Monthly Archives: July 2014

July 17, 2014

Proxy Season: ISS’ Preliminary Stats

Here is a blog by Davis Polk’s Ning Chiu:

According to the ISS US preliminary postseason update, the win rate for dissidents, measured by whether they won at least one board seat through negotiations or a vote, was 59% at 22 contested elections in the first half of 2014, compared to 24 contests with a 68% success rate by June 2013. The size of the target continues to increase, as seven of the companies had market capitalizations greater than $1 billion. Notable for 2014 were what ISS dubbed “hydra-headed activist challenges,” where multiple dissidents targeted the same company but with competing visions, including at Darden and Sotheby’s.

Boards were also the focus through 13 “vote no” campaigns. CtW urged investors to vote against nine companies, including several fast food restaurants and retail chains, by invoking the ongoing debate over minimum wage and income inequality, leading to a failed say-on-pay vote at Chipotle. New York City funds and CalPERS blamed board members on Duke Energy’s regulatory policy committee for a coal ash spill earlier in the year.

Board elections remained staid affairs generally, however, as directors received 96% average support. Only 34 nominees at 21 companies in the Russell 3000 did not obtain more votes in favor than withheld or against, primarily for failing to respond to majority-supported shareholder proposals or majority opposition to a director in prior years. ISS notes that only one of these director has since stepped down, after poor attendance triggered a resignation due to the company’s majority voting policy. Not attending at least 75% of meetings led to eight directors not receiving majority votes, while six directors were criticized for adopting a poison pill without shareholder approval. As say-on-pay continues to take the pressure off compensation committee members, only one such director did not receive majority support after facing several years of compensation issues.

Environmental and social shareholder proponents dominated the filed resolutions for inclusion in proxy statements, with a 15% increase this year for a total of 460 proposals, surpassing governance topics for the first time since the 1980s. 30% were withdrawn through settlements and the SEC no-action letter process excluded about 13%. Corporate political activity resolutions, usually seeking more disclosure, dominated.

Requests for independent chairs comprised the bulk of governance proposals, but passed at only 4 companies. The lack of support obscures the fact that the practice is gaining increased acceptance, as 26% of S&P 500 companies are now led by independent chairs, compared to 20% two years ago. Predictions for widespread proxy access proposals continued to prove false for 2014, as only 13 were voted on. Six of the nine proposals that allowed shareholders owning 3% or more to submit nominations passed.

Should Companies Scrap Earnings Calls?

Here’s an interesting blog by Ezra Marbach – based on the findings of this study – about whether companies should just go ahead and do away with their earnings calls if they don’t bother to do a Q&A at the end of the calls…

July-August Issue of “The Corporate Executive”

We have mailed the July-August Issue of The Corporate Executive, and it includes pieces on:

– Parsing the House Ways and Means Proposal for Tax Reform
– Regulation FD & Dealing with the Press
– Tax Treatment of Stock Awards Upon Death
– Maximizing Flexible Share Pool Efficiency
– Modernizing Rule 701

Act Now: Get this issue rushed to when you try a “Half-Price for Rest of ‘14” No-Risk Trial to The Corporate Executive.

– Broc Romanek

July 16, 2014

Conflict Minerals: How Do The 1st Batch of Form SDs Look?

In this podcast, Lawrence Heim of Elm Consulting describes how the first batch of Form SDs look and explains how he uses a set of 20 criteria to assess them, including:

– How many Form SDs have you reviewed so far?
– What type of analysis do you conduct when you review them?
– What have you found during your review?
– Any surprising trends?

Also check out Lawrence’s blog entitled “Tulane’s 2011 Conflict Minerals Cost Study Proving Accurate” – and this PwC review of Form SDs of the 50 largest companies. And also read Steve Quinlivan’s blog entitled “GAO Says Commerce Department Has Not Complied With Conflict Minerals Obligations.”

Conflict Minerals: Does Corp Fin Have a Position on Non-Metallic Forms of Tin?

Does Corp Fin believe that non-metallic forms of tin are not conflict minerals because they are “chemically distinct from the metal derivatives themselves”? I’ve read about Corp Fin’s informal position on non-metallic forms of tin (answering this question “yes”) – and been asked about it many times. Since I haven’t seen anything in writing from Corp Fin nor heard about a SEC Staffer publicly addressing it, I’ve been hesitant to consider it a Corp Fin position.

As noted in Jill Radloff’s blog (and as told by Elm Consulting), Keller and Heckman has posted this letter – in the “comments” section on the SEC’s conflict minerals rulemaking page – documenting discussion with the Staff. How authoritative is that? That’s unclear – and that’s why Keller and Heckman posted the letter. They ask the SEC to come out with something in writing…

Corporate Inversions: The Basics

Are you scared to go to a cocktail party because you will get hammered with questions about inversions once they find out you are a corporate lawyer? People are going crazy over companies avoiding paying taxes (and rightfully so). This Allan Sloan column from the Washington Post blasts them, this WSJ blog explains them – and this blog embeds a short WSJ video that summarizes them. I really like this NY Times article entitled “Motivating Corporations to Do Good” that came out today..

– Broc Romanek

July 15, 2014

Our New “SEC Filing Fees Handbook”

Spanking brand new. This comprehensive “SEC Filing Fees Handbook” covers a topic that few are expert at – but yet those that do deals have to consider regularly. This one is a real gem – 51 pages of guidance.

Auditor Rotation: Your Audit Partner’s Affair

This Form 8-K filed by Ventas shows how an indiscretion by someone on your independent auditor’s team can be costly for the company. Changing your auditor is an expensive endeavor – and here, the auditor forced the change after an auditor independence analysis indicated that it was necessary due to the affair between someone on the audit team and someone who worked at the client company. Can companies insert a provision into their auditor engagement letter to be reimbursed if this happened to them? Probably not – but I’d like to hear your opinion…

Yesterday, the SEC settled with E&Y for violations of the auditor independence rules due to prohibited lobbying activities…

Webcast: “Executive Pay Basics: The In-House Perspective”

Tune in tomorrow for the webcast – “Executive Pay Basics: The In-House Perspective” – during which Winston & Strawn’s Erik Lundgren, Motorola Solutions’ Kristin Kruska and KAR Auction Services’ Becca Polak provide analysis about how a struggling in-house practitioner might best keep up with executive pay practices & disclosures, including an overview of fundamental securities law issues, stock exchange requirements, proxy advisor policies.

– Broc Romanek

July 14, 2014

Fee-Shifting Bylaws: A Small Company Trickle So Far

Previously, I’ve blogged about two small companies that have recently adopted fee-shifting bylaws ahead of a stalled Delaware legislature movement to ban them (here’s our memos on the topic). Here’s the latest from this blog by Davis Polk’s Ning Chiu:

The numbers keep changing, but the latest report indicates that six public (or soon-to-be-public) companies have adopted fee-shifting provisions in charters and bylaws since the Delaware court ruling in May that such provisions may be valid, in a case involving a non-stock company.

All are small, and none are in the Russell 3000 index at the moment. Two of the companies have only recently filed IPO registration statements, with the information contained in risk factors or general information disclosure and those incorporation documents are not available yet. One company just went public in June as a limited partnership.

Only Biolase Inc. appears to be rated by ISS QuickScore. Biolase is one of two companies that has adopted these bylaws after facing litigation over board composition this year. Echo Therapeutics settled its suit with a dissident in February, but litigation continues for Biolase. In mid-June, Biolase lost a notable case regarding whether an oral resignation by a director was sufficient notice. The Delaware Supreme Court confirmed in that case that a writing is not mandatory, since the statute indicates that a director “may resign” upon notice given in writing or by electronic transmission, which was also the language used in the company’s bylaws. In the context of numerous discussions, questions and debates about the resignation, the operative words uttered by the director as evidencing his intent to leave, as cited in the court opinion, were “Okay, I agree, I go along with that.” That led to at least one open vacancy filled by a candidate supported by a dissident shareholder and ultimately the CEO’s termination.

The company’s former CEO and chairman initiated a books and records case near the end of June. Around the same time, the company modified its bylaws so that anyone claiming on behalf of a current or former director (a Claiming Director) who does not obtain a judgment on the merits that achieves the purposes of the suit shall be obligated to reimburse the company for “all fees, costs and expenses of every kind and description (including all reasonable attorneys’ fees and other litigation expenses)” incurred by the company.

This chain of events may mean that the appropriateness of the fee-shifting bylaw also gets reviewed soon by the courts in the next round of Biolase litigation. According to a report by Reuters, lawyers for the company’s former CEO and chairman stated that he intends to challenge the validity of the fee-shifting bylaw. It will be interesting to see whether the bylaw adopted by Biolase is upheld for public companies, as it is also slightly different and possibly more limiting than other examples, including as adopted by LGL Group, which defines a “Claiming Party” as any current or prior stockholder.

The Delaware State Bar Association had prepared possible legislation to prohibit such bylaws in May, but in response to concerns from the Chamber of Commerce and other business groups, a resolution asking for continued examination of the measures that would address fee-shifting was approved by the Delaware legislature instead. It is expected that the earliest vote on any legislation will not occur until January 2015.

Webcast: “Divestitures: Nuts & Bolts”

Tune in tomorrow for the webcast – “Divestitures: Nuts & Bolts” – during which Doug Campbell, Jim Rice, Doug Brody and Scott Berry of E&Y will teach us all we need to know about diversitures, including financial, operational & tax considerations…

Podcast: The SEC’s 1st Whistleblower Anti-Retaliation Case

In this podcast, Renee Phillips of Orrick addresses the SEC’s resolution of its first whistleblower anti-retaliation case – In Re: Paradigm Capital Management – and the implications for companies, including:

– What is the SEC’s retaliation case about?
– Did you expect the SEC to bring this type of case as its first stand-alone retaliation case?
– What should companies be learning from it and doing now?

– Broc Romanek

July 11, 2014

Survey Results: Distributing Proxy Materials Via E-mail to 401(k) Plan Participants

We have posted the survey results regarding how companies distribute proxy materials via e-mail to 401(k) plan participants, repeated below:

1. Does your company or plan provider obtain express consent from employee-shareholders prior to distributing proxy materials to 401(k) plan participants via company e-mail (excluding ability to opt out addressed in #2 below)?
– Yes – 42%
– No – 64%

2. Prior to e-mail delivery of proxy materials to employee-shareholders, does your company send a “pre-email” asking 401(K) plan participants if they want to opt out of receiving proxy materials:
– Yes – 38%
– No – 65%

3. Other than having an active company email address, does your company take any further steps to verify that 401(k) plan participants’ use of company e-mail is in the ordinary course of performing their duties:
– Yes – 39%
– No – 67%

4. Other than having an active company email address, does your company take any further steps to verify that 401(k) plan participants routinely log-on to receive their company e-mail:
– Yes – 30%
– No – 76%

5. What email system does your company utilize:
– MS Outlook – 94%
– Lotus Notes – 9%
– Other – 0%

Please take a moment to participate in this “Quick Survey on CEO Succession Planning” – and this “Quick Survey on Ending Blackout Periods.”

General Solicitation: New Senate Bill

In this MoFo blog, Anna Pinedo describes a new Senate bill entitled the “HALOS Act”, or “Helping Angels Lead our Startups Act.” You can access S. 2498 at the bottom of this press release

Podcast: Supreme Court’s Halliburton

In this podcast, Professor Hal Scott addresses the Supreme Court’s decision in Halliburton – and the implications on securities litigation going forward, including:

– Can you describe the Majority’s ruling and the reasoning it used to reach that result?
– From a big picture standpoint, will the decision change the securities litigation landscape?
– What are the implications for plaintiffs in terms of their ability to obtain class certification?
– What are the cost implications for both companies and plaintiffs?
– Is there anything companies should proactively do as a result of this ruling?

– Broc Romanek

July 10, 2014

Climate Change Disclosure: Ceres’ New Search Tool

Last week, Ceres – collaborating with CookESG Research – launched a free search tool that allows easy access to climate change disclosures for the Russell 3000 in SEC filings. The tool can be used to search for companies individually or by industry. And the last column entitled “Reports,” quickly enables you to determine whether the company has made a climate change disclosure or not. If the company has made such a disclosure, you view a Ceres report (once you register, which is free) that not only shows you the relevant excerpt from the SEC filing – there is a graphic that indicates the type(s) of disclosure that were made. Pretty nifty. Here’s a 1-minute video showing you how the tool operates:

Kate Kelly of Bristol-Myers Squib has created this helpful chart comparing the SASB/GRE/IIRC frameworks, which is very useful when figuring out the alphabet soup of sustainability reporting initiatives. This blog by Stephen Donofrio analyzes how Ceres’ tool works (including 10 sample searches) – and here’s a Bloomberg article about the tool…

Podcast: Handling Shareholder Proposals

In this podcast, Amanda Johnson of PSEG provides some insight how they handle shareholder proposals at her company, including:

– What are some of your preliminary steps in the negotiation process?
– What is your negotiation approach and is it the same in all negotiations?
– Once you’ve gathered all of the facts, what happens next?

Don’t forget about our new “Job Board,” with three job openings currently listed…

Mailed: May-June Issue of “The Corporate Counsel”

In late June, we mailed the May-June Issue of The Corporate Counsel that includes pieces on:

– Our Rule 14a-8 Off-Season Check-Up Guide
– Receiving Shareholder Proposals—Honing the Logistics
– The Art (and Science) of the Deficiency Notice
– Evaluating the Likelihood of Receiving Shareholder Proposals
– Vote Counting Disclosure—NYSE Rules Still Treat Abstentions as “Votes Cast”
– Will Crowdfunding Revive the Intrastate Offering Exemption?
– The Use of Powers of Attorney and Form S-8
– Internal Control Over Financial Reporting—Implementing the New COSO Framework

Act Now: Get this issue rushed to when you try a “Half-Price for Rest of ’14 No-Risk Trial” today.

– Broc Romanek

July 9, 2014

Is the SEC’s Enforcement Chasing Companies for Poor Cybersecurity Disclosure?

Ever since the widely-publicized hacking of Target last year, there have been rumors that a SEC enforcement action over that company’s cybersecurity disclosure is coming. Now, this Bloomberg article reports that a number of SEC investigations are underway – meaning that more than one company is being focused upon (and I have no idea if Target is one of them). My guess is when we see some of these SEC enforcements reach the point that they indeed are public, it won’t just be faulty disclosures that fall under the microscope, but internal & disclosure control deficiencies as well. This Morgan Lewis blog lays out the potential theory for that type of internal controls action…

Tune in on September 16th for our webcast – “Cybersecurity: Working the Calm Before the Storm” – to find out what you should be doing now before you land in hot water…

SEC v. Congress: House Says “No Thanks” to Insider Trading Subpoenas

This Bloomberg article describes how the House Ways and Means Committee and a top staff member say they are “absolutely immune” from having to comply with subpoenas from the SEC in the insider trading probe that I have blogged about before…

Podcast: The New COSO Framework

In this podcast, Brian Christensen of Protiviti addresses the status of the transition to the new COSO Framework – see Protiviti’s recent survey – as well as provides implementation tips, including:

– What are the primary differences between the new COSO Framework and the old one?
– Do companies need to transition to the new Framework, or can they stick with the old?
– Can you explain where companies stand in their implementation efforts & why?
– What resources are available to assist companies with the transition?

– Broc Romanek

July 8, 2014

XBRL: SEC Staff Provides First Guidance In Years

I was surprised to see this set of “observations” issued by the SEC’s Division of Economic and Risk Analysis yesterday about XBRL exhibits and custom tags, as well as this sample letter from Corp Fin about calculation relationships. It has been nearly three years since the SEC last weighed in on XBRL, so I was starting to think that the SEC had given up the ghost in this area. I continue to read stories that not too many investors use XBRL – and then you see media pieces like this Reuters article entitled “U.S. House panel probes obsolete technology at SEC.” Another indicator – I just checked the links to the XBRL-oriented blogs in our “XBRL” Practice Area and nearly all of them were dead…

For most companies, the SEC’s limited liability protection for XBRL has expired – and it will expire entirely for all companies in October 2014. Meanwhile, this MoFo blog reports that NASAA is considering a model rule for electronic blue sky filings (here’s the proposed rules)…

XBRL: Negative Values? What Does One Do?

Recently, a member asked “Do you have any gloss on how companies are dealing with issues regarding glitches in their XBRL tagged data?” My answer is that I have no idea whether companies amend their periodic reports to fix this issue. A while back, Corp Fin discussed the issue in a section entitled “Negative Values” within its December 2011 edition of its “Staff Observations from the Review of Interactive Data Financial Statements.” And I do know XBRL US issued this white paper a few years ago discussing this, as noted in the excerpt below:

“The most common problem, which comprised 64% of all errors, occurs when companies use signs on values incorrectly. Here is an example of a plastic materials and chemical company that reported “DividendsCommonStockCash” as a negative value when it should have been submitted as an absolute, positive value. The company tagged the values based on how they wanted it to be rendered, not on how the data should be input. They formatted the XBRL data with presentation in mind. It’s critical to remember that XBRL formatting produces “data” not “reports”. If data is incorrectly signed, the computer-readable data will not be correct even if it renders the way the company wants.

The US GAAP taxonomy is structured to interpret “DividendsCommonStockCash” as a reduction to retained earnings (e.g., negative), so that when a company inputs the value as a negative, it becomes an increase to retained earnings. This creates a “double negative”, essentially flipping the sign so that it becomes positive. The company used a negated label to make the data appear negative when rendered. In the screen shot below showing the SEC’s Interactive Data Viewer, the figure appears with the correct sign (negative) but the machine-readable XBRL data is incorrectly signed and anyone extracting this data for analytical purposes would be pulling incorrect information.”

Last Chance for a Discount! Our Pair of Popular Executive Pay Conferences

Register by this Friday, July 11th or lose your last chance for phased-in pricing for our combined “Annual Proxy Disclosure/Executive Compensation Conferences” on September 29th-30th. Join 2000 of your peers in Las Vegas and via video webcast for fantastic networking and over 50 panels. Act now for phased-in pricing – which expires July 11th – to get as much as 15% off!

The full agendas for the Conferences are posted — but the panels include:

– Keith Higgins Speaks: The Latest from the SEC
– Preparing for Pay Ratio Disclosures: How to Gather the Data
– Pay Ratio: What the Compensation Committee Needs to Do Now
– Case Studies: How to Draft Pay Ratio Disclosures
– Pay Ratio: Pointers from In-House
– Navigating ISS & Glass Lewis
– How to Improve Pay-for-Performance Disclosure
– Peer Group Disclosures: The In-House Perspective
– In-House Perspective: Strategies for Effective Solicitations
– Creating Effective Clawbacks (and Disclosures)
– Pledging & Hedging Disclosures
– The Executive Summary
– The Art of Supplemental Materials
– Dealing with the Complexities of Perks
– The Art of Communication
– The Big Kahuna: Your Burning Questions Answered
– The SEC All-Stars
– Hot Topics: 50 Practical Nuggets in 75 Minutes

– Broc Romanek

July 7, 2014

Accredited Investor Verification: Corp Fin Issues 6 New CDIs

On Thursday, just a week after SIFMA issued guidance on the topic, Corp Fin issued these 6 new CDIs relating to Regulation D – in particular, verification of accredited investors:

1. Section 255. Rule 501 – Definitions and Terms Used in Regulation D:
New Question 255.48
New Question 255.49

2. Section 260. Rule 506 – Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering:
New Question 260.35
New Question 260.36
New Question 260.37
New Question 260.38

Here’s a summary from Stinson Leonard Street’s David Jenson…

Board Diversity: Quotas Have Limited Success

Some European countries have tackled the challenges of limited gender diversity on boards by enacting quotas. Now that Norway’s law in this area is more than a decade old, the results are in – and this opinion piece from the NY Times concludes that they haven’t worked as designed based on the results of this study

By the way, here are the comments submitted on the UK’s recent proposal (known as a “consultation document”) to revise its corporate governance code…

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:

– Analysis: Trends in U.S. Board Diversity
– The State of the Auditing Profession
– SEC May Renew Focus on IFRS
– SEC Acknowledges Ethical Obligations May Preclude Voluntary Reporting Out By Attorneys
– Lucky Man: CEO’s Repeated Good Fortune in Timing Stock Sales
– Comparison: Corporate Governance Frameworks

– Broc Romanek

July 3, 2014

12 Cool Things I Didn’t Blog About (But Someone Else Did)

As we head into the holiday weekend, here are 12 things I could have blogged about – but didn’t. But luckily someone else did:

1. SEC Chair White Discusses Directors’ Responsibilities
2. Behold the Awesome Power of Financial Twitter
3. Is it time for sustainability communication consultants to take a vow of silence?
4. Another Good Way to Tell the BoD What You Think
5. SEC: Don’t Ignore the Habitually Wrong Whistleblower
6. 10-point checklist: live-tweeting for investor relations
7. The Case of the Missing White-Collar Criminal
8. Why Allergan’s Shareholders Should Be Wary About Valeant’s (and Ackman’s) Takeover Bid
9. If You See Something, Say Something, But Maybe Only To The SEC
10. A Closer Look With Arthur Levitt
11. The Law of Unintended Consequences
12. Federal Court Rules Boilermakers Didn’t Decide All Issues And Orders Company To File A Form 8-K

LGL Group Adopts Fee-Shifting Bylaw

A member took me up on my offer yesterday to inform us if more than one company has a fee-shifting bylaw. Laura Householder of Drinker Biddle did some digging and found that LGL Group has this fee-shifting bylaw. Let me know if you find others…and check out Keith Bishop’s blog entitled “If Fee-Shifting Bylaws Are Ever Put On Trial, This Case Should Be Exhibit A.”

MSCI Acquires GMI

Last week, MSCI announced that it is acquiring GMI, the governance ratings service that had acquired The Corporate Library a few years back. And MSCI had acquired ISS a while ago and sold that earlier this year. Although on their face GMI and ISS may seem like they are in the same business, there are important distinctions – the primary one being that ISS is a proxy advisor and GMI is not…

– Broc Romanek