May 2, 2019

Elon’s Tweets: Amended Settlement Lists “Material” Topics

It’s a safe bet that the SEC still takes social media more seriously than Elon Musk – whose recent Twitter bio was “Meme Necromancer.” But last week they called a truce in their ongoing battle by filing an amended settlement for court approval (although this WSJ article says that SEC Commissioner Rob Jackson wasn’t happy with the deal). The earlier version required a Tesla lawyer to give advance approval for any tweets that “contain, or reasonably could contain, information material to the company or its shareholders.”

I wrote about how the original settlement didn’t work out so well in practice, when Elon tweeted production numbers without getting pre-approval and the two sides couldn’t agree on whether those numbers were “material.” So, page 3 of the amended settlement attempts to be more specific – it says pre-approval is required for communications that contain information on any of the following topics:

– the Company’s financial condition, statements, or results, including earnings or guidance;

– potential or proposed mergers, acquisitions, dispositions, tender offers,or joint ventures;

– production numbers or sales or delivery numbers (whether actual, forecasted, or projected) that have not been previously published via pre-approved written communications issued by the Company (“Official Company Guidance”) or deviate from previously published Official Company Guidance;

– new or proposed business lines that are unrelated to then-existing business lines (presently includes vehicles, transportation, and sustainable energy products);

– projection, forecast, or estimate numbers regarding the Company’s business that have not been previously published in Official Company Guidance or deviate from previously published Official Company Guidance;

– events regarding the Company’s securities (including Musk’s acquisition or disposition of the Company’s securities), credit facilities, or financing or lending arrangements;

– nonpublic legal or regulatory findings or decisions;

– any event requiring the filing of a Form 8-K by the Company with the Securities and Exchange Commission, including:
A. a change in control; or

B. a change in the Company’s directors; any principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer, or any person performing similar functions, or any named executive officer; or

– such other topics as the Company or the majority of the independent members of its Board of Directors may request, if it or they believe pre-approval of communications regarding such additional topics would protect the interests of the Company’s shareholders

To anyone involved with insider trading, disclosure, Reg FD or social media compliance, this list looks similar to the materiality examples that those policies typically provide – i.e. info that’s not to be selectively shared, or publicly announced unless it’s fully-vetted. Hopefully there are controls to make sure those policies are followed!

While it’s not a bad idea to cross-check your own policies against this list, if you work with a limit-testing exec, you also might need to remind them it’s a baseline deriving from a (heavily) negotiated settlement – not an exhaustive list. So a principles-based approach remains best for most companies. As this article points out, it’s even hard to determine whether the tweet that caused this scuffle would require pre-approval, since Musk’s lawyers argued that the info was consistent with what was previously published in the company’s Form 10-K. This saga will likely continue.

Still More on “10-K/10-Q/8-K ‘Cover Page’ Changes: Courtesy of the Fast Act”

Yesterday, I blogged that the SEC had (very promptly) posted updated cover pages for Forms 10-K, 10-Q and 8-K – which companies now need to use due to the “Fast Act” rules being effective – and pondered why the Form 10-K cover page seemed to require companies to make redundant disclosure about the title & class of securities registered under Section 12(b). Now the SEC has moved the new “trading symbol” disclosure to a more logical location. The zombie Item 405 checkbox remains, for the time being…

More on “Human Capital: Investor Coalition Sends 45-Page Survey”

Last summer, I blogged about a lengthy survey sent to 500 companies by a 120-member investor coalition called the “ShareAction Workforce Disclosure Initiative.” The initiative stems from the UN’s Sustainable Development Goals and aims to get companies to disclose comparable workforce information. Now the coalition is reporting the results.

First off, 90 companies responded to the survey – which is honestly more than I expected – and apparently more companies plan to report human capital information to WDI in future years. But in most cases, the info they shared wasn’t as specific or transparent as WDI wanted. For example, here’s what the investors say about governance descriptions that were shared in the survey:

Although almost all (98%) companies reported extensively on their governance of workforce issues, the quality of these responses was highly varied and often missing key information. For example, while all companies named an individual or committee responsible for workforce issues, only 40% referred to specific areas of oversight – some companies referred to the credentials of individual board members or the composition of a committee rather than what they were tasked with delivering, while others did not even mention workers in their response. 10% of companies disclosed information on the regularity of oversight mechanisms and internal review of workforce issues (including Lloyds Banking Group).

There were significant weaknesses in the reporting of governance related to the workforce. Around half reported how overall responsibility for workforce issues is filtered down from the board to the rest of the organisation (including AIA Group, BAE Systems, Enel, Pearson, SSE, and Svenska Handelsbanken), and less than half provided specific examples of workforce-related performance indicators (including BHP, Cranswick, Inditex, Intel, Pearson, Veolia, and VW). Most companies only discussed corporate responsibility in general terms rather than linking workforce issues with performance-related remuneration.

The 13-page report summarizes five primary findings. WDI plans to post more analysis – and recommended disclosure & workforce practices – on its website in coming months.

Liz Dunshee