According to this excerpt from EY’s Global IPO Trends Report, despite the slowdown in SPAC IPOs due to the recent regulatory unpleasantness, there are plenty more deals to come:
– While SPAC formation frenzy has slowed from record levels, the lull caused by the SEC guidance is behind us and deals are being announced daily. SPAC activity is expected to remain steady over the next couple of months, picking up speed in Q3 2021 and toward the end of the year.
– There are nearly 300 SPACs on file that have not yet priced; indicating there are SPACs that are rushing to find suitable targets. High-quality target companies could have stronger bargaining power that will enable them to secure more favorable terms.
– With more scrutiny from the SEC, along with improved aftermarket performance, we can expect more quality SPAC deals being announced and executed, which is good news for investors.
More quality SPAC deals may be good news for investors, but I bet short sellers are still licking their chops at the prospect of the SPAC assembly line cranking up again.
BlackRock just issued its 2021 Stewardship Report and it’s an eye-opener, particularly when it comes to the giant asset manager’s support of shareholder proposals during the 2020-2021 proxy year. Here are some of the highlights:
– BlackRock supported 35% of shareholder proposals, compared to 17% the previous year. On ESG-related topics, BlackRock supported 64% of Environmental proposals, 35% of Social proposals, and 32% of Governance proposals. It cast at least one vote against management’s recommendations in 42% of this year’s meetings, compared to 39% last year.
– BlackRock voted against 10% of incumbent directors this year, up from 8.5% last year. Corporate governance concerns — including lack of board independence, insufficient diversity, and executive compensation — prompted most of the votes against directors’ elections, and other director-related proposals, globally. In the Americas, lack of board gender diversity was the most common reason for rejecting a director, accounting for 61% of negative votes. BlackRock withheld votes from 255 directors based on climate-related concerns.
– BlackRock voted against 5% of Say on Pay proposals in the Americas compared to 4% last year, and voted against 16% globally compared to 12% last year. BlackRock voted against 20 S&P 500 Say on Pay proposals, and 12 of these proposals failed to receive majority support.
The report covers BlackRock’s stewardship activities focusing on proxy voting for the period from July 1, 2020 to June 30, 2021. It also provides specific engagement case studies and addresses how BlackRock’s voting aligned with its engagement priorities – which include board quality and effectiveness, aligning incentives with value creation, climate and natural capital, strategy, purpose and financial resilience, and company impacts on people.
Efforts to have public companies’ adopt “Say on Climate” (SoC) proposals that would require an annual shareholder vote on their climate strategies have been a big issue during the 2021 proxy season – in fact, according to Glass Lewis, SoC proposals were arguably the “most dominant” issue this year. A recent Squarewell Partners study took a close look at SoC proposals and how they fared globally during this year’s proxy season. Here are some of the study’s key findings:
– As of June 2021, SquareWell is aware of 32 companies that have submitted (or will submit) a SoC proposal, either management- or shareholder sponsored. 23 companies have adopted, either voluntarily or following shareholder
pressure, the principle of a SoC vote and are subjecting their climate action plans to shareholder scrutiny.
– The approaches taken by companies that have adopted SoC vary to a great extent, with some companies putting their climate action plans as a one-off shareholder vote. The content of climate action plans are also heterogeneous
– some more in line with the objectives of the Paris Agreement than others. Unilever’s climate action plan was the most robust in terms of disclosure.
– Management-sponsored SoC proposals have been supported, on average, by more than 90% of shareholders. Only Glencore (UK), Atos (France), S&P (US), Total (France), and Royal Dutch Shell (US) have received over 10% dissent (including abstentions) on their climate action plans as of June 2021. Shareholder-sponsored SoC proposals have been less successful, except at Aena and Canadian Pacific Railway. TCI was the proponent in both cases.
The study notes that Institutional Shareholder Services (ISS) has been more supportive of both management- and shareholder-sponsored SoC votes than Glass Lewis, and that although the vote results suggest that shareholders are broadly supportive of the SoC concept, several asset managers and asset owners have voiced concerns with the campaign.
We’ve posted the transcript for our recent webcast “Cyber, Data & Social: Getting in Front of Governance.” Anyone involved in providing guidance in any of these emerging areas should check out this webcast. Melissa Krasnow of VLP Law Group, Lisa Beth Lentini Walker of Lumen Worldwide Endeavors, Sue Serna of Serna Social & Heidi Wachs of Stroz Friedberg/Aon addressed a wide array of topics, including:
– What the Board Needs to Know About Cyber, Data and Social
– Monitoring New Threats – Ransomware, Vendors and Widespread Attacks
– Social Media Oversight
– Keeping Your Incident Response Plan Current
– Director Liability issues, Including Cyber Liability and D&O Insurance
– Disclosure Issues
This Olshan blog addresses a topic I’ve been meaning to comment about for some time now. I’ve always thought that one of the most straightforward disclosure requirements in a registration statement is the direction on the cover page to disclose a company’s principal executive offices. Well, a pair of registration statements for recent IPOs suggest that this isn’t so straightforward anymore. This excerpt from the blog explains:
On the cover page of its Form S-1 IPO registration statement filed only a few months ago, Coinbase Global, Inc. indicated as follows with regard to the address and telephone number of its principal executive offices: “Address Not Applicable.” In a footnote, it further explained, “[W]e [are] a remote-first company. Accordingly, we do not maintain a headquarters.” An exhaustive search on EDGAR revealed that this was the first submission of its kind with only one similar filing on July 2 by Talkspace, Inc.
How can it be that a public company has no fixed address and/or phone number?1 Surely there must be some physical presence somewhere, even with the shift to work-from-home arrangements for many workers. Securities Exchange Act Rule 3b-7 defines “executive officer” as the company’s “president, any vice president … in charge of a principal business unit” or any other “officer” or “person” who “performs similar policy making functions.” Securities law commentators have suggested that the term “principal executive offices” would mean the place where the CEO and most other executive officers work most of the time. Given the SEC’s focus on accountability and enforcement, it seems puzzling that the SEC cleared this “end of the principal executive office” disclosure requirement.
Yeah, it’s puzzling to me too, but regardless of whether it’s technically permissible to not disclose an HQ on the cover page of an S-1, chances are we’re going to see more filings like this. That’s because there are a whole bunch of tech companies running around calling themselves “remote-first.” Oy vey . . .
Of course, the lack of an address is only the second weirdest thing about the cover page of Coinbase’s S-1. First prize goes to the cover page’s reference under the “copies to” caption to Satoshi Nakamoto, the pseudonym of the so-far anonymous creator of Bitcoin.
According to this recent Audit Analytics blog, the number of IPOs in which issuers disclose that their internal control over financial reporting is ineffective has risen sharply in recent years. In 2011, less than 5% of all IPOs disclosed ineffective ICFR, by 2018, that number had risen to nearly 25%. A related Audit Analytics report on IPO risk governance sheds some light on why investors may be more tolerant of IPO companies with significant control issues. At the risk of sounding like Ari Melber again, this excerpt suggests that it’s “All About The Benjamins”:
Having systems in place to assess internal controls over financial reporting and attest to the reliability of ICFR would seem to benefit investors, if only to signal that internal controls and accounting quality are a high priority for management. However, research surrounding this value proposition provides mixed results.
According to a 2016 study, firms that do not comply with SOX 404 at the time of IPO exhibit the least underpricing and exhibit the highest levels of post-IPO performance over the six- and twelve-month performance periods. Further, the researchers found that companies that were not SOX-compliant IPOs had substantially greater median buy and hold returns over the 24 months following the IPO.
The report did note that the companies achieving the highest buy & hold returns over the 24 months following the IPO were those that didn’t cite ICFR effectiveness issues.
Lockup agreements prohibiting insiders from selling for 180 days or more after an offering have long been a customary part of the IPO process. Last week, the WSJ published an article pointing out that the terms of its lockup arrangements were among some of the unusual features of Robinhood’s proposed IPO:
When Robinhood shares start trading at the end of this month, employees will be able to sell 15% of their holdings immediately, rather than after the traditional six-month lockup period, according to a regulatory filing. Three months later, they can sell another 15%. In the past 12 months, several companies have experimented with looser lockups. In September, data-warehousing company Snowflake Inc. said employees could sell as much as 25% of their vested stock after roughly three months. Then Airbnb Inc. said it would allow employees to sell up to 15% of their shares in the first seven trading days.
This Foley & Lardner blog notes that although the traditional 180 day lockup is still the standard, there is a clear trend toward companies structuring lockup periods with different durations for different parties. But the blog also points out that the trend toward looser lockups hasn’t extended to SPAC IPOs, which have accounted for the greatest share of IPO volume in recent periods. SPAC deals continue to customarily include lockups of a year or more.
According to a recent Ceres report, while companies are making earnest statements about their efforts to combat climate change, a lot of what they’re saying is hot air. Here’s an excerpt from a Politico article on the report:
Companies talk a big game on climate. More than 3,000 have pledged to cut emissions and glossy sustainability reports have become routine. But how much of that is just talk? A lot of it. In the U.S., 60 percent of the biggest companies haven’t engaged directly with lawmakers to lobby for climate change mitigation policies. That’s the conclusion of sustainable finance nonprofit Ceres, which tabulated the activity of nearly 100 of the country’s largest and most influential companies.
Nearly all the companies Ceres examined have promised emissions cuts. But more than 1 in 5 have lobbied against science-based climate policies. Others are silent. Ceres called it a “troubling inconsistency.”
Okay, fair enough. But I also think that Ceres has set the bar kind of high here. For example, the report notes that 92% of the companies assessed plan to clean up their own operations by setting emission reduction goals, 88% have formally given their boards responsibility to oversee the company’s efforts on sustainability & climate change issues, and 74% acknowledge that climate change is a material risk to their businesses. That sounds pretty good to me, but then Ceres goes on to say this:
Yet, 51% of the companies disclose climate change policy solely as an adverse event in their financial filings, indicating that they are primarily focused on short-term compliance impacts rather than the longer term, significant costs associated with unabated climate change. Companies should balance their disclosure of short-term compliance costs with an analysis of the medium- and long-term costs of inaction and the financial payoffs of policies that mitigate climate change.
To me, this is an example of the kind of disclosure mission-creep that stands a really good chance of undermining the whole ESG disclosure project. These are for-profit businesses, not climate change advocacy groups. They shouldn’t be expected to preach the climate change evangel in their SEC filings, and I doubt very much that many of them are in a better position than anyone else in the market to speculate about the long-term financial payoffs of their actions.
The International Capital Markets Association recently issued an updated version of its “Green Bond Principles” document, which outlines best practices for issuers of green bonds. This Sidley memo reviews the most recent update. Here’s the intro:
In June 2021, the International Capital Market Association (ICMA) published an updated version of its Green Bond Principles (GBPs). First published in 2014, the GBPs are a voluntary framework for issuers to follow when issuing green bonds, aimed at promoting the role of debt capital markets in financing the transition to environmental sustainability by promoting transparency and disclosure, thereby reducing the risk of “green washing.”
The recent updates to the GBPs do not revolutionize the key concepts underlying the GBPs; rather they reflect recent market and regulatory developments. In the GBPs, ICMA strikes a balance between streamlining market practice in a set of defined guidelines and framing developing practice into an industry-wide standard for green bond disclosure.
The four key GBPs – (i) use of proceeds, (ii) process for project evaluation and selection, (iii) management of proceeds, and (iv) reporting – remain substantively unchanged, but they have been expanded by additional, detailed guidance. Transparency has always been the underlining objective of the GBPs, and this has been enhanced with the introduction of two new recommendations: Green Bond Frameworks and the use of an external reviewer to assess the alignment of green bonds with the GBPs.
On a related note, check out this Moody’s publication on the burgeoning growth in the broader sustainable finance category during the first quarter of 2021. Moody’s says that sustainable financings set a new quarterly record of $231 billion during 2021’s first quarter, more than triple the amount issued during the first quarter of last year & 19% higher than the $195 billion issued during the fourth quarter of 2020.
Tune in tomorrow for the webcast – “Insider Trading Policies & Rule 10b5-1 Plans” – to hear Dave Lynn of TheCorporateCounsel.net & Morrison & Foerster, Meredith Cross of WilmerHale, Alan Dye of Section16.net & Hogan Lovells and Haima Marlier of Morrison & Foerster provide practical guidance about what you should be doing to stay on top of your own insider trading policies & 10b5-1 plans during a period of close SEC scrutiny. Topics include the new enforcement environment, the focus on 10b5-1 plans, the intersection of insider trading policies & 10b5-1 plans, blackout period trends, pre-clearance procedures and several others.
If you attend the live version of this 60-minute program, CLE credit will be available! You just need to submit your state and license number and complete the prompts during the program.
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