Monthly Archives: July 2017

July 17, 2017

Clayton Speech: Corp Fin Will Consider Your S-X Waiver Requests

SEC Chair Jay Clayton’s recent speech at the “Economic Club of New York” has received a lot of attention – it was his first as Chair – but this remark seems to have been overlooked:

My last point on capital formation is a reminder. There are circumstances in which the Commission’s reporting rules may require publicly traded companies to make disclosures that are burdensome to generate, but may not be material to the total mix of information available to investors. Under Rule 3-13 of Regulation S-X, issuers can request modifications to their financial reporting requirements in these situations. I want to encourage companies to consider whether such modifications may be helpful in connection with their capital raising activities and assure you that SEC staff is placing a high priority on responding with timely guidance.

I don’t want to read too much into this – but it’s the third time in the past month or so that Rule 3-13 waiver requests have been mentioned in Corp Fin guidance or in comments by senior SEC Staffers.

In addition to Jay’s remarks, this Deloitte memo notes that Corp Fin’s Chief Accountant – Mark Kronforst – discussed waiver requests at a recent conference, and “urged companies to discuss their facts and circumstances” with the Staff. The Staff’s willingness to consider these waiver requests was also recently noted in Corp Fin’s announcement that all IPO filers would be permitted to submit confidential draft registration statements.

There’s no suggestion in any of these comments that it’s somehow “open season” on Reg S-X’s requirements. Still, I think it’s fair to say that the SEC Chair is sending a message that Corp Fin is more open to dialogue about Rule 3-13 waivers than some might assume.

Revenue Recognition: FASB’s “Gift” to Retailers

Over at “MarketWatch,” Francine McKenna recently pointed out that implementation of FASB’s new revenue recognition standard could turn out to be a big gift to the bottom lines of some major retailers.  That’s because the new standard would change the way retailers recognize revenue from the unredeemed portion of company-issued gift cards.

This is known as “breakage revenue” – and companies have been recognizing it under various scenarios based on their own redemption experience. Under the new rule, companies will be required to spread breakage revenue over a gift card’s expected redemption period.  That’s good news for many retailers:

Most companies will be able to accelerate breakage revenue rather than holding on to it until the likelihood anyone cashes in the balance becomes remote or until the card expires. The accounting change will affect everyone who issues gift cards, from classic bricks-and-mortar grocery and fashion retailers to restaurants to Amazon and other online stores.

Tomorrow’s Webcast: “FCPA Considerations in M&A”

Tune in tomorrow for the webcast – “FCPA Considerations in M&A” – to hear Richards Kibbes’ Audrey Ingram, K&L Gates’ Vince Martinez and Schulte Roth’s Gary Stein discuss how to take the FCPA and other anti-corruption laws into account during M&A activities.

John Jenkins

July 14, 2017

How to Access Next Week’s “Pay Ratio Webcast & Model Disclosures”

As part of the mad rush to register for our comprehensive “Pay Ratio & Proxy Disclosure Conference”, we’ve fielded questions from a number of members who want to attend next Thursday’s webcast – but who can’t make it to Washington DC for the October 17-18th Conference. It doesn’t matter whether you can make it to DC – because the October 17-18th Conference is available to watch online by video webcast, live on those specific days or at your convenience by video archive. We’ve clarified that in our Conference FAQs.

Coming Next Thursday! “Annotated Model Pay Ratio Disclosures”: For those registered for the upcoming “Pay Ratio & Proxy Disclosure Conference,” tune in on July 20th – next Thursday! – for the first in a series of three monthly webcasts that serve as a pre-conference: “Pay Ratio Workshop: What You Need to Do Now.”

When you go to the webcast page on July 20th, you will be able to download a set of “Annotated Model Pay Ratio Disclosures in both PDF & Word format. The second webcast is on August 15th; the third webcast is September 27th. Register for the “Pay Ratio & Proxy Disclosure Conference” to be able to access these webcasts.

NYSE Proposes Revised Dividend Notice Framework

As Steve Quinlivan has blogged, the NYSE recently proposed that listed companies provide notice to the Exchange at least 10 minutes before making any public announcement for a dividend or stock distribution – in all cases. This mean that notice would be required outside of the hours in which the Exchange’s “immediate release” policy is in operation, which goes beyond the current rule.

NYSE Refiles Proposal to Facilitate Direct Listing

A few months ago, John blogged about the NYSE’s proposal to facilitate “direct listings” – which which involves bypassing an IPO, and simply registering common stock under the Exchange Act & listing on an exchange. Then, David Feldman blogged that the NYSE had withdrawn its proposal. Now the NYSE’s proposal has been refiled as SR-NYSE-2017-30 (the withdrawn proposal and amendments 1, 2 and 3 were all related to SR-NYSE-2017-12).

Broc Romanek

July 13, 2017

Section 16 Beginners: Three New Resources

We’re excited to announce three new resources for those grappling with Section 16:

1. “Section 16 Tales” – A Section 16 Beginner’s Manual – a 200-page paperback – filled with practical stories from in-house practitioners. Includes the “soft stuff” – practical guidance not found in the rules. Here’s a list of the 16 chapters in this paperback.

2. “Section 16 Bootcamp” – A combination of three resources for Section 16 beginners, including 13 online videos, copy of the “Section 16 Tales” paperback & the ability to attend a Section 16 Forum.

3. “Section 16 Forums” – A one-day event for all Section 16 practitioners – not just beginners – facilitating education & networking among your peers – one will be held on each coast, each year.

Cross-Border Conflict Over Analyst Research

Here’s the intro from this WSJ article by Dave Michaels:

The SEC is weighing how to alleviate the harshest side effects of a European Union law that could have U.S. repercussions for banks trying to comply with it. The EU law, which goes into effect in January, will require investors to pay directly for investment research provided by banks’ brokerage arms. The EU measure aims to make research costs more transparent for end investors by breaking them out separately from the trading commissions that investment firms pay.

Yet U.S. law discourages paying for research directly by imposing stricter legal obligations on brokers that accept separate payment for research. U.S. rules have for many years accommodated the current arrangement, which dates to an era when commissions were fixed by exchange rules and brokers competed by offering extra services such as research reports. The extra responsibilities would entail higher legal costs and complicate brokers’ roles as sellers of stocks and bonds, according to industry officials. Wall Street wants to avoid that outcome, and two Republican lawmakers took up their cause on Tuesday at a Senate budget hearing by urging SEC Chairman Jay Clayton to find a solution.

Cryptocurrency: What’s a “Security”?

Not sure I fully understand this article on “tokens” and other emerging digital currencies (think “blockchain” & “bitcoin”) – but reading #6 & 7 in the piece seems to indicate that the securities law might not apply to them. Here’s ten cents about this from John:

I think the author is saying that as conceived, these tokens/API keys aren’t securities. Since that’s the case, they qualify for application of the “Tulip Test,” which I learned from an analyst back in the ’90s. It says that whenever you don’t understand a technobabble sales pitch for a world-changing, non-traditional investment, try substituting the word “tulip” or “beanie baby” for the magic word in the article (i.e. “token” and “API Key”) and see how it reads:

Tokens Tulips aren’t equity, because they have intrinsic use and because they are non-dilutive to the company’s capitalization table. A token tulip sale is more similar to a Kickstarter sale of paid API keys beanie babies than equity crowdfunding.”

Broc Romanek

July 12, 2017

Allstate’s Proxy: Simply Awesome

Members still ask me if I plan to resurrect the “Proxy Disclosure Award Contest” that I ran a few years back. If you recall, I allowed the community to vote for the winners rather than selecting the winners myself.

I don’t have plans to run another contest. But I’m game to pick a “proxy disclosure award” winner this year – because I have heard a number of institutional investors rave about Allstate’s proxy statement. It indeed is awesome. Congrats to Deborah Koenen & her team!

Here’s some of the notables:

Board Refreshment – Allstate focused on board refreshment disclosures, showing that the board is continuously engaged in succession planning – including data about the number of directors considered and added in the past five years. The additional information adds insight into board activities & appears to validate its processes.

Lead Independent Director – Allstate provided detail regarding the profile sought to serve as the board’s lead director, as well as biographical detail regarding the director currently in the role (including notable highlights from her tenure).

Board Highlights – A visual flow chart makes clear significant strategic, governance & compensation developments overseen by the board over the last five years.

Management Succession – Allstate provided an overview of the board’s management succession oversight responsibilities & annual practices – showing a proactive board that prioritizes long-term organizational stability & prepares for multiple leadership transition scenarios.

Corporate Responsibility – The proxy statement highlighted the board’s oversight of the company’s corporate responsibility initiatives, pointed out recent achievements – and provided a line of sight through to the most recent CSR report.

Insights into Board Committees – Allstate presented a double-page overview of its board committees, including quotes from committee chairs and lead director. Love how the “New” tags highlight recent developments.

Tomorrow’s Webcast: “12 Strange Things in the Securities Laws”

Tune in tomorrow for the webcast – “12 Strange Things in the Securities Laws” – to hear Fenwick & West’s Dawn Belt,’s John Jenkins, Manatt Phelps’ Ben Orlanski and Faegre Baker Daniels’ Amy Seidel tackle the practical solutions to bizarre & illogical things that happen in your daily practice. Or once in a blue moon…

Corp Fin: NFL Fan Clubs as “Securities”

I find this blog by Bryan Pilko interesting because I processed a similar no-action letter when I was in Corp Fin’s Office of Chief Counsel twenty years ago. Think it was the Green Bay Packers no-action letter (11/13/97). Anyway, this no-action response to the LA Fan Club allows LA Rams fans (a NFL team) to buy memberships in the fan club without the Staff considering it to be a Section 5 violation…

Broc Romanek

July 11, 2017

Pay Ratio: Our New Monthly Webcast Series (& Next Week’s “Annotated Model Disclosures”)

For those registered for the upcoming “Pay Ratio & Proxy Disclosure Conference,” tune in on July 20th for the first in a series of three monthly webcasts that serve as a pre-conference: “Pay Ratio Workshop: What You Need to Do Now.” When you go to the webcast page on July 20th, you will be able to download a set of “Annotated Model Pay Ratio Disclosures” in both PDF & Word format. The second webcast is on August 15th.

The speakers for the July 20th webcast are:

Mark Borges, Principal, Compensia
Mike Kesner, Principal-in-Charge, Human Capital Advisory Services, Deloitte Consulting LLP
Dave Lynn, Editor, and Partner, Jenner & Block LLP
Maia Gez, Of Counsel, Gibson Dunn & Crutcher LLP

The speakers for the August 15th webcast are:

Mark Borges, Principal, Compensia
Keith Higgins, Partner, Ropes & Gray LLP
Scott Spector, Partner, Fenwick & West LLP

Register Now – 10% Discount Ends July 28th: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days.

“Human Capital Management” Disclosure: A SEC Rulemaking Petition

As noted in this press release, a group of institutional investors with $2.8 trillion in assets – that is “trillion” with a “T” – has filed this rulemaking petition with the SEC that includes 9 categories of disclosures about human capital management. The driving force behind this is that companies are now only required to disclose their employee headcount – yet a large body of evidence links investments in human capital to better corporate performance…

By the way, as John has blogged before, Delaware has now passed legislation that will allow shares to be traded on a blockchain…

Transcript: “Proxy Season Post-Mortem – The Latest Compensation Disclosures”

We’ve posted the transcript for the webcast: “Proxy Season Post-Mortem – The Latest Compensation Disclosures.”

Broc Romanek

July 10, 2017

Links to Exhibits: Updated Edgar Filer Manual (Coming Soon)

Back in May, I blogged about 7 early adopters of the SEC’s new “link to exhibits” rule. I blogged that these companies had experimented by including links to their exhibits voluntarily – without the benefit of an updated Edgar Filer Manual.

Last Thursday, the SEC posted this adopting release about an updated Edgar Filer Manual. However, the updated Manual itself is not yet posted (the currently posted Manual was last updated in March). Perhaps it will be posted when this adopting release is published in the Federal Register? Regardless, it will be out soon. Hat tip to Goodwin Procter’s John Newell for alerting us to this development.

The adopting release doesn’t hint at the degree of instructive detail that the updated Manual will ultimately provide. Will it provide a detailed roadmap of what the SEC expects? Or will it state that companies have wide latitude as to how they provide links? We’ll know the answer when the updated Manual is posted.

Here’s what the adopting release says about all this on page 3:

Effective September 1, 2017, large accelerated and accelerated filers filing Forms S-1, S- 3, S-4, S-8, S-11, F-1, F-3, F-4, F-10, SF-1, and SF-3 under the Securities Act and Forms 10, 10- K, 10-Q, 8-K, 20-F, and 10-D under the Exchange Act will be required to submit these forms in HTML and include a hyperlink to each exhibit listed in the exhibit index of these filings, including exhibits that are incorporated by reference. Instructions for hyperlinking to an exhibit submitted with a previous submission, or an exhibit that is being filed concurrently with the submission, have been included in Chapter 5 of Volume II of the EDGAR Filer Manual. Instructions for using HTML Styles to indicate the location of the Exhibit Links and the Summary Section have also been included in Chapter 5 of Volume II of the EDGAR Filer Manual.

GE Creates Internal Yelp-Like Resource for Lawyers

Interesting article about how GE has created an internal Yelp-like resource to manage the 200 outside law firms it deals with. Not sure it will really used much by GE’s 800 in-house lawyers, but probably will be used by procurement – and that’s who everybody is increasingly answering to these days…

Controlling Audit Fees: “How-To Guide”

Here’s something from Dan Goelzer of Baker & McKenzie: As discussed in the December 2016 Update, the Financial Executives Research Foundation (FERF), the research affiliate of Financial Executives International (FEI), found, in its 2015 survey of audit fees, that the median SEC filer audit fee rose 1.6 percent in 2015. However, the largest public companies – large accelerated filers – enjoyed a 3.8 percent decrease in fees. FERF and Workiva, a provider of business data and control solutions, have followed up on the audit fee survey with a report on how companies can reduce audit fees or limit fee increases. The new report – “Mitigating Increases in Audit Fees” – is based on interviews with financial statement preparers and auditors.

The FERF recommendations fall into six categories:

1. Rethink the business and centralize business processes. “Audit fees are often related directly to the size and complexity of the business, so if any parts of the business are sold or discontinued, audit fees should decline in proportion. However, reducing audit fees for a company with a newly simplified structure often requires negotiation with the external auditor.” The report also notes that FERF’s annual audit fee survey has consistently found that companies with centralized operations average significantly lower audit fees than decentralized companies.

2. Align key controls with key risks. “Public Company Accounting Oversight Board (PCAOB) inspections have encouraged auditors to spend more time reviewing management controls during the annual audit, prompting registrants to align key controls with the most relevant risks.” In this respect, one of the auditors interviewed observed:

“Audits are a function of the amount of time that it takes to do the audit. If there are fewer key controls that need to be tested, the audit fees could possibly go down. However, there is a balance that needs to be struck, because the opposite could also be true. We think it is really important that the company and the external auditor align their control structure and do some upfront planning, because if the company and the external auditor both agree on the key controls that are in place and can be tested, there is a real opportunity for efficiency.”

3. Document internal controls. “Reviewing the documentation of internal controls, which can be time-consuming, has become a key part of the audit. If the client has very light or poorly organized documentation, or hasn’t thought through all the branches in a process, attestation becomes difficult for the auditor — and more costly for the registrant.”

4. Consider outsourcing internal audit. “A Big Four audit firm may be able to rely on the internal audit work of a regional firm with a significantly lower hourly rate.” Outsourcing internal audit to a firm in which the auditor has confidence should increase the extent to which the auditor is willing to rely on that firm’s work, rather than duplicating its testing. However, as the report notes, the effectiveness of this strategy also depends on the independence of the firm that performs the internal audit function.

5. Communicate with the auditor. “Good communication should be continual through the process, not limited to the start or end of the audit.” For example, in a case discussed in the report, the controller asked the auditor what the company could do to make the audit more efficient. The auditor responded with suggestions for analytics that could be prepared by the company’s staff, for review by the auditor, as a way of reducing audit hours. Another suggestion involved early communication to reach agreement on risk assessment.

6. Evaluate the latest technology. “External auditors and internal auditors are both using data analytics technology to increase audit quality, work smarter and potentially reduce costs. Technology can be used to detect and identify all exceptions, anomalies and outliers, rather than just those found within a sample.” One of the auditor interviewees suggested that–

“reports should generated [by the company’s IT system] in a way that the system retains a lot of audit evidence or evidence that the company might anticipate an external auditor would look for. * * * For example, the tracing and vouching to source documents, whether they’re invoices generated internally by the company or documents or evidence that is retained by a third party, such as a proof of delivery or a cash receipt.”

Comment: Because of their responsibility for the relationship with the outside auditor, audit committees may find the FERF publication a useful reference. The strength of the FERF approach is that it suggests ways in which the cost of the audit can be reduced with out compromising quality. Fee reduction demands which merely encourage the auditor to reduce audit hours run the risk of increasing the probability the audit will fail to detect a material misstatement or internal control weakness – either of which is likely to result in costs and embarrassment for the company and the audit committee out of proportion to any audit fee savings. Conversely, audit committees may want to probe more deeply into the reasons for fee reductions that are not based on the kinds of approaches outlined in the FERF guide.

Broc Romanek

July 7, 2017

How I Became The “Internet Guy”

Given that its the 20th anniversary of when the SEC delivered this report to Congress about the impact of technology on the securities law, I thought it would be a good time to explain how I became the main “Internet” guru in Corp Fin back in late ’90s. The story involves reviewing the first CD-ROM prospectus as told in this 6-minute podcast.

If you search the term “script” in this amended registration statement for Ameritrade’s 1997 IPO, you will see video was included in a CD-ROM that was attached to the paper prospectus. The CD-ROM was considered part of the prospectus – and the script was appended at the end of the printed prospectus.

I have pictures of the print prospectus & CD-ROM on my fairly lame Pinterest page – and Ameritrade recently posted the video itself! The video features numerous members of senior managers and explains how the company operates. Love the use of the Netscape browser! [Here’s my blog about my video regarding “how to file video on Edgar.”]

As noted in this blog, you might recall David Westenberg telling us that the 1st multimedia prospectus was the 1985 IPO of Kurzweil Music Systems – the printed prospectus was polybagged with an audiocassette. This was before the SEC had guidance on what to do with multimedia, so there were no lessons learned…

1997 Congressional Report: Impact of the Internet on the Securities Laws

Let me briefly explain that report to Congress about the impact of technology on the securities law. It was mandated as part of NSMIA. With Meredith Cross & Mauri Osheroff reviewing my work, I wrote the section relating to the Internet and public companies.

At the time, I printed off hundreds of pages of screen shots involving the first time that a pioneering company did something online. The firsts! I literally knew everything going on with public companies online – because there wasn’t all that much happening. In 1997, even large major companies were building their own websites for the very first time.

The Internet was so new that when I eventually landed at RR Donnelley as a marketing & sales guy (after a stint in-house at Lockheed Martin) – and sold them a website called “” My title had the term “Internet” in it because that was so novel!

Broc & John: Impact of Technology on Securities Laws

In this 6-minute podcast that John & I taped a while back, we discuss the impact of technology on the securities laws & old dogs.

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

Broc Romanek

July 6, 2017

Remembering Bill Carter

I’m sad to note that Bill Carter passed away last week. Bill served in Corp Fin for 30 years, most of them in the Office of Chief Counsel. Perhaps most notable is that Bill was primarily responsible for hiring several generations of Corp Fin Staffers over many years – including me.

Along with Bill Morley, Bill conducted the first – and often only – interviews with possible candidates. I remember my interview – right out of law school – vividly. Those two were cool customers. I had no idea how I fared in the interview. Little did I know that having gone to the University of Maryland Law School made me a “shoo in.”

I was with a bunch of former Staffers last week when we found out about Bill. We all had our Bill stories. For example, Bill apparently wanted to be a veterinarian. Bill was a real class act. When he announced his retirement in the late ’90s, I was working in OCC with Bill – and I tried to set him up with my mom. Bill was precisely the kind of guy that you wanted as your stepfather. Here’s how you can made donations to the American Cancer Society on Bill’s behalf.

SEC Chair Lists His Agenda Priorities

Recently, SEC Chair Jay Clayton testified on the SEC’s fiscal 2018 budget before the Senate Appropriations Subcommittee and listed his priorities. Here’s an excerpt from this Weil Gotshal blog on the topic (also see this Bass Berry blog):

Chair Clayton’s testimony revealed three main concentration areas for fiscal 2018: facilitating capital formation with an emphasis on small business growth; protecting investors through enforcement; and leveraging technology to achieve the SEC’s goals. The Chair indicated the SEC would be improving efficiency through automation, streamlining internal processes and utilizing data throughout the agency. Improvements in efficiency will be necessary to do more with less because the budget calls for small reductions in full time equivalent headcount in most areas (e.g., Enforcement down from budgeted FTE in 2017 of 1362 to 1329; Corporation Finance from 465 to 453, and Office of Compliance Inspections and Examinations (OCIE) from 1083 to 1055).

Transcript: “Public Company Carve-Outs – The Nuggets”

We have posted the transcript of our recent webcast: “Public Company Carve-Outs – The Nuggets.”

Broc Romanek

July 5, 2017

Draft IPO Filings: Corp Fin Issues 18 FAQs

On Friday, John blogged about Corp Fin’s big announcement that it would extend eligibility for confidential review of draft registration statements to all IPOs – not just emerging growth companies as permitted under the JOBS Act. Since then, Corp Fin has issued these 18 FAQs to flesh out its new position, which commences July 10th…

We’re posting related memos in our “IPOs” Practice Area.

Our July Eminders is Posted!

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

Dazzling Sights of a Conference

Taking my own advice about “how to maximize your conference experience,” here’s the 10 new people I met during this year’s ‘Society for Corporate Governance’ conference:

Bald Man’s Photo @ Gibson Dunn party

Bristol-Myers Squib’s Jung Choi

Docusign’s Yanira Wong

Idex’s Brian Hanigan & Dover’s Alison Rhoten

Fifth Third Bancorp’s Saema Somalya

Aon Hewitt’s Ryan Sanchez

Allstate’s Efie Vainikos & Carmax’s Mac Stuckey

Efie & Allstate’s Deborah Koenen

Skadden’s Sonia Nijjar

Broc Romanek