Monthly Archives: June 2022

June 24, 2022

Earnings Calls: Study Says Analysts More Aggressive in Questioning Female CEOs

Dealing with analysts in an earnings call can sometimes be a challenging and even somewhat confrontational process for any CEO, but a recent study cited in an IR Magazine article says that male securities analysts are much tougher in their questioning of female CEOs than they are of their male counterparts.  This excerpt from the article discusses the study’s findings and some of their implications:

Analyzing transcripts of 39,209 earnings conference calls, including with Apple, Microsoft and Facebook, we found that male analysts’ questions to CEOs were more aggressive than those of female analysts and that this contrast doubled when the CEO was female. We also found that when male analysts challenged female CEOs, they were more aggressive than when questioning men.

Our findings lay bare yet another challenge female leaders face in the workplace, and with workplace gender diversity linked to everything from increased productivity to improved performance, staff retention and collaboration throughout a business, the ramifications are enormous.

The findings are of particular relevance to the finance industry and investors, as the way analysts ask questions sends signals to the capital markets. When investors following earnings conference calls witness analysts asking verbally aggressive questions, it could signal to them that the analysts are not happy with a company’s performance.

The study’s authors say that its findings are a classic example of ‘in-group bias’, a psychological theory that says we give preferential treatment to those we regard as belonging to the same group as us. This theory suggests that male securities analysts question female CEOs more aggressively because they see them as outsiders and a threat to their sense of identity and self-esteem.

John Jenkins

June 24, 2022

SEC Enforcement: “Accountants-at-Law”?

Earlier this month, the SEC brought enforcement proceedings against Synchronoss Technologies & certain of its senior officers arising out of alleged accounting improprieties. The officers targeted by the SEC included the company’s former General Counsel. The charges against the GC are worth noting, because I think they reflect a perception within the Division of Enforcement that public company lawyers have greater expertise in accounting matters than most actually do.

The enforcement proceedings were based on allegations that the company improperly recognized revenue on multiple transactions and misled the company’s auditors about those transactions. The former GC was tagged for his role in allegedly causing the violations, and consented to a “neither admit nor deny” settlement under the terms of which agreed to a $25,000 civil penalty & accepted an 18 month suspension of his right to practice before the SEC. How did he get himself in hot water? The SEC’s complaint points to the following alleged actions:

– The GC knew about a billing dispute with a customer during which the customer told the company that an email on which the company had relied in booking revenue for a particular transaction did not reflect a “commitment by [Customer A] to acquire the software” and also knew about subsequent communications from the customer stating that it had not committed to purchase the software.

– The GC attended and prepared minutes for an audit committee meeting at which the CFO discussed the billing dispute with the committee and the company’s auditor, but the SEC alleged that neither the CFO nor the GC shared with the auditor the “fact or substance” of the communications from the customer, which it contended were contrary to representations made by the CFO to the auditor about the collectability of the receivable under GAAP.

– The SEC also found fault with the GC for not disclosing information to the company’s auditor that he “knew or should have known” that an acquisition was contingent upon the company’s sale of a license to an affiliate of the seller, and that the alleged patent infringement claim that license agreement was purportedly used to settle wasn’t asserted by the company until after it approached the seller to discuss the acquisition. The SEC said that these facts would have been material to the proper accounting treatment of the license fee under GAAP, and that the GC’s reps to the auditors were misleading because they made the two transactions appear separate from each other.

The SEC’s allegations that the lawyer made potentially misleading reps to the auditor about the second transaction don’t cause me a lot of heartburn, but those relating to his largely passive role in the first transaction are more troubling. That’s because under similar circumstances, I believe that many GCs would act in a similar manner.

I think most lawyers would defer to the CFO when it comes to providing auditors with information about accounting matters. There’s a good reason for this deference – most lawyers don’t have the technical expertise to reliably discern when particular statements or omissions by a CFO about a transaction might raise accounting red flags. It’s reasonable to assume that a trained accountant would pick up on how a CFO’s statements might lead auditors astray when it comes to GAAP, but I don’t think the same assumption necessarily applies to a lawyer.

This enforcement action is a reminder that lawyers need to act with extreme caution whenever they communicate – or are party to others’ communications – with auditors about something that might implicate financial reporting. But the action also appears to be premised, at least in part, on assumptions by the Division of Enforcement about lawyers’ expertise in identifying potential accounting red flags that I don’t think are usually justified.

John Jenkins

June 24, 2022

Whistleblowers: SEC Brings Action Based on Confidentiality Agreement Terms

A few years ago, the SEC brought a handful of enforcement actions targeting confidentiality provisions in employee agreements that didn’t include provisions expressly permitting the employees bound by those provisions from reporting allegations of misconduct to the SEC.  There hasn’t been a lot of activity on that front in recent years, but that changed earlier this week when the SEC announced an enforcement action against Brink’s based on an overly restrictive confidentiality agreement that included an aggressive liquidated damages provision.  Here’s an excerpt from the SEC’s announcement:

The SEC’s order finds that, from at least April 2015 through April 2019, Brinks used an employee confidentiality agreement that prohibited employees from disclosing confidential company information to any third party without the prior written approval of Brinks. According to the SEC’s order, the confidentiality agreement threatened current and former employees with liquidated damages and legal fees if they failed to notify the company prior to disclosing any financial or business information to third parties.

According to the order, the confidentiality agreement did not provide an exemption for potential SEC whistleblowers. The SEC’s order finds that, in 2015, shortly after the SEC had instituted its initial whistleblower protection action, Brinks modified its employee confidentiality agreement by adding a $75,000 liquidated damages provision for violations of the agreement.

The company consented to consented to the issuance of an order finding that it violated Rule 21F-17(a) of the Securities Exchange Act of 1934 and ordering it to cease & desist from future violations. The company also agreed to pay a $400,000 penalty and to comply with certain undertakings, including modifying its employment agreements to make it clear that employees were not prohibited from dropping a dime on the company to the SEC “or any other federal, state, or local governmental regulatory or law enforcement agency.”

In a statement, Commissioner Peirce objected to the requirement that the company modify its employment agreements to permit employees to report alleged misconduct to governmental or law enforcement authorities in addition to the SEC. She said that the SEC “plainly lacks statutory authority to impose such a broad requirement, and Rule 21F-17 does not purport to assert such authority” and noted that just because a company agreed to particularly broad language as part of a settlement shouldn’t be construed as an indication that other companies need to use the same or similar language.

John Jenkins

June 23, 2022

Reg Flex Agenda Hints at Timing of SEC Action on Rule Proposals

Many of our members have asked about when the SEC might act on the many pending rule proposals it has offered up in the past several months.  Yesterday, the SEC announced the issuance of the latest edition of the agency’s Reg Flex Agenda yesterday, and that document provides some clues.  The Reg Flex Agenda lays out the following dates by which final action is targeted on some of the agency’s more consequential rule proposals:

Clawback Listing Standards – October 2022

Climate Change Disclosure – October 2022

Pay v. Performance Disclosure – October 2022

Proxy Voting Advice – October 2022

Share Repurchase Disclosure Modernization – October 2022

Cybersecurity Risk Governance – April 2023

Modernization of Beneficial Ownership Reporting – April 2023

Rule 10b5-1 & Insider Trading – April 2023

These dates may or may not bear any relationship to reality, but in light of Commissioner Peirce’s statement that, with the latest edition of the agenda, the SEC has “abandoned our careful and considered approach to altering regulation in favor of effecting hasty and sweeping change,” it sure looks like at least one commissioner thinks that they do. If so, we’re in for an avalanche of rulemaking between now and September 30 when the SEC’s fiscal year ends – and the pace doesn’t appear set to slow in fiscal 2023 either.

Be sure to check out the whole agenda – in addition to rules on which final action is expected, there are plenty of new rule proposals that may be rolled out in the upcoming months, including one on Human Capital Management that’s expected by fiscal year end. With this unprecedent volume of SEC rulemaking on the horizon, you can’t afford to miss our “Proxy Disclosure & 19th Annual Executive Compensation Conferences” this year.  We already have expert panels lined up to address many of these rulemaking initiatives – and you can count on our panelists to address whatever else the SEC throws our way between now and then!

John Jenkins

June 23, 2022

EGCs: Status of Revenue Cap Adjustment?

While we’re on the topic of action-packed regulatory agendas, I’m beginning to wonder if the five-year inflation adjustment to the JOBS Act’s emerging growth company revenue cap may have gotten lost in the rulemaking shuffle? As a reminder, the JOBS Act requires the SEC every five years to index to inflation the annual gross revenue amount used to determine EGC status in order to reflect changes in the Consumer Price Index.

The last adjustment was made in April 2017 and coincided almost exactly with the fifth anniversary of the JOBS Act. We recently celebrated the statute’s 10th anniversary, but the SEC hasn’t announced the inflation adjustment yet. This isn’t a crisis for most companies, but as Liz blogged early last month, people are keeping an eye out for the updated cap number.

John Jenkins

June 23, 2022

Financial Reporting: Out-of-Period Adjustments Hit New Low

When an error in a company’s financial statements is clearly immaterial to both the current and prior period, it may be addressed through an out-of-period adjustment, in which the error is corrected in the current period’s financial statements. This Audit Analytics blog says that out-of-period adjustments in 2021 declined by 17% over 2020, continuing a trend that began in 2016. This excerpt suggests that, when coupled with a decline in the percentage of companies that issued an adjustment, the trend says some good things about the quality of financial reporting:

The percentage of companies that issued an adjustment also fell to a new low. This percentage is evidence that the decline is not due to a shrinking population of public companies. The declining frequency of adjustments combined with the declining frequency of restatements, excluding 2021 SPAC restatements, suggests that the quality of financial reporting has been improving.

The one discordant note to this otherwise upbeat conclusion is the fact that 67% of last year’s out-of-period adjustments were negative, which means that prior period errors were twice as likely to overstate results as they were to understate them. However, the percentage of negative adjustments had crept up consistently over the past several years, reaching a peak of 80% in 2020 – which means that 2021’s results represent a significant improvement.

John Jenkins

June 22, 2022

SEC’s Climate Disclosure Proposals: Impact on Private Companies

If you’re a private company that’s part of public company value chains, you may well find yourself confronting some pretty significant – and costly – challenges imposed on you by virtue of those public companies’ need to comply with the SEC’s proposed “Scope 3” GHG emissions disclosure requirements. Scope 3 emissions include all indirect GHG emissions occurring in the upstream and downstream activities of a company’s value chain, and in case you’re wondering where public companies will look to get that kind of information, this CFO Dive article says that you need wonder no longer:

“If the private company is within the value chain, upwards or downwards, of a company that has to provide the Scope 3 metric in their report, they will be asked to help provide that information,” says Julie Rizzo, a partner in the capital markets group of K&L Gates. “They’ll roll up into that company’s Scope 3 emissions that have to go into their SEC reporting.”

Scope 3 refers to greenhouse gas emissions from companies that help a covered company make money, either by being part of its supply chain or providing other value-added services. And whether or not they are subject to SEC reporting requirements themselves, they are expected to cooperate with the covered company. That means measuring and sharing the emissions that stem from their work for that company.

“So, you’re going to have companies that aren’t necessarily thinking that they would be covered by this rule having to provide information to companies that need to provide that information,” Rizzo told Legal Dive.

Opponents of the SEC’s proposals have highlighted the potential impact of the Scope 3 emissions disclosure requirement on private companies. However, supporters discount those concerns. For example, this recent comment letter from group of Senate Democrats (see p. 5) contends that that, among other things, the requirement to provide Scope 1 and Scope 2 information will make the process of obtaining Scope 3 information – which won’t be required until a year later – easier for all parties. In addition, the signatories to that letter argue that a public company’s ability under the proposed rules to use an EPA-published emission factor in its calculations in the absence of activity data will help “some privately held companies with data collection challenges, like small family farm operations, that supply registrants responsible for Scope 3 disclosures.”

John Jenkins

June 22, 2022

SEC’s Climate Disclosure Proposals: Expand Attestation to Scope 3 Emissions Data?

While the SEC’s Scope 3 emissions disclosure proposal has its detractors, there are also some who want to see the proposed Scope 3 disclosure requirement enhanced.  Fans of Scope 3 disclosure include SEC commissioners Lee & Crenshaw, who recently expressed a desire to see the proposed attestation requirement that would apply to Scope 1 & 2 disclosures extend to Scope 3 as well. Here’s an excerpt from Cydney Posner’s recent blog:

While the proposed requirement to disclose material Scope 3 greenhouse gas emissions seems to be one of the most contentious—if not the most contentious—element of the SEC’s climate disclosure proposal (see this PubCo post and this PubCo post), two of the SEC’s Democratic Commissioners, Allison Herren Lee and Caroline Crenshaw, told Bloomberg that they think it still doesn’t go far enough. They are advocating that Scope 3 GHG emissions data be subject to attestation—like the proposed requirement for Scopes 1 and 2—to ensure that it is reliable. This discussion might just be a continuation—or perhaps a reinvigoration—of an internal debate that reportedly led to delays in issuing the proposal to begin with.

The commissioners’ concerns arise from a combination of the importance of Scope 3 emissions data – which accounts for the vast majority of most companies’ GHG emissions – and concerns about the reliability of the Scope 3 data that would be generated under the proposed rules. I get the concern, but I’m not thinking this is the best idea I’ve ever heard, for three reasons.

– First, as things stand now, the same reliability issues that prompt the commissioners’ concern make me skeptical that a reputable professional would be able to provide an attestation opinion of any kind on a company’s Scope 3 emissions data.

– Second, there’s a huge “garbage in/garbage out” issue lurking with Scope 3 disclosure that an attestation doesn’t solve. Even assuming I’ve underestimated the willingness or the ability of service providers to render such an opinion, the question remains – what good will it do? As the Risk Management Association pointed out in a recent comment letter calling for the SEC to “recalibrate” the Scope 3 emissions proposal, “the methodologies, standards, data and internal capabilities necessary to produce the proposed quantitative disclosures are in development or are just beginning to be explored, calling into question the feasibility and practical benefits of the disclosures, at least in the near term.”

– Third, my guess is that even a limited assurance attestation of Scope 3 data would cost the average company around eleventy squijillion dollars, and that simply doesn’t seem justifiable based on the questionable benefits to be derived from requiring it.

John Jenkins

June 22, 2022

SEC Enforcement: SCOTUS Denies Cert In Case Challenging SEC “Gag Orders”

In April, I blogged about a cert petition seeking SCOTUS review of the SEC’s use of “gag orders” in connection with the settlement of enforcement proceedings. Despite divergent approaches taken by lower courts on the validity of those orders, the Court declined to grant cert in Romeril v. SEC yesterday. This Bloomberg Law article on the Court’s decision notes that the cert petition had the support of two of the SEC’s most vocal foes:

The US Supreme Court Tuesday rejected a challenge—backed by Elon Musk and Mark Cuban—of the SEC’s power to “gag” parties who settle with the agency. The case stems from a challenge by former Xerox Corp. chief financial officer Barry Romeril, who sued for the ability to deny the Securities and Exchange Commission’s fraud allegations after he signed a 2003 settlement with the agency.

Romeril asked the high court to weigh in on whether his SEC deal, including a “no-deny” provision he referred to as a “gag order,” violated First Amendment free speech protections or constitutional guarantees of due process.

Musk, who last week appealed a ruling upholding his own settlement with the agency, joined an April amicus brief in support of Romeril’s petition. Musk’s “Twitter sitter” SEC deal calls for a Tesla Inc. attorney to screen all of his tweets related to the automaker after his 2018 missive indicating he had secured funding to take the company private.

The SCOTUS may have taken a pass on this issue for now, but with lower courts taking different positions on the issue and the willingness of folks like Cuban & Musk to back a fight over it, I doubt we’ve heard the last on the enforceability of SEC gag orders.

John Jenkins

June 21, 2022

SEC’s Climate Disclosure Proposal: FREE Essential Event From!

I read the SEC’s climate disclosure proposals shortly after they were issued in order to prepare an article for The Corporate Counsel newsletter. As I worked my way through the 500+ page proposing release, it became clear to me that in light of the breathtaking scope of the proposals, companies simply can’t afford to wait to begin preparing for the new disclosure regime. If companies want to avoid the risk of stumbling out of the gate, they need to start to work on their compliance efforts immediately.

We’re eager to get the word out on this and share practical step-by-step guidance. As a follow-up to our April webcast about “first steps” in response to the SEC’s climate disclosure proposal – and as a precursor to’s “1st Annual Practical ESG Conference” on October 11th, join for a FREE video Climate Disclosure Event about these landmark rules on July 13th at 2:00 pm Eastern. Our experienced panelists – from a variety of industries & backgrounds – will discuss practical steps to take RIGHT NOW in anticipation of the disclosure mandate.

As a bonus, we’ll unveil model disclosure that Lawrence Heim, Dave Lynn and I prepared and discuss the drafting challenges we faced — providing meaningful lessons to anyone looking ahead and preparing.

This Event consists of two one-hour sessions. Our first session, beginning at 2:00 pm Eastern, will cover:

– How to convey to your bosses & colleagues the major differences between this proposal and traditional SEC reporting, and existing ESG disclosures;
– Tips for overcoming the new challenges that this disclosure will create;
– Key steps for companies to take right now to prepare for compliance;
– Former regulators’ perspectives; and
– Lessons learned from preparing our model disclosures.

Hear step-by-step action items from these experienced practitioners:

Stephanie Bignon – Assistant General Counsel, Delta Airlines
Meredith Cross – Partner, WilmerHale
Karen J. Garnett – Managing Director, Head of ESG Policy and Reporting, Charles Schwab & Company
Denis Jacob – Chief Audit Executive, GE
Dave Lynn – Partner, Morrison Foerster

Our second session, beginning at 3:00 pm Eastern, will cover:

– ESG data that investors and others want, compared to what’s currently available;
– Types of questions and disclosure reviews companies can expect from regulators;
– How companies can prepare disclosure with an eye towards minimizing questions & risks;
– How asset managers, institutional investors and other external audiences use climate disclosure; and
– A look at our model disclosure and how it anticipates these issues.

This session features:

Amy Borrus – Executive Director at the Council of Institutional Investors
Devika Kaul – VP, Asset Stewardship, State Street Global Advisors
Satyam Khanna – SIEPR Policy Fellow at the Stanford Institute for Economic Policy Research
Dave Lynn – Partner, Morrison Foerster
Kosmas Papadopoulos, Executive Director, Head of Sustainability Advisory Services – Americas, ISS Corporate Solutions

To make this event an even bigger value, attendees are eligible for $100 off our 1st Annual Practical ESG Conference AND $200 towards an annual subscription to! Email or call 1-800-737-1271 to claim this offer.

Register today for this FREE event, and please share it with anyone on your team or in your network who may be interested. That includes ESG, Sustainability & Impact Officers, Environmental Health & Safety Officers, Investor Relations & Public Relations professionals, in-house and outside counsel who are advising boards or preparing disclosures, and anyone involved with ESG strategies and disclosures. To register for this event and learn about our model disclosure, click here.

John Jenkins