Monthly Archives: March 2019

March 29, 2019

A New Addition to the Pantheon: Winklevoss Cap. Fund v. Shaw

I don’t know if law students still do this, but when I was in law school, there were certain volumes that we would pull from the library’s stacks, set down on their spines & watch automatically fall open to the page of a particularly well-read case. This wasn’t because the case in question involved issues of great legal interest – instead, it was because the case involved issues of great prurient or comedic interest (read the dissent).

Anyway, I think we may have a new addition to the pantheon from – of all places – the Delaware Chancery Court. Behold Winklevoss Capital Fund v. Shaw, (Del. Ch.; 3/19), a case that has touches of both prurience & comedy. It recounts the saga of America’s most unlikeable twins’ ill-fated investment in “Treats!” – “a print & digital magazine depicting nude and semi-nude photography of models and celebrities.” So, what could go wrong with an investment in online sleaze? It turns out that the answer is “plenty.”

While the opinion is far from pornographic, it will do nothing to enhance any remaining faith you might have in the future of humanity & you may hate yourself for reading it. In short, it’s kinda fun. Don’t take my word for it – Steven Davidoff Solomon (a.k.a. “The Deal Professor”) has been having a good time tweeting snippets from it.

Escheatment: “They’re Baaaack!”

Look, don’t shoot the messenger here, okay? But if you thought escheatment issues were in the rearview mirror after the courts slapped Delaware around for its thuggish aggressive approach to unclaimed property audits, it looks like you were mistaken. This Morris Nichols memo says that enforcement is back with a vengeance. Here’s the intro:

For those who thought the State of Delaware had gone out of the unclaimed property business—think again. After a 2017 overhaul of Delaware’s unclaimed property laws and an increased emphasis on voluntary compliance with those laws, Delaware is sending out dozens of “invitations” to companies to enter its’ Abandoned or Unclaimed Property Voluntary Disclosure Agreement Program (the “VDA Program”). Ignoring this invitation guarantees that a company will get audited by the state.

Delaware is also beginning to review companies’ reporting histories and their annual unclaimed property filings for accuracy and completeness and is strictly enforcing timelines and deadlines for companies under audit. All of this is a signal to Delaware companies that, while voluntary compliance is preferred by the state, audit—with assessed interest and penalties—is a very real consequence and an alternative that Delaware can and will pursue.

The memo highlights a number of reasons why companies might want to take advantage of Delaware’s VDA program – including the waiver of interest and penalties, and the fact that VDAs can be resolved more quickly than an audit & without involving other states.

Fast Act S-K Cleanup: A “Cheat Sheet”

If the 251-page adopting release for the SEC’s latest round of Fast Act S-K cleanup changes has you a bit befuddled, this recent Bass Berry blog may be just what you need. Not only does it summarize the changes, but it also includes a helpful “cheat sheet” in the form of a chart laying out the rules that have changed, the specific changes, & the reasons for them. Want more help getting your arms around the rule changes? We’re posting tons of memos in our “Disclosure Reform” Practice Area.

By the way, not everyone at the SEC is singing from the same hymnal when it comes to the new rules. Commission Jackson dissented from the SEC’s decision to adopt them, and issued a statement setting forth the reasons for his opposition.

John Jenkins

March 28, 2019

Lorenzo v. SEC: SCOTUS Gives the SEC a Big Win

Yesterday, in Lorenzo v. SEC, the US Supreme Court held – by a 6-2 vote – that dissemination of false statements with intent can fall within the scope of Rules 10b–5(a) & (c), even if the disseminator did not “make” the statements & consequently falls outside Rule 10b–5(b).

That’s a big win for the SEC – and a big loss for the securities defense bar.  The decision is a retreat from the Court’s position in the Janus case, where it held that liability under Rule 10b-5(b) was limited to the “maker” of a false or misleading statement.  As Broc subsequently blogged, the SEC responded to Janus by emphasizing its view that 10b-5(a) & (c) had a more expansive reach.  The Lorenzo decision vindicates the SEC’s position. Here’s an excerpt from Justice Breyer’s opinion for the Court:

It would seem obvious that the words in these provisions are, as ordinarily used, sufficiently broad to include within their scope the dissemination of false or misleading information with the intent to defraud. By sending emails he understood to contain material untruths, Lorenzo “employ[ed]” a “device,” “scheme,” and “artifice to defraud” within the meaning of subsection (a) of the Rule, §10(b),and §17(a)(1). By the same conduct, he “engage[d] in a[n]act, practice, or course of business” that “operate[d] . . . as a fraud or deceit” under subsection (c) of the Rule.

Justices Thomas & Gorsuch dissented from the ruling, with Justice Thomas stating that the decision “eviscerates” Janus’s distinction between primary & secondary liability “by holding that a person who has not ‘made’ a fraudulent misstatement can nevertheless be primarily liable for it.”  Justice Kavanaugh participated in the D.C. Circuit’s ruling on the case & recused himself from the Court’s deliberations.  We’re posting memos in our “Securities Litigation” Practice Area.

Board Refreshment: What Do Companies Want From New Directors?

According to this Deloitte/Society for Corporate Governance Board Practices Survey, there are several characteristics that companies look for in new director candidates. This excerpt suggests that diversity – and specifically, gender diversity – tops the list:

94% said their boards are looking to increase board diversity. Of these, the majority (61%) said their boards are looking to increase gender diversity – far exceeding race and ethnicity (48%) and professional skills or experience (43%). Boards seeking to increase their diversity most commonly look to referrals from current directors (77%), suggesting that networking is still key to board succession, though search firms came in a close second (73%).

When it comes to professional experience, companies are most interested in directors who know the industry & those with leadership, accounting or tech backgrounds:

Specific industry experience topped the list. Also in the top 10: business leadership; accounting; digital or technology strategy (e.g., artificial intelligence, cryptocurrency, and social media); cyber; and IT (e.g., infrastructure, operations). While other types of professional experience, such as marketing and HR, may be overdue for board representation (and could contribute to diversity), they do not seem to be gaining traction as stand-alone recruitment priorities.

The survey covered 102 companies, the vast majority of which were either large or mid-caps, although a handful of small-cap companies were also included.

Board Refreshment: What Do They Get?

Okay, so now we know what companies say they want in a new board member – this recent EY survey on 2018’s class of new independent directors at Fortune 100 companies sheds some light on what they actually get. Here are some of the highlights:

– In 2018, 71% of the reviewed companies added at least one new nominee and 27% added two or more. This represents an increase from prior years when the levels were generally steady at around 56% and 21%, respectively.

– The areas of expertise most frequently cited in new nominations were: international business; corporate finance, accounting; and industry expertise. Around half of the new class was recognized for expertise in at least one of these categories. The next most common areas — technology; operations, manufacturing; and board service, corporate governance — were cited in 40% to 45% of new nominations.

– Women continued to represent around 40% of new nominees, contributing to a slight increase in overall board gender diversity; in 2018, 27% of existing independent directors were women, up from 25% in 2016.

Approximately half of 2018’s new class of directors consisted of the usual suspects – current & former CEOs, and that group was predominantly male. But when it came to non-CEO nominees, the genders were more balanced, and most of the new directors from non-corporate backgrounds were women.

Overall, the takeaway seems to be that Fortune 100 companies are adding new directors more frequently, and that those directors are increasingly younger & more female. While the characteristics & qualifications of new directors generally align with what companies say they’re looking for, it also looks like their fixation on former CEOs is working at cross-purposes with their diversity initiatives.

John Jenkins

March 27, 2019

Shareholder Proposals on Arbitration: “Heigh-Ho! Heigh-Ho! It’s Off to Court We Go!”

We’ve been following the saga of the “man bites dog” shareholder proposal asking Johnson & Johnson to adopt a bylaw mandating arbitration of securities claims.  Last month, the Staff granted the company’s request to exclude the proposal from its proxy statement on the grounds that its implementation would violate applicable state law.

SEC Chair Jay Clayton weighed in with his own statement on this controversial topic, in which he at one point suggested that a court would be a “more appropriate venue to seek a binding determination of whether a shareholder proposal can be excluded.” Cooley’s Cydney Posner reports that the proponent seems to have taken his advice – because the dispute is now in the hands of a NJ federal court.  This excerpt from her recent blog summarizes the proponent’s arguments:

The proponent argued that the proposal would not cause the company to violate federal law, because “the Federal Arbitration Act requires the enforcement of arbitration agreements, and Johnson & Johnson has been unable to identify any federal statute that ‘manifest[s] a clear intention to displace the Arbitration Act.’”

Nor, according to the proponent, would the proposal cause the company to violate NJ state law because “neither Johnson & Johnson nor the New Jersey Attorney General has identified any New Jersey statute or court decision that prohibits the enforcement of the arbitration agreements,” and, even if the NJ courts declined to enforce, that still would not mean that including the provision in the company’s bylaws would amount to a violation of NJ law.

That is, a “company does not ‘violate’ state law by entering into an arbitration agreement that happens to be unenforceable under the law of that state.” Finally, even if state law were shown to prohibit enforcement, it would be preempted by the Federal Arbitration Act and void. The proponent also stated that he intends to submit the “proposal again for the 2020 shareholder meeting, and it will continue submitting this proposal each year until the proposal is adopted by the shareholders.”

The proponent is seeking a declaratory judgment that J&J violated the securities laws by excluding the proposal, along with injunctive relief that would, among other things, require the company to include the proposal in supplemental proxy materials.

Audit Committees: PCAOB Promises More Communications

One of the perceived shortcomings of the PCAOB’s inspection process is that it sometimes reaches problematic conclusions about an accounting firm’s audit of a company without any input from the company itself. According to this recent annual “Staff Inspections Outlook for Audit Committees,” the PCAOB plans to increase its engagement with audit committees. Here’s an excerpt:

During 2019, we will provide an opportunity for audit committee chairs of certain companies whose audits are subject to inspection to engage in a dialogue with the inspections staff. The purpose of the audit committee dialogue is to provide further insight into our process and obtain their views. We expect to publish additional updates to audit committees regarding our inspections to provide observations from these interviews and our inspection findings.

The PCAOB went on to review its 2019 inspection priorities, and raised various topics – including sample questions – that audit committees might want to address with their auditors that relate to current issues of inspection focus.

Audit Committees: What If The PCAOB Calls?

So, what should you do if the PCAOB reaches out to your audit committee chair? This excerpt from a recent Stinson Leonard Street blog says you should watch your step:

We believe issuers should approach any such engagement cautiously, if at all. Perhaps the only circumstance for which this may be appropriate is upon assurance by the PCAOB that the inspection of the issuer is complete and final and no potential deficiencies were identified. Even then, issuers should consider whether there is any benefit to the dialogue. It is especially worth consideration because the PCAOB also announced it intends to publish additional updates to audit committees regarding its inspections including observations from these interviews and its inspection findings.

The blog points out that inspection findings can lead to restatements & potential liability for companies. Furthermore, issuers have no control over how the PCAOB will characterize the results of their engagement with the public. That means there is a risk that the audit committee chair or the company could be cast in a negative light.

The need to prepare for a possible phone call from the PCAOB may help address the chronic problem of audit committees sitting around with nothing to do, but if more assistance in keeping your committee busy is needed, check out this helpful list from PwC of 11,284 things that the audit committee should keep in mind for the end of the current fiscal quarter.

John Jenkins

March 26, 2019

IPOs: Are You Ready for Some (Fantasy) Football?

I recently stumbled upon Reg A filings for a bunch of fantasy football teams that are part of a national fantasy football league that’s supposed to kick-off this fall. Here’s the Form 1-A Offering Statement filed by the “Philadelphia Powderkegs” –  and this excerpt from the filing tells you what they’re up to:

Philadelphia Powderkegs, Inc. is one of 12 Delaware corporations formed to represent teams (each a “Team” or collectively, “Teams”) in a national fantasy sports football league (“The Crown League”) which is to be operated by The Crown League, LLC, a Delaware limited liability company (“CRL”), the managing member and substantial owner of which is CrownThrown, Inc., a Delaware corporation (“CrownThrown”). CRL intends to launch the first publicly owned, professionally managed, national fantasy sports league.

CRL has two classes of membership interests: 49.992% of the membership and voting interests are controlled by the Class A members, all of which are held, in equal amounts, by us and the additional 11 companies that anticipate competing in The Crown League (in other words, each company Team will initially own 4.166% of the interests in CRL), and the remaining 50.008% of membership interests in CRL will be held by the Class B members of CRL, approximately 90% of which is currently held by CrownThrown.

Here are the other teams that filed Form 1-As with the SEC:

Atlanta Hot Wings                             Los Angeles Drive
Chicago Hogmollies                         Seattle Emerald Haze
Denver Moguls                                 Sin City Bad Babies
Florida Mangos Wild                        Texas Holy Smokers
New England Cape Gods

I instantly became a fan of the “Florida Mangos Wild” – do you see what they did there? According to the league’s fairly slick website, they also have a “franchise” representing New York, with the location of a 12th franchise to be determined.

Anyway, If you think this entire blog is just an excuse for me to brag about how my team – “Full Metal Jarvis” – won my fantasy football league’s championship this season, well. . . you’re right.

ESG: Banging the Drum for More Disclosure

This recent article from The Center for Executive Compensation reviews the multi-pronged efforts at requiring more disclosure from public companies on ESG issues. And as this excerpt points out, Congress may be getting into the game:

Rep. Maxine Waters (D-CA), Chair of the House Financial Services Committee published the Committee’s hearing schedule for March, and in addition to already-announced priorities, of particular note is a March 26 subcommittee hearing on “Building a Sustainable and Competitive Economy” which will focus on “proposals to improve environmental, social, and governance disclosures.”

The topic is not surprising given the increased interest in ESG information by both large investors — primarily the large index funds such as BlackRock, Vanguard and State Street — as well as the push for greater disclosures by investors with a specific advocacy bent. As we reported last month, a recent Morrow-Sodali study found that investors seek greater information on corporate culture, climate change and human capital metrics.

The memo also cites a recent WSJ report that says shareholder proposals asking companies to produce climate change disclosures are expected to jump to 75 or more in 2019 from 17 in 2018.

Our “Proxy Disclosure Conference”: Early Bird Ends April 5th

As the 20% discount ends soon – April 5th – act now using this registration information for our popular conferences – “Proxy Disclosure Conference” & “16th Annual Executive Compensation Conference” – to be held September 16-17th in New Orleans and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days.

Among the panels are:

– The SEC All-Stars: A Frank Conversation
– Hedging Disclosures & More
– Section 162(m) Deductibility (Is There Really Any Grandfathering)
– Comp Issues: How to Handle PR & Employee Fallout
– The Top Compensation Consultants Speak
– Navigating ISS & Glass Lewis
– Clawbacks: #MeToo & More
– Director Pay Disclosures
– Proxy Disclosures: 20 Things You’ve Overlooked
– How to Handle Negative Proxy Advisor Recommendations
– Dealing with the Complexities of Perks
– The SEC All-Stars: The Bleeding Edge
– The Big Kahuna: Your Burning Questions Answered
– Hot Topics: 50 Practical Nuggets in 60 Minutes

John Jenkins

March 25, 2019

Proxy Advisors: “What’s Sauce for the Goose . . .”

According to this recent WSJ article, the SEC may issue a proposal to regulate ISS, Glass Lewis & the gang as soon as this spring. Here’s an excerpt:

The SEC is expected to propose the first U.S. rules on proxy-advice companies following an organized campaign by public companies that think proxy-advisory firms have too much sway over shareholder proposals. Lobbying and advocacy groups, including the U.S. Chamber of Commerce and the National Association of Manufacturers, and stock exchanges, such as the Nasdaq and the New York Stock Exchange, have mounted a well-funded offensive against the industry, which is dominated by two firms. The groups have purchased advertisements targeting proxy advisers, sponsored a Washington think-tank event and testified at multiple Senate committee hearings on the issue.

Corporations say the advisory firms—which make recommendations to shareholders on how to vote on corporate governance issues—have too much sway over corporate decision-making. Companies argue that they spend too much time and money fighting proposals they think would be detrimental to their overall performance.

Despite the astroturf advocacy on this issue by the “Main Street Investors Coalition,” an organization that seems to have been essentially a sock puppet for NAM & the Chamber, I’m not going to pretend that I’m sorry to see that proxy advisors may finally face some sort of SEC oversight.

There’s certainly a sizeable group of people who view proxy advisors as indispensable tools for promoting shareholder democracy & believe that they should remain free from oversight. Not me. I haven’t embraced the theology of shareholder supremacy & don’t take it as revealed truth that directors should prostrate themselves before the company’s “true owners” [sic]. I also don’t think that “good governance” means reflexively endorsing any proposal that reduces the board’s power and enhances the power of whatever amorphous mass of casino capitalists happens to be holding shares at any given instant.

Once you cut through the pious propaganda from one side about “shareowner democracy” and from the other about “the perils of short-termism,” this is ultimately a cynical struggle between two powerful factions for control over who has the final say at public companies. Proxy advisors have been effectively weaponized by the investor side of that struggle, & their use should be regulated just as management’s use of its own weapons are.  After all, what’s sauce for the goose is sauce for the gander.

The SEC isn’t just focusing narrowly on proxy advisors. This recent speech by Commissioner Roisman indicates that it’s also focusing on how those recommendations are used by institutional investors and how those investors ensure they are using them responsibly.

Testing the Waters: Avoiding a General Solicitation Issue

This Locke Lord blog discusses a potential issue around “testing the waters” that not many have focused on – how to maximize a company’s flexibility to pursue private financing after it’s tested the waters & opted not to pursue a public financing. The biggest concern in this scenario is the possibility that testing the waters for the public deal might be regarded as a “general solicitation” for the private financing.

Fortunately, the blog says that this outcome can be avoided if the company takes a careful approach to how it tests the waters for the potential public deal. Here’s an excerpt:

Although the SEC does not appear to have addressed this question directly, our advice and prevailing market practice is that if the test-the-waters activity is properly structured an issuer can avoid its being a general solicitation. The key to avoiding a general solicitation is carefully selecting the investors with which the issuer will test-the-waters. If the test-the-waters activity does not involve a general solicitation, there should be no concern doing a subsequent private offering, either to the investors with which the waters were tested or other investors.

The blog points out that it typically shouldn’t be too difficult to plan a test-the-waters effort to avoid general solicitation – the investors contacted will all have to be institutions, and it’s likely either the company or its banker will have a preexisting substantive relationship with them.

Blockchain: ABA’s “Digital & Digitized Assets” White Paper

The ABA’s Business Law Section just published this 353-page white paper addressing jurisdictional issues relating to blockchain technology, cryptocurrencies & other digital assets. This excerpt from a recent Paul Hastings memo summarizes the contents:

The white paper tackles a number of topic areas relevant to the ever-changing cryptocurrency and digital asset landscape, including:

– Background information regarding digital assets and blockchain technologies, including associated trading platforms, security issues, and characteristics and features of digital assets and virtual currencies;

– Regulation by the Commodity Futures Trading Commission under the Commodity Exchange Act, including the CFTC’s approach to classifying and regulating virtual currencies and related derivatives;

– The SEC’s regulation under the Securities Act, the Securities Exchange Act, the Investment Company Act, and the Investment Advisers Act, including when the SEC classifies a digital asset as a “security;”

– The interplay, and sometimes tension, between SEC and CFTC regulations;

– FinCEN regulation of digital assets, including in relation to anti-money laundering and know-your-customer requirements;

– International regulation of digital assets and blockchain technology throughout Europe, Asia, Australia, and globally; and

– State law considerations, including state law licensing requirements and state-specific regulations.

John Jenkins

March 22, 2019

Shareholder Approval: SEC Approves NYSE “Price Requirement” Changes

On Wednesday, the SEC approved changes to the price requirements that companies must meet to qualify for exceptions under the NYSE’s shareholder approval rules. Broc blogged about the proposal last fall – noting that it would make NYSE rules more similar to previously-approved Nasdaq updates. Maybe that’s why the SEC received zero comments in five months. Among other things, the amendments:

– Change the definition of “market value,” for purposes of determining whether exceptions to the shareholder approval requirements under NYSE Sections 312.03(b) and (c) are met, by proposing to use the lower of the official closing price or five-day average closing price and, as a result, also remove the prohibition on an average price over a period of time being used as a measure of market value for purposes of Section 312.03

– Eliminate the requirement for shareholder approval under Sections 312.03(b) and (c) at a price that is less than book value but at least as great as market value

Shareholder Engagement: Tips for Director Involvement

In this 10-page memo, DLA Piper suggests ways to use your proxy statement as a shareholder engagement tool – as well as best practices for disclosing your shareholder engagement efforts. It notes that this type of disclosure is becoming a lot more common. That’s not too surprising since according to this “Director-Shareholder Engagement Guidebook” from Kingsdale Advisors, the vast majority of large companies are now involving directors in regular shareholder engagement – and of course they want to get credit for that.

The Guidebook highlights the benefits of involving directors in engagement efforts and responds to some common objections. And whether your directors already have relationships with shareholders or you’re still evaluating the pros & cons of a direct dialogue, it provides some tips to get the most “bang for your buck.” Here’s an excerpt:

Director-level engagement has to be convenient, otherwise boards and shareholders aren’t going to keep up with the expectations that have been set. Engaging shareholders does not necessarily mean traveling and sitting down for an hour or two. Ideally boards engage face-to-face annually, perhaps on the back of board meetings or institutional investor days, but follow-up may occur over the phone or in video-conferencing.

One of the most convenient set ups we have seen (for directors) is to invite shareholders in the day after a board meeting, when the directors are already prepared and gathered for a series of back-to-back meetings. We recommend invitations to shareholders for director-level meetings come from the corporate secretary, not the IRO. This will signal shareholder engagement is a board-level priority and the meeting will not cover the same topics that may have been previously covered with management.

Engagement should take place well before proxy season, not simply because there is time, but because you will have plenty of runway to address any governance issues that come up.

Transcript: “Earnouts – Nuts & Bolts”

We have posted the transcript for the recent webcast: “Earnouts – Nuts & Bolts.”

Liz Dunshee

March 21, 2019

SEC Adopts “Fast Act” Simplifications

It’s finally happened. Yesterday, the SEC announced that it’s adopted final rules to implement the “Fast Act” disclosure simplifications – which were proposed about a year & a half ago. We’ll be posting memos in our “Fast Act” Practice Area. Here are some highlights from the 251-page adopting release – and except as noted below, the rules become effective 30 days after their publication in the Federal Register:

– Item 303 and Form 20-F will allow companies to exclude discussion of the earliest of three years in the MD&A if they’ve already included the discussion in a prior filing

– Item 601(b)(2) and (10) will allow companies to omit confidential information in exhibits without submitting a CTR, so long as the information is (i) not material and (ii) would likely cause competitive harm to the company if publicly disclosed (this part of the rule is a change in procedure only, and is effective upon the rule’s publication in the Federal Register)

– Item 601(b)(10) will require only newly-reporting companies to file material contracts that were entered into within two years of the registration statement or report

– Item 601(a)(5) will no longer require companies to file attachments to material agreements, if the attachments don’t contain material information and aren’t otherwise disclosed

– Item 102 will require disclosure about physical properties only to the extent they’re material to the company

– Forms 8-K, 10-Q, 10-K, 20-F & 40-F will require companies to disclose on the cover page the national exchange or principal US market for their securities, the trading symbol, and the title of each class of securities

– “Incorporation by Reference” rules will no longer require companies to file as an exhibit any document or part thereof that’s incorporated by reference in a filing – but instead will require them to provide links to documents incorporated by reference

– Forms 10-K, 10-Q, 8-K, 20-F & 40-F will require Inline XBRL tags on the cover page (this part of the rule has a three-year phase-in)

– Form 10-K will no longer have a checkbox to show delinquent Section 16 filers, the Item 405 heading to be used within the proxy is now “Delinquent Section 16(a) Reports,” and the heading should be excluded altogether when there are no delinquencies to report

– Item 503 (risk factors) will become new Item 105 – and the list of example risk factors is being eliminated from the rule in order to emphasize that it’s principles-based

Business Development Companies: SEC Proposes Offering Reforms

Yesterday, the SEC proposed Securities Act amendments to streamline the offering process for business development companies and registered closed-end funds – by expanding the “WKSI” definition, among other things. Here’s the 361-page proposing release – we’ll be posting memos in our “Business Development Companies” Practice Area.

NYSE’s “eGovDirect” Decommissioned

According to a notice sent to listed companies, the NYSE is planning to decommission “eGovDirect” at the end of next week. Everything will be migrated to the exchange’s “Listing Manager” system. The “Listing Manager” will also be enhanced to allow submission of press releases and supplemental listing applications. Here’s more detail:

Current users of eGov, who do not have accounts on Listing Manager, will need to work with their Listing Manager administrator to obtain access to the new reporting platform. Alternatively, users can contact the NYSE at or 212-656-4651 to request access – or to discuss any questions or concerns. Please note that eGov login credentials will not work on the new Listing Manager website.


– If you have an interim written affirmation record in progress, you will have to complete the submission in eGov no later than a) the affirmation’s due date or b) by 5:00PM EST on March 29th (whichever is earlier)

– If you have an annual written affirmation record in progress, this will be migrated to Listing Manager as an open record. You will have the chance to complete your submission online once you obtain access to the website

– If you recently submitted your shareholder meeting dates in eGov, you do not have to re-enter the information in Listing Manager

– Previously completed written affirmations in eGov will not be available in Listing Manager, but a copy can be provided by an NYSE representative

Liz Dunshee

March 20, 2019

CAMs: PCAOB Staff Releases New Guidance

CAMs, CAMs, CAMs, CAMs, Lovely CAMs, Wonderful CAMs!” That was John’s “Monty Python” reaction to this trio of guidance documents released on Monday by the PCAOB Staff:

CAM Basics – a high-level overview of the required “CAM language” that will be added to auditors’ reports, and the quality review & documentation requirements for CAMs

Determination of CAMs – FAQs on how to identify CAMs, e.g. how they differ from the company’s critical accounting estimates

Review of Audit Methodologies – observations based on a review of audit firms’ “dry run” CAM methodologies, training materials & practice aids

The guidance is based on the PCAOB’s discussions with audit firms that collectively audit 85% of large accelerated filers, as well as other outreach efforts. All three documents emphasize the company-specific nature of CAMs and related reporting, the broad scope of information that auditors will look at to identify and address CAMs, and the role of the auditor versus the audit committee & management. Here’s a few nuggets:

– CAMs are drawn from matters required to be communicated to the audit committee — even if not actually communicated — and matters actually communicated — even if not required. The standard does not exclude any required audit committee communications from the source of CAMs.

– When identifying CAMs, AS 3101 requires auditors to consider the six factors in the standard as well as other factors specific to the audit

– Descriptions of CAMs – and how they were addressed – are required to be specific to the circumstances – i.e. auditors can’t just restate that they identified “a matter involving especially challenging, subjective or complex auditor judgment,” or generically say they tested internal controls to address the CAM

– Auditors aren’t expected to provide non-public information in their report unless it’s “necessary to describe the principal considerations that led the auditor to determine that a matter is a CAM or how the matter was addressed in the audit” – and “public information” includes press releases, etc. – not just financials

– Although audit committees are entitled to a draft of the auditor’s report and a dialogue about CAMs (and any sensitive information) is expected, CAMs are the responsibility of the auditor, not the audit committee

Auditor Ratification: Tenure Not a Factor for ISS?

This memo from EY/Tapestry Networks summarizes a meeting among audit committee chairs & ISS to discuss potential changes to the factors considered by the proxy advisor for its voting recommendations on auditor committee matters, including auditor ratification. While ISS isn’t making immediate policy changes, it’s trying to understand whether financial reporting shortcomings share red flags that signal a relationship should be reconsidered. Audit chairs cautioned against a more formulaic approach. On the topic of tenure, this dialogue occurred:

While audit firm tenure is one possible factor in evaluating auditor independence, members were cautious about proxy advisory firms using this metric as well. Several members noted that auditor tenure is an ineffective data point that further limits competition and a company’s ability to select the best firm. Others emphasized the difficulty of changing audit firms: “There’s turmoil when you change auditors; these are massive projects.” On the issue of partner tenure, members generally agreed that the current five-year rotation requirement in the United States should make this a non-issue.

Mr. Goldstein agreed on both auditor and partner tenure: “We don’t expect to use tenure in our guidelines. Partner rotation already exists.” Mr. Goldstein sought to reassure the audit chairs by describing the factors ISS considered in making a recommendation against the ratification of KPMG as GE’s external auditor. “Long tenure as GE’s auditor was not a reason for our recommendation,” said Mr. Goldstein. “KPMG had given GE a clean bill of health for many years, and then there was a surprising large write-off related to their legacy long-term care insurance business, followed by an SEC investigation. There were other concerns and enough questions for us to take what, for us, was a radical position.” Mr. Goldstein elaborated that part of ISS’s concerns in the GE case stemmed from the criticism of KPMG’s work as the auditor of Carillion. Members again cautioned that ISS be careful before connecting a firm’s performance on one audit in a particular country with its work on another audit in another country.

Transcript: “How to Use Cryptocurrency as Compensation”

We’ve posted the transcript for the recent webcast: “How to Use Cryptocurrency as Compensation.” The agenda included:

1. Defining “Cryptocurrency”
2. Securities Implications
3. Tax Implications
4. Accounting Implications
5. Other Applicable Regulations
6. Why Digital Assets Are Attractive To Entrepreneurs
7. Types of Crypto Compensation Structures
8. Drafting Issues For Plans & Awards
9. Token Plan Administration
10. When Using Crypto Doesn’t Make Sense

Liz Dunshee

March 19, 2019

Corp Fin Director’s “Cheat Sheet” for Brexit Disclosure

It’s no surprise that the uncertainty surrounding Brexit continues to impact business – I blogged last month that it might be one of this year’s “top risks.” And in December, I wrote that the SEC is monitoring disclosure.

In remarks late last week, Corp Fin Director Bill Hinman reiterated that the UK’s withdrawal from the European Union may be material not just to UK- and EU-headquartered companies – but to any company with extensive international operations – and explained how companies should be applying the SEC’s “principles-based” disclosure rules to Brexit’s evolving business risks (he also touched on sustainability disclosure, as noted in this blog from Stinson Leonard Street).

Bill shared six topics for companies to consider as a starting point when assessing & drafting tailored Brexit disclosures. This Cooley blog highlights that these are the types of questions Corp Fin will be asking during their disclosure reviews. And this “D&O Diary” blog provides further analysis, along with an abbreviated “cheat sheet”:

1. Is the business exposed to new regulatory risk given the uncertainty of which set of laws and regulations will apply and whether transition agreements will be in place?

2. Are there significant supply chain risks due to the potential disruption to the U.K.’s access to free trade agreements with other nations and any resulting changes in tariffs to exports or imports?

3. Does the company face a material risk of losing customers, a decrease in sales or revenues or an increase in costs due to tariffs or other factors? Is the demand for the company’s product especially sensitive to exchange rates or changes in tariffs?

4. Does the company have exposure to currency devaluation, foreign currency exchange rate risk or other market risk?

5. What is the company’s exposure to contractual risk in the face of Brexit? Has the company undertaken a review of its existing contracts with counterparties in the U.K. or the EU to determine whether renegotiation or termination is necessary in light of contractual obligations?

6. Do Brexit-related issues affect financial statement recognition, measurement or disclosure items, such as inventory write-downs, impairments, collectability of receivables, assumptions underlying valuations, foreign currency matters, hedge accounting, or income taxes?

Glass Lewis Pilots “Feedback” on Their Reports

Here’s the intro from this Sidley memo:

Glass Lewis announced that it will pilot a new Report Feedback Statement (RFS) service to a limited number of U.S. public companies and shareholder proponents during the 2019 proxy season. According to Glass Lewis, the purpose of the RFS service is to allow companies and shareholder proponents to “more fully and directly express their views on any differences of opinion they may have with Glass Lewis’ research.”

The RFS service is to be used to report on differences of opinion — not factual errors, which companies should continue to communicate to Glass Lewis. Companies and shareholder proponents may submit statements noting their differences of opinion with Glass Lewis’ analysis of their proposals to Glass Lewis’ research and engagement team. That team will then distribute the statements, without editing or modifying the content, directly to Glass Lewis’ 3,000+ investor clients along with Glass Lewis’ response to the RFS.

Participants may submit a request to subscribe to the RFS service; Glass Lewis will accept requests on a first-come-first-served basis. The maximum number of pilot participants will be 12 companies and/or shareholder proponents per week between March and May 2019 (subject to decrease if the statements received in any week are particularly long or complex).

Free CLE for In-House Lawyers

I recently noticed on LinkedIn that some of my in-house connections have been panelists for a new CLE provider -“In-House Focus.” IHF is focusing on including case studies from current in-house lawyers, and has committed to using diverse faculty. And according to this announcement, they’re offering nine free video programs as part of their launch. Topics include legal operations, privacy, IPOs and government investigations.

Liz Dunshee

March 18, 2019

Regions Financial’s Proxy: Bringing It All Together

After Broc blogged last week about GE’s “Letter to Shareholders,” a few loyal readers reached out to gush about the proxy statement that was recently filed by Regions Financial. One person said it was “unreal – totally changes expectations around proxy disclosures.” And this comment explains why:

It’s like a proxy statement, proxy advisory data report on governance practices, consolidated sustainability report and review of every shareholder hot topic rolled into one. It’s worth checking out if you’re looking for sample proxy disclosure on virtually any topic – it was even cited by CII in its recent report on best practices for board evaluation disclosure.

This is not to comment on the merits of any of their programs or practices, which I haven’t reviewed, just the scope of disclosure. I do note they have enjoyed strong voting support, but clearly they aren’t resting on their laurels in that respect. And that’s a good lesson for every company, even if you don’t have the resources to prepare a proxy like Regions’.

Sustainability: How to Talk So Investors Will Listen

This PwC memo says the “safe zone” of ESG reports & communications is quickly disappearing as investors get more aligned in the type of info they’re looking for – and continue to integrate ESG criteria into decision-making by investment officers & PMs, rather than just the stewardship team.

You’re likely familiar with the “safe zone” – it’s sustainability reporting that calls out a ton of company accomplishments…but it doesn’t quantify their impact on the bottom line, and there’s no convincing link to business strategy. From an investor’s view, it’s a start – but it’s not going to ensure the company avoids the biggest global risks that are coming down the pike, or that it’s positioned to capture a competitive advantage. A recent 40-page report from Ceres offers some strategies to improve your positioning – and engagement – on this topic. Here’s one takeaway, as summarized in this Cooley blog:

Use language that investors understand and value. One goal of the IR team should be to “communicate the company’s values and strategies using language that investors understand” — including, where appropriate, financial terms such as margin and EPS, as well as business concepts such as risk mitigation, cost avoidance, revenue growth and competitive differentiation — thus positioning sustainability in the context of business performance.

To permit investors to incorporate sustainability into their valuations, companies should discuss sustainability investments, risks and benefits “through the prism of [practical business concerns such as] supply chain resilience, stranded asset avoidance, cost savings and efficiency, improved product performance, consumer acquisition and increased employee retention.” Notably, some asset managers do not position their questions as “sustainability” questions per se, but may instead frame them strictly as financial issues, such as supply chain stability.

According to Ceres, one “constant refrain” heard from investors is that “if a company is not talking about its sustainability strategy and performance, they may conclude the company does not have a story to tell or, even worse, it’s hiding something.”

Preparing for “CEO Activism”

There’s a perception that CEOs have become more willing in recent years to speak out on controversial social & political issues. It’s still pretty rare, but that doesn’t mean you shouldn’t prepare for the day when your company’s leader wants to take a stand. We’ve blogged about the public and investor reactions to this double-edged sword – and we’ve been posting even more resources in our “Crisis Management” Practice Area. In this WSJ article, two B-School profs offer tips on when CEOs should take a stand – and how to speak out effectively. Here’s the takeaways:

CEOs should take a stand when:
1. The nudge comes from their employees
2. Their corporate or personal values – and corporate practices – align with the issue at hand
3. The issue is “live”

CEOs who speak out should:
1. Set up a rapid response team
2. Anticipate backlash
3. Work with the communications team

Liz Dunshee