Monthly Archives: July 2018

July 20, 2018

Perks: Another SEC Enforcement Case!

As you can see from our list of SEC perks cases (posted in our “Perks” Practice Area on, the SEC has averaged one perks enforcement case per year for the past dozen years. That’s why it’s so surprising that the SEC has now brought two perks cases in one week. Coincidence or a theme?

In this new case against Energy XXI, the CEO & board were charged with hiding more than $10 million in personal loans that the CEO obtained from company vendors and a candidate for the company’s board. The company wasn’t charged, interestingly. Here’s a blog about last week’s case.

The list of perks in para 56 of this complaint raises a couple of interesting issues. Is a bar stocked with cigars and liquor – on company premises for use in entertaining customers – necessarily a perk? You might ask what is a “Denny Crane” room? (Hint: TV show “Boston Legal” – that’s the character played by William Shatner). Come learn what you need to know as Mark Borges & Alan Dye lead a panel devoted just to perks at our upcoming “Proxy Disclosure Conference” – to be held September 25-26 in San Diego and via Live Nationwide Video Webcast.

Reduced Rates – Act by August 10th: Time to act on the registration information for our popular conferences – “Pay Ratio & Proxy Disclosure Conference” & “Say-on-Pay Workshop: 15th Annual Executive Compensation Conference” – to be held September 25-26 in San Diego and via Live Nationwide Video Webcast. Here are the agendas – nearly 20 panels over two days. So register by August 10th to take advantage of the discount.

Revenue Recognition: Private Company Struggles

We’ve blogged about how difficult it’s been for public companies to implement FASB’s new(ish) revenue recognition standard. According to this Deloitte survey, private companies aren’t faring much better. They have to implement the new standard this January – and 47% are either in the early stages of implementation or haven’t started at all. Only 25% are on pace to actually hit the compliance deadline. And just because these companies are privately-held, doesn’t mean they won’t have to explain the impact of the new standard to their boards, audit committees, banks and investors.

Transcript: “D&O Insurance Today”

We have posted the transcript for our recent webcast: “D&O Insurance Today.”

Liz Dunshee

July 19, 2018

SEC Concept Release: Expanding Form S-8 & Rule 701

At its open meeting yesterday, the SEC voted to issue a 36-page concept release that seeks input on expanding and simplifying Form S-8 & Rule 701. Among other points, the release asks whether:

– Rule 701 & Form S-8 accommodations should extend to “gig economy” relationships – and what parameters should apply

– Form S-8 requirements should be revised to ease compliance issues that arise when plan sales exceed the number of shares registered

– The SEC should permit all of a company’s plans to be registered on a single registration statement

– Companies would benefit from a “pay-as-you-go” or periodic fee structure for Form S-8

– Rule 701 should be extended to reporting companies – eliminating the need for Form S-8

– The SEC should amend the disclosure content & timing requirements of Rule 701(e)

This blog from Cooley’s Cydney Posner notes that much of the discussion at the open meeting and in the concept release relates to whether or not liberalizing the equity compensation rules would create incentives for companies to “go public and stay public” (here’s Commissioner Stein’s statement and here’s Commissioner Peirce’s statement).

SEC Raises Rule 701 Disclosure Threshold

Yesterday, the SEC announced that it had unanimously approved an amendment to Rule 701(e). Non-reporting companies that issue equity compensation won’t have to provide financial statements, risk factors and other disclosures to participants until they’ve sold an aggregate of $10 million in securities during a 12-month period. Previously, that threshold was $5 million.

As John blogged a couple months ago, this amendment was a result of the “Economic Growth, Regulatory Relief & Consumer Protection Act.” The amendment will become effective immediately upon publication in the Federal Register – and companies that have already started an offering in the current 12-month period will be able to apply the new threshold.

House Passes “Jobs Act 3.0”

The “Jobs & Investor Confidence Act of 2018” has now passed the House – by a vote of 406-4 – according to this announcement from the House Financial Services Committee. Among other things, the 32 pieces of legislation that comprise the bill would:

– Require the SEC to analyze the costs & benefits of the use of Form 10-Q by emerging growth companies and consider the use of alternative formats for quarterly reporting for EGCs.

– Direct the SEC to consider amendments to Rule 10b5-1 that would, among other things: limit insiders’ ability to use overlapping plans, establish a mandatory delay between the adoption of the plan and execution of the first trade, limit the frequency of plan amendments, require companies and insiders to file plans and amendments with the SEC, and impose board oversight requirements.

– Require companies with multi-class share structures to make certain proxy statement disclosures about shareholders’ voting power.

– Allow emerging growth companies with less than $50 million average annual gross revenue to opt out of auditor attestation requirements beyond the typical 5-year period.

– Amend the definition of “accredited investor” to include people with education or job experience that would allow them to evaluate investments.

– Expand to all public companies the “testing the waters” and confidential submission process for registration statements in an IPO or a follow-on offering within one year of an IPO.

– Allow venture exchanges to register with the SEC, as a trading venue for small & emerging companies.

– Direct the SEC & FINRA to study the direct and indirect costs for small & medium-sized companies to undertake public offerings.

Liz Dunshee

July 18, 2018

Tying Executive Pay to Diversity

Here’s something I blogged yesterday on This Forbes op-ed notes that a few “pace-setting companies” now link executive bonuses to diversity objectives – and makes the case for more companies to follow suit. Here’s an excerpt:

If an objective is important, then the company should ensure (1) its employees know about it and (2) that their performance in meeting this goal will be measured along with the company’s other core values and targets. Fostering greater diversity and preventing harassment and discrimination is more than simply the right thing to do on a broader societal level. Indeed, a business case exists for these initiatives. According to research by McKinsey & Company, achieving these goals correlates with concrete financial improvement.

At Intel & Microsoft, diversity is one of the strategic performance goals that determine 50% of executives’ annual cash incentives. This is described on pg. 66 of Intel’s proxy statement – and on pg. 39 of Microsoft’s proxy statement.

At Alphabet, a recent shareholder proposal to link executive pay to diversity received about 9% of the vote. The company’s statement in opposition (pg. 66) noted that the CEO receives a base salary of only $1 per year and isn’t paid based on performance – so it argued that a rule like this would have little impact. And at Nike, a similar proposal was withdrawn after the company agreed to meet quarterly to discuss diversity.

Restatements: 17-Year Low

Recently, Audit Analytics released its annual report on restatement trends: “2017 Financial Restatements: A Seventeen Year Comparison.” The aggregate number of restatements fell to 553 last year – the lowest in 17 years. The number of restatements was about 18% lower than in 2016 – and as we blogged at the time on “The Mentor Blog” – that was a previous low. Here’s an interesting detail from Cydney Posner’s blog (also see this Compliance Week article):

The review distinguishes between “reissuance restatements” (meaning that, as the title suggests, the financials are withdrawn and cannot be relied on—necessitating the filing of an 8-K — and new financials are issued) and “revision restatements” (where the errors are just corrected and explanatory notes included). It’s not hard to guess which type of restatement is preferred by most companies; not surprisingly, the report indicates that around 77% of restatements were of the “revision” persuasion. Reissuance restatements have declined each year for the past 10 years. The number of revision restatements has also declined. And 168 restatements had no impact on earnings.

FYI: Conference Hotel Nearly Sold Out

As always happens this time of year, our Conference Hotel – the San Diego Marriott Marquis – is nearly sold out. Reserve your room online or by calling 877.622.3056. Be sure to mention the NASPP conference or Executive Compensation Conference or Proxy Disclosure Conference. If you have any difficulty securing a room, please contact us at 925.685.9271.

Reduced Rates – Act by August 10th: Time to act on the registration information for our popular conferences – “Pay Ratio & Proxy Disclosure Conference” & “Say-on-Pay Workshop: 15th Annual Executive Compensation Conference” – to be held September 25-26 in San Diego and via Live Nationwide Video Webcast. Here are the agendas – nearly 20 panels over two days. So register by August 10th to take advantage of the discount.

Liz Dunshee

July 17, 2018

State Data Breach Notices: Path for Investor Arbitrage?

This Locke Lord memo highlights that all 50 states now have data breach notification laws, and several states have recently amended their laws (including Delaware). Most states require companies to notify the state attorney general or regulator of a breach, in addition to the affected individuals – and a growing number outline how companies should handle data security. Meanwhile, This D&O Diary blog & NYT article discuss California’s new “GDPR-like” privacy law, to take effect in 2020 – which also heightens liability exposure for companies.

And for public companies, there’s a really important corollary to these laws, which often gets lost in the shuffle – information from state notices can find its way to the market even if you don’t file a Form 8-K. SEC Commissioner Robert Jackson has noted that this presents an arbitrage opportunity – and may weigh in favor of proactive, voluntary disclosure.

See our “Cybersecurity” Practice Area for the latest info – including this handy chart from Perkins Coie and this Cleary Gottlieb memo for key US & EU notice requirements. And as I previously blogged on “The Mentor Blog,” Reed Smith also has an app to help parse state law notice requirements…

Cybersecurity Committees: On the Rise

This Kral Ussery memo summarizes the growing trend of standalone cybersecurity committees. Although most companies still assign cybersecurity oversight to the audit committee due to that committee’s involvement with SEC disclosure, audit committees have growing workloads and cybersecurity is an increasingly demanding topic. The memo identifies ten companies that have standing cybersecurity committees – five of which were created in the last year.

Tomorrow’s Webcast: “Retaining Key Employees in a Deal”

Tune in tomorrow for the webcast – “Retaining Key Employees in a Deal” to hear Morgan Lewis’ Jeanie Cogill, Andrews Kurth Kenyon’s Tony Eppert, & Proskauer’s Josh Miller discuss the latest developments on compensation strategies to retain key employees in M&A transactions.

Liz Dunshee

July 16, 2018

Tomorrow’s Webcast: “Insider Trading Policies & Rule 10b5-1 Plans”

Tune in tomorrow for the webcast – “Insider Trading Policies & Rule 10b5-1 Plans” – to hear Weil Gotshal’s Howard Dicker, Hogan Lovells’ Alan Dye, Dorsey & Whitney’s Cam Hoang and Cooley’s Nancy Wojtas talk about the nuts & bolts – and the latest developments – for insider trading policies and Rule 10b5-1 plans. We recently updated our “Insider Trading Policies Handbook” – which includes a model policy.

The agenda includes:

1. Insider Trading: Today’s Enforcement Environment

2. Blackout Period Trends, Including Types of Transactions Typically Permitted or Prohibited

3. Things to Consider in Drafting/Modifying an Insider Trading Policy:

    – Dealing with Cybersecurity Considerations

    – Elections Made Under Contributory Stock Plans

    – Transactions Directly with the Issuer

    – Sharing Information with Third Parties

    – Extending Coverage Beyond Employees

    – Pledging, Hedging & Short-Selling Transactions

4. Preclearance Procedures

5. Employee Education

6. Latest Trends in Rule 10b5-1 Plans

7. Intersection of Insider Trading Policies with Rule 10b5-1 Plans

Wednesday’s Open Commission Meeting: Rule 701 & More

According to this “Sunshine Act” notice, the SEC is holding an open Commission meeting this Wednesday to consider:

1. Adopting changes to Rule 701(e)

2. Issuing a concept release on Rule 701 & Form S-8

3. Proposing changes to Rule 3-10 & Rule 3-16 of Regulation S-X (there was a request for comment on this back in 2015).

Jobs Act 3.0: Coming Soon?

According to this statement, the House Financial Services Committee has approved eight bills as part of “Jobs Act 3.0.” This Steve Quinlivan blog calls out that six of the bills were sponsored by Democrats – and it doesn’t sound like legislation will happen any time soon…

Liz Dunshee

July 13, 2018

The “Nina Flax” Files: Things About My Job That Energize Me

Here’s the third “list” installment from Nina Flax of Mayer Brown (here’s the last one):

1. Email – With three subparts to this item on my list:

a. I enjoy being in a client service industry (and have been since high school, when I worked in a clothing store during my free time, and through college, when I worked at a shoe store in the Durham mall). Getting emails from my clients lets me provide that service – and I feel accomplished when I am able to respond promptly. Also, the emails are like never ending text chats with friends.

b. I can put voices and tones to the communications, understand the questions beneath the questions, anticipate issues based on the communications, update my task lists, etc. They allow me to hone and improve the service I am providing.

c. Email can be so efficient. Which is not a knock against calls or meetings at all, but if you can accomplish communicating a point/resolving an issue quickly through email, it feels like such a separate accomplishment (in addition to just the back & forth/accomplishment of responding from point “a”).

2. Travel – Despite my desire to not be away from my son, it is always exciting to be face-to-face, to present at seminars, to socialize with clients. I love interacting with people – particularly in person. In writing this post, I quickly took an online personality test. It scored me as having a slight preference for extraversion over introversion!

My husband knows that sometimes I come home at the end of long days of calls and want nothing more than to not talk, but I also frequently call him or my parents from the car on my drive to or from work too… Actually, I am always on a phone call when driving. I’m going to say it is also efficient in addition to satisfying my extraversion.

3. Practice Breadth – I get to do so many different things touching so many different industries and jurisdictions and interacting with so many different people. Despite being a partner, I am constantly learning on the job. I do not have any projects that are the same. I do not have two clients that are the same. I do not have any days that are the same. Everything is always different! I love the diversity in private practice.

4. There Is No Break; It Never Ends – Translation: I never get bored! I wholeheartedly disagree with Karl Lagerfeld – I don’t think that work is making a living out of being bored. I’m on “Team Voltaire”: All kinds of jobs are good except the kind that bores you. Or “Team Metallica”: Boredom comes from a boring mind. Or “Team Carlyle”: I’ve got a great ambition to die of exhaustion rather than boredom. Or “Team Chung”: I’m terrified of being bored and not learning. (Side note: I hate the word “bored,” particularly in children’s books.) There is always something to do, even right after a deal closes. There is always something to learn, because the law or the industry changes.

These are my Yangs to my Yins! I truly believe there are pros and cons to everything. But right now there are only pros to eating Oreos for me.

SEC’s OM&A: Walk Down Memory Lane

Mauri Osheroff – who until a few years ago was Corp Fin’s Associate Director who oversaw the Office of Mergers & Acquisitions – was reading the transcript of our webcast with the Chiefs of OM&A from the past three decades. Mauri noted that the original office was called “Tender Offers and Small Issues” – they processed tender offers and Reg A offerings. Go figure. We don’t know when Reg A offerings dropped out of the picture.

The Office Chief back then was the legendary Ruth Appleton. Here’s Ruth’s obit, which details her SEC career and the obstacles she faced as a professional woman…

Poll: CEOs Have Too Much Time on Their Hands?

I recently got this astute note from a member: “There never seems a month that goes by that I don’t a survey be published relating to ‘what directors think’ or ‘what CEOs think.’ Who is completing these surveys – do they have time on their hands, do they get cash for completing, etc?”

Here’s an anonymous poll for you to weigh in on this:

panel management

Broc Romanek

July 12, 2018

MD&A: How to Handle a “Highly Inflationary Economy”

Recently, Brink Dickerson of Troutman Sanders informed us that companies with meaningful operations in Argentina need to take note of the recent designation of Argentina as a “highly inflationary economy.” Under ASC #830, this may trigger additional footnote disclosure in the financials (regarding the inflation and the company’s exposure, revenue, costs, and possible impairment triggers relating to Argentina) and could require MD&A and risk factor disclosure as well. See this memo

Whistleblowers: The SEC’s Stats

Here’s an excerpt from this blog by Allen Matkins’ Keith Bishop about the SEC’s recent whistleblower proposal:

The SEC’s release does provide some eye-popping data. As a result of the program, the SEC has received over 22,000 tips and ordered payouts over $266 million. That is a lot of tips and a great deal of money. For some perspective, the SEC’s budget authority for 2018 is $1.652 billion. Thus $266 million is equivalent to about 16% of the SEC’s 2018 budget authority. Here in California, this $266 million represents 8.5 times the amounts appropriated by the California legislature for support of the California Department of Business Oversight’s investment program.

Sights & Sounds: Section 16 Forums

Here’s a one-minute video recapping our recent “Section 16 Forums.” They were very successful – but a lot of work. So we have no plans to hold additional Forums at this time. As a result, our “Section 16 Bootcamp” now consists of the 14 videos we have posted on demand and a copy of the “Section 16 Tales” paperback (described at our recent Forums as the “Section 16 Bible”) at a price of $295. If you know of someone new to Section 16, send them to the “Section 16 Bootcamp” today.

Broc Romanek

July 11, 2018

Do Boards Really Talk About Race?

At a recent conference, I wound up in a fascinating conversation with someone who spends a lot of time inside boardrooms. The topic was whether boards were talking about race. Talking about race at all – whether in the context of board diversity or business strategy in general. The upshot was not surprising. People are scared to talk about race – and that includes directors.

This doesn’t mean that those hesitant to talk about race are racists. It’s simply that people are uncomfortable talking about race. At least the people I know – which tends to be a whole lot of white people. Which is most of the people in our field. Our field is dominated by white people. That has changed little in the 30 years that I’ve been in it. And if we don’t talk about it, that won’t change.

If you have ideas – or have seen initiatives – to improve this situation, please email me. I’d like to see real change in my lifetime. I remember SEC Chair Levitt really pushing for diversity in the financial world in the ’90s. I’d like to help push for more diversity among corporate lawyers & governance professionals.

Why Women Rarely Serve on Dissident Slates

Our “Women’s 100” events are governed by the ‘Chatham House’ rule – but Aneliya Crawford of Schulte Roth gave me permission to share this nugget with you. During one of these events, Aneliya was interviewed on the topic of dealing with activists. She represents many of them – and she was asked about why so few women serve as director nominees for activists during a proxy fight.

Aneliya responded that she’s studied this question in depth – and has concluded that the answer isn’t that activists don’t want nor seek women. Rather, the qualified women that they approach only want to serve on the board if the proxy fight settles. In general, they otherwise don’t want to be on a dissident slate and have their name slung through the mud. I don’t blame them. I wouldn’t want that either…

Conflict Minerals: Disclosures Over Past Few Years Similar

Recently, the GAO conducted its annual conflict minerals review as required under Dodd-Frank – and here’s the report. Here’s an excerpt from this Cooley blog that summarizes the findings:

The GAO found that, generally, the disclosures filed in 2017 were similar to those filed in the prior two years. The GAO estimated that, out of 1,165 companies that filed conflict minerals disclosures, almost all companies reported in 2017 that they performed country-of-origin inquiries. As a result of those inquiries, an estimated 53% reported whether the conflict minerals in their products came from the DRC or one of the adjoining countries, up from estimated 49% in 2016 and 2015—which you could characterize as an increase that crosses a significant “majority“ threshold except that the estimates have a margin of error of plus or minus 10 percentage points at the 95-percent confidence level. The percentage is 2017 was, however, significantly higher than the estimate of 30% in 2014.

Broc Romanek

July 10, 2018

The “Nina Flax” Files: Things About My Job That Exhaust Me

Here’s the second “list” installment from Nina Flax of Mayer Brown (here’s the first one):

1. Email – With three subparts to this item on my list:

a. The VOLUME is exhausting.

b. Because responses are expected near instantaneously, I can never find quiet time during the waking hours to get deep thinking tasks done.

c. Part of the VOLUME is the deleting/filing/etc. I have flushed away hours of my life organizing emails and trying to dwindle down my inbox (in my personal system, getting below 1000 is a serious accomplishment).

2. Travel – Now, part of this is my own doing, admittedly. But when I have to travel to the east coast, I prefer to take red eyes so that I can put my son to sleep the night I am leaving. I similarly plan all outbound flights to all other locations to maximize awake hours with my son. Depending on why I am traveling, and where I am traveling, I usually turn right back around which means that I am gone for 24-28 hrs. Yes, even on trips to the east coast. One time I landed, got in my car, got on the highway, was going the speed limit (or under) and saw police lights behind me. Apparently in my trudge I had forgotten to turn on my headlights. I know, they should be on automatic – my husband always tells me that.

3. Time Entry – Being in private practice I should revere time entry. I don’t. I have debated with friends and colleagues over the most efficient way to track time, and everyone certainly seems to have their own system. Mine is entering everything myself. Others make chicken scratch notes that their assistants enter, but then they have (in my mind) the extra step of reviewing the entries to make sure everything got it. I don’t think timers within entry systems are all that useful – you still have to enter the descriptions, etc.

4. There Is No Break; It Never Ends – But seriously, my favorite vacation from a true break perspective that I have taken since starting at the firm was to North Korea – because they confiscated all electronic items at the border. It was bliss. I read books, talked to my dad (my travel companion) and slept. By contrast, on my husband’s first trip to Europe (to Italy), we landed, went and dropped off our bags, walked to the Spanish Steps, and he promptly fell asleep as I sat there on a two hour call. I know I am not alone on never really having a vacation.

One of my good friends has a husband who is also still in Big Law. She has a series of pictures of him working from their various vacations at all times in all random places. There are so many, and it is so hilarious, friends on Facebook asked for a custom calendar. I made one for myself. I love it. To center at the end of this one, I know I am blessed to even be able to “take” a vacation to begin with, but this is still my life! How I wish I were still in school. But really, can I go back?

Note to self: Should likely stop mentioning North Korea. Suspect I am already on one or more government watch lists even though my life really isn’t that interesting.

Top Ten Human Capital Topics of Interest to Investors

Davis Polk’s Ning Chiu has taken a page from Nina’s book & created her own list in this blog – this one about what investors are looking for when it comes to “human capital”…

CTRs: Changes to the SEC’s FOIA Rules

Recently, the SEC finalized an overhaul of its FOIA rules that impacts confidential treatment requests. Here’s an excerpt from this Cooley blog:

Most of the rules describe the procedures and fees for requesting documents. For those seeking to protect the confidentiality of documents, Section 200.80(c) of the new rules provides that a “request for records may be denied to the extent the exemptions in 5 U.S.C. 552(b) apply to the requested records”—that would include Exemption 4 contained in 5 U.S.C. 552(b)(4) for “[t]rade secrets and commercial or financial information obtained from a person and privileged or confidential,” on which Confidential Treatment Requests commonly rely—and the “(A) Commission staff reasonably foresees that disclosure would harm an interest protected by the applicable exemption; or (B) The disclosure of the requested records is prohibited by law or is exempt from disclosure under 5 U.S.C. 552(b)(3)” As a technical matter, note that the revisions eliminate certain provisions in the SEC’s current FOIA regs that were considered unnecessary because they simply repeated information contained in the FOIA statute.

Among the provisions eliminated were the nine categories, previously set forth in Section 200.80(b) of the superseded regs, that are exempt from disclosure under 5 U.S.C. 552(b). One of these eliminated categories is the oft-cited 200.80(b)(4), which repeated the statutory Exemption 4. (The statute remains—it’s only the repetitive regs that are being eliminated, so no substantive change there.) Accordingly, those preparing CTR requests will need to update legends and other references in CTRs to delete citations to the soon-to-be-defunct 200.80(b)(4) (and review any other references to the FOIA rules) and consider instead whether another reference is appropriate, such as to the statute itself or to 200.80(c).

Broc Romanek

July 9, 2018

Perk Disclosure: SEC’s Enforcement Blasts Company for Poor Drafting Training

You’ll be hearing a lot about the SEC’s Enforcement action against Dow Chemical over poor perk disclosures. As you can learn from the SEC’s order (and memos posted in the “Perks” Practice Area on – the company was not only fined $1.75 million – but it was ordered to retain a consultant for a period of one year to review its perks policies, controls & training (note that no individuals were charged, just the company). Wow! There were $3 million of perk omissions over four years.

So what can you do? For starters, we have an 82-page chapter on perk disclosure as part of the Lynn, Borges & Romanek’s “Executive Compensation Disclosure Treatise” posted on The entire Treatise is 1650 pages – and it’s just about pay disclosure! In addition to being posted on, you can order a hard copy.

Then, we’ve had a panel about perk disclosures for 16 straight years as part of our annual “Proxy Disclosure” conference – which is coming up soon: September 25th & 26th in San Diego and also available by video webcast. This upcoming big disclosure conference has nearly 20 panels. Register by August 10th for a reduced rate.

Tomorrow’s Webcast: “The Evolving Compensation Committee”

Tune in tomorrow for the webcast – “The Evolving Compensation Committee” – to hear FW Cook’s Bindu Culas, Semler Brossy’s Blair Jones and Davis Polk’s Kyoko Takahashi Lin discuss how to untangle the complex issues that compensation committees face in exercising their fiduciary duties against a backdrop of increased shareholder activism, potent proxy advisor policies, an active plaintiff’s bar and heightened media scrutiny.

Mandatory Arbitration: Six State Treasurers Say “No”

We’ve blogged a bit (here’s the latest) about whether the SEC would consider mandatory arbitration under SEC Chair Clayton’s reign. This article notes that six state treasurers recently wrote a letter to the SEC Chair requesting that a move to mandatory arbitration not be done…

Broc Romanek