Monthly Archives: November 2015

November 30, 2015

Nasdaq: Changes to Shareholder Approval Rules Considered

Recently, Nasdaq solicited comment on its shareholder approval rules. It’s a broad – and general – request since the rules haven’t changed much in the 25 years since they were adopted. Nothing specific is proposed – so this is sort of like a concept release. And since these are complicated issues, the comment period runs until February 15th…

The Explosion of Governance Service Providers: Worth It?

Although corporate governance became a household name over a decade ago – in the wake of Sarbanes-Oxley – it’s only until this era of shareholder engagement emerged in the wake of mandatory say-on-pay that governance specialists have exploded upon the scene. There are a number of different types of governance specialists, starting with the small shops or solo practitioners comprised of folks that used to serve as corporate secretaries in-house. There are organizations such as CamberView that consist of those that used to work at institutional investors. There are those that are communication firms like Teneo that are filled with people that held senior management roles (but not as corporate secretary). And then there are more traditional players, law firm personnel, the Big 4 (who each have their own separate governance practice) and proxy solicitors. And of course, ISS provides those services too.

Recently, I asked a random group of folks what they thought of the bigger players in the governance services sectors and I got these responses:

– I have clients who use them – some like them a lot and some do not. It does seem to matter who you get, what your problems are and what you expect. If you don’t actually have any real problems and the CFO hired them just to make everyone feel better, that’s the least value-add.

– Investors like them – it’s easier for investors to deal with a company that has been “coached” by former investors like a CamberView.

– That’s because you know what you are doing in talking to shareholders, but a lot of people find it mystifying and they need a lot of help. Also, they can be in a position to deliver the bad news of telling the CEO: “yes, you absolutely have to let a board member speak because that’s what investors want.”

– It really shows is that proxy solicitors are missing a big opportunity to have more sophisticated services.

– They’ve become like McKinsey — no one ever loses their job for hiring them.

– They’re pricey.

– They’re often hired by the non-lawyers, CFO or boards etc. People who just want to do something. I think they sometimes clash with legal.

– They think they’re like a boutique I-bank, maybe in the activist space. It’s a crowded market.

Book Review: “Comebacks for Lawyer Jokes”

I view myself as quick-witted – but terrible at telling jokes. Here’s an illustration of that in this short video where I review the wisdom of Malcolm Kushner’s book – “Comebacks for Lawyer Jokes.” Stick around til the end for the bloopers:

Broc Romanek

November 25, 2015

ISS: QuickScore 3.0 & Updated “Equity Plan Scorecard FAQs”

A few days ago, ISS released QuickScore 3.0, which doesn’t have too many tweaks. US subscribers will now be able to determine whether companies across the Russell 3000 allow for proxy access or the ability of shareholders to nominate directors. And this Mike Melbinger blog explains the updated “Equity Plan Scorecard FAQs”:

ISS made a few changes to the its new EPSC tool (expect more), including: (a) renamed as “CIC Vesting,” the Plan Features factor formerly known as “Automatic Single-Trigger Vesting” and changed the scoring levels plan provisions on the accelerated vesting of outstanding awards on a change in control; (b) increased the period required for full points with respect to the Post-Vesting/Exercise Holding Period Plan Feature to 36 months (versus 12 months previously); (c) re-named the “IPO” model as “Special Cases,” to analyze companies with less than three years of disclosed equity grant data (generally, IPOs and bankruptcy emergent companies); (d) added a new Special Cases model that includes Grant Practice factors other than Burn Rate and Duration will apply to Russell 3000/S&P 500 companies; and (e) adjusted certain factor scores in ISS’ proprietary scoring model. More to come on EPSC issues in future blogs.

Happy Holidays! A Little Zach Deputy…

Enjoy yourself! I’m going to be listening to the one-man band of Zach Deputy…

Broc Romanek

November 24, 2015

Insider Trading: Holiday Card to Directors (With Compliance Reminder)

One challenge we face is how to keep our reminders about the perils of illegal insider trading fresh. No one wants to sound like a whiner – and repetitive reminders tend to lose their value over time. That’s why I love this “Holiday Card to Directors,” which sneaks in a compliance reminder. Thanks to Ashley Bancroft of Consumers Energy for sharing!

Recently, I blogged about whether Edgar-plus services were in a state of decline – and I was surprised to learn how many services are still available still. For example, check out this RBsource Filings video that is only 2-minutes long & gives a nice demo…

Leasing Accounting: FASB Votes to Approve New Standard

Here’s the intro from this Gibson Dunn blog:

At a November 11, 2015 meeting, the Financial Accounting Standards Board (“FASB”) voted to proceed with final revised standards for lease accounting. The new standards would require lessees to record certain assets and liabilities for all leases with a term in excess of 12 months. This is a departure from existing accounting standards, which require balance sheet presentation only for leases classified as capital leases. This change is anticipated to have a significant impact on balance sheets for a broad swath of companies, potentially resulting in recognition of material amounts of lease-related assets and liabilities for many companies. Companies and their advisors should consider now whether the new standards will affect compliance with financial covenants in existing or future debt arrangements.

A Spotlight On Benefit Corporations

Here’s a blog by MoFo’s Susan Mac Cormac and Andrew Winden:

Benefit Corporations and other impact-driven corporate entities, such as Delaware Public Benefit Corporations and California Social Purpose Corporations, are proliferating at a healthy pace. More than 30 states have enacted Benefit Corporation statutes and more than 1,000 companies have incorporated as Benefit Corporations or similar entities. With the number of impact-driven companies increasing rapidly, it is only a matter of time before the management of an impact-driven company decides to scale its impact through an initial public offering.

There are not currently any separate or additional SEC disclosure or other requirements applicable solely to benefit corporations or similar impact-driven companies. However, a registration statement must contain all material information necessary for investors to make their investment decision. The SEC has not established a definition of “material”, but the term has been elucidated through informal SEC guidance and federal court decisions. The leading U.S. Supreme Court decisions on the subject established that a fact about an issue is “material” if the fact would alter the total mix of information available to investors or a reasonable investor would consider the information important in making an investment decision.

Because the enabling statutes for impact-driven companies typically require such a company to provide an annual or biennial report describing its impact objectives and assessing its progress in promoting such objectives against internally established or third party standards, it would be prudent for an impact-driven company to include information about its objectives, standards and assessments of its progress during the periods for which financial statements are required (two or three years) in the registration statement and prospectus since the information is likely to be considered material to investors in such a company.

The Sustainability Accounting Standards Board has developed sustainability accounting standards comprising disclosure guidance and accounting standards on sustainability topics for use by US and foreign public companies in their annual filings with the SEC. These standards vary by industry and identify topics that may constitute material information for companies within each industry. Although designed to support the disclosure of financial sustainability information, that is, financial information regarding environmental impacts caused and incurred, by public companies in required annual and periodic filings (on Forms 10-K, 20-F, and 10-Q), these standards could be easily adapted for use in IPO registration statements for companies with sustainability objectives.

The Global Impact Investing Network’s Impact Reporting and Investment Standards (IRIS) provide a significantly broader set of performance measurement metrics across a very broad set of very specific social, environmental and other public benefit objectives. The metrics in the IRIS library could also be used to articulate public benefit objectives and standards for measuring an impact-driven company’s progress in promoting such objectives in a registration statement to give investors a clear understanding of the company’s success in promoting its impact goals. It is possible that the SEC may eventually adopt rules requiring impact-driven companies to state their objectives, standards for measuring progress and self-assessment of success in meeting the stated objectives as part of the disclosure requirements for such companies, although given the breadth and distinctness of possible impact missions it is unlikely the SEC will seek to establish specific standards that must be measured and disclosed.

Benefit Corporations, Public Benefit Corporations and their counterparts in other states reflect investors’ and managements’ increasing appreciation of social impact and other values beyond the maximization of strictly financial stockholder value. As these types of corporations eventually become listed reporting companies, we can expect rule making by the SEC, as well as accounting standards boards, to provide guidance on the kinds of new material information needed for these kinds of corporate entities to fulfill their unique duties.

Broc Romanek

November 23, 2015

ISS Releases 2016 Policy Updates

On Friday, ISS issued its 2016 policy updates. As noted in this press release, key US policy updates include changes to the director overboarding policy (we’re posting memos in our “ISS Policies” Practice Area):

– For most directors except for standing CEOs, maximum number of public company boards that a director can sit on before being considered “overboarded” reduced from six to five.
– There will be a one-year grace period until 2017, giving directors and companies sufficient time to make any changes in advance of the 2017 proxy season.
– During 2016, ISS research reports will highlight if a director is on more than five public company boards, but adverse voting recommendations will not be issued under this new overboarding policy unless the current maximum of six boards is exceeded.
– For CEOs, the current overboarding limit will remain at two outside directorships.

For board actions that significantly reduce shareholder rights without approval by shareholders (so-called unilateral board actions), the policy is being updated to distinguish between (1) unilateral board adoptions of bylaw or charter provisions made prior to or in connection with a company’s IPO and (2) unilateral board amendments to those documents made after the IPO.

On executive pay and transparency, the “Problematic Pay Practice” policy will be updated to add “Insufficient Executive Compensation Disclosure by Externally Managed Issuers (EMIs)” to the list of practices that may result in an adverse voting recommendation on executive compensation. This will apply when an EMI fails to provide sufficient disclosure to enable shareholders to make a reasonable assessment of compensation arrangements for the EMI’s named executive officers.

Director Compensation: Delaware Emphasizes Importance of Corporate Formalities in Facebook Case

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

The litigation against Facebook for their director compensation raised a question of first impression: whether a disinterested controlling stockholder can ratify a transaction approved by an interested board of directors by expressing assent informally, instead of using one of the prescribed methods under Delaware corporate law, and be able to shift the standard of review from entire fairness to the business judgment presumption.

The board’s decision to approve the compensation of outside directors in 2013 was governed by the entire fairness review as a self-dealing transaction. After the filing of the lawsuit, which we previously discussed here and here, Mark Zuckerberg, who controlled over 61% of the voting power, approved the compensation in a deposition and with an affidavit. The company argued that these actions were enough to ratify the compensation and thereby shift the standard of review to the business judgment presumption.

The Court of Chancery of the State of Delaware disagreed in this opinion. Stockholder ratification of a self-dealing transaction must be accomplished formally by a vote at a stockholder meeting or by written consent. In denying the company’s motion for summary judgment, the court concluded that even a single controlling shareholder cannot ratify an interested board’s decision without adhering to the corporate formalities spelled out in Delaware corporate law.

A decision by interested directors about their own compensation will be reviewed as a self-dealing transaction under the entire fairness standard, but can gain the protection of the business judgment rule if a fully informed disinterested majority of stockholders ratifies the transaction. Under Section 228 of the DGCL, unless the charter otherwise restricts, any action that may be taken at any annual or special meeting of stockholders may be taken by majority stockholder consent without a meeting, notice or a vote. However, notice of the written consent (the taking of the action) must be provided to non-consenting stockholders to ensure some level of transparency.

Due to the potential for abuse, Delaware courts have traditionally adhered strictly to the technical requirements that signify stockholder approval. This court noted that if affidavits are considered sufficient as ratification, that could eventually lead to “Liking” a Facebook post of a proposed corporate action as being enough to express approval.

Interview: CEO Who Raised All Salaries to $70k

If case you didn’t catch the recent episode of “The Daily Show” where Trevor Noah interviews Dan Price – the CEO of Gravity Payments – who discusses why he raised all salaries to $70k or more. It’s fascinating – and certainly should give one pause when thinking about whether a CEO who already makes $5 million per year needs another raise…

By the way, here’s a recent documentary about conflict minerals…

Broc Romanek

November 20, 2015

Closed Commission Meetings: Voting Records Are Public

Recently, I noticed that the SEC posts lists about how each SEC Commissioner voted during closed Commission meetings. The matters discussed – and voted upon – during these closed meetings typically consist of enforcement proceedings (see my “SEC Enforcement Handbook” for analysis about the stages of an investigation that require Commissioner action).

This was the first time that I noticed this type of list posted on the SEC’s website – but apparently they aren’t new since I found this list of final Commissioner votes since ’06 (it’s possible that the compilation is newer than ’06). The lists are fairly crude and hard to navigate – but that’s because they are uploads of paper documents that the SEC’s Office of Secretary maintains (see how they’re manually marked).

Some of the hardcores out there may know that a tally of how each Commissioner voted has always been available to those that sought them – at least since 1967. They have been available in the SEC’s Public Reference Room since ’67, the year that FOIA was enacted by Congress. Here’s the language from the CFR that makes them public:

(2) Records available for public inspection and copying; documents published and indexed. Except as provided in paragraph (b) of this section, the following materials are available for public inspection and copying from 10 a.m. to 3 p.m., E.T., at the public reference room located at 100 F Street, NE., Washington, DC, and, except for indices, they are published weekly in a document entitled “SEC Docket” (see paragraph (e)(8)(ii) of this section):

(i) Final opinions of the Commission, including concurring and dissenting opinions, as well as orders made by the Commission in the adjudication of cases;
(ii) Statements of policy and interpretations which have been adopted by the Commission and are not published in the FEDERAL REGISTER;
(iii) Administrative staff manuals and instructions to staff that affect a member of the public;
(iv) A record of the final votes of each member of the Commission in every Commission proceeding concluded after July 1, 1967;

I’ve never been an ardent reader of the SEC Docket, so I’m not sure for how long it listed a tally of SEC Commissioner votes. I imagine it might have until the SEC started posting them online as reviewing online versions of the Docket from the last few years reveals that tallies haven’t been included recently.

I will soon be blogging about the Public Reference Room – and how it has shrunk over the years. Before EDGAR, it’s importance can’t be overstated. Interestingly, there are vestiges of the Public Reference Room littered throughout various documents of the SEC even today. For example, the Division of Trading & Markets hasn’t changed the boilerplate in SRO rule filing notices that says the actual application is available for review in the Public Reference Room. I’m pretty sure that isn’t true these days…

Do you think the “Public Reference Room” and the “Conventional Reading Room” are the same? The latter is mentioned on this FOIA page. I’ve never heard of a “conventional” reading room. How would it differ from an “unconventional” reading room? Perhaps dimly lit…

The SEC’s 4th Annual Whistleblower Report: 4000 Tips

A few days ago, the SEC’s Office of the Whistleblower published its 4th annual report for its activities of for the past year (see this memo). The highlights include:

– 4000 whistleblower during the 2015 fiscal year, an increase of 30% over 2012
– Paid more than $54 million to 22 whistleblowers since 2011
– Paid $37 million in 2015 fiscal year alone
– Nearly 50% of award recipients were current/former employees (of which 80% relayed their concerns internally before reporting to the SEC)
– 20% of award winners submitted their information anonymously to the SEC through counsel
– 20% of the awards were reduced because of an unreasonable reporting delay

SEC Chair White gave this testimony a few days ago on the SEC’s 2017 budget request (the Corp Fin stuff is summarized in this blog)…

Swingers: Training By Animation for Section 16(b) Liability

Use this 3-minute animation by Brooks Pierce’s David Smyth to train your staff about Section 16(b) short-swing liability:

Broc Romanek

November 19, 2015

Corp Fin’s Keith Higgins Speaks on the Future of Executive Pay Disclosures

A few days ago, Corp Fin Director Keith Higgins delivered this speech entitled “Executive Compensation: Looking Beyond the Dodd-Frank Horizon.” It’s definitely worth reading – and an easy read. It looks ahead to the SEC’s Disclosure Effectiveness project and it covers the executive pay disclosure waterfront (see Mark Borges’ blog on it), including:

– Item 10 of Schedule 14A
– Form S-8
– Regulation S-K
– CD&A
– Compensation Tables
– Compensation Committee Report

DOJ Updates US Attorneys’ Manual for Yates Guidance

A few days ago, the DOJ revised the chapter on the “Principles of Federal Prosecution of Business Organizations” in the United States Attorneys’ Manual – commonly known as the “Filip factors” – to incorporate previously announced “Yates” guidance addressing the accountability of individual employees in civil and criminal investigations of corporate wrongdoing. The new policies require that to receive any cooperation credit, a company “must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the Department all facts relating to that misconduct.” The new policies also clarify issues relating to the attorney-client privilege, timely self-reporting, foreign data privacy restrictions, and the prosecution of individuals.

SEC Enforcement: Self-Reporting Required for Deferred Prosecution or Non-Prosecution Agreement

Here’s a blog by Steve Quinlivan:

At a recent conference focused on FCPA matters, Andrew Ceresney, Director, SEC Division of Enforcement, focused on the benefits of self-reporting and cooperating with the SEC on FCPA matters. Mr. Ceresney noted that the Enforcement Division has determined that going forward, a company must self-report misconduct in order to be eligible for the Division to recommend a deferred prosecution agreement or non-prosecution agreement to the Commission in an FCPA case. He also stated he was hopeful that this condition on the decision to recommend a DPA or NPA will further incentivize firms to promptly report FCPA misconduct to the SEC and further emphasize the benefits that come with self-reporting and cooperation.

While it is now known where the SEC stands, in reality the Enforcement Division’s position just implements historical practice. In each FCPA case where the SEC has previously entered into a DPA or NPA, the company involved self-reported the violations, and then provided significant cooperation throughout the investigation.

Broc Romanek

November 18, 2015

Audit Fee Survey: SOX 404 Continues to Increase Costs

FERF recently released this Audit Fee Report that reveals audit fee information for 7,000 SEC filers over the past four years, in addition to information gleaned from over 220 survey responses including 76 public companies, 92 private companies and 57 nonprofit organizations.

Key public company survey findings include:

  • Median audit fee of $2.2 million for 2014 audits, representing a median increase of 3.1% over their prior year’s audit fees
  • Reasons for the increase reportedly were primarily due to acquisitions and review of manual controls resulting from PCAOB inspections. Other bases for increases included inflation, the new COSO framework, and changes in organization structure.
  • Number of audit hours required for audit: median of 6,720 (34 responses)
  • Average and median audit fees for companies that have centralized finance operations are significantly less than those that have decentralized finance operations
  • About 86.8% of companies use a Big 4 auditor—with PwC auditing 22 of the total 76
  • Majority of companies indicated that the volume of annual audit work by external auditors in 2014 increased compared to 2013 to obtain both an auditor’s report on the financial statements (69.3%) and an auditor’s report on ICFR (63.2%).
  • 67.6% of companies have adopted the 2013 COSO Framework. Others indicated that they will adopt the new Framework by 2015 year-end at the latest.
  • Over half of respondents indicated an increase in internal cost of compliance with SOX 404 within the past three years. However, about half indicated that they have better internal controls and that the additional expense was worthwhile.
  • 45.3% and 66.7% of respondents, respectively, indicated that their auditors requested that they make changes to their controls or controls documentation as a result of PCAOB requirements or inspection feedback.
  • None of the respondents indicated that the PCAOB findings resulted in a restatement of their financial statements, nor did it result in a change in their auditor’s opinion.

We have heaps of additional resources in our “Audit Fees” Practice Area.

SASB Launches Sustainability Accounting Credential

The SASB just launched a new credential – the “Fundamentals of Sustainability Accounting” – aimed at financial reporting professionals, sustainability professionals, investors, consultants and securities lawyers involved in evaluating sustainability issues that impact a company’s financial performance. The credential entails two exams designed to test expertise in the materiality of sustainability information for corporate strategy and investment analysis.

The first exam – Level 1 – focuses on principles and emerging practices. The second exam – Level II (currently under development) – will focus on application and analysis:


  • Learn how sustainability factors impact financial performance
  • Understand the legal context for material sustainability information
  • Gain a common language to describe the materiality of sustainability information to finance, legal, and accounting professionals



  • Learn how industry-specific sustainability information can inform corporate strategies or investor recommendations
  • Gain the skills needed to evaluate corporate performance on sustainability factors

For more information, see this infographic snapshot about the credential, and these FAQs. See also this Corporate Counsel memo.

Podcast: New SEC Enforcement Database

In this podcast, NYU’s Dr. Stephen Choi discusses the recently launched Cornerstone Research/NYU Securities Enforcement Empirical Database, or SEED, including:

– Can you provide an example of what kinds of insights someone can gain from using SEED?
– What makes it so difficult to get the same data directly from the SEC?
– How did the idea of SEED come about?
– What can we learn from SEED that would be relevant to the debate about the SEC’s so-called “home field advantage” in its administrative proceedings?
– What are your plans for SEED going forward?


– by Randi Val Morrison

November 17, 2015

Survey: 87% of S&P 500 Disclose Political Spending Policy

The recently released 2015 CPA-Zicklin Index reveals some noteworthy findings about the political spending-related practices of the S&P 500 that would appear to counter the perceived need by some for SEC rulemaking in this area (legitimate concerns about the information meeting any requisite disclosure materiality threshold notwithstanding), including:

Majority of companies have a political spending webpage: 54%, or 270 companies, had a dedicated webpage or similar space on their websites to address political spending and disclosure.
Most companies have policies addressing political spending: Over 87% (435 companies) had a detailed policy or some policy governing political spending on their websites.
Many companies have placed restrictions on their political spending: 25% (124 companies) placed some type of restriction on their political spending. This included restrictions on direct independent expenditures; contributions to candidates, parties and committees, 527 groups, ballot measures, or 501(c)(4) groups; and payments to trade associations for political purposes.
Over 40% of companies have some level of board oversight of their political contributions and expenditures:

  • Board oversight: 215 companies (43%) said their boards of directors regularly oversaw political spending.
  • Board committee reviews policy: 151 companies (30%) said that a board committee reviewed company policy on political spending.
  • Board committee reviews expenditures: 169 companies (34%) said that a board committee reviewed company political expenditures.
  • Board committee reviews trade association payments: 121 companies (24%) said that a board committee reviewed company payments to trade associations.

Access heaps of resources on this topic in our “Political Contributions” Practice Area.

House Letter to SEC Urges Abstention from Political Spending Disclosure Rulemaking

In October, House Committee on Financial Services Chair Jeb Hensarling and Subcommittee on Capital Markets & Government Sponsored Enterprises Chair Scott Garrett sent this letter to SEC Chair White urging her to refrain from moving forward on any rulemaking that would mandate corporate political spending disclosure. The letter claims that such rulemaking efforts would be “a waste of the SEC’s finite resources” on a controversial, discretionary rule that would reflect a deviation from the materiality standard articulated by the US Supreme Court in TSC Industries v. Northway, which Chair White reportedly endorses.

The letter also notes that a recent letter to Chair White from several U.S. Senators urging the SEC to mandate disclosure in this area failed to mention the materiality standard – focusing instead on non-securities law concerns that reflect a philosophical disagreement with the Supreme Court’s 2010 Citizens United decision.

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 Risk Committee Considerations
Industry Group Proposes XBRL Guidance
New COSO Framework Gaining Steam
Survey: Implications of Board Gender Diversity
Board Succession Planning: Chess vs. Checkers  

– by Randi Val Morrison

November 16, 2015

Glass Lewis (Quietly) Issues 2016 Proxy Voting Guidelines

Without much fanfare, Glass Lewis posted its “Guidelines for the 2016 Proxy Season” on Friday, which includes a summary of the changes to its policies for the upcoming proxy season on pages 1-2. I say it was done “quietly” because I see no mention of it on the Glass Lewis blog or GL’s home page

By the way, page 5 of the Glass Lewis policy updates includes a link to this 26-page “Shareholder Initiatives Guidelines” from earlier this year. There is no change in their look at proxy access on a case-by-case basis….

Dave & Marty’s “Pay Ratio Puppet Show”

Due to popular demand, we have posted the full 5-minute pay ratio puppet show that Dave & Marty performed at our recent “Proxy Disclosure Conference” on Check it out and then participate in the anonymous poll below:

Poll: Dave & Marty’s “Pay Ratio Puppet Show”

I find Dave & Marty’s pay ratio puppet show to be…

free polls

Broc Romanek

November 13, 2015

(Further) Examining the Quarterly Reporting/Short-Termism Link

With the increasing focus on minimizing short-term thinking and behaviors that might overshadow due consideration for behaviors that drive long-term value has come a debate about whether and to what extent quarterly earnings reporting contributes to – or promotes – management’s focus on the short-term. Regardless of which side of that debate you fall, this recent Harvard Law post suggests some thought-worthy considerations relative to quarterly vs. semiannual reporting, along with a new “middle ground” position consisting of quarterly earnings releases/calls bolstered by two streamlined quarterly reports sandwiched between a detailed 10-K and semi-annual report.

Considerations: Quarterly vs. Semi-Annual Reporting

  • Will replacing quarterly with semi-annual reporting really induce corporate executives to make longer-term business decisions? For example, would that sort of change elicit notably more new five-year investment projects?
  • Will earnings smoothing (to the extent this is an issue generally) occur in six-month intervals rather than three-month intervals if quarterly reporting is eliminated in favor of semi-annual reporting?
  • If the time period betwen earnings reports is elongated, will the gap between actual earnings and management’s projections similarly widen, thus triggering undesirable consequences (e.g., more pressure to smooth earnings)?
  • Would the opportunity and temptation for insider trading increase with a longer time period between management’s reporting out?
  • If mandatory quarterly reporting were eliminated (like it is in the UK) and some companies elect to report quarterly while some elected only to report semi-annually, would this disparity negatively impact investors’ need/desire for comparability among investments?

See my previous blog on the Push Toward Elimination of Quarterly Capitalism, Broc’s recent blog on Top Pet Peeves for Earnings Releases, and these recent articles and posts:

Is Short-Term Behavior Jeopardizing the Future Prosperity of Business?
Quarterly Financial Reporting is Needed, Productive, And Good
Is the Sun Setting on Earnings Season?
Time to End Quarterly Reports, Law Firm Says
Legal & General’s Call for an End to Quarterly Reporting

SEC’s Investor Advisory Committee Members Oppose FASB’s Materiality Proposals

At last month’s Investor Advisory Committee meeting, several IAC members reportedly voiced their objections to FASB’s recent proposals aimed at clarifying the concept of “materiality” for financial disclosure purposes to comport with legal standards. Among other things, some members reportedly perceived the proposals as an effort to reduce disclosure and expressed concerns that the proposal would effectively place disclosure decision-making within the purview of lawyers, who (they claim) tend to err on the side of “less is more” disclosure and regard disclosure of non-material (based on the legal standard) information as potential liability risks.

See Cahill Gordon’s recent post – which does a nice job of explaining the rationale for FASB’s sound (in my view) approach, and this WSJ article.

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Study: Director Age & Tenure on the Rise
– CEO Evaluations: Majority Assigned to Compensation Committees
– Breaking the Silence on Quiet Periods
– Survey: Directors Favor Evaluations for Succession
– Audit Committees: Establishing an Effective Whistleblower Program


– by Randi Val Morrison