Monthly Archives: April 2015

April 16, 2015

Deadline Ends In 1 Week: 33% Early Bird Discount for Our Executive Pay Conferences

You should register soon for our popular conferences – “Tackling Your 2016 Compensation Disclosures: Proxy Disclosure Conference” & “Say-on-Pay Workshop: 12th Annual Executive Compensation Conference” – to be held October 27-28th in San Diego and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days, including:

– Keith Higgins Speaks: The Latest from the SEC
– Proxy Access: Tackling the Challenges
– Disclosure Effectiveness: What Investors Really Want to See
– Pay Ratio: What Now
– Peer Group Disclosures: The In-House Perspective
– How to Improve Pay-for-Performance Disclosure
– Creating Effective Clawbacks (and Disclosures)
– Pledging & Hedging Disclosures
– The Executive Summary
– The Art of Communication
– Dave & Marty: Smashmouth
– Dealing with the Complexities of Perks
– The Big Kahuna: Your Burning Questions Answered
– The SEC All-Stars: The Bleeding Edge
– The Investors Speak
– Navigating ISS & Glass Lewis
– Hot Topics: 50 Practical Nuggets in 75 Minutes

Early Bird Rates – Act by April 24th: Huge changes are afoot for executive compensation practices with pay ratio disclosures on the horizon. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a special early bird discount rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by April 24th to take advantage of the 33% discount.

PCAOB Approves Auditing Standard Reorganization

Recently, the PCAOB approved the reorganization of its auditing standards, adopting amendments to its rules and standards to implement a topical system that integrates existing interim and PCAOB-issued auditing standards. The SEC now has to approve the reorg…

Coming in Spring 2016: Resource Extraction Rules

This recent WSJ article notes that the SEC recently noted in a court filing that it will not be considering its resource extraction rule proposal until Spring 2016.

– Broc Romanek

April 15, 2015

Shareholder Proposals: Wal-Mart No Longer Compelled to Include

Yesterday, just a week after oral argument, the 3rd Circuit overturned the district court in the much-awaited Trinity Wall Street v. Wal-Mart case. Here’s the news from Skadden:

The U.S. Court of Appeals for the Third Circuit issued a decision earlier today that reversed a U.S. District Court opinion and vacated a permanent injunction that would have required Wal-Mart Stores to include a controversial shareholder proposal in its 2015 annual meeting proxy statement. The court’s decision allows Wal-Mart to exclude the proposal from its proxy materials and appears to adhere to the SEC staff’s longstanding interpretation of Exchange Act Rule 14a-8(i)(7), commonly referred to as the “ordinary business exception.”

The shareholder proposal under consideration by the court requested that Wal-Mart’s board of directors amend the charter of its Compensation, Nominating and Governance Committee to provide that the committee oversee “the formulation and implementation of, and the public reporting of the formulation and implementation of, policies and standards that determine whether or not [Wal-Mart] should sell a product that: 1) especially endangers public safety and well-being; 2) has the substantial potential to impair the reputation of [Wal-Mart]; and/or 3) would reasonably be considered by many offensive to the family and community values integral to [Wal-Mart]’s promotion of its brand.” Wal-Mart excluded the proposal from its proxy materials in reliance on the written concurrence of the SEC staff with the company’s view that the proposal interfered with its ordinary business operations by impacting the products and services for sale by the company. The shareholder proponent challenged these determinations in an action in the U.S. District Court for the District of Delaware.

The opinion of the Court of Appeals has not been released yet. When it is available, the court’s views on the careful balance that the SEC and its staff have struck between the rights of shareholders under Rule 14a-8 and the authority granted to directors to manage the business and affairs of corporations under state corporate law will be closely analyzed. Members of the corporate governance community have closely monitored this legal action because of the concern that an unfavorable result could have encouraged shareholders to submit proposals that relate to ordinary business matters by framing them as requests for corporate governance reform. An expansion of Rule 14a-8 in this way would increase costs and expenses and disrupt management and board efforts to effectively manage the proxy process and corporations’ day-to-day business affairs.

BlackRock Speaks Out Against Knee-Jerk Buybacks

This DealBook column notes how BlackRock’s CEO has sent letters to the CEOs of 500 companies about buybacks and other issues. Here’s a memo from Marty Lipton on these letters…

How Audit Reports Look in Other Countries

This Fortune article by Jack Ciesielski does a nice job explaining how audit report reform has gone forward in many countries as it has stalled here in the US. Here’s an excerpt:

In January, the International Auditing and Assurance Standards Board (IAASB), an independent standard-setting body supported by the International Federation of Accountants (IFAC), issued its new standard auditor’s report to be used by adopting countries – and the new audit report bears little resemblance to the tired opinion investors see in the United States. How so?

First of all, there will be an entirely new section that will inform investors in publicly-traded companies about key audit matters – issues that the auditor judged the most significant in performing the audit of the current period financial statements. That’s probably the single most dramatic change, and one that’s sure to grab investor attention: the views of an auditor about the trickiest part of an audit. It gets back to the basic relationship between the auditor and the shareholder: The auditor is supposed to be inside party for the shareholder, and this new communication puts them in touch with each other in a big way, one that’s completely neglected these days.

The new report will also expand on ongoing matters – issue of whether or not the financial statement presentation makes sense, in view of the company’s ability to continue operating. If needed, the new information will describe the material uncertainties related to ongoing concerns going concern issues, and auditors will be called upon to state that a company is not a going concern if they disagree with management’s cheerier view. Expect to see more amplification about the auditor’s independence and ethical responsibilities, too – and the name of the engagement partner. All of this new information will appear in auditor’s reports on 2016 December year-end financial statements.

– Broc Romanek

April 14, 2015

More on “Should the SEC Shorten Its Adopting Releases By Providing Less Guidance, Etc.?”

Recently, I blogged about SEC Commissioner Piwowar’s speech entitled “A Fair, Orderly, and Efficient SEC” – which included a section calling for shorter adopting releases and perhaps even breaking rulemakings into smaller parts.

I ran two surveys on that blog: one asked about reducing the amount of guidance in releases (34% voted ‘yes’ and 63% voted ‘no’) and one asked about whether the SEC should break up rulemakings into smaller, multiple pieces (53% voted ‘yes’ and 36% voted ‘no’). I’m surprised that even 34% want less guidance because then we wind up with guidance at the Staff level, which some Commissioners ironically have griped about over the years.

Here’s feedback that I received from a member that pretty much sums up my feelings on the subject:

I don’t think breaking rulemakings into smaller parts is realistic. Having done a stint in Corp Fin’s Office of Rulemaking, I know that there is a lot that of administrative stuff that has to go into each separate rulemaking. It just doesn’t seem practical to increase the volume of separate rulemakings given the environment and how that process works these days. Breaking things into smaller parts would just result in less rules getting adopted

As far as length, I agree that they are probably too long – but a lot of that is the back-end, driven by the cost-benefit analysis and what’s going on in the courts. I think they could actually give some more interpretative advice. A lot of times, there is a lot of words and background – but not a whole lot of really useful interpretation. Examples of the application of new rules could be very useful in certain circumstances. Whenever there is something like that in a rulemaking, it is pretty helpful and avoids the need for Staff level interpretations. I was just reading the Regulation M release from the 1990s yesterday for this purpose! In an ideal world, maybe the rules could be so clear that interpretation wouldn’t be needed – but I don’t see us getting there anytime soon. So I would think that a Commissioner might prefer to have Commission-level clarifications out there rather than needing the Staff to do it.

Supreme Court Holds that Agencies Can Amend or Repeal Interpretive Rules Without Notice-and-Comment Procedures

Here’s a summary of this Sullivan & Cromwell memo (also see this Proskauer memo):

The U.S. Supreme Court recently held that agencies are not required to follow notice-and-comment rulemaking procedures when amending or repealing their interpretations of existing regulations. The Court ruled that the D.C. Circuit’s longstanding Paralyzed Veterans doctrine, which required agencies to follow notice-and-comment procedures when changing interpretive rules, was contrary to the text of the Administrative Procedure Act and exceeded the scope of judicial review authorized by Congress. The Court suggested, however, that changed interpretations should be subject to more searching review by courts, especially when regulated entities have extensively relied on the prior interpretation, and may face limitations in retroactive application. Three Justices wrote separately to question the fundamental appropriateness of judicial deference to agencies’ interpretations of their own regulations. Though the Court directed that an agency will need to provide a more substantial justification for its new interpretation if the new interpretation has engendered serious reliance interests or if it is based on factual findings contrary to prior findings, yesterday’s decision may make it easier for an agency to modify or even reverse its interpretation of existing regulations.

By the way, you might want to read Keith Bishop’s blog entitled “Did The SEC Violate The Administrative Procedure Act?”

Should Law Firms Go Public?

This DealBook column raises a topic that I blogged about a while back. The column summarizes the arguments supporting the idea made in this article. Law firm IPOs! I don’t have an opinion one way or another (although the notion of shareholders pressuring law firms – who are supposed to be advocates for their clients – seems like a big hurdle), but I would love to see what type of names would be drummed up by the new law firm corporations! I imagine using nomenclature consisting of last names would go the way of the Dodo…

– Broc Romanek

April 13, 2015

The SEC Staff Assesses Itself (In 700 Pages!)

On an ongoing basis, the International Monetary Fund undertakes assessments of the financial regulatory arrangements of countries around the world, which is called the “Financial Sector Assessment Program.” A few weeks ago, the IMF published its FSAP review of the United States, covering banking, insurance and securities. As part of this process, the various regulatory agencies prepare a self-assessment of how they think their agency stacks up against international standards. Here’s the SEC Staff’s self-assessment. It is a remarkable document – 700 pages of the Staff describing its various programs. Principle 16 regarding eliciting disclosure starts on page 244.

Here are other related documents:
Press Release
US: Financial Sector Assessment Program Detailed Assessment of Observance of the Basel Core Principles for Effective Banking Supervision
US: Financial Sector Assessment Program Detailed Assessment of Observance of Insurance Core Principles
US: Financial Sector Assessment Program Detailed Assessment of Implementation of the IOSCO Objectives and Principles of Securities Regulation

Insider Trading: Second Circuit Declines to Review Newman Insider Trading Decision

A few weeks ago, the US Court of Appeals for the Second Circuit denied Preet Bharara’s request that the court reconsider United States v. Newman. By declining to reconsider Newman, the Second Circuit left in place a sharply narrowed definition of insider trading that limits the government’s ability to prosecute insider trading cases (at least in the Second Circuit). The government must now decide whether to appeal to the Supreme Court and/or rely on Congress to adopt legislation providing a statutory definition of illegal insider trading for the first time. As noted in this DealBook column, this is even more notable given that it’s Judge Rakoff that sided with the SEC.

In addition to this bevy of memos posted in our “Insider Trading” Practice Area, check out this blog by David Smyth about the 2nd Circuit’s Newman case. Here’s an excerpt:

First, the knowledge element could make things very difficult for the SEC and the Justice Department in remote tippee cases. The defendants in Newman, for example, were far removed from the original sources of the information. As the court put it:

“[T]he Government presented absolutely no testimony or any other evidence that Newman and Chiasson knew that they were trading on information obtained from insiders, or that those insiders received any benefit in exchange for such disclosures, or even that Newman and Chiasson consciously avoided learning of these facts.”

One of the things that enterprising inside traders might do as a result is to create some distance between the sources of material, nonpublic information and those who ultimately trade on that information. A person or two in between could mean that the actual traders never know the personal benefit, if any, that accrues to the original tipper. Structuring insider trading chains in this way could become part of the general business model. I mean, this is what people do. The court does seem to allow for liability, as it probably must, if defendants “consciously avoid[] learning of these facts.” But one thing about conscious avoidance – it can be pretty hard to prove! Not impossible, but hard.

Also see this blog by David entitled “S.D.N.Y. Vacates Insider Trading Guilty Pleas, Shows How It’s Done.” And this blog by Kevin LaCroix entitled “An Interesting Look at the Characteristics of Insider Traders” is also worth reading…

Leveraged Loans: Looks Like Securities But Not Regulated?

This Bloomberg article entitled “Loans Look Like Securities Yet Escape Oversight From SEC” is worth reading. Here’s an excerpt:

Leveraged loans look and trade like securities — yet the regulator in charge of overseeing securities doesn’t consider them as such. These loans, usually made to companies with high debt and speculative-grade credit ratings, are made for commercial or consumer — not investment — purposes, according to lawyers and bankers who argue they are not securities. At the same time, the $800 billion leveraged-loan market has become an increasingly popular asset class for pension and mutual funds to invest in. About a third of new loans last year were bought by mutual funds, up from 15 percent in 2012, according to Loan Syndications & Trading Association data.

“If they are syndicating this to investors and indicating there is going to be some liquidity in a secondary market, those are the red flags that make it look very much like a security,” said Thomas Lee Hazen, an expert in securities law at the University of North Carolina School of Law. The U.S. Securities and Exchange Commission’s authority in this market is limited to loans that meet the legal definition of a security, which requires a case-by-case review, according to John Nester, an SEC spokesman.

– Broc Romanek

April 10, 2015

Fee-Shifting & Exclusive Venues: Delaware Corporation Council Approves Amendments

Here’s an excerpt from this blog by Cooley’s Cydney Posner:

The Corporation Law Section of the Delaware Bar has approved, substantially as proposed, the amendments to the Delaware General Corporation Law proposed by the Delaware Bar’s Corporation Law Council regarding fee-shifting and forum selection provisions in Delaware governing documents. (See this post.) Accordingly, it is anticipated that the proposals would be introduced for consideration by the Delaware General Assembly.

More specifically, the proposed amendments would invalidate, in Delaware charters and bylaws, fee-shifting provisions in connection with internal corporate claims. “Internal corporate claims” are claims, including derivative claims, that are based on a violation of a duty by a current or former director or officer or stockholder in such capacity or as to which the corporation law confers jurisdiction on the Court of Chancery. These claims would include claims arising under the DGCL and claims of breach of fiduciary duty by current or former directors or officers or controlling stockholders of the corporation, or persons who aid and abet those breaches. However, as discussed in this post, federal securities class actions would not be included. The proposed amendments also expressly authorize the adoption of exclusive forum provisions for internal corporate claims, as long as the exclusive forum is in Delaware. Although the proposed amendment does not address the validity of a provision that selects, as an additional forum, a forum other than Delaware, the synopsis indicates that it would invalidate “a forum selection provision selecting the courts in a different State, or an arbitral forum, if it would preclude litigating such claims in the Delaware courts.” Accordingly, the legislation would not allow Delaware corporations to select another state as the exclusive forum.

While not exactly topics roiling the Delaware Bar, a few other matters are addressed in the proposed legislation. For example, with regard to public benefit corporations (see these news briefs and these posts), the proposed amendments would reduce the voting requirement for a corporation to become a public benefit corporation from 90% of the outstanding shares to 2/3 of the outstanding shares (still a rather high hurdle, especially if the company is already public) and provides a market out (applicable to listed companies and companies with over 2,000 record holders) to the provisions allowing appraisal for stockholders that did not vote in favor of the transaction.

Other proposed amendments relate to issuance of stock and options. These proposed amendments clarify that the board may authorize stock to be issued in “at the market” programs without having to separately authorize each individual stock issuance and that the amount of consideration to be received for stock or options may be determined by a formula that references or depends on the operation of extrinsic facts, such as market prices or averages of market prices on one or more dates.

The proposed amendments would also clarify a number of issues in connection with the new Delaware statutes, Sections 204 and 205, that authorize ratification of defective corporate acts by the corporation and the Delaware courts, respectively. Among other things, these amendments would address the situation in which the initial board was not named in the original certificate or properly appointed, allow listed companies to provide certain notices by making public filings, clarify the requirements for certificates of validation, clarify the term “validation effective time” (including allowing the board to designate a future time in some circumstances), clarify that the board may adopt a single set of resolutions ratifying multiple defective corporate acts, and clarify that holders of shares of putative stock would not be considered stockholders entitled to vote or to be counted for purposes of a quorum in any ratification vote and that the only stockholders entitled to vote on ratification are the holders of record of valid stock as of the record date (i.e., ratification of a defective corporate act will not result in putative shares being retroactively validated so that they become entitled to vote).

Meanwhile, the “Delaware Rapid Arbitration Act” has been enacted – see this memo

Revenue Recognition: FASB Tentatively Decides to Delay New Rules for One Year

Last week, the FASB tentatively decided to defer the effective date of its new standard on revenue recognition for one year. The FASB’s tentative decision will be published for public comment before the Board makes a final decision(see the memos in our “Revenue Recognition” Practice Area).

Webcast: “Proxy Access: The Halftime Show”

We have posted the transcript for our recent webcast: “Proxy Access: The Halftime Show.” Also see the blog I just posted on “The Proxy Blog” running down the stats of how 64 of the companies that received proxy access proposals handled them…

– Broc Romanek

April 9, 2015

Officer Expenses: Former CEO Charged for Disclosure & Controls Failures

Last week, the SEC brought this enforcement action against Polycom’s former CEO (who was fired in 2013). The company was charged with inadequate proxy disclosure from 2010 to 2013 and improper internal controls. The SEC complaint is filled with striking details (if true) of how the CEO at Polycom created false expense reports so the company would pay for his personal expenses, such as this example:

On July 7, 2012, Miller directed his administrative assistant to buy him two tickets to an August 3, 2012 performance of the Broadway musical Jersey Boys in New York City. On July 24, 2012, Miller emailed his administrative assistant to ask if she had the tickets, and during that exchange he represented, “I am giving the JB tickets as a prize in a NYC PLCM office sales contest…. On PCARD place NYC PLCM Q3 Sales Incentive Contest[.]” At Miller’s direction, his assistant charged $576.20 to her P-Card for two tickets to the show, and submitted the expense for reimbursement with the description that Miller had provided. But Miller’s description of the expense was false, as he again used the tickets to attend the theatre with his girlfriend, and did not give them away to Polycom’s New York sales team or anyone else. Indeed, Miller’s August 3, 2012 night out with his girlfriend in New York cost Polycom more than $1,000. In addition to the tickets, Miller charged more than $275 to his Polycom credit card for post-theatre dinner and later, although he had eaten alone with his girlfriend, emailed his administrative assistant a bogus business description for the meal, including the names of purported attendees from a Polycom customer. Miller also directed his administrative assistant to book a limousine service to take him to the theatre and dinner, for which she charged more than $160 on her P-Card, at his direction, and obtained reimbursement from Polycom.

There are plenty of other examples to pique anyone’s interest. It’s another sad tale of what would seem to be, entitlement and fraud.

The SEC also penalized Polycom $750,000 and issued a cease and desist. The company’s proxy statement said: “No Excessive Perquisites” (emphasis in original) and explaining that “[a] small amount of perquisites are provided to our executives, consistent with the practices of our peer companies.” False and misleading statements, books and records violations, internal accounting controls failure, etc.

And in the complaint, the SEC stated: “Polycom employees discovered that Miller had expensed more than $800 worth of spa gift cards as purported gifts to Polycom employees, but that Miller had actually used the gift cards, at least in part, for himself. In response, Polycom’s CFO raised the issue directly with Miller and suggested a system for further review of Miller’s expense reports to avoid problems in the future. Miller reacted angrily at being second-guessed. On June 26, 2011, the CFO sent Miller an email emphasizing the importance of Miller’s and the company’s disclosure obligations, including a detailed description of the relationship between Miller’s expenses, rules requiring that Polycom disclose all perks he received, and the company’s proxy statements. Notwithstanding the clear instructions provided in Polycom’s annual financial reporting questionnaires, which Miller signed, and the CFO’s personal explanation in June 2011, Miller continued to charge and hide personal expenses from Polycom.”

CII’s New Policy: Automatic Accelerated Vesting of Unearned Equity

Last week, the Council of Institutional Investors approved a policy opposing automatic accelerated vesting of unearned equity in the event of a merger or other change-in-control. The recommended best-practice policy states that boards should have discretion to permit full, partial or no accelerated vesting of equity awards not yet awarded, paid or vested.

Transcript: “The Top Compensation Consultants Speak”

We have posted the transcript for the recent webcast: “The Top Compensation Consultants Speak.”

– Broc Romanek

April 8, 2015

The SEC’s Updated Form 10-K Has a New Instruction (& Many Typos)

Recently, the SEC posted these forms that were renewed by the OMB: 10-K, 8-K, S-1 and 10-D. Goodwin Procter’s John Newell has redlined the changes to the updated Form 10-K, which includes one new instruction for asset-backed issuers (see page 5) and numerous typos. John only spent 10 minutes looking – but found over a dozen typos (highlighted on pages 6-12 here)!

In addition, here are redlined versions of the updated Form 8-K and Form S-1, which deletes the definition of “Securities Act” as a cute, and belated, plain English touch. Note the redlines are over-inclusive due to formatting changes between the two files that don’t necessarily reflect actual text changes…

The “SEC Warped on TV” Chronicles: Blacklist

Not that I watch a lot of TV, but I watch enough that I have been periodically moved to blog about how the SEC is mistakenly portrayed on TV shows. But I always forget to do so in the morning. So I’m finally going to run with the ball and blog about an episode of “Blacklist” that I watched from the DVR last night. [Spoiler alert if you watch this show but haven’t watched the latest episode!]

The episode – “Vanessa Cruz” – features a woman who is killing off the supervisors (or otherwise ruining their lives) at a brokerage that had employed her deceased husband. After being framed by the supervisors for insider trading, the husband jumped off a bridge. The FBI heroes ascertain it’s the wife targeting these supervisors years later. They interrogate a man in prison (who unknowingly was framed for a crime by the wife as revenge) who is asked this question:

Liz: Before you made your fortune in the private sector, you worked in the division of corporate finance at the S.E.C.

Apparently, this dude participated in the framing of the husband back when he worked at the SEC; that’s why the wife targeted him. Two things obviously wrong with this scenario:

1. The Division of Enforcement – not Corp Fin – handles insider trading investigations at the SEC. Not to mention that the SEC only has civil authority; the DOJ has the criminal hammer.

2. It’s called the “Division of Corporation Finance” – not “Corporate Finance.” A sure sign of someone who doesn’t intimately know the SEC…

Poll: How Do You Feel About Our Redesigned Home Page?

I’ve given you a month to get accustomed to navigating the redesigned home page on Now let me know what you think of it:

survey service

– Broc Romanek

April 7, 2015

Survey Results: Conflict Minerals

We recently posted the results from this year’s survey on conflict minerals (here are past survey results):

1. We will file a Form SD this year
– Yes, and it will be our 2nd year filing – 90%
– Yes, but it will be just our 1st year filing – 0%
– No, because we had business changes – 0%
– No, for other reasons than business changes – 0%
– Not applicable – 10%

2. We will use the specific original determination wording for calendar year ’14 even though it’s currently not mandated
– Yes – 24%
– No – 59%
– Not applicable – 17%

3. We have decided to exclude non-metallic forms of 3TG per the letter from the industry groups posted on the SEC’s comment page
– Yes – 18%
– No – 25%
– Not applicable – 57%

4. Our Conflict Minerals Report will reflect significant changes in content, structure or approach from our ’13 CMR
– Yes – 21%
– No – 76%
– Not applicable – 4%

5. We didn’t conduct an Independent Private Sector Audit (IPSA) last year and
– Don’t expect to conduct one for our 2014 report – 100%
– Expect to conduct one for our 2014 report – 0%

6. We expect to conduct an IPSA for your 2014 report and we plan on using a
– CPA firm & the Attestation standard – 0%
– Non-CPA firm & the Performance Audit Standard – 50%
– CPA firm & the Performance Audit Standard – 50%

7. For manufacturers: we are requiring part-level information from our suppliers
– Yes – 38%
– No – 59%
– Not applicable – 4%

8. For suppliers: Our customers are no longer willing to accept company-wide disclosures
– Yes – 16%
– No – 68%
– Not applicable – 16%

Take a moment to participate in our “Quick Survey on Hedging Policies” and our “Quick Survey on Currency Fluctuations for Incentive Compensation.”

Conflict Minerals: The Latest

Here’s some of the latest on conflict minerals:

– Per this article, SEC Chair White estimates its costs associated with the conflict minerals rule is $2.75 million so far (17k hours or $2.1 million to write the rule; 4k hours or $520k to defend it & $128k to update EDGAR)
– Some auditors are pulling out of the IPSA market per this blog entitled “Psst – Hey Buddy, Wanna Buy a Cheap Conflict Minerals IPSA?”
– Per this blog, if your CY2014 smelter/refiner list is limited to ONLY processing facilities that are CFSI audited or verified, your disclosure may be incomplete (unless CFSI audited/verified facilities actually do make up 100% of the names provided by your suppliers).

Transcript: “Merger Filings with the SEC: Nuts & Bolts”

We have posted the transcript for our recent webcast: “Merger Filings with the SEC: Nuts & Bolts.”

– Broc Romanek

April 6, 2015

Whistleblowers: SEC Brings 1st Confidentiality Agreement Case – Your Action Items

As the SEC has been telegraphing through its requests to review corporate agreements, the SEC brought its 1st enforcement action against a company for including improper restrictive language in confidentiality agreements last week. As noted in this press release, KBR agreed to pay a $130k civil penalty and take other remedial actions. It’s clear that the SEC intends to take an aggressive approach to interpreting and enforcing Rule 21F-17. We’re posting oodles of memos in our “Whistleblowers” Practice Area. As this Gibson Dunn memo notes:

A question remains how far the Commission’s enforcement activity will extend beyond confidentiality agreements–like KBR’s–that concern internal company investigations of potential compliance concerns, as distinguished from confidentiality provisions in general employment contracts, for example. Nonetheless, public companies and others will want to examine their existing agreements and practices in light of the SEC’s reading of the Rule, while recognizing that the SEC’s surprisingly broad interpretation of the Rule has not been accepted by any court, and may be at odds with companies’ legitimate interests in protecting trade secrets and other confidential information.

Also see this WSJ op-ed from Gibson Dunn’s Eugene Scalia entitled “Blowing the Whistle on the SEC’s Latest Power Move”…

SEC Tweaks Reg A+ Adopting Release

Hat tip to Richie Leisner of Trenam Kemker for pointing out that the SEC has quietly posted a revised Reg A+ adopting release last week. The revised adopting release now has page numbers all the way through the table of contents – the first version only had page numbers on pages 6 and 7. So if you printed out the release when it first came out, you may want to do so again…

Sights & Sounds from Taiwan

Great trip to Taiwan last week. Loved the country. Didn’t see Taiwan’s SEC – but did run across the Treasury building:

t treasury

And this museum certainly seems unique:

t museum

This video highlights the use of scooters to get around & the popularity of basketball (including among women, who were playing everywhere – nearly as much as the men):

– Broc Romanek

April 2, 2015

Pension Funds: Good Governance Linked to Long-Term Investing

This new KPA Advisory report, based on a recent survey of over 80 major pension funds, identifies a positive correlation between the quality of institutional investors’ internal corporate governance practices and their long-term investment practices. The findings further suggest that better internal governance actually drives long-term investing.

Unfortunately, however, it appears (based on the current as well as prior surveys) that there are significant governance deficits and long-term investing “aspiration vs. reality” gaps that need to be addressed to minimize short-termism and – instead – promote a long-term investment approach.

Principle governance deficits include:

Board selection and improvement processes continue to be flawed in many cases.
Board oversight function in many organizations needs to be more clearly defined and executed.
Competition for senior management and investment talent is often hampered by uncompetitive compensation structures.

Barriers to long-term investing include:

Regulations that force short-term thinking and acting 
– Short-term, peer-sensitive environment that makes it difficult to truly think and act long-term 
– Absence of a clear investment model, performance metrics and language that fit a long-term mindset 
Alignment difficulties in outsourcing, and compensation barriers to in-sourcing

This CFA Institute blog – which discusses short-termism factors identified in the report, as well as the short-termism problem more generally –  suggests that the time has come for a global set of standards and curricula to govern fund fiduciaries.

See also this 2013 Focusing Capital on the Long Term initiative-driven study revealing perceptions that short-term result pressures have been intensifying – which was the impetus for the current KPA Advisory project.

Building a Board for the Long-Term

This new Spencer Stuart publication is part of a more comprehensive essay collection reflecting the views of CEOs, directors, investors and regulators about what it will take to change current behaviors among companies and investors that compromise long-term growth for short-term gain. The paper provides guidance to boards on how to avoid succumbing to short-termism pressures and act – instead – consistently with a long-term view.

The essay collection is part of the broader Focusing Capital on the Long Term initiative co-founded by CPPIB (Canadian Pension Plan Investment Board) and McKinsey in 2013 to develop practical approaches for longer-term behaviors among both companies and investors.

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:

– Cybersecurity Guidance for Directors
– Directors Logging Many Hours for Board Service
– OECD’s Draft Updated Principles Support Proxy Access
– Under Attack: The SEC’s Use of Administrative Law Judges in Enforcement Actions
– Fine-Tuning Your Section 16 Reporting


– by Randi Val Morrison