Monthly Archives: January 2014

January 31, 2014

Our New “Regulation FD Handbook”

Spanking brand new. This comprehensive “Regulation FD Handbook” provides a heap of practical guidance about how to deal with a topic that you deal with regularly. This one is a real gem – 113 pages of practical guidance.

The Lead Up to Halliburton! Amicus Briefs & More…

As this Akin Gump blog notes, there is no shortage of arguments from the defense bar in Halliburton v. Erica P. John Fund (No. 13-317), a Supreme Court case that may be the most significant securities decision to come out of the Court in decades. In the last few weeks, the Halliburton Petitioners’ merits brief was followed by 11 amicus curiae briefs, each arguing that the fraud-on-the-market presumption of reliance should be overturned for a myriad of reasons.

Here are all filings for this case, posted on the SCOTUS Blog. Here’s a blog by Lane Powell’s Claire Loebs Davis on the case’s status – and Professor John Coffee weighs in on this blog.

Transcript: “Executive Compensation Litigation: Proxy Disclosures”

We have posted the transcript for the recent webcast: “Executive Compensation Litigation: Proxy Disclosures.”

– Broc Romanek

January 30, 2014

Shareholder Proposals: Chevedden Sued Over “Interim Vote Tallies” Proposal

Over on the “Proxy Season Blog,” I blogged a few weeks ago about a new type of shareholder proposal seeking “enhanced confidential voting” requirements that would go beyond current ballot-secrecy rules and prevent companies from seeing running tallies, except in some cases such as picking directors. This article notes that John Chevedden and Jim McRitchie have filed versions of a similar proposal submitted to Centurylink at half a dozen companies or so.

I noted that this turns the interim vote tally debate on its head as these “confidential policy” proposals seek to prevent companies from seeing interim tallies. The debate last year centered on whether shareholder proponents can gain access – the ability for companies to have access was never in doubt. I also gave an update on how Broadridge is still debating its current policy.

The new news is that Omnicom Group has sued John Chevedden in US District Court – SDNY over one of these proposals, challenging the proposal on 4 exclusion bases: violates New York law, vagueness, materially misleading and is ordinary business. Here’s the complaint – and here’s the notice to Corp Fin that the company will sue rather than go through the no-action process. A growing trend as I have blogged before…

Survey Results: Deferred Compensation Election Timing

Here are the latest survey results about deferred compensation election timing:

1. Do you have a deferred compensation plan, which includes company stock, for outside directors?
– Yes – 77%
– No – 23%

2. Do you have a deferred compensation plan, which includes company stock, for executives?
– Yes – 48%
– No – 52%

3. Our deadline for allowing outside directors to make stock-based elections for the following year, if your fiscal year-end is December 31 is:
– October 1 – October 31 – 11%
– November 1 – November 15 – 5%
– November 15 – November 30 – 16%
– December 1 – December 15 – 21%
– December 15 – December 31 – 37%
– Earlier in year – 11%

4. Our deadline for allowing executives to make stock-based elections for the following year, if your fiscal year-end is December 31 is:
– October 1 – October 31 – 15%
– November 1 – November 15 – 0%
– November 15 – November 30 – 23%
– December 1 – December 15 – 15%
– December 15 – December 31 – 23%
– Earlier in Year – 23%

5. Do you allow your outside directors to make such an election near year-end for the following year, when they likely have access to year-end earnings projections and results?
– Yes – 50%
– No – 50%

6. Do you allow your executives to make such an election near year-end for the following year, when they likely have access to year-end earnings projections and results?
– Yes – 43%
– No – 57%

Please take a moment to anonymously participate in our “Quick Survey on Conflict Minerals” and “Quick Survey on D&O Questionnaires and Director Independence.”

Transcript: The Latest Developments: Your Upcoming Proxy Disclosures”

I have posted the transcript for the recent webcast: “The Latest Developments: Your Upcoming Proxy Disclosures.”

– Broc Romanek

January 29, 2014

Governance Ratings: ISS Gives Details on QuickScore 2.0

A few days ago, ISS posted the technical document for QuickScore 2.0. Companies now have until the end of February 7th to verify their data.

ISS will release its new ratings on February 18th, including them in proxy research reports issued to its clients. While the prior generation of QuickScore ratings remained static between annual meetings, ISS now will update its ratings on an on-going basis throughout the year. Here are more details about QuickScore 2.0 from Davis Polk and Wachtell Lipton

Transcript: “The ‘Former” Corp Fin Staff Speaks”

We have posted the transcript for our recent webcast: “The ‘Former” Corp Fin Staff Speaks.”

Webcast: “How to Sell a Division: Nuts & Bolts”

Tune in tomorrow for the webcast – “How to Sell a Division: Nuts & Bolts” – during which Bass Berry’s Page Davidson, WilmerHale’s Stephanie Evans and Kaye Scholer’s Joel Greenberg will walk us through the nuts & bolts of selling a division.

– Broc Romanek

January 28, 2014

Thoughts on the SEC’s Coming Disclosure Reform: A Starting Point

I have more than ten cents on this topic – so I will roll out my thoughts in a series of blogs. This first one deals with how this project should start out. As drafters of disclosure, we tend to be focused on the endgame first – how to change the existing disclosure requirements.

But to make this project useful, I think it’s better to pretend that we are operating with a clean slate. What if there were no disclosure requirements yet? So we would be adopting them for the first time. In my mind, these would be the three issues that should be dealt with in that scenario – these are similar to the 4 issues identified in the SEC’s recent Regulation S-K study:

1. What would investors like to made aware of about a company before they invest (or as existing investors deciding whether to sell)?
2. How should investors be made aware that disclosure has been made? Or in what ways should companies “deliver” that disclosure (ie. make it available)?
3. In what ways should companies “file” their disclosure so that investors can rest assured that it really is the company that made the disclosure? And perhaps this is also necessary for liability purposes?

If these are the three issues that should be considered from the outset, the length of a disclosure document really doesn’t come into play except as a consequence of the higher level decisions that are made. And perhaps as a function of #2 above if there are concerns about nuggets being buried. Given that a tweet of 140 characters might well have more influence on a company’s stock price than a Form 10-K – and the fact that few investors read disclosure documents linearly – I do think a primary focus on document length is misguided (although I also don’t believe the impact on stock price is the true measure of a disclosure’s value – but it is a factor). Let me know what you think. I’ll dig deeper in future posts…

Disclosure Reform: SEC Commissioner Gallagher Weighs In

Recently, SEC Commissioner Gallagher delivered this speech on disclosure reform. His thoughts seem to be:

– Do disclosure reform in pieces rather than try to overhaul it all at once
– Eliminate non-material disclosure requirements
– Reduce # of Form 8-K triggering events
– Reduce redundancy by providing guidance when disclosure is not needed
– Streamline proxies & registration statements with more incorporation by reference
– More data tagging like XBRL
– Use of core filing for one-time disclosures
– Only provide significant interpretive guidance from Commission level, not Corp Fin

Reg Flex Act: CEO/CFO Certifications Under Review for Smaller Companies

Last week, the SEC published a list of rules required to be reviewed 10 years after their adoption for their impact on smaller companies in accordance with the Regulatory Flexibility Act. This list includes rules from 2002, so you have CEO/CFO certifications under Section 302 of Sarbanes-Oxley and mandated EDGAR for foreign private issuers on the review list. Comments can be submitted within 30 days after publication in the Federal Register…

Webcast: “Alan Dye on the Latest Section 16 Developments”

Tune in tomorrow for the webcast – “Alan Dye on the Latest Section 16 Developments” – to hear Alan Dye of and Hogan Lovells discuss the most recent updates on Section 16, including new SEC Staff interpretations and Section 16(b) litigation.

– Broc Romanek

January 27, 2014

Corp Fin Issues Three “Unbundling” CDIs

Since last year’s Apple court decision on unbundling (and unbundling litigation has spilled over into other contexts), Corp Fin has focused more on this tricky topic through the comment process. On Friday, Corp Fin issued these three CDIs to clarify its unbundling positions under Rule 14a-4(a)(3):

– Question 101.01: charter amendment reducing dividend rate of preferred holders and extending maturity date

– Question 101.02: charter amendment changing common stock’s par value and eliminating provisions for preferred stock, as well as declassifying the board

– Question 101.03: omnibus plan amendment increasing shares reserved for issuance, increasing max amount payable to a single employee, adding restricted stock to types of award eligible to be granted and extending plan’s term

SEC Issues Auditor Independence Section 21(a) Report In Wake of KPMG Settlement for Violating Rules

On Friday, the SEC reached a settlement with KPMG for violations of its auditor independence rules, with KPMG agreeing to pay $8.2 million without admitting guilt. Here’s a Bloomberg article entitled “Is the SEC Going Easy on General Electric?” that notes “the SEC didn’t name the clients, which is odd, because the agency has in other auditor-independence cases.”

At the same time, the SEC issued a Section 21(a) report about the scope of the auditor independence rules, cautioning auditors that they’re not permitted to loan their staff to audit clients in a manner that results in the staff acting as employees of those companies. This reflects the fact pattern of the KPMG case.

Webcast: “Exclusive Forum Bylaws: What Now?”

Lot of caselaw developments in the exclusive forum bylaws arena! Now what should you do? Tune in tomorrow for the webcast – “Exclusive Forum Bylaws: What Now?” – featuring Wilson Sonsini’s David Berger, Chevron’s Lydia Beebe, Davis Polk’s Ning Chiu and Bill Kelly and Wachtell Lipton’s Ted Mirvis.

– Broc Romanek

January 24, 2014

Corp Fin Issues Rule 506 Transitional Guidance

Yesterday, Corp Fin issued two new CDIs related to Rule 506 offerings commenced prior to September 23, 2013, the effective date of the new Rule 506(c) exemption. This blog by Blank Rome’s Melissa Murawsky summarizes them…

By the way, the Federal Register finally published the SEC’s Reg A+ proposing release yesterday…

Big Four Auditors Lose Initial Work Papers Decision In Chinese Affiliates Case

Two days ago, an administrative law judge issued this 112-page initial decision, sanctioning the Chinese affiliates of the Big Four auditors for willfully refusing to produce their work papers to the SEC related to China-based companies. For this violation of Section 106 of Sarbanes-Oxley, the sanctions included censure and a six-month total practice ban. If you read the initial decision, you will see that the ALJ was quite harsh in its commentary of the Big 4 affiliates (eg. “Such behavior does not demonstrate good faith, indeed, quite the opposite – it demonstrates gall.”).

The Chinese affiliates announced that they plan to appeal the decision to the SEC – which will conduct a de novo review – and then federal court if they lose again. The sanctions could have the effect of keeping any Chinese company from the US markets. The ALJ’s sanctions are not effective pending determination of the anticipated appeal. The timing of all this is explained in this Skadden memo

Here’s an interesting Economist article that challenges current thinking about accountants, including a chart about the likelihood of auditors being replaced by computers!

Nasdaq Gets Regulatory Approval for “Nasdaq Private Market”

Here’s news from this blog by MoFo’s Nilene Evans:

In March 2013, Nasdaq and SharesPost announced Nasdaq Private Market (NPM), a joint venture intended to create a preeminent marketplace for private growth companies. The road to full regulatory approval has been long but in January 2014, FINRA approved the registration as a broker-dealer of NPM Securities, LLC, a Nasdaq OMX Group brokerage unit, a necessary first step to the launch of NPM itself.

In its broker-dealer FINRA profile, NPM Securities said that it is in “the process of registering with the SEC as an alternative trading system assisting in the matching of buyers and sellers in primary and secondary offerings of the securities of privately held companies.” The profile also revealed that NPM is owned 75% by Nasdaq OMX and the balance by SharesPost.

– Broc Romanek

January 23, 2014

The Least Candid Companies: A Ranking

Here is an interesting blog that describes the “2012 Rittenhouse Rankings Culture & Culture Survey,” which is a ranking of the transparency of the annual letters to shareholders from the CEO that are included in glossy annual reports. I didn’t dig into the criteria – so I can’t vouch for the value of the rankings. But I can point out the importance of usability – and storytelling – when drafting disclosure, as recently covered in this blog (and related video)

Congress: SEC’s Tech Budget Slashed in Half

Per this Washington Post article, Congress approved the SEC’s budget with a $50 million reduction in the agency’s funding for technology – this will force the SEC to scale-back its project for monitoring real-time trading data and its review of company financial statements. Ah, the life of an “independent agency”…

According to this Bloomberg article, one rogue employee in the SEC’s NYC office has caused the SEC to examine the stock holdings of 3400 staffers for compliance with the agency’s ethics rules…

January-February “Special” Issue: Deal Lawyers Print Newsletter

This January-February Issue of the Deal Lawyers print newsletter was just sent to the printer and is a special “looking forward, looking back” issue which includes 9 articles from some of the most prominent members of the M&A bar:

1. 10 Most Influential M&A Developments of this Millennium
– by Barbara Borden & Jennifer Fonner DiNucci
2. Where Are All the Women M&A Dealmakers?
– by Diane Holt Frankle
3. Modernization of Corporate Law in the Fly-Over States
– by Phil Garon
4. A New Era for Management Compensation in Change-in-Control Transactions
– by Michael Katzke & Henry Morgenbesser
5. The Future of Mergers
– by Marty Lipton
6. The Impact of the Internet on Deal Lawyering: Some Reflections
– by Brian McCarthy
7. Important Trends in Cross-Border M&A for US Professionals: 1990-2013
– by Phillip Mills
8. Special Negotiating Committees & the Delaware Bar
– by Gil Sparks
9. Other People’s Money: The Evolution of Dealing with Financing Execution Risk in LBO & Strategic Mergers
– by Robert Spatt

If you’re not yet a subscriber, try a 2014 no-risk trial to get a non-blurred version of this issue on a complimentary basis.

– Broc Romanek

January 22, 2014

ISS Seeks Comments on Long Range Policy Changes

First mentioned at our executive pay conference last September, ISS has now opened a new consultation period on approaches to longer term policy changes beyond 2014. This is the first year ISS is enacting this type of method for seeking market feedback – with the goal of shifting its process from a seasonal to a continual focus on policy development. The consultation period closes on February 14th. Direct comments to

Here are the proposals to consider:

Director Tenure (U.S. and Canada)
Director Independence (U.S.)
Role of Company Performance in Director Evaluation (Japan)
Independent Chair Shareholder Proposals (U.S.)
Auditor Ratification (U.S.)
Equity-Based Compensation Plans (U.S. and Canada)
Share Issuances without Preemptive Rights (Continental Europe and Asia)

Will the SEC Re-Propose Resource Extraction Rules? Maybe

This recent Reuters article discusses the chances of the SEC re-proposing the resource extraction disclosure rules that got struck down in court last year. SEC Commissioner Gallagher – who had voted against the rule before it was struck – says he could support a scaled-back rule if it wasn’t burdensome.

Conflict Minerals: SEC Posts Form SD

A week ago, the SEC posted its Form SD for conflict minerals reporting…

– Broc Romanek

January 21, 2014

New Compensation Committee Requirements: NYSE’s Updated Annual Written Affirmation

Last Thursday, the NYSE updated its “Annual Written Affirmation” to reflect its new compensation committee independence requirements. As noted on this chart, the new form is effective for listed companies with annual meetings after January 15th.

Center for Audit Quality Executive Director Cindy Fornelli writes that the Audit Committee Collaboration recently issued a “Call to Action” for audit committees to voluntarily improve their disclosures…

New Compensation Committee Requirements: Nasdaq’s Due Date Interpretation

Here’s news from Troutman Sanders’ Susan Ancarrow:

In connection with the compensation committee certifications required to be submitted in 2014 for Nasdaq companies, we spoke with someone at Nasdaq and confirmed that the filing deadline of “no later than 30 calendar days after the company’s first annual meeting” is intended as the outer limit of when the certification is due and does not mean that the certification may only be filed after the annual meeting is held. If a company is in position to make all of the certifications prior to its annual meeting, the company may submit the certification to Nasdaq prior to the annual meeting.

Webcast: “Pat McGurn’s Forecast for 2014 Proxy Season”

Tune in tomorrow for the always entertaining webcast – “Pat McGurn’s Forecast for 2014 Proxy Season” – when Bob Lamm and UnitedHealth’s Dannette Smith join Pat McGurn of ISS and the proxy season expert to recap what transpired during the 2013 proxy season and what to expect for 2014. Here’s the “Course Materials” that you should print in advance…

– Broc Romanek

January 17, 2014

Survey Results: Usable Disclosure for Proxy Statements

Here are the latest survey results about usable disclosure for proxy statements:

1. For our next proxy season, the process of drafting our proxy statement:
– Will remain the same and already is drafted with “story telling” – 17%
– Will remain the same and we don’t strive to tell stories – 34%
– Will change because we want to tell more stories – 14%
– Will change but it won’t include more stories – 20%
– Not sure at this time – 14%

Please take a moment to anonymously participate in our “Quick Survey on Conflict Minerals” and “Quick Survey on D&O Questionnaires and Director Independence.”

The Risks of Title Inflation

A while back, I blogged about “executive officer” determinations and I ran a poll about how a title of “Chief Legal Bear” would make you feel. The flip side of title determinations is the risk of title inflation. This blog from RacetotheBottom talks about a recent court case that illustrates the risks handing out titles that have little to do with actual job responsibilities.

Director Diversity Initiative

In this podcast, Professor Lissa Broome discusses:

– Why do you think that solving board diversity problems hasn’t progressed much this past decade?
– Are there certain types of companies that seem to have the most diversity problems?
– What is the “Director Diversity Initiative”?
– Have you experienced any positive results as the result of your Initiative?

– Broc Romanek