The US stock market is closed for nine days every year. Today, Good Friday, is one of those days – and the only one that isn’t also a federal holiday (the bond market is open till noon Eastern today). According to this article, it’s a long-standing tradition – but nobody really knows its origin. The article offers a few ideas:

1. Religion – it could be to mark the occasion of Easter – and often, Passover occurs at the same time. Volume is also down anyway due to observance of these Christian & Jewish holidays, and many non-US markets are closed

2. Superstition – legend has it that there was a huge sell-off when the market opened on Good Friday, but the crashes that are typically blamed – Black Friday and the Panic of 1907 – actually occurred later in the year

3. Lease Clause – some think that the NYSE’s lease requires it to be closed on major Christian holidays, but there are some holes in the theory

When it comes to more recent shut-down decisions that have been considered due to weather emergencies, technical issues, and the pandemic, there’s more daylight about the decision-making process among exchange operators (and in extreme situations, the federal government). This interview last year about reopening the NYSE trading floor is pretty interesting too.

EDGAR’s “Company Filings” Page: Scheduled Outage Tonight

The SEC is conducting scheduled maintenance tonight on EDGAR’s public access system, according to this notice posted on the “company filings” search page:

Maintenance for the SEC EDGAR public access system is scheduled for Friday, April 2nd, 2021, at 11:30 pm Eastern Time. Estimated duration is 30-45 minutes. Filing documents will be available, but some EDGAR searches may not return results during this time period. We apologize for the inconvenience.

The outage is only scheduled for 30-45 minutes, but it’s not a bad idea to plan ahead in case it lasts longer. Hopefully there are very few people who will be needing to search company filings late on Friday night of a holiday/spring break weekend!

More on “California Board Diversity Statute: Less Than Half of Companies Report Compliance”

I blogged a few weeks ago that only 318 companies that are subject to California’s board diversity statute have filed a disclosure statement to report whether or not they have the required number of women on their board. I was surprised by that – but Allen Matkins’ Keith Bishop sent this point of clarification:

The statutes requiring publicly traded corporations to file the Corporate Disclosure Statement predate the statutes relating to board composition. There is no specific fine associated with failure to file the Corporate Disclosure Statement in those statutes.

The statutes governing board composition provide that the Secretary of State may impose a $100,000 fine for failure to file to timely file board member information with the Secretary of State pursuant to a regulation. However, the Secretary of State has not adopted a regulation and is not required to do so (the statutes say that the Secretary of State “may” adopt implementing regulations).

I am not aware of any enforcement activity by the Secretary of State for actual violations of the composition requirements. Any enforcement action is likely to be defended on constitutional grounds and that is already being litigated in state and federal court.

Keith also went on to say that his understanding is that the Secretary of State compiles the data for the report solely from the Form 10-K and Corporate Disclosure Statements. Through no fault of their own, but because of how the statute is worded, they do not look at proxies or other disclosures made by a company. That reinforces that the corporate disclosure statements – and the “Women on Boards” report – isn’t all that useful in analyzing whether companies headquartered in California are satisfying the underlying board diversity requirements in the statute. As Keith explained in a recent blog, companies are permitted to file updated disclosure statements – but it’s not required.

Cooley’s Cydney Posner did pull up a few proxy statements – this blog summarizes her findings:

Should we assume that companies that did not file are not in compliance? I looked at the proxy statements for a number of the companies identified as “impacted corporations” that nevertheless were not reported as having filed Disclosure Statements — selected at random, unscientifically and completely arbitrarily — all of them had at least one woman on the board and often two or more. So, I would guess that the number of women on boards is probably much greater than the report indicates.

Unfortunately, however, to compile the report, the Secretary can’t simply look at companies’ proxy statements as I did. That’s because the language in the statute defines “female” as “an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth.” As a result, the Secretary is not reviewing 10-Ks or proxy statements to determine whether a company is compliant with the new board composition requirement, but is instead determining compliance based only on the California Statement, which includes a specific inquiry regarding the number of “female” directors. And if half the companies subject to the law don’t file, well, so much for the accuracy of the report.

It’s also worth noting that there are timing issues in connection with these annual reports and statements, resulting in “some gaps in available data” in the 2021 Report, as the report points out. Forms 10-K are due, generally depending on the size of the company’s public float, 60, 75 or 90 days after the end of the company’s fiscal year, and the deadline for filing the California Statement is 150 days after the end of the company’s fiscal year.

– Liz Dunshee

Yesterday afternoon, Corp Fin issued this “Staff Statement” to highlight accounting, financial reporting & governance issues that they want people to carefully consider before taking private companies public via a SPAC. Acting Chief Accountant Paul Munter also issued this statement to further emphasize the complex financial reporting & audit considerations that come into play with these transactions. These statements are being made at the Staff level and aren’t approved by the Commission, but they underscore that people at the SEC think the SPAC frenzy warrants caution.

Corp Fin’s statement points out that private companies need to thoroughly lay the groundwork for going public – even if they’re not doing it via a traditional IPO. Here are a few (paraphrased) reasons why:

– Financial statements for the acquired business must be filed within four business days of the completion of the business combination pursuant to Item 9.01(c) of Form 8-K. You aren’t entitled to the 71-day extension of that Item.

– The SPAC – and the combined company – need adequate expertise, books & records and internal controls to be able to meet reporting deadlines, satisfy the form & content requirements of financial statements, adopt accounting standards that may not have applied when private, understand “predecessor” implications, and generally ensure that they’re providing timely & reliable reporting

– The combined company will need to continue to satisfy quantitative & qualitative listing standards – e.g., the SPAC may lose round lot holders during the business combination; the private operating company may not have in place adequate independent director oversight, appropriate audit committee expertise, or a code of ethics

In addition, the Staff wants everyone to understand that going the SPAC route means that the combined company will be more restricted in future capital raising transactions. For example, for 3 years following the business combination, they’ll be an “ineligible issuer” (no WKSI status, no FWPs, etc.) – and also during that 3-year period, they won’t be able to incorporate by reference on Form S-1.

These limitations on capital raising aren’t new rules – they’re really just saying that the more recent “fast track” alternatives aren’t available to former shells. But they bear emphasis with the business crowd who are excited about a fast deal now and will be decidedly less excited about a slow deal later. Do yourself a favor and put it in writing!

ESG: Pru Previews Progress Before Annual Meeting

Prudential has been one of the ongoing leaders in sustainability disclosure. In late 2019, the company adopted a “multi-stakeholder” focus – and in 2020, it used its sustainability report to share progress under that framework. This year, we’re getting an even earlier look at some of Pru’s most impactful metrics – via this first-of-its-kind “summary ESG report” that was posted to the company’s sustainability page last week. It’s 18 pages long – and gives details on:

– The status of the Company’s Global Environmental Commitment’s operational and investment targets.

– Employees’ race/ethnicity and gender by job category, including preliminary EEO-1 data for 2020.

– Actions taken to support the Company’s nine commitments to racial equity, including disclosure of our diversity talent goals, which will serve as a baseline to illustrate our progress going forward.

– Disclosure of the Company’s gender and pay equity results.

The report was posted the same day the company filed its proxy statement. As usual, the proxy statement is very fulsome – and on page 58, it gives details on the “diversity modifier” that’s mentioned in the ESG summary as a way the company is supporting its commitment to racial equity. Although the company typically doesn’t post its full sustainability report until May/June, the ESG summary report provides key info to investors and other stakeholders in advance of the annual meeting on May 11th.

Our April E-Minders is Posted

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– Liz Dunshee