October 9, 2019

Director Meeting Fees. . .Going, Going, Gone?

Here’s something I recently blogged on As you can see from the studies posted in our “Director Pay” Practice Area, it’s become a pretty rare thing for public companies to pay director meeting fees. In fact, this Pearl Meyer blog reports that fewer than 25% of companies are doing it (though it’s still a majority practice at private companies). The blog gives these recommendations if your directors insist on being paid for attendance:

1. If your number of board or committee meetings is consistently above your peer group meeting, revisit whether your retainers account for that workload

2. If there’s a non-recurring situation, consider an ad-hoc retainer for affected directors

3. If directors are uncertain about their workload, consider conditional meeting fees if the number of meetings exceeds a pre-established threshold

SEC Enforcement: Check Your “Loss Contingency” Disclosure!

Ah, autumn. A time to relish the changing leaves, cooler temps and of course the deluge of press releases from the SEC’s Enforcement Division that drop before the end of the Commission’s September 30th fiscal year. Here’s an announcement about charges against the pharma company Mylan, which was the subject of a two-year DOJ probe and didn’t disclose any loss contingencies or accrue any estimated losses prior to announcing a $465 million settlement.

The SEC’s complaint also took issue with the company’s “hypothetical” risk factor disclosures about government authorities taking contrary positions to its Medicaid submissions, when CMS had already informed Mylan that a product was misclassified. Mylan agreed to settle the SEC matter for $30 million.

Things like this tend to seem pretty clear in hindsight – especially if you’re reading about them in an SEC announcement. But it really requires a thorough understanding of the rules and a lot of judgment. Don’t forget that we have handbooks to help you sort through it all. Here’s the one on “Legal Proceedings Disclosures” – and here’s the one on “Risk Factors.”

SEC Enforcement: Actually, Just Check All Your Disclosures

Here’s another recent settlement between the SEC’s Enforcement Division and a company that disclosed allegedly misleading customer metrics (the CEO was also charged). This one’s scary because it delves into the type of non-financial stuff that gets added to earnings releases (and occasionally periodic reports) without a lot of lawyerly checking. This Stinson blog explains the allegations:

In 2014 and 2015, Comscore disclosed its total number of customers and net new customers added in quarterly earnings calls. Comscore also disclosed its customer total in periodic filings with the Commission. According to the SEC the number of net new customers added per quarter was an important performance indicator for Comscore that analysts tracked and reported on. During this time, in an effort to conceal the fact that quarterly growth in Comscore’s customer total had slowed or was declining, a Comcast employee allegedly approved and implemented multiple changes to the methodology by which the quarterly customer count was calculated. These changes were neither applied retroactively nor disclosed to the public per the SEC order.

Coincidentally, a recent Corp Fin comment letter raised similar issues for a different company. Comments might be down overall, but don’t let anyone tell you that Corp Fin is “calling it in” for their reviews. They took issue with the number of customers disclosed by a gym in its annual report and – of all the things! – the viewership stats that the company cited for “Dick Clark’s Rockin’ Eve” (see this Bass Berry blog).

For those of us who want to save companies from fines & embarrassment, the question is how to vet non-financial metrics efficiently and without losing all your friends & clients. Some members have suggested putting a “stake in the ground” that describes how customer metrics are calculated – whether that’s a widely-available internal thing or actually in the 10-K would be up for debate (both shareholders & competitors would prefer the latter). Shoot me an email if you have other ideas…

Liz Dunshee