June 24, 2016

Brexit: The Risk Factors Cometh!

I’m out West for the Society of Corporate Secretaries Conference. So I was up when the ‘leave’ vote stunned the world. I just did a quick Edgar search and ‘Brexit’ has been scarcely mentioned in recent 10-Ks & 10-Qs. I found about 20 companies that have disclosed Brexit risk factors – which includes a search of 20-Fs and prospectuses.

That likely will change as companies should now be assessing how this uncertain future will impact them uniquely. See our ‘Risk Factors Disclosure Handbook‘ – and see this memo that lays out the basic legal implications of Brexit…

Venture Capital: Cooley’s “Go” Site

In our “Venture Capital” Practice Area, we have links to a number of model documents that folks can use. But I wanted to highlight Cooley’s “Go” site because I think it does a great job of highlighting the people at Cooley who work on VC. Look at the bios on this site – they list interests & books. Potential clients get a better sense of who they are.

Too many law firms neuter their content so there is no human element. People want “human” – that’s why this blog is easier to read than most law firm blogs…

More on our “Proxy Season Blog”

We continue to post new items regularly on our “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:

– ISS: Moody’s Changes Outlook From Negative to Stable
– Shareholder Proposals: Is “False & Misleading” on Life Support?
– Environmental-Related Disclosures: Companies Facing Increasing Scrutiny
– Shareholder Proposal Trends
– Broadridge’s ’15 Proxy Season Stats

Broc Romanek

June 23, 2016

Transcript: “Non-GAAP Disclosures: What Is Permissible?”

We have posted the transcript of our popular webcast that almost broke the Internet due to its demand: “Non-GAAP Disclosures: What Is Permissible?”…

SEC Finally Fixes “Insider Transactions” Links

For months, the links to “insider transactions” from a company’s “profile” on the SEC’s Edgar web pages has not been working. We’re happy to report that they are back online – and the tabular format for the insider transactions has been retooled. “Insider transactions” means Section 16 filings.

For example, here is the Edgar profile page for Microsoft. In the blue box at the top, you see these two lines in the bottom left:

Get insider transactions for this issuer.
Get insider transactions for this reporting owner.

Those two “insider transaction” links didn’t work until recently. Thanks to Weil Gotshal’s Howard Dicker for letting us know!

Note: Since I blogged this in the wee hours, a member has told me that the tabular data sometimes is screwed up even in this retooled format. Bummer! So you really need to look online after you file a Form 4 to verify that what’s posted matches your facts. More later…

Broc Romanek

June 22, 2016

SEC Enforcement: How Mickelson Case Relates to Your Directors

As part of my “Big Legal Minds” podcast series – check out this 45-minute podcast, during which Pravin Rao & Jose Lopez of Perkins Coie analyze the latest SEC enforcement developments, including:

1. Beyond the Phil Mickelson insider trading case – what that means for all directors & officers
2. Administrative law judge controversy
3. What’s it like to work in the SEC’s Enforcement Division

Remember that these podcasts are also available on iTunes or Google Play – just use the “My Podcasts” app on your iPhone and search for “Big Legal Minds”; you can subscribe to the feed so that any new podcast automatically downloads…

blm logo

PCAOB: Still No Ability to Inspect Chinese Auditors

Here’s the intro from this article about the standoff with regulators in China over inspections of their auditors:

A year after the U.S. Treasury Department announced a pilot program letting the PCAOB inspect a Chinese accounting firm, a formal inspection agreement is still not in place and may never be. The pilot program never took place after Chinese officials walked away from an October negotiating session with PCAOB representatives, and since that abrupt end, no progress has been made despite continued discussions. Treasury, for its part, issued a statement at the end of this year’s Strategic and Economic Dialogue (S&ED) that was, like statements from prior years, long on cheeriness and short on substance.

Broc Romanek

June 21, 2016

Virtual-Only Annual Meetings: Intel Dives Into the Pool!

Last year, I blogged about how Hewlett-Packard became the first big company to hold a virtual-only annual meeting. This year, Intel became the new bellwether. Intel had tried to become the first large company to do this about six years ago – but the resulting bad publicity forced them to turn the meeting into a hybrid.

Not so this year. The only bad press I saw was this NY Times piece – that didn’t come out until after the meeting was over! [By the way, the NYT piece incorrectly states that Intel held a virtual-only meeting in ’09 and that it was the first ever. Wrong on both counts – see my list of the true pioneers, starting with Inforte in 2001. The piece is also wrong in that Intel did take questions from the web during the ’16 annual meeting.]

Anyway, this is how Intel described how the meeting would work in its proxy statement – compare that to what Hewlett-Packard disclosed in this year’s proxy statement when it held a virtual-only meeting again…

In this blog, Cooley’s Cydney Posner describes a recent Financial Times article on virtual-only meetings…

Broc Romanek

June 20, 2016

Transcript: “Yes, It’s Time to Update Your Insider Trading Policy”

We have posted the transcript of our popular webcast: “Yes, It’s Time to Update Your Insider Trading Policy.” The transcript for our Non-GAAP webcast – the one that almost broke the Internet – will be up in a few days…

DTCC Re-Proposal: Imposition of Chills & Global Locks

Hat tip to McDermott Will’s Gary Emmanuel for informing me that DTCC has re-proposed a rule change with the SEC that would establish the circumstances under which DTC would impose and/or release a ‘Deposit Chill’ or a ‘Global Lock’ on a security. It also sets forth the proposed criteria for releasing these restrictions – and the procedures that would allow an issuer to challenge the restriction.

This re-proposal was necessary after DTC withdrew its prior rule – that it submitted over two years ago – in the face of negative comments…

DOJ’s FCPA Pilot Program: First Declinations & Rare NPAs

Recently, as noted in this memo, the DOJ issued the first public declinations of a criminal enforcement action since implementing its new “Pilot Program” enforcement plan when it declined prosecution of Akamai and Nortek for FCPA violations by their respective Chinese subsidiaries.

On the same day, both companies separately entered into non-prosecution agreements (“NPAs”) with the SEC, only the second and third FCPA NPAs from the SEC…

You gotta love any SEC case that uses the phrase “Bacchanalian Adventure”…

Broc Romanek

June 17, 2016

Looming Death of Guide 7! SEC Proposes Update for Mining Companies

Yesterday, the SEC proposed rules – in this 296-page proposing release – to modernize the disclosure requirements for mining companies by killing Industry Guide 7 – and updating Item 102 of Regulation S-K to include all mining disclosure requirements in one S-K subpart. As noted in this press release, the proposal would:

– Provide one standard requiring registrants to disclose mining operations that are material to the company’s business or financial condition
– Require a registrant to disclose mineral resources and material exploration results in addition to its mineral reserves
– Permit disclosure of mineral reserves to be based on a preliminary feasibility study or a final feasibility study
– Provide updated definitions of mineral reserves and mineral resources
– Require, in tabular format, summary disclosure for a registrant’s mining operations as a whole as well as more detailed disclosure for material individual properties
– Require that every disclosure of mineral resources, mineral reserves and material exploration results reported in a registrant’s filed registration statements and reports be based on, and accurately reflect information and supporting documentation prepared by, a “qualified person”
– Require a registrant to obtain a technical report summary from the qualified person, which identifies and summarizes for each material property the information reviewed and conclusions reached by the qualified person about the registrant’s exploration results, mineral resources or mineral reserves

House Committee Passes Proxy Advisor Reform & Garrett Bill

As noted in this MoFo blog, the House Financial Services Committee passed a dozen bills yesterday – including the one on proxy advisor reform (“Corporate Governance Reform and Transparency Act of 2016”) and the Garrett bill (“SEC Regulatory Accountability Act”) that I bashed two days ago. See this CII press release

For those that want to regulate proxy advisors out of business, be careful what you wish for

Conflict Minerals: EU “Political Understanding” Reached

As noted in this Elm Sustainability Partners piece, the European Commission announced two days ago that a “political understanding” has been reached on the European conflict minerals law. This means that the relevant political entities have agreed upon high level legal principles for the conflict minerals requirements for covered businesses in Europe. The technical and implementation details are to be developed in the future.

Also see this piece noting that nearly 1200 companies filed a Form SD by the June 1st deadline…

Broc Romanek

June 16, 2016

House’s “Financial Choice Act”: Enough to Choke a Horse

No sooner do I blog about a House bill that would make it challenging for the SEC to conduct any rulemaking, than Cooley’s Cydney Posner blogs about an executive summary of the “Financial Choice Act” – which would require the SEC to conduct rulemaking to dismantle nearly all of the corporate governance rules that the SEC has adopted under Dodd-Frank over the last six years.

The kicker is that all of this repealing isn’t in the executive summary (and the full bill isn’t public yet); rather the executive summary just says “repeal non-material specialized disclosures.” You can’t make this stuff up! But Cydney’s blog notes that Cooley’s “Government Analytics Practice Group” dug in to uncover what is behind the bill’s executive summary:

– Repeal specialized public company disclosures for conflict minerals, extractive industries and mine safety (Dodd-Frank Title XV)
– Expand the Sarbanes-Oxley Act Section 404(b) exemption for non-accelerated filers to include issuers with up to $250 million in market capitalization (up from the current threshold of $75 million) or $1 billion in assets for banks (Dodd-Frank Section 989G).
– Repeal the burdensome mandate that publicly traded companies disclose the ratio of median vs. CEO pay (Dodd-Frank Section 953(b))
– Repeal the SEC’s authority to further restrict the ability to engage in legitimate securities short selling (Dodd-Frank Section 929X)
– Amend the mandate on public companies to provide shareholders with a vote on executive compensation to occur only when the company has made a material change to the executive compensation package (Dodd-Frank Section 951).
– In the event of certain financial restatements, hold bad actors responsible by limiting ‘clawbacks’ of compensation to the current or former executive officers of a public company who had control or authority over the company’s financial reporting (Dodd-Frank Section 954).
– To reduce the burdens on emerging growth and smaller reporting companies, repeal the reporting requirement for public companies regarding employee or board member hedging of equity securities granted as compensation (Dodd-Frank Section 955).
– Repeal federal financial regulators’ ability to prohibit types and features of incentive-based compensation arrangements (Dodd-Frank Section 956).
– Repeal the SEC’s authority to issue rules on proxy access (Dodd-Frank Section 971).
– Repeal the SEC’s authority to issue rules to require disclosures regarding Chairman and CEO structures (Dodd-Frank Section 972).

As Cydney notes in her blog, it wouldn’t quite repeal all of Dodd-Frank’s corporate governance provisions – pay-for-performance would still be on the books. The bill would also incorporate about a dozen bills that are floating around in the House these days – and would “streamline” the SEC’s Enforcement Division process so that individuals received “fair treatment.” Cydney writes:

According to the NYT, the bill “has little chance of passing Congress this year.” And, even if it did, President Obama still holds the veto pen, at least until January. Nevertheless, Speaker Ryan has encouraged his Republican brethren to develop affirmative policies and programs, and, as the NYT suggests, this bill “may influence the presidential debate and help shape the Republican agenda in the next term.”

FASB’s New Lease Accounting: Most Companies Not Ready Yet

As noted in this memo, a webcast poll by Deloitte indicates that fewer than 10% of accounting professionals say their companies are ready for the FASB’s new lease accounting standards. They cited the top two challenges as collecting the necessary data in all organizational leases in a centralized, electronic repository – and instituting reporting processes to evaluate quarterly adjustments for the balance sheet. Of the 5,400 respondents, only 15% said they expect compliance to be easy.

Gender Pay Gap Becomes a Proxy Season Issue

Here’s an excerpt from this blog by Davis Polk’s Ning Chiu:

The White House recently announced an initiative by 28 companies that have pledged to conduct annual gender pay analysis, similar to a shareholder proposal this proxy season that received a fair amount of press attention. Arjuna Capital sent proposals to nine major technology companies, including Apple, Alphabet, Facebook, Intel and Microsoft, asking them to prepare reports on their policies and goals to reduce the gender pay gap. This was defined as the difference between male and female earnings expressed as a percentage of male earnings. According to the proposal, the median income for working women is 78% that of their male counterparts.

The SEC staff denied several companies’ initial efforts to exclude the proposal on the basis of vagueness. At one company where the proposal went to a vote, it received 51% support in favor, highly unusual for a social proposal. Nearly all of the other companies got the proposal withdrawn by the proponent after they agreed to provide information on their gender pay differences. Those that already reported stated that there is no pay gap, or a very negligible gap, between men and women who work at the same job-grade level. Some companies included salary and stock while others excluded stock. Exact methodologies were generally not provided. Two companies released their information to coincide with National Equal Pay Day (April 12).

Although almost all of the press has been favorable in light of the results, some in the media criticized the companies for obscuring the types of jobs women tend to work, finding that men are more likely to hold higher-paying tech positions. In addition, women make up around a quarter or less of the senior leadership at these companies.

Broc Romanek

June 15, 2016

SEC Rulemaking: Garrett Bill Is Brutal

Ever since the SEC – and other federal agencies – have been required to conduct more cost-benefit analyses in the wake of the proxy access court decision in 2011, the pace of rulemaking certainly has slowed – despite a huge ramp up in the size of the SEC’s relatively new Division of Economic & Risk Analysis (Risk Fin).

Things might get worse before they get better. As highlighted in this CII letter, a House bill from Rep. Garrett – the “SEC Regulatory Accountability Act” (HR 5429) – includes provisions that could really paralyze the SEC’s ability to adopt new rules or modify old ones. For example, the bill would require the SEC to revisit a rule within one year of it’s passage – and then every five years after that.

On its face, I know this sounds reasonable – but it would require more resources than you think to undertake this task. Resources that the SEC doesn’t have. Remember that the SEC already is conducting extensive cost-benefit analyses, etc. And bear in mind that all of this doesn’t protect us from stupid laws that Congress passes that requires the SEC to adopt stupid new rules. The bulk of the rulemaking conducted by the SEC over the past decade has been mandated by Congress. So if Congress has a beef with the rules that the SEC is adopting, it should look in the mirror…

Regulation A+: States Lose Challenge In DC Circuit Court

Yesterday, as noted in this blog and this blog, the states of Montana and Massachusetts lost their challenge to the SEC’s adoption of Regulation A+ in the DC Circuit court – as was expected…

Political Contribution: Still a Live Wire for Senate Democrats

Yesterday, SEC Chair White testified before the Senate Banking Committee about the SEC’s oversight obligations. You might recall that two Commissioner nominees still remain to be confirmed – mainly because some Senate Democrats are angry that the nominees wouldn’t commit to adopting rules on disclosing political contributions as noted in this blog.

Anyway, the hearing yesterday produced some fireworks as Senator Schumer & Warren criticized Chair White for removing political spending disclosure from the Reg Flex Agenda – and for launching the disclosure effectiveness project (see this blog). In fact, my blog about the Reg Flex Agenda being “aspirational” even made it into this MarketWatch article that describes the testy exchange.

Great quote from the MarketWatch piece – White to Warren: ‘I am disappointed in your disappointment.’

Broc Romanek

June 14, 2016

Free Stock! Did T-Mobile Say “Free Stock”?

Free stock! As noted in this Wired article, loyal T-Mobile customer may be eligible for a share of free stock starting last Tuesday if they refer a new customer (two shares if they’ve been a customer for 5 years). Here’s T-Mobile’s prospectus for this “Stock Up Rewards Plan.”

Free stock as a marketing ploy for companies with loyal customer bases is not exactly new – a few existed even before the Internet (eg. Dr. Pepper did one in the early ’80s). But they are rare – and for good reason. These FAQs that I drafted long ago lay out some of the concerns (and here’s a WaPo article about potential tax issues – and an old WilmerHale memo about the SEC cracking down on freebie offerings).

A prime example of unexpected problems comes from the first online free stock offering, which was conducted by in April 1998. Reportedly, the company subsequently had difficulty locating the people who received free stock when it sought to conduct an exchange offer – primarily because the only contact information it had for many stockholders was e-mail addresses (many of which had changed and didn’t have forwarding information).

Interestingly, Loyal3 is helping to administer this freebie stock promotion for T-Mobile. As you might recall from this blog, Loyal3 is the entity that has been helping companies to create “Customer Stock Ownership Plans” – these are plans that run through on an app for your smart phone, tablet, etc. This is an alternative solution to giving away the stock for free…

Here’s other innovative stuff from the ’90s: Spring Street Brewing, Wit Beer (Wit Capital), tracking stock, David Bowie bonds, SOES bandits, online brokers and Pearl Jam!

XBRL: SEC Announces “Inline XBRL”

Yesterday, the SEC announced that it will allow companies to voluntarily file structured financial statement data in a format known as “Inline XBRL.” From what I gather from the SEC’s press release, this will enable filers to use XBRL in their HTML filings rather than be forced to file their XBRL as an exhibit to a filing. It’s supposed to reduce costs & improve the quality of filings…

Transcript: “Legal Opinions – The Hot Issues”

We have posted the transcript for our recent webcast: “Legal Opinions: The Hot Issues.” This was a great & highly informative program!

Broc Romanek

June 13, 2016

Revenue Recognition: How to Prepare Transition Disclosure

Hat tip to Steve Quinlivan for pointing out this speech by SEC Deputy Chief Accountant Wes Bricker last Thursday that contains his views about transition disclosure as the effectiveness of the new revenue recognition standard nears. Here’s an excerpt from Wes’ speech:

Speaking of disclosures, the SEC staff has long advised that a registrant should provide transition disclosures to investors of the impact that a recently issued accounting standard will have on its financial statements when that standard is adopted in a future period.

The preparation of the transition disclosures should be subject to effective ICFR and disclosure controls and procedures. As management completes portions of its implementation plan and develops an assessment of the anticipated impact the standard will have on the company’s financial statements, internal and disclosure controls should be designed and implemented to timely identify relevant disclosure content from the implementation assessments and to ensure, where necessary, that appropriately informative disclosure is made.

Investors should expect the level of transition disclosures to increase as a company progresses in its implementation plans and, when necessary, engage with company management to understand these disclosures.

Tomorrow’s Webcast: “Proxy Season Post-Mortem – The Latest Compensation Disclosures”

Tune in tomorrow for the webcast – “Proxy Season Post-Mortem: The Latest Compensation Disclosures” – to hear Mark Borges of Compensia, Dave Lynn of and Morrison & Foerster, Ron Mueller of Gibson Dunn analyze what was (and what was not) disclosed this proxy season.

Yates Memo: Counterproductive Impact?

Here’s an excerpt from this blog by Kevin LaCroix that analyzes this new research from the Chamber of Commerce:

Individual actors “may find their own legal interests to be at odds with those of the company’s.” This dynamic could lead to “an ‘every man for himself’ mindset within the company.” Junior employees may refuse to cooperate, at least without their own legal representation. Other may decide to secure their own attorneys, without going through corporate channels.

These impacts could add complexity, expense and delay to the company’s efforts to complete its investigation in order to receive cooperation credit. Perhaps even more importantly, these factors could have a “chilling effect” on the company’s ability to fully investigate and develop the full factual record needed to secure cooperation credit. The upshot could be that in the end this internal dynamic could “impede the corporation’s ability to perform what is intended by the Yates memo – to gather facts and report to the Department any individuals engaged in wrongdoing.” Rather than allowing the agency to leverage a corporation’s access to information, “the Yates Memo’s impact is likely to have the opposite effect.”

Broc Romanek