January 5, 2018

Investor “One-on-Ones”: Pushing the FD Envelope?

When Reg FD was adopted back in 2000, some predicted the death of the investor “one-on-one” – private meetings between investors and top corporate brass. That prediction turned out to be about as accurate as the one that said we’d all be flying our jetpacks to work by now.

Instead, these meetings remain common, particularly among companies seeking to raise their profile with investors.  But now the smarty-pantses at Harvard Business School have published a new study that looks what gets asked at those meetings.  While a lot of questions are pretty mundane – e.g. “what keeps you up at night?” – some clearly represent an effort to obtain more timely information about companies than what’s been publicly disclosed. Check out this excerpt:

The cash balance of the firm two months after the release of the quarterly report may be stale information. Understanding whether the firm has sufficient cash to continue operations may be salient for an investor’s investment decision so the investor will seek more timely information from management. From a regulatory perspective, timely questions appear to pose the greatest regulatory risk for managers in responding. Nonetheless, we find that most private interactions include at least one timely question posed to management.

Representative examples of timely questions include:

– “How much cash do you have now?”
– “Do you know additional sell side analysts that will be launching initiation reports?”
– “Are you done with recruitment or still enrolling?”
– “Are the Q2 earnings call expectations still valid?”

Management’s responses to any of these questions may raise Reg FD issues – and reaffirming quarterly guidance has been specifically flagged by the Staff as a problem under Reg FD.  The study’s results suggest what many of us have long thought – that these private investor meetings are an FD compliance minefield.

Governance Survey: Silicon Valley v. S&P 100

The latest edition of Fenwick & West’s annual governance study surveys the governance practices of companies in the Silicon Valley 150 Index and compares them with those found at S&P 100 companies. Here are some of this year’s highlights:

– Adoption of dual-class voting stock structures has emerged as a recent clear trend among the mid-to-larger SV 150 companies. 11% of Silicon Valley companies surveyed had dual-class structures in 2017 compared to 9% of the S&P 100.

– Classified boards are now significantly more common among SV 150 companies than among S&P 100 companies. Compared to the prior year, classified boards remained fairly consistent, holding steady at slightly less than 7% for the top 15 companies in the SV 150 while the S&P 100 has been at 4% since 2016.

– Fewer Silicon Valley companies have adopted majority voting policies than their S&P 100 counterparts. Approximately 60% of the SV 150 companies have majority voting policies, compared with 97% of the S&P 100.

– 2017 continued the long-term trend in the SV 150 of increasing numbers of women directors and declining numbers of boards without women members. the rate of increase in women directors for SV 150 overall continues to be higher than among S&P 100 companies. When measured as a percentage of the total number of directors, the top 15 of the SV 150 now slightly exceed their S&P 100 peers (the top 15 averaged 25.4% women directors in the 2017 proxy season, compared to 23.9% in the S&P 100).

The study also addresses other governance metrics & tracks changes over time.

Buybacks: Primed for a Tax & Activist Driven Comeback?

I recently blogged about reports on the decline in stock buybacks during most of 2017. Well, it looks like those might come roaring back to life in the new year. This article from “” says that stock buybacks will be driven by an increased ability to repatriate foreign cash – and pressure from activist hedge funds.  Here’s an excerpt:

Activists typically pressure corporations with a lot of cash on their balance sheet to either spend it on the business, launch a big stock buyback program or issue a special dividend. In many cases, corporations have put their cash overseas to avoid U.S. taxes. However, the historic passage of a $1.5 trillion tax overhaul legislation is expected to change the calculus on off-shore cash, considering that a vital component of the package is a provision imposing a low 15.5% repatriation tax for money held offshore. Expect the rule to drive activist hedge funds to put new pressure on companies to repatriate cash, then distribute it to shareholders.

On the other hand, not everybody is buying into this narrative – this Bloomberg article suggests that most Wall Street analysts expect companies to use their tax windfall to increase their capital investments.

John Jenkins