Here’s news from Scott Kimpel of Hunton & Williams: As described in this press release, the SEC brought yet one more settled administrative case yesterday against a public company – Health Net – based on confidentiality & waiver provisions contained in employee severance agreements – paying a $340k penalty. Like in the BlueLinx action brought last week, the SEC determined that these provisions violated the anti-whistleblower rules it adopted under Dodd-Frank – and again, there is no indication that the company actually sought to enforce the offensive provisions. Here’s the SEC order, which contains excerpts of the impermissible contractual language.
Toni Chion, an Associate Director in the SEC’s Enforcement Division, supervised both cases – which may suggest that the cases are the product of a broader enforcement sweep…
Sunshine Act: SEC’s Quorum Rule Helps to Keep Rulemakings at a Near Standstill
I love blogging about the Sunshine Act. As I’ve blogged before, the SEC has a quorum rule that has the end result that a single Commissioner can refuse to show up & effectively veto a Commission action when the Commission has three sitting Commissioners or less. Which is the case for the foreseeable future since the Senate has failed to confirm the two folks waiting to be confirmed since last year.
Here’s an excerpt from this recent WSJ article about how the quorum rules vary at the federal agencies:
Not all short-handed federal agencies are as hobbled by the restrictions of a 40-year-old open-government law as the top U.S. overseer of derivatives. The Commodity Futures Trading Commission’s big-sister agency, the Securities and Exchange Commission, is similarly short-handed, with three of five slots occupied. But the top markets cop gets around the government in the Sunshine Act hitch largely because the law allows regulators to come up with their own definition of a quorum—the number of commissioners required to be present for their agency to act on a matter.
So the SEC came up with a special “quorum” rule, which says no decision can be made without at least three members present—if three is the number of commissioners in office. If the agency drops to only one or two commissioners, that is enough for a quorum, the rule says.
That creates its own complexities: By simply not showing up to a vote, a dissenting commissioner can block the agency from acting altogether. This effective veto power is complicating what is likely Mary Jo White’s final year as SEC chairman and could leave undone a raft of rules on issues that tend to split the commission along party lines.
The Sunshine Act was meant to prevent regulators from crafting deals in proverbial smoke-filled rooms. The law prohibits a majority of commissioners at government agencies from “deliberating” on policy matters outside of a public meeting.
At the depleted CFTC—where two of the five slots on the commission have been vacant since August 2015 due to stalling in Congress—two sitting commissioners now make a majority. And because it is a blurry line between discussing policy and deciding it, the three commissioners largely avoid interacting directly. Commissioners rely on their aides to hammer out deals, slowing down deliberations by weeks.
Spanking brand new. By popular demand, this comprehensive “Form S-8 Handbook” covers the entire terrain, from share counting & filing fees to updating prospectuses & deregistration. This one is a real gem – 69 pages of practical guidance – and its posted in our “Form S-8″ Practice Area.
Study: Most Americans Get Their News From Social Media
This blog by Kevin O’Keefe spells out what I view as obvious: a Pew Research Center study that finds that 62% of all Americans get their news from social media. Think about how you receive your news for our community. I imagine much of it is blogs & LinkedIn right now – but podcasts, video, etc. will continue to be a growing force in how you learn the latest…
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net 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:
– IPOs: Common SEC Comment Letter Issues
– Survey: 50% Evaluated Non-Management Strategies
– Directors Survey: 50% Evaluated Non-Management Strategies
– Women in C-Suite Boost Profitability
– XBRL Guidance & Validation Rules Anticipated Later This Year
– CEO Succession Planning Disclosure Seems to Matter
Following up on my recent blog about how pay ratio & the SEC have made it onto the “Jeopardy!” TV show, a member pointed out that an entire category was devoted to the SEC last year. Scroll down to the bottom left corner of this Jeopardy board. Here are the five answers:
– The SEC’s original purpose was to give confidence to investors who lost money due to the crash of this year ($400)
– The SEC says this illegal type of trading involves “possession of material, nonpublic information about” a stock ($800)
– The SEC regulates this type of 5-letter material that allows shareholders to vote without being present ($1000; Daily Double!)
– Being misleading over a housing market investment cost this “group” $285 million when the SEC got wind of it ($1600)
– She brought down John Gotti; “You don’t wanna mess with Mary Jo”, said President Obama, in nominating this current SEC head ($2000)
Study: Highest-Paid CEOs Actually Run Some of the Worst-Performing Companies
Here’s the intro from this blog by Cooley’s Cydney Posner (which is related to this popular blog from last week):
As reported in the WSJ, a new study from corporate-governance research firm MSCI showed that, over the long term, there was a signficant misalignment between CEO pay and stock-price performance. The study looked at CEO pay relative to total shareholder return for around 800 CEOs at more than 400 large- and mid-sized U.S. companies over a decade (2006 to 2015).
For the companies surveyed, the study found, on average, that CEO pay and performance had an inverse relationship; according to the WSJ, “MSCI found that $100 invested in the 20% of companies with the highest-paid CEOs would have grown to $265 over 10 years. The same amount invested in the companies with the lowest-paid CEOs would have grown to $367.” In light of how deeply embedded the concept of performance-based pay is among compensation consultants, boards, proxy advisory firms and institutional holders, characterizing that result as counter-intuitive might be considered an understatement.
What accounts for these stunning results? The WSJ concluded that the study “results call into question a fundamental tenet of modern CEO pay: the idea that significant slugs of stock options or restricted stock, especially when the size of the award is also tied to company performance in other ways, helps drive better company performance, which in turn will improve results for shareholders. Equity incentive awards now make up 70% of CEO pay in the U.S.” Fortune, reporting on the same study, quotes MSCI to similar effect: “‘[W]e found little evidence to show a link between the large proportion of pay that such awards represent and long-term company stock performance. In fact, even after adjusting for company size and sector, companies with lower total summary CEO pay levels more consistently displayed higher long-term investment returns.’”
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net 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:
– Hedge Fund Activism: CEO & CFO Turnover Spike
– IPOs: Common SEC Comment Letter Issues
– Directors Survey: 50% Evaluated Non-Management Strategies
– Women in C-Suite Boost Profitability
– XBRL Guidance & Validation Rules Anticipated Later This Year
– CEO Succession Planning Disclosure Seems to Matter
Spanking brand new. By popular demand, this comprehensive “Best Efforts Offerings Handbook” covers Rule 10b-9 and min/max offerings, a topic rarely covered in any deals-related treatise. This one is a real gem – 24 pages of practical guidance – and its posted in our “Best Efforts Offerings” Practice Area.
Pay Ratio: Can You Just Use Cash Compensation? (No)
A lot has been written over the last week about PayScale’s recent study of pay ratios in the workforce. PayScale found an average ratio of 71:1 comparing median cash compensation for 168 of the highest-paid CEOs in the annual Equilar 200 study to cash compensation of the median employee for those companies.
This ratio is far below what other organizations – like the “AFL-CIO PayWatch” – have found. That’s because PayScale only used cash compensation in its calculations – not the big hitter items like options, restricted stock, etc. As noted in this blog, equity accounted for 68% of the CEO compensation included in the Equilar 200 study used for the PayScale comparison. In other words, on average, less than one-third of CEO compensation was earned in cash.
I find PayScale’s exercise a tad misleading because the SEC’s rules don’t allow a comparison of just cash compensation – annual “total” compensation must be used in the ratio. Enough said.
One good thing about the PayScale study is that it provides information about employee perception of CEO pay, including:
– 55% of employees were not aware of their CEO’s compensation – among those that were, 80% believed it was appropriate
– 57% of those who felt that their CEO is overcompensated also believe that this negatively affects their view of their employer
– Employees at higher levels have more knowledge about – and more readily approve – of CEO compensation than lower level employees
More on “The US Citizenship Ceremony: An Emotional Experience”
A long while back, I blogged about how great my friend’s citizenship ceremony was – and I received a number of kind notes. For example, Kevin LaCroix of “D&O Diary Blog” fame shared:
Thanks for your post about your friend’s citizenship ceremony. It has been nearly 30 years since I was a law clerk for a district court judge, but I still get goose bumps when I remember the naturalization ceremonies at the courthouse while I was clerking. I think every American should witness one of these events, at least once, just as a reminder of what we have. Thanks for sharing your friend’s happy news.
And another member said:
What a nice story, and it brought back good memories for me. Many (many, many) years ago I worked for a federal district judge in Pittsburgh. The naturalization proceedings rotated among the judges, but when my judge had one, he pulled out all the stops–boy scout color guard, American Legion reception, and the most stirring speech that you ever heard by the judge on what it means to be an American. There wasn’t a dry eye in the place by the time they took the oath, and I’m sure it was a day the new citizens would never forget. Is this a great country or what?
Here’s news from Scott Kimpel of Hunton & Williams: As described in this press release, the SEC brought a settled administrative case yesterday against a public company – BlueLinx Holdings – based on confidentiality & waiver provisions contained in employee severance agreements. The SEC determined that these provisions violated the anti-whistleblower rules it adopted under Dodd-Frank. Here’s the SEC order, which contains excerpts of the impermissible contractual language.
In addition to paying a penalty of $265k and contacting former employees to inform them about the SEC’s order, BlueLinx is required to include the following provision in new severance & other agreements with employees governing confidential information:
“Protected Rights. Employee understands that nothing contained in this Agreement limits Employee’s ability to file a charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”). Employee further understands that this Agreement does not limit Employee’s ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company. This Agreement does not limit Employee’s right to receive an award for information provided to any Government Agencies.”
As with a similar action that the SEC brought against KBR last year, there is no evidence that BlueLinx actually sought to enforce the troublesome provisions. In the SEC’s view, the simple presence of the language is enough to constitute a violation. I also note that although the defendant here was publicly traded and listed on the NYSE, the same prohibition would apply equally to a privately-held company.
SEC’s ALJs: The Stakes Go Up!
Here’s a memo from Wachtell Lipton’s Wayne Carlin & David Anders:
The U.S. Court of Appeals for the D.C. Circuit recently upheld the constitutionality of SEC administrative proceedings in Raymond J. Lucia Cos. v. Securities and Exchange Commission. This is a significant victory for the SEC. In recent years, the SEC has brought increasing numbers of enforcement actions as administrative proceedings, rather than in federal court. A number of litigants have fought back and attempted to challenge the SEC’s choice of forum, in part because the administrative process affords much more limited opportunities to conduct discovery and lacks other protections that exist in federal court.
The pivotal issue presented is whether administrative law judges are “officers of the United States” within the meaning of the Appointments Clause of Article II of the Constitution, or whether they are “lesser functionaries.” Officers of the United States must be appointed by one of the methods specified in the Appointments Clause, which is not the procedure followed for the SEC’s ALJs. The Lucia court was the first court of appeals to consider this issue on the merits, and it concluded that the ALJs are not officers of the United States, thereby rejecting the argument that they are improperly appointed. While other parties may continue to litigate this issue in other circuits, the Lucia decision will likely be influential and will be viewed by the SEC as a vindication of its increased use of the administrative forum.
A decision issued on August 5 by the SEC sitting as an appellate tribunal illustrates some of the perils of the administrative process. In the Matter of John J. Aesoph, CPA and Darren M. Bennett, CPA . The Commission upheld an ALJ’s determination that a partner and a senior manager from a Big 4 audit firm engaged in improper professional conduct in their audit of a regional bank in 2008 and 2009. The ALJ had imposed time-limited suspensions from practicing before the Commission, for periods of one year for the partner and six months for the senior manager. The two respondents appealed the decision on the merits to the Commission. In a cross-appeal, the Division of Enforcement argued that the partner should be suspended for three years and the senior manager for two years.
The Commission found that both respondents had engaged in improper professional conduct. In addition, by a 2-1 vote (with two continuing vacancies on the Commission), the Commission determined to impose stiffer sanctions on appeal than its own Division of Enforcement was seeking. The Commission denied both accountants the privilege of appearing or practicing before it, with a right to re-apply for reinstatement (after three years and two years, respectively). Enforcement had not sought a re-application requirement to follow the period of suspension. As Commissioner Piwowar explained in dissent, this requirement can add years to the process of reinstatement, thus making the impact on the respondents much more severe.
With the decision in Lucia, the trend of more cases in the administrative forum is likely to continue. Proceeding administratively also gives the Commission the ability to advance its programmatic goals more directly than it may be able to do in federal court.
More on “Study: Highest-Paid CEOs Actually Run Some of the Worst-Performing Companies”
Here’s a note from Pearl Meyer’s Dave Swinford in response to this blog that I ran on CompensationStandards.com’s “The Advisors’ Blog”:
A recent Wall Street Journal article proclaimed, “Best-Paid CEOs Lag in Results, Study Says.” The article was based on an MSCI study titled “Are CEOs Paid for Performance? Evaluating the Effectiveness of Equity Incentives.” The article essentially, said two things: 1) the summary compensation table (SCT) in proxy disclosures does not predict what executives will actually receive; and 2) three years is not a long enough frame to measure the relationship between pay and shareholder returns.
This is not news.
Everyone in this business knows that the SCT measures accounting cost, not compensation actually paid or received. Three years is simply not long enough to get a good read on management’s long-term performance. The MSCI report makes these points, but then goes on to provide the headlines that excite the press.
MSCI argues that we should measure and report realized pay—something that a number of companies already do in their proxies. However, the authors of the study did not examine that, probably because the analysis would be extraordinarily time-consuming and complex.
There are other more important and relevant points we should glean from the MSCI study:
1. The SCT was not designed as a pay-for- performance (PFP) analysis tool. It started out as a measure of compensation expense when the SEC took an accounting approach to the compensation disclosure issue. However at that time, PFP was not the focus that it is today.
2. Corporate governance professionals and Congress (through Dodd Frank) are asking the proxy statement to provide information that current disclosure rules were not designed to provide, so we need something different, like realized pay.
The headlines make it sound as if executive pay is flawed, but the study says that the reporting of executive pay is flawed for the purpose of analyzing the relationship of pay- to- performance. That’s a big difference. Until we move away from SCT definitions of pay, and extend the time frame of evaluation to a minimum of five years, we will not be able to properly assess pay vs. performance.
A good analysis of PFP requires looking at financial performance beyond Total Shareholder Return (TSR) because TSR is impacted by many outside pressures over three- to- five-year time frames. Earnings growth and return on capital measures are far more indicative of management’s recent performance than TSR. They indicate fundamental company health, and both are more substantially within management’s control.
This is why the alternative measure reporting in the proposed SEC rules on pay versus performance is so important—TSR is not the answer for the time periods that we have been measuring. Until we sort out the basis for making pay versus performance comparisons, we will continue to debate CEO pay without the benefit of relevant or accurate facts.
Also see this rebuttal to the MSCI study from Pay Governance posted on CompensationStandards.com…
On June 28th, the U.S. District Court for the District of Delaware issued a potential landmark unclaimed property audit-related memorandum opinion in the case between Temple-Inland and the State of Delaware. The decision is very satisfying for holders who have either experienced extreme extrapolation and sampling methods conducted by third-party auditors during audits (especially on behalf of Delaware) — or have feared they might be in such a situation in the future.
The most important part of the court’s decision deals with a motion for summary judgment requested by Temple-Inland relating to its substantive due process claim. The decision concludes that Delaware’s extrapolation methodology and audit techniques during an audit of Temple-Inland violated its constitutional right to substantive due process.
A remedy for this violation has not yet been provided by the court. Although the ultimate effect of this case on future audits in Delaware or elsewhere is unknown, it is believed by many that this could be the beginning of a “kinder, gentler” — and fairer — unclaimed property audit process throughout the industry. To see a legal analysis of this decision, we suggest you visit the recent blog written by our friends at McDermott, Will and Emery.
Perhaps the most shocking (and satisfying) aspect of this court decision is the comment made by Judge Gregory M. Sleet: “[t]o put the matter gently, [Delaware has] engaged in a game of ‘gotcha’ that shocks the conscience.” In fact, “shocking the conscience” was a necessary condition in order for the court to conclude that the combined actions of Delaware and its auditor, Kelmar, violated constitutional substantive due process.
Executive Agreements: Poor Drafting Leads to Litigation
For those of you that are also members of CompensationStandards.com, I hope you are taking advantage of the three blogs on that site. In addition to my “The Advisor’s Blog,” Mark Borges and Mike Melbinger have been doing an amazing job on their respective blogs for 11 years. Eleven years!
Here’s a recent blog from Mike Melbinger about how vague drafting of an employment agreement can really hurt you:
A federal district court case decided last week involved an issue we see all too often. In Willis Re, Inc. v. Hearn (E.D. Pa. 2016), a chief executive officer announced his “retirement” from his long-time employer – and went to work for a competitor. The company sought repayment from the former CEO of a portion of a $1.75 million incentive awards made to him during the three years before his retirement. According to the former CEO, the governing award agreement allowed him to retain the award if he retired.
In March 2013, 2014, and 2015, the parties signed letter agreements making “AIP Awards” to the CEO of $1,750,000 each for 2012, 2013, and 2014, subject to: “If your employment with Willis ends prior to December 31, [2015] [2016] [2017] for any reason other than your incapacity to work due to your permanent disability (as “disability” or a substantially similar term is defined within an applicable Willis long term disability plan/policy), death, your redundancy (as redundancy is determined by Willis in accordance with its usual human resource administration practices) or your retirement, you will be obligated to repay to Willis a pro-rata portion of the net amount … of the Willis Retention Award (the “Repayment Obligation”).”
To define “retirement” the award agreements referred to (i) “your employment agreement” or (ii) “a written retirement policy applicable to you as a Willis employee” or (iii) “by reference to the ending of your employment at such mandatory age as may apply in the applicable employment jurisdiction” or (iv) “as may be determined by Willis in its absolute discretion.” The pension plan provided for retirement benefits, including an “Early Retirement Benefit” for a participant who retires on his “Early Retirement Date,” which the plan defined as the first day of any month following the date the participant attains age 55 and has completed at least 10 years of service.
In May 2015, when he was 59-years old and employed by the company for 21 years, the CEO announced his “decision to retire from Willis Re Inc., effective May 15, 2015 to explore other options and pursue other interests.” The company agreed that the CEO was eligible for an “Early Retirement Benefit” under the pension plan, but argued that the pension plan was not a “written retirement policy” under the AIP Award letters. Instead, the company claimed that the AIP Awards allowed it to define “retirement under in its absolute discretion under subsection (iv) and that it had determined that the CEO did not retire.
Rather than construing the ambiguous contract terms against the drafter of the agreement, as many courts would do, the court instead announced that it would not assume the contract’s language “was chosen carelessly” or “that the parties were ignorant of the meaning of the language employed.” The court said: “The words used in subsection (ii) are “written retirement policy,” not “Pension Plan.” If these sophisticated parties negotiated incentive payments for a chief executive officer intended the term “written retirement policy” to be defined as eligibility for benefits under the Pension Plan, they were free to include it. The parties could have done so in the same way the parties expressly defined “disability” in the phrase “incapacity to work due to your permanent disability” as the definition “within an applicable Willis long term disability plan/policy” and “redundancy” as “determined by Willis in accordance with its usual human resource administration practices.” The parties could have referred to the Pension Plan in subsection (ii), but did not do so.”
The court held that the company was entitled to define “retirement under the AIP Awards in its absolute discretion” and upheld the company’s decision that the CEO did not retire. At this stage, the company won. However, because the court’s decision was a fairly close run thing, the CEO is likely to appeal it – unless the parties negotiate a settlement. Either way, it will lead to more legal costs and headaches for the company, which could have been avoided through better drafting.
Finally, we note that because the CEO left to work for a competitor, it seems like the case should have been an easy one. The court observed that the CEO had acknowledged his obligation to “comply with certain terms and conditions applicable to time after his retirement from Willis, including an obligation not to compete with Willis for a period of [12] months beginning May 15, 2015.” However, apparently those provisions also were not clear.
We’ve been covering Corp Fin’s new non-GAAP CDIs extensively – including two blockbuster webcasts. Here’s an update from Scott Kimpel of Hunton & Williams:
Sufficient time has passed since the Corp Fin Staff issued the new CDIs on non-GAAP financial measures such that comment letters based on them are becoming publicly available. Below are a sampling of letters that have become publicly available in the last several weeks – which raise issues with presentation of non-GAAP metrics.
A common comment relates to ordering & prominence under Item 10(e), but they seem to run the gamut and hit on each of the new CDIs. So far, it appears the Staff has largely been accepting a company’s promise to make changes in the next quarterly reporting cycle. It will be interesting to see if Corp Fin becomes more assertive after a few more quarters of reporting. The samples are:
Also see the recent May-June issue of “The Corporate Counsel” print newsletter, which provides great guidance in this critical area…
Heavy Non-GAAP Users More Prone to Restatements & Internal Control Weaknesses?
Here’s an excerpt from this Cooley blog by Cydney Posner:
This article in the WSJ suggests that there may be even more to it than just potentially misleading numbers: according to a study by consultant Audit Analytics, conducted for the WSJ, companies that lean heavily on non-GAAP measures to significantly pump up their earnings “are more likely to encounter some kinds of accounting problems than those that stick to standard measures….”
Podcast: Cybersecurity Risks & Responses
Davis Polk has released its second podcast – this one with Neil MacBride, former U.S. Attorney for the Eastern District of Virginia – who is now at Davis Polk – to discuss the topic of cybersecurity and the related risks and responses…
Wow, I was shocked to check the “SEC Staff Alumni” group that I created on LinkedIn a while back on a whim – and see that it now has over 900 members. Anyone is free to join. Meanwhile, I created this “Securities & Exchange Commission Memories” group on Facebook about two years ago – it’s a place where you can see old pictures, hear stories and reminisce about old friends who have passed. I believe it’s the only group on Facebook devoted to SEC alumni & staffers.
One of the first members to join my LinkedIn group urged me to use the SEC’s official logo as the group’s logo. I refused as I presume the SEC has trademarked their logo (with the Patent & Trademark Office; or maybe federal agencies don’t even need to bother doing that as it’s presumed to be trademarked) and who knows what other laws would be violated if a logo looked too similar to a federal agency’s. But I do note that rampant use of federal agency logos is happening all over the Web (eg. this Forbes article uses the SEC’s logo)…
Cybersecurity: Boards Aren’t Getting Sufficient Training
In NAVEX Global’s benchmark report about compliance training, you will find that boards aren’t getting enough cybersecurity training including these stats:
– Cybersecurity – 22% train boards, 69% train employees
– Workplace harassment – 12% train boards, 76% train employees
– Conflicts of interest – 33% train boards, 76% train employees
– +40% don’t train boards on anything
– Only 20% train new board members
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net 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 Limits Reach of Its Jurisdiction Over Foreign Corporations
– Companies as Whistleblowers
– ESG: Water Disclosures
– Enforcement: Is the SEC Really Going After Unicorns?
– Cyberliability: Commercial Insurance Policies Might Cover
I was just reading Amy Goodman’s interview on the SEC Historical Society’s site & I found out that Amy had framed a picture of the first Edgar filing ever made back in 1984 – during the “pilot program” phase of Edgar – by the Southern Company. When Amy retired, it was handed down to Melissa Caen – who currently is the corporate secretary of the Southern Company. This first filing was a Form S-8. Richard Childs (still at Southern) and Wayne Boston (retired a few years back) made the filing.
Remember that the SEC embarked on this electronic filing journey well before the birth of browsers & the mainstream use of the Internet. As discussed in Amy’s interview, SEC Chair Shad had to find money in the agency’s budget to get Edgar off the ground as there were members of Congress who didn’t believe in the project of an “electronic library of SEC filings.” There were quite a few others not interested in seeing Edgar succeed – including the financial printers (who didn’t realize they would be making a boatload of Edgarization down the road).
My EDGAR (Passphrase) Nightmare
I’m really loving this blog by NASPP Executive Director Barbara Baksa about her Edgar nightmare. Here’s the intro:
I recently had to update my EDGAR passphrase. I thought this would be a relatively simple process. I’m a smart person and I have a proven success rate in navigating government websites—I know how to use the DMV website to make an appointment, I’ve requested a certified copy of my birth certificate online, I can find a public company’s stock plan on EDGAR—how hard could it be to update my EDGAR password? Turns out, way harder than I expected.
This is a long blog entry, but it’s not my fault. I blame the SEC.
How I Got Into this Mess
I got my EDGAR access codes over a decade ago, back when the SEC first rolled out the system for filing Section 16 forms online. It was so long ago, it was before the SEC required a notarized Form ID or a passphrase. I did not want to go through the hassle of submitting a notarized form to the SEC, so I had a system in place to make sure I didn’t forget to update my EDGAR password, which consisted of a reminder in my Outlook calendar set for about a month before my EDGAR password expired. Once a year, the reminder would pop up and—unlike how I respond to my alarm clock—I would not ignore it or hit snooze. I would immediately update my EDGAR password and set the reminder for the next year.
This system worked fantastically for over a decade, including through a change in employers. And then I got a new laptop with Outlook 13 on it. Outlook 13 had some sort of “known issue” that caused emails to disappear from my inbox. The only way to fix it was to remove Outlook 13 and go back to Outlook 10. In the process, my entire calendar was lost. Completely gone.
After massive hyperventilating and gnashing of the teeth, I was able to recreate most of it, but there were some appointments I forgot—including the reminder about my EDGAR password.
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net 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:
– Ten Tips for Board Engagement in Company Strategy
– Internal Audit Outsourcing: Benchmarking & Guidance
– SEC Filings: Early Detection of Red Flags?
– Cyber Diligence: Rating Service Firms
– Survey: Over 60% of Compliance Officers Meet with Board Quarterly
– How to Mitigate Audit Fee Increases
I’m excited to announce that John Jenkins has joined us – and he will be partnering with me to run our websites, print publications, etc. Although some say that we hired John as a ringer for our hockey team, I can tell you that John knows all. He has been one of my primary resources for tough questions over the years. You’re gonna love him! John has spent 30 years toiling at Calfee Halter in Cleveland as a Partner – and he will continue to serve in that role for them. Ping him at john@thecorporatecounsel.net to say hello…
A Little “Deal Tact” Goes a Long Way
Here’s a sample of John’s handiwork – something that he drummed up for the “DealLawyers.com Blog” a while back:
In my last blog, I talked about some advice given to our firm’s associates during a training session on becoming a seasoned business lawyer conducted by two senior investment bankers from one of our firm’s clients. The first thing they mentioned was the importance of avoiding boorish first drafts. That piece of advice, together with many of the other suggestions they made about things that young lawyers should do or avoid doing, falls under the general heading of the need to be sensitive to the messages that your actions are going to send to the other people involved in the transaction.
You might think that a lot of this stuff would be intuitive, but it doesn’t appear to be that way for lawyers. For instance, one of the specific “don’ts” that our investment banker friends mentioned in their presentation was the seemingly obvious point of not making critical remarks to the client concerning its other advisors. Apparently, that’s something that some lawyers are notorious for doing. Unless your client’s retained Patrick Bateman as its financial advisor, that’s a very bad idea, if for no other reason than what goes around, comes around. Besides, while “plays well with other children” may not be a line item that appears on most law firm or corporate law department evaluation forms, it’s on most clients’ short list of the qualities that they look for in a deal lawyer.
Deal making by its very nature is a group effort, and the ability to work effectively in a transactional setting requires a skill that might be called “deal tact.” The best deal lawyers use this skill not only in their dealings with their own client and fellow advisors, but also in their dealings with those on the other side of the table, and particularly the lawyers who are representing the other side in the deal.
From time to time, I have had a chance to work on transactions with lawyers who have national reputations as M&A advisors. Although their styles differ markedly, deal tact is one quality that they have all shared in common. Let me give you an example of this that I’ve seen many times. During the early stages of the deal, draft documents are often hacked-up pretty significantly by the lawyers receiving them because, well, they sometimes just don’t make any sense. Incompetence or inexperience may be part of the reason for this, but far more frequently, it’s attributable at least in part to an unreasonable time schedule that requires somebody to generate a document before they know what the deal is about.
When this happens, there’s usually a younger lawyer on the deal team who is chomping at the bit to highlight each and every flaw in the document during the course of a negotiation session. This is understandable, since that kid pulled at least one all-nighter finding and correcting every last one of them. The superstar generally doesn’t let this happen. Instead, that lawyer typically will focus his or her attention on the major deal issues while clients are present. When the meeting is about to break-up, the mark-up will be passed on to the other side’s lawyers, usually accompanied by a statement noting that the mark-up includes some “lawyer comments” that aren’t worth wasting the group’s time on. That may be followed up with some sidebar discussions, but the important thing is that nobody loses face in front of their clients.
Now if you know anything about your fellow M&A practitioners, you know that it isn’t a saintly sense of humility that motivates this kind of conduct. Instead, it’s an appreciation for the fact that if you put somebody on the defensive, they’re going to do a couple of things. First, they’re going to try to defend themselves by quibbling with every point you make. Second, they will look for opportunities to stick it to you– and chances are pretty good that they’ll find at least one during the course of the transaction. Neither of these things moves the ball forward.
I’m not suggesting that deal lawyers should always act like Clark Kent — possessing a little deal tact doesn’t mean you shouldn’t play hard ball when appropriate. I’m just saying that Conan the Barbarian shouldn’t be our role model either. I mean, if you really believe that what is best in life is “to crush your enemies, to see them driven before you, and to hear the lamentation of their women,” you’d probably be much happier as a litigator anyway.
Every deal presents opportunities for a knowledgeable and experienced deal lawyer to grandstand in front of the client or make somebody on the other side look foolish in front of their client. One of the big things that separates the pros from the pretenders is the ability to resist that temptation in order to move the transaction forward.