Monthly Archives: February 2015

February 27, 2015

Proxy Access: Citigroup Joins GE & Others (Sorta Kinda)

A few weeks ago, I blogged that General Electric and two other companies had adopted proxy access bylaws in the face of shareholder proposals seeking access. Now comes the news from this WSJ article (& this Reuters piece) – in this case, Citi will support the adoption of the 3%/3-year formula sought by the shareholder proponent, Jim McRitchie, after he changed his formula as noted in this blog. Here’s the draft support language for Citi’s proxy statement. So the Citi situation isn’t quite like the other companies because the company hasn’t adopted proxy access – rather, it has just agreed to support an amended non-binding shareholder proposal…

Meanwhile, a coalition of 17 groups sent this letter to the SEC on Wednesday expressing concern about the SEC’s decision to review its (i)(9) views in the midst of the proxy season…

SEC Probing How Companies Treat Whistleblowers

Here’s an excerpt from this Reuters article:

The U.S. Securities and Exchange Commission has sent letters to several companies asking for years of nondisclosure agreements, employment contracts and other documents to investigate whether companies are muzzling corporate whistleblowers, the Wall Street Journal reported. The inquiries come as SEC officials have expressed concern about a possible corporate backlash against whistleblowers, the newspaper said. It couldn’t be determined how many or which companies were sent the letters or what penalties the SEC could potentially levy in the probe, the Journal said.

Transcript: “Proxy Solicitation Tactics in M&A”

We have posted the transcript for the recent webcast: “Proxy Solicitation Tactics in M&A.”

I just love how Kevin LaCroix details his trips in his blog – the latest is about Australia! And coming this weekend, the first site redesign for in over 12 years! Email me if you want a preview…

– Broc Romanek

February 26, 2015

Should the SEC Shorten Its Adopting Releases By Providing Less Guidance, Etc.?

Recently, SEC Commissioner Piwowar delivered this speech entitled “A Fair, Orderly, and Efficient SEC.” The piece of the speech that interested me was the one below calling for shorter adopting releases – and perhaps even breaking rulemakings into smaller parts. Before I give my ten cents, I am interested to hear your feedback on the Commissioner’s remarks – email those to me and also provide your anonymous responses to the two surveys just below this excerpt from the speech:

Fairness demands that the Commission not act arbitrarily or capriciously. Those we regulate therefore should know the rules and standards to which they will be held. While we cannot guarantee that everyone has actual knowledge and understanding of our entire rule set, it is incumbent upon us to make sure that those we regulate are on notice as to the rules and standards by which they must operate. In particular, we must ensure that the rules do not change day-to-day on the whims of the Commission and/or its staff. This means that, as required by the Administrative Procedure Act, the Commission must not adopt any new rule or rule amendments without proper notice and an opportunity for comment by the public. The corollary of this principle is that the Commission and staff must not engage in rulemaking by enforcement or through examinations of regulated entities. For example, we must resist the temptation to include undertakings in enforcement settlements or principles in examination reports that serve as de facto rule requirements.

Another issue with our rulemaking process that raises fairness concerns is the increasing length of the releases that accompany and explain our rules. As many in this room can attest, it is becoming the norm that our adopting rule releases number well over 500 pages. While some of this length can be attributed to a more robust economic analysis, a significant portion is simply an attempt to explain the new rule(s) or amendments. Where 500 or 1,000 pages are required to explain the rules we have adopted, the Commission must ask itself whether our rule text is too complex for market participants to reasonably understand and apply. Moreover, the sheer length may discourage many from even attempting to read the rules, which is a significant problem for an agency seeking to promote compliance with its own rules.

The voluminous nature of many recent releases also suggests that rather than merely explaining our rules, these documents now include extensive guidance akin to rulemaking, which can create entirely separate fairness concerns. For example, the most recent amendments to our money market fund rule included key guidance akin to rulemaking for all mutual funds, not just money market funds, which was buried in a footnote within an almost 900-page release. We must reduce the size of our releases. I know that our rules can be quite complex, but perhaps we can start by breaking rulemakings into smaller pieces contained in multiple releases rather than in one omnibus rulemaking.

polls & surveys


customer surveys

Recap: The SEC’s Latest Investor Advisory Committee Meeting

The SEC’s Investor Advisory Committee is ramping up its activity lately. From SIFMA, here’s a summary of the committee’s latest meeting. Meanwhile, the SEC’s Advisory Committee on Small and Emerging Companies – which is a different committee – meets next Wednesday…

A SEC Commissioner Dissents Over Listing of ETFs

As noted in this Reuters article, SEC Commissioner Stein issued this dissent from the SEC’s order that approved the Nasdaq listing of a group of new exchange-traded funds. I’ve blogged before about concerns over ETFs – and whether they are turning the stock markets into more of a casino…

– Broc Romanek

February 25, 2015

Proxy Access: CalPERS & CalSTRS Weigh In

In this recent joint statement about climate change, CalPERS and CalSTRS note that they intend to ramp up their engagement efforts on this topic (remember that the NY Comptroller’s office sent proxy access shareholder proposals to 33 energy companies as part of its 75 access proposal initiative). In addition, CalSTRS updated its corporate governance principles noting that it would oppose any proxy access formula more stringent than 3%/3-years. Here’s an excerpt from CalSTRS’ related announcement:

“CalSTRS will, in the coming proxy season, support any shareholder proposal that includes a three-and-three group structure,” said Ms. Sheehan. “Our intention is to oppose any proxy access proposal with a structure more onerous than three-and-three ownership by a group of shareholders.” CalSTRS Corporate Governance unit will also urge fellow shareholders to withhold their votes from company directors who either exclude a three-and-three shareholder proposal from the proxy statement, or who deliberately preempt such a shareholder proposal with one of their own that establishes more excessive thresholds.

In addition, this Cooley blog notes comments from a BlackRock representative about proxy access. And, I finally found the full set of new FAQs from ISS that addresses proxy access, exclusion of shareholder proposals and unilateral bylaw & charter amendments (read more in Ning’s blog). Last week, I only found the policy about proxy access.

Finally, check out page 7 of this “Proxy Insight Monthly” for a list of how asset managers have voted for proxy access shareholder proposals in the past…

Amalgamated Bank Seeks Delaware Legislative Action to Curtail “Fee-Shifting” By-Laws

This recent Amalgamated Bank letter calls for reforms in the wake of ATP Tour v. Deutscher Tennis Bund in which the Delaware Supreme Court last year upheld a unilaterally-adopted company bylaw by which a shareholder who sues the company and does not prevail may be forced to pay the company’s legal fees and expenses. Numerous companies have adopted similar bylaws without shareholder approval in the wake of the ATP Tour case…

Webcast: “Private M&A Wake-Up Calls”

Tune in tomorrow for the webcast – “Private M&A Wake-Up Calls: Conflicted Board Risks, Post-Closing Unenforceability & Shareholder Approval/Duty of Care Traps” – to hear Cleary Gottlieb’s Ethan Klingsberg, Wilson Sonsini’s Marty Korman, Fenwick & West’s Andrew Luh and Morris Nichols’ Jeff Wolters cover the private M&A waterfront as new developments have shaken up this rapidly-evolving area.

– Broc Romanek

February 24, 2015

Transcript: “Conflict Minerals: Tackling Your Next Form SD”

People have been clamoring for the transcript from the recent webcast: “Conflict Minerals: Tackling Your Next Form SD.” And it’s now posted. The topics include:

– Pending Litigation and Current SEC Guidance
– Observations from 2014 Form SD Filings
– Common Errors in 2014 Form SDs
– Recent Corp Fin Guidance
– How Disclosures Should Be Changed for 2015
– Independent Private Sector Audit (IPSA) Considerations

The SEC Commissioners Speak: More Changes Coming?

Recently, the SEC Commissioners have delivered a higher volume of speeches than normal. Some of them seek some interesting changes. Here are a few:

SEC May Encourage “Venture Exchanges” – In this speech, SEC Chair White noted that the SEC may encourage the development of venture exchanges as venues to provide more liquidity for the securities of smaller companies (see this Bloomberg article)

SEC May Issue Guidance on Bad Actor Waivers – As I’ve blogged a few times, the Commissioners have been battling over the topic of bad actor waivers. It’s such a hot potato that most waivers now coming from the Commissioners, not the Corp Fin Staff itself. In this speech (and covered in this blog), SEC Commissioner Gallagher addressed the current debate over this topic (and this Reuters article notes that the SEC will be issuing guidance in this area).

SEC May Revisit E-Proxy – As noted in this Reuters article, SEC Commissioner Piwowar wants the e-proxy rules to be studied, particularly its impact on retail voting.

SEC Looking to Bring Enforcement Cases Over Cybersecurity Disclosure – As noted in this Reuters article, David Glockner, Director of the SEC’s Chicago Regional Office, said the SEC wants to bring enforcement cases over poor internal controls and/or misleading disclosure about a cybersecurity breach.

SEC May Issue Guidance on When Its Cases Will Go Before an Administrative Law Judge – As I have blogged several times (and as noted in this blog), there is controversy over when the SEC uses administrative proceedings to seek penalties against non-registered respondents. As noted in this speech, SEC Commissioner Piwowar wants the SEC to issue guidelines about when the SEC will use an ALJ. As noted in this article, the SEC has been getting sued over the use of its own administrative law judges to try enforcement cases. Here’s a Perkins Coie memo with more info about speeches on enforcement issues.

The Glaring Lack of Racial Diversity Continues in Our Profession

In this speech, SEC Commissioner Luis Aguilar listed his priorities including wrapping up the outstanding rulemakings required by Congressional acts and the need for the SEC to bring enforcement cases that are a real deterrent. Aguilar has been the Commissioner to periodically make speeches about diversity, probably the most challenging task facing our profession. The speech lays out the progress – and lack thereof in some cases – that the SEC has made in promoting diversity. But this is not a challenge just for the SEC. It is a challenge across the board for law firms, for companies, etc.

– Broc Romanek

February 23, 2015

Survey: Earnings Call Practices

The results of NIRI’s 2014 Earnings Call Practices Survey are summarized in this recent memo. Notable stats include:

Quarterly calls common: A whopping 97% of respondent companies hold quarterly earnings calls, compared to 80% 20 years ago.

When quarterly earnings calls are held: Over 70% of surveyed companies hold calls on Wednesdays or Thursdays. 75% of companies hold their call on the same day that earnings are released.  There’s almost an even split between holding calls during and outside of market hours.

How calls are announced:
– Press releases (93%)
– Corporate website (83%)
– E-mail blasts (55%)
– Twitter (9%)

When calls are announced: 86% announce between one week and one month in advance of the call. 35% announce 2 – 3 weeks before.

Length of calls:
– 46 – 60 minutes for 68% of respondents
– 30 – 45 minutes for 20% of companies

Formats used to broadcast calls to listeners: Telephonic (94%) and webcasts (almost 90%)

Call script & rehearsal practices:
– 63% begin preparing for an earnings call three weeks in advance or less; 30% prepare four weeks out.  22% ask the Street during their preparation period which topics they would like the company to address during the call.
– The IRO, CFO & CEO are most commonly involved in both script development and review. 37% and 71% involve in-house counsel in script development and review, respectively.
– Rehearsal practices are diverse, and 22% don’t rehearse at all.

Call participants: IRO, CFO & CEO virtually always participate. Less frequently but still common are CCOs (83%), in-house counsel (78%), CMOs (70%)

Screening practices: More than 3/4 screen call participants

Archival practices:
– 73% archive a webcast on the corporate website. 73% archive the audio. 57% archive a slide presentation. Only 25% archive the full call script.
– 40% archive their call audio for less than 90 days.
– 46% archive their scripts and 51% archive their slide presentations for longer than one year.

Access additional benchmarking information and other helpful resources in our “Earnings Releases” Practice Area.

IR Guidance on Tough Situations

In this new Deloitte piece, veteran IR managers share their views on how to handle difficult scenarios – including gaps in company and investor/analyst perspectives, communicating bad news and dealing with activist investors.

Transcript: “Rural/Metro & the Role of Financial Advisors”

We have posted the transcript for the recent webcast: “Rural/Metro & the Role of Financial Advisors.”


– by Randi Val Morrison

February 20, 2015

ISS Issues FAQs on Proxy Access Proposals

Here’s news from Davis Polk’s Ning Chiu’s blog :

In its long-awaited FAQs, ISS indicates that it will generally recommend in favor of management and shareholder proposals for proxy access which allow for nominations to be made by shareholders owning not more than 3% of the voting power for 3 years, with “minimal” or no limits on the number of shareholders permitted to form a nominating group, and allowing nominations for up to 25% of the board. ISS will also review the reasonableness of any other restrictions and may recommend against proposals that are more restrictive than these guidelines.

ISS is tracking 96 shareholder proposals on proxy access. For companies that present both a board and a shareholder proxy access proposal in their proxy statement, ISS will review each proposal separately. Yesterday, we issued a memo on a decision framework for evaluating proxy access, including for those companies that do not have the proposal this season but are watching these governance developments, which is available here.

In addition, ISS will recommend a vote against one or more directors (individual directors, certain committee members, or the entire board based on case-specific facts and circumstances), if a company excludes a shareholder proposal, unless it has obtained (a) voluntary withdrawal by the proponent; (b) no-action relief from the SEC or (c) a U.S. district court ruling. ISS may issue negative recommendations in these situations regardless of whether there is also a management proposal on the same topic. This is under ISS’ governance failures policy and expand beyond proxy access, to other situations where companies had also attempted to exclude conflicting shareholder proposals through the SEC no-action letter process, such as proposals requesting the right to call a special meeting. If a company has taken unilateral steps to implement the proposal, the degree to which the proposal is implemented, including any material restrictions, will also factor into the assessment.

Striking a Balanced View of Non-GAAP Disclosures

Non-GAAP measures have received some bad press recently – and in some cases, deservedly so. The WSJ reported that some companies are excluding costs that would seem to belong in earnings calculations such as “regulatory fines, ‘rebranding’ expenses, pension expenses, costs for establishing new manufacturing sources, fees paid to the board of directors, severance costs, executive bonuses and management-recruitment costs.”

Yet another WSJ article cites questions about exclusions of executive bonueses, fees for stock offerings and acquisition expenses, and notes that the SEC has sent comment letters to more than 30 companies in the past two years for giving their non-GAAP measures “undue prominence” in their filings. And this CFO article notes comments made by a PCAOB representative at an accounting conference about companies’ “increasing abuse” of non-GAAP measures, and an example he cited of a company’s exclusion of director fees because they allegedly related to governance – purportedly unrelated to company operations.

However, non-GAAP measures aren’t inherently bad. Used appropriately – in conformance with the letter and the spirit of SEC rules – they can significantly enhance comparability and provide tremendous insights into the business, ongoing operations and future prospects that aren’t otherwise discernable based on the use of GAAP alone. Rather than be deterred by – or ignoring – the bad press, companies should revisit the non-GAAP measure basics, and continue to use them effectively to enhance the utility of their disclosures.

PwC’s recent IPO study, although IPO-focused, provides a nice overview of the objectives, uses and SEC requirements pertaining to non-GAAP measures – as well as SEC comment letter examples that, for the most part, apply equally to mature companies. In addition, this Deloitte report (pgs. 72 – 74) includes a helpful discussion of recent SEC comment letter trends pertaining to non-GAAP measures that is instructive for future disclosures.

See also my previous blog addressing tips to enhance non-GAAP disclosures, and additional resources in our “Non-GAAP Measures” Practice Area.

Non-GAAP Measures Inspire FASB’s Financial Reporting Project

In this post, FASB Member Marc Siegel addresses some of the murmurings and studies on the use non-GAAP measures – and shares his view that the combination of GAAP and non-GAAP information is “more impactful” for purposes of understanding a company’s business than either dataset on its own.

Observations that non-GAAP measures may indicate how similar information might be better organized or presented in the income statement appears to be the genesis for FASB’s Financial Performance Project:

If this project is officially added to our agenda, we would look to find ways to improve the relevance of information presented in the performance (income) statement for public and private companies. Our goal would be to increase the understandability of the performance statement by presenting certain items that may affect the amount, timing, and uncertainty of an organization’s cash flows. Specifically, the research is developing a framework for defining operating activities and distinguishing between recurring and infrequent items.

The project is currently in the research phase.

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:

– Study: 10-K Tax Disclosure as a IRS “Roadmap”
– Revealing Whistleblower’s Identity is Retaliation
– Darden Announces Governance Reforms
– Basics of Board Delegations
– Comment Letter Summary: Advertised Private Placements Under Rule 506(c)
– Giving Good Guidance
– Study: Director Appointment Trends
– CPA: More Companies Pull Back Veil on Political Spending
– IPOs: Use of Non-GAAP Measures
– Revenue Recognition Changes & SEC’s Five-Year Summary
– Free Database of Fortune 500 Codes & Policies: Useful?
– Whistleblower Hotline Checklist


– by Randi Val Morrison

February 19, 2015

Governance Roadshow Upsides, Downsides & Success Factors

In the context of increased investor interest and activism in corporate governance practices, governance roadshows are no longer deemed to be solely crisis-driven – i.e., they should be among the several tools companies may consider in the ordinary course to enhance their rapport and posture with major institutional and other investors.

This recent blog does a fine job of identifying upsides & downsides of governance roadshows, or – more broadly – engaging with investors’ governance teams, as well as discussing several recommended “success factors” assuming a decision to proceed with engagement.

Potential upsides include:

  • Seeking direct input from governance experts will help the board make informed decisions on governance matters and emerging issues (e.g., board tenure, board diversity, proxy access), and can also limit the surprise of a future vote.
  • Creating a forum for companies to explain their rationale and philosophy on governance matters may in turn help influence the way investors vote.
  • Direct engagement will allow companies to establish a personal relationship with proxy voters – theoretically facilitating future discussions and mutual understanding.
  • There is an expectation that activist investors are themselves communicating directly with investors’ governance teams so as to further their own proxy-voting objectives. So company engagement is viewed as a preemptive measure.
    Potential downsides include:

  • Many companies don’t dedicate enough time to their core IR programs – so adding new responsibilities and yet more meetings to the annual schedule is difficult.
  • Investment firms’ governance departments are usually small and historically weren’t staffed to accommodate meetings with executives from all of their portfolio companies. As a result, big companies are getting an audience, but smaller companies – those that may also have serious governance issues to be discussed – can be boxed out.
  • Governance-side meetings are viewed by some as a waste of time, because proxy votes often follow a formulaic policy – if not the exact recommendations of the proxy advisors.
  • Opening up a dialog about controversial governance topics may have unintended negative consequences. If a governance expert takes a meeting and makes a suggestion around a specific bylaw or issue, the company will be expected to respond or make changes. If they don’t, it could worsen the relationship rather than improve it.
  • Possibility that starting a dialog may raise issues to the attention of busy governance experts that were previously under the radar or unconsidered

Understanding Governance Engagement from the Investor POV

In this article, CamberView Partners discusses key considerations relevant to successful governance engagement including investor diversity, identifying the most appropriate company participants for engagement, and the fact that such engagements commonly involve a 2-way dialogue – topics that were also very effectively addressed by Vanguard and BlackRock in our recent “Governance Roadshows” webcast.

Here are some of the many key insights from our webcast:

Sarah Goller, Senior Manager, Vanguard: First, there’s no one definition for governance roadshow or what we as investors want to get out of it. I think the one common denominator is that we always want a productive exchange. Firms like BlackRock and Vanguard hold shares of thousands of different companies in meaningful amounts. So we do hundreds of engagements every year, and it’s important that they’re productive.

It can vary a lot by meeting, but we always want to gather information. We want to understand what’s important to the company, what’s changing about the business, what changes they are thinking about on the governance front, within the board or about compensation, and understanding their rationale for those changes. Beyond that, we always want to be asked for feedback.

So we always want a call or a meeting to have a purpose. Maybe you’re thinking about a change. Maybe you’re thinking about something that will impact governance at a board and you want to hear what we’re saying.  It’s also important to define the agenda in advance. We want to have a clear purpose for the meeting and the right sort of people at the meeting. We want the meeting to allow us to exchange information, to listen to each other, and then to provide us with the opportunity to give feedback.

Michelle Edkins, Managing Director, BlackRock: When it comes to considering who in senior management attends and represents the company, I think companies need to be more thoughtful, without wishing to offend anyone, about not having people with a very traditional mindset, where you just do meetings with shareholders to broadcast the company’s message. That’s a real missed opportunity to hear shareholders’ views, and to listen for things perhaps not said. It’s important to hear shareholder’s views on issues and clarify what shareholders don’t understand about the company. Often that’s quite a significant factor, especially if in six months’ time there is an event where that lack of understanding means that the outcome is not optimal for the company.

In my experience, the role of the Corporate Secretary is becoming increasingly important in those “listening” meetings, rather than “broadcasting” meetings. I think that companies would do themselves a real service by thinking about how they structure that role and make it a more significant part of the outreach to their long-term steady-state shareholders.

If you haven’t already done so, be sure to check the webcast transcript out.

Podcast: Individual Director Evaluations

In this podcast, Kris Veaco of the Veaco Group discusses individual director evaluations, including:

– Why aren’t individual director evaluations more common?
– What is the process for evaluating individual directors?
– What do you do with the evaluation results?
– What are some of the benefits of individual director evaluations?
– Any final thoughts?


– by Randi Val Morrison

February 18, 2015

Hedging & Pledging Policies: Possible Approaches & Survey

An analysis of ISS Governance QuickScore data finds: 54.3% of Russell 3000 companies have a policy prohibiting hedging of company shares by employees, while 84% of large capital S&P500 companies have such a policy. Executive or director pledging of company shares was prevalent at just 14.2% of Russell 3000 companies, and, notably, 15.8% of S&P500 companies.

In reaction to the SEC’s hedging & pledging policy disclosure proposal last week, I received this nifty chart on possible approaches from one in-house member – as well as this note below:

From where I sit, companies would do a disservice to themselves – and their stockholders – by adopting a blanket “one-size-fits-all” rule with regard to hedging of company securities. Instead, I believe we should consider different policy decisions on how we view hedging with regard to (i) outstanding equity awards v. shares owned outright and (ii) rank-and-file employees v. directors and officers. Also, even though the proposed rules are focused on hedging activity, I believe that companies should re-visit their pledging policies because they raise similar issues. See my attached snapshot summary.

We have numerous memos in our “Hedging” Practice Area – and I just posted this “Quick Survey on Hedging Policies.”

The SEC has announced the agenda & panelists for its proxy voting roundtable taking place tomorrow…

ISS Publishes TSR Medians By Industry Group

As noted in this blog, ISS has published “Industry Group US TSR Medians for Performance-Related Policies.” The publication was solely for informational purposes.

Company performance relative to industry medians is incorporated into ISS’ evaluation of shareholder proposals seeking an independent chair and for ISS’ evaluation of director performance. However, the TSR sector medians in ISS’ reports are updated monthly and align with the subject company’s fiscal year end.

Clawbacks: SEC Gets $500k from Pair of Ex-CFOs

Here’s news from this blog by Steve Quinlivan:

Two former CFOs have agreed to return nearly a half-million dollars in bonuses and stock sale profits they received while their Silicon Valley software company, Saba Software, was committing accounting fraud. While not personally charged with the company’s misconduct, the SEC’s position is the two CFOs are still required under Section 304 of the Sarbanes-Oxley Act to reimburse the company for bonuses and stock sale profits received while the fraud occurred.

Senior employees responsible for the fraud were told on multiple occasions by the finance department that the company’s accountants and auditors needed to understand exactly how many hours were being worked and when (regardless of whether or not they were billed to the customer) in order to ensure that revenue was recognized accurately, and they understood that inaccurate time-keeping would lead to misstatements in Saba’s reported professional services revenue and violate the Company’s policies regarding financial reporting. The two CFOs each consented to the entry of the SEC’s order without admitting or denying the finding that they violated Section 304 of the Sarbanes-Oxley Act.

Last year, the SEC charged Saba Software and two former executives responsible for the accounting fraud in which timesheets were falsified to hit quarterly financial targets. As part of that settlement, the SEC similarly reached an agreement with the former CEO to reimburse the company $2.5 million in bonuses and stock profits that he received while the accounting fraud was occurring, even though he was not charged with misconduct.

– Broc Romanek

February 17, 2015

Virtual Annual Meetings: Could Hewlett-Packard Build Momentum?

Recently, I blogged last year’s stats for virtual annual meetings – noting that growth was relatively flat in 2014. Virtual-only meetings has grown slowly, with 53 meetings in ’14, 35 in ’13 and 27 in ’12. The notable thing about all these virtual meetings, however, are that the companies doing them are not household names. That is about to change. As noted in this Reuters article, Hewlett-Packard will hold a virtual annual meeting next month. Wow! Here’s the table of contents for H-P’s proxy statement – and here are the FAQs about how the meeting will work.

Over the years, I have blogged numerous times about virtual annual meetings (and even have a set of FAQs about them posted in our “Virtual Shareholder Meetings” Practice Area. CII and some institutional investors continue to rail against them – and I continue to believe it’s a problematic practice if the company is facing turbulent waters (as noted in this blog). It will be interesting to see how H-P’s shareholders react…

Speaking of annual meetings, Whole Foods has filed this Form 8-K announcing it has postponed its meeting due to its proxy access flap, with the SEC reversing course on its no-action request. Meanwhile, Jim McRitchie blogs that the SEC has reversed two (i)(9) no-action responses related to special meetings upon reconsideration…

The SEC Is Closed Due to Snow: Form 5s & Schedule 13Gs Still Due Today!

In DC, all federal government agencies are closed due to a snowstorm. I’ve blogged numerous times over the years about the impact of a closed government on the operations of the SEC and Corp Fin specifically. Even though there is no weather-related information posted on the SEC’s site so far today, we can assume that the information in this blog holds true today. The main points are:

EDGAR Still Operational – Federal government closings due to weather doesn’t shut down EDGAR – so filings can continue to be made despite the snow storm. Form 5 and Schedule 13G filings are still due today! I understand that the SEC has Staffers at home who are processing requests for new Edgar filing codes. And snowstorms that close the federal government in DC still are “business days” for purposes of counting when a Form 4, etc. is due.

Critical Registration Statements Can Still Be Declared Effective – Corp Fin has procedures in place to help as Staffers are available to assist with filings even though the government is shut down by the storm. When OPM shuts down the government in DC, emergency personnel (ie. “essential”) still must show up for work – and as a result there will be Corp Fin staffers available to ensure that essential operations continue. In addition, with the Staff now having remote access to their databases, etc., any Staffer can access their EDGAR in-box from home. An Assistant Director (or Office Chief) can take a filing effective just as easily from home as from the office.

The most important thing when faced with this situation is getting in touch with someone at the SEC – leaving a message with the examiner assigned to your filing probably isn’t going to be sufficient. Rather, you will need to work the phones to get in touch with (or leave a message for) the Assistant Director of the group that is handling your filing, or call the Corp Fin Front Office. These numbers are available in our constantly-updated “Corp Fin Staff Organization Chart.” To play it safe, you should attempt to make contact with the Staff as soon as possible if you anticipate a need to go effective this week so that any last minute issues can be resolved (although the snow here isn’t all that much and my guess is that the government will be open as usual tomorrow).

Non-Critical Registration Statements Not Going Anywhere Today – If you are expecting comments from Corp Fin and there is no urgent need to go effective, you may experience some delay in the processing of your filing thanks to the snow. There is no need to contact the limited Staff available to ask about the status of your comments, because they probably won’t be able to step in and move the process along, particularly right now. The Staffers that are available during the government shutdown are really there to deal with the most urgent situations, so bogging them down with less urgent matters isn’t the best idea…

NYSE Proposes to Clarify Proxy Solicitation Mechanics

Here’s a blog from Stinson Leonard Street’s Jill Radloff:

The NYSE proposes to amend Section 402.05 of the Listed Company Manual to clarify that listed companies soliciting proxy material through brokers or other entities must comply with SEC Rule 14a-13. Rule 14a-13 mandates that listed companies must inquire of the record holder whether other persons are beneficial owners of the subject shares and, if so, how many copies of the relevant proxy or other soliciting materials must be provided to supply such materials to the beneficial owners. SEC Rule 14a-13 further sets forth the timeline on which inquiry of the record holder must be made.

The Listed Company Manual, in addition to requiring compliance with Rule 14a-13, also separately states that a listed company’s inquiry of brokers must be made not less than 10 days in advance of a record date. The NYSE imposed this absolute 10 day minimum in recognition of the fact that the provisions of SEC Rule 14a-13 allow, in certain limited circumstances, for a listed company to inquire of brokers less than 20 days in advance of a record date for a special meeting (but not for an annual shareholders’ meeting).

The NYSE believes that the 10-day period presently described in Section 402.05 is in conflict with the requirements of Rule 14a-13. For example, although the NYSE makes specific reference to the SEC’s 20-day advance inquiry rule (i.e., SEC Rule 14a-13), the NYSE believes Section 402.05 could be read as requiring only a 10-day advance inquiry.

The NYSE proposes to revise Section 402.05 of the Listed Company Manual to clarify that listed companies soliciting proxy material through brokers or other entities must comply with the provisions of SEC Rule 14a-13 and that the NYSE does not impose any additional requirements with respect to the relevant inquiry of brokers. Further, the NYSE proposes to delete the requirement in Section 402.05 of the Listed Company Manual that listed companies immediately advise the NYSE if it becomes impossible for them to make an inquiry of brokers at least ten days before a record date. Given that listed companies are required to comply with SEC Rule 14a-13 and the NYSE has no authority to waive compliance with such rule, the NYSE believes that such notice requirement is unnecessary.

Farewell to Harvey Goldschmid!

Sad to hear about the passing of former SEC Commissioner Harvey Goldschmid. Harvey also served as the General Counsel for the SEC before he came back as a Commissioner. As noted in this statement by SEC Chair White and NY Times article, Harvey was very active teaching at Columbia and was the driving force behind adopting Reg FD. Here’s a nice piece by the New York Law Journal – and here’s Harvey’s obituary.


– Broc Romanek

February 13, 2015

Conflict Minerals: AICPA Issues Additional Audit Guidance

This memo summarizes the AICPA’s recent additional guidance for independent private sector audits (IPSA) contemplated by the Conflict Minerals Rule. The additional guidance suggests a fairly robust list of representations for auditors to consider including in the IPSA management rep letter, and addresses the auditor’s responsibility for understanding and testing the company’s internal controls.

As noted in Cydney Posner’s recent blog, in view of Corp Fin’s 2014 Statement following the US Court of Appeals decision in the conflict minerals litigation and the rule’s temporary transition period, few companies provided IPSAs last year.

Access previously issued AICPA guidance on these topics:

Auditor independence
Differences & similarities between attestation engagements and performance audits
IPSA objectives, criteria for IPSA as an attestation examination engagement, evaluations outside the scope of an IPSA, sample procedures for IPSA and subjects relevant to an IPSA
Form of the audit report

We have oodles of additional resources available in our “Conflict Minerals” Practice Area.

Study: Market Impact of Conflict Minerals Rule

A 2014 Tulane University Law School study investigating the market impact of the conflict minerals rule reveals that each company that filed a Form SD invested an average of approximately $546,000 (approximately $190,000 for small issuers < $100 million) worth of time and effort to comply with the law – largely consisting of in-house corporate time, external human resources, an IT evaluation and IT system expenses. In the aggregate, companies reportedly incurred a total of approximately $710 million to establish conflict minerals programs to furnish the required information by the law’s June 2, 2014 deadline.

Companies that participated in the survey most frequently cited these reservations about the rule:

The law renders affected companies less competitive due to the heavy cost burden
It is unlikely the desired impact is being achieved in the DRC
The law is unfair in that it is trying to fight a war in the business world with only public companies
The SEC is not intended as a regulator of social responsibility

Another survey targeting the balance of the 3TG (Tin, Tantalum, Tungsten and Gold) supply chains is planned to be conducted this Spring.

January-February Issue of “The Corporate Executive”

We have mailed the January-February Issue of The Corporate Executive, which includes pieces on:

– ISS’s New Equity Plan Scorecard – A Closer Look
– Rate Your Plan with Our Sample Scorecard
– The Cost Basis Reporting Trap
– Final Section 162 (m) Rules for CHiPs

Act Now: Get this issue rushed to when you try a 2015 No-Risk Trial to The Corporate Executive.

– by Randi Val Morrison