March 17, 2020

COVID-19: Buybacks & Rule 10b5-1 Plans

John blogged last week about stock buybacks in response to market turmoil and various news outlets reported that several large banks have suspended their stock buybacks due to the COVID-19 pandemic.  For those looking for information about conducting a buyback through a Rule 10b5-1 plan, this Morrison Foerster memo discusses questions about adopting a plan and potential modification given current events.  It walks through – and reiterates – best practices in spite of current market conditions.

The memo points out that Rule 10b5-1 plan best practices are not bright line rules and any company should weigh the pros and cons when deciding whether to adopt a plan, including how adoption of such a plan during the COVID-19 outbreak might be viewed in hindsight by the public, outside investors, or law enforcement agencies.

Frequency of COVID-19 Board Updates

How often to brief the board is a question many are asking as we deal with COVID-19 related issues.  A recent blog from Financial Executives International provides information about how often some are providing updates based on information gathered from a survey of corporate risk professionals.

The survey said most survey respondents are briefing their boards “as needed only,” while 25% haven’t made a decision yet or don’t currently have executive-level briefings.  Another 8% are updating their boards weekly.

As for topics, this Sidley memo discusses ten concerns for boards during the COVID-19 pandemic – it’s a thorough list and helpful if you are preparing for a board update meeting.  One of the topics covered is business continuity and, among other things, it says the plan should be continually re-evaluated and that you should consider whether contingencies are in place if a board quorum isn’t available.

Undoubtedly, the decision about updating the board varies from company-to-company and company specific facts and circumstances will guide the decision.  To not over-burden management by holding one-on-one director briefings, the blog cites the head of KPMG’s Board Leadership as suggesting independent chairs and lead directors interface with management and then brief directors.

Board-Level Oversight of Sustainability Disclosures

Board-level oversight of sustainability initiatives and disclosure is up for grabs at many companies.  This PwC memo discusses reasons audit committees might be best positioned to take on oversight responsibilities for sustainability disclosures.  Granted, some companies have established a board-level sustainability committee, here’s a committee charter from Ford and another from Bunge.  Audit committees always seem to have a full plate and with more attention focused on sustainability reporting, PwC suggests they take on even more.  Here’s an excerpt from PwC’s memo:

Public disclosure of ESG metrics requires appropriate policies, controls and governance, similar to other elective financial metrics, such as non-GAAP metrics.  Companies should have processes and controls around the development of those disclosures to support the accuracy of the data.

The audit committee has deep skills in overseeing internal controls, policies and procedures, and reporting.  Audit committees can play a role by understanding the methodologies and policies used to develop the metrics, as well as the internal controls in place to ensure accuracy, reliability, and consistency of the metrics period over period.

The memo references the SEC’s interpretive guidance issued in February regarding key performance indicators in the MD&A saying “we encourage audit committees to be actively engaged in the review and presentation of non-GAAP measures and metrics to understand how management uses them to evaluate performance, whether they are consistently prepared and presented from period to period and the company’s related policies and disclosure controls and procedures.”

Not long ago, John blogged about how the SEC’s MD&A guidance heightens the stakes for ESG disclosures.

– Lynn Jokela