I haven’t personally made it to PLI’s annual Securities Law Institute in perhaps 6-7 years now after being a mainstay for 15 years or so. But my goal is to make it next year. I will be at the ABA Fall Meeting this Friday. Anyways, PLI has blogged some of the highlights from last week’s event, including:
I was very sad to hear that Jim Byrne, long-time corporate secretary for Bankers Trust – who retired a decade ago – has passed away. Here is his NY Times obit. Jim was one of the bright stars that drew me into the fold of the Society of Corporate Secretaries. When I was at the SEC, he arranged a trip for me and others to Wall Street to explain some of the mysteries of the process. A very kind man. My condolences to his family and friends.
Say-on-Pay: Now 60 Failures
I’ve added two more companies to our failed say-on-pay list on CompensationStandards.com for 2012 as Oracle and PMFG during the past week. We are now at 60 companies in ’12 that have failed to garner major support. Hat tip to Karla Bos of ING Funds for keeping me updated.
Compensation Standards Newsletter: Fall Issue Now Available
We have posted the Fall 2012 Issue of our Compensation Standards newsletter that contains practical guidance pulled from our successful pair of executive pay conferences. With Dave Lynn, Mark Borges and I wrapping up the 2013 Edition of Lynn, Borges & Romanek’s “Executive Compensation Disclosure Treatise & Reporting Guide”- all of the updated Chapters of the Treatise are already posted on CompensationStandards.com – we thought it was best to compile the Talking Points as our Fall issue since that guidance didn’t make it into the Treatise.
With the election behind us, the rumors over whether SEC Chair Schapiro is a short-timer will intensify. And when the SEC Chair changes, there often are other senior management changes.
Anyways, I’ve decided to create this list of the Directors for the Division of Corporation Finance, dating back to 1934 (before the Division had that name). This list surprisingly wasn’t easy to create as the SEC nor the SEC Historical Society maintains one. The list is repeated below (and includes their term as a Director):
1. Baldwin Bane (1934 – 1952)
2. Byron “Barney” Woodside (1952 – 1960)
3. Manuel “Manny” Cohen (1960 – 1962)
4. Edmund “Ed” Worthy (1962 – 1969)
5. Charles “Charlie” Shreve (1969 – 1970)
6. Alan Levenson (1970 – 1976)
7. Richard “Dick” Rowe (1976 – 1979)
8. Edward Greene (1979 – 1981)
9. Lee Spencer (1982 – 1984)
10. John Huber (1984 – 1986)
11. Linda Quinn (1986 – 1996)
12. Brian Lane (1996 – 1999)
13. David Martin (1999 – 2002)
14. Alan Beller (2002 – 2006)
15. John White (2006 – 2009)
16. Meredith Cross (2009 – present)
I saw a sneak preview for “Life of Pi” last night. Wasn’t expecting to like it given the previews and because I’m not a fan of 3-D. It was mind-blowing, both the story and the way the 3-D felt. I definitely recommend it. Look at this clip of the flying fish scene…
The Debate Over Cost-Benefit in Rulemaking Continues
Here is an article from the Washington Post analyzing the Senate debate over a pending bill that could force federal agencies to do even more cost-benefit analysis when conducting rulemaking…
What the Election Results Mean for Dodd-Frank?
Here is an article from the Washington Post analyzing the impact of the results on Dodd-Frank and all the rulemaking thereunder that still needs to get done…
Here’s news from Davis Polk’s Ning Chiu from this blog:
In early October, the American Petroleum Institute, Chamber of Commerce, Independent Petroleum Association of America and National Foreign Trade Counsel had filed a complaint and a petition for review in the D.C. Circuit Court of Section 13(q) of the Exchange Act, which under Dodd-Frank required the Commission to issue rules mandating reports by resource extraction issuers relating to payments made to a foreign government or the U.S. federal government in order to further the commercial development of oil, natural gas or minerals. The plaintiffs later submitted a motion requesting that the Commission stay the effective date of the final rules.
The SEC has now issued an order denying the motion to stay the implementation of the rules. The SEC adopting rules require issuers to comply for fiscal years ending after September 30, 2013, with each annual report due no later than 150 days after the end of the most recent fiscal year, such that the first reports would be due on February 28, 2014, at the earliest. This timing largely drove the Commission’s decision on this motion.
In denying the stay, the Commission indicates that they do not believe the plaintiffs have demonstrated imminent, irreparable harm, given that the court’s expedited briefing and argument schedule may determine the validity of the rules as soon as spring 2013. The Commission was also unpersuaded by the plaintiff’s claims of harm with respect to: (a) initial compliance costs to document the payment information required under the rule; (b) competitive disadvantage for new contracts; (c) detrimental effects on existing contracts where disclosure is prohibited; and (d) competitive harms resulting from competitors’ use of the disclosed information. In addition, the Commission found that the plaintiffs have not demonstrated a likelihood of success on the merits of their petition, based on the Commission’s view of the strength of the explanations set forth in the rule’s adopting release.
Corp Fin May Recommend Proposal Mandating Disclosure About Political Spending
The WSJ reports that Corp Fin is considering recommending a proposal that would mandate disclosure of corporate political spending and lobbying activities. According to the article, the idea for the proposal was triggered by a rulemaking petition submitted to the SEC last year by a group of academicians. The SEC has received over 300,000 comment letters on the petition. Currently, some companies voluntarily make disclosure about the uses of corporate resources for political activities, but there is no SEC requirement to do so, and most companies “are hesitant to disclose the donations, saying it is part of ordinary business operations.” The petitioners argued that the information is necessary to allow investors to hold corporations accountable, especially since the decision in Citizens United. In addition to the petition, there is also pressure on Corp Fin from the Coalition for Accountability in Political Spending, and one of the SEC commissioners has given a speech advocating rulemaking. According to the article, there have also been a record number of shareholder proposals related to corporate political spending and lobbying activities submitted in the 2012 proxy season.
PCAOB Makes Progress on Chinese Audit Access
I’ve blogged several times about the PCAOB’s challenges in gaining access to audits of Chinese companies listed on US exchanges (as well as blogged about the questionable audits of this companies). This Reuters article notes that there has been progress made in this area recently…
1. Who is responsible for managing your company’s delegation of approval authority process?
– Corporate secretary’s office – 25.0%
– Legal department – 27.5%
– Individual business units are responsible for managing their own process – 12.5%
– Finance – 30.0%
– Other – 5.0%
2. On what does your company base its delegation of authority structure?
– Monetary thresholds – 90.0%
-Transaction type (e.g. acquisition, capital expenditure, procurement, etc.) – 70.0%
– Strategic impact – 0%
– Business risk – 15.0%
-Time/resource commitment – 2.5%
– Other non-monetary considerations – 7.5%
3. Which best describes your company’s approach to delegation of authority?
– We have a single policy that uniformly applies to the parent company and subsidiaries – 57.5%
– We have a single policy with unique thresholds for the parent and/or particular subsidiaries – 25.0%
– We do not have a single policy and separately address delegation of authority at each subsidiary – 10.0%
– Not applicable as our company isn’t structured into parent and subsidiaries – 5.0%
– Other – 2.5%
September-October Issue of “The Corporate Counsel”
Last week, we wrapped up the September-October Issue of The Corporate Counsel and it includes pieces on:
– JOBS Act Update: SEC Proposes the General Solicitation Changes to Rule 506
– The Rule 144 Aggregation Tail–Donees’ Sales Don’t Affect Affiliate’s Form 144 Filing Obligation
-Three-Month Form 144 Look-Back Includes Sales Covered by Prior Form 144
– Standing in the Affiliate’s Shoes–Our Interpretive Request
– 2012 Year-end Tax Tip for Gifts of Stock and Other Charitable Giving
– Say-on-Pay Litigation 2.0
– The Staff’s Annual SLAB on Shareholder Proposals
– Nasdaq Research Keeps Getting Easier (and Better)
– Compensation Consultant Fee Disclosure–“Additional Services” Include Those Rendered to Compensation Committee
– Farewell to XBRL Limited Liability for LAFs
In the “Dodd-Frank Blog,” David Jenson of Leonard, Street & Deinard gives us some indication of what the comment letters submitted to the SEC look like regarding its general solicitation proposal. Interesting stats from the states – as well as anonymous rants and personal attacks – are among those in the comment letters. And as noted in this Business Insider article, even Sen. Carl Levin (D-MI) submitted a terse comment letter (see this Cooley news brief on the Senator’s letter)…
SEC Brings 1st Enforcement Action Against Emerging Growth Company
As noted in this NY Times article, the SEC recently brought an enforcement action against an emerging growth company that looks like was a complete fraud perpetrated by a disbarred lawyer. For those like me that thought Congress rushed the JOBS Act, “we told you so”…
Transcript: “Secrets of the Corporate Secretary Department”
We have posted the transcript for our popular webcast: “Secrets of the Corporate Secretary Department.”
– How Much – General Counsel’s pay reaches $1.4 million. The median total compensation for General Counsels at Fortune 1000 companies, as reported in Equilar’s 2012 Top 25 Survey, was $1,409,982. Chief executives’ pay calculated for 2011 among S&P 500 companies revealed a median total pay figure of $9.6 million.
– Growth Rate – General Counsel’s pay growth outpaces CEOs and CFOs in 2011. For the 136 General Counsels at Fortune 1000 companies that participated in both Equilar’s 2012 and 2011 Top 25 Surveys, median total compensation increased 2.4 percent in 2012 compared to the previous year. In 2011, the increase was 12.8 percent. That growth is more than the 6.2 and 8.9 percent growth of S&P 500 chief executive and chief financial officers over the same time frame, respectively.
– Industry Breakdown – Technology and Media CEOs replace Finance as highest paid industry. Companies in the Technology, Media, & Telecom industry ($1,679,000), Food & Beverage industry ($1,527,000) and Finance & Insurance industry ($1,521,000) paid their General Counsels more than any other industry. Last year, the Finance & Insurance industry had the highest pay. The lowest paid industries in 2012 were Retail & Consumer ($1,146,000) and Business Services ($1,161,000).
– GC vs. Others – The General Counsel role is replacing operational executives in importance. The number of General Counsels identified as named executive officers among the S&P 1500 index has grown from 494 individuals in 2007 to 591 individuals in 2011, a 20.9 percent increase. The importance of the legal position appears to be pushing out the operational executives from the five highest paid positions as the number of chief operating officers and vice presidents of operations have fallen by 13.3 percent, a decrease from 835 in 2007 to 724 in 2011.
– Equity Levels – Most GCs receive at least two types of equity vehicles. 49.9 percent of General Counsels received two unique award vehicles, while 28.6 percent received three unique vehicles. The most common vehicles are time-based stock, time-based options, and performance-based stock which were granted to 63.5, 61.0, and 62.7 percent of the General Counsels, respectively.
– Law School Matters? – Harvard tops all law schools with the most alumni serving in General Counsel roles. The top 3 law schools attended by Fortune 500 General Counsels were Harvard, Georgetown University, and the University of Virginia with 16, 12, and 9 alumni, respectively. Those Law Schools are ranked as number 3, 13, and 7 by U.S. News and World Reports’ Best Law Schools Rankings, respectively. The top ranked schools, Yale and Stanford, did not appear in the top 10.
– Gender Breakdown – More women serve as General Counsels than as Chief Executive Officers. Of the 175 General Counsels disclosed in public proxy filings, 148 were male and 27 were female (15 Percent). 3 percent of chief executive officers among S&P 1500 companies are female .
– Gender Pay Gap? – Male General Counsels receive 6.7 percent more pay than their female counterparts. The difference between median total compensation for male and female General Counsels at Fortune 500 companies was 6.7 percent, $2,263,577 for males and $2,120,764 for females.
Craziest Idea of All Time? “Human Capital Discussion & Analysis”
The SHRM’s proposal would need to be adopted by the American National Standards Institute and would require public companies to prepare a Human Capital Discussion & Analysis, along the lines of the CD&A and MD&A except the focus would be disclosure of almost every corporate cost associated with the hiring, retention, and training of employees and contingent workers, plus detailed information regarding how the company is organized and staffed. I’m not sure exactly how they would pressure the SEC to require this. The HR Policy Association has been keeping track of comment letters submitted on this, etc.
If you’ve interacted with anyone up in the NYC or New Jersey areas, you know how bad it still is for those impacted by Hurricane Sandy. Late yesterday, the SEC posted the following announcement:
In a continuing effort to provide assistance to individuals and entities attempting to comply with filing and other obligations under the federal securities laws in the aftermath of Hurricane Sandy, the SEC today said it is preparing relief measures that would extend filing deadlines for those affected by Hurricane Sandy and its aftermath.
On October 29, 2012, the Commission posted notice on its website that it understood filers may have difficulty making filings and that the staff would handle requests for filing date adjustments on a case-by-case basis. SEC staff are preparing relief measures that are expected to include extensions of filing deadlines for any filing due during the period from October 29, 2012 to November 20, 2012 for publicly traded companies, investment companies, investment advisers, other persons with filing obligations, accountants, brokerage firms, and transfer agents, among others. It is anticipated that the deadline for any such filing would be extended to November 21, 2012, and the scope of the relief measures would extend to any individual and entity with a filing obligation that cannot file timely due to Hurricane Sandy and its aftermath. The staff will also consider requests for additional relief on a case-by-case basis.
The 2010 Supreme Court decision in Citizens United unleashed political spending by corporations and the 2012 elections are expected to be the most expensive ever. The Center for Political Accountability (CPA) and The Zicklin Center for Business Ethics Research recently issued their 2nd Annual Index of Corporate Political Accountability and Disclosure. The Index analyzes the manner in which S&P 200 companies are navigating corporate political spending after Citizens United based on the practices and policies of these companies as publicly disclosed on their websites. The Index sponsors believe that disclosure of corporate spending gives investors the facts needed to evaluate whether such spending is in the best interests of shareholders, identifies possible sources of risk and helps ensure meaningful and effective board oversight.
Highlights of the 2012 Index include:
– Many companies have increased their level of disclosure; of the 88 companies studied both in 2011 and 2012, 85% improved their overall scores for political accountability and disclosure, with the most improved, Costco, going from a score of 3 (out of 100) in 2011 to 85 in 2012;
– Almost half (47%) of the companies studied reported their contributions to candidates, parties and “super-PACS,” 11% reported that they make no such contributions and 42% made no disclosures;
– More than half (57%) provided a full political spending policy on their website, 32% gave brief policy statements and 11% made no such disclosures;
– More than half (56%) reported that the board of directors regularly oversees political spending, 48% reported that a board committee regularly reviews company policy on political spending and 46% said that a board committee reviews company political expenditures;
– Smaller companies were less likely to provide full disclosure of political spending and board oversight;
– The highest scoring companies (based on a scale of 0 to 100) were Merck (97), Microsoft (94), AFLAC (93), Gilead (92) and Exelon and Time Warner (each tied with 88); and
– 18 companies were tied for last with a score of 0.
After all the data is in, we can expect that the amount of corporate political spending in 2012 will surpass all previous records and that there will be continued calls for disclosure. Accordingly, we expect that corporate governance “best practices” will soon require public companies to voluntarily disclose on their websites or through their SEC reports, information on their policies on political contributions and the amounts of such contributions. Companies not presently making such disclosures should consider “electing” to make them in the future.
Wow! Did you see this press release from DTC? Haven’t seen much about it online at all, just this short blurb from the Financial Times:
Trillions of dollars of stock certificates are feared ruined after Hurricane Sandy flooded a vault at the Depository Trust & Clearing Corp, the Wall Street-owned organization that manages important parts of the U.S. trading infrastructure. The DTCC houses 1.3m paper certificates for shares, bonds and other financial instruments, including foreign securities, at the organization’s headquarters in Manhattan’s financial district.
As businesses in the affected areas continued efforts to pump out flooded basements, the DTCC admitted on Thursday that its vault remained underwater and officials had still not been able to assess the damage. “The building itself remains inaccessible and will be until power is restored and an on-site health and safety inspection can be completed,” it warned in an email alert to its clients. It has suspended processing of physical certificates for an indefinite period.
Adding to the confusion, the DTCC also said that it was still trying to track down certificates that were in the mail over the period of the storm. Couriers are experiencing disruptions of their own and could take several days to reroute deliveries to DTCC’s alternative sites. A spokeswoman added that it had electronic records of all the certificates, which could be reissued. “Hindsight is 20/20. We have taken a lot of precautions, in terms of protection both for the security of our systems and of our records, and we have a full inventory of the certificates, as well as a robust recovery plan.”
DTCC is used by the financial industry for clearing and settling trades, and it houses stock certificates so that they do not usually have to be posted around the country from investor to investor. The vast majority of trades are now recorded electronically without certificates moving at all. The organization said that it switched its systems to back-up servers and was dealing with electronic trades as normal out of offices in Dallas, Texas, Tampa, Florida and Brooklyn, New York. More than 1,000 of its New York employees are working from home.
In recent years, the DTCC has spearheaded an effort to encourage electronic-only share and bond issuance, so the proportion of securities that exist in paper form has declined. The organization has further encouraged the process by encouraging “dematerialization”, where certificates are converted to electronic format. In a white paper earlier this year, it said that it cost the financial industry almost $300m to replace $16 billion of certificates that disappeared in the collapse of the World Trade Center in 2001.
A friend claims that stock certificates are printed on special paper that can be laundered – meaning I guess the damage would be minimal. But that doesn’t seem to come out in DTC’s press release (here is the latest on DTC’s operations).
Disney’s Proxy Access Shareholder Proposal
Recently, Disney submitted a no-action request in response to a shareholder proposal on proxy access. It looks like the proposal came from a London-based firm called Legal and General Assurance (Pensions Management) Limited, but ultimately from Hermes Equity Ownership Services (the letter says Hermes is the “client”) which is a European-based fund again that’s active. Maybe this proposal preempted one that I thought Disney got jointly from CalPERS and three other funds…
Meanwhile, Jim McRitchie reports that the United States Proxy Exchange (USPX) has suspended its central activities. USPX was a leader in filing shareholder proposals related to proxy access last season.
Atlas’ Networking Potential
In this podcast, Dave Chun of Equilar explains what Atlas is and how it can help you leverage professional networks (you can try a free trial), particularly for boards, including:
– What is Atlas?
– What was your goal in creating it?
– Any surprises so far since it went live?
Yesterday, I blogged about how Hurricane Sandy could impact your disclosures. Here is more on that topic from Goodwin Procter’s John Newell, particularly for your next Form 10-Q:
Form 10-Q Disclosure and Sandy
Many of our public company clients are preparing to file their quarterly reports with the SEC. This message highlights the possibility that “Superstorm” Sandy is likely to affect these clients in a variety of ways. Although most companies have only just begun preliminary action to assess the impact of the storm, public companies will want to consider possible MD&A disclosure of the potential effects of Sandy, as well as related disclosure and other securities law issues. As a starting point for evaluating these matters, the SEC disclosure principles and related issues that should be considered include the following:
1. MD&A Speaks as of the Filing Date
The SEC has made clear that MD&A must discuss and analyze a company’s financial condition and results of operations, including any known facts, trends or uncertainties, as of the date of filing, rather than the end of the fiscal period covered by the report.
Public companies should therefore consider including MD&A disclosure about the potential effects of Sandy in their Form 10-Q reports for the quarter ended September 30, 2012 if the report is filed after the date(s) on which Sandy affected the company’s business, properties and/or financial status. Note that “risk factor” or other cautionary disclosure alone may not be adequately responsive to SEC requirements for an event that has already happened, even though the impact is currently unknown or uncertain. To the extent that the company’s disclosure includes estimates or other quantitative information, cautionary disclosure about the possibility of that information changing as more facts develop should be considered.
2. Two-Step MD&A Disclosure Test
The SEC has also made clear that the required test for MD&A disclosure of known facts, developments, trends, demands, commitments, events or uncertainties is the test first announced in the 1989 MD&A Interpretive Release. Where a trend, demand, commitment, event or uncertainty is known, management must make two assessments:
First: Is the known trend, demand, commitment, event or uncertainty reasonably likely to come to fruition?
Second: If management cannot determine that the trend, demand, commitment, event or uncertainty is not reasonably likely to occur, management must evaluate materiality objectively on the assumption that it will come to fruition.
Disclosure is required unless management can determine that it is not reasonably likely to have a material effect on the company’s financial condition or results of operations. This test, rather than the Basic v. Levinson materiality test (balancing of probability and magnitude), should be used for this MD&A disclosure.
Since Sandy is for nearly all companies a historical fact at this time, most companies will need to consider the potential effects of Sandy using the second test and include appropriate disclosure in their MD&A disclosure.
Because of the very short interval between the date of the storm and the due date for Form 10-Q reports, it is likely that many companies will be unable to make definitive or specific statements about the effects of Sandy. Among other things, the internal and external resources (such as engineers and insurance adjusters) required to begin a definitive assessment are likely to be subject to extremely limited availability for some time. As a result, it may be difficult for companies to establish reasonably accurate estimates of damages and/or uninsured losses; even approximate estimates or ranges may be difficult at this point and may take significant time to establish. These factors should be considered in drafting any disclosure relating to the effects of the storm.
Although the discussion above focuses on potential disclosure of adverse impacts, some public companies may experience increased demand for their products or services, which could lead to disclosure about possible favorable material effects (for example, building supply, construction and engineering/remediation companies; manufacturers of switches/signals/controls for transit systems; manufacturers of transformers and other components for the power grid). Other companies may benefit from increased consumer spending to replace damaged items, resulting in unexpected positive business developments, while companies whose business relies on discretionary consumer spending (for example, clothing) may see unanticipated negative business developments as discretionary consumer spending is redirected to spending related to storm damage. Each company will need to evaluate the need (and content) of potential disclosure based on its specific facts.
3. Form 8-K Item 2.02 Filing Requirement
Companies should be aware that the reporting requirements of Form 8-K Item 2.02 are triggered by the disclosure of material non-public information regarding a completed fiscal period. If a company releases additional or updated material non-public information regarding a completed fiscal period (for example, if the company issues a press release updating previously-released information relating to a completed fiscal period), that release will trigger an additional Item 2.02 filing requirement.
4. Other Possible Issues
A. Insider Trading. Companies should remember that to the extent that material information develops after the date on which the Form 10-Q is filed they may need to evaluate whether the company’s insider trading policy and applicable SEC insider trading requirements would affect the ability of insiders to buy or sell the company’s securities.
B. Guidance and Projections. Companies should also be aware that the effects of Sandy may cause guidance they give now or have given before to become incorrect. In appropriate cases, companies should consider highlighting the fact that their guidance does not include any estimates for the effects of Sandy. If companies choose to include an estimate for these effects, they should be alert to the possibility that it may be appropriate (or in some cases necessary) to update that guidance as more facts become known.
How to Request a Filing Date Adjustment for a Late Filing
Second Circuit Addresses Insider Trading Duty under Misappropriation Theory
In law school, my favorite part of the securities law class dealt with the emerging misappropriation theory. Here is a blog from David Smyth about the latest case, dealing with tipping by those that conducted due diligence for a possible deal…
A few SEC filings made this week reflect the effect of Hurricane Sandy ranging from postponing or cancelling quarterly earnings calls to extending the deadline of a tender offer. In addition, in response to Hurricane Sandy, some companies qualify their guidance in earnings press releases by excluding losses due to the impact of the hurricane if a significant portion of the company’s revenues is derived from the areas affected by Hurricane Sandy.
Some forward-looking statements in earnings press releases reference the impact of Hurricane Sandy as one of the risks and uncertainties which could cause actual results to differ materially from those projected.
While we are in the midst of the 10-Q season, companies affected by Hurricane Sandy should also evaluate whether they need to include in Form 10-Q a risk factor related to the potential impact of the hurricane on their results of operations and financial position.
ISS Extends Policy Comment Deadline to November 9th
ISS has extended its deadline to submit comments on its draft ’13 policies to November 9th.
Our November Eminders is Posted!
We have posted the November issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Conflict Minerals Poll: Are You Using a Process Design Consultant?
Meanwhile, we had an interesting query in our “Q&A Forum” yesterday (#7397) about whether companies were hiring consultants to help them sort out the design & processes necessary to capture the conflict minerals data. I posted an answer but thought I would poll our readership since this wasn’t in our “Quick Survey of Conflict Minerals” that will wind up soon…