August 26, 2016

Disclosure Effectiveness: Item 400 Series “Proposal”

Yesterday, as the latest in Corp Fin’s disclosure effectiveness project, the SEC posted an 8-page “request for comment” on the disclosure requirements in Subpart 400 of Regulation S-K. The scant press release named three topics in particular – management, certain security holders & corporate governance – but it didn’t use the buzz word of Item 402’s executive compensation (probably because the title of Subpart 400 in S-K is “management, certain security holders & corporate governance”).

Item 402 is indeed open for comment! In fact, Item 402 was already open for comment as the SEC made clear in the S-K concept release that it welcomed comments on all aspects of S-K (even though that release focused on business & financial information). Some from the SEC have been saying that Item 402 is a lower priority for the disclosure effectiveness project.

Maybe if enough folks request changes in the 402 area, the SEC will propose something there – but I doubt it given the magnitude of that undertaking & the fact that Item 402 got its last overhaul a mere decade ago (which is why Item 402 is a lower priority for this project). The “request for comment” notes that the comments received will assist the SEC in “carrying out the study of Regulation S-K required by Section 72003(a) of the FAST Act” – that’s probably why the SEC decided to issue this “request for comment” on top of the earlier S-K concept release (as Ning Chiu explains in her blog).

As Broc has blogged before, we have no idea why this is a “request for comment” – and not a “concept release” – but given the short length of the “request for comment,” the difference must allow the SEC to avoid the regulatory trappings of a full-blown concept release.

By the way, the SEC also extended the comment period for the resource extraction/mining disclosures rulemaking a few days ago – the extended comment period ends on September 26th…

Using “Behavioral Ethics” in Compliance Programs

The “Conflict of Interest Blog” provides this roundup of recent articles addressing the use of the emerging field of “behavioral ethics” in corporate compliance programs.  Behavioral ethics focuses on how people actually behave when confronted with an ethical dilemma, in order to understand why they so often act in a manner contrary to their best intentions. (Take a look at this Harvard Magazine article for a more in-depth discussion of what behavioral ethics is all about).

According to this blog– from Philip Morris’s Chief Compliance Officer – incorporating insights from behavioral ethics into compliance programs makes them more effective:

Leading behavioral ethics researchers, including Ann Tenbrunsel of Notre Dame and Linda Trevino of Penn State, have shown that concepts such as leader and peer influence, ethical fading, and blind spots have practical implications for compliance programs.  This research has firmly established that compliance programs with communications, training and controls informed by behavioral ethics learnings are more successful in reducing the likelihood of misconduct and increasing the likelihood of whistle-blowing behaviors.

Transcript: “How to Apply Legal Project Management to Deals”

We have posted the transcript for our recent webcast: “How to Apply Legal Project Management to Deals.”

John Jenkins

August 25, 2016

Hi. I’m the New Guy.

Hello everybody, I’m John Jenkins – the newest editor here at  Some of you may have noticed me lurking around the “Q&A Forums” while Broc has been struggling valiantly to get me up to speed.  You’re going to be hearing more from me over the next several weeks, so I thought it would be a good idea to introduce myself.

I’m a partner in the Cleveland office of Calfee, Halter & Griswold, where I’ve worked since I started my career in 1986.  I’ve worn a lot of hats over the past 30 years – capital markets, Exchange Act compliance, public and private M&A, SEC & SRO investigations, board and special committee work, etc. I also taught a law school M&A class for 10 years. You tend to cast a pretty wide net in a mid-sized firm – and I hope that’s given me a perspective that you’ll find interesting.

Broc & I first connected back in 2003, when he invited me to join his advisory board after I gave a presentation on some obscure aspect of Sarbanes-Oxley at an ABA meeting.  Since then, I’ve done a number of webcasts and written several articles for Deal Lawyers – and even did a bit of blogging on the site a few years ago. I’ve always thought family of sites was a great resource, and I’m really looking forward to my new role here.

That brings me to the point of this post – Broc has decided to head out for a real vacation (with no email!). After 15 years or so, everybody deserves a little time off.  He told me when to feed the dog & water the plants, gave me his Netflix password & the keys to the Chevy, and then basically said – “You’re on your own, pal. Don’t burn the place down.”

So, for the next few weeks, I’ll be handling the blogging and other duties on this site, and  Remember when you were a 16 year-old first learning to drive? Yeah, I’m that kid, except I’m a lot older and have a much slower reaction time. So, I guess what I’m saying is – fasten your seatbelts, because this may be a bumpy ride.

Shareholder Approval: NYSE Revises Bunch of Its “Equity Compensation Plan FAQs”

As Mike Melbinger blogged on yesterday, the NYSE revised its “Equity Compensation Plan FAQs” recently for the first time in nearly a decade. The revised FAQs are the ones that have “Clarified August 18, 2016” written beneath them. As Mike blogs, FAQ C-1 clarifies the NYSE’s position that an amendment of an equity incentive play to allow for maximum tax withholding is not necessarily a “material amendment”…

September-October Issue: Deal Lawyers Print Newsletter

This September-October issue of the Deal Lawyers print newsletter has been posted – & also sent to the printers – and includes articles on:

– “This is the Business We’ve Chosen…”
– Shareholder Votes & Standards of Judicial Review
– Schedule 13G “Passive” Investor Status: When Being a Little Active Is Still Passive!
– Delaware Upholds Decision on Mis-Valuation of Cancelled Stock Options
– A Primer on Private Equity: Basics for Counsel to Middle Market Companies

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 for the first time. 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. Try a “Free for Rest of ’16” no risk trial now!

John Jenkins

August 24, 2016

Shareholder Proposal Proponents: Why Do Individuals Bother to Do It?

This Cooley blog describes this new study by Professors Larcker & Tayan about why individual shareholder proponents bother to submit shareholder proposals to companies. I appreciate the professors mentioning my article about the Gilbert brothers (who are mainly responsible for the initial growth of proposals as a tactic to pressure companies) – and I note that the professors spoke to nine individual proponents to write this new study…

SEC Enforcement: Disclosing “Accelerated Monitoring Fees”

Here’s the intro from this WSJ article:

The Securities and Exchange Commission is investigating whether private-equity firm Silver Lake properly disclosed fees it earned when selling companies or taking them public, part of the regulator’s expansive push to make sure buyout firms are being upfront with investors. The SEC is looking into one-time “accelerated monitoring fees” that Silver Lake collected when it sold companies or took them public, according to people familiar with the matter and Silver Lake investor letters reviewed by The Wall Street Journal.

Buyout firms like Silver Lake collect a range of fees from both portfolio companies and directly from the funds they raise to buy the companies. The SEC has pressured firms to disclose more about these fees to fund investors, typically pensions, endowments and wealthy individuals. The SEC’s Silver Lake investigation is continuing and may not result in any action, but the inquiry is another sign that the agency is taking a broad view of its ability to monitor the $4.2 trillion private-equity industry.

Stats: Number of SEC’s Enforcement Actions Decline

Here’s news from this blog by Kevin LaCroix:

The SEC’s enforcement activity so far this fiscal year trails the record levels in the 2015 fiscal year. According to a recent report from Cornerstone Research, the SEC’s enforcement activity through the end of the fiscal third quarter (on June 30, 2016) is 8% below the activity levels during the same period in FY 2015, largely as a result of an activity decline in the third quarter.

Broc Romanek

August 23, 2016

Our Revised “Non-GAAP Financial Measures Handbook”

Just revised for the new CDIs! By popular demand, this comprehensive “Non-GAAP Financial Measures Handbook” covers a challenging topic, from the basics to everything you want to know about Regulation G, Item 10(e) of Regulation S-K & Form 8-K’s Item 2.02. This one is a real gem – 110 pages of practical guidance – and its posted in our “Non-GAAP Disclosures” Practice Area. Big HUGE hat tip to Joe Alley of Arnall Golden Gregory for revising this beast!

Rule 12b-25: How Common Are Late 10-Ks

This blog by Audit Analytics includes a bunch of interesting statistics about how often companies file Form 12b-25s in order to facilitate a late filed 10-Q or 10-K. The stats show that NT 10-Ks have decreased significantly over the past 15 years (about 45%) – and that they are more prevalent among small companies; fairly rare for the Russell 1000…

Check out our “Late SEC Filings” checklist for more on this topic…

It’s Done: 2017 Edition of Romanek’s “The In-House Essentials Treatise”

We are happy to say the 2017 Edition of Romanek’s “The In-House Essentials Treatise” is done – and it has been sent to the printers. Here’s the 90 pages of our “Detailed Table of Contents” listing the topics – so you can get a sense of the Treatise’s practical nature. You will want to order now so you can receive it as soon as possible.

With over 1700 pages, this tome is the definition of being practical. You can return it any time within the first year – and get a full refund if you don’t find it of value.

Broc Romanek

August 22, 2016

How to Write a Good Earnings Release

This MarketWatch article has some great tips for writing an earnings releases that should help drafters. Here’s an excerpt:

Do a full earnings release

First, something basic: Investor-friendly companies always do a full press release that includes detailed financial tables, distributing it through a newswire that ensures fast distribution to all the major financial news and information publishers. Increasingly, companies are releasing truncated versions and linking to their websites for the rest. We’d prefer not to search multiple places for information when time is of the essence, and we’ve seen companies’ websites drag when thousands of investors are trying to reach them at the same time.

Many companies still do this. Department store chain Kohl’s Corp. produced one of the season’s cleanest, easiest-to-follow releases — and we thanked them for it.

Advancement of Legal Fees: Most Expansive of Conflicting Provisions Likely to Prevail

As noted in this Simpson Thacher memo, companies typically include mandatory advancement provisions in their bylaws – but they may also sign indemnification agreements with individual officers & directors that contain advancement provisions. If the advancement rights provided in each of these documents differ in scope, a question can arise as to whether the two documents should be read together or separately. The Delaware Court of Chancery – in Narayanan v. Sutherland Global Holdings – recently addressed this issue in a case involving an indemnification agreement that contained a condition precedent to the director’s right to be indemnified or to receive expense advances. That condition precedent was not, however, found in the indemnification provisions of the company’s bylaws. The Delaware Chancery held that, absent evidence of intent to the contrary, each document conferring advancement rights is a separate and independent source of advancement rights.

The Sutherland decision has practical implications. The decision highlights that – unless there is evidence suggesting contrary intent – Delaware courts will likely apply the most expansive among conflicting advancement provisions. So when drafting indemnification agreements, bear in mind that a more restrictive or conditional right to advancement than that provided in the company’s bylaws is unlikely to be enforced in the face of broader rights set forth in another instrument. You should ensure that the scope of all potential sources of indemnification-related rights are aligned – and if you wish to create an enforceable right to advancement that is narrower than that contained in the company’s bylaws, you must ensure that the indemnification agreement unambiguously expresses the intent of the parties that the agreement operate in conjunction with the company’s bylaws. Hat tip to Simpson Thacher’s Yafit Cohn for this!

Escheatment: Pennsylvania, Massachusetts & Arkansas Join the Fray

A recent question in our “Q&A Forum” (#8863) highlights how states other than Delaware are getting aggressive in the escheatment area. Here’s part of the answer to that query – thanks to Reed Smith’s Diane Green-Kelly for her expertise (also see our “Escheatment Handbook“):

It is important that each company consult with counsel on the degree of authority to provide to the transfer agent and the manner in which records are made available. It is important, as well, that in the end of the audit if shares are deemed abandoned, the test for last contact precisely fit the particular state’s definitions. Each state has a slightly different standard, and a company can become at risk for a claim of negligent escheat if shares are escheated prematurely.

Kelmar takes a “one size fits all” approach in these audits, which is incorrect. A number of companies have had to save shares from escheat in a number of equity audits by Kelmar because of this incorrect interpretation of the law.

You should consult with counsel who are familiar with these audits. For a few thousand dollars in legal advice, you can save yourself from considerable liability and headaches.

Broc Romanek

August 19, 2016

How Virtual Reality Might Impact Our Working Lifestyles

While spending time out in Berkeley for my oldest son’s graduation from Cal back in May, I was reminded that this truly could be the year that virtual reality starts to go mainstream. The Oculus Rift was released earlier this year. Late last year, the NY Times gave away 1.2 million sets of Google Cardboard viewers. The NBA has streamed games through NextVR. And now Pokemon Go – which has “augmented” VR – is truly a sensation. This is all just the beginning. And this will not flame out like Google Glass. VR is here to stay.

So what does this mean for you? VR will be much more than just entertainment. It’s an entire new computing platform that promises to have profound implications for our lifestyles – both at home and at work. And it ultimately will impact the laws. If you want to get up-to-speed, start with this a16z podcast with Chris Milk about the new language of storytelling using VR – and then listen to this podcast that more generally talks about the VR industry. This stuff will blow your mind. Trust me.

VR & Movie Theatres

Let’s dig a little into how VR will change our lives. One concern often expressed about VR is that people will stop going to the movies. We have heard the death knell before. Thirty years ago, the introduction of VHS cassettes, the rise of Blockbuster and “video stores” spelled doom. More recently, the growing popularity of Netflix, Hulu and Redbox meant trouble. Yet, many still go to the theatre.

VR could prove different for the movie theatre industry. Or maybe not. But interestingly, my son recently watched a movie while virtually sitting in a theatre (so he had the contraption on and placed himself in a theatre that had a movie playing). Imagine doing that with your far-flung friends and family, perhaps watching an old home movie. Or maybe with a large group of like-minded people.

VR opens new ways to watch movies – and virtual theatres might well be economically viable on their own. The overhead would sure be low – and the key would be marketing a niche type of movie or movie-going experience that would be uniquely shown in your theatre.

VR & Courtrooms

Technology is increasing deployed during trials to influence jurors and judges. These days, a wide range of technology is used to produce reconstructions, reenactments and demonstrations. This includes:

– Three-dimensional stop action animation – use of objects which are photographed with a stop-action film or video camera to create a frame.
– Key frame animation – inputting data into a computer program where the programmers specify an object, its location and its destination.
– Scripted animation – programmer determines the position of objects in each frame, rather than leaving it to the computer to fill in gaps.

As noted in this old Nixon Peabody memo, courts consider several factors in admitting videos and computer animation as demonstrative evidence where methods of producing such evidence other than the traditional video camera are used. If the purpose of the video is to demonstrate the expert’s opinion rather than to replicate what actually happened, courts have been inclined to admit the evidence, assuming proper foundation is laid.

Now imagine having the judge and jury observe a reconstruction or reenactment using VR. This would be a much more powerful illustration of the incident central to the case – or pertaining to an aspect of it.

Trials continue to fascinate a big chunk of the public. TV is filled with procedural dramas built around trial lawyers – and that’s been the case for decades, from “Perry Mason” to “L.A. Law” and “Matlock” to modern shows like “Law & Order” and “The Good Wife.” Not to mention reality TV like “The People’s Court” and “Judge Judy.”

Imagine being allowed in the courtroom to witness a case firsthand, particularly for a “Trial of the Century” case like O.J. Simpson’s murder trial. And the VR experience could even enhance the actual trial – with commentators voicing over explanations of what is happening or providing expert analysis about a lawyer’s or judge’s specifications.

At least for me, attending oral arguments before the U.S. Supreme Court sends chills down my spine. Not only is there the drama of the lawyers for both sides being peppered with questions by the nine Justices, but there are historical practices that go back centuries that make the experience like no other. For example, at the beginning of each session, after all the Justices magically appear at their seats from behind a long red curtain, the Marshal of the Court announces: “The Honorable, the Chief Justice and the Associate Justices of the Supreme Court of the United States. Oyez! Oyez! Oyez! All persons having business before the Honorable, the Supreme Court of the United States, are admonished to draw near and give their attention, for the Court is now sitting. God save the United States and this Honorable Court.”

The Supreme Court still adheres to its ban on televising or videotaping its proceedings (it does make audio and transcripts available), but if it ever opened its eyes to allow a VR experience – it would teach many how the court operates and how special it is.

Broc Romanek

August 18, 2016

Corp Fin’s Non-GAAP Comments: MD&A’s Executive Summary

Here’s a blog by Duane Morris’ Rich Silfen: As many of us have noticed, the first comment letters from the Staff in the SEC’s Division of Corporation Finance, following Corp Fin’s recent issuance of new CDI guidance on the presentation of non-GAAP financial measures, have become available publicly. The comment letters shed additional useful light on Corp Fin’s views concerning non-GAAP presentations.

One of the comment letters sent to Alexandria Real Estate Equities on June 20th provides a particularly helpful glimpse into Corp Fin’s views about the use of non-GAAP information in the executive summary of MD&A. The staff’s letter includes the following comment in reference to MD&A in the registrant’s 2015 Form 10-K:

We note that in your executive summary you focus on key non-GAAP financial measures and not GAAP financial measures which may be inconsistent with the updated Compliance and Disclosure Interpretations issued on May 17, 2016 (specifically Question 102.10). We also note issues related to prominence within your earnings release filed on February 1, 2016. Please review this guidance when preparing your next earnings release.

Indeed, the executive summary portion of the MD&A – when initially conceptualized in the SEC’s 2003 release providing interpretive guidance in the preparation of MD&A – was supposed to include an overview to facilitate investor understanding. The overview was intended to reflect the most important matters on which management focuses in evaluating operating performance and financial condition. In particular, the overview was not supposed to be duplicative, but rather more of a “dashboard” providing investors insight in management’s operation and management of the business.

Looking back at the release to write this blog entry, I note references, with regard to Commission guidance on preparation of the MD&A overview, explaining that the presentation should inform investors about how the company earns revenues and income and generates cash, among other matters, but should not include boilerplate disclaimers and other generic language. The Commission even acknowledged that the overview “cannot disclose everything and should not be considered by itself in determining whether a company has made full disclosure.”

Many companies have presented in their MD&A overview those non-GAAP measures used by management to operate the business and otherwise manage the company. Where appropriate, references typically are made to the information appearing elsewhere in the document, presented to enable compliance with applicable rules and guidance for non-GAAP presentations. Interestingly, the staff, in its comment, questions the “prominence” of the non-GAAP presentation in the context of the earnings release (noting that the staff provides less specificity in the portion of its comment relating to the MD&A overview).

This focus on prominence – to the extent the staff’s concerns relate to the MD&A overview – is worth further consideration in preparing MD&A disclosure. In this connection, query whether the staff – in questioning prominence – could be expressing a view that when management analyzes for investors the measures on which it focuses in managing the business, if management relies on non-GAAP measures, it necessarily must focus on (and explain) – with no less prominence – the corresponding GAAP measures.

Evolving Director Compensation

In this 23-minute podcast on, Russ Miller & Yonat Assayag of ClearBridge Compensation Group discuss the evolution of director compensation, including:

1. What is the upshot of the recent director compensation lawsuits?
2. Why haven’t boards been sued more frequently since there is the tricky circumstance that directors set their own pay?
3. How are companies reacting by changing their plans? (see their study: “S&P 500 Trends in Director Pay Limits“)
4. Are directors resisting the movement to amend their pay plans & place limits on their pay?
5. What is the role of the compensation consultant in helping directors set their own pay?

This podcast is also posted as part of my “Big Legal Minds” podcast series. Remember that these podcasts are also available on iTunes or Google Play (use the “My Podcasts” app on your iPhone and search for “Big Legal Minds”; you can subscribe to the feed so that any new podcast automatically downloads…

blm logo

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:

– Books & Records: Private Company Employees Get Smart
– Advancement of Legal Fees: “Fee on Fee” Awards
– NASAA: Proposed Policy on Electronic Offering Documents & E-Signatures
– SEC Enforcement: Financial Fraud Cases
– Internal Controls: Leads to Auditor Opinion-Shopping?

Broc Romanek

August 17, 2016

Whistleblowers: What Should You Do Now With Your Agreements? (Let’s Call It a Trend)

Here’s news from Scott Kimpel of Hunton & Williams: As described in this press release, the SEC brought yet one more settled administrative case yesterday against a public company – Health Net – based on confidentiality & waiver provisions contained in employee severance agreements – paying a $340k penalty. Like in the BlueLinx action brought last week, the SEC determined that these provisions violated the anti-whistleblower rules it adopted under Dodd-Frank – and again, there is no indication that the company actually sought to enforce the offensive provisions. Here’s the SEC order, which contains excerpts of the impermissible contractual language.

Toni Chion, an Associate Director in the SEC’s Enforcement Division, supervised both cases – which may suggest that the cases are the product of a broader enforcement sweep…

Sunshine Act: SEC’s Quorum Rule Helps to Keep Rulemakings at a Near Standstill

I love blogging about the Sunshine Act. As I’ve blogged before, the SEC has a quorum rule that has the end result that a single Commissioner can refuse to show up & effectively veto a Commission action when the Commission has three sitting Commissioners or less. Which is the case for the foreseeable future since the Senate has failed to confirm the two folks waiting to be confirmed since last year.

Here’s an excerpt from this recent WSJ article about how the quorum rules vary at the federal agencies:

Not all short-handed federal agencies are as hobbled by the restrictions of a 40-year-old open-government law as the top U.S. overseer of derivatives. The Commodity Futures Trading Commission’s big-sister agency, the Securities and Exchange Commission, is similarly short-handed, with three of five slots occupied. But the top markets cop gets around the government in the Sunshine Act hitch largely because the law allows regulators to come up with their own definition of a quorum—the number of commissioners required to be present for their agency to act on a matter.

So the SEC came up with a special “quorum” rule, which says no decision can be made without at least three members present—if three is the number of commissioners in office. If the agency drops to only one or two commissioners, that is enough for a quorum, the rule says.
That creates its own complexities: By simply not showing up to a vote, a dissenting commissioner can block the agency from acting altogether. This effective veto power is complicating what is likely Mary Jo White’s final year as SEC chairman and could leave undone a raft of rules on issues that tend to split the commission along party lines.

The Sunshine Act was meant to prevent regulators from crafting deals in proverbial smoke-filled rooms. The law prohibits a majority of commissioners at government agencies from “deliberating” on policy matters outside of a public meeting.

At the depleted CFTC—where two of the five slots on the commission have been vacant since August 2015 due to stalling in Congress—two sitting commissioners now make a majority. And because it is a blurry line between discussing policy and deciding it, the three commissioners largely avoid interacting directly. Commissioners rely on their aides to hammer out deals, slowing down deliberations by weeks.

Broc Romanek

August 16, 2016

Our New “Form S-8 Handbook”

Spanking brand new. By popular demand, this comprehensive “Form S-8 Handbook” covers the entire terrain, from share counting & filing fees to updating prospectuses & deregistration. This one is a real gem – 69 pages of practical guidance – and its posted in our “Form S-8″ Practice Area.

Study: Most Americans Get Their News From Social Media

This blog by Kevin O’Keefe spells out what I view as obvious: a Pew Research Center study that finds that 62% of all Americans get their news from social media. Think about how you receive your news for our community. I imagine much of it is blogs & LinkedIn right now – but podcasts, video, etc. will continue to be a growing force in how you learn the latest…

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:

– IPOs: Common SEC Comment Letter Issues
– Survey: 50% Evaluated Non-Management Strategies
– Directors Survey: 50% Evaluated Non-Management Strategies
– Women in C-Suite Boost Profitability
– XBRL Guidance & Validation Rules Anticipated Later This Year
– CEO Succession Planning Disclosure Seems to Matter

Broc Romanek

August 15, 2016

More on “Pay Ratio: Makes It Onto ‘Jeopardy’!”

Following up on my recent blog about how pay ratio & the SEC have made it onto the “Jeopardy!” TV show, a member pointed out that an entire category was devoted to the SEC last year. Scroll down to the bottom left corner of this Jeopardy board. Here are the five answers:

– The SEC’s original purpose was to give confidence to investors who lost money due to the crash of this year ($400)
– The SEC says this illegal type of trading involves “possession of material, nonpublic information about” a stock ($800)
– The SEC regulates this type of 5-letter material that allows shareholders to vote without being present ($1000; Daily Double!)
– Being misleading over a housing market investment cost this “group” $285 million when the SEC got wind of it ($1600)
– She brought down John Gotti; “You don’t wanna mess with Mary Jo”, said President Obama, in nominating this current SEC head ($2000)

Study: Highest-Paid CEOs Actually Run Some of the Worst-Performing Companies

Here’s the intro from this blog by Cooley’s Cydney Posner (which is related to this popular blog from last week):

As reported in the WSJ, a new study from corporate-governance research firm MSCI showed that, over the long term, there was a signficant misalignment between CEO pay and stock-price performance. The study looked at CEO pay relative to total shareholder return for around 800 CEOs at more than 400 large- and mid-sized U.S. companies over a decade (2006 to 2015).

For the companies surveyed, the study found, on average, that CEO pay and performance had an inverse relationship; according to the WSJ, “MSCI found that $100 invested in the 20% of companies with the highest-paid CEOs would have grown to $265 over 10 years. The same amount invested in the companies with the lowest-paid CEOs would have grown to $367.” In light of how deeply embedded the concept of performance-based pay is among compensation consultants, boards, proxy advisory firms and institutional holders, characterizing that result as counter-intuitive might be considered an understatement.

What accounts for these stunning results? The WSJ concluded that the study “results call into question a fundamental tenet of modern CEO pay: the idea that significant slugs of stock options or restricted stock, especially when the size of the award is also tied to company performance in other ways, helps drive better company performance, which in turn will improve results for shareholders. Equity incentive awards now make up 70% of CEO pay in the U.S.” Fortune, reporting on the same study, quotes MSCI to similar effect: “‘[W]e found little evidence to show a link between the large proportion of pay that such awards represent and long-term company stock performance. In fact, even after adjusting for company size and sector, companies with lower total summary CEO pay levels more consistently displayed higher long-term investment returns.’”

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:

– Hedge Fund Activism: CEO & CFO Turnover Spike
– IPOs: Common SEC Comment Letter Issues
– Directors Survey: 50% Evaluated Non-Management Strategies
– Women in C-Suite Boost Profitability
– XBRL Guidance & Validation Rules Anticipated Later This Year
– CEO Succession Planning Disclosure Seems to Matter

Broc Romanek