October 23, 2020

Whistleblowers: Just . . . WOW!

What else can you say when the SEC announces that somebody just rang the whistleblower bell to the tune of $114 million? Here’s an excerpt from the SEC’s press release:

The Securities and Exchange Commission today announced an award of over $114 million to a whistleblower whose information and assistance led to the successful enforcement of SEC and related actions.

The $114 million award consists of an approximately $52 million award in connection with the SEC case and an approximately $62 million award arising out of the related actions by another agency. The combined $114 million reward marks the highest award in the program’s history, and eclipses the next highest award of $50 million made to an individual in June 2020.

It sounds like the award came at the end of a tough road for the whistleblower.  The SEC’s press release says that the individual repeatedly reported that person’s concerns internally, and then, “despite personal and professional hardships,” the whistleblower alerted the SEC and the other agency of the wrongdoing and provided ongoing assistance that was critical to the success of the proceeding.

Now for the fun part – guessing which company is involved in the underlying case.  For what it’s worth, here’s the SEC’s order, but it won’t be much help. The order contains more redactions than the average CIA response to a FOIA request.

Given the size of the award & the reference to another agency’s involvement, I’m sure some might guess that it’s related to the Goldman Sachs 1MDB settlement that was also announced yesterday, but I’m pretty sure that this doesn’t relate to that proceeding. For one thing, the SEC hasn’t yet issued a Notice of Covered Action for that case, which is required for any potential whistleblower case in which more than $1 million in sanctions have been imposed.

I have far too much journalistic integrity to speculate on such matters – but not enough to prevent me from pointing you to a Twitter thread where lots of people are doing just that.

Human Capital: Addressing the New Disclosure Requirement

One of the problems with adopting a principles based disclosure requirement is that you often end up with some poor soul staring at a blank sheet of paper trying to come up with something to say.  If you’re worried about finding yourself in that position, this Freshfields blog provides some advice about how to address the SEC’s new human capital disclosure requirement. This excerpt lays out some potential disclosure topics:

Diversity and inclusion: Programs or initiatives related to recruitment and retention of diverse candidates and other corporate partners, programs or initiatives to mentor and ensure equal opportunities at the company for diverse employees, unconscious bias trainings, and community involvement. For instance, if a company has adopted the Rooney Rule for directors or other positions, it could be helpful to provide that disclosure.

Workforce compensation and pay equity: Company-wide compensation program design and implementation more generally, including incentive structures, internal minimum rates of pay, as well as efforts to promote gender and diversity pay equity. This may include involvement of outside compensation advisors or use of benchmarking data. This coming year, we expect to see disclosures around changes made to compensation programs in response to COVID-19 and the considerations that were involved.

In the case of companies that had to reduce compensation or furlough employees, we expect to see disclosure of actions taken to ease departures or reduced wages that demonstrate a commitment to the workforce. For example, many companies provided severance packages, extended health insurance to part-time employees or furloughed employees, offered paid sick leave, or established wellness initiatives and mental health services.

Talent acquisition and retention: Competitive trends affecting recruitment and retention of employees (including, if material, voluntary and involuntary turnover rates), trends in overall workforce composition and talent needs, and succession planning for senior leadership roles.

Other potential topics include employee engagement and wellness, development and training, company culture, and oversight and governance. If you’re looking for more insights into the new human capital disclosure requirement, we’re posting memos in our “Human Capital Management”  & “Regulation S-K” Practice Areas.

Corporate Governance: Preparing for “Black Elephants”

This year has been a barrel of laughs. Pandemic, lockdowns, recession, divisive politics – and now to top it all off, I’m going to have to subscribe to Apple TV if I want to watch Charlie Brown! Thanks for nothin’ 2020.

I guess my point is that we live in interesting times, where unexpected and downright extraordinary events happen with alarming regularity. That’s why I thought that this recent HBR article made for interesting reading. The article discusses how corporate boards can build the resilience necessary for companies to address the “black elephants” that they’re likely to encounter in the future. According to the authors, these creatures are a cross between a “black swan” and the “elephant in the room,” and describe a “looming disaster that’s clearly visible, yet no one wants to address.”

The article addresses how boards can build the resilience necessary to deal with these stygian pachyderms through effective corporate governance, leadership development and compensation program design. Here’s an excerpt on governance:

Boards have a variety of means for promoting resilience and monitoring potential black elephant events. They can encourage stress tests in comprehensive risk reviews. They can press management on the worst-case scenarios for each black elephant, including when the threat becomes existential for the company. They can then suggest “war games” to develop principles for effective responses — with lessons brought back to the board for assessment and discussion.

The authors also highlight some of the operational steps that the board can take on the governance front, including pushing management to fortify the company’s physical & digital defenses, taking actions to improve resilience in supply chains, and promoting technological solutions to minimize potential disruptions.

John Jenkins