Monthly Archives: February 2023

February 28, 2023

Hot Off the Press! Updated “Rule 10b5-1 Trading Plans” & “Insider Trading Policies” Handbooks

As Dave noted last week, the SEC’s amendments to Rule 10b5-1 are now effective. On our “Handbooks” page, we’ve just released updated versions of our 103-page “Rule 10b5-1 Trading Plans Handbook” – as well as our 101-page “Insider Trading Policies Handbook” – to reflect these big changes.

The “Insider Trading Policies Handbook” also includes an updated Model Policy. All of our Handbooks are thoughtfully organized so that you can easily find a practical answer to whatever question is being thrown your way. We’ll continue to update these resources throughout the spring if & when more guidance becomes available.

If you aren’t already a member of with access to these resources, now is a great time to sign up. Email or visit our membership center to start a no-risk trial. Our “100-Day Promise” guarantees that during the first 100 days as an activated member, you may cancel for any reason and receive a full refund. If you have any questions, email – or call us at 800.737.1271.

Liz Dunshee

February 28, 2023

“Risk Factor” Sections Keep Getting Lengthier, But Don’t Blame the Lawyers!

“Risk factor” season is coming to a close – but I can’t resist flagging this recent Cooley blog about whether the SEC’s 2020 “modernization” rules have made any dent in the length & specificity of this section of the annual report. The blog looks at Deloitte research on S&P 500 risk factors that was published at the end of last year – and hopefully, will be updated in the coming months to reflect this year’s reporting. Here were the key findings:

– The number of pages has not decreased over the two-year period, but continues to increase.

– The number of risk factors continues to increase.

– Most companies did not need to include a risk factor summary.

– Headings are being used, but they are often very generic.

– One-third of companies used a “general risk factors” heading during the past two years, contrary to the SEC’s advice.

– The number of standalone “climate” risk factors has soared – with about one-third of S&P 500 companies adding at least one.

These may not have been the results the SEC had in mind back when it adopt rules to encourage more succinct disclosures. But don’t blame the lawyers! It’s not that we aren’t trying. Put the blame where it’s due: the polycrisis. Nevertheless, Deloitte offers these suggestions for improvement:

– Integrate risk factor disclosure processes, including climate-related risk disclosures, with enterprise risk management (ERM) reporting processes.

– Use risk taxonomies from ERM program for headings.

– Avoid generic risks.

Liz Dunshee

February 28, 2023

IPOs: When Will They Come Back?

Earlier this month, a flurry of IPOs successfully closed on an aggregate $1.17 billion in proceeds – according to this Reuters article – with several more companies waiting in the wings. This is great news for capital markets lawyers, coming off the slowest year in more than two decades in 2022.

A Pitchbook article from Friday has more stats – but isn’t quite as optimistic. The article says that there are a few reasons why deals are currently smaller & more difficult to come by:

– Macroeconomic volatility: With inflation, uncertainty about the future of interest rates and geopolitical turmoil, PE and VC firms aren’t willing to let their pre-IPO assets go amid the chaos.

– Firms can’t agree on valuations and pricing: It’s a buyer’s market, and the supply side is on strike. Asset managers don’t want to let go of their trophy assets—strong companies they’ve held in their portfolio for a long time and have helped scale—in an environment where they won’t get the biggest bang for their buck.

– The specter of recession: An impending and enduring recession is the most “vexing” ingredient for IPOs, Ethridge said. In a downturn, investors tend to stick with what they’re comfortable with: businesses with a balance sheet strong enough to survive, according to Kyle Walters, associate PE analyst at PitchBook. This also means they move away from riskier, higher-growth options in IPOs.

So, if you typically fill your plate with IPOs, can you count on a bounce-back later this year? Of course it is somewhat industry-dependent – this CNBC article shares a few that are looking more rosy. For the broader market dynamics, the folks that Pitchbook talked to were all over the map – with some predicting an uptick in late 2023 and others thinking it could be years away. They pointed to a few signs that will be necessary precursors to a hot market:

Whether it’s six months or six years, a few (or all) of the stars need to align for IPOs to round out their comeback story. For one thing, the macroeconomic environment needs to recover. There is a positive correlation between public stock market performance and public listings, so if stocks climb back up, so will IPO activity.

Also, buyers and sellers need to come to a pricing agreement. In short, sellers will have to make concessions, but this is unlikely.

“The buy-side is wearing the pants right now, and that will continue,” Ethridge said.

A final factor is for a game-changer company to come onto the scene. For example, a company goes public, prompting similar competitors to flock to the public market. Ethridge said he’s been eyeing a promising tech company for the role.

Liz Dunshee

February 27, 2023

Climate Risk Oversight: Vanguard’s Views

In recent commentary, Vanguard has reaffirmed its view that climate risks may be material to certain portfolio companies – and has articulated high-level expectations for how boards of those companies should go about overseeing those risks. Here’s an excerpt:

Vanguard-advised funds look for portfolio company boards to effectively oversee material risks, including material climate risks, and to disclose their approaches to oversight of these risks to shareholders so that the market can price in the associated risks and opportunities. We believe that boards have a responsibility to be aware of material risks and opportunities (including those associated with climate change) as they make informed, long-term decisions on behalf of company shareholders.

We believe that boards should consider the implications of both physical risks (such as severe weather events, rising sea levels, and temperature changes) and transition risks (such as regulatory changes and technological disruption) and plan for their impacts.

We believe that boards that are most effective in safeguarding long-term investors’ interests from material climate-related risks demonstrate:

• Relevant risk competence.

• Robust oversight and mitigation of material climate risks.

• Effective disclosure of material climate risks and attendant oversight practices.

The commentary goes on to describe each of these aspects of board effectiveness in more detail – and lists typical questions to prepare to answer in Investment Stewardship meetings (which may influence your board agendas as well). It also provides recommended TCFD disclosures in a handy chart.

This is the latest in a pretty regular flow of investment stewardship commentary that Vanguard has been providing on its “insights” page. I blogged a few weeks ago on the Proxy Season Blog about the asset manager’s approach to contested elections.

For convenience for members, we continue to gather policies & commentary from lots of investors & asset managers in our “Institutional Investors” Practice Area. If you aren’t already a member, try a no-risk trial today.

Liz Dunshee

February 27, 2023

Warren Buffett: “Non-GAAP” Can Be Good or Evil

Warren Buffett’s annual letter to Berkshire Hathaway shareholders came out this weekend – along with the annual report. Like last year, the Oracle of Omaha doesn’t have a lot of groundbreaking new info to share about Berkshire. This WaPo article says it’s the shortest letter in 44 years!

On page 6, Buffett takes a swipe at buyback restrictions. He criticizes the urge of an “economic illiterate or a silver-tongued demagogue” to crudely paint repurchases by as always bad for business & society and preaches the benefits of buybacks to both selling & remaining shareholders.

What caught my eye even more were his strong words about GAAP on page 5, which he shares after providing the company’s non-GAAP “operating earnings” (this is defined as GAAP income exclusive of capital gains or losses from equity holdings and totaled a record $30.8 billion last year, whereas the GAAP figure was a $22.8 billion loss):

The GAAP earnings are 100% misleading when viewed quarterly or even annually. Capital gains, to be sure, have been hugely important to Berkshire over past decades, and we expect them to be meaningfully positive in future decades. But their quarter-by-quarter gyrations, regularly and mindlessly headlined by media, totally misinform investors.

This is also a commentary on long-term versus short-term results, as Buffett is famously in the “patient, long-term” camp. In addition, Buffett says that non-GAAP adjustments shouldn’t be taken too far. A couple of pages after talking about operating earnings, he reiterates his longstanding complaints about phony metrics (see this 2017 MarketWatch article discussing how Buffett has taken issue with non-GAAP adjustments through the years). From page 7:

Finally, an important warning: Even the operating earnings figure that we favor can easily be manipulated by managers who wish to do so. Such tampering is often thought of as sophisticated by CEOs, directors and their advisors. Reporters and analysts embrace its existence as well. Beating “expectations” is heralded as a managerial triumph.

That activity is disgusting. It requires no talent to manipulate numbers: Only a deep desire to deceive is required. “Bold imaginative accounting,” as a CEO once described his deception to me, has become one of the shames of capitalism.

During the 58 years that Buffett has led Berkshire, he’s been well-regarded for this folksy, straight-shooting letter and approach to business. You get the sense he’s (still) frustrated with what feels like meddling by regulators in business decisions – not a unique view among execs! Unfortunately, as this part of the letter recognizes, fraudsters & profiteers have given the government & public plenty of reasons to be skeptical.

Liz Dunshee

February 27, 2023

Cyber Disclosure: 83 Law Firms Submit Amicus Brief Against SEC

I blogged last month about a quest by the SEC’s Enforcement Division to obtain client names from a law firm – in order to investigate whether those clients were affected by & properly disclosed a cyber breach. The firm (Covington) has obviously been pushing back on that request.

Now, 83 heavy-hitter law firms have lined up behind Covington – as amici curiae in this 31-page brief to the DC District Court. Reuters reported on this development as well as a filing by Covington last week. The list of firms starts on page 28 – it includes Morrison & Foerster, Cravath, Debevoise, Kirkland, Latham and many other big names.

Reuters notes that a judge has scheduled a hearing for this case next month.

Liz Dunshee

February 24, 2023

Nasdaq Posts Clawback Rule Filing

Yesterday, I blogged about the NYSE’s initial rule filing with the SEC to implement the directive in SEC Rule 10D-1 to adopt a clawback policy, comply with that policy and provide the required clawback policy disclosures. Not long after that blog was published, Nasdaq posted its initial rule filing with the SEC for the same purpose. Nasdaq proposes to adopt Listing Rule 5608 titled, recovery of erroneously awarded compensation. As with the NYSE proposal, the language of proposed Listing Rule 5608 conforms closely to the applicable language of Rule 10D-1.

With respect to the delisting process, the Nasdaq proposes to require that a company will be subject to delisting if it does not adopt a compensation recovery policy that complies with the applicable listing standard, disclose the policy in accordance with SEC or comply with the policy’s recovery provisions, as contemplated by Rule 10D-1. For the purpose of implementing that aspect of the Rule, Nasdaq notes:

Rule 10D-1 requires that a listed company recover the amount of erroneously awarded incentive-based compensation reasonably promptly, but does not specify the time by which the issuer must complete the recovery of excess incentive-based compensation; rather, Nasdaq would determine whether the steps an issuer is taking constitute compliance with its compensation recovery policy. The issuer’s obligation to recover erroneously awarded incentive-based compensation reasonably promptly will be assessed on a holistic basis with respect to each such accounting restatement prepared by the issuer. In evaluating whether an issuer is recovering erroneously awarded incentive-based compensation reasonably promptly, the Exchange will consider whether the issuer is pursuing an appropriate balance of cost and speed in determining the appropriate means to seek recovery, and whether the issuer is securing recovery through means that are appropriate based on the particular facts and circumstances of each executive officer that owes a recoverable amount.

Nasdaq also proposes to amend Listing Rule 5810(c)(2)(A)(iii) to provide that a company that failed to comply with proposed Listing Rule 5608 must submit to Nasdaq Staff a plan to regain compliance. The administrative process that will be followed is similar to other corporate governance deficiencies, allowing Nasdaq Staff to provide the issuer up to 180 days to cure the deficiency. The Nasdaq Staff would then be required to issue a delisting letter, which could be appealed to the Hearings Panel, which in turn could allow the issuer up to an additional 180 days to cure the deficiency.

The SEC will next publish the rule filing on its website. Comments will be due 21 days from publication of the Notice in the Federal Register.

– Dave Lynn

February 24, 2023

DOJ Announces Voluntary Self-Disclosure Policy for U.S. Attorney’s Offices

On Wednesday, the Department of Justice announced a new corporate voluntary self-disclosure (VSD) policy that is applicable to all 94 U.S. Attorney’s Offices in the U.S. and its territories. The purpose of this new policy is to encourage companies to voluntarily self-disclose misconduct to U.S. Attorney’s Offices, fully cooperate in investigations, and timely and appropriately remediate misconduct by providing incentives such as avoidance of a guilty plea, substantially reduced fines, and no independent compliance monitor. As this MoFo alert notes:

The new U.S. Attorney’s Office VSD policy comes in addition to the DOJ Criminal Division’s Corporate Enforcement Policy (CEP), which was implemented in 2017 and recently revised. Unlike the CEP, the U.S. Attorney’s Office VSD policy applies to all U.S. Attorney’s Offices, not just the Criminal Division. Notably, while the U.S. Attorney’s Office VSD policy has much in common with the CEP, it differs in several key respects, including whether prosecutors will presumptively decline to prosecute a compliant company and whether any fine reductions are available for companies that fully cooperate and remediate but do not self-disclose misconduct.

The U.S. Attorney’s Office VSD policy is a fulfillment of a September 2022 directive by Deputy Attorney General Lisa Monaco directing all DOJ components to implement a VSD policy. This directive is part of an overall push by DOJ to re-invigorate corporate criminal enforcement by encouraging companies to bring possible wrongdoing to DOJ’s attention to jump start criminal investigations.

Over the years, I have found that the decision to self-disclose is always a very complicated one, requiring a very careful weighing of the potential benefits to be received versus the unpredictable outcomes of handing an investigation and potential action to the DOJ and/or the SEC. At least this new VSD policy provides some clarity and uniformity as to how U.S. Attorney’s Offices will approach self-disclosure situations.

– Dave Lynn

February 24, 2023

Celebrating a Decade of the Proxy Season Field Guide

Pardon me while I engage in the unpleasant practice of tooting my own horn. I just published the 10th edition of the Proxy Season Field Guide with the assistance of DFIN. Prompted by the enactment of the Dodd-Frank Act over a dozen years ago, I created this “field guide” to provide an overview of the statutory, regulatory and other developments that shape the proxy season each year. The 10th edition has grown to 363 pages, packed full of rule explanations, SEC guidance and forms. I do it for you, so please enjoy!

– Dave Lynn

February 23, 2023

NYSE Posts Clawback Rule Filing

Last October, the SEC adopted Rule 10D-1, which directs the national securities exchanges to adopt listing standards that will apply the disclosure and clawback policy requirements of the rule to all listed companies, with only limited exceptions. Under the rule, each listed company will ultimately be required to adopt a clawback policy, comply with that policy and provide the required clawback policy disclosures. A company will be subject to delisting if it does not adopt and comply with a clawback policy that meets the requirements of the listing standards. The SEC indicated that each national securities exchange must file its proposed listing standards with the SEC no later than 90 days following November 28, 2022. The listing standards required by Rule 10D-1 must be effective no later than one year following November 28, 2022.

Yesterday, the NYSE posted on its website its initial rule filing with the SEC. The initial rule filing contemplates proposing new Section 303A.14 of the NYSE Listed Company Manual to require issuers to develop and implement a policy providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers. The NYSE notes in the filing that proposed Section 303A.14 is designed to conform closely to the applicable language of Rule 10D-1.

Proposed Section 303A.14(b) would establish the timeframe within which listed companies must comply with proposed Section 303A.14, as follows:

– Each listed issuer must adopt the clawback policy required by proposed Section 303A.14 no later than 60 days from the adoption of the proposed listing.

– Each listed issuer must comply with its clawback policy for all incentive-based compensation received (as such term is defined in proposed Section 303A.14(e) as set forth below) by executive officers on or after the effective date that results from attainment of a financial reporting measure based on or derived from financial information for any fiscal period ending on or after the effective date.

– Each listed issuer must provide the required disclosures in the applicable SEC filings required on or after the effective date.

The NYSE also proposes to adopt new Section 802.01F, which would provide that in any case where the exchange determines that a listed issuer has not recovered erroneously-awarded compensation as required by its clawback policy reasonably promptly after such obligation is incurred, trading in all listed securities of such listed issuer would be immediately suspended and the exchange would immediately commence delisting procedures with respect to all such listed securities. While Rule 10D-1 does not specify the time by which the issuer must complete the recovery of excess incentive-based compensation, NYSE would determine whether the steps an issuer is taking constitute compliance with its clawback policy. A listed issuer would not be eligible to follow the procedures outlined in Sections 802.02 and 802.03 with respect to such a delisting determination, and any such listed issuer would be subject to delisting procedures as set forth in Section 804.

The SEC will next publish the Notice of Filing of Proposed Rule Change to Adopt New Section 303A.14 of the NYSE Listed Company Manual on its website. Comments will be due 21 days from publication of the Notice in the Federal Register.

As of this morning, Nasdaq has not yet posted its initial rule filing with the SEC. When available, that rule filing will be posted on the Nasdaq website.

– Dave Lynn