November 18, 2019

Dual Class: Battleground Moves to Delaware

There’s been some back & forth over “who writes the rules” when it comes to dual-class shares: candidates for that job have included indexes, exchanges and institutional investors (whose objections to an extreme variation of this structure was one of many factors that played a role in the fall of WeWork). In a recent speech, the SEC’s “Investor Advocate” – Rick Fleming – even acknowledged that investors are part of the problem – but also called for heightened SEC disclosure requirements for dual-class shares and intervention from stock exchanges.

Now, CII is also moving the issue to the state level – via this letter to the Delaware State Bar Association. Here’s an excerpt (and here’s a Wilson Sonsini blog that responds to CII’s proposal):

A proposed new Section 212(f) of the DGCL is attached as Annex A to this letter. Pursuant to that language, no multi-class voting structure would be valid for more than seven years after an initial public offering (IPO), a shareholder adoption, or an extension approved by the vote of a majority of outstanding shares of each share class, voting separately, on a one-share, one-vote basis. Such a vote would also be required to adopt any new multi-class voting structure at a public company. The prohibition would not apply to charter language already existing as of a legacy date.

Non-GAAP: How to Avoid Staff Scrutiny

Last month, I blogged that this year’s “Top 10 List” for Corp Fin comments continues to include non-GAAP – no surprise there. This PwC memo highlights the 5 most common non-GAAP issues that draw Staff scrutiny:

1. GAAP measure not given enough prominence

2. Reconciliation between GAAP and non-GAAP measures is missing or does not start with the GAAP measure

3. Non-GAAP measure is not presented consistently between periods or the reason for changing a non-GAAP measure is not disclosed

4. Management’s explanation of why a non-GAAP measure is useful to investors is inconclusive

5. Use of an individually–tailored accounting principle (a company cannot make up its own GAAP)

We’ve blogged before about that last one – it’s a newer area of comment so there’s still some confusion about what it means. For those who subscribe to “The Corporate Counsel” print newsletter, we’ll take a deep dive into this topic in the forthcoming November-December Issue.

“Investors’ Exchange”: RIP

Three years ago, John blogged about a new national securities exchange, “IEX” – which was unique in that it wasn’t operated by Nasdaq or NYSE. Its run was short-lived – this WSJ article reports that it decided to exit the business after its only listed company went back to Nasdaq. But other new competitors remain optimistic – there are at least three hoping to break into the market next year…

In other “exchange” news, last week Nasdaq filed a rule change to modestly increase annual listing fees. Starting January 1st, fees for most equities will go up by about $1-$3k…

Liz Dunshee