February 6, 2020

Dave & Marty: Revisiting Risk Factors & Musical Tastes

Don’t miss the latest episode of the “Dave & Marty Radio Show” – in which Dave Lynn and Marty Dunn engage in a lively discussion of the latest developments in securities laws, corporate governance, and pop culture. Topics in this 24-minute episode include:

– Recommendations for tuning up your risk factors

– Early trends in the shareholder proposal season

– Evolving musical tastes in a world of technological innovation

Newer Sustainability Reporting Frameworks are Picking up Global Endorsements

Here’s a note from Rhonda Brauer:

This year has already seen significant endorsements of the newer sustainability reporting frameworks:  the Sustainability Accounting Standards Board (SASB) and the Task Force for Climate-related Financial Disclosures (TCFD).

As Lynn blogged last month, Blackrock’s annual letters from CEO Larry Fink note that Blackrock is more strongly encouraging its portfolio companies to provide sustainability disclosure in accordance with SASB’s industry-specific standards and the TCFD’s recommendations, including a company plan for operating under a global warming scenario of 2 degrees Celsius or lower.  To back up its “encouragement”, Blackrock will increasingly vote against management and boards whose companies aren’t “making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.”

A related endorsement came out of Davos last month, where the World Economic Forum’s International Business Council (IBC) – which includes 140 large global companies — supported the development of an ESG reporting framework that also relies on existing disclosure frameworks, including SASB and TCFD.  A draft framework has been proposed by the Big Four accounting firms, which have actively supported many of the sustainability reporting initiatives and are well placed to do third-party audits of the corporate ESG disclosures.

This growing support for SASB and TCFD is consistent with the report that Glenn Davis and I co-authored last September, “Sustainability Reporting Frameworks: A Guide for CIOs”, for the Council of Institutional Investors (CII).  The text of this Guide is intended to be a quick read for pension fund CIOs and other readers, who want to learn:

  1. The main differences between the primary reporting frameworks (summarized further in a brief Appendix)
  2. Related considerations for fund CIOs and their staffs
  3. Open issues for the future

For ESG reporting geeks who want more, the 50+ footnotes link to related research and articles, plus helpful disclosure examples.

Skipped Class the Day Insider Trading was Covered?

Insider trading stories really do make me shake my head in disbelief and I did that when reading a recent story.  In this case, the SEC caught up with a recent college grad for insider trading – within the grad’s first year on the job as a junior investment banker.  The action seems pretty cut and dry –  within the first year out of college and while working as a junior investment banker, the grad learned of a pending deal, bought call options and sold them for a profit shortly after the deal was announced.  Here’s an excerpt from the SEC’s press release:

The grad agreed to settle with the SEC and consented to the entry of a judgment permanently enjoining him from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and ordering him liable to pay disgorgement of his ill-gotten trading profits, with interest, which will be offset by the amount of any forfeiture ordered against the grad in a parallel criminal action. In a separate administrative proceeding instituted on December 23, 2019, the grad consented to be barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any penny stock offering.

On the same day the SEC filed its action, the U.S. Attorney’s Office for the Southern District of New York announced parallel charges against him. The grad pleaded guilty in the criminal action, and in January 2020 he was sentenced to five years of probation and ordered to forfeit approximately $126,000.

According to this story, the grad is reportedly the former study body president at NYU’s Stern School of Business and at one time gave advice to first-year students to “hold on to your values”.  Not sure what values this person had in mind.  It’s hard to imagine that someone wouldn’t understand the concept of insider trading even if the person missed class the day the prof covered it.  But, it’s sad to think this could be another case where the person just thought they wouldn’t get caught…

Lynn Jokela