Today is our “18th Annual Executive Compensation Conference” – Wednesday & Thursday were our “Proxy Disclosure Conference.” Both conferences are paired together and they’ll also be archived for attendees until next August. If you missed the Conferences this week, but want to purchase access to the archives, we’ll have a link available soon on this page to do that. Here’s more info for people who are attending:
– How to Attend: Follow the agenda tab to enter sessions and add them to your calendar. All sessions are shown in Eastern Time – so you will need to adjust accordingly if you’re in a different time zone. Here’s today’s agenda. If you have any questions about accessing the conference, please contact Victoria Newton at VNewton@CCRcorp.com.
– How to Watch Archives: Members of TheCorporateCounsel.net or CompensationStandards.com who have registered for the Conferences will be able to access the conference archives on these sites using their existing login credentials beginning about a week after the event, and unedited transcripts will be available to these members on TheCorporateCounsel.net and CompensationStandards.com beginning about 2-3 weeks after the event. If you’ve registered for the conferences through CCRcorp but are not a member, we will send login information to access the conference footage and transcripts on TheCorporateCounsel.net or CompensationStandards.com.
– How to Earn CLE Online: Please read these “CLE FAQs” carefully to confirm that your jurisdiction allows CLE credit for online programs. You will need to respond to periodic prompts every 15-20 minutes during the conference to attest that you are present. After the conference, you will receive an email with a link. Please complete the link with your state license information. Our CLE provider will process CLE credits to your state bar and also send a CLE certificate to your attention within 30 days of the conference.
Liz blogged last week about BlackRock’s decision to give certain institutional investors the option to vote the shares they hold through BlackRock’s index funds. She also addressed what BlackRock’s decision might mean for public companies. This “Transactional Delights” blog echoes some of Liz’s thoughts, but also raises the possibility that this change may not end up being that big of a deal. Here’s an excerpt:
So, what are some of the potential outcomes of BlackRock allowing its clients invested in its index funds a voting choice? My initial thought is that the cost of proxy contests could go up if there are more beneficial owners to solicit votes for because it might be more difficult from a collective action standpoint to line up all the votes you might need, whether its for a dissident slate of nominees to the board (shareholder activism), or ESG proposals regarding the company in question. Two questions that come to my mind when thinking about this are:
– A lot of the substance behind the ESG hype comes in the form of ESG shareholder proposals and BlackRock has been pretty bullish on embracing ESG principles, what does this portend for the future with BlackRock giving up its voting power?
– How soon after institutional will retail get this ability?
Putting those questions slightly to the side, why might this not be as big of a deal as I think it is? Well, I’m not sure how you can entirely underplay 40% of $4.8 trillion, but, one practical point and a key question to all of this is – do BlackRock’s institutional investors actually want the vote? And furthermore, does retail (no announcement made yet on this) want the vote?
The blog says that the willingness of so many institutional investors to rely on proxy advisors like ISS means that many aren’t likely to be real keen on voting the shares held in BlackRock’s index funds. While the blog doesn’t answer the question that it poses about whether retail investors want the vote, the traditional apathy of retail investors suggests that they probably aren’t all that interested either. Of course, the blog also notes that given the size of BlackRock’s holdings, the ability of its investors to vote their shares will likely be an important strategic consideration in many proxy contests..
My guess is that BlackRock probably has reached the same conclusion about the interest of most of its index fund investors in pass-through voting. But regardless of whether index fund investors actually vote their shares, their ability to do so gives BlackRock something to point to in response to growing concerns about just how much of the world’s corporate equity it owns, and may be part of its strategy to fend off regulatory actions intended to address those concerns.
By the way, this CLS blog points out some interesting fine print in BlackRock’s announcement:
Did BlackRock bury the lede? Consider the following fine print: “BlackRock will determine eligibility criteria under this program based upon . . . financial considerations, including the decision to lend securities.” In an era of rock-bottom management fees, lending shares to short sellers is an important source of revenue for the fund industry. The message is clear: For BlackRock, shareholder empowerment only goes so far. When the price is right, BlackRock will trade away its clients’ votes for short sellers’ cash.
Check out Liz’s recent post on our “Proxy Season Blog” for more on this aspect of BlackRock’s voting policy change.
Digital assets are becoming an increasingly popular investment for public companies. But once you buy them, you need to account for them properly – and this FEI Daily blog says that involves fitting a square peg into a round hole:
Since there are no Generally Accepted Accounting Principles (GAAP) in the United States specific to digital assets, a company that invests in digital assets may end up applying accounting guidance that was not written with digital assets in mind. Many popular digital assets, including Bitcoin, Bitcoin Cash, Litecoin and Ethereum, inherently provide no contractual rights to cash or other assets to the holder. Unlike investment companies or broker-dealers that qualify for specialized accounting, operating companies transacting for the first time need to apply other standards to account for digital asset investments. Cryptocurrencies such as Bitcoin would typically be accounted for as indefinite-lived intangible assets under U.S. GAAP.
Often, rather than taking direct responsibility for securing private keys associated with digital assets, companies may involve a third party, such as an exchange or custodian. Involvements with third parties require an additional level of analysis to understand whether a company owns the digital assets (and they are just being custodied by the third party on the company’s behalf) or whether instead the company has a contractual receivable or other right from the third party that is tied to the value of a digital asset but does not represent current ownership of the digital asset itself. This analysis should involve an evaluation of the contractual agreement(s) between the company and the third party, as well as relevant laws, regulations and legal precedents. The form of the interest can impact the accounting.
Because of the complexities associated with these investments, the blog recommends companies pay close attention to the corporate governance, accounting and internal controls issues associated with them, and offers some specific suggestions on each of these topics.
Since the existing rules are so opaque, it isn’t surprising that the WSJ recently reported that companies are asking FASB to step in and provide additional clarity on how to account for digital assets.
Yesterday, the SEC announced that it had adopted rules designed to modernize the filing fee process. Those fees are required for registered offerings, tender offers, and M&A filings. Here’s the surprisingly lengthy 432-page adopting release, and here’s the SEC’s one-page fact sheet. (Guess which one I read.) This excerpt from the SEC’s press release summarizes the changes:
The amendments revise most fee-bearing forms, schedules, and related rules to require companies and funds to include all required information for filing fee calculation in a structured format. The amendments also add new options for Automated Clearing House (ACH) and debit and credit card payment of filing fees and eliminate infrequently used options for filing fee payment via paper checks and money orders. The amendments are intended to improve filing fee preparation and payment processing by facilitating both enhanced validation through filing fee structuring and lower-cost, easily routable payments through the ACH payment option.
That “structured format” for the filing fee calculation that the press release refers to will take the form of a separate IXBRL exhibit to be included with the filings. As SEC Chair Gary Gensler noted in his supporting statement, the transition to a structured data format will enable the SEC to automatically detect errors and calculate fee amounts.
It’s worth noting that this rule was adopted by a unanimous, 5-0 vote – which is something we haven’t seen in a long time. Anyway, the new rules become effective on January 31, 2022, and companies will no longer be permitted to pay filing fees via checks and money orders effective on May 31, 2022.
Today is the second day of our “Proxy Disclosure Conference” – tomorrow is our “18th Annual Executive Compensation Conference.” Here’s more info:
– How to Attend: Once you log in to the Conference Platform, follow the agenda tab to enter sessions and add them to your calendar. All sessions are shown in Eastern Time – so you will need to adjust accordingly if you’re in a different time zone. Here’s today’s agenda. If you have any questions about accessing the conference, please contact Victoria Newton at VNewton@CCRcorp.com.
– How to View Archives & Transcripts: Members of TheCorporateCounsel.net or CompensationStandards.com who have registered for the Conferences will be able to access the conference archives on these sites using their existing login credentials beginning about a week after the event, and unedited transcripts will be available to these members on TheCorporateCounsel.net and CompensationStandards.com beginning about 2-3 weeks after the event. If you’ve registered for the conferences through CCRcorp but are not a member, we will send login information to access the conference footage and transcripts on TheCorporateCounsel.net or CompensationStandards.com.
If you registered for the conferences through NASPP, you will receive access to the video archives from NASPP.
– How to Earn CLE Online: Please read these “CLE FAQs” carefully to confirm that your jurisdiction allows CLE credit for online programs. You will need to respond to periodic prompts every 15-20 minutes during the conference to attest that you are present. After the conference, you will receive an email with a link. Please complete the link with your state license information. Our CLE provider will process CLE credits to your state bar and also send a CLE certificate to your attention within 30 days of the conference.
Over on “Radical Compliance,” Matt Kelly recently blogged about Gurbir Grewal’s first speech as Director of the SEC’s Division of Enforcement, and he says Grewal signaled that the agency will take a harder line on penalties under his leadership:
The SEC’s new director of enforcement delivered his first speech this week, where he outlined a more aggressive use of monetary penalties to deter corporate misconduct and how the SEC will evaluate cooperation and other factors while deciding how large of a penalty to impose.
The speech came from Gurbir Grewal, who took over as head of the Enforcement Division at the end of June. He spoke Thursday at a forum hosted by the Practising Law Institute that nominally was about broker-dealer issues, but Grewal’s remarks on the SEC’s penalty policy are worth any compliance professional’s attention.
The bottom line: Grewal, like other senior officials at the agency, wants to see penalties actually deter corporate misconduct — which could well mean larger penalties than we’ve seen before. “As we evaluate relevant penalty factors, we will also be closely assessing whether prior penalties have been sufficient to generally deter the misconduct at issue,” Grewal said. “Where they have not been, you can expect to see us seek larger penalties, both in settlement negotiations and, if necessary, in litigation.”
The blog points out that Grewal’s comments echo those of Commissioner Caroline Crenshaw, who earlier this year called for the SEC to change its approach to monetary penalties in enforcement proceedings. Grewal also spoke at “The SEC Speaks” conference earlier this week, where he mostly said the same things that every newly appointed Director of Enforcement says. However, this part of his speech jumped out at me:
When it comes to accountability, few things rival the magnitude of wrongdoers admitting that they broke the law, and so, in an era of diminished trust, we will, in appropriate circumstances, be requiring admissions in cases where heightened accountability and acceptance of responsibility are in the public interest. Admissions, given their attention-getting nature, also serve as a clarion call to other market participants to stamp out and self-report the misconduct to the extent it is occurring in their firm.
That suggests that the SEC may seek admissions of misconduct as part of settlements more frequently than in the past. It will be interesting to see how that plays out, because I think that some companies who’d be willing to throw an officer or two under the bus as part of a “neither admit nor deny” settlement may be more inclined to force the SEC to litigate if admissions are going to be required.
Speaking of enforcement, we’ve blogged several times about the SEC’s EPS Initiative – here’s a recent one from Liz – and now, the WSJ has taken notice as well. Sometimes, it’s hard to believe this blog is free, isn’t it?
Today and tomorrow is our “Proxy Disclosure Conference” – Friday is our “18th Annual Executive Compensation Conference.” Here are the agendas: 17 substantive panels over 3 days – plus an interview with Renee Jones, the new Director of the SEC’s Division of Corporation Finance. Check out the speaker videos to see what has our speakers excited about this year’s conference. Here’s more info:
– How to Attend: Once you log in to the Conference Platform, follow the agenda tab to enter sessions and add them to your calendar. All sessions are shown in Eastern Time – so you will need to adjust accordingly if you’re in a different time zone. Here’s today’s agenda. If you have any questions about accessing the conference, please contact Victoria Newton at VNewton@CCRcorp.com.
– How to View Archives & Transcripts: Members of TheCorporateCounsel.net or CompensationStandards.com who register for the Conferences will be able to access the conference archives on these sites using their existing login credentials beginning about a week after the event, and unedited transcripts will be available to these members on TheCorporateCounsel.net and CompensationStandards.com beginning about 2-3 weeks after the event. If you’ve registered for the conferences through CCRcorp but are not a member, we will send login information to access the conference footage and transcripts on TheCorporateCounsel.net or CompensationStandards.com.
If you registered for the conferences through NASPP, you will receive access to the video archives from NASPP.
– How to Earn CLE Online: Please read these “CLE FAQs” carefully to confirm that your jurisdiction allows CLE credit for online programs. You will need to respond to periodic prompts every 15-20 minutes during the conference to attest that you are present. After the conference, you will receive an email with a link. Please complete the link with your state license information. Our CLE provider will process CLE credits to your state bar and also send a CLE certificate to your attention within 30 days of the conference.
You may have noticed a conspicuous absence in the list of speakers for this year’s Conference. Yes, you can look high and low, but you won’t find me anywhere. When I saw that I didn’t make the cut, my immediate reaction was that – like Fredo Corleone – I had been “stepped over.” However, when I approached our management team, they assured me that wasn’t the case, and suggested that I should think of myself as Michael Collins, not Fredo Corleone.
Management also assured me that I would have a prominent role in our upcoming webcasts and podcasts. I don’t want to brag, but they went out of their way to tell me that I have the perfect “face for radio.” You know, not everybody can say that! Anyway, everyone was very appreciative of my willingness to hold down the fort here this week while they were busy with the Conference. Liz even gave me her Netflix password so I could watch “Squid Game” while she was gone.
The September-October issue of “The Corporate Counsel” newsletter is in the mail. It’s also available now online to members of TheCorporateCounsel.net who subscribe to the electronic format – an option that many people are taking advantage of in the “remote work” environment (subscribe here to be “in the know”). The issue includes articles on:
– Test Driving Testing the Waters
– Staff Comments on Non-GAAP Financials: The 2021 Edition
Dave & I also have been doing a series of “Deep Dive with Dave” podcasts addressing the topics we’ve covered in recent issues. We’ll be posting one for this issue soon. Be sure to check it out on our “Podcasts” page!
The Delaware Chancery Court’s decision in the Boeing case is the latest in a series of cases suggesting that, as Liz put it in a recent blog, we’re in an era of “easier” Caremark claims. Whatever else that may mean, in this environment, it’s pretty clear that directors need to keep their heads on a swivel when it comes to identifying potential sources of alleged breaches of their duties of oversight. This Directors & Boards article identifies one such area – compliance with COVID-19 mandates. Here’s an excerpt:
On Sept. 9, President Joe Biden announced his six-pronged COVID-19 Action Plan, which will have a significant impact on employers across the country by mandating vaccinations for many employees and requiring regular testing of certain others. Although key details are unknown at the time of this writing, the plan will have a significant impact on many private sector employers, particularly companies that contract with the federal government, those that receive Medicare or Medicaid reimbursement and, most sweepingly, companies with 100 or more employees.
The rule applicable to employers of more than 100 individuals is being developed by OSHA now and, once issued via temporary standard, will require these companies to ensure that their staff is fully vaccinated against or tested weekly for the COVID virus. Employees who are not vaccinated will have to show proof of a negative virus test before reporting to work. The White House estimates this requirement will impact over 80 million workers.
OSHA is seeking to issue its new rule initially pursuant to rarely used emergency authority that it may exercise only where there is evidence of “grave danger from exposure to … agents determined to be toxic or physically harmful or from new hazards.” This basis for the regulation will almost certainly be challenged in court, but in the meantime, it sets forth an unambiguous statement of the importance of a vaccine requirement for employee safety.
Although the COVID-19 Action Plan includes frequent testing as an alternative to vaccination, boards may justifiably be concerned that if the company fails to comply with the regulations, this response could be second-guessed in lawsuits brought alleging that the board’s response reflected inadequate oversight of the “grave danger” to employee (and possibly customer) safety posed by COVID-19. Even if the board requires compliance but relies primarily on testing and not by mandating employee vaccinations, this could possibly still be alleged to be an inadequate response to the risk.
Putting the vaccine mandate aside, the article notes that boards will have a tough time in the current environment arguing that addressing the employee safety risks posed by the pandemic isn’t the kind of essential and mission critical function that triggers a duty to actively oversee the company’s response. That means the company’s overall response to the pandemic, and not just to the COVID-19 Action Plan, needs to be carefully considered and appropriately documented.