May 5, 2016

A Novel Format: Our Executive Pay Conferences

We are excited about the upcoming set of our popular conferences – “Proxy Disclosure Conference & Say-on-Pay Workshop” – to be held October 24-25th in Houston and via Live Nationwide Video Webcast. Register now for a 20% reduced rate that expires in just two weeks.

Here are the agendas – 20 panels over two days. You’ll notice that many panels have a new novel feature – a post-panel commentary by different experts than the experts on the panel. For example, after Corp Fin Director Keith Higgins speaks, Meredith Cross & Mark Borges will kibitz on what we just heard from Keith. Think of it as being akin to post-debate analysis on the cable networks. The panels include:

1. Keith Higgins Speaks: The Latest from the SEC
2. SEC Speaks: Post-Panel Commentary
3. The SEC All-Stars: The Bleeding Edge
4. The Proxy Designers Speak: How to Make Disclosure Usable
5. Navigating ISS & Glass Lewis
6. Hot Topics: 50 Practical Nuggets in 60 Minutes
7. Pay-for-Performance Disclosure: Now What
8. P4P: Post-Panel Commentary
9. Creating Effective Clawbacks (& Disclosures)
10. Clawbacks: Post-Panel Commentary
11. Pay Ratio: Now What
12. Pay Ratio: Post-Panel Commentary
13. Pay Ratio: The In-House Perspective
14. Pay-for-Performance: How to Do The Proper Messaging
15. Proxy Access: Tackling the Challenges
16. Proxy Access: Post-Panel Commentary
17. Pledging & Hedging Disclosures: What to Do Now
18. Pledging & Hedging Disclosures: Post-Panel Commentary
19. Dealing with the Complexities of Perks
20. The Big Kahuna: Your Burning Questions Answered

Early Bird Rates – Act by May 20th: 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 May 20th to take advantage of the 20% discount.

Capital Formation: House Passes the “HALOS Act”

As noted in this MoFo blog by Ze’-ev Eiger (also see this blog), last week, the House of Representatives passed the “Helping Angels Lead Our Startups Act” (H.R. 4498) (aka HALOS Act), which would direct the SEC to limit demo days in certain ways – and to amend Regulation D to make the prohibition against general solicitation or general advertising inapplicable to events with specified sponsors (including angel investor groups not connected to broker-dealers or investment advisers) where:

– Presentations or communications are made by or on behalf of an issuer;
– Advertising does not refer to any specific offering of securities by the issuer;
– Sponsor does not engage in certain activities (such as offering investment recommendations or advice to attendees); and
– No specific information regarding a securities offering is communicated (other than that the issuer is in the process of offering or planning to offer securities, including the type and amount of securities being offered).

Happy Anniversary Baby! 14 Years of Blogging & Counting

Yesterday marked 14 years of my blither and bother on this blog (note the Blog is nearly 13 years old – not shabby!). It’s one time of the year that I feel entitled to toot my own horn – as it takes stamina and boldness to blog for so long. A hearty “thanks” to all those that read this blog for putting up with my personality. I’m sure I won’t get more refined with age…

Broc Romanek

May 4, 2016

The JOBS Act Is So Over, Man!

As noted in this press release, yesterday, the SEC approved amendments to revise the rules related to the thresholds for registration, termination of registration and suspension of reporting under Section 12(g) of the ’34 Act. I love it that the thresholds for savings & loan holding companies are now consistent with those for bank holding companies. I need balance in my life. Not only did this take care of some of the FAST Act business, it eliminated the last vestiges of outstanding JOBS Act rulemaking from the SEC’s plate. Here’s the adopting release

In this video from the SEC, you will learn that the SEC values teamwork. Do you think Cap’n Cashbags needs to make a parody?

A Novel One: Gannett’s “Just Vote No” Campaign = Merger Talks?

Here’s something I blogged yesterday on my “ Blog“: Is it novel for a wannabe acquiror to put pressure on a target by running a ‘withhold’ campaign? Yes, it’s very unusual. There may have been others, but not that I can think of. The intro from this WSJ article explains the situation:

Gannett Co. on Monday urged Tribune Publishing Co. shareholders not to back Tribune’s slate of director nominees, in an effort to send a “clear signal” that investors want the two companies to engage in merger talks. Last week, Gannett went public with its proposal to acquire Tribune in a deal valued at about $400 million that would combine titles like USA Today, the Los Angeles Times and Chicago Tribune, as the struggling print news industry increasingly consolidates. Getting Tribune Publishing shareholders to withhold director votes is the only way that Gannett can influence this year’s proxy vote. Gannett made its offer public because it was frustrated at Tribune’s lack of response.

I can think of a few proxy fights where the buyer has run board seats like Roche/Illumina or Airgas – or when Valeant solicited consents to get a special meeting called against Allergan. But not a “withhold” campaign against directors. I haven’t looked at the situation that closely, but possibly Gannett is going this route because they missed the nomination deadline for a proxy fight – Tribune’s annual meeting is June 2nd…

Crowdfunding: First Portal Application Appears on EDGAR

As reported by Steve Quinlivan in this blog, CFS, LLC became the first crowdfunding portal application available on EDGAR. Actually, the initial application and two amendments are available. The company will conduct business under the name uFundingPortal and its website will be Other than that, the application isn’t very exciting reading, but is good news as the May 16, 2016 effective date for crowdfunding nears. NextSeed US LLC became the 2nd company to file a crowdfunding portal application

Broc Romanek

May 3, 2016

Trust Indentures: 28-Firm White Paper

This 28-Firm White Paper provides guidance that should facilitate the closing of certain debt restructurings and indenture amendments in the wake of two recent court decisions that interpreted Section 316(b) of the Trust Indenture Act as prohibiting amendments to an indenture that would impair the issuer’s ability to pay amounts due on the debt securities even if those amendments are otherwise expressly permitted by the indenture.

The decisions caused uncertainty over whether legal opinions typically required for indenture amendments can be delivered in connection with a debt restructuring or in circumstances where the issuer may be in financial distress. Also see these memos in our “Trust Indentures” Practice Area.

Webcast: “Legal Opinions – The Hot Issues”

Tune in tomorrow for the webcast – “Legal Opinions: The Hot Issues” – to hear from the foremost authorities on legal opinions as they analyze the most difficult topics today: Goodwin Procter’s Don Glazer, Mike Kendall and Ettore Santucci. The topics include:

1. Opinions on forum selection clauses when the contract chooses the law of another state or country
2. Opinions on arbitration provisions, including contrasting practice on agreements governed by US and foreign law
3. Opinions on provisions shortening or lengthening the statute of limitations
4. Drafting the “no violation of law” opinion
5. Excluding agreements governed by non-US law from the list of agreements covered by the “no breach” opinion
6. Giving separate opinions on “choice of law” clauses choosing the law of another state or country (exclude fundamental policies for both)
7. Venture capital opinion issues, including DGCL Section 204 opinions
8. Dealing with New York’s recent extension of its shareholder liability statute to non-NY corporations whose stock is not publicly traded
9. Dealing with the possibility that a limited partnership has dissolved when giving opinions – validly existing and power – on a LP.
10. Giving opinions on Delaware LPs when a gap exists between the filing of its certificate of limited partnership and its satisfaction of all the requirements for becoming an LP
11. Not giving “as if” opinions on cross-border agreements choosing foreign law

How Many Companies Are Filing With the SEC? 9100

I’m always curious how many public companies are filing disclosure documents with the SEC. A sentence from the SEC Chair’s recent budget testimony before Congress reveals that “the SEC is responsible for selectively reviewing the disclosures and financial statements of over 9100 reporting companies.” Meanwhile, as captured in these notes from a panel of Corp Fin speakers, in fiscal 2015, Corp Fin reviewed the periodic reports of 4400 companies and 600 IPOs…

Also check out this blog by Kevin LaCroix about “Yes, But WHY Are There So Many Fewer Publicly Traded Companies?“…

Broc Romanek

May 2, 2016

Registration Statement Due Diligence: What Are Current Practices?

Brink Dickerson of Troutman Sanders was wondering about how practices have evolved – or eroded – for bolstering the “due diligence” defense available to directors under Section 11(b)(3) of the 1933 Act. It seems that less attention is being given to this topic over time. It doesn’t seem all that long ago when the filing of a registration statement was almost universally preceded by a lengthy board call in which counsel would lead the board through the registration statement – and the work that had been done – to assure that it was accurate. Here’s a survey about what current practice is…

Webcast: “M&A Research – Nuts & Bolts”

Tune in tomorrow for the webcast – “M&A Research: Nuts & Bolts” – to hear Cooley’s Mutya Harsch; Wachtell Lipton’s Susan Hesse; White & Case’s Dan Kessler; Foley & Lardner’s Ben Rikkers and Fredrikson & Byron’s Jamie Snelson explain how to quickly analyze potential deals and their related documents, which can be more of an art than a science. Here’s the agenda:

1. M&A Research Nuts & Bolts: Getting Started
– Deal sheet (summary of basic info: working group, deal parameters, timing goals, billing arrangements)
– Due diligence/research/memos
– Identifying precedent deals (similar structure/issues, reflecting client preferences)
– Drafting
– Execution – checklists
– Closing – post-closing matters

2. Having the Infrastructure
– Knowledge management
– Central location for knowledge sharing; using technology; improving efficiency
– M&A group infrastructure

3. What External Resources Exist
– Basic due diligence tools
– Deal points studies
– Deal databases
– Specific resources

4. Staying Up-to-Date
– Internal communications
– Conferences
– External sources
– Law firm memos
– Close coordination with other groups in the firm

Corp Fin: 9 New CDIs for Form ABS-EE Filings

Last week, Corp Fin issued these 9 CDIs for asset-backed issuers filing Form ABS-EE filings. In addition, Corp Fin posted this note about the opportunity for asset-backed issuers to make test filings for Form ABS-EE…

Our May Eminders is Posted!

We have posted the May issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

Broc Romanek

April 29, 2016

Non-GAAP Disclosures: The Gloves Are Off

Companies have been making non-GAAP disclosures for quite some time now. Perhaps spurred by recent remarks from SEC Chair White, SEC Commissioner Stein (remarks during PCAOB budget meeting) and SEC Chief Accountant Schnurr, it appears that the media is now tackling this topic. For example, the NY Times’ Gretchen Morgenson penned a column entitled “Fantasy Math Is Helping Companies Spin Losses Into Profits.”

In response, Fred Wilson blogged a rebuttal to Gretchen. Here’s an excerpt:

The truth is the the accountants who run the accounting standards have forced companies into reporting their financials in a certain way that neither the companies nor the sophisticated investors who own many of these companies’ shares believe accurately represents the financial condition of the reporting companies. Gretchen quotes this stat in her piece: “According to a recent study in The Analyst’s Accounting Observer, 90 percent of companies in the Standard & Poor’s 500-stock index reported non-GAAP results last year, up from 72 percent in 2009.”

That sure feels like the market speaking. When 90% of your customers order the scrambled eggs differently than you normally serve them that tells you something.

My pet issue is stock based compensation. When a company issues options to an employee, accounting standards require that the option be valued (usually by a formula called Black Scholes) and expensed over the vesting period. That sounds reasonable. But the truth is that that option may end up being worth nothing. Or it may end up being worth 10x the value that it was expensed at. By taking out the stock based comp expenses and reporting an “adjusted EBITDA” number that does not include it, companies are giving investors an idea of what the earnings power of the company is without this theoretical expense. And that stock based compensation expense is a non-cash expense meaning that even though it theoretically costs the company something, it is not paid in cash but in dilution of the total number of shares outstanding.

This is not a cut and dried issue. Different investors will approach it differently depending on whether they care about cash flow, long term dilution, or something else. But the accountants who control the accounting standards board require a certain way of presenting these numbers and that is that.

Check out the resources in our “Non-GAAP Disclosures” Practice Area, including these memos (love the top one with practice tips) and our new “Non-GAAP Financial Measures Handbook”…

SEC Enforcement & Non-GAAP Measures

Here’s a note from Troutman Sanders’ Brink Dickerson:

While the recent SEC’s enforcement settlement with Cabela’s involved several different accounting issues, the most interesting was its miscalculation of a measurement – “merchandising gross margin” – that it held out in its MD&As and elsewhere as an important measurement of performance. The underlying error, a failure to eliminate an intercompany account, resulted in the overstatement of this measurement as well as period-over-period improvement that really did not exist. It appears, however, that the error did not flow through to the company’s GAAP financial statements, where the eliminations were appropriate.

While the performance measurement may – or may not – be a non-GAAP measure, the enforcement action highlights the importance of calculating performance measurements, including non-GAAP measures, with accuracy and providing transparency into their calculation.

It’s Done: 2017 Edition of Romanek’s “Proxy Season Disclosure Treatise”

We have wrapped up the 2017 Edition of the definitive guidance on the proxy season – Romanek’s “Proxy Season Disclosure Treatise & Reporting Guide” – and it’s done being 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. We are so certain that you will love this Treatise, that you can ask for your money back if unsatisfied for any reason. Order now.

Broc Romanek

April 28, 2016

Survey Results: Impact of Auditing Standard #18 on D&O Questionnaires

Here’s the survey results from this survey about how Auditing Standard #18 is impacting D&O questionnaires:

1. Did you update your D&O questionnaire in response to the PCAOB’s new Audit Standard #18 regarding related-party transactions?
– Yes – 66%
– No – 34%
– It hasn’t come up yet – 0%

2. Did your independent auditors ask for a list of immediate family members of directors and officers?
– Yes – 65%
– No – 31%
– It hasn’t come up yet – 4%

3. Did your auditors also ask for information regarding entities over which your directors, officers & their immediate family members control or have significant influence?
– Yes – 65%
– No – 30%
– It hasn’t come up yet – 6%

4. If you did update your D&O questionnaire, did your auditor ask you to do so?
– Yes – 44%
– No – 31%
– Not applicable because we didn’t update our questionnaire – 24%

5. If you did update your D&O questionnaire, will you also be seeking quarterly certifications or updates from your directors and officers?
– Yes – 16%
– No – 59%
– Not applicable because we didn’t update our questionnaire – 26%

Please take a moment to participate anonymously in this “Quick Survey on Registration Statement Due Diligence” – and this “Quick Survey on Proxy Mailing Practices.”

Class Actions: Accounting-Related Suits Increase

As noted in this Cornerstone Research study, the number of securities class action lawsuit filings raising accounting-related allegations rose in 2015, as did the number and value of accounting-related securities suit settlements. In addition to the increase in the number of accounted-related lawsuit filings, the market capitalization losses associated with those new filings increased as well.

Governance 360 Evaluations

In this podcast, Dave Bobker of Rivel Research Group discusses research into how your shareholders are receiving your engagement messaging:

– Where did you grow-up?
– How did you get into the proxy solicitation business?
– What was it like at Georgeson back in the early days?
– You are now with Rivel Research, what do they do?
– What is a “perception study”?
– What is the “Corporate Governance Intelligence Council”?
– How can shareholders – both portfolio managers & proxy voters – provide anonymous input to companies about their governance engagement efforts?

Broc Romanek

April 27, 2016

5 Reasons Why I Love the Proxy Season

From Susan Reilly: As a follow-up to last week’s blog about hating the proxy season, here are the top 5 reasons why I love the proxy season (I must admit, it was a lot harder to put together this list!):

1. The camaraderie with colleagues. It’s amazing how much shared misery can actually benefit your working relationships.

2. Seeing proxy statements get better. Working on the same proxy statements year after year and seeing the improvement – often because of your feedback – can be very rewarding.

3. That optimistic feeling at the beginning of each season that this year, things will be different – the process will be smoother, shareholders will submit fewer proposals, deadlines will be met. That feeling is usually squashed about halfway through, but it’s really nice while it lasts.

4. Client contact. Even as a junior attorney, working on shareholder proposals and proxy statements provided opportunities to interact directly with clients that I otherwise wouldn’t have had as a newbie lawyer.

5. Doing important work that matters. Unlike a lot of legal work that goes on behind the scenes, preparing a document that actually gets seen by shareholders – and influences their voting decisions – feels like you’re providing a tangible benefit to the company.

5 More Reasons Why I Love the Proxy Season

From Julie Kim: I also have five reasons why I love the proxy season. Apparently, I am not supposed to use the word “love” in an ironic or sarcastic way, which means my task will not be easy. It’s like being forced to shake hands with the neighborhood bully and say something nice about him. “Umm, I like your mustache?”

As the theme song for one of my favorite 80’s sitcoms said: “You take the good, you take the bad, you take them both and there you have the facts of life … the facts of life.”

In the spirit of this great bit of 80’s wisdom, I give you my 5 reasons why I [cough] love [cough] proxy season:

1. Thanks to Dodd-Frank and shareholder activism, there’s always something new to learn. Even if it is something that you really, really don’t want to learn.

2. It keeps people employed – lawyers, activist funds and organizations, proxy advisory services, consultants, proxy solicitors, printers, design firms, mailing agents, etc. Arguably a whole industry depends on the proxy machinery.

3. There’s a sense of community among those who are involved in the proxy statement and annual meeting cycle, fostered by a “I know what you’re going through” mentality. Kind of like a support group for hostage survivors.

4. It exposes you to people whom you may not otherwise meet – for example, that quiet guy in the Compensation Department whose job is to keep track of corporate aircraft usage. Also, how else would you get to meet Evelyn Y. Davis and John Chevedden?

5. Compared to the 10-K and registration statements, proxies are far prettier to look at.

Wow, that was harder than expected. If you can think of more reasons, let us know!

Poll: Why Do You Love the Proxy Season?

Please participate in this anonymous poll:

bike trails

Broc Romanek

April 26, 2016

S-K Concept Release: 12 Most Surprising (or Scary) Things

Based on feedback from the community, here’s a mix of a dozen things that are either surprising or scary about the SEC’s recent concept release on Regulation S-K:

1. How slow law firms were to write memos about it. For something this big, there normally is a rush to write. Perhaps it’s the daunting size of the thing – 341 pages. We’re posting memos in our “Regulation S-K” Practice Area (and our “Disclosure Effectiveness” Practice Area).

2. The sheer number of questions – with only a 90 day comment period. As Ning Chiu blogged, it appears there are 340 questions at first glance. But since each usually embeds at least two – and as many as five or six additional questions – there are more than 800 questions.

3. How many times the SEC indicates that additional disclosure might be necessary on a topic – so this reform project might result in more disclosure; not less. This is something that Corp Fin Director Keith Higgins has warned before – reducing volume of disclosure is not the sole end game of the disclosure effectiveness project, particularly given that many investors have expressed an appetite for more information.

4. Some of the risk factor questions are scary. This blog by Ning Chiu notes that the notion of requiring companies to discuss the probability of occurrence & the effect on performance for each risk factor is raised.

Another scary aspect would be imposing a numerical limit on the length or number of risk factors. That would be akin to Plain English Reform redux. Risk factors are included to mitigate liability. An issuer should have maximum flexibility to present risk factors as it deems appropriate.

5. Reconsidering the concept of quarterly reporting. The SEC inquires into the value of quarterly reporting & whether semi-annual reporting should be the standard, at least for some companies.

6. Importance of sustainability & public policy matters – including possibly requiring line-item specific environmental & social policy disclosures in periodic reports.

7. Stock buyback disclosures! Surprising because didn’t seem to fit in a S-K concept release is the brief mention on page 193 about whether disclosure about share repurchases should be required more frequently (FN 625 notes that Australia requires next-day disclosure). The possibility of a Section 13D/G-type reporting regime for issuer repurchases would probably be scary to whoever would have to deal with it. [Speaking of buybacks, don’t forget our webcast today: “Company Buybacks: Best Practices“]

8. One surprising thing is if the SEC actually allowed “external” hyperlinks in Edgar filings. Hyperlinking to other Edgar filings is one thing. But to allow external hyperlinks to website outside of Edgar would open a Pandora’s box. Particularly the prospect of a hacker using a external hyperlink to create a data security breach in the Edgar system.

9. Ways to enhance “readability.” Excellent! Usability makes it into the concept release! There’s also talk of increased use of summaries – aka as “layered disclosure.” See more in this blog.

10. Rather than asking about eliminating XBRL, the SEC asks whether other disclosures should be tagged in ways similar to XBRL (the SEC calls this “structured disclosure”). This article notes how the SEC – and investors – are using XBRL more these days.

11. The possibility of a “sunset” provision for a disclosure rule. The thought of having to revisit these disclosure standards (in another 341 page release?!?) every few years is frightening. In the disclosure community, the saying is that “sunshine is the best disinfectant.” To inject a “sunset” would create uncertainty.

12. Lack of a pervasive “re-imagining” of the disclosure system as a whole, such as the “company profile” approach that the SEC has floated before (see Cydney Posner’s blog). The concept release is more granular – and incredibly comprehensive.

How You Can Implement Disclosure Effectiveness Now

As Corp Fin Director Keith Higgins has repeatedly reminded us when he speaks, you can implement disclosure effectiveness now. You don’t need to wait for the multi-year process of getting this concept release to the proposal & adoption stages. By applying usability principles, you can reap the benefits of a shorter disclosure document today. When speaking, Keith gives the example of a company that came to talk to the SEC about making voluntary changes to it’s 10-K – which resulted in a document that was shorter by a third. But you don’t need to visit Corp Fin to accomplish this.

There are plenty of other examples. If you look at the proxy statements of major companies, many are pretty short. Amazon comes to mind – remember my short video about its proxy statement that was only 25 pages long! – but there are others. Some smaller companies are doing great jobs with their proxy too – see the summary for this proxy just filed by Consol Energy…

Poll: Will You Ever Read the S-K Concept Release?

Please participate in this anonymous poll:

surveys & polls

Broc Romanek

April 25, 2016

Buybacks: Buyside & Sellside Disagree

As I blogged before, buybacks continue to be a source of controversy. Here’s the intro from this IR Magazine article:

More buy-siders than sell-siders believe companies are sacrificing too much to fund expensive share buybacks, according to IR Magazine research into what the investment community thinks about the best way to spend excess cash.

As part of the research for the Investor Perception Study – US 2016, buy-side and sell-side respondents were asked some general questions of interest to the IR community, including: do you think companies are sacrificing long-term organic growth and increasing wages to do buybacks? Forty-one percent of US buy-siders agree with the statement, compared with just 25 percent of those on the sell side. Correspondingly, the sell side is far more likely to disagree with the sentiment (65 percent) than respondents on the buy side (41 percent).

Also see this NY Times’ Gretchen Morgenson’s column

Webcast: “Company Buybacks – Best Practices”

Tune in tomorrow for the webcast – “Company Buybacks: Best Practices” – to hear Skadden’s Kady Ashley, Hunton & Williams’ Scott Kimpel, Simpson Thacher’s Lee Meyerson and Foley & Lardner’s Pat Quick discuss what you should now be considering as you conduct stock repurchase programs. The agenda includes:

1. What is the debate over whether buybacks are the best use of a company’s funds
2. What are the “best practices” for an issuer repurchase program
3. When implementing a buyback, should a Rule 10b5-1 plan be part of it? And if so, what level of control should a company give up? What are the risks?
4. Should a Rule 10b5-1 plan only apply during blackout periods? Should a company just rely on 10b-18 during open windows?
5. How can, and should, a company use multiple 10b5-1 plans/brokers during a certain period
6. How might a stock repurchase stack up against paying cash dividends? Or other alternatives?
7. How to conduct buybacks when engaging in M&A

Cap’n Cashbags: Out-of-Control!

In this 20-second video, Cap’n Cashbags receives $100 million in stock options for the year:

Broc Romanek

April 22, 2016

Excessive Incentive Pay: Financial Firm Proposal – 60% at Risk for Up to 11 Years

As I blogged yesterday on, the banking regulators are finally rolling out a permanent proposal under Dodd-Frank’s Section 956 regarding excessive incentive pay. The NCUA kicked the proposing off. Here’s the summary from this Sullivan & Cromwell memo (also see this WSJ article – and this blog):

Earlier today, the National Credit Union Administration issued a notice of proposed rulemaking for a new interagency rule on incentive-based compensation that applies to financial institutions with consolidated assets of at least $1 billion. Today’s new proposal replaces one originally issued 5 years ago in the first half of 2011. The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency and the Securities and Exchange Commission are all expected to propose the same new rule.

The new proposed rule establishes general qualitative requirements applicable to all covered companies, additional specific requirements for institutions with total consolidated assets of at least $50 billion and further, more stringent requirements for those with total consolidated assets of at least $250 billion. The general qualitative requirements applicable to all covered institutions include (1) prohibiting incentive arrangements that encourage inappropriate risks by providing excessive compensation, (2) prohibiting incentive arrangements that encourage inappropriate risks that could lead to a material financial loss, (3) establishing requirements for performance measures to appropriately balance risk and reward, (4) requiring board of director oversight of incentive arrangements and (5) mandating appropriate recordkeeping (which replaces the annual reporting contemplated by the 2011 proposal).

As noted in this MarketWatch article – and this WSJ article – Senator Warren is once again taking aim at the SEC, saying it has let down investors by allowing Steven Cohen back into the hedge-fund business…

FINRA: Proposes Delay for New Debt Research Rule

As noted in this MoFo blog, FINRA has proposed delaying further the implementation date of its new debt research rule (Rule 2422) until July 16, 2016. Rule 2422 was set to take effect today, after the implementation date was extended from the initial February 22nd deadline.

The Challenges of Landing a Board Seat

The topic of landing a board seat is hot. We have our own checklist about how to use a recruiter to become a director nominee – and these other materials from the “Director Recruitment” Practice Area. And here’s a useful excerpt from Jill Griffin’s “Earn Your Seat on a Corporate Board: 7 Actions to Build Your Career, Elevate Your Leadership, and Expand Your Influence“:

The Board Seat Audit – Gauge Your Fit

To help you access your suitability, I’ve developed what I call the “Board Seat Readiness Audit.” Over many years, I’ve designed for clients a ton of research audits and surveys that used some fancy measurement metrics. (Likert Scale, anyone?) But my goal was brevity, and so I’ve kept this audit simple! I envision someone completing this on a flight from Houston to New York, for instance.

I’ve worked hard to reduce your responses to the good ole “Yes, No, or Maybe,” with the following values: Yes = 3 points; No = 0 points; Maybe = 1 point. Before you begin, take a moment to reflect on your work style and employment history. Above all, be truthful and candid with yourself. (You can find the online version at

1. Do you truly have the time to serve?

Saying “yes” to a seat can carry a commitment of five to ten years. In fact, it’s not unusual to serve for ten years or more. This includes attending, on average, six to eight meetings a year (and the travel time to and from those meetings), serving on at least one committee, and being “on call” when unexpected issues arise.

2. Is compensation a secondary motive for you in seeking corporate board service?

If to any degree you are driven by money to seek a seat on a corporate board, think again. There are probably far easier ways to earn it. Board service should ideally happen when you are financially stable and do not “need” the fees or stock.

3. Are you well-informed about board of directors’ liability?

Action 1: testing your readiness – Officers and directors of public companies always face the possibility that investors, regulators, and even criminal prosecutors might challenge their decisions. This increased scrutiny makes it more important than ever that you understand the obligations and potential liabilities inherent in public board service. Beginning in 2001, major corporate accounting scandals at Enron, WorldCom, and other large-cap companies cost investors billions of dollars when their share prices collapsed. This shook public confidence in the US securities markets. Soon thereafter, on July 30, 2002, the Sarbanes-Oxley Act was enacted, which covers the responsibilities of a public corporation’s board of directors, adds criminal penalties for certain misconduct, and addresses issues such as auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure. Bottom line: Public board service comes with serious obligations. Proceed with caution.

4. Do you think like an entrepreneur?

The very best and the most successful companies in America (3M, for instance) have always managed to maintain an entrepreneurial spirit no matter how big they’ve become. A culture that encourages creativity and inventiveness instills in its people passion and an urgency to create, and in its leaders openness to entirely new ideas—many of which come from outside the firm’s respective industry.

5. Are you financially literate?

Financial acuity is an essential proficiency in a board director. While you don’t have to be a CFO or an accountant, you must have the know-how to analyze financial statements. Enron’s and other corporations’ scandals drove legislation to ensure this.

6. Are you a natural mentor?

The role of a director differs greatly from that of an operating executive who is accustomed to “running the show.” Most director time is spent reviewing and assessing strategy, risk, financial reporting, and management performance. Aspiring board members should be comfortable in the role of mentoring. On the Luby’s board on which I serve, we have used a “board buddy” system in which a board director and a senior executive are matched. In my case, I was paired with Scott Gray, the firm’s CFO. He and I meet periodically and exchange ideas. He’s taught me how to dig deeper into financial statements, and I’ve helped him build on his already savvy marketing acumen.

7. Can you bring valuable contacts to the table?

Board directors are expected to make their network of problem solvers available to the corporation’s management team. Do you have a wide network, especially in your field of expertise, and are you generously willing to share their names? For instance, I live in Austin, a city known for its software start-ups. Through networking, I came across a leading-edge technology. It allowed Luby’s to survey customers via a touch-point screen strategically located at the entrance of each restaurant. This information has helped us serve our patrons better. But even more gratifying for me was that, after a year of relentless system testing, Luby’s signed a contract with this deserving start-up, which moved it into profitability.

8. Do you naturally bring humor to stressful situations?

Great board members, like great leaders, have a sense of humor and know how to have fun. But they intuitively understand the rules of humor and don’t have fun at someone else’s expense. Instead, they make light of themselves.
Many stories told by President John F. Kennedy show the power of humor and the art of self deprecation.
The website The Hill shares a few great examples in the article, “Kennedy’s wit and humor: A legacy for political leadership” (November 20, 2013). Dan Glickman wrote, “During the 1960 campaign when pundits and opponents complained about his wealth, he simply replied ‘I just received the following wire from my generous Daddy. “Dear Jack, Don’t buy a single vote more than is necessary. I’ll be damned if I am going to pay for a landslide.”’. . . Or when a young boy asked him how he became a war hero, he gracefully responded that ‘it was absolutely involuntary; they sunk my boat.’ That’s one of my favorite examples.

9. Do you like to dig deep for insight?

Men and women with this gift have a natural curiosity that drives in-depth analysis. This innate talent is prized in the boardroom. James S. Turley, retired chairman and CEO of Ernst & Young, advises: “You are empowered to ask any question as a director. You are not management. Your job is to provide governance and oversight. Outside of board meetings, there is often a lot of homework to be done with managers and understanding how they see the business and how they think. These are serious roles. You don’t just hang out.”

10. Are you a team player?

A team player is generally described as one who communicates constructively, demonstrates reliability, works as a problem-solver, treats others in a respectful and supportive manner, shows commitment to the team, and is skilled at building on the ideas of others. Are these your strong suits?

11. Are you optimistic?

An optimistic mindset enables a board director to view a conflict as a problem to be solved. Rather than focus on blame, he or she will focus on solutions. Boards need men and women with this mindset to avoid gridlock and to move the firm forward. Ask yourself: Would your colleagues describe you as seeing the glass half-full rather than half-empty? Make no mistake: Boards want what Seth Godin calls “a generous skeptic.” That’s the director who can take the opposing position and help shed light on its merits. But, at the end of the day, the best boards work as a team and move ahead with an optimistic, can-do attitude.

12. Are you willing to speak up about sensitive topics?

Boards depend on directors who not only speak up about sensitive topics but also are skilled in framing their points in an honest, confident, respectful, and positive manner. Sensitive topics can range from nepotism and outward signs of prejudice to unanswered telephone calls and queries. In making such probing yet diplomatic remarks, it’s especially important to show respect for the work of the team. Does this kind of diplomacy come naturally to you?

13. Can you cast the lone vote?

Are you capable of casting the lone “no” vote? Can you do so even when your vote is clearly out of step with valued colleagues? My friend and valued colleague Ralph Hasson contributed this question and remembers the so- bering experience well. On a critical vote, he stood alone and voted “no” when the majority of his fellow directors voted “yes” and one abstained. Ralph recalls that afterward, the director who abstained turned to Ralph and said, “I wish I had voted ‘no.’” Like Ralph, I have cast the lone vote. You may be uncomfortable when you do it, but you eventually experience a satisfied feeling of knowing you have looked inside your heart and stood for your values.

What do your colleagues think? After reflecting on your own, have some close friends and colleagues take the same audit on your behalf, imagining you in the boardroom. How do their impressions of you compare with your own? What can their impressions teach you about your true fit for corporate board service?

Broc Romanek