Monthly Archives: September 2018

September 18, 2018

Course Materials Now Available: Many Sets of Talking Points!

For the many of you that have registered for our Conferences coming up next Tuesday, September 25th, we have posted the “Course Materials” (attendees received a special ID/PW yesterday via email that will enable you to access them; note that copies will be available in San Diego). The Course Materials are better than ever before – with numerous sets of talking points. We don’t serve typical conference fare (ie. regurgitated memos and rule releases); our conference materials consist of originally crafted practical bullets & examples. Our expert speakers certainly have gone the extra mile this year!

Here is some other info:

How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of or to watch it live or by archive (note that it will take a few hours to post the video archives after the panels are shown live). A prominent link called “Enter the Conference Here” – which will be visible on the home pages of those sites – will take you directly to the Conference (and on the top of that Conference page, you will select a link matching the video player on your computer: HTML5, Windows Media or Flash Player).

Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for or If you are experiencing technical problems, follow these webcast troubleshooting tips. Here are the conference agendas; times are Pacific.

How to Earn CLE Online: Please read these “FAQs about Earning CLE” carefully to see if it’s possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few – but hours for each state vary; see our “CLE Credit By State” list.

Register Now to Watch Online: There is still time to register for our upcoming pair of executive pay conferences – which starts on Tuesday, September 25th – to hear Keith Higgins, Meredith Cross, etc. If you can’t make it to San Diego to catch the program in person, you can still watch it by video webcast, either live or by archive. Register now to watch it online.

Register to Watch In-Person in San Diego: Starting this Saturday, you will no longer be able to register online to attend in San Diego – but you can still register to attend when you arrive in San Diego! You just need to bring payment with you to the conference and register in-person. Through the end of this Friday, you can still register online to attend in-person in San Diego. And you can always register online to watch the conference online…

E&S Proxy Disclosure: Good Examples

In our “Q&A Forum” (#9598), we were recently asked which companies did a good job providing proxy disclosure about their E&S situation. There are many to choose from – but we mentioned these:

– State Street
– Citigroup
– Prudential
– Jet Blue
– Entergy

Lead Audit Engagement Partners? Not Many Women

Here’s the lowlights from this new report from the CFA Institute based on the new “lead audit engagement partners” disclosure made by companies in their proxies this year (the report covers much more ground than gender of the lead partners):

– Only 15% of lead engagement partners of the S&P 500 were female
– Only 11% of lead engagement partners of the S&P 100 were female
– Percentages of female lead engagement partners by S&P 500 firms were Deloitte (20.8%), PwC (16.3%), EY (12.9%), and KPMG (10.6%)
– 30% of the S&P 500 were audited by PwC, 31% by EY, 20% by Deloitte, and 19% by KPMG
– We found no female partners among the 36 longest tenured engagements (those over 75 years) in the S&P 500
– We found only 6 female partners in the 107 companies with auditor relationships exceeding 40 years

Broc Romanek

September 17, 2018

Proxy Advisors: What Does IM’s “Conflicts” Withdrawal Really Mean?

On Friday, I blogged about how the SEC’s Division of Investment Management issued this statement that – ahead of the upcoming “proxy plumbing” roundtable – it was withdrawing two no-action letters granted in 2004 to ISS and Egan-Jones Proxy Services. In that blog, I gave some initial thoughts that related mainly to SEC Chair Clayton’s statement about informal Staff guidance in general. Here’s some of my thoughts about IM’s withdrawal in particular:

1. What Does This Mean for the “Proxy Plumbing” Roundtable? – I worry that this means that the upcoming “proxy plumbing” roundtable (date not set yet; likely in November) – and perhaps the SEC’s “proxy plumbing” project as a whole – will focus mainly on proxy advisors. There is so much more to tackle than just proxy advisor reform, as Commissioner Jackson articulated nicely in his statement last week.

2. Any “Real World” Impact? – I doubt IM’s withdrawal of the two no-action letters will cause investors to suddenly drop their use of proxy advisors. It’s standard practice for an adviser to avoid a conflict by delegating the responsibility to someone who doesn’t have the same conflict.

3. Withdrawal Didn’t Change the Law? – There is a solid argument that last week’s withdrawal of the ’04 letters hasn’t really changed the law. That “conflicts” law was on the books before the letters were issued – see this ’03 adopting release (in particular, see the section about resolving conflicts of interest). The letters didn’t create a safe harbor. In fact, the letters probably never should have been issued because the requests were motivated by a competitive spat between Egan-Jones and ISS.

The ’03 adopting release was a Commission action, not a Staff one. I should also note that last week’s withdrawal didn’t extend to Staff Legal Bulletin No. 20. That 2014 bulletin – issued by both IM and Corp Fin – provides guidance to advisers on voting client proxies and retaining proxy advisory firms, and makes reference to both of the withdrawn no-action letters. SLB #20 promises to be a big topic of conversation during the proxy plumbing roundtable.

4. How Much Do Companies Rely on Proxy Advisors? – As I’ve blogged several times over the years, be careful what you wish for if you’re hoping for the demise of proxy advisors (a different issue than conflicts). If proxy advisors disappear, that means there will be a need for more shareholder engagement as companies try to ascertain how their biggest shareholders intend to vote. And even if companies are willing & able to staff up their corporate secretary departments to facilitate that, that might not be the case for investors themselves. In other words, your phone calls may go unanswered – and you may get deep into the proxy season without a firm sense of knowing how your votes will turn out. I blogged about this initially way back when – and again a year later.

Do Courts Give Deference to SEC Staff Guidance?

As for the notion that SEC Staff guidance doesn’t carry the force of law, that may be true – but there are cases that indicate Staff guidance has some influence with the judiciary. For example, here’s an excerpt from Ganino v. Citizens Utilities (US Court of Appeals – 2nd Cir.; 9/00):

With respect to financial statements, the SEC has commented that various “[q]ualitative factors may cause misstatements of quantitatively small amounts to be material.”   SEC Staff Accounting Bulletin (“SAB”) No. 99, 64 Fed.Reg. 45150, 45152 (1999) (to be codified at 17 C.F.R. pt. 211, subpt.   B) (representing interpretations and practices followed by the SEC’s Division of Corporation Finance and the Office of the Chief Accountant in administering disclosure requirements of federal securities law).6  Of particular relevance to this action are the following:

- whether the misstatement masks a change in earnings or other trends
- whether the misstatement hides a failure to meet analysts’ consensus expectations for the enterprise[.]

Id.   Unlike, for example, a rule promulgated by the SEC pursuant to its rulemaking authority, see 15 U.S.C. § 78w(a), SAB No. 99 does not carry with it the force of law.   See, e.g., Christensen v. Harris County, 529 U.S. 576, 120 S.Ct. 1655, 1662-63, 146 L.Ed.2d 621 (2000) (explaining that interpretations contained in opinion letters, like those in policy statements, agency manuals, and enforcement guidelines, which are not, for example, the result of a formal adjudication or notice-and-comment process, lack the force of law);  General Elec. Co. v. Gilbert, 429 U.S. 125, 141, 97 S.Ct. 401, 50 L.Ed.2d 343 (1976) (stating that courts may give less weight to guidelines than to administrative regulations which Congress has declared shall have the force of law or to regulations which, under the enabling statute, may themselves supply the basis for imposition of liability) (superseded by statute on other grounds).  

Nonetheless, because SEC staff accounting bulletins “constitute a body of experience and informed judgment,” Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 89 L.Ed. 124 (1944), and SAB No. 99 is thoroughly reasoned and consistent with existing law-its non-exhaustive list of factors is simply an application of the well-established Basic analysis to misrepresentations of financial results-we find it persuasive guidance for evaluating the materiality of an alleged misrepresentation.   See Christensen, 529 U.S. 576, 120 S.Ct. at 1663 (quoting Skidmore, 323 U.S. at 140, 65 S.Ct. 161);  Gilbert, 429 U.S. at 125, 97 S.Ct. 401.

Another example is U.S. v Miller, 833 F.3d 274 (D.C. Cir., Mar. 15, 2016): “We defer to [The SEC staff Guidance in Release 1092] because of the SEC’s expertise and the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.” (internal cites and quotes omitted).

Tomorrow’s Webcast: “Blockchain in M&A”

Tune in tomorrow for the webcast – “Blockchain in M&A” – to hear Potter Anderson’s Chris Kelly, Matt O’Toole and Mike Reilly discuss the implications of blockchain technology for M&A transactions – as well as what it may mean for busted deals & the inevitable litigation that follows. Please print these “Course Materials” in advance.

Broc Romanek

September 14, 2018

Proxy Advisors: SEC Staff Withdraws “Conflicts” Guidance

Yesterday, the SEC came out with two salvos against “informal” staff guidance. First, there was this statement from SEC Chair Jay Clayton reminding us that all Staff guidance is non-binding (ie. creates no enforceable legal rights or obligations for the SEC or other parties) because it hasn’t been subject to notice & comment under the Administrative Procedures Act. That statement noted that the SEC “will continue to review whether prior staff statements and staff documents should be modified, rescinded or supplemented in light of market or other developments.”

A few moments later, the Division of Investment Management issued this statement that – ahead of the upcoming “proxy plumbing” roundtable – it was withdrawing two no-action letters granted in 2004 to ISS and Egan-Jones Proxy Services. This Cooley blog does a nice job of explaining what the letters were about – here’s an excerpt:

By way of background, as fiduciaries, investment advisers owe their clients duties of care and loyalty with respect to services provided, including proxy voting. Accordingly, in voting client securities, an investment adviser must adopt and implement policies and procedures reasonably designed to ensure that the adviser votes proxies in the best interest of its clients.

The two now-withdrawn no-action letters indicated that one way advisers could demonstrate that proxies were voted in their clients’ best interest was to vote client securities based on the recommendations of an independent third party—including a proxy advisory firm—which served to “cleanse” the vote of any conflict on the part of the investment adviser. Historically, investment advisers have frequently looked to proxy advisory firms to fill this role. As a result, the staff’s guidance was often criticized for having “institutionalized” the role of—and, arguably, the over-reliance of investment advisers on—proxy advisory firms, in effect transforming them into faux regulators.

IM’s statement noted that the withdrawal would “facilitate” discussion at the roundtable. Based on some of the reactions to the withdrawal (see Commissioner Jackson’s statement), it may do more than “facilitate” – it may lead to “fisticuffs”…

My Ten Cents: What to Do With “Informal” Staff Guidance?

The movement against “informal” Staff guidance has been growing over the past decade. And it’s not just at the SEC – the GOP-led attacks have focused on all of the federal agencies. Here’s a few quick thoughts:

1. Government-Wide Movement – The DOJ was the first to emphasize it wouldn’t conduct “rulemaking by guidance” late last year – see this blog. As noted in this Cooley blog, a bunch of the banking regulators issued something along these lines earlier this week.

2. Chamber’s Influence – Having these proxy advisor no-action positions overturned has been a plank in the US Chamber’s platform for some time (for example, see pages 10-11 of this Chamber letter for their arguments about why the Staff should have never granted those letters). It wasn’t that long ago that I blogged that the Chamber seemed to be losing influence. Spoke too soon?

3. Impact on You – In practice, we rely heavily on the guidance that Corp Fin provides us – CDIs, no-action letters, Staff Legal Bulletins, FAQs, speeches and even informal comments at conferences. What does our world look like if we need to rely on a small group of SEC Commissioners to perform that function? Remember that the Commissioners are not even allowed to meet as a group except in very limited circumstances due to the Sunshine Act.

4. Shorter Adopting Releases Too? – As noted in this blog, it wasn’t even that long ago that one SEC Commissioner wanted the guidance provided by the Commissioners in the SEC’s adopting releases to be shorter!

5. Collector’s Items – This one is completely an “aside.” It’s hard to find the Egan-Jones and ISS letters online – these letters were issued by the Division of Investment Management. And I believe by withdrawing them, IM might have pulled them from their list of posted letters. Which makes sense since they are withdrawn. So the letters are now officially a “collector’s item.”

Poll: What Will You Do Without “Informal” Staff Guidance?

Please take a moment for this anonymous poll about a lack of informal SEC Staff guidance:

bike tracks

Broc Romanek

September 13, 2018

“Water” Shareholder Engagement: The Next Big Thing?

The “Ceres Investor Water Hub” – a working group of more than 100 investors that represent $20 trillion in assets – has published an “Investor Toolkit” to foster engagement with companies on water issues. Among other topics, it covers:

– Types of water risks – physical, regulatory, social – and how to assess materiality

– Shareholder resolutions & trends linked to water

– Database of proxy voting guidelines that integrate water issues

– Engagement tips for investors

– Recommendations for incorporating water issues into investment decisions

This Forbes op-ed from Ceres’ CEO Mindy Lubber notes that 81% of major U.S. companies in water-dependent sectors have water stewardship programs – though only 37% have set qualitative targets to better manage water resources. It doesn’t take too much imagination to predict that there’ll be more requests for disclosure in this area.

Why Do Some Companies Go Public Through Debt IPOs?

I don’t see much written about private companies issuing public debt, so this study caught my eye. Here’s an excerpt:

As compared to companies in the same industry that conduct an equity IPO in the same year, companies that go public via debt are typically significantly larger and more easily able to disclose their important performance data through their financial statements (versus non-financial disclosure). When the debt-first companies eventually go public by issuing equity, they face lower underpricing than companies without public debt.

Ownership structure (backing by a financial sponsor such as a venture capital or private equity firm) and the relative cost of information production in debt versus equity markets appear to be significant in explaining why these firms choose debt before equity and their subsequent decision to issue equity. Future research on IPOs should take into account that firms do not just face a simple choice between going public and staying private, but also an intermediate choice of issuing public debt but staying private.

More on “Proxy Season Blog”

We continue to post new items daily on our blog – “Proxy Season Blog” – for 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:

– More on “Shareholder Meetings: What to Do With a Tied Vote?”
– Shareholder Meetings: What to Do With a Tied Vote?
– 6 Reasons Why Corp Fin Denies Exclusion Under SLB 14I
– Icahn, Elliott & Activist Peers Grab the Mic in Meeting Season
– Management Proposals: Factors for Those That Just Eke By?

Liz Dunshee

September 12, 2018

In-House Counsel Compensation: Recent Trends

Check out the latest report from BarkerGilmore – a boutique executive search firm – about in-house counsel compensation trends. Among the findings:

1. The median salary increase has fallen 0.5% – to 3.8%

2. 41% of in-house counsel believe they’re underpaid

3. GCs at public companies earn a lot more than GCs at private companies, due to long-term incentives

4. On average, female in-house counsel earn 84% of what their male counterparts are paid – the gap is wider at the GC level

5. The lowest paying in-house jobs tend to be in the professional services industry

Investor Views on “Equity Choice Programs”

With only 2 weeks left before our “Proxy Disclosure Conference,” we thought we’d give you a taste of some of the practical nuggets from our “Course Materials” – which are now available to everyone who’s registered to attend the conference, whether in-person in San Diego or via live video webcast. Here’s one topic from Bob McCormick of CamberView:

While still used by just a small percentage of companies in their long-term incentive programs – mainly in the technology and bio-pharmaceutical industries – equity choice programs are growing in popularity. Shareholders will have an open mind about equity programs that allow for some measure of choice by the employee of the type of equity award they will receive subject to some basic parameters:

1. Irrespective of the type of award, shareholders will want to see a significant part of the long-term equity awards tied to one or more performance metrics.

2. Shareholders will expect that the performance metrics will be both tied to long-term corporate strategy and subject to transparent, challenging targets.

3. Some shareholders and proxy advisors may not consider options to be inherently performance-based so, if stock options are one of the equity choices, there should be accompanying disclosure that describes the board’s rationale for including options as one of the equity choices. The disclosure should include the board’s views on the benefits of the use of options including why the board considers that options provide a strong performance incentive that is linked to long-term corporate performance.

4. Purely time-based awards may be acceptable if complemented by performance based awards but most shareholders prefer performance based awards make up the largest percentage of the grants.

5. All awards should be subject to substantial (e.g. at least three years) performance/vesting periods.

6. Awards types and amounts should not allow employees to game the system by opting for the type of award with a higher value.

7. Companies should consider whether excluding senior executives is desirable to avoid investor reaction to the executive team’s equity choice based on the executives’ views on the company’s performance prospects.

Here’s the registration information for our conferences. And here are the agendas – nearly 20 panels over two days.

It’s Done: 2019 Edition of Romanek & Dunshee’s “Proxy Season Disclosure Treatise”

We have wrapped up the 2019 Edition of the definitive guidance on the proxy season – Romanek & Dunshee’s “Proxy Season Disclosure Treatise & Reporting Guide” – and it’s printed. With over 1750 pages – spanning 33 chapters – you will need this practical guidance for the challenges ahead. Here’s the Detailed Table of Contents listing the topics so you can get a sense of the Treatise’s practical nature. We are so certain that you will love this Treatise, that you can ask for your money back if unsatisfied for any reason. Order now.

Liz Dunshee

September 11, 2018

Beware: The SEC Has a (Very) Old “Form 4” Posted!

As you probably know, the SEC maintains a library of blank forms on its website – including all three of the Section 16 forms. It has come to our attention that the SEC currently has an outdated Form 4 posted – one that harkens back to pre-Sarbanes-Oxley days. This form is outdated, even though it has the first-blush appearance of being current with an OMB approval date in the top right corner of September 2018!

For those too young to remember, before Sarbanes-Oxley was enacted in 2001, Form 4 had a due date tied to the end of each month. The outdated form contains Table II language (see Column 9) about “owned as of the end of the month” – rather than language that should read “owned after the reported transaction.” And the heading for Column 10 should actually say: “Ownership Form of Derivative Security: Direct (D) or Indirect (I)”. So make sure you’re not using this blank form as it doesn’t comport with the SEC’s rules. I imagine the SEC will correct this mistake soon…

Gibson Dunn’s Mike Titera notes that because the templates for Section 16 forms are actually controlled by the SEC’s website (unlike other forms that are filed by uploading the document via Edgar), it appears that no one can actually file the old Form 4 on the SEC’s “Forms” page.

Insider Trading Policies: Cybersecurity Considerations

With the traffic to the transcript for our recent webcast – “Insider Trading Policies & Rule 10b5-1 Plans” – bearing out that this is the most popular program of the year, I thought I would share some of the practical guidance I learned:

Alan Dye, Partner, Hogan Lovells LLP and Editor, It’s become increasingly clear in recent years that a company’s announcement of a cyber breach can have a material adverse effect on both the company and the company’s stock price, so the challenge in the cybersecurity context is twofold.

First, having a process that allows the technical people who understand when a hack has been attempted or has occurred, and who understand what its consequences might be, to be in a position to identify quickly (in light of the SEC’s release) whether there has been an attempted hack in the company’s data systems that could have resulted in a material breach.

Second, escalating those potential material breaches to a level where the general counsel and other senior managers who are in a position to assess potential materiality can make that assessment and decide whether either disclosure is required, or in this context, a trading blackout is appropriate.

In practice, neither of those steps is necessarily easy. For many companies, an attempted breach of the security systems is a daily occurrence. Most of those occurrences turn out to be insignificant. If every one of those incidents led to an immediate blackout or an escalation of the issue to senior executive levels to assess materiality, the window might never open and the process itself could consume inordinate amounts of time.

The balance that companies try to achieve is to make that process both efficient and effective, without overburdening the process. Companies should consider the development of an incident response plan. Many companies are already considering or implementing an incident response plan.

The incident response plan is separate from the insider trading policy. I don’t think the insider trading policy needs to be bogged down with processes for addressing cybersecurity breaches. What the incident response plan does is establish a process at the technical staff level, so the IT group can identify incidents that might constitute a material breach. The incident response plan also includes escalation protocols. Once a potential material breach has been identified, then the breach is escalated so that the general counsel, senior management, or whoever is going to make the assessment of materiality, and whether to open or close the window, can make that assessment.

That process is not unique to or isolated to the insider trading policy, but it generally is and should be integrated into the company’s disclosure controls & procedures, since a breach raises disclosure issues as well as insider trading policy issues.

That process is going to succeed only if the general counsel and senior management, once an incident has been escalated, understand IT systems and understand the tech-speak that tends to come from the people in the IT department, well enough to make a judgment about its materiality. Some companies go so far as to engage in tabletop exercises, where after they’ve developed and put in place an incident response plan, they simulate a breach and an escalation. That process can familiarize both the technical staff who escalate the issue, and the executives and the GC who must make the determination whether that breach might be material, with the appropriate terminology and the analysis that needs to be undertaken.

It’s a nascent area of insider trading policies, so I don’t pretend to know how it’s all going to play out. There hasn’t yet been any case, to my knowledge, where an incident response plan has been put in place and led to either closing or opening the window. I have seen some simulation exercises and they can be puzzling, initially, to those of us who don’t speak “tech” when it comes to cybersecurity exercises.

Insider Trading Policies: Address “Expert Networks”

And here’s another nugget from that transcript:

Howard Dicker, Partner, Weil, Gotshal & Manges LLP: A company should also consider specifically, by prohibiting or warning against, an employee’s participation in a so-called “expert network.” An expert network is not about artificial intelligence or machine-based learning. Rather, it typically involves a firm. There are companies or firms out there that connect hedge funds and other investors with subject matter experts or industry experts.

These experts speak directly to the hedge funds and receive an hourly consulting fee. Some company employees may be interested in earning extra money this way. Some of the largest SEC insider trading cases have involved expert networks, and the allegations were of company employees tipping information not only about their own company, but also about company customers.

The employees involved were not senior executives who were subject to blackout periods and pre-clearance policies, but rather non-executive employees with a high degree of responsibility within the company. The information shared might not have been obviously MNPI, but it was obviously confidential.

I find that employee and director education and training is particularly critical for avoiding inadvertent disclosures of confidential information, and the related potential liabilities, costs, and damages to the employee, director and the company.

Liz Dunshee

September 10, 2018

More on “An Anti-ESG Campaign Begins”

A few months ago, I blogged that National Association of Manufacturers (NAM) had launched an “anti-ESG campaign.” Now, 45 companies that sit on NAM’s Executive Committee & Board are caught in the middle of that organization’s beef with ESG advocacy. Walden Asset Management & CalSTRS announced that they have led more than 80 investors to write letters that urge the companies to distance themselves from NAM’s effort to limit engagements. Here’s an excerpt:

We believe your company may have a very different perspective than that expressed by MSIC & NAM and that your continued affiliation with them could pose reputational risks to your company. Thus, we urge you, as a member of the leadership team of NAM, to question your Association’s research funding priorities and its working alliance with MSIC. In addition, we are interested in your answers to the following questions about your company’s positions on these issues:

– Are you aware of the new NAM paper and its attack on the efficacy of shareholder resolutions and ESG investing factors?

– What are your views on the priorities and objectives of NAM’s, new partner, Main Street Investors, and its work to discredit shareholder resolutions?

– Will you help clarify for the record and the investing public where the company stands on the right of investors to file shareholder proposals and your thoughts on efforts to significantly limit the ability to present such proposals?

If your company’s position differs from that of the MSIC’s stated mission, we ask the company to communicate with NAM’s management your disagreement with the positions being taken by Main Street Investors and urge NAM to distance itself from these positions. We also request that you state this publicly to inform concerned investors.

Gender Pay Gap: Heightened Employee Focus

Here’s something I recently blogged on’s “The Advisors Blog”: We’ve blogged about how activist shareholders increasingly want companies to disclose how they analyze & address gender pay inequity – and about mandatory gender pay reporting for companies with a UK presence. But companies also need to prepare for employee questions. A new Pearl Meyer survey shows that 62% of companies are – or expect to be – fielding gender pay questions from their workforce. Some think that the #MeToo movement has been the “tipping point” to elevate discussions that have been brewing for years.

The survey also shows that employee understanding of pay practices is mediocre at best. Only 8% of respondents believe the quality of their pay communications is “excellent.” Here’s some other key findings:

– In the last two years, almost half of the companies surveyed (48%) have increased compensation communication

– A majority of companies (52%) don’t share information about base salary ranges with all employees

– About two-thirds of managers are trained to have formal compensation conversations with their direct reports, but the majority (70%) of those surveyed believe those conversations are not effective

– Less than a quarter of respondents believe employees can appropriately compare their compensation to colleagues (21%) or compare their compensation to similar positions in other organizations (22%)

– Of the 62% who are or expect to receive questions about gender pay equity, a majority have clear and detailed information ready to share or are currently drafting their responses.

Perks: “If You’ll Be My Bodyguard”

And here’s something else that I recently blogged on’s “The Advisors’ Blog”: I can only speculate about what it’s like to be a VIP tech CEO. One part that doesn’t sound too appealing is having a personal security detail. Because if someone is attacking Mark Zuckerberg, they’re probably after more than his $350 t-shirt. But if there’s a bright side, it’s that you don’t have to pay your bodyguards out of your own pocket – they’re pricey! This article looks at how much a few well-known companies spend on security & travel for high-profile executives – and how they describe those “perks” in their proxy statements:

1. Facebook – $7.3 million for CEO security & $1.5 million for CEO use of private aircraft ($2.7 million for COO)
2. Amazon – $1.6 million for CEO business & travel security
3. Oracle – $1.5 million for Executive Chair home security ($104k & $0 for the co-CEOs)
4. Salesforce – $1.3 million for CEO security
5. Google – $636k for CEO security and $48k for CEO use of chartered aircraft
6. Apple – $224k for CEO security and $93k for air travel
7. Qualcomm – $138k for Chair’s “insurance premiums, security & home office” and $153k for Chair use of corporate aircraft
8. IBM – $178k for CEO use of corporate aircraft

A member emailed to point out that there’s a reason security is expensive:

I met an executive’s bodyguard once. Former cop & one of the friendliest, most down to earth people I’ve ever met. He was very devoted to the executive, for whom he’d worked for nearly 30 years. However, it was also clear to me that this guy knew 6 ways to kill you with a paper napkin.

Remember that our recently-updated “Executive Compensation Disclosure Treatise” has a chapter devoted to perks – with comprehensive guidance on disclosure of airplane use & personal security, among other topics.

Liz Dunshee

September 7, 2018

Backdating: CEOs Playing “The Dating Game 2.0?”

Earlier this year, we blogged about evidence from insider gifts that backdating was alive and well.  Now a recent study says that there’s a new twist on option backdating – instead of manipulating the timing of equity awards, CEOs are supposedly manipulating the market price of the shares on the award dates.This Stanford article about the study says insiders are reaping the same windfalls that they received when awards were backdated in the old fashioned way.

Here’s an excerpt quoting one of the authors of the study, Stanford Prof. Robert Daines:

In Dating Game 2.0, however, many top executives appear to be reaping the same kinds of windfalls with a new variant on the original scam. Instead of manipulating the dates of option grants to match a dip in the stock price, companies appear to be manipulating the stock price itself so that it’s low on the predetermined option date and higher right afterward.

“I was surprised, because it sounded too cynical at first,” says Daines, who teamed up with Grant R. McQueen and Robert J. Schonlau at Brigham Young University. “But we tested for all kinds of benign explanations and none of them fit the data. The unusual stock patterns happen so often, and they exactly fit with the self-interest of the CEOs and senior executives. Either the CEOs are incredibly lucky or they are manipulating stock prices.”

So how are companies supposedly manipulating the market price? Would you believe “bullet-dodging” & “spring-loading”:

The researchers found concrete evidence for both bullet-dodging and spring-loading in corporate “8-K” disclosures, which companies are required to file when important new developments occur between regular quarterly reports. At companies that issued lots of stock options, the disclosures before an option grant were more likely than not to drive shares down and those that came after an option date were more likely to send prices up. The same pattern showed up with company-issued “guidance” about upcoming earnings and with accounting decisions that effectively shift profits from one quarter to the next.

The more things change, the more they stay the same.

How to Respond to ESG Research Providers

If you are involved with a public company and you haven’t yet heard from an ESG research provider – don’t worry, you will. With ESG becoming more important to institutional investors, many are turning to these providers for assessments of public companies’ ESG performance. The problem is that there are more than 150 of these outfits – and many of them want you to respond to detailed questionnaires. So the question becomes – should you respond to these guys, and if so, how?

This Westwicke Partners blog has some helpful advice on that front. Here’s an excerpt on the pros & cons of responding to these questionnaires:

If you receive a questionnaire from one (or a dozen) of these ESG research providers seeking information on your company’s ESG disclosure and practices, it’s important to consider a few pros and cons of responding:

– Pro: Responding allows your company to better ensure the accuracy of the data used to determine your rating.
– Pro: Responding may set your company apart from those that decline to participate. Many ESG providers give higher ratings to companies that provide more ESG-related disclosures, and some even denote which companies did not respond to their questionnaires.
– Con: Responding can be a significant drain on your organization’s time and resources. Some questionnaires are estimated to take 1,000 hours to complete and require input from as many as 30 employees across multiple departments.

The blog also has pointers on determining how best to participate in the data-gathering process & handling inbound questionnaires from ESG research providers.

FCPA: 2nd Cir. Rejects “Monty Python” Approach to Foreign National Liability

This Drinker Biddle blog notes that the 2nd Circuit recently shot down the DOJ’s attempt to extend the scope of FCPA jurisdiction over foreign nationals. Here’s an excerpt:

The Second Circuit ruled on August 24 in United States v. Hoskins that the Foreign Corrupt Practices Act (FCPA) does not apply to foreign nationals who do not have ties to United States entities for bribery crimes that take place outside of U.S. borders. In doing so, the court rejected the government’s broadened theory of prosecution against Lawrence Hoskins, a U.K. citizen and former executive of the U.K.-based subsidiary of Alstom S.A., a global company headquartered in France that provides power and transportation services.

I’m no FCPA expert, but it sure seems like the DOJ was pushing the envelope in this case. The government’s position reminded me of the old Monty Python “Tax on Thingy” sketch – where at one point Terry Jones says that “to boost the British economy I’d tax all foreigners living abroad.” We’re posting memos in our “Foreign Corrupt Practices Act” Practice Area.

John Jenkins

September 6, 2018

Insider Trading: NFL Player Takes “Brownsing” to Next Level

As a Cleveland Browns fan, I thought I’d seen it all over the course of the past two decades – a veritable “12 Days of Christmas” of incompetence & hilarity:

Over the past 19 seasons, my Brownies gave to me . . .hundreds of beer bottles rainin’. . . 29 QBs startin’. . . big playoff lead a-blowin’. . . 9 head coaches coachin’ . . . Mike Holmgren flounderin’ . . . homeless guy a-draftin’. . . Josh Gordon smokin’ . . .  Johhhnny  Foootbaall . . . zero games a-winnin’ . . . angry fans paradin’ . . .Hue Jackson swimmin’. . . & Dwayne Rudd’s helmet in a pear tree . . .

The Browns have been so dependably inept for so long that they’ve lent their name to a new word to describe staggeringly incompetent behavior – “Brownsing.”  So, I guess I shouldn’t have been completely surprised when the SEC announced that (now former) Browns LB Mychal Kendricks had been charged with insider trading.  But as jaded as I am about my favorite team, this was something new:

The SEC alleges that after meeting at a party, Mychal Kendricks began receiving illegal tips from Damilare Sonoiki, an analyst at an investment bank who had access to confidential, nonpublic information about upcoming corporate mergers. Kendricks allegedly made $1.2 million in illegal profits by purchasing securities in companies that were soon to be acquired and then selling his positions after the deals were publicly announced, in one instance generating a nearly 400 percent return on his investment in just two weeks.

In return for $1.2 million in alleged profits, Kendricks lost a $3.5 million payday from the Browns, will undoubtedly face a significant civil penalty from the SEC, and – because the US Attorney’s Office in Philly has also brought criminal charges – potentially faces up to a year in prison.  Yes, this is some next-level Brownsing for sure.

Kendricks isn’t the first NFL player to get on the wrong side of the securities laws.  Former NY Giants DB Will Allen pled guilty last year to charges brought in connection with his role in an investment scheme targeting athletes. In 1999, Hall of Fame QB Fran Tarkenton consented to an injunction against future violations of the securities laws, including Rule 10b-5, for his role in an alleged fraud scheme.

Materiality Definition: FASB Goes Back to SAB 99

We’ve previously blogged about FASB’s controversial efforts to amend the definition of “materiality” for purposes of financial statement disclosure. At the end of August, FASB amended Accounting Concepts Statement No. 8 to address materiality.

This recent blog from Cydney Posner says that with the amendment, FASB has hopped into Marty McFly’s DeLorean & traveled about a decade back in time. Here’s the intro:

In 2015, FASB sent a number of stakeholders into a tizzy when it issued two exposure drafts, part of its disclosure framework project, intended to “clarify the concept of materiality.” After hearing from any number of preparers, practitioners and other commenters, FASB has now reversed course.

According to FASB, the “main amendment” in Amendments to Statement of Financial Accounting Concepts No. 8, issued at the end of August, “reinstates the definition of materiality that was in FASB Concepts Statement No. 2, Qualitative Characteristics of Accounting Information, which was superseded in 2010.” In other words, it’s back to SAB 99.

Elad Roisman Confirmed as SEC Commissioner

Yesterday, the Senate confirmed former Senate Banking Committee staffer Elad Roisman to serve as an SEC Commissioner.  Once he is sworn in, his appointment means that the SEC will finally have a full slate of 5 Commissioners – at least for now. Commissioner Kara Stein is expected to leave her post at year end.

While media reports indicate that President Trump is likely to nominate Commissioner Stein’s former aide Alison Lee to fill Kara’s upcoming vacancy, that hasn’t happened yet. CNN Congressional Correspondent Phil Mattingly tweeted that it was interesting that Commissioner Roisman’s nomination was not paired with a nominee recommended by the Democrats, as often has been the case..

John Jenkins

September 5, 2018

Tomorrow’s Webcast: “Nasdaq Speaks – Latest Developments & Interpretations”

Tune in tomorrow for the webcast – “Nasdaq Speaks: Latest Developments & Interpretations” – to hear senior Nasdaq Staffers Arnold Golub, Lisa Roberts, Nikolai Utochkin and John Zecca discuss all the latest that Nasdaq-companies need to know.

Narcissism: Not a Desirable Part of a CEO’s Skill Set

This Stanford article says that a recent study concluded that companies led by overconfident, self-centered risk takers are likely to face a lot of lawsuits. Here’s an excerpt:

In an article published in Leadership Quarterly, O’Reilly and colleagues Bernadette Doerr and Jennifer A. Chatman of the University of California, Berkeley, show that narcissistic CEOs subject their organizations to potentially ruinous legal risks as well. Not only are they more likely to become embroiled in protracted litigation, but their personality traits make them less sensitive to objective assessments of risk. Narcissists are less willing to take advice from experts and to settle lawsuits — even when it’s likely that the company will lose.

I’ve gotta say, I’m pretty skeptical about this study – after all, this management style worked well for Hank Scorpio.

Securities Litigation: #MeToo Class Actions the New Normal?

Last week, a shareholder class action was filed against CBS following revelations of alleged sexual harassment by CEO Les Moonves. Over on the D&O Diary, Kevin LaCroix recently blogged that these lawsuits may represent the “new normal” for shareholder litigation. Here’s an excerpt:

The securities suit against CBS follows a now growing list of companies that have been hit with D&O lawsuits following revelations of sexual misconduct by one of the firm’s executives. Earlier this summer, National Beverage Corp. was hit with a securities suit following allegations that its CEO had sexually harassed company employees. Earlier suits have arisen involving Wynn Resorts and 21st Century Fox.

Kevin says it is increasingly clear that the accountability process arising out of revelations of sexual misconduct won’t just target the wrongdoer, but also other executives who allegedly facilitated the misconduct or turning a blind eye.

John Jenkins