Monthly Archives: July 2015

July 17, 2015

Deal Cubes: Making a Comeback?

As the proud founder of the “Deal Cube Museum,” I’ve been digging this blog devoted to deal cubes so much that I sat down to conduct this podcast with the blogger, David Parry of “The Corporate Presence.” The podcast addresses:

– What is your role for “The Corporate Presence” (including this blog)?
– Who typically makes the buying & design decisions for deal cubes these days?
– What are the latest trends in deal cube designs?
– What are the coolest deal cubes you have seen?

And hat tip to Lois Yurow for alerting me to this article from the “Financial Times” entitled “Mementos of triumphs make a return to bankers’ desks”:

When Lehman Brothers collapsed, Jessica Lindroos watched from her Canary Wharf office as redundant bankers left their building carrying boxes loaded with personal detritus. “It was a difficult time,” she says. For “The Corporate Presence,” where Ms Lindroos works, the bank’s bankruptcy was particularly gloomy. TCP makes deal toys, also known as Lucites and tombstones, commissioned by banks to mark the closure of a corporate deal and sit on a desk or an office shelf. The design will include relevant corporate logos and may reflect the nature of the deal. A TCP Lucite for the Twitter deal featured the blue bird logo in a birdcage.

When the financial crisis hit, headcount was cut at TCP, mirroring the sector overall. Smaller Lucite makers went bust. Kim Russo, founder and chief executive of New York deal toy agency Global Design Network, felt “scared” enough to reduce headcount, move offices, pitch to new clients and diversify into awards. Today, as mergers and acquisitions have bounced back, so have the deal toy makers. Ms Lindroos says last year “there were more deals, the phones were ringing and it was getting busier. Then, in 2014, even more so.” Nonetheless, the business landscape is very different from the 1980s and 1990s, says Ms Russo, a former stockbroker: “Deal toys were elaborate and budgets were not so constrained.” That said, the design process then was a lot slower, when she had to liaise with clients by fax and post.

Typically a deal toy ranges between £30 and £200 apiece, with the average about £60, says Ms Lindroos. A set of 20 or so is usually distributed among bankers from different institutions who have worked on a deal. It tends to be an analyst – the most junior banker on the team – who is charged with working with the deal toy maker. The task can be stressful for anxious bankers hoping to impress their higher-ups. Ms Russo says many fret, for instance about deadlines for the dinner to commemorate the deal and hand out the Lucites. They worry that “the managing director will get [angry]”. So part of her role is to hold their hand and say: “I need you to trust me.” She adds: “I’ll do anything I can to make the analyst look like a hero.” The worst jobs are those with tight deadlines. “What you are asking me to do is get pregnant and produce a baby in a few days,” says Ms Russo. Also difficult are bankers with grandiose ideas: “You can’t have a Mercedes for the price of a Volkswagen.”

Ms Lindroos recalls one project that spiralled out of control: the client wanted a rollercoaster, a zoo and lots of different animals. “It ended up looking really cluttered, but the client was adamant and it was something we could produce.” She says some of the Arabic banks want the largest pieces, mostly when marking energy deals. “[Those deal toys] are pretty extravagant and weigh a lot.” A substantial amount of time is spent ensuring one bank’s logo does not dwarf another’s.

While outsiders may view deal toys as frivolous and trinkets, they are important in providing meaning to work, says Daniel Beunza, a specialist in the sociology of financial markets at the London School of Economics. A merger, he says, can seem abstract to the bankers working on the deal, in contrast to, say, the factory workers in the companies being merged. “Deal toys are helpful in that regard. They can be shown around, exhibited in the office, and are understandable by many people, inside and outside the bank – kids, partners, friends.” Moreover, he says, they can provide a distraction from the vexed issue of bonuses. “By providing meaning and attributing credit to the overworked bankers involved in a deal, the hope is that less of their personal self-esteem will ride on the bonus.”

Coming Soon: Morrison & Romanek’s “The Corporate Governance Treatise”

We are happy to say the 2015 Edition of Morrison & Romanek’s “The Corporate Governance Treatise” has been sent to the printers! Here’s the “Table of Contents” listing the topics so you can get a sense of the Treatise’s practical nature.

You will want to order now so you can receive your copy as soon as it’s done being printed. With over 1100 pages — including 239 checklists — this tome is the definition of being practical. You can return it any time within the first year and get a full refund if you don’t find it of value.

Pay Ratio: Petition Hits 165k – & A New Timing Poll!

As noted in this press release, a group consisting of AFL-CIO, CREDO Action,, Americans for Financial Reform and Public Citizen delivered a petition to the SEC yesterday that numbered 165k signatures. Not sure whether that will influence the SEC to act any sooner since other petitions have not resulted in any action – although the rumor is that these rules will be adopted on August 5th.

There have been false starts before – this poll of the community as to when the pay ratio rules would be adopted fared well as the “winners” were those that guessed that the pay ratio rules would be adopted later than any of the offered poll choices. Here’s a new poll for you to make a prediction:

online surveys

– Broc Romanek

July 16, 2015

What’s the SEC Chair’s Role? Authority for the SEC’s Commissioners to Act?

Recently, a member asked: “I did a little looking at the statutory or other authority of the SEC’s Chair. I didn’t find very much that describes the role and authority of the chairman. As a practical matter, does the staff treat the Chair as the CEO (boss) and generally do what the Chair says? I always tell my clients that individual directors who are not officers have no authority to direct management to do anything. A board must act collectively or not at all. Interestingly, I could find a rule governing quorums of the Commission, but no rule that defining what vote is required for Commission action (i.e., a majority of the authorized number of Commissioners or a majority of a quorum). Perhaps these are matters that you could address in your blog.”

I forwarded this question to my go-to expert on this type of thing – Scott Kimpel of Hunton & Williams – who responded:

In Free Enterprise Fund v. PCAOB (2010), the Supreme Court held (just a few weeks before passage of Dodd-Frank) that the five Commissioners are, jointly, the head of the SEC. Also, Section 989B of the Dodd-Frank Act amended the Inspector General to provide that the “head of the designated Federal entity” with a board or commission (such as the SEC) means “the board or commission of the designated Federal entity.” Dodd-Frank changed prior law under which the inspector general only reported to the SEC chair. But the Court in Free Enterprise otherwise left intact Reorganization Plan Number 10 of 1950 (15 Fed. Reg. 3175).

Reorg Plan 10 formally transferred from the full Commission to the SEC Chair responsibility for all executive and administrative functions, including “(1) the appointment and supervision of personnel employed under the Commission, (2) the distribution of business among such personnel and among administrative units of the Commission, and (3) the use and expenditure of funds.” Item (3) is notable because it vests responsibility for the SEC budget solely with the Chair. I’ve found over the years that many people are surprised that the other commissioners have little to no input in the budget process, and the full Commission never takes a vote on the budget, which is unlike other agencies, such as the CFTC, where I understand there is no comparable provision and all of the Commissioners weigh in.

Reorg Plan 10 also vests the Chair with authority to appoint “the heads of major administrative units . . . subject to the approval of the Commission.” This provision gives the Chair a great deal of authority to hire and fire the general counsel and other division/office heads. Historically, these senior positions were held by career members of the civil service who ascended to director status after many years on the Staff, and director-level officers held these positions for many years across the tenures of multiple chairs. More recently, SEC Chair have generally brought in their own folks (often from the private sector) to serve as general counsel and as division/office directors, then these folks quickly leave when a new Chair joins. Unlike many cabinet-level executive departments that require Senate confirmation for the general counsel and various undersecretaries, there is no such requirement at the SEC, so appointing new directors is comparatively easy.

In terms of the interaction of the Chair, Commissioners and Staff, I believe the CEO-board analogy is a rough one at best. While it is true that the SEC Chair generally holds a position akin to a COO or CEO, the other Commissioners have no say in appointing the Chair (Reorg Plan 10 vested that power in the President), nor do they set the Chair’s compensation—all hallmarks of private-sector board oversight of the chief executive. And unlike traditional directors at a private-sector company, SEC Commissioners are employees of the agency, maintain offices and personal staffs at SEC headquarters, and regularly interact with members of the Staff, particularly on rule-makings and enforcement matters.

It is true that the Chair has the most frequent contact with the senior staff, but rank and file staff have little daily interaction with the Chair or the other Commissioners and generally take direction from their immediate staff supervisors. Many Staff members can work at the SEC for years without ever meeting a Commissioner other than a chance encounter with one in an elevator or at the coffee shop. That said, there is certainly no rule or protocol that otherwise limits who the other Commissioners can speak to on the Staff. Because adoption of rules and authorizing enforcement action are both activities that require a vote of the Commission, individual Commissioners can have a great deal of influence over how these matters develop, and there is regularly a good deal of horse trading among the Commissioners and Staff working on a project to achieve a majority on a given vote.

As to the voting question more specifically, the quorum requirement appears at 17 CFR §200.41. It provides: “A quorum of the Commission shall consist of three members; provided, however, that if the number of Commissioners in office is less than three, a quorum shall consist of the number of members in office; and provided further that on any matter of business as to which the number of members in office, minus the number of members who either have disqualified themselves from consideration of such matter pursuant to §200.60 or are otherwise disqualified from such consideration, is two, two members shall constitute a quorum for purposes of such matter.”

A majority vote of those SEC Commissioners participating in a meeting where quorum is present is required for a matter to pass. There is no particular SEC rule on this issue, but it is instead based on the holding in cases like FTC v. Flotill Products, which the Supreme Court decided in 1967. In that case, the Court considered whether an official action of the FTC required the vote of a majority of the full Commission, or only of a majority of the quorum that participated in the decision. The Court noted what it referred to an “almost universally accepted common-law rule . . . in the absence of a contrary statutory provision, a majority of a quorum constituted of a simple majority of a collective body is empowered to act for the body.” I believe the SEC’s Office of General Counsel and Office of Secretary have developed various rules of thumb to administer this holding in practice. And a great deal of the Commission’s business is discharged through written consents in lieu of a meeting (each known colloquially as a “seriatim” from the legal Latin for a document signed in series) in which all five of the Commissioners must sign before the action is effective.

Also see Keith Bishop’s blog on this topic…

Mailed: July-August Issue of “The Corporate Executive”

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

– FASB Issues Exposure Draft Proposing ASC 718 Amendments
– Delaware Courts Approve Another Lawsuit Over Director Stock Awards (and More Lawsuits Are Filed)
– A Trap for Corporate Executives
– IRS Issues Final Section 162(m) Regs
– Grant Date When Performance Awards Are Granted After the Start of the Performance Period
– SEC Proposes Clawback Rules

Act Now: Get this issue rushed to when you try a “1/2 Price for Rest of 2015″ No-Risk Trial to The Corporate Executive.

Wearable Computers: What Next?

Apparently, wearable computers were all the rage during this year’s SXSW despite the demise of Google Glasses. How might wearable technology impact investors? This article from a few years back gives some clues…

– Broc Romanek

July 15, 2015

More Fake News: Twitter’s “Unreal” Tender Offer

As Jeff Werbitt blogged last month, the SEC uncovered the dude who perpetuated the fake takeover rumors regarding Avon. The con artist was Bulgarian and used techniques to make it look like the “story” appeared on Bloomberg’s website. Yesterday, as noted in this article, the same techniques were used to perpetuate fake rumors about a takeover of Twitter (except that no SEC filing was involved) – apparently this time the hoax originated in Panama. Hat tip to Simpson Thacher’s Yafit Cohn for pointing it out!

Check out my blog over on entitled “Whoa! Dell Shareholders Lose Appraisal Rights Due to Custodial’s Back-Office Procedures“…

NYSE Trading Suspension: Implications for Issuer Equity Derivatives

This Skadden memo does a good job of explaining how the NYSE’s tech snafu last week might have done some real harm in the derivatives market by triggering a “market disruption event” …

Webcast: “Cybersecurity – Governance Steps You Need to Take Now”

Tune in tomorrow for the webcast – “Cybersecurity: Governance Steps You Need to Take Now” – to hear Weil Gotshal’s Paul Ferrillo and Randi Singer, as well as PhishMe’s Aaron Higbee, get into the nitty gritty of how cybersecurity is now a huge governance concern and what you should be doing (including how to best train employees). Please print these “Course Materials” in advance…

Don’t forget to tune into today’s webcast – “Clawbacks: What Now After the SEC’s Proposal” – to hear Compensia’s Mark Borges, Semler Brossy’s Blair Jones and Morrison & Foerster’s Dave Lynn discuss the SEC’s latest proposal…

– Broc Romanek

July 14, 2015

Tomorrow’s Webcast: “Clawbacks – What Now After the SEC’s Proposal”

Tune in tomorrow for the webcast – “Clawbacks: What Now After the SEC’s Proposal” – to hear Compensia’s Mark Borges, Semler Brossy’s Blair Jones and Morrison & Foerster’s Dave Lynn discuss the SEC’s latest proposal…

P4P & Hedging Proposals: Comment Letters Submitted to the SEC

With the July 6th deadline behind us, roughly 60 comment letters have been submitted to the SEC on its pay-for-performance proposal. The commentators are from all walks of our community, including investors, issuers, comp consultants, law firms and others (like this one from the Aspen Institute, a broad-based nonpartisan group).

Meanwhile, the SEC’s hedging & pledging proposal drew about 20 comment letters.

Senate Panel Mulls Changes in Rules on Nonqualified Deferred Compensation

Here’s news from this Towers Watson blog; here’s the intro:

As part of a series of hearings on tax reform, the Senate Finance Committee recently held a hearing on the issue of fairness in the tax code. In connection with the hearing, the committee’s ranking Democrat, Sen. Ron Wyden (D-OR), released a report on tax avoidance strategies that outlines possible recommendations for reforming nonqualified deferred compensation (NQDC) as part of an expected tax reform proposal. In his opening statement, Sen. Wyden noted that the report is intended to “shed some light on some of the most egregious tax loopholes around.” Rocks!

I guarantee that you will agree that this is the best 20-second promo around!

– Broc Romanek

July 13, 2015

Board Diversity: Shareholders Might Start Voting “No” for Your Nominees

Internationally, there is real momentum for gender diversity on boards, as noted in this “30% Club” article. The companies in the UK are nearing the “25% women on boards” target set few years ago by Lord Davies. Meanwhile, the 10% level here in the USA has been the plateau for quite some time. That may soon change as shareholders take action to vote against a board’s slate of nominees if the board wasn’t sufficiently diverse. For example, the Massachusetts Pension Board recently decided it would no longer vote in favor of slates unless women and minorities make up at least a quarter of the slate.

This Chicago Tribune article notes how the State of Illinois passed a resolution recommending that Illinois corporations have a minimum level of diversity – something that California did two years ago (both of these “resolutions” don’t have the effect of a real state law). This is an issue that is not going away…

Meanwhile, CalSTRS recently issued these “Best Practices in Board Composition“…

Tomorrow’s Webcast: “Nasdaq Speaks ’15: Latest Developments and Interpretations”

Tune in tomorrow for the webcast – “Nasdaq Speaks ’15: Latest Developments and Interpretations” – to hear senior members of the Nasdaq Staff – Arnold Golub, David Strandberg, William Slattery & Cyndi Rodriguez – discuss all the latest. Please print these “Course Materials” in advance…

Transcript: “Escheatment Soup to Nuts: Handling Unclaimed Property Audits & More”

We have posted the transcript for our recent webcast: “Escheatment Soup to Nuts: Handling Unclaimed Property Audits & More.”

Last week, the FASB reaffirmed its decision back in April to defer the effective date of the new revenue standard (ASU 2014-09) for one year (and allow early adoption as of the original effective date)…

– Broc Romanek

July 10, 2015

Disclosure Effectiveness: Modernizing Edgar

On the heels of the recent widely reported, fabricated Avon bid that revealed flaws in the Edgar system, the Business Roundtable, CAQ, FEI and Chamber of Commerce recently filed this joint Edgar-focused comment letter in connection with the SEC’s Disclosure Effectiveness initiative.

The letter suggests a number of near-term Edgar improvements pending implementation of longer-term enhancements and SEC rulemaking. The recommendations focus on consolidating and updating current Edgar search features by improving their visibility and organization, and additional enhancements – including improvements to the company search page, filings detail screen and output functionality. Recommendations are detailed and well-illustrated in the letter’s “Appendix A” via mock-ups of existing web pages accompanied by additional commentary. 

The business coalition’s suggestions dovetail nicely with Corp Fin Director Keith Higgins’ remarks at last month’s SEC Advisory Committee on Small & Emerging Companies meeting, wherein he reportedly characterized full Edgar Modernization as a 10-year process, but noted that there are things the Commission can do in the interim to make information more easily available to investors.

See also this recent letter, where Senate Judiciary Committee Chair Charles Grassley sought responses from SEC Chair White to multiple questions concerning Edgar processes and vulnerabilities, and this Compliance Week article.

Edgar Gets an Upgrade – No Longer Supports 2013 GAAP

As noted in this Accounting Today article, the SEC’s recently upgraded Edgar will no longer support 2013 GAAP or XBRL:

The Securities and Exchange Commission has upgraded its EDGAR online system for financial filings and will no longer support an older version of the U.S. GAAP financial reporting taxonomy. The SEC said Tuesday that it upgraded EDGAR on Monday to Release 15.2 and it no longer supports the 2013 U.S. GAAP financial reporting taxonomy and the 2013 EXCH taxonomy for XBRL, or Extensible Business Reporting Language. The SEC staff is strongly encouraging companies to use the most recent version of taxonomy releases for their XBRL exhibits to take advantage of the most up-to-date tags related to new accounting standards and other improvements.

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:

– Delaware Chancery Addresses the New Delaware Ratification Law
– Study: Boards Increasing in Size to Add Women Directors
– Insider Trading Policy/Program Considerations
– SASB Standards Cheat Sheet: Interactive Materialty Map
– Managing Political Spending Disclosure Pressures


– by Randi Val Morrison

July 9, 2015

Shareholder Proposals: Trinity/Wal-Mart Decision Clarifies “Ordinary Business”

The Third Circuit filed its long-awaited opinion this week in the Trinity v. Wal-Mart case following its mid-April order reversing the District Court and allowing Wal-Mart to exclude Trinity’s proposal from its proxy under Rule 14a-8’s ordinary business exclusion. Although the Court makes clear that the disposition of each case is fact-specific, the opinion sets forth a logical framework and analysis for applicability of the exclusion.

This great opening set the stage for what I found to be a very engaging and insightful opinion:

“[T]he secret of successful retailing is to give your customers what they want.” Sam Walton, SAM WALTON: MADE IN AMERICA 173 (1993). This case involves one shareholder’s attempt to affect how Wal-Mart goes about doing that.

Notably, among other things, the Court: (i) prompted in large part by Trinity’s arguments and the District Court’s analysis, devoted substantial discussion to distinguishing a proposal’s form versus its substance (emphasizing that the latter must govern); and (ii) rejected the notion that a proposal’s call for board (as opposed to management) action magically obviates the availability of the exclusion.

Having served in-house with a retailer for almost 12 years, I also appreciated the Court’s analysis and observations about the aspects of retailing that were particularly relevant in this case. Among other insights, the Court observed  that management weighs numerous factors – consumer safety, reputational, financial, competitive, etc.- in deciding what products to sell and that, although shareholders may provide valuable input, that should be the extent of their influence in this area: “Although shareholders perform a valuable service by creating awareness of social issues, they are not well-positioned to opine on basic business choices made by management.”

And finally, in a “save the best for last” conclusion, the Court expressed empathy for the many of us who deal with these issues on a regular basis, and suggested that the SEC update its proposal guidance:

Although a core business of courts is to interpret statutes and rules, our job is made difficult where agencies, after notice and comment, have hard-to-define exclusions to their rules and exceptions to those exclusions. For those who labor with the ordinary business exclusion and a social-policy exception that requires not only significance but “transcendence,” we empathize. Despite the substantial uptick in proposals attempting to raise social policy issues that bat down the business operations bar, the SEC’s last word on the subject came in the 1990s, and we have no hint that any change from it or Congress is forthcoming . . . We thus suggest that [the SEC] consider revising its regulation of proxy contests and issue fresh interpretive guidance.

See also Cydney Posner’s blog, and heaps of helpful resources in our “Shareholder Proposals” Practice Area.

Proxy Season: Uptick in Shareholder Activism Tempered by Strong Director Support

The latest Broadridge/PwC ProxyPulse and EY report both reveal a 2015 proxy season characterized by various forms of increased activism coupled with indicators that, for the most part, reflect widespread support for company practices.

Particularly noteworthy are the strong shareholder support for directors (the highest level in seven years) and say-on-pay, and EY’s S&P 500 data reflecting increasing engagement. Approximately 50% of S&P 500 companies disclose engagement with investors – up from 6% five years ago, and 18% of those disclose board involvement.

 As a result of engagement:

46% disclose changes in practices or disclosure
82% disclose changes related to executive pay
33% disclose changes related to governance
12% disclose changes related to environmental or social practices
7% disclose changes related to general proxy disclosures/format

Access oodles of proxy season information and resources in our “Proxy Season” Practice Area.

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:

– SEC Speaks: Cybersecurity Controls & Disclosures
– Board Evaluation Facilitators – aka “Board Doctors”
– Executive Succession: Onboarding Best Practices
– Survey: Subsidiary Governance Practices
– Audit Committee Guidance: Accounting Changes


– by Randi Val Morrison


July 8, 2015

Crowdfunding: First Enforcement Action Against Project Creator

This recent, first FTC enforcement action against a crowdfunding project creator is instructive. The defendant, who raised money from (and promised rewards to) individuals on Kickstarter to produce a board game, allegedly instead used the more than $122,000 obtained from 1,246 backers for personal expenses including rent, relocation, personal equipment and licenses for a different project.

Under the settlement order, the defendant is prohibited from making misrepresentations about any crowdfunding campaign and failing to honor stated refund policies, and barred from misuse of customers’ personal information. The order imposes an approximately $112,000 judgment that was suspended due to the defendant’s inability to pay, but will be due immediately if he is found to have misrepresented his financial condition.

In addition to signaling a warning to other crowdfunding project creators who may be thinking that their misdeeds are below any regulatory radar screen (which, fortunately, is not the case), the action serves as a reminder to consumers to be mindful of the risks associated with crowdfunding of this nature. See also this Securities Edge post and WSJ blog, and this Crowdfund Insider post comparing and contrasting reward-based and equity-based crowdfunding.

I realized Crowdfunding had become mainstream when I saw this “how to” guide in my recent LA Times weekend Parade magazine.

Startup Funding Sources: Crowdfunding an Increasingly Significant Player

According to this recent policy brief from the Kauffman Foundation, over 20% of startups applying for loans in the first half of 2014 did so through an online loan platform, i.e., crowdfunding.

Other noteworthy stats include:

Banks (particularly small banks) are the primary source of startup capital.
40% of initial startup capital is in the form of bank debt.
Equity, primarily sourced from angel investors and venture capitalists (3% and 1%, respectively), is much rarer, but reportedly more impactful due, in part, to intangible contributions from these types of investors such as expertise and guidance.
Venture-backed companies purportedly tend to professionalize sooner, have an increased likelihood of an IPO, and have greater post-IPO survival rates.

The brief includes a reader-friendly chart noting the primary advantages and disadvantages of each of the main funding sources.

In related news, intrastate crowdfunding was among the principle topics discussed at the SEC Advisory Committee on Small and Emerging Companies meeting last month. Among other things, committee members urged the Commission to review Rule 147 of the ’33 Act, which is deemed to be impeding the use of state crowdfunding. See this Crowdfund Insider blog.

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: Board Guidance – A Different Approach
– Revenue Recognition Standard: Early Adoption & Deferral
– 2015 Audit Committee Agenda
– Blackholes in the Boardroom
– Stand-Alone Conflicts of Interest Policy Considerations


– by Randi Val Morrison

July 7, 2015

Proxy Disclosure Awards: Vote Now!

It’s time to vote! Thanks to the many who submitted nominations – it was hard to pare those down (& apologies to those that didn’t get their candidates onto our final slate). I tried to limit the number of nominees to three for each category – but sometimes that was challenging because we had so many candidates submitted for certain categories. Folks are proud of their executive summaries!

Please take a moment to vote for these 12 categories of awards. Voting is anonymous – and ends on Friday, July 24th. Here’s the FAQs

The First Wave of Form 1-As? Fairly Low Quality

In this blog, Steve Quinlivan points to a CrowdCheck blog that claims that 5 of the 6 initial Form 1-As have been “withdrawn.” As Steve notes, Corp Fin is gonna have it’s hands full with defective filings since the form is so new – and many of these forms are filed by do-it-yourseflers.

As to what “withdrawn” means, I haven’t a clue. A quick scan of the table of contents of the SEC’s EDGAR Filer Manual doesn’t address this topic. And I know it’s pretty hard to get the SEC to remove things from EDGAR. My guess is that perhaps they weren’t really deleted from EDGAR – but I doubt there was a “withdrawn” notation of some sort either. Any ideas?

My favorite Form 1-A so far was filed by Weed Real Estate, which proposes to lease property to companies engaged in the marijuana business. In a few months, we’ll be conducting a webcast on emerging Reg A practices…

The SEC’s Investor Advocate’s Latest Objectives

Here’s a new 52-page report of the SEC’s Office of Investor Advocate’s objectives for ’16. Pages 29-35 summarize the activity of the Investor Advisory Committee…

– Broc Romanek

July 6, 2015

Audit Committee Disclosures: SEC’s New Concept Release!

As expected (see my earlier blog), the SEC issued a concept release last week on audit committee disclosure, fairly concurrently with the PCAOB’s release of its Supplemental Request for Comment on disclosure of the audit engagement partner.

The SEC’s concept release, which focuses on independent auditor oversight, acknowledges that some companies already exceed the minimum audit committee-related disclosure requirements. In fact, presumably prompted in part by the Audit Committee Collaboration’s 2013 Call to Action, as discussed in my previous blog and the CAQ’s Transparency Barometer, many companies already disclose more than the minimum across a broad spectrum of potential disclosures.

The SEC’s concept release seeks comment on whether disclosure of the audit engagement partner and additional members of the engagement team should be made by the audit committee and included in the proxy statement. In contrast, the PCAOB’s proposal would require that audit firms publicly disclose the name of the audit engagement partner and information about certain other audit participants in a new form filed with the PCAOB. The PCAOB’s proposal purportedly seeks to be responsive to concerns raised by auditors and others specifically regarding the risks of liability and litigation associated with disclosure of such information in the auditor’s report, as had been previously proposed; however, concerns expressed about the implications of identifying the engagement partner were not limited to risks of liability/litigation.

Here is an excerpt from Ning Chiu’s blog on the areas of potential additional disclosure included in the SEC’s release:

Audit committee’s oversight of the auditor:

1. Additional information regarding communications between the audit committee and the auditor, which could include all communications required under the PCAOB rules, the nature of the committee’s communication with the auditor related to the auditor’s overall audit strategy, timing, significant risks, nature and extent of specialized skill used in the audit, planned use of other firms or persons, planned use of internal audit, the basis for determining that the auditor can serve as principal auditor, the results of the audit, and how the audit committee considered these items in its oversight of the auditor
2. How often the audit committee met with the auditor
3. The audit committee review of and discussion about the auditor’s internal quality review and most recent PCAOB inspection report
4. Whether and how the audit committee assesses, promotes and reinforces the auditor’s objectivity and professional skepticism. It is unclear what the SEC is expecting in this regard and in fact, the SEC itself questions what type of disclosures would satisfy this possible requirement.

The audit committee’s process for appointing or retaining the auditor:

1. Whether and how it assesses the auditor and its rationale for retaining the auditor
2. The process for selecting the auditor through any requests for proposals (RFPs)
3. The board’s policy, if any, for a shareholder vote on auditor ratification and the consideration of the vote in selecting the auditor

Qualifications of the audit firm and members of the engagement team:

1. Disclosure of the name of the engagement partner and key members of the engagement team and their experience
2. The audit committee’s input in selecting the engagement partner
3. The number of years that the auditor has audited the company
4. Other firms involved in the audit

Both the SEC & PCAOB releases are tagged with 60-day comment periods.

See also Dorsey’s memo, and Cydney Posner’s and Bob Lamm’s blogs. We’re posting memos about the SEC’s release in our “Audit Committees” Practice Area, which includes, among other things, helpful resources specifically pertaining to audit committee disclosure.

SEC Charges Deloitte with Auditor Independence Violations

Coincidentally (presumably), on the same date that the SEC issued the audit committee concept release, it charged Deloitte with violating auditor independence rules when its consulting affiliate maintained a business relationship with a trustee serving on the boards and audit committees of three funds it audited. Deloitte agreed to pay more than $1 million to settle the charges. The SEC also charged the trustee with causing related reporting violations by the funds, and charged the funds’ administrator with causing related compliance violations. SEC Division of Enforcement Associate Director Stephen Cohen noted:

“The investing public depends on independent auditors like Deloitte to test the reliability of publicly-reported financial statements, and they have front-line responsibility for ensuring their own independence. But they are not alone in safeguarding the audit process, and the other fiduciaries charged in this case failed to fulfill their roles and preserve investor confidence.”

Access heaps of helpful resources in our “Auditor Independence” Practice Area.

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:

– Audit Committee Survey: Workload at Tipping Point?
– 2015 Cyber Risk Agenda
– Navigating Corporate Governance Hot Topics
– Study: Data Breach Preparedness
– Survey: Current (& Future) State of Compliance


– by Randi Val Morrison