Monthly Archives: August 2015

August 17, 2015

Key M&A Trends: Overseas Expansion Going Mainstream

Deloitte’s recently released 2015 M&A Trends Report reveals a booming, wide-reaching M&A environment spanning small, mid-sized and large public and private companies and private equity firms, multiple industry sectors, and domestic and overseas markets. The report reflects the results of an early 2015 survey of more than 2,000 public and private companies and over 400 private equity firms.

Noteworthy findings include:

– Strong interest in overseas expansion. Among private equity respondents, 85% indicated that their deals involve acquiring a company domiciled in a foreign market – up from 73% last year. And 74% of the corporates are investing overseas – up from 59% last year.
– 39% of corporates expect to tap into the robust M&A environment to pursue divestitures – up almost 25% from last year.
– 85% of corporates anticipate acceleration of – or at least sustaining – last year’s M&A pace; only 6% expect deal-making activity to decrease.
– 94% of private equity firms forecast average to very high deal activity – up from 89% last year.
– Private equity firms anticipate ramping up both add-on acquisitions and portfolio exits.

Note that global M&A value in the first half of this year reportedly hit an 8-year high – second only to the all-time record set in 2007.

Deloitte’s report also notes that the vast majority of corporate and private equity respondents said that their deals fell short of financial expectations. See my earlier blog on tips to achieve post-merger integration success.

Directors with Foreign Experience Linked to Improved Company Performance

This interesting paper discusses the results of a study about the impact of directors with foreign experience on company performance in emerging markets based on unique, but purportedly adaptable, data from Chinese markets.

The authors demonstrate these impacts associated with foreign directors on the board:

– Increased company valuation, productivity, and profitability
– Improved corporate governance, as evidenced by a decreased propensity to manage earnings (captured by estimated discretionary accruals)
– Greater likelihood of international acquisitions (suggesting a broader range of investment opportunities) and other indications of internationalization, e.g., increased exports and engagement of foreign investors for capital-raising

The authors note that these benefits associated with foreign directors on the board may be presumed to result from their exceptional talent or their foreign experience – but that evidence suggests foreign experience plays the greater role.

See also my earlier blog concerning the underrepresentation of directors with international experience on S&P 500 boards, and this tip from DuPont’s CEO: “Be Wary of the Jet-Lagged Director.”

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:

– 2015 Challenges & Practical “To Dos”
– Gender Balance on Boards: Five Steps to Achieve Success
– Inside Baseball: Working for an Independent Auditor
– Japan: A Proposal to Allow Only Long-Term Investors to Vote
– What’s Up with IPOs?


– by Randi Val Morrison


August 14, 2015

JOBS Act: Additional Benefits?

When President Obama signed the JOBS Act in 2012, one of the primary purposes was to ease the cumbersome IPO process by creating a confidential submission process. Well, according to this WSJ article, it looks like companies filing confidential IPOs are getting another benefit – M&A visibility. The article provides examples of companies that seem to have utilized the IPO on-ramp to facilitate an M&A transaction.

Here’s an excerpt:

Since the owners of a company preparing to go public want to monetize their investment, the very existence of the confidential filing can accelerate a sale process for a company, and ultimately lead to a less risky outcome for private-equity and venture-capital investors, who can get paid in one fell swoop once an acquisition closes.

On a related subject – as we blogged about in July – the House of Representatives passed a bill to reduce the amount of time that a company must publicly disclose its IPO prior to its roadshow – from 21 days to 15 days. See this WSJ blog discussing the potential change.

Retail Investors: Open to Activist Investor Viewpoints?

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

A recent survey by the Brunswick Group counters beliefs that retail investors are always “pro-management” in any voting contest. The survey examined the views of 801 US-based individuals who play an active role in their personal investment decisions.

Two-thirds are aware of shareholder activism and 74% think shareholder activism adds value to companies “by pushing corporate executives and boards to make decisions about issues that company management is otherwise unwilling to make.” Most of these investors say that activists force companies to aim for long-term value creation for shareholders, while only a slight majority indicate that companies are already doing enough to return value to shareholders. 51% do not believe that boards of directors are working in retail investors’ best interest.

Interestingly, excessive executive compensation or executive compensation that is not viewed to be tied to a company’s performance is the main reason that a retail investor would support an activist proposal. Retail investors also tend to trust the financial press as the best source of information during a campaign, although a large majority would also read materials from the company as well as the activist investor and research the issue online.

The importance of retail investors, particularly in close contests, has been of increased interest lately and could be the subject of more focus as activism increases. The survey indicates from other sources that as of July 2015, 300 companies have already been subjected to activist campaigns, a 23% increase over the same period last year. Moreover, in 2014, a reported 249 companies were targeted by activists that had not experienced campaigns in previous years.

Podcast: Recap of ’15 Proxy Season

In this podcast, Jamie Carroll Smith of the EY Center for Board Matters reviews the 2015 proxy season, including:

– What are the proxy access takeaways from this year’s proxy season?
– How has investor engagement during this year’s proxy season evolved?
– How have activist hedge funds impacted this year’s proxy season?
– What was the volume of shareholder proposal submissions during this year’s proxy season?
– What were the topics of interest?

– Jeff Werbitt

August 13, 2015

Conflict Minerals & Meat: Two Peas in a Pod?

As reported by this WSJ blog, the US Court of Appeals for the DC Circuit is currently rehearing the question of whether the conflict minerals rules violate the First Amendment – to the extent that they require a company to report that its products “have not been found to be ‘DRC conflict free.’” In case you’ve blocked out the case, here’s our blog with an analysis of the Court’s appeal decision from last year. Apparently, the fate of the rehearing may hinge on a decision the Court made in a recent meat labeling case. Here’s an excerpt:

In April 2014, the three-judge appeals court panel decided that the requirement in the SEC’s rules to mandating that companies label their products as “conflict free” or not violated free speech rights. But just weeks later, the court heard arguments in a case brought against the U.S. Department of Agriculture by the American Meat Institute on requirements to label meat with a country of origin. That case led to a different outcome.

The Court is now considering how that meat labeling case impacts the conflict minerals decision.

Also check out this Cooley blog & WSJ blog that discuss this Tulane study about conflict minerals compliance. Meanwhile, this WSJ blog reports how ethical investors are using conflict mineral reports.

Pay Ratio: SEC Commissioner Piwowar Doubles Down (On His “No”)

Here’s something that Broc blogged on “The Advisors Blog” a few days ago: As I have blogged before, it used to be rare that a SEC Commissioner put a dissent to a rulemaking in writing. Now in this age of partisan politics, that is fairly common. But in a new “first,” SEC Commissioner Piwowar has penned a second dissent to the pay ratio rulemaking! Here’s his first dissent.

The second dissent could be a blueprint for how a complaint would look if this rulemaking is challenged in court. It claims the SEC violated the Administrative Procedure Act in adopting the rule and similar legal mumbo jumbo (eg. the SEC acted in an “arbitrary & capricious” manner, a phrase that describes a standard of review used when a government agency’s actions are challenged under administrative law). This is interesting because Piwowar is not a lawyer, he’s an economist…

Pay Ratio Workshop: Discounted Rate Extended to August 21st! – We received so many requests to extend the deadline for our discounted rate that we have done so for our upcoming “Pay Ratio Workshop” that will be held on Tuesday, August 25th. This event will be held online via audio webcast. Here’s the “Pay Ratio Workshop” agenda.

This “Pay Ratio Workshop” is part of a registration to the “Proxy Disclosure Conference” & “Say-on-Pay Workshop” that will be held on October 27th-28th in San Diego and by video webcast. In other words, this new “audio-webcast only” event is paired with our prior pair of executive pay conferences. So it’s three conferences for the price of one! Register now – discounted rate available now through August 21st!

These are part of our FAQs:

– For those registered to attend in San Diego in person or by video, you also gain access to the August 25th “Pay Ratio Workshop” that is available only by audio webcast
– You will receive an ID/pw to access the August 25th “Pay Ratio Workshop” by the middle of August (although it will just be your existing ID/pw to our sites if you already have a membership)
– There is no CLE available for the “Pay Ratio Workshop” (but there will be CLE for the “Proxy Disclosure/Say-on-Pay” Conferences in October in most states)
– An audio archive of the “Pay Ratio Workshop” will be available starting on August 25th in case you can’t catch that event live

Podcast: “Dead Hand” Proxy Puts

In this podcast, Brad Davey & Chris Kelly of Potter Anderson & Corroon discuss “dead hand” proxy puts, including:

– What is a “dead hand” proxy put & where do you typically find them?
– Why have these provisions received so much attention lately?
– How have the Delaware courts treated these provisions?
– What should be done now with existing debt instruments & credit agreements that contain “dead hand” proxy puts?
– How should debt instruments & credit agreements be drafted moving forward?

– Jeff Werbitt

August 12, 2015

SEC Busts Earnings Release Hackers! 150K Releases Stolen Over 5 Years…

Who said the Ukraine is weak? (Kramer did.) Yesterday, the SEC announced fraud charges against 32 defendants for taking part in a global scheme that involved hacking into news wires to obtain nonpublic information from 150,000 earnings announcements over 5 years (but they only traded on 800 of those 150k). Those charged include two Ukrainian men – Ivan Turchynov and Oleksandr Ieremenko (hope they keep those names for the movie) – who allegedly did the hacking & 30 others who then traded on it, generating more than $100 million in profits. 150,000! 5 years! $100 mil!

This quote from this Washington Post article gives a sense of the brazenness of this scheme:

The hackers, who called the early-accessed filings “fresh stuff,” masked their movements through proxy servers and stolen employee identities, and recruited traders with videos showcasing how swiftly they could steal corporate data before its release. Traders kept “shopping lists” of the releases they wanted from select public companies, many of whom were large Fortune 500 conglomerates with heavy interest in market trading.

Here’s Chair White’s remarks – and here’s an excerpt from the SEC’s complaint (paragraph #68) that confounded me:

For each press release, there is a window of time between when the issuer provides a draft press release to the Newswire Service and when the Newswire Service publishes the release (the “window”). This window varied between a number of minutes and a number of days.

Are companies really giving their earnings releases to the wires days in advance? Obviously, not a good idea! Keep your confidential information under your control for as long as you can!

As an aside, here’s my 1st blog about this type of problem from 2010 – but these initial incidents didn’t appear to involve hacking, just premature “hidden” posting of earnings releases by companies. In these initial cases, companies were posting their releases early – but the URLs weren’t fully hidden. They weren’t linked to from anywhere on the corporate site yet – but they were posted early and bots were able to sleuth them out.

Particularly because – in some cases – the URLs for these releases followed a corporate convention so that even a human could have sleuthed it out by just typing in a specific URL (eg. URL for last earnings release ended in “3rdQ” – so next release would be “4thQ”). I don’t believe there’s been this type of incident recently – the Twitter snafu back in May didn’t seem to involve a URL sniffing bot per this blog

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

We have posted the transcript for our recent webcast: “Cybersecurity: Governance Steps You Need to Take Now.”

7th Circuit Opens Door to Data Breach Class Actions

Here’s the intro from this Akin Gump blog:

On July 20, 2015, the U.S. Court of Appeals for the 7th Circuit issued an opinion that could dramatically change the class action landscape for companies that are victims of hackers. In Remijas v. Neiman Marcus Gp., the 7th Circuit reversed the district court, ruling that Neiman Marcus (NM) customers whose credit card information was compromised had standing to bring a class action suit against the retailer.

– Broc Romanek

August 11, 2015

10-K/10-Q Comment Letters: Cut in Half Over 5 Years?

While we recently saw a study about the substance of responses to Corp Fin comment letters – as Broc blogged about in May – there’s now a study focusing on the number of comment letters being issued. Check out this blog by Audit Analytics that provides some interesting statistics (& a nifty chart) about the number of comment letters referring to issues in Form 10-K and 10-Q filings that Corp Fin has issued over the past five years. Here’s an excerpt:

The overall trend is quite clear: 2014 marked the fourth straight year of steady (10% to 20% annually) decline in the number of 10-K and 10-Q comment letters. Starting in 2010 with almost 14,000 letters, the total decreased more than 50% to about 6,400 in 2014.

Audit Analytics does not draw any conclusions as to why the number of comment letters referring to Form 10-K and 10-Q filings has steadily decreased despite the SOX requirement to review the financials of every company every three years. However, it does offer some factors that may be impacting the statistics, including fewer or less complicated issues to comment on – and more resources being directed to the review of registration statements.

Checklist: Corp Fin Quick Reference Guide

Check out this “Corp Fin Quick Reference Guide” that Broc & I recently posted. The guide provides tips for interacting with the Corp Fin Staff, including:

– What’s Corp Fin?
– What’s the Organizational Structure?
– How Do I Determine Which AD Office Reviews a Company’s Filing?
– Where Can I Find Corp Fin No-Action, Interpretive & Exemptive Letters?
– Where Can I Find Additional Corp Fin Interpretations & Guidance?
– How Can I get My Questions Answered By Phone?
– How Do I Contact a Corp Fin Staffer Directly?

The guide includes a number of links to the Corp Fin web page & our site that should be helpful when you want to reach out to the Corp Fin Staff.

Poll: Why Are ’34 Act Comment Letters Decreasing?

Here’s an anonymous poll about why you think Corp Fin is issuing fewer comment letters on Form 10-Ks & 10-Qs:

survey solutions

– Jeff Werbitt

August 10, 2015

General Solicitation & Reg D: Corp Fin Issues 12 New CDIs (& a No-Action Letter)

Last Thursday, Corp Fin issued 11 Securities Act Rules CDIs (256.23 – 256.33) & one Securities Act Forms CDI (130.15). The 11 Securities Act Rules CDIs provide guidance on “general solicitation” under Rule 502(c) and the Securities Act Forms CDI relates to Form D.

In addition, Corp Fin granted this no-action letter to Citizen VC – an online venture capital firm – which was requesting that the Corp Fin Staff concur with its process for creating substantive, pre-existing relationships with prospective investors over the Internet and that resulting offers & sales under Rule 506(b) of limited liability company interests would not constitute general solicitation or general advertising under Rule 502(c) of Regulation D.

Disclosure of Engagement Partners: Fourth Time’s a Charm?

Here’s news from Baker & McKenzie’s Dan Goelzer: For the fourth time since 2009, the PCAOB is soliciting comment on requiring public disclosure of the name of the engagement partner, and of certain other audit participants, in connection with audits performed under the PCAOB’s jurisdiction. On June 30, the Board issued a supplemental request for comment on a new proposed rule that would require auditors to file a form with the PCAOB disclosing the name of the engagement partner and the names of accounting firms, in addition to the signing firm, that participated in the audit. Comment on the PCAOB’s revised proposal is due by August 31, 2015.

This new proposal follows a 2009 PCAOB concept release on requiring engagement partners to sign audit reports in their own name; a 2011 proposed rule that would have required the name of the engagement partner, along with information concerning other participating firms, to be included in the audit report; and a 2013 release re-proposing the 2011 rule with somewhat narrower requirements regarding the disclosure of other audit participants. See November-December 2013 Update.

The PCAOB’s latest approach to engagement partner and participating firm disclosure would require the information be filed on a new PCAOB form, Form AP. Unlike the 2013 proposal, auditors would not be required to include the partner and participant names in the auditor’s report, although they could do so – in addition to filing the new form – if they desired. The auditor would be required to file Form AP each time it issued an audit report on the financial statements of a public company or an SEC-registered securities broker-dealer. Form AP would have to be filed 30 days after the auditor’s report is included in an SEC filing; in the case of an initial public offering, the deadline would be reduced to 10 days so that the information would be available before any road show. Since the objective of Form AP is public disclosure, the data reported would be “accessible through a searchable database on the Board’s website.”

Supporters of engagement partner disclosure argue that personal identification strengthens accountability and provide an added incentive for the engagement partner to perform his or her responsibilities with a high degree of care. Partner identification would also permit financial statement users to determine other audits for which the engagement partner has been responsible and to compile information regarding quality incidents, such a restatements, in which partners have been involved. Participating firm identification would permit users to determine whether the other firms involved – particularly non-U.S. firms – were subject to PCAOB inspection and, if so, to review the participating firms’ inspection reports.

The PCAOB’s prior attempts to require this type of disclosure have foundered on concerns about new liabilities to which engagement partners and participating firms might become subject, and, as a corollary, delays that might result in the ability of companies to raise capital when audit opinions are incorporated into Securities Act public offering registration statements. In the case of a public offering, the engagement partner and the participating firms would have to file written consents to liability as a result of their names appearing in the audit opinion. In some cases, these consents might be difficult or impossible for the company seeking to make the public offering to obtain. The PCAOB believes that including partner and participant names in a filing, rather than in the audit report, will avoid the consent problem.

Comment: It is debatable whether the SEC or the PCAOB should have primary responsibility for requiring these types of audit-related public disclosures. The SEC audit committee disclosure concept release, issued at the same time as the new PCAOB proposal, raises the possibility of an SEC rule requiring the audit committee to disclose the name of the engagement partner and information concerning other accounting firms that participated in the company’s audit. If the SEC were to decide to adopt such a requirement, there seems to be no reason for the PCAOB to require the same disclosure in a PCAOB filing. In light of the SEC’s broad statutory responsibility for disclosure-based investor protection, the issue of whether and how this type of information should be disclosed would seem to fall squarely within its jurisdiction.

From an audit committee perspective, mandatory engagement partner identification – regardless of the source of the requirement – could have several consequences. As noted in the November-December 2013 Update, there is some evidence that partner identification results in increased audit costs. Further, audit committees would need to be aware of litigation, restatements or similar events arising in other audits for which their engagement partner was responsible, since the committee might face shareholder scrutiny regarding whether to change engagement partners when such events in other audits seem to reflect poorly on the partner.

In addition, as the PCAOB’s release acknowledges, partner identification could result in a rating, or “star,” system in which particular engagement partners were in high demand and others viewed as less desirable. This would add a new dimension to the task of selecting an auditor and require deeper audit committee involvement in the choice of the engagement partner.

More on our “Proxy Season Blog”

We continue to post new items regularly on our “Proxy Season 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:

– Shareholder Engagement: TIAA-CREF
– Delaware Weighs In: Plain Vanilla Advance Notice Bylaws
– Some Ways to Shorten 10-Ks & 10-Qs
– Shareholder Proposals: Doing Research Through Free Databases
– Chamber: Report on How to Deal With Proxy Advisor Conflicts

– Jeff Werbitt

August 7, 2015

CII Issues Proxy Access Best Practices (No Companies Comply)

Earlier this week, the Council of Institutional Investors (CII) issued these Proxy Access: Best Practices outlining its position on seven proxy access bylaw or charter provisions that companies use and which CII characterizes as troublesome. According to this WSJ article, none of the 32 companies that had implemented proxy access as of late June comply with all seven, i.e., each had at least one of the “troublesome” provisions.

Seven “Troublesome” Proxy Access Provisions

Ownership threshold of 5%
% or number of directors that may be elected could result in fewer than two candidates
Aggregation of stockholders limited to specified number
Lack of clarity on whether loaned shares count toward the ownership threshold
Requirement to continue to hold shares after annual meeting
Restrictions on renominations when nominee fails to receive specific % of votes
Prohibition on third party compensation arrangements with proxy access nominee

In this blog, Gibson Dunn describes each of the provisions, along with CII’s position on what constitutes “best practices,” the treatment of the issue under Rule 14a-11, and data on prevailing practices among companies that have adopted proxy access.

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

ESMA Best Practice Principles: Chartered Secretaries Cite No Improvement in Proxy Advisor Practices

Hat tip to the Society of Corporate Secretaries & Governance Professionals for this blurb:

ESMA Publishes Responses on Shareholder Voting Rights to Best Practice Principles

Yesterday, the European Securities and Markets Authority (ESMA) published the responses received to its call for evidence on shareholder voting rights. ESMA had sought specific feedback from investors, proxy advisors, corporate issuers and other stakeholders on how they perceived the most recent proxy seasons since the Best Practice Principles for Providers of Shareholder Voting Research and Analysis (BPP) were initially published in March 2014.

Referencing its Summer 2015 Boardroom Bellwether survey, the Institute of Chartered Secretaries and Administrators’ (ICSA) comment letter noted that 58% of companies perceived the influence of proxy advisers on shareholder engagement with the company to be negative (only 14% cited a positive influence), and that its members have noticed no changes in the BPP signatories’ practices since the BPP publication other than a deterioration in the time given for issuers to respond to proxy advisor reports (in the case of at least one of the original signatories to the BPP).

The ICSA’s letter further indicates that the BPP has made no difference in improving issuer understanding of – or confidence in – the proxy advisory industry and that, although it may be premature to evaluate the impact of the BPP, additional measures would be necessary to achieve this, including requirements to, e.g., provide issuers with a minimum time to respond to reports before they are issued; take into account any errors identified by issuers and correct reports; clarify actions responsive to conflicts of interest; and disclose processes for checking report information.

Podcast: Survey Reveals GC’s Value to the Board/C-Suite

In this podcast, John Gilmore discusses the increasing value of the GC to the Board and C-Suite based on Barker Gilmore’s recent survey of CEOs and directors, including:


– by Randi Val Morrison


August 6, 2015

Pay Ratio: 10 Things to Know About the New Rules

Yesterday, by a 3-2 vote, the SEC adopted its pay ratio rules. Here’s the 294-page adopting release – and here’s the press release. Commissioner statements for White, Aguilar and Stein – dissents from Gallagher and Piwowar.

Here’s 10 things to know:

1. Effective Date is Not Imminent (But You Still Need to Gear Up Now): We can look forward to new “Top 10” Lists in a couple years. Highest and lowest pay ratios. Although the rules aren’t effective until the 2018 proxy statements for calendar end companies, you still need to start gearing up, considering the optics of your ultimate disclosures. The rules don’t require companies to make pay ratio disclosures until fiscal years beginning after January 1, 2017.

2. You Don’t Need to Identify a New Median Employee Every Year! – This is the BIG Kahuna in the rules! A big cost-saver as the rules permit companies to identify its median employee only once every three years (unless there’s a change in employee population or employee compensation arrangements). You still need to disclose a pay ratio every year – but you don’t have to go through the hassle of figuring out who your median employee is each year. During those two years when you rely on a particular median employee, your median employee’s – and CEO’s – pay are the variables.

3. Pick Your Employee Base Within 3 Months of FYE – The rules allow companies to select a date within the last three months of its last completed fiscal year to determine their employee population for purposes of identifying the median employee (so you don’t count folks not yet employed by that date – but you can annualize the total compensation for a permanent employee who did not work for the entire year, such as a new hire).

4. Independent Contractors Aren’t Employees – Duh. Except there are nuances – so unfortunately it’s not a “duh”!

5. Part-Time Employees Can’t Be Equivalized – The rules prohibit companies from full-time equivalent adjustments for part-time workers – or annualizing adjustments for temporary and seasonal workers – when calculating pay ratios.

6. Non-US Employees & The Whole 5% Thing – For some reason, the mass media is in love with this part of the rules. The rules allow companies to exclude non-U.S. employees from the determination of its median employee in two circumstances:

– Non-U.S. employees that are employed in a jurisdiction with data privacy laws that make the company unable to comply with the rule without violating those laws. The rules require a company to obtain a legal opinion on this issue – can you say “cottage industry”!
– Up to 5% of the company’s non-U.S. employees, including any non-U.S. employees excluded using the data privacy exemption, provided that, if a company excludes any non-U.S. employee in a particular jurisdiction, it must exclude all non-U.S. employees in that jurisdiction.

7. Don’t Count New Employees From Deals (This Year) – The rules allow companies to omit employees obtained in a business combination or acquisition for the fiscal year in which the transaction took place (so long as the deal is disclosed with approximate number of employees omitted.)

8. Total Comp Calculation for Employees Same as Summary Comp Table for CEO Pay – The rules state that companies must calculate the annual total compensation for its median employee using the same rules that apply to CEO compensation in the Summary Compensation Table (you may use reasonable estimates when calculating any elements of the annual total compensation for employees other than the CEO (with disclosure)).

9. Alternative Ratios & Supplemental Disclosure Permitted – Companies are permitted to supplement required disclosure with a narrative discussion or additional ratios (so long as they’re clearly identified, not misleading nor presented with greater prominence than the required ratio).

10. Register NOW for Our August 25th “Pay Ratio Workshop” – You need to register now because the discount ends at the end of this Friday, August 7th. Registration also includes access to our two October conferences “Proxy Disclosure/Say-on-Pay” (for those, it’s either in person in San Diego or by video webcast – for the “Pay Ratio Workshop,” it’s an audio-webcast only event). The Course Materials will include model disclosures and more. Here’s the agendas for all three conferences. Act by Friday, August 7th to save!

According to my poll yesterday, pay ratios remind the most folks of Pink Floyd’s “Another Brick in the Wall”…and see Mark Borges’ blog on the rules…

Whistleblowers: SEC Issues Interpretive Release on Retaliation

A few days ago, as noted in this blog by Steve Quinlivan, the SEC issued this interpretive release that appears to lay to rest some uncertainty raised by a 5th Circuit case in 2013. The SEC confirmed that an individual who reports internally and suffers employment retaliation will be no less protected as a whistleblower than an individual who comes immediately to the SEC. Here’s an excerpt from the release:

Since our adoption of the whistleblower rules, we have consistently understood Rule 21F-9(a) as a procedural rule that applies only to help determine an individual’s status as a whistleblower for purposes of Section 21F’s award and confidentiality provisions. Similarly, it has been our consistent view that Rule 21F-2(b)(1) alone controls the reporting methods that will qualify an individual as a whistleblower for the retaliation protections. Notwithstanding our view that Rule 21F-2(b)(1) alone controls in the context of determining the relevant reporting procedures for an individual to qualify as a whistleblower eligible for Section 21F’s employment retaliation protections, the Court of Appeals for the Fifth Circuit expressed some uncertainty about this reading in a recent decision. [Asadi v. G.E. Energy (U.S.A.), L.L.C., 720 F.3d 620, 630 (5th Cir. 2013).] Although we appreciate that if read in isolation Rule 21F-9(a) could be construed to require that an individual must report to the Commission before he or she will qualify as a whistleblower eligible for the employment retaliation protections provided by Section 21F, that construction is not consistent with Rule 21F-2 and would undermine our overall goals in implementing the whistleblower program. ………. [reasons]

For the foregoing reasons, we are issuing this interpretation to clarify that, for purposes of Section 21F’s employment retaliation protections, an individual’s status as a whistleblower does not depend on adherence to the reporting procedures specified in Rule 21F-9(a).

Transcript: “Selling the Public Company – Methods, Structures, Process, Negotiating, Terms & Director Duties”

We have posted the transcript for our recent webcast: “Selling the Public Company: Methods, Structures, Process, Negotiating, Terms & Director Duties.”

– Broc Romanek

August 5, 2015

Pay Ratio: Is It Possible the SEC Doesn’t Approve the New Rules?

With the SEC Commissioners gathering for an open Commission meeting at 10 am this morning to consider adopting final pay ratio rules, you may ask yourself: “Might the Commissioners actually not vote in favor of adoption?” Based on historical evidence, the answer is simply “no.”

Over three decades of observing the SEC, I can’t recall a rule not being adopted when brought to a vote at an open Commission meeting. Any SEC Chair worth her salt would save herself the embarrassment of not getting a desired rule over the finish line by not bringing it up for a vote at a public meeting. Bear in mind that there are plenty of proposed rules that never get adopted – but none of those were brought up for a final vote at an open Commission meeting.

And even proposals don’t get shot down at open Commission meetings. At least not since the ’80s. Former SEC Secretary Jack Katz notes a few instances way back when proposals were shot down in a public forum. One was when the SEC’s Chief Accountant proposed new accounting treatment for oil production that was rejected unanimously by all the Commissioners in the early ’80s. And another one followed the ’87 market break, when Market Reg proposed a series of legislative changes to be forwarded Congress – some of which were blessed by the Commissioners and some were not.

Note that there are rules that die during the seriatim process – not because they got explicitly rejected, but because a Commissioner’s office “sits” on it (often for years) and refuses to advance the seriatim to the next Commissioner’s office. The Chair then has to decide whether it’s worth it to take the languishing rule to an open meeting – and typically will not do so for fear of a public rejection. So the seriatim just withers on the vine. So we don’t even know that a final rule has essentially been rejected because all of this plays out behind closed doors (see this blog about whether an open Commission meeting is necessary). Thanks to Hunton & Williams’ Scott Kimpel for his help!

Also note that enforcement matters get voted down at closed Commission meetings periodically…

Pay Ratio Workshop: Discounted Rates End at End of This Friday, August 7th! – We want to help you get prepared – so I have put together a “Pay Ratio Workshop” that will be held on Tuesday, August 25th, which will be held online via audio webcast. Here’s the “Pay Ratio Workshop” agenda.

This “Pay Ratio Workshop” is part of a registration to the “Proxy Disclosure Conference” & “Say-on-Pay Workshop” that will be held on October 27th-28th in San Diego and by video webcast. In other words, this new audio-webcast only event is paired with our prior pair of executive pay conferences. So it’s three conferences for the price of one! Register now – discounted rate available only through August 7th!

These are part of our FAQs:

– For those registered to attend in San Diego in person or by video, you also gain access to the August 25th “Pay Ratio Workshop” that is available only by audio webcast
– You will receive an ID/pw to access the August 25th “Pay Ratio Workshop” by the middle of August (although it will just be your existing ID/pw to our sites if you already have a membership)
– There is no CLE available for the “Pay Ratio Workshop” (but there will be CLE for the “Proxy Disclosure/Say-on-Pay” Conferences in October in most states)
– An audio archive of the “Pay Ratio Workshop” will be available starting on August 25th in case you can’t catch that event live

ISS Seeks Input: Annual Policy Survey

ISS has opened its annual survey ahead of updating its policies. The survey closes on September 4th – and then the results are released a few weeks later. Then there’s an open 30-day comment period in October – with the final policy updates arriving sometime in November typically. The entire policy process is described on ISS’ website. ISS has also posted its preliminary ’15 proxy season review

Poll: Pay Ratio Reminds You of Which Song?

Take a moment to participate in this anonymous poll:

free polls

– Broc Romanek

August 4, 2015

SEC Enforcement: Civil Penalties at 10-Year High

According to a recent WSJ analysis, the SEC has more than doubled the typical fine against individuals over the past decade – responding, at least in part, to ongoing post-financial crisis pressure to crack down on potential bad actors.

For the first six months of fiscal 2015, the SEC levied more civil penalties than in any comparable period since at least 2005. Median fines on individuals were the highest since 2005 – with half of the fines exceeding $122,500, representing a 66% increase when adjusted for inflation.  Although median fines against companies (as opposed to individuals) were down relative to prior periods, the number of fines was up – from 66 in the first half of last year to 103 for the comparable period this year.

The record is seemingly at odds with recent political (see, e.g., Sen. Warren’s letter and this New Republic article) and internal (see Aguilar and Stein) attacks on the strength (or alleged weakness) of the SEC’s enforcement program. Logically, it seems that both the number and dollar value of enforcement actions should be variable over time because they should be contextual – i.e., dependent on actual company and individual conduct, which is – to a great extent – influenced by risks, pressures, opportunities, economics, international crises, etc., in the larger macroenvironment within which companies operate. Perhaps lower fines and/or fewer actions ought to be viewed as a positive indicator rather than a sign of weakness.

See also Jeff Werbitt’s previous blog on Chair White’s response to Senator Warren’s attacks, the Chamber of Commerce’s recent report suggesting enhancements to the SEC’s enforcement program and SEC Enforcement Director Andrew Ceresney’s response, and Gibson Dunn’s mid-year securities enforcement update.

Securities Litigation Update: Steady State

Gibson Dunn’s mid-year securities litigation update reveals these key statistics and trends (among others) for the first half of 2015:

– Filing and settlement trends continue to reflect a “steady state” of several hundred case/year.
– The number of “merger objection” cases filed so far this year represents about 20% of total cases filed in the federal courts – on pace to meet or exceed last year’s level.
– Cases naming financial institutions as the primary defendants are at the lowest level in this decade–only 10% of new cases filed, compared to 40% in 2008 at the onset of the credit crisis.
– Median settlement values are less than half of the level of just three years ago – $5.2 million in the first half of 2015 vs $12.3 million in 2012.
– Average settlement amounts increased dramatically – from $34 million in 2014 to $64 million in the first half of 2015, fueled by two very large settlements.
– 60% of 2015 settlements were under $10 million, while roughly 20% were over $50 million.
– Median settlement amounts as a percentage of investor losses was only 1.3%, continuing to reflect a decades-long pattern of investor losses ≤ 3%.

See also Cornerstone’s Midyear Assessment and Kevin LaCroix’s 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:

– Board Portals: Potential Downsides & Mitigation Tips
– Emerging Trends (Including Litigation) in ESG Reporting
– Few 10-K Amendments Triggered by Restatements
– Optimizing the CEO-Chair Relationship
– Emerging Growth Companies Dominating the IPO Market


– by Randi Val Morrison