October 11, 2019

The “Nina Flax” Files: Things That Make Me Cry

Here’s the latest “list” installment from Nina Flax of Mayer Brown (here’s the last one):

I believe none of us, regardless of the stage of our careers, should feel bad, shame or any other negative if we are unable to remain completely unemotional at work. We are human – and emotions make us human! There have been many times throughout my career, and of course in the past few years, that I have cried – including somewhere at work. How I know that I need that outlet as well as support from others in order to remain [more] composed in the inducing situation and after. I need it like the air I breathe.

This got me thinking about crying, how and when I cry, and how some people I work with (internally and externally) do not seem to think of me as being vulnerable for I am sure a plethora of reasons. So, here is a more vulnerable list… a list of Things That Make Me Cry.

1. My Son’s Love. It is a fact that I am a working mom. In fact, I do not think I would be a good mom if I did not work – I am just not cut from that cloth. However, I am in a service profession, which means I have to be available and can have intense hours. Which also means that I have to travel. When my son grabs on to my leg and starts crying hysterically, whether on a “normal” morning when I am going in to work or as I have a suitcase in hand waiting for a car to take me to the airport, I keep it together. Momentarily. The second I walk out of the house and he can no longer see me, remembering his dragon tears and “No, mommy, don’t go! Don’t go [to work] [to the airport]! Stay here! I want you to stay here with me!” – I cry.

2. My Son’s Rejection. See first three sentences above. Which also leads to my husband being the more stable figure who is always able to be there in the morning (no calls in the office from 6am), at night (no working until 3am) and on weekends (for all, no work travel). Which leads to my son at times (sometimes it feels like the vast majority of times) preferring my husband. Which leads to my son, sometimes, yelling “Go away!” or “I don’t want you” or “NO! Only Papa!”, etc. I know this is not atypical. And I know that in the next breath, I get an “I love you” or a hug or a kiss or a head leaning on my shoulder, or, as above, a “Mommy, no, don’t go to work!” These things don’t make the hurt go away. My son’s rejection cuts me to the core, including the guilt I feel that I have to prioritize work sometimes, and I always sneak away to cry by myself. I am saving for another day tag lines that really make me angry – like work-life balance, or lean in. Finally, before I move off of this point, I LOVE the relationship my son and husband have, and would not want their relationship to be any other way. Other than tempering the tone and words of my rejection. If my son said, “Mama, can you please have Papa come in?” or “Mama, I would prefer if Papa tucked me in.” in those moments, I swear I would not cry – I would not feel rejected. Thankfully, he has started heading in this direction.

3. Being Frustrated When I’m Tired. Not kidding. If I am tired and something occurs that I find particularly frustrating, I cry. It is truly a reflex for me. Any frustration.

4. Witnessing Artistic Accomplishments. When I see an amazing ballet, or even watch a moving piece on So They Think They Can Dance (when I watched this show before child), or someone sing beautifully a beautiful song, or someone receiving an award for a fantastic performance, I cry. When people perfect their craft, share it and exude peace and joy at the same time, I am moved. I must admit I am more emotional around the arts, but any deep recognition of achievement, scientific, professional or other non-arts focused, usually makes my eyes at least water.

5. Reading The News. I know I should not admit this in public, but I extremely dislike reading or staying up-to-date on the news. Because inevitably, there is a piece on conflict I seek out, a story about a crime or horrific accident involving a child, or a moving, random act of kindness. The majority of the time I read the news I read something that makes me cry.

6. Feeling Grateful. I have referenced this a bit in my other posts, but I try to remind myself of all that I have to be grateful for. And when I do I realize how much I am grateful for, how trivial some of the things that upset me are, and how there are so many with less. Including children who are hungry, without a roof over their heads, without feeling safe, without feeling loved and/or without books. And I cry.

This makes it seem like I always cry. Those who are closest to me are not at all surprised by my delicate flower status. Those that are not as close to me are probably floored by this post. But I felt compelled to be honest – I am not ashamed of crying, and have learned to temper my feeling of being “less” than anyone in a professional situation who comes across as perfectly composed. Because I love emotions, but maybe a little less than I love books.

Fake SEC Filings: Edgar Fights Back

I really can’t overstate how much we love “fake SEC filings” around here. So it’s with mixed feelings that I report on changes to Edgar that might make these an even rarer occurrence. Specifically, filers now need a longer & more complex password – this Gibson Dunn blog has more detail:

Filers, including Section 16 filers, will now be requested to provide twelve character passwords instead of eight character passwords when logging into both the EDGAR Filing Website and the EDGAR Online Forms Management Website. Current filers who do not update their password to twelve characters will be prompted to update it each time they log in. We have confirmed with the staff of EDGAR Filer Support that current filers who do not update their password when prompted will not be prevented from logging in successfully. However, EDGAR passwords expire annually and should be changed before the expiration date. Any filers who have not already updated their password by the time they otherwise expire will be required to create a password that satisfies the new requirements before being permitted to log in to EDGAR.

Even more interesting from a security perspective is that a “Last Account Activity” tab is being added to the filing & forms websites – so you can see a 30-day history of login attempts and spot any aspiring fakers. And on a more vanilla note, the changes also allow companies to include 150 characters in cover page tags for classes of registered securities (up from 100 characters), since some companies were having trouble fitting it all in.

New Podcast Series! “Women Governance Gurus” With Courtney Kamlet & Liz

Check out the new podcast series – “Women Governance Gurus” – that I’ve been co-hosting with Courtney Kamlet of Syneos Health. So far, these illustrious guests have joined us to talk about their careers in the corporate governance field – and what they see on the horizon:

Stacey Geer – EVP, Chief Governance Officer, Deputy GC and Corporate Secretary at Primerica
Kellie Huennekens – Head of Americas, Nasdaq Center for Corporate Governance
Anne Chapman – Managing Director, Joele Frank
Hope Mehlman – EVP, Chief Governance Officer at Regions Bank

Stacey’s President & GC even presented her with a new nameplate in honor of the occasion!

Liz Dunshee

October 10, 2019

Chief Justice Strine’s “New Deal”

When Delaware Chief Justice Leo Strine announced that he’d be leaving the bench this fall, Broc speculated that grander things were yet to come. Now, the influential judge is kicking off his “retirement” with a bang – by publishing this proposal that would recommit to “New Deal” concepts. In particular, the proposal focuses on workers’ rights and a reformed shareholder voting/proposal process (e.g. requiring a “say-on-pay” vote only once every 4 years and changing shareholder proposal thresholds).

This isn’t a big surprise given some of Chief Justice Strine’s prior comments. But it’s more comprehensive. And while he doesn’t go as far as Senator Warren’s “Accountable Capitalism Act,” he does comment that companies are “societally chartered institutions” – notable for a Delaware judge! – and proposes requiring “workforce committees” for boards of all large companies (whether public or private). Here’s an excerpt on that point (and also see this Cooley blog):

To make sure that companies give careful consideration to worker concerns at the board level, the Proposal requires the Securities and Exchange Commission, the Department of Labor, and the National Labor Relations Board to jointly develop rules that would require the boards of companies with more than $1 billion in annual sales to create and maintain a committee focused on workforce concerns. By requiring these committees at all large corporations, not just public corporations, more accountability would be imposed on large private companies, such as those owned by private equity firms, to treat their workforce fairly.

These workforce committees would be focused on addressing fair gain sharing between workers and investors, the workers’ interest in training that assures continued employment, and the workers’ interest in a safe and tolerant workplace. These workforce committees would also consider whether the company uses substitute forms of labor—such as contractors—to fulfill important corporate needs, and whether those contractors pay their workers fairly, provide safe working conditions, and are operating in an ethical way, and are not simply being used to inflate corporate profits at the expense of continuing employment and fair compensation for direct company employees.

Offering a middle-ground between the current system and “codetermination”-style worker representation, the committees would be required to develop and disclose a plan for consulting directly with the company’s workers about important worker matters such as compensation and benefits, opportunities for advancement, and training. Finally, the National Labor Relations Act would be amended to ensure that companies can use dedicated committees to consult with their workers without running afoul of the Act’s prohibition on “dominating” labor organizations, provided that the company doesn’t interfere with, restrain, or coerce employees in the exercise of their rights to collective bargaining and self-organization. In essence, this would allow for European-style “works councils” without impeding union formation and representation.

Should the SEC Get Out of the “Stakeholder Disclosure” Business?

I think most securities practitioners can agree that it’s exhausting to shoehorn certain Congressional mandates for broader ’33 & ’34 Act reporting into the SEC’s mission to protect investors – and when these types of mandates come around, they also seem to be at odds with the Commission’s mission to facilitate capital formation. At the same time, a variety of stakeholders are clamoring for information, and the SEC runs the main disclosure game in town.

This paper by Tulane law prof Ann Lipton plays some of the same notes as Chief Justice Strine’s proposal (and it was actually published before his). For example, that it’s outdated to make disclosure requirements dependent on a company’s capital raising strategy. Here’s part of the abstract:

This Article recommends that we explicitly acknowledge the importance of disclosure for noninvestor audiences, and discuss the feasibility of designing a disclosure system geared to their interests. In so doing, this Article excavates the historical pedigree of proposals for stakeholder-oriented disclosure. Both in the Progressive Era, and again during the 1970s, efforts to create generalized corporate disclosure obligations were commonplace. In each era, however, they were redirected towards investor audiences, in the expectation that investors would serve as a proxy for the broader society. As this Article establishes, that compromise is no longer tenable.

Who would regulate this brave new world? Personally, I think that if the SEC’s mission was expanded, it would be well-suited to take on the challenge – but I’m not sure they’d want the job. Here’s what Ann suggests:

There is currently no federal agency with the skills to manage the system contemplated here. The SEC is not equipped to manage disclosures intended for noninvestors (which is another reason the securities laws should not be used for that purpose). The Federal Trade Commission has broad experience studying business activity, but has fewer disclosure mandates. That said, the SEC and the FTC both have skills and experience that would be useful in developing a new system: both study a wide range of industries, and the SEC in particular has expertise in developing standardized reporting for public audiences, balanced against the costs to businesses of complying with disclosure demands.

Therefore, it might be appropriate to create a joint initiative that draws on the resources and knowledge of both agencies. The initiative could begin its work by studying how public information about corporations is used by noninvestor audiences, including surveying local regulators, as well as advocacy and trade groups, for their input as to how existing disclosures are used and the weaknesses in the current system. Based on the results of this survey, the initiative could develop a standardized framework that would permit meaningful comparisons across reporting companies.

New! Quick Survey on Hedging Policy Disclosure

At our conference a few weeks ago a few weeks ago (which you can still register & watch via video archive), there were a lot of questions about how companies will handle the newly required hedging policy disclosure. Take a moment to participate in our 3-question “Quick Survey on Hedging Policy Disclosure” and see what others are planning to do.

Liz Dunshee

October 9, 2019

Director Meeting Fees. . .Going, Going, Gone?

Here’s something I recently blogged on As you can see from the studies posted in our “Director Pay” Practice Area, it’s become a pretty rare thing for public companies to pay director meeting fees. In fact, this Pearl Meyer blog reports that fewer than 25% of companies are doing it (though it’s still a majority practice at private companies). The blog gives these recommendations if your directors insist on being paid for attendance:

1. If your number of board or committee meetings is consistently above your peer group meeting, revisit whether your retainers account for that workload

2. If there’s a non-recurring situation, consider an ad-hoc retainer for affected directors

3. If directors are uncertain about their workload, consider conditional meeting fees if the number of meetings exceeds a pre-established threshold

SEC Enforcement: Check Your “Loss Contingency” Disclosure!

Ah, autumn. A time to relish the changing leaves, cooler temps and of course the deluge of press releases from the SEC’s Enforcement Division that drop before the end of the Commission’s September 30th fiscal year. Here’s an announcement about charges against the pharma company Mylan, which was the subject of a two-year DOJ probe and didn’t disclose any loss contingencies or accrue any estimated losses prior to announcing a $465 million settlement.

The SEC’s complaint also took issue with the company’s “hypothetical” risk factor disclosures about government authorities taking contrary positions to its Medicaid submissions, when CMS had already informed Mylan that a product was misclassified. Mylan agreed to settle the SEC matter for $30 million.

Things like this tend to seem pretty clear in hindsight – especially if you’re reading about them in an SEC announcement. But it really requires a thorough understanding of the rules and a lot of judgment. Don’t forget that we have handbooks to help you sort through it all. Here’s the one on “Legal Proceedings Disclosures” – and here’s the one on “Risk Factors.”

SEC Enforcement: Actually, Just Check All Your Disclosures

Here’s another recent settlement between the SEC’s Enforcement Division and a company that disclosed allegedly misleading customer metrics (the CEO was also charged). This one’s scary because it delves into the type of non-financial stuff that gets added to earnings releases (and occasionally periodic reports) without a lot of lawyerly checking. This Stinson blog explains the allegations:

In 2014 and 2015, Comscore disclosed its total number of customers and net new customers added in quarterly earnings calls. Comscore also disclosed its customer total in periodic filings with the Commission. According to the SEC the number of net new customers added per quarter was an important performance indicator for Comscore that analysts tracked and reported on. During this time, in an effort to conceal the fact that quarterly growth in Comscore’s customer total had slowed or was declining, a Comcast employee allegedly approved and implemented multiple changes to the methodology by which the quarterly customer count was calculated. These changes were neither applied retroactively nor disclosed to the public per the SEC order.

Coincidentally, a recent Corp Fin comment letter raised similar issues for a different company. Comments might be down overall, but don’t let anyone tell you that Corp Fin is “calling it in” for their reviews. They took issue with the number of customers disclosed by a gym in its annual report and – of all the things! – the viewership stats that the company cited for “Dick Clark’s Rockin’ Eve” (see this Bass Berry blog).

For those of us who want to save companies from fines & embarrassment, the question is how to vet non-financial metrics efficiently and without losing all your friends & clients. Some members have suggested putting a “stake in the ground” that describes how customer metrics are calculated – whether that’s a widely-available internal thing or actually in the 10-K would be up for debate (both shareholders & competitors would prefer the latter). Shoot me an email if you have other ideas…

Liz Dunshee

October 8, 2019

Something’s Happening Here: Caremark Bites Another Board

Here’s something John blogged last week on Don’t look now, but the Delaware Chancery Court just upheld another Caremark claim in the face of a motion to dismiss. In his 50-page opinion in In re Clovis Oncology Derivative Litigation, (Del. Ch.; 10/19), Vice Chancellor Slights held that the plaintiffs had adequately pled that the board breached its fiduciary duties by failing to oversee a clinical trial for the company’s experimental lung cancer drug and then allowing the company to mislead the market regarding the drug’s efficacy.

In declining to dismiss the case, the Vice Chancellor observed that Delaware courts are more likely to find liability under Caremark for oversight failures involving compliance obligations under regulatory mandates than for those involving oversight of ordinary business risks:

Caremark rests on the presumption that corporate fiduciaries are afforded “great discretion to design context- and industry-specific approaches tailored to their companies’ businesses and resources.” Indeed, “[b]usiness decision-makers must operate in the real world, with imperfect information, limited resources, and uncertain future. To impose liability on directors for making a ‘wrong’ business decision would cripple their ability to earn returns for investors by taking business risks.”

But, as fiduciaries, corporate managers must be informed of, and oversee compliance with, the regulatory environments in which their businesses operate. In this regard, as relates to Caremark liability, it is appropriate to distinguish the board’s oversight of the company’s management of business risk that is inherent in its business plan from the board’s oversight of the company’s compliance with positive law—including regulatory mandates.

As this Court recently noted, “[t]he legal academy has observed that Delaware courts are more inclined to find Caremark oversight liability at the board level when the company operates in the midst of obligations imposed upon it by positive law yet fails to implement compliance systems, or fails to monitor existing compliance systems, such that a violation of law, and resulting liability, occurs.”

VC Slights cited the Delaware Supreme Court’s recent decision in Marchand v. Barnhill, and noted that that case “underscores the importance of the board’s oversight function when the company is operating in the midst of ‘mission critical’ regulatory compliance risk.”

Caremark requires a plaintiff to establish that the board either “completely fail[ed] to implement any reporting or information system or controls” or failed to adequately monitor that system by ignoring “red flags” of non-compliance. While the board’s governance committee was responsible for overseeing compliance with regulatory requirements applicable to the clinical trial, the Vice Chancellor held that the plaintiff adequately pled that it knowingly ignored red flags indicating that the company was not complying with those requirements. Accordingly, he declined to dismiss the case.

Ann Lipton has some interesting perspectives on VC Slights’ distinction between business & legal compliance risks over on her Twitter feed. Check it out.

Caremark still may be, as former Chancellor Allen put it, “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.” But after decades of routinely dismissing Caremark claims at the pleading stage, this marks the second time this year that the Delaware courts have declined to do so – and it’s the third case in the last two years in which they’ve characterized a Caremark claim as “viable.”

Is Caremark becoming a more viable theory of liability, or is board’s conduct in these cases just more egregious than in prior cases? It’s hard to say based on the limited evidence we have. For now, maybe the ’60s band Buffalo Springfield put it best – “There’s something happening here. What it is ain’t exactly clear. . .”

ISS Proposes Policy Changes: Comment By October 18th!

Yesterday, ISS announced a public comment period for proposed policy changes that would apply to next year’s annual meetings. For the US, the proposed changes are:

1. Clarifying a maximum 7-year sunset and other parameters for multi-class capital structures at newly public companies

2. Codifying ISS’s existing approach to “independent chair” shareholder proposals by identifying factors that will weigh in favor of a “For” recommendation – e.g. a “weak or poorly defined lead director role” – and moving some info into the “Policy FAQs”

3. Adding safeguards against “abusive practices” to the policy to vote “For” management proposals for buyback programs – e.g. the use of buybacks to boost EPS-based pay metrics

Submit comments to by next Friday – October 18th. Unless otherwise specified in writing, all comments will be disclosed publicly upon release of final policies – which is expected during the first half of November.

Ransomware: Preparing for a Growing Threat

According to a recent NYT article, more than 40 municipalities have been victims of ransomware attacks this year, including the 23 towns in Texas that were hit recently. This Wachtell Lipton memo predicts that ransomware is a growing threat for companies too – and offers these preparation & response tips (also see the suggestions in this “Accounting Today” article):

Before an attack:

– Reduce ransomware exposure by implementing reliable backup processes for IT systems & critical data

– Get cyber insurance that covers costs associated with ransomware incidents

– Implement incident response plans – including elevation procedures

– Foster pre-attack relationships with law enforcement

Responding to an attack:

– Protect attorney-client privilege by assigning legal counsel a leadership response role & engaging other advisers through counsel

– Assess disclosure obligations – e.g. state & international data breach notifications, SEC and industry-specific disclosure requirements

– Determine notice requirements for insurers, vendors and customers

– Approach the decision whether to pay a ransom with great caution & careful deliberation

On that last point about whether to pay a ransom, this ProPublica article outlines the pros & cons for victims – and suggests insurers have an incentive to accommodate the attackers even if (or because?) doing so leads to more incidents. According to the article, cyber insurance is now a $7-8 billion/year market, and insurers know that could fall apart if nobody is worried about getting hacked.

Liz Dunshee

October 7, 2019

Your Spouse Wants to Help “Design” Your IPO Prospectus? (Discuss)

What a freak show the now-aborted WeWork IPO wound up being. For example, this falls into the “news of the weird” category – check out this excerpt from this article about the role the CEO’s spouse played in preparing the company’s Form S-1:

An S-1 is meant to be a bland financial document, but WeWork’s took a different direction. With Adam’s encouragement, Rebekah became unusually involved in the artistic presentation of the document. “The traditional approach to producing an S-1 is bankers and lawyers hashing this out, but the process was continually usurped by Rebekah’s involvement,” one executive said, echoing a sentiment expressed by multiple people who worked on the project. “She treated it like it was the September issue of Vogue.”

WeWork had hired a former director of photography at Vanity Fair, and Rebekah insisted on selecting the photographers chosen to take photos of WeWork offices and members, and approved every photo that appeared in the S-1, of which WeWork included many more than most companies that go public. (She wasn’t the only picky one: Adam Kimmel, the company’s chief creative officer, became unhappy with how the company’s offices looked in its official pictures, so new photographers were sent around the world to reshoot them.)

As the summer wore on, WeWork employees found themselves making so many trips to meet with Rebekah at the Neumanns’ home in Amagansett that “He’s ‘out east’ tomorrow” became a euphemism for describing a colleague spending their day driving to and from the Hamptons. “The thing that’s so damning about all that is that it’s just not the point of the document,” a person who worked on the project said. “That’s the thing about WeWork: You’re spending all this time working on the surface of it instead of the actual truth of the thing.”

CalPERS Votes Against 53% of Pay Plans!

This blog by Jim McRitchie is mindblowing! Here’s a summary:

CalPERS, the largest U.S. pension fund which manages more than $380 billion in assets, has already started implementing its new compensation framework. In an effort to drive more accountability and improved pay for performance alignment, CalPERS reports voting against 53% of compensation plans at portfolio companies during the 2019 proxy season. That is up from 43% last year.

September-October Issue: Deal Lawyers Print Newsletter

This September-October issue of the Deal Lawyers print newsletter was just posted – & also mailed – and includes articles on:

– Five Observations on Recent Use of Universal Proxies
– Delaware Chancery Upholds Waiver of Appraisal Rights
– Does Your Acquisition Agreement Trigger a Form 8-K?
– Disclosure of Projections: Will Delaware’s Approach Still Rule the Roost?

Right now, you can subscribe to the Deal Lawyers print newsletter with a “Free for Rest of ‘19” no-risk trial. And remember that – as a “thank you” to those that subscribe to both & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online. There is a big blue tab called “Back Issues” near the top of – 2nd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.

And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online.

Broc Romanek

October 4, 2019

Pay Ratio: Bernie Sander’s “Tied to Higher Corporate Taxes” Campaign

As it has for the past few election cycles, executive compensation is working itself into the 2020 Presidential campaign. Bernie Sanders announced a proposal this week that would increase the corporate tax rate if a large company’s pay ratio is 50x or more (it would apply to any public or private company with more than $100 million in revenue). Here’s some news articles about it:

VOX’s “Bernie Sanders wants to tax companies that pay their CEOs way more than their workers”
NY Times’s “Sanders Proposes Corporate Tax to Address Pay Gap at Big Companies”
Washington Post’s “American CEOs deserve a pay cut. Bernie Sanders has a plan to make that happen.”
Business Insider’s “Bernie Sanders unveils ‘inequality tax’ targeting companies where CEOs make far more than workers”

SEC Enforcement: You Didn’t Disclose Your Scam

If you follow the SEC’s Enforcement actions, you find quite a few that can be entertaining. As Cooley’s Cydney Posner blogs, this one involving Marvell Technology is interesting because the company ran a “revenue management scheme” and the SEC took action not because of the scheme itself, but rather because the company failed to publicly disclose the scheme in its MD&A (or to disclose its likely impact on future performance). The SEC’s order demonstrates that, even if a scheme involving unusual sales practices may not amount to chargeable accounting fraud, failure to disclose may be actionable..

More on “Proxy Season Blog”

We continue to post new items on our blog – “Proxy Season Blog” – for 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:

– Firearms Responsibility: Will Shareholders Show Renewed Interest?
– Proxy Voting: Impact of Mutual Fund Board Connections
– Uncontested Director Elections: Impact of Negative ISS Recommendations
– Proxy Plumbing: Recommendations From SEC’s “Investor” Subcommittee
– Shareholder Engagement: A UK Study of Investor Trends

Broc Romanek

October 3, 2019

Shareholder Proposals: Should Corp Fin Referee the No-Action Process?

Here’s a blog that I drafted before Corp Fin made its recent announcement about how it will process Rule 14a-8 requests for shareholder proposals going forward – it’s still worth sharing: Last month, I had lunch with a friend who started foaming at the mouth about the need for Corp Fin to remove itself as the referee in the no-action process for shareholder proposals. After his foam had dried, I replied that Corp Fin would like nothing more. The problem historically has been that whenever Corp Fin suggests that it diminish its role, participants on all sides scream bloody murder.

Processing no-action requests under Rule 14a-8 is labor intensive in Corp Fin. Most requests come in during a short window and are time sensitive. The Staffers working on them still have their regular workload to deal with (at least when I served in Corp Fin). Being placed on the “Shareholder Proposal Task Force” feels like punishment. Long hours. Very long. Highly sensitive situations in some cases – the kind that can derail your career. And not exactly intellectually rewarding.

Here’s an excerpt from the SEC’s adopting release in 1998, the last time the SEC significantly changed Rule 14a-8:

Some of the proposals we are not adopting share a common theme: to reduce the Commission’s and its staff’s role in the process and to provide shareholders and companies with a greater opportunity to decide for themselves which proposals are sufficiently important and relevant to the company’s business to justify inclusion in its proxy materials. However, a number of commenters resisted the idea of significantly decreasing the role of the Commission and its staff as informal arbiters through the administration of the no-action letter process. Consistent with these views, commenters were equally unsupportive of fundamental alternatives to the existing rule and process that, in different degrees, would have decreased the Commission’s overall participation.

Processing Shareholder Proposals: Life Can Be Rough

A story to illustrate. When I first joined Corp Fin in ’88 for my first tour of duty at the SEC, I was right out of law school. That was typical back then. And each branch was required to contribute one person to the Shareholder Proposal Task Force. You were “it” if you were the newest person in the branch. So the Task Force was comprised of a dozen people who were right out of law school.

Nothing was electronic back then. We wrote out our analysis & recommendation for each no-action request by hand. There was only one computer for the entirety of Corp Fin. So you would have to wait until “after hours” to be able to access it and print out precedent to support your analysis (the Division had a Lexis account on this prized computer that sat over in the Office of Chief Counsel). To top off this charmed experience, I was chewed out by a crazed supervisor over one of my first recommendations. By the end of his diatribe, he realized he had gone over the top and invited me out to go drink whiskey (I declined).

I wouldn’t blame him except I was right out of law school. My training when I arrived consisted of my boss handing me a rulebook and saying “here, read this over the next week.” So I read S-K – and the ’33 Act &’34 Act rules – straight. Those things are not meant to be read straight. So I learned nothing, Other than that the SEC’s rules & regulations are not written in anything close to plain English. There was literally no training. If you got lucky, your office mate was experienced & willing to teach. Yes, life was tough in the old days…

Poll: Corp Fin’s Role for Shareholder Proposals?

Please participate in this anonymous poll:

bike trail guide

Broc Romanek

October 2, 2019

It’s 1953. Do You Know Where Your 8-K Is?

Big hat tip to Sean Dempsey for sending me this awesome receipt – stamped by the SEC – acknowledging the filing of a Form 8-K by his company, W.R. Grace in 1953:

I love hearing stories from old-timers about making filings before Edgar was born. Personally, I remember being on the Corp Fin Staff in the ‘80s & going outside to get a little fresh air on days that happened to be 10-Q or 10-K filing deadline days. The line of FedEx trucks went on for blocks. I barely noticed…

Another Cool License Plate!

Check out this license plate from Jim McRitchie, who has run the “” website forever (his wife is part-Hawaiian; hence the turtle-themed plate holder):

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for 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:

– Board Evaluations: How They Are Evolving
– Multi-Class Companies: CII Appeals to Delaware
– Crisis Management: Public Relations Considerations
– D&O Insurance: Outlook for 2020
– Gov. Investigations: Key Questions When You Get An Investigative Request

Broc Romanek

October 1, 2019

More on “The History of the SEC Staff’s Disclaimer When Speaking Publicly”

Recently, I blogged about when a SEC Staffer kicks off their public remarks with a disclaimer that their remarks are their own and not those of the Commission. I mused that the origins of this disclaimer seem to have been forgotten. I then heard from a number of members with remembrances and their own research on this topic.

For example, White & Case’s Maia Gez pointed to a 1989 executive order (#12674) signed by President Bush that led to the “Standards of Ethical Conduct for Employees of the Executive Branch,” which became effective in 1993, which has these two applicable provisions:

(b) Reference to official position. An employee who is engaged in teaching, speaking or writing as outside employment or as an outside activity shall not use or permit the use of his official title or position to identify him in connection with his teaching, speaking or writing activity or to promote any book, seminar, course, program or similar undertaking, except that:

(2) An employee may use, or permit the use of, his title or position in connection with an article published in a scientific or professional journal, provided that the title or position is accompanied by a reasonably prominent disclaimer satisfactory to the agency stating that the views expressed in the article do not necessarily represent the views of the agency or the United States; and

And former SEC General Counsel Dan Goelzer dug back even further – noting that the disclaimer appears in “Rule 4 (Outside Employment and Activities)” of the SEC’s “Regulation Concerning Conduct of Members and Employees and Former Members and Employees of the Commission.” Rule 4(d)(2)(ii)(A) contains the current version of the disclaimer:

Therefore, such publication or speech shall include at an appropriate place or in a footnote or otherwise, the following disclaimer of responsibility: “The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This [article, outline, speech, chapter] expresses the author’s views and does not necessarily reflect those of the Commission, the [other] Commissioners, or [other] members of the staff.”

Dan isn’t quite sure when the disclaimer originated, but he does know it was prior to 1980. In 1980, the SEC made various revisions to that conduct regulation – and while a number of changes to Rule 4 are described in that ’80 release, the disclaimer is not one of them. Therefore, we think that the disclaimer was in the pre-1980 version of Rule 4 as well. To bolster the point, Dan sent over two pre-1980 speeches – by Al Sommer (a SEC Commissioner at the time) and Alan Mostoff (then the IM Director) – that include the disclaimer. So it goes way, way, back…

How to Submit Comments on the SEC’s Rulemaking

Among the hundreds of “checklists” posted on our site is this one about how to submit comments on a SEC’s rulemaking. Now the SEC has posted this 90-second video about how easy it is to submit comments on a rule proposal. It has over 350 views within a few months…

Our October Eminders is Posted!

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Broc Romanek

September 30, 2019

Wow! Corp Fin “Realigns” (But It’s More Than That)!

Wow! All that is new is “old” again! When I first joined Corp Fin in 1988, there were a half dozen or so “pods” – each with two branches – that were devoted to specific industries. Each pod was headed by an Assistant Director, which was a difficult job to obtain because a slot only opened when someone retired (back then, it was quite rare for an AD to leave the SEC before retirement). Over time, the Division’s “groups” (as they were eventually renamed from “pods”) grew and the number of them nearly doubled. Now, with this Corp Fin announcement on Friday, we’re going back to the way we were.

Here’s some things to note:

1. Cutting the Number of Groups Nearly in Half – Corp Fin is realigning some of industry groups and reducing them in number from 11 to 7. The groups are now called “Offices” – led by a “Chief” and a “Senior Advisor.”

2. Improving (& Streamlining) the Review Process – Led by an “Office of Assessment & Continuous Improvement,” the teams within Corp Fin that will review filings look to be leaner under this new realigned group structure. There have been fewer comments issued in recent years by the Staff as companies have gotten better observing comment trends and adjusting their disclosures according (not to mention the sheer number of public companies has shrunk a whole lot). Corp Fin will continue to focus on improving the comment process in an effort to be more relevant, timely & consistent.

3. Focus on “Hot” Comment Areas – Led by an “Office of Risk & Strategy,” Corp Fin will focus on emerging issues in their comments – think Libor, cybersecurity and Brexit as recent examples. This Office will review filings for good (or bad) examples of disclosure and then share those internally. It’s something the Staff has already been doing – but it’s now formalizing that function.

4. What Group Is Your Company In? – These seven new groups took effect yesterday – so you can find your new industry group by looking on Edgar for your filing history and noting what “Office” is listed. For example, you’ll see in the 4th line down that Microsoft belongs in the “Office of Technology” group. In many cases, your company’s group will be the same. And if you have a filing that is being actively reviewed right now, the Staffers reviewing your filing aren’t going to change – even if the Office that your company belongs in has changed.

Corp Fin has pulled down its org chart – at least for now. We just deleted our own more comprehensive Corp Fin org chart. I’ve maintained it for 17 years but it’s become too hard to keep up. That was a harder task than you would think – very few people even within Corp Fin know the identities of all the middle managers, etc. A constant game of “Where’s Waldo”…

SEC Proposes to Modernize the OTC Market

Last Thursday, the SEC proposed to modernize the over-the-counter market (OTC) by proposing changes to Rule 15c2-11, which sets out certain requirements with which a broker-dealer must comply before it can publish quotations for securities in the OTC market. Here’s the 228-page proposing release.

Moody’s “Governance” Framework for Credit Ratings

Recently, I blogged how Moody’s was getting into the governance ratings business – but as I noted in that blog, Moody’s has scored governance for quite some time for their credit ratings business. Recently, Moody’s issued a framework to help understand key aspects of governance that are incorporated into all Moody’s credit ratings and analysis, including two taxonomies: a private taxonomy, which applies to non-financial corporates, financial institutions, infrastructure, structured finance and certain competitive government-owned enterprises; and a public taxonomy, which applies to sovereign, sub-sovereign and municipal issuers…

Broc Romanek