Monthly Archives: January 2017

January 17, 2017

Pulling in the “REINS”: Congress Wants More Rulemaking Control

This Davis Polk blog discusses an abundance of legislative initiatives designed to enhance Congressional control over the agency rulemaking process. In early January, the House passed two separate statutes that would make it easier for Congress to intervene in the regulatory process. Naturally, the proposed statutes have the kind of colorful & politically charged names that we’ve come to expect from our lawmakers.

First, there’s the “Midnight Rules Relief Act of 2017,” which would enable Congress to pass omnibus disapproval resolutions that cover multiple regulations submitted during the final year of a President’s term. Next comes the “Regulations from the Executive in Need of Scrutiny (REINS) Act of 2017,” which provides that “major rules” – those identified as likely to cause annual economic effects of at least $100 million — could only take effect if Congress adopted a joint resolution approving of the rule.

A third bill, the “Require Evaluation Before Implementing Executive Wishlists (REVIEW) Act of 2017,” has also been introduced. Under this statute, agencies would have to postpone the effective date of “high-impact” rules—those determined to impose annual economic costs of $1 billion or more—until after the final disposition of all actions seeking judicial review of the rule.

The blog’s skeptical that any of this legislation will pass absent a decision by the Senate to eliminate the filibuster, but this excerpt suggests that these statutes reflect the mood of Congressional Republicans:

Congressional Republicans are both eager to unwind the Obama Administration’s regulatory agenda and cognizant of the difficulties of doing so through notice-and-comment rulemaking. Moreover, these bills signal the desire of many in Congress to play a greater role in the regulatory process and a view that, according to the Purpose section of the REINS Act, “Congress has excessively delegated its constitutional charge while failing to conduct appropriate oversight and retain accountability for the content of the laws it passes.”

While reforms as sweeping as those proposed in some of these statutes are not expected, we should expect further efforts by Congress to increase its control over agency rulemaking.

But Wait! There’s More!

Remember when I said we should expect further Congressional action on rulemaking?  This blog from Cydney Posner says that they’re already back at it.  After passing the REINS Act & the Midnight Rules Relief Act, the House of Representatives came back the following week with another round of legislation:

On Wednesday, the House Republicans (with five Democratic votes) passed H.R. 5, the “Regulatory Accountability Act,” a bill that would change the way federal agencies issue regulations and guidance. This bill would require agencies to, as part of their rulemaking processes, expand the factual determinations required, provide advance notice with regard to certain important rule proposals and follow specified procedures for issuing important guidance, among other processes. Included as part of the same bill is the “Separation of Powers Restoration Act,” which provides for de novo judicial review of agency actions.

Another bill has been introduced in the House that has the SEC’s rulemaking process squarely in the cross-hairs. The “SEC Regulatory Accountability Act” would enhance the requirements for cost-benefit analyses of proposed SEC rules & provide for post-adoption impact assessment and periodic review of existing regulations.

In what is likely to be her final speech as SEC Chair, Mary Jo White today pushed back against legislative initiatives to remake the rulemaking process.  In particular, she said that the SEC Regulatory Accountability Act would provide “no benefit to investors beyond the exhaustive economic analysis we already undertake” and that the Act’s requirements would prevent the SEC from “responding timely to market developments or risks that could lead to a market crisis.”

Tomorrow’s Webcast: “Pat McGurn’s Forecast for 2017 Proxy Season”

Tune in tomorrow for the webcast – “Pat McGurn’s Forecast for 2017 Proxy Season” – when Davis Polk’s Ning Chiu and Gunster’s Bob Lamm join Pat McGurn of ISS to recap what transpired during the 2016 proxy season and what to expect for 2017. Please print these “Course Materials” in advance…

John Jenkins

January 13, 2017

ESG: GRI’s New “Module” Standards

ESG – particularly sustainability & climate change – continues to grow in importance. There continues to be a multitude of standards to be aware of. The latest is a group of new standards from GRI (“Global Reporting Initiative”). The new GRI standards are modules that replace the former 4th generation of GRI standards, as fully explained on their site. We continue to post all the latest standards in our “ESG” Practice Area – as well as all sorts of memos on the latest (such as this 118-page guide on ESG integration for investors)…

Also see this blog that I recently posted on the “Proxy Season Blog” entitled “Shareholder Proposals: Pressure on Investors About Their ESG Voting“…

Delaware Supreme Court Finds Relationships Taint Director Independence, Promotes Internet Searches

Here’s the intro from this blog by Davis Polk’s Ning Chiu:

Recently, the Delaware Supreme Court reversed the Court of Chancery in Sandys v. Pincus on findings of director independence at Zynga. The Court of Chancery had dismissed the suit for failure to make pre-suit demand on the board or alleging that demand would have been futile, but the Delaware Supreme Court found that the plaintiff had created a reasonable doubt that the board could have properly exercised independent, disinterested business judgment in responding to a demand. If director independence is compromised, then demand is excused.

Attorney-Client Privilege: In-House Counsel Can’t Talk to Former Employees!

Here’s an excerpt from this article:

In a blow to in-house lawyers, the Washington Supreme Court has ruled that communications between corporate counsel and former employees are not privileged and are freely discoverable. The 5-4 decision states that attorney-client privilege doesn’t exist because the former employee no longer has an ongoing principal-agent relationship with the corporation. The case involves a parents’ suit against a school district, claiming that their football-playing son allegedly was sent back into a game after suffering a concussion.

General counsel are clearly bothered by the ruling, according to Amar Sarwal, vice president and chief legal strategist for the Association of Corporate Counsel in Washington, D.C. Sarwal says that they have been emailing him since it came down on Oct. 20, including “four or five within the first 24 hours.” The main problem, according to Sarwal, is that the ruling is going to interfere with in-house investigations that seek to determine the facts surrounding misconduct. “Former employees tend to have a stockpile of information,” Sarwal says. “They are a treasure trove of information about what happened, and in-house counsel need to speak with them to find out. But this decision will assure that never happens.”

Broc Romanek

January 12, 2017

The Launch of “Broc Tales”!

I try to innovate with something new every year. In 2016, it was the “Big Legal Minds” podcast series. The year before was a facelift for the home pages of our sites (with new features like our “Job Board“). In 2014, I launched the “Women’s 100” events & started posting the popular videos on

For 2017, it’s this new “Broc Tales” blog – as well as a counterpart on, “John Tales” – which attempts to educate through storytelling. The stories on “Broc Tales” will relate to the topic at hand – Reg FD for the bulk of ’17. Within the stories, I’ll be throwing in personal anecdotes occasionally. Inspired by the writings of Sarah Vowell. Hoping to spice it up. Here’s the first two entries:

“Dude, You Wouldn’t Believe What Just Happened. Is That Normal?”
“Wanted: Reg FD Chaperone”

But maybe my life ain’t your cup of tea. Not much I can do about that. Go ahead & subscribe to this blog now (using this “Subscribe” link) so that you can receive my new entries pushed by email during the coming year! And if you do check it out, let me what you think! It’s a new style of writing for me, so I imagine I will be improving over time…


Revenue Recognition: What to Do Now

Here’s an excerpt from this blog by Cooley’s Cydney Posner (also see the memos posted in our “Revenue Recognition” Practice Area):

To assist audit committees in their oversight efforts, the Center for Audit Quality has just released a new publication, “Preparing for the New Revenue Recognition Standard,” a tool for audit committees. The publication is organized in four parts and provides important and sometimes quite specific and detailed questions for audit committees to ask management. The first section, Understanding the New Revenue Recognition Standard — What Is It?, is designed to help audit committees understand the new standard by providing a brief overview of its core principles. Generally, the new standard provides a five-step model for recognition of revenue “when the customer can use or benefit from the good(s) or service(s) provided.” The CAQ suggests that audit committee members ask management to explain the standard and how it affects (or does not affect) the company and encourages members to oversee the company’s decision regarding the appropriate transition method and consider the market impact.

Audit Engagement Partners: CAQ’s Take on Form AP

The CAQ recently published this white paper on the new Form AP. For more on this new reporting requirement for audit engagement partners, see the memos posted in our “Auditor Engagement” Practice Area.

Broc Romanek

January 11, 2017

Life as a Corporate Lawyer: Stan Keller

I had a lot of fun taping this 38-minute podcast with Stan Keller of Locke Lord. The dude can ball (meaning shoot hoops). I highly encourage you to listen to these podcasts when you take a walk, commute to work, etc. Stan tackles:

1. How did you become a lawyer in this field?
2. What was it like practicing in the ’60s?
3. What was it like drafting a state corporate code?
4. How has the ABA’s Business Law Section changed over the years?
5. What was it like presiding over the Federal Regulation of Securities committee during the Sarbanes-Oxley era?
6. How has it been working at a law firm that has gone through a succession of mergers?
7. Any final words of advice for new lawyers?

This podcast is also posted as part of my “Big Legal Minds” podcast series. Remember that these podcasts are also available on iTunes or Google Play (use the “My Podcasts” app on your iPhone and search for “Big Legal Minds”; you can subscribe to the feed so that any new podcast automatically downloads…

blm logo

ISS Buys an ESG Research Firm

Last week, ISS announced that it had bought IW Financial, a ESG research firm which has technology that allows users to comparatively rate companies based on user-defined criteria…

January-February Issue: Deal Lawyers Print Newsletter

This January-February issue of the Deal Lawyers print newsletter was just posted – & also mailed – and includes articles on (try a 2017 no-risk trial):

– The Disclosure of Material Relationships by Financial Advisors
– Small Company M&A: “Boy, Could This Deal Use a Few More 000s!”
– Proxy Access a’ la Private Ordering? Not So Fast!
– Tips for a Successful Working Capital Adjustment
– Questions Abound: FTC Antitrust Actions Under the New Administration

Remember that – as a “thank you” to those that subscribe to both & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online. There is a big blue tab called “Back Issues” near the top of – 2nd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.

And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online.

Broc Romanek

January 10, 2017

Shareholder Proposals: Virtual-Only Meetings As “Ordinary Business”

As first came to my attention in this Gibson Dunn blog, Corp Fin has issued this no-action response to HP, allowing the company to exclude a Chevedden proposal that sought to prevent the company from holding virtual-only annual meetings. Corp Fin based its decision on Rule 14a-8(i)(7), the first time that the Staff has ruled that this type of proposal is “ordinary business.” Just a few weeks earlier, Corp Fin issued this no-action response to Hewlett Packard Enterprises – not to be confused with HP (they are separate companies) – that allowed the exclusion of a similar proposal on procedural grounds. Don’t forget the transcript from our recent webcast: “Virtual-Only Annual Meetings: Nuts & Bolts”…

By the way, EQS Group became the 1st company in the UK to hold a virtual-only meeting during this past year…

“Consequential” Majority Voting: CII’s New FAQs

Last week, CII published a group of FAQs to majority voting. CII believes that companies should adopt meaningful majority vote standards that are clear and that require failed nominees. CII also doesn’t want companies to dress up a plurality-plus standard – as described in a proxy statement – to look like a majority vote standard. Here’s an excerpt from this blog by Davis Polk’s Ning Chiu:

The Council of Institutional Investors has published an FAQ on majority voting for directors in which it advocates for “consequential majority voting,” a form of majority voting in director elections that essentially removes board discretion if a director receives less than majority support.

90% of S&P 500 companies have a traditional form of majority voting, compared to only 29% of Russell 3000 companies. Most mid-cap and small-cap companies elect directors under a plurality vote system, where the nominees who receive the most “for” votes are elected until all board seats are filled. In an uncontested election, given that the number of nominees is equal to the number of board seats available, a nominee can be elected with one vote.

Tomorrow’s Webcast: “The Latest Developments – Your Upcoming Proxy Disclosures”

Tune in tomorrow for the webcast – “The Latest Developments: Your Upcoming Proxy Disclosures” – to hear Mark Borges of Compensia, Alan Dye of Hogan Lovells and, Dave Lynn of and Morrison & Foerster and Ron Mueller of Gibson Dunn discuss all the latest guidance about how to overhaul your upcoming disclosures in response to pay ratio and say-on-pay – including the latest SEC positions, as well as how to handle the most difficult ongoing issues that many of us face.

Broc Romanek

January 9, 2017

Tomorrow’s Webcast: “Non-GAAP Disclosures – Analyzing the Comment Letters”

Starting the new year with a bang! Tune in tomorrow for the webcast – “Non-GAAP Disclosures: Analyzing the Comment Letters” – to hear Meredith Cross of WilmerHale; Steven Jacobs of E&Y; and Dave Lynn of and Morrison & Foerster provide practical guidance about what to do now with your non-GAAP disclosures given Corp Fin’s new batch of comment letters.

SASB’s Inaugural “State of Disclosure Report”

Hat tip to the SASB for their 1st annual “State of Disclosure Report,” which benchmarks sustainability disclosures in SEC filings, including:

– 81% of topics in SASB standards include some form of disclosure in the 10-Ks or 20-Fs; which indicates that companies acknowledge the majority of the sustainability factors identified in SASB standards have —or are reasonably expected to have—material impacts on their business.
– More than 53% of disclosures on these topics use boilerplate language & less than 24% of these disclosures contain metrics – demonstrating that many companies take a minimally compliant approach to sustainability disclosure.
– For the 1st time, SASB has ranked the state of disclosure at the industry level. The top 5 industries, in terms of the overall effectiveness of sustainability disclosure: Education, Car Rental & Leasing, Cruise Lines, Gas Utilities and Tobacco.

The report includes specific examples of actual 10-K/20-F disclosures highlighting the variability in the quality of disclosure within an industry…

Even More on “The SEC Comment Process: What is a ‘Bedbug Letter’?”

Quite a few years ago, I blogged for a second time about what is a ‘bedbug letter.’ It’s a topic that I still receive emails about. As noted in that last blog, it probably derives from an old term for a standard “brush-off” response, which is basically what an SEC Staff bedbug letter is meant to be:

As the story goes, a traveler checked into an exclusive hotel. However, all night long, he could not sleep, because of being bitten by bedbugs. When he arrived home, he wrote a letter to complain. Soon, a letter came back, which said: “Dear Mr. Jones, we are in receipt of your letter which complains that you were bitten by bed bugs while a guest at our hotel. I must inform you that you are mistaken. There are no bedbugs in our hotel. It is completely impossible that you were bitten by a bed bug while a guest at our hotel.” Attached to this letter was a handwritten note, which said: “Send this fellow the bed bug letter.”

Another theory of the origin is that it came from one of the railroads – which commonly had bedbug problems with Pullman berths – that had one or another form of insincere denial or apology. Since this involves the telling of tales, it’s a good time to plug the new “Broc Tales Blog“…

Broc Romanek

January 6, 2017

The Resignation of PCAOB Board Member Jay Hanson

Right before Christmas, the PCAOB issued this sparse statement about Jay Hanson’s abrupt resignation:

PCAOB Board Member Jay D. Hanson notified the PCAOB today of his resignation from the Board. In his letter to the Board, Board Member Hanson wrote: “This is to notify you that I have submitted my resignation as Board Member of the Public Company Accounting Oversight Board to the Commissioners of the U.S. Securities and Exchange Commission.”

The “Going Concern Blog” notes: “I can’t imagine a new appointee to be named any time soon; soon-to-be-former SEC chair Mary Jo White hasn’t reappointed Jim Doty as chair or a named his successor & his term ended in October 2015.” Remember that Jay dissented a few months ago when the PCAOB approved its latest budget…

Mary Jo’s Last “Speech”? We Need Good Global Accounting Standards

In what might be SEC Chair White’s last speech (technically, a “statement” as it wasn’t delivered anywhere) in that capacity, she urged the FASB & IASB to continue to work together & strive for high-quality globally-accepted accounting standards…

PCAOB Inspections: Parsing the Audit Deficiencies

Mark Zyla give us the highlights from Acuitas’ “2016 Survey of Fair Value Audit Deficiencies”:

– Audit deficiencies are still quite high. The PCAOB considered 39.2% of the inspected audits for annually inspected firms to be deficient in the 2015 cycle. The PCAOB also cited an overall high number of deficiencies for triennially inspected firms.
– The number of deficiencies for annually inspected firms decreased slightly for the first time since we began our survey, from 42.9% in 2014 to 39.2% in 2015. The PCAOB also observed this trend in its 2015 inspection cycle and attributes improved audit quality to the use of practice-aids, checklists, coaching, support teams and efforts to monitor the quality of audit work.
– Audit deficiencies attributable to FVM and impairment engagements continue to be significant and made up approximately one-fourth of all deficiencies. Failures to assess audit risks, test internal controls and to test assumptions underlying prospective financial information are the root causes of most audit deficiencies.
– FVM audit deficiencies are increasingly attributable to business combination engagements, particularly for triennially inspected firms. of the top 25 firms, the incidence FVM deficiencies related to business combinations jumped from an average of 23.1% for 2009 through 2013 to 55.6% in 2014.
– In addition to M&A activity, other economic factors cited by the PCAOB as financial reporting risks are investments in high-yield, hard-to-value securities and impairment risk due to recent fluctuations in oil and gas prices.
– The PCAOB recently reorganized its inspection process and has designated two programs, one for global network firms and one for non-affiliate firms. The global network firms include the six largest annually inspected U.S. firms and approximately 145 of their affiliated firms, primarily located outside the U.S. The non-affiliate firms include four large, annually inspected U.S. firms and an additional 445 domestic and non-U.S. triennially inspected firms.

Broc Romanek

January 5, 2017

The Next SEC Chair? A Deal Lawyer!

Wow! That was fast. I had a bunch of blogs ready to run leading up to President Trump selecting a SEC Chair. Just yesterday, I blogged about Carl Icahn providing input. And now Sullivan & Cromwell’s Jay Clayton has been tapped. Jay won’t likely need to clear much of a hurdle during his Senate confirmation hearings – but given Trump’s posturing during his campaign, he will need to sit through questions about his ties to Goldman Sachs – including his wife’s job there (as noted in this Reuters article).

Some of other candidates also were from big law firms – this article notes that Trump met with Gibson Dunn’s Debra Wong Yang. But Debra doesn’t do deals. Jay’s bio indicates he does more than deals, but he’s primarily a deal guy. You have to go a ways back to find the last SEC Chair who was a deal lawyer – Chris Cox (who was a deal lawyer before he became a Congressman).

And it’s been a long time – a real long time – since the last SEC Chair was plucked directly from a law firm. Of course, that background is quite common for a Division Director. Richard Breeden had been a law firm lawyer, but he had two gigs between firm life & becoming Chair. The closest comparison is Ray Garrett, Jr., who left a Chicago firm to become SEC Chair. Garrett had been head of Corp Fin a few years before he left his firm to lead the Commission in the early ’70s.

It’s also been a long time since someone was appointed who wasn’t previously publicly visible (this MarketWatch article notes that the wire services don’t even have Jay’s pic on file). Let me review the Chairs over my career: Shad, Breeden, Levitt, Pitt, Donaldson, Cox, Schapiro and White – all had been in the public eye before ascending to SEC Chair. Ruder is the exception here. But I’m not suggesting that visibility is some sort of SEC Chair qualification. It isn’t.

Some folks asked me yesterday what was “normal” for a SEC Chair. There really isn’t a standard for the job – the backgrounds of former SEC Chairs are all over the lot. A few have worked at the SEC before. Chair Levitt wasn’t a lawyer. Chair White was a prosecutor. Chair Ruder was an academic. Chair Cox was a Congressman. And it’s not the sort of appointment where you read tea leaves from past writings. Obviously, someone’s background plays a role – but the biggest indicator of what a Chair will do is looking at the general direction the President points to…

The Sad Saga of Disbarred SEC Chair Brad Cook

Here’s something that I admit to not knowing before. When Ray Garrett, Jr. became the SEC Chair in 1973, he replaced Brad Cook – who resigned when he got caught up in a securities fraud scandal & was temporarily disbarred in two states for lying to a grand jury in the case. Before becoming the SEC Chair, Cook was the SEC’s General Counsel and first Market Reg Director (serving as both at the same time). He was the youngest person ever to lead a federal agency. He was 35!!!

Corp Fin: Mark Shuman Retires!

It’s notable that Mark Shuman retired at the end of 2016 because he was one of the most dedicated Staffers to ever work in Corp Fin! Serving as Branch Chief in the Office of Information Technologies & Services, Mark mentored more young staffers than you can imagine. He firmly believed in the SEC’s mission – and he will be sorely missed…

Broc Romanek

January 4, 2017

Carl Icahn! Is Trump Pro-Business? Pro-Activist? Or Both…

Carl Icahn is helping to pick the next SEC Chair! Here’s the intro from this WSJ article by Andrew Ackerman:

A common assumption about Donald Trump is that he’ll run one of the most pro-business administrations in recent memory. But what if, instead, he hews to more of a pro-investor agenda that clashes with big business? That is certainly an increasingly likely outcome after Wednesday’s announcement that the president-elect has tapped billionaire investor Carl Icahn for an unpaid advisory role on overhauling financial regulations. Mr. Icahn, who has already played a part in selecting Mr. Trump’s head of the Environmental Protection Agency, is also vetting candidates to lead the Securities and Exchange Commission, The Wall Street Journal reported.

The appointment suggests the president-elect will select policy makers more in the mold of Mr. Icahn, who has spent the past four decades battling big companies as an activist investor, than those favored by the pro-business wing of the Republican Party. While it’s true that Mr. Icahn generally supports rolling back regulations that he believes crimp the U.S. economy, he is also an outspoken advocate of corporate-governance changes loathed by the business community.

Cybersecurity: Big M&A Law Firms Hacked!

Over the years, we’ve blogged a few times about law firms & hacking, such as this one about emails & phishing and how law firms should strengthen their cybersecurity.

Last week, the SEC announced an enforcement action that is based on two big NYC firms being hacked by some Chinese traders who used the stolen information for insider trading. The SEC’s complaint doesn’t identify the firms – maybe because there’s a parallel criminal proceeding & the law firms are victims of a crime – but this American Lawyer article and WSJ article seem to identify them…

“Occupy the SEC”: Going After Insider Trading

It’s been a while since I blogged about the “Occupy the SEC” group. As noted on its Facebook page, the latest is that the group has filed an amicus curie brief in the push to have the US Supreme Court review the Salman case (this memo summarizes the recent oral arguments in that case)…

Broc Romanek

January 3, 2017

The DOL’s New Guidance on Proxy Voting & Shareholder Engagement!

Last week, the Department of Labor issued 19 pages of interpretive guidance on proxy voting & shareholder engagement, including the use of shareholder proposals. This guidance updates the DOL’s 2008 guidance in this area. While the new guidance is focused on ERISA funds, it provides affirmation to those investors engaged with companies on ESG issues. Some critics – like the Chamber of Commerce – have argued that some investors are violating their fiduciary duties when then spend time on climate change and diversity…

A Visionary Clawback Policy! (Bonus Edition)

I’m calling this a “bonus” edition blog because if you came to our executive pay conference a few months ago, you’ve heard a good deal of analysis about this visionary clawback policy from SunTrust Banks (I’ve all posted a version in Word in our “Clawbacks” Practice Area on Our expert panel on clawbacks – and what you should be doing now – covered that policy, the new Well Fargo one and others in detail. Come to our proxy disclosure conference in Washington DC this year!

Anyway, one of our panelists says that reading the SunTrust policy is just like reading “Gone With the Wind” – when you read it, you will laugh, you will cry. You will experience the whole range of human emotions. It’s a well-designed clawback policy, as it covers all incentives (time & performance-based) for all incentive eligible employees. It also allows a clawback for a wide range of issues – such as misconduct, theft, termination for cause, failure to perform duties and restatements to name a few. The clawback appears partly based on the banking regulators’ 2010 guidance that has a number of good principles-based recommendations that are relevant to users of incentive compensation in all industries. The company also has an internal “Events Tracking Group” that monitors incentive payouts – and the Group reports to the compensation committee regularly. SunTrust is one of the few companies that files their clawback policy as an exhibit to their SEC filings.

If you see a clawback policy that you like, let me know & I’ll add it to our samples posted in our “Clawbacks” Practice Area. Also check out these memos on the recent SEC v. Jensen case in the 9th Circuit about clawbacks under Section 304 of Sarbanes-Oxley…and this Covington blog for a high level thought piece on clawbacks…

Our January Eminders is Posted!

We have posted the January issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

Broc Romanek