the “Staff Observations & Guidance” for other data quality reminders.

Non-Financial Disclosure: What “Audit Assurance” Looks Like

One of the suggestions that keeps turning up for ESG disclosures is that companies should explain how they verify the accuracy of the info or provide some external assurance – for example, see the Chamber’s recent “best practices.” This 16-page memo from the Center for Audit Quality discusses shareholders’ increasing interest in non-financial info and notes some industry guidance for auditors on how to review it.

From the company perspective, this 52-page guide – from the World Business Council for Sustainable Development and the Institute of Chartered Accountants in England & Wales – is even more helpful because it explains what the assurance process would look like, how to decide whether it’s right for your company, and how to enter into an assurance engagement. The report shows that this endeavor doesn’t have to be “all-or-nothing” – e.g. a project’s scope could range from:

– Site visits to head office only, no detailed tests, only reviews

– Site visits to 5 of 10 locations, detailed tests at 2 sites and a review of information at other locations

– Site visits to 7 of 10 locations, detailed tests at all 4 major sites and a review of information at other locations

Liz Dunshee

January 22, 2020

The Myth of the Friday Earnings Release

At one point or another, most of us have clients who want to avoid scrutiny of sub-par results and consider the “Friday earnings release” approach. Legend has it that everyone will be too busy with their weekend to pay any attention to Friday news.

Sadly, this WSJ article confirms that the opposite is true: because fewer companies release earnings on Fridays, there tends to be more attention – and market volatility – for those who do. The most popular days for earnings are Tuesdays, Wednesdays & Thursdays – typically three or four weeks into earnings season. And here’s what the article says happens on those days:

Attention paid to companies’ earnings—measured by metrics such as downloads of regulatory filings, Google searches and news articles—drops on popular reporting days, said Ed deHaan, an associate professor of accounting at the University of Washington’s Foster School of Business. Mr. deHaan and his colleagues analyzed the timing and impact of 120,000 results announcements in 2015 and found that trading volumes of individual stocks also went down on busy earnings days. Their findings were published in the Journal of Accounting and Economics.

The article also points out that companies may miss out on attention if they hold their earnings call at the same time as industry competitors. It spotlights Citrix, whose earnings date typically conflicts with Microsoft’s – Citrix is now considering moving its earnings date based on unsolicited feedback from analysts & investors. A move might be worth some thought if you’re not getting the attendance you want…

Using Tax Shelters? It May Affect Your ESG Reporting

Recently, the Global Reporting Initiative – one of the longer-standing and more widely-adopted frameworks for sustainability reporting – published a new tax disclosure standard that’s intended to discourage “tax avoidance.” See pages 5-13 for the recommended disclosures – the “effective date” is next January, but early adoption is encouraged. Here’s an excerpt from GRI’s announcement:

The GRI Tax Standard is the first global standard for comprehensive tax disclosure at the country-by-country level. It supports public reporting of a company’s business activities and payments within tax jurisdictions, as well as their approach to tax strategy and governance. Global investors, civil society groups, labor organizations and other stakeholders have all signaled their backing for the Tax Standard, as it will help address their growing demands for tax transparency.

The Tax Standard has been developed in response to concerns over the impact tax avoidance has on the ability of governments to fund services and support sustainable development – and to give clarity on how much companies contribute to the tax income of the countries where they operate.

Tomorrow’s Webcast: “Cybersecurity Due Diligence in M&A”

Tune in tomorrow for the webcast – “Cybersecurity Due Diligence in M&A” – to hear Jeff Dodd of Hunter Andrews, Sten-Erik Hoidal of Fredrikson & Byron and Jamie Ramsey of Calfee Halter discuss how to approach cybersecurity due diligence, and how to address and mitigate cybersecurity risks in M&A transactions.

Liz Dunshee

January 21, 2020

They’re Baaack! Dave & Marty’s Radio Show

After a 7-year hiatus, I’m thrilled to announce that Dave Lynn & Marty Dunn have resurrected their “Dave & Marty Radio Show.” Topics covered in this 21-minute episode include:

– “Top 10” expectations for this shareholder proposal season

– The latest issues with non-GAAP financial measures and key performance indicators

Airbnb Establishes “Stakeholder” Board Committee

On Friday, Airbnb announced a detailed “stakeholder” approach to governance and company-wide compensation. It identifies five key groups of stakeholders (including shareholders) – as well as principles for serving each group and detailed metrics to track progress against those principles. Here’s what it’s doing at the board level:

First, we will be establishing an official Stakeholder Committee on Airbnb’s Board of Directors. The Committee will be chaired by Belinda Johnson after she transitions from her current role as Chief Operating Officer to become a member of the Airbnb Board. This Committee will be responsible for advising our Board regarding our multi-stakeholder approach and the impact of our company on our stakeholders, the steps to institutionalize this approach into our company’s governance, and the application of our corporate governance principles to shape the future of our company.

Airbnb will report on its progress at a new “Stakeholder Day” – according to this NYT interview with the company’s CEO, that day will be similar to a traditional annual meeting but with a broader invite list that includes customers, hosts and employees. This WSJ piece ponders how the company’s approach will work out when it launches its expected IPO later this year.

Airbnb’s move arises out of last year’s statement on “corporate purpose” by the Business Roundtable. Don’t miss our webcast at 2pm ET today – “Deciphering ‘Corporate Purpose’” – to hear Morrow’s John Wilcox, Freshfields Bruckhaus’ Pam Marcogliese and Morris Nichols’ Tricia Vella discuss the debate over “shareholder primacy” – including what it means for directors’ fiduciary duties and disclosure.

Tomorrow’s Webcast: “2020 Section 16 Changes with Alan Dye”

Tune in tomorrow for the webcast – “2020 Section 16 Changes with Alan Dye” – to hear Alan Dye of and Hogan Lovells the latest developments and compliance requirements for Section 16, including the Section 16(b) plaintiff’s bar. Get answers to:

– What recent rule changes mean for your compliance program
– The status of cases challenging the Rule 16b-3 exemption for tax withholding
– What the latest issues are—and what you can do to resolve them
– Considerations to keep in mind for Form 5 reporting and Item 405 disclosures
– How to keep your compliance program up-to-date

Liz Dunshee

January 17, 2020

SEC Commissioner Jackson to Step Down

Yesterday, Reuters reported (along with other outlets) that SEC Commissioner Rob Jackson will be stepping down on February 14th to return to his faculty post at the NYU School of Law. Rob’s term expired last June, so this has been expected for a while. Here’s a statement from SEC Chair Jay Clayton.

We don’t have a definite timeline for Jackson’s successor, but it’s expected that the White House will nominate Caroline Crenshaw – who’s currently an attorney in Rob’s office – to fill his seat (see this Cooley blog).  Depending on how long it takes to confirm his successor, the SEC may be down to four Commissioners for a while after Rob’s departure.

“Top 10” Risks for 2020

This “risk barometer” report from Allianz identifies “top 10” risks for 2020 – as well as the macro trends behind those risks, which companies should watch.  It’s based on responses from over 2,700 risk management professionals and is a helpful read, especially in light of SEC Enforcement’s focus on “hypothetical risk factors” – which I blogged about on Tuesday. Here’s an excerpt – see the full 23-page report for more (as well as my blog from yesterday on risk factor disclosure trends):

Cyber risk tops the list for the first time with businesses facing a number of challenges such as larger and costlier data breaches, more ransomware incidents and the increasing prospect of litigation after an event. The playing out of political differences in cyber space also ups the ante while even a successful M&A can result in unexpected problems.

Further down on the list was new technologies.  The report says that while new technologies present opportunities, they can also bring considerable risk.  Technologies identified as coming with the greatest risk potential include artificial intelligence, digital platforms, internet of things/smart objects, autonomous vehicles and digital assistance systems/virtual reality.

Tuesday’s Webcast: “Deciphering ‘Corporate Purpose'”

Tune in Tuesday, January 21 for the webcast – “Deciphering ‘Corporate Purpose'” – to hear Morrow’s John Wilcox, Freshfields Bruckhaus’ Pam Marcogliese and Morris Nichols’ Tricia Vella discuss the debate over “shareholder primacy” – including what it means for directors’ fiduciary duties and disclosure.

– Lynn Jokela

January 16, 2020

BlackRock on Climate Change: “Against” Votes Are Coming?

It’s that time of year again! Larry Fink – BlackRock’s CEO – is out with his annual letter to CEOs. This year, he says BlackRock is taking a more aggressive stance on sustainability. Here’s the high points:

– Continued emphasis that corporate purpose and consideration of a broad range of stakeholders is the “engine of long-term profitability”

– Encouraging companies to publish SASB-based sustainability info and disclose TCFD-based climate-related risks – BlackRock will use the disclosures and engagements to determine whether companies are adequately managing risks

– BlackRock will vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them

That last one is a biggie – but there’s not a lot of detail on what it really means. So as usual, some are skeptical of whether BlackRock’s commitments will go as far as the letter implies. But, as emphasized in this NYT article and a recent blog from Liz, the asset manager is getting more and more pressure from its investors to “walk the talk” on E&S issues. At the same time that the CEO letter went out, BlackRock published this letter to clients that details its sustainability efforts. Here’s some interesting tidbits from that:

– For active funds, BlackRock will accelerate to a “sustainable investing” approach and divest from the coal sector (i.e., as Matt Levine points out, maybe they’ll nudge clients into more sustainable investments, but this Bloomberg article explains that divestment won’t touch some of the biggest diversified producers)

– BlackRock is working with index providers to provide – and standardize – sustainable versions of flagship indexes (which will exclude businesses with high ESG risks)

– BlackRock’s engagement priorities for this year will be mapped to the UN Sustainable Development Goals

– BlackRock will start disclosing its votes quarterly – or “promptly” in the case of high-profile votes (as Liz has blogged on our “Proxy Season Blog, prompt – or even advance – disclosure of voting decisions is an emerging trend that could have a big impact)

– BlackRock’s annual stewardship report will start disclosing topics discussed during each engagement with a company

The client letter also touts that (just last week) BlackRock became a signatory to Climate Action 100+, which is led by Ceres. Here’s Ceres’ press release – which explains that members of the coalition commit to engage with companies to reduce emissions, implement a strong governance framework which explains the board’s role in overseeing climate risks & opportunities, and improve disclosure. However, as this Financial Times article points out, firms are under no obligation to vote for climate change resolutions even after joining Climate Action 100+.

We’re constantly posting ESG info in our “ESG” Practice Area.  There you’ll find information on ESG voting and disclosure trends, investor policies and other engagement tips and resources.  We also have information posted in our “Institutional Investors” Practice Area.

Risk Factors: Disclosure Trends

The other day I blogged about considerations for this year’s 10-K disclosures – and one of the biggest things to think about is your risk factors.  For more on that topic, this recent Intelligize blog summarizes risk factor trends over the last year.  Not too surprising, the “top 5” most common risk factors were:

– Failure to compete effectively

– Dependence on employees

– Business (miscellaneous)

– Cybersecurity, data privacy, and information technology

– Operational disruptions

And, for risk factors that saw the biggest increase in citations, the top 3 were:

– International trade restrictions

– Employee misconduct

– Anti-corruption law

As John blogged last summer, sadly “active shooter” risk factors were also rising among certain companies.

Investors Want You To Think About Stakeholders?

Despite some of the backlash to the BRT’s redefined statement of corporate purpose, a recent report from Edelman, a communications firm, found that most institutional investors want companies to balance the needs of all stakeholders – shareholders, customers, employees, suppliers and communities. The report summarizes findings from a survey of over 600 institutional investors – and appears to align with statements made by some large shareholders, e.g. BlackRock & Vanguard. Here’s what I found most interesting:

– 86% of surveyed investors said that they would consider investing with a lower rate of return if it meant investing with a company that addresses sustainable or impact investing considerations

– 90% of surveyed investors said that they would support a “reputable” activist investor if they believed change was necessary at a company

– Lynn Jokela

January 15, 2020

More on “Shareholder Proposals on Arbitration”

Last year, John blogged about a shareholder proposal submitted to Johnson & Johnson dealing with a mandatory arbitration bylaw.  The SEC granted no-action relief to J&J but since then, the proponent filed a dispute and it’s pending.  Now, the same shareholder proponent has submitted a similar proposal to Intuit and it’s up for a vote at the company’s annual shareholders’ meeting later this month.

Based on this “thank-you” letter that CII sent to Intuit’s board, it appears that CII and management have found a shareholder proposal they both agree should be rejected.  CII’s letter thanks Intuit’s board for opposing the shareholder proposal.  In the letter, CII says that it opposes attempts to keep shareholders from courts through introduction of forced arbitration clauses.  Here’s an excerpt:

Mandatory shareowner arbitration clauses in public company governing documents represent a potential threat to principles of sound corporate governance that balance the rights of shareowners against the responsibility of corporate managers to run the business. More specifically, among the many problems that our members have identified with shareowner arbitration clauses is the fact that disputes that go to arbitration rather than the court system generally do not become part of the public record and, thereby, may lose their deterrent effect.

Intuit’s statement of opposition points out that no other shareholders have identified a mandatory arbitration bylaw as a significant concern.  In reference to the J&J situation, it also notes that another similar proposal is subject to litigation and says that adoption of such a bylaw would likely expose the company to unnecessary litigation.

Presuming the proposal at Intuit is soundly rejected by shareholders and how the proponent fares in the J&J dispute, it will be interesting to see whether these mandatory arbitration bylaw proposals continue to crop up going forward.

Heads up: 2020 Peak Edgar Filing Dates

Now that 2020 is here, plan ahead – the SEC published the list of peak filing days for 2020.  If submitting test filings, the SEC says those should be submitted as early as possible prior to the filing due date – as processing times will take longer during these high-volume filing periods.

Tomorrow’s Webcast: “Pat McGurn’s Forecast for 2020 Proxy Season”

Tune in tomorrow for the webcast – “Pat McGurn’s Forecast for 2020 Proxy Season” – when Davis Polk’s Ning Chiu and Gunster’s Bob Lamm join Pat McGurn of ISS to recap what transpired during the 2019 proxy season – and predict what to expect for 2020.  Please print these webcast materials in advance – it’s Pat’s deck that he will be working with.

Lynn Jokela