Last May, I blogged about the rebound in stock buybacks during the 1st quarter of 2021. This S&P Global article says that among the S&P 500 at least, buybacks haven’t just rebounded – they’ve blasted off. According to the article, S&P 500 companies repurchased $234.6 billion of stock in the 3rd quarter. Not only does that that represents a 130% increase over the 3rd quarter of 2020, and an 18% increase over from the 2nd quarter of 2021, but it also shatters the old record for buybacks of $223 billion that was set during the 4th quarter of 2018. Here are some additional data points from the article:
– 309 companies reported buybacks of at least $5 million for the quarter, up from 294 in Q2 2021, and up from 190 in Q3 2020; 371 issues did some buybacks for the quarter, up from 360 in Q2 2020 and up from 290 in Q3 2020.
– Buybacks remained top heavy with the top 20 issues accounting for 53.8% of Q3 2021 buybacks, down from Q2 2021’s 55.7%, down from the dominating 77.4% in Q3 2020, and up from the pre-COVID historical average of 44.5%.
– For the 12-month September 2021 period, buybacks were $742.2 billion, a 21.8% increase from $609.4 billion in the 12-month June 2021 period, and up 30.0% from $570.8 billion in the 12-month September 2020 period.
The article also expects robust buyback activity among the S&P 500 to continue during the 4th quarter, as company use repurchases to fund equity comp plan obligations.
Over on The D&O Diary, Kevin LaCroix recently reported some good news for public companies – federal securities class action suits declined sharply last year. Here’s an excerpt with the numbers:
According to my tally, there were 210 federal court securities class action lawsuits filed in 2021, representing a 34% decline from the 320 federal court securities suit filings in 2020. (Please note that these figures reflect only federal court securities class action lawsuit filings; the filing numbers do not include state court securities class action lawsuit filings during the year.)
The 2021 securities suit filing numbers represents an even more dramatic decline compared to the annual average number of lawsuits filed during the 2017-2019 period, a period during which the number of securities lawsuits surged. The annual average number of securities suit filings during the 2017-2019 period was 405; the 210 securities suit filings in 2021 represents a decline of about 48% compared to the elevated annual average level of filings during that recent period.
Kevin says that the biggest factor in the decline in filings last year was the decline in the number of federal court merger objection class action lawsuits. Only 18 federal court merger objection class action lawsuits were filed in 2021, compared to 102 the prior year. He also cautions that the drop in merger objection filings doesn’t mean that those suits aren’t being filed, just that they’re not being filed as class actions. But even after backing out the effect of merger objection lawsuits, traditional securities class action filings during 2021 still dropped by 11.9% decline from 2020.
With corporate boards facing increasing pressure to improve diversity, this WSJ article says that training programs aimed at expanding the pool of potential director candidates are proliferating:
Law firms, universities and current directors of companies have launched new or expanded programs over the past few years to coach prospective board candidates, offering training on topics from corporate governance to committee work. Some programs are free or sponsored by companies, while others can cost thousands of dollars.
Sponsors are hoping to broaden the pool of people who are ready to fill board roles beyond former chief executives to other qualified business leaders. They also can match candidates with board openings, as companies’ boards are still largely white and male with roles often filled through professional networks of existing directors.
The article mentions a number of specific training programs, and a brief Google search led me to websites for Harvard’s program and Berkeley’s program. Neither of these are cheap – Harvard runs a one-week course that will set you back $5,500, while Berkeley’s program runs for nine months and costs $6,995. The article also discusses the NACD’s Accelerate program, which is a two-year training program that costs $5,700.
If you’re interested in seeing what other training programs are available, check out UNC Law School’s Director Diversity Initiative, which has an extensive list of organizations that promote board diversity and offer training programs for prospective directors.
The Minority Corporate Counsel Association recently released its annual report on law firm diversity, and the results aren’t terribly inspiring. Here’s an excerpt from the summary:
In assessing a decade of law firm employee demographics across more than 200 firms representing most of the AmLaw100 and the NLJ250, we found an increase in the overall share of working attorneys identifying as members of underrepresented racial and ethnic groups including multiracial, from 14% in 2010 to 20% in 2020. In 2020, 89% of partners across surveyed U.S. laws firms identified as White/Caucasian, down from over 93% in 2010. Meanwhile, representation of historically underrepresented racial and ethnic groups improved more noticeably among summer associates (from 28% in 2010 to 36% in 2020) and associates (from 21% in 2010 to 28% in 2020).
This minimal progress did not boost representation for all underrepresented racial and ethnic groups. While the share of Asian, Hispanic or Latinx, and multiracial attorneys at firms increased slightly between 2010 and 2020, there was no change in the share of associates and partners who are African American or Black. And surveyed firms reported having very few Indigenous and Native Hawaiian or Pacific Islander attorneys.
Gender disparities in representation also persist at law firms, as does low representation of other historically underrepresented groups. About 39% of all attorneys at surveyed firms are women, including 48% of associates but just 26% of partners. This year, MCCA collected data on attorneys who identify as non-binary and military veterans. In 2020, firms reported that attorneys who identified as follows: non-binary (0%), LGBTQ (4%), military veterans (less than 2%), or as having a disability (1%).
The survey notes that the problem isn’t just getting people in the door at law firms, it’s keeping them there. For instance, the survey reports that while 36% of summer associates who received full time offers were from underrepresented groups, 32% of departing associates came from those groups.
Despite the glacial rate of progress on the partnership front and the associate retention challenges that firms face, my own anecdotal experience suggests that there’s reason for optimism on law firm diversity – if for no other reason than clients have made it crystal clear that it matters to them. As a result, more and more firms are committing to initiatives like the Mansfield Rule certification process, which requires law firms to focus not just on diversity in hiring, but in ensuring that lawyers from underrepresented groups are provided advancement opportunities as well.
If you visit the litigation releases page on the SEC’s website, you’ll come away with the impression that the agency has a better record in the courts than the Harlem Globetrotters have on the court. The SEC has an impressive litigation track record, but it does lose one every now and again – including a recent high-profile defeat in an insider trading case.
You’re unlikely to find anything about this or any other SEC loss in an enforcement proceeding on its website, because the agency rarely makes a public statement about its losses. Former SEC Assistant Director of Enforcement Russ Ryan says that’s not right:
In this June 2013 Wall Street Journal op-ed titled “Mum’s the Word About SEC Defeats,” I called out the SEC for its troubling refusal to update its website when it loses or dismisses an enforcement case that it previously touted. After all, I argued, the agency routinely splashes its incendiary allegations of wrongdoing across its website and social media platforms upon filing a case – before it has proved anything – thereby instantaneously damaging the reputation and employability of the accused (and potentially tainting any future jury pool). And in cases it ultimately wins at trial, the agency typically posts a self-congratulatory announcement within hours of the verdict.
Is it too much to expect the SEC to do likewise when it loses or dismisses a case?
Of course not. It’s a matter of basic fairness and transparency. And given how infrequently the SEC loses a contested case, it’s not a heavy lift. The agency could simply post a short public statement acknowledging the outcome of the case and, better still, affix an electronic “sticker” to its previous postings about the case. Indeed, shortly after my “Mum’s the Word” op-ed appeared, the SEC actually started doing this type of thing, although the practice was inconsistently followed and the updates – when they appeared at all – sometimes weren’t posted until weeks or even months after the fact.
I think Russ Ryan makes a very solid point. We aren’t talking about the Globetrotters here, but a government agency charged with developing, implementing and overseeing disclosure standards for public companies and other market participants. They ask a lot of those they regulate, and it’s not too much to ask that they adhere to high standards of transparency when it comes to their own activities.
According to EY’s recent Global IPO Trends Report, 2021 turned out to be another terrific year for IPOs. The report says that 2021 was the most active year for US IPOs in the past 20 years, but this excerpt says that the IPO bonanza wasn’t limited to the US. Here are some of the year’s highlights, according to EY’s report:
– Year-over-year (YOY), global IPO activity was up 64% and 67% by deal numbers and proceeds, respectively. EMEIA exchanges recorded the highest growth in IPO activity among all regions (158% by number and 214% by proceeds), which reflects the pent-up demand held back as the European markets navigated Brexit and other geopolitical factors. The US continues to play a dominant role in driving this record global IPO year, while the contribution from Asia-Pacific has been steady but relatively modest as compared to 2020.
– Initial optimism on the COVID-19 vaccine rollout, rebound of global economies from their sharp declines in 2020, and ample liquidity in the financial system from government stimulus programs were among the key drivers of exceptional IPO activity in 2021. Technology-enabled, user-friendly trading platforms helped to attract new groups of retail investors. The buoyant stock markets in the US and parts of Europe, and companies wanting to take advantage of the open window, all contributed to the record IPO performance in 2021.
Despite all the good news, there are some storm clouds on the horizon. As the WSJ reported last week, there’s been a big selloff of new issues in recent weeks, and more than 2/3rds of last year’s IPOs now trading below their initial offering prices. The WSJ attributes the selloff to inflation concerns and a potential oversupply of new issues. EY’s report notes that 2022 IPOs will confront a “combination of geopolitical tensions, inflation risks, and new waves and variants of the ongoing COVID-19 pandemic that hamper full economic recovery.”
Still, EY says that despite these challenges, “relatively higher valuations and market liquidity are keeping the IPO window open” – at least for now. But it also says that companies considering an IPO are likely to face greater volatility, and that they need to be flexible and have financing alternatives available to them.
EY’s report notes that while SPAC IPOs contracted sharply during the second quarter of 2021, they rebounded toward the end of the year. Overall, the number of SPAC IPOs increased by 136% and the proceeds from those offerings increased by 97%. But SPACs face ever-increasing regulatory headwinds, and according to this Forbes article, they’re also having increasing trouble getting their de-SPAC mergers done:
In total, some 17 SPAC mergers, valued at a collective $37.2 billion, have been terminated during the final six months of 2021, compared to four worth $720 million during the six months prior, according to data provided to Forbes by financial data firm Dealogic. Just seven SPAC deals were terminated in 2020. A slew of others have been delayed into next year, a sign that they may fall through as well, says Jay Ritter, a professor at the University of Florida who specializes in IPOs.
SPACs have proven to be more resilient than I thought they’d be, but it’s hard to see how they aren’t in for some tough sledding during the upcoming year.
It turns out that 2021 wasn’t just a banner year for IPOs, but a banner year for IPOs with dual class capital structures. This analysis covering 1980-2021 dual class IPOs says that nearly 32% of last year’s issuers had at least two classes of stock. That’s a record, and represents a huge jump from 2020, where only 20% of deals had dual class structures. Not surprisingly, it’s the tech sector that’s leading the charge – over 46% of 2021’s tech IPOs had these capital structures.
One of Karl Marx’s most famous quotes comes fromThe 18th Brumaire of Louis Napoleon, in which the father of modern socialism & failed game show contestant wrote that historical entities appear twice, “first as tragedy, then as farce.” I thought of that quote when I read this article about the rebirth of former consumer tech & electronics retailer RadioShack as – I’m not kidding – a cryptocurrency company. This excerpt says that RadioShack’s bizarre reincarnation is based on the supposed continuing power of its brand:
Although the RadioShack electronics retail chain essentially crumbled following bankruptcy filings in 2015 and 2017, the name has survived for 100 years. In a bid to make RadioShack relevant for another 100 years, the brand’s new owner is making a play for one of the hottest, and most controversial, emerging business sectors in the world — cryptocurrency.
Seeking to capitalize on RadioShack’s global brand name, Miami-based owner Retail Ecommerce Ventures is propelling RadioShack (once based in Fort Worth) into the promising yet murky territory of cryptocurrency. Cryptocurrency is digital currency built on a technology platform known as blockchain; bitcoin is perhaps the best-known type of cryptocurrency. In November, the size of the global cryptocurrency market surpassed $3 trillion.
I wasn’t making the connection between RadioShack’s brand & cryptocurrency success, so I visited the website in search of some more information. I found plenty of it, but nothing that altered my first impression that the idea of leveraging RadioShack’s brand in the crypto space is a stretch. Here’s an excerpt from the RadioShack website’s explanation of the thinking behind this grand strategy:
Despite its pullback in the last 10 years, the brand is resolutely embedded in the global consciousness – ripe to be pivoted to lead the way for blockchain tech to mainstream adoption by other large brands. Remember, there is a real generational gap between the average crypto buyer (in some countries like India, it’s as low as age 24) and the average corporate, decision making, global CEO who averages age 68.
This demographic difference creates a substantial psychological barrier to crypto adoption. The older generation simply doesn’t trust the new-fangled ideas of the Bitcoin youth. Even worse, research finds that adults who are especially authoritarian, intelligent, and well-read (i.e. the CEO’s that RadioShack seeks to woo), have an even lower estimation of the younger age bracket.
The need for a bridge between the CEOs who control the world’s corporations and the new world of cryptocurrencies will most likely come in the form of a well-known, century-old brand.
RadioShack is perfect.
Perfect for what you ask? Well, the article explains that the concept is to get folks to exchange other cryptocurrencies for a new RADIO cryptocurrency token on RadioShack’s decentralized finance platform. The rest of the RadioShack’s new website tries to explain the business plan, but it does so by using the kind of now familiar crypto gibberish that just screams “run away!” to a Luddite like me. Here’s a representative sample:
The overall tokenomics philosophy follows the proprietary Nash-Equilibrium Token Defense (NETD) formula that was originally developed for the Atlas USV protocol by the common co-founders of Atlas USV and RadioShack DeFi
I suspect this kind of language may have the same off-putting effect on the company’s target audience – i.e., 68-year-old CEOs who run the world – that it had on me. Those old guys have nearly a decade on me, so if I can’t make heads or tails of why this is such a great idea, my guess is that they aren’t going to get it either.
According to a recent Audit Analytics report, 2020 saw the lowest percentage of financial restatement disclosures (Big R & Little r) in the 20 years that Audit Analytics has been monitoring those disclosures. The report says that restatements have been declining for each of the past six years. In 2020, just 4.9% of companies restated previous financial statements, compared to 6.8% in 2019 and 17.0% at the peak in 2006. This excerpt discusses the most common reasons for restatements last year:
Revenue recognition was the most frequently cited issue in financial restatements for the third year in a row. Coinciding with the new revenue recognition standard that became effective in 2018, revenue recognition supplanted debt and equity securities issues as the most frequently cited issue in financial restatements.
The second most frequently cited issue of 2019 – cash flow classification – fell outside the top five in 2020. Cash flow classification had been a top-five issue every year since 2008. This was replaced by general expense recognition, which returned to the top five for the first time since 2016.
Debt and equity securities, liability and accrual recognition, and tax matters round out the top five most frequently cited issues in 2020’s financial restatements. Debt and equity securities and tax matters have each been among the top five issues for at least the past decade. Liability and accrual recognition has been among the top five since 2017.
The report includes a bunch of other details about 2020 restatements, included the mix between reissuance (Big R) and revision (Little r) restatements, the average length of time required to restate financials and the average days restated. It’s pretty much a sure thing that next year’s report is going to look very different from this year’s – as a result of the multiple rounds of SPAC restatements occurring this year, Audit Analytics expects a record number of disclosed restatements in 2021.