Monthly Archives: April 2023

April 25, 2023

Do You Have a Non-GAAP Policy?

The SEC’s most recent non-GAAP enforcement action has triggered new calls for companies to adopt non-GAAP policies if they haven’t already. That’s partly because, as John blogged, the SEC raised the company’s alleged failure to adopt disclosure controls & procedures specific to non-GAAP measures. If you’re looking to adopt a non-GAAP policy, or revamp your existing policy, consider these tips from Gibson Dunn’s Securities Regulation and Corporate Governance Monitor:

Companies Should Have Disclosure Controls and Procedures in Place to Identify and Disclose Non-GAAP Adjustments. It is crucial for accounting, legal and other personnel responsible for public reporting to be familiar with SEC reporting requirements as they pertain to non-GAAP measures, and the company’s disclosure controls and procedure documentation should specifically address steps and controls in place to identify amounts relevant for non-GAAP adjustments and make non-GAAP disclosures. Employee determinations of non-GAAP adjustments should be guided by, and evaluated in light of, such disclosure controls and procedures and any other non-GAAP policies that a company determines may be appropriate to adopt. In addition, policies and procedures should be designed to help ensure the accounting and legal departments are able to engage in a thorough review and approval process of proposed non-GAAP adjustments, with a view to accuracy, consistency and overall compliance.

Descriptions of Non-GAAP Measures Should Be Kept Consistent with Actual Accounting Practices. To be effective, companies’ disclosure controls and procedures should include processes designed to help ensure that non-GAAP financial measures and adjustments are described accurately in periodic filings, earnings releases and other public statements. Companies should routinely assess whether the descriptions of non-GAAP measures used historically continue to be consistent with their actual accounting practices for identifying, reviewing and approving non-GAAP adjustments.

An Active and Engaged Disclosure Committee Should Be Part of the Control Environment. An important lesson of the SEC’s order is the need for coordinated oversight of non-GAAP and other disclosures across a company’s various departments to promote a consistent and accurate disclosure control environment. An active and engaged disclosure committee should play a prominent role in reviewing and commenting on non-GAAP disclosures. The disclosure committee should also periodically review the disclosure controls and procedures with respect to non-GAAP disclosure to ensure they remain up-to-date, consistent with the company’s actual business practices, and accurate overall.

As John noted, the first article in the March-April issue of “The Corporate Counsel” newsletter is “Non-GAAP Financial Measures: The Pendulum Swings.” In my book, this is also required reading to prevent, to quote the article, non-GAAP “backsliding”!

– Meredith Ervine

April 25, 2023

More on the SEC ALJ Saga: The Supreme Court Addresses Jurisdiction

In mid-April, the Supreme Court unanimously held in related cases that federal district courts have jurisdiction to address constitutional challenges to the SEC and the FTC’s administrative proceedings. Here’s an excerpt from Wachtell’s post on the CLS Blue Sky Blog addressing the implications of this decision:

The Court found in both cases that the claims were not “of the type” Congress intended to channel through the SEC’s and FTC’s statutory review schemes and so the district court could adjudicate such claims without awaiting a final agency decision.  The Court reasoned that because the harm alleged was simply being subjected to the allegedly unconstitutional administrative proceeding itself, precluding district court jurisdiction could foreclose meaningful judicial review altogether.  In addition, the constitutional claims were outside the agencies’ expertise and unrelated to the subject matter of the agency proceedings.  As Justice Kagan put it, while the FTC may “know[] a good deal about competition policy,” it knows “nothing special about the separation of powers.”

This decision is the latest in a series by the Court that threaten to diminish the power of the administrative state at a time when agency heads have announced increasingly aggressive enforcement agendas.  But while important, the Court’s decision is also a limited one.  It addresses federal district courts’ jurisdiction to hear constitutional challenges to ongoing SEC and FTC administrative proceedings.  Nothing in the Court’s opinion touches on judicial deference to agency expertise outside the context of constitutional challenges or on the ultimate merits of those challenges.

Companies operating within a regime of administrative regulation must weigh the types of challenges that best advance their business interests and strategies, and the manner in which to bring them.  With the avenue opened by Friday’s decision, that calculus should now include a careful analysis of whether to launch a parallel constitutional challenge in federal district court alongside any more conventional challenge to agency action within the confines of an administrative proceeding itself.

– Meredith Ervine

April 24, 2023

Legal Departments Need to be Addressing AI…and We’ve Got Resources!

ChatGPT and other generative AI has the potential to transform the way we live and work, and everywhere you look these days people are asking tough questions about AI. If you’re interested in the ethical and moral questions for which there may be no right answers, this Wall Street Journal article has food for thought and so did a South Park episode—partially written by ChatGPT!—where the characters use ChatGPT to argue their way out of getting in trouble for using it.

The philosophical side of things may be outside our wheelhouse (phew!), but there are a host of practical and legal issues with AI that companies need to be thinking about now. We’re posting memos and other materials in our “Artificial Intelligence” Practice Area addressing a myriad of topics like these:

– AI seems to be the latest regulatory hot topic and—like with privacy laws—companies need to be aware of an emerging patchwork of state regulation, which Jenner & Block addresses in this client alert, and the potential for federal legislation, highlighted by DLA Piper

– Legal risks with using AI for corporate purposes—including whether the use of AI may violate contractual obligations or privacy laws or infringe intellectual property rights—addressed by WilmerHale in this article on the top 10 legal and business risks of using chatbots

– Considerations for preparing a policy governing the use of AI, recommended by Debevoise in this article highlighting that many employees have started deploying it for work-related tasks

– The potential for generative AI to transform the legal industry, discussed by Mintz in this article

– Meredith Ervine

April 24, 2023

AI: Chair Gensler Weighs In

If regulatory, legal and business risks of AI don’t already pique your interest, know that AI is also on the SEC’s radar. Here’s an excerpt from Chair Gensler’s prepared testimony before the House Committee on Financial Services:

Artificial intelligence and predictive data analytics are transforming so much of our economy. Finance is no exception.

AI already is being used for call centers, account openings, compliance programs, trading algorithms, and sentiment analysis, among others. It’s also fueled a rapid change in the field of robo-advisers and brokerage apps. When the predictive data analytics and algorithms behind these apps are optimizing for investor interests, this can bring benefits in market access, efficiency, and returns.

As commenters to our request for comment on digital engagement practices noted, however, the use of predictive data analytics also can lead to potential conflicts. In particular, conflicts may arise to the extent that advisers or brokers are optimizing for their own interests as well as others.

Thus, I’ve asked staff to make recommendations for the Commission’s consideration for rule proposals regarding how best to address any of these potential conflicts.

I haven’t seen much AI-related disclosure—outside directly-involved tech companies—but I imagine it’s only a matter of time (and not much) before it’s a disclosure hot topic.

– Meredith Ervine

April 24, 2023

Transcript: “Conduct of the Annual Meeting”

We’ve posted the transcript for our recent “Conduct of the Annual Meeting” webcast featuring Lauri Fischer, Senior Deputy General Counsel and Assistant Secretary at Grocery Outlet, Edward Greene, Managing Director at Georgeson, Carl Hagberg, Independent Inspector of Elections and Editor of The Shareholder Service Optimizer, and David Hamm, Vice President, Deputy General Counsel and Assistant Secretary at Summit Materials. Companies faced some unique challenges at their annual meetings this year, and our panelists discussed the latest developments, tips and tricks and some compelling stories.

Carl Hagberg shared his firsthand account of an annual meeting incident Liz previously blogged about, which he characterized as “the most carefully planned and executed disruptive event at an annual meeting ever,” and then provided this timely reminder about meeting security:

Hagberg: Meeting security is more important than ever before and please remember; security is for everybody. Companies and security officers often focus on management and the board. Yes, they’re going to be the main focus of any action and you need to focus on them intensively, but you also need to focus on the people in the audience. They should be able to clear the room in an orderly fashion. I’ve been at meetings where the fire alarm went off, one where the sprinkler system went off and one where the power went off. You need to have a script to tell people where the exits are and, “The meeting is over. Please exit quietly and carefully.” Be sure that your security measures and your script cover everybody there in the room.

If you are not a member of, email to sign up today and get access to the full transcript – or sign up online.

– Meredith Ervine

April 21, 2023

Attorney-Client Privilege: Narrow Path for Withholding Info Sought by Former Directors

The Delaware Chancery Court’s recent decision in Hyde Park Venture Partners Fund III, L.P. v. FairXchange, LLC, (Del. Ch.; 3/23), serves as a reminder that a corporation’s ability to assert the attorney-client privilege as the basis for withholding information sought by a former director is very limited.

The Hyde Park case involved a discovery dispute in an appraisal proceeding following a sale of the company that had been approved by the board in the face of opposition from an investor-designated director. To give you an idea of how contentious things were, the director was excluded by the board from participating in discussions about the surprise offer that the company received from the buyer after he called for a market check to be conducted and was removed from the board one day after making a books & records demand.

The company asserted the attorney-client privilege against the investor as to information generated during the designated director’s tenure.  The Chancery Court disagreed, and this excerpt from a Troutman Pepper memo on the case explains Vice Chancellor Laster’s reasoning:

Delaware law treats the corporation and the members of its board of directors as joint clients for purposes of privileged material created during a director’s tenure. Joint clients have no expectation of confidentiality as to each other, and one joint client cannot assert privilege against another for purposes of communications made during the period of joint representation. In addition, a Delaware corporation cannot invoke privilege against the director to withhold information generated during the director’s tenure. Delaware law has also recognized that when a director represents an investor, there is an implicit expectation that the director can share information with the investor.

In this case, the board designee and other board members were joint clients, and therefore, inside the circle of confidentiality during the designee’s tenure as a director. During the board designee’s tenure as a director, he received numerous communications from the company and its counsel. The company, therefore, had no expectation of confidentiality from the board designee and cannot assert privilege against him or his affiliates.

The company also failed to implement any of the three exceptions to asserting privilege against directors. First, there was no contract governing confidentiality of discussions between the company, its counsel, and the board. Second, the board did not form a transaction committee. Third, the board designee did not become adverse to the company until after he sent his books-and-records request at which point the company was able to exclude the director and the investor that appointed the director from the privileged materials.

The memo says that the key takeaway from the decision is that companies seeking to assert the privilege against a former director (or the investor who designated that director) must be prepared to establish the three exceptions identified in Vice Chancellor Laster’s opinion.

John Jenkins

April 21, 2023

Form 10-Q Checklist: Potential New Disclosures for 2nd Quarter

Goodwin recently published an updated version of their Form 10-Q Checklist for the 2nd Quarter of 2023. The first several pages address the new 10b5-1 plan-related disclosure mandates and some other potential disclosures that you should consider as you prepare your 2nd quarter 10-Q.  This excerpt discusses the disclosure implications of the disruptions in the banking sector:

Review MD&A (Part 1, Item 2) and Risk Factors (Part 2, Item 1A) for financial and business-related disclosure about direct or indirect effects of actual events or reasonably foreseeable future events related to disruptions in the banking industry or financial services sector such as events involving limited liquidity, defaults, non-performance or other adverse events or developments. These could include not only impacts on the company but also impacts on banks and other financial sector companies with which the company has direct or indirect relationships, the company’s customers, suppliers and other counterparties, or the financial services industry generally.

Examples of potential disclosure topics cited by the checklist include, among others delayed or lost access to amounts available under credit facilities, limitations on access to deposits and other cash management vehicles, potential covenant breaches and cross-defaults, and expenses associated in obtaining replacement LOCs and other credit support arrangements.

John Jenkins

April 21, 2023

ESG: COSO’s Framework for Internal Control Over Sustainability Reporting

Yesterday on, Lawrence blogged about COSO’s recently issued framework for internal control over sustainability reporting. Here’s the intro:

Anyone who has kept up with our blogs here knows that I am huge proponent of establishing a system of internal controls for ESG data/disclosure similar to those for financial reporting. Internal controls help to ensure the validity, accuracy and – ultimately – the credibility of ESG information reported by companies. This is critical not only for the company but also for the entire “ecosystem” that has developed around ESG disclosures including investors, rating organizations and the media.

Last month COSO – the Committee of Sponsoring Organizations – published its framework for internal controls over sustainability reporting (ICSR). COSO dates back to the 1980s and created a framework for internal controls for financial reporting (ICFR) known as Internal Control – Integrated Framework (ICIF) that became popular when the Sarbanes-Oxley Act went into effect in 2002. That framework was revised in 2013 which formed the basis of the new ICSR.

In addition to Lawrence’s blog, members of have access to a bunch of resources on disclosing ESG performance in its “Disclosing ESG Performance” subject area.  ESG-related disclosures are just one of many ESG issues that are on the front burner and aren’t like to go away anytime soon. In today’s environment, you need the kind of practical guidance and in-depth ESG-related resources that provides. If you don’t already subscribe, there’s no time like the present to fix that! Subscribe today online or by contacting

Be sure to check out’s new showcase page on LinkedIn!

John Jenkins

April 20, 2023

FTX: Taylor Swift “Knew You Were Trouble”

I’m not a big fan of Taylor Swift’s music, but I’m a huge fan of her judgment.  In contrast to all the celebs who were highly compensated shills for FTX & have ended up on the receiving end of lawsuits from investors stung by the company’s collapse, The Daily Beast reports that Swift had the brains to ask a few questions before accepting a staggering $100 million offer from FTC to do the same:

Swift was reportedly in talks for a contract worth more than $100 million for Sam Bankman-Fried’s business in the months leading up to FTX’s monumental collapse in November, but the partnership never came to fruition—unlike deals the exchange signed with the likes of Tom Brady, Shaquille O’Neal, Larry David, and others. Attorney Adam Moskowitz, who is now handling a class action lawsuit against FTX’s celebrity promoters, claimed the defendants failed to actually look into the legality of what the company was doing before signing up to big money partnerships. “The one person I found that did that was Taylor Swift,” Moskowitz said on The Scoop podcast. “In our discovery, Taylor Swift actually asked them, ‘Can you tell me that these are not unregistered securities?’”

Ultimately, Swift’s due diligence paid off, because she turned down the offer & isn’t on the receiving end of a class action lawsuit. So now, her brand’s intact, and she can look all the Swifties out there in the eye & say that she turned down a fortune from FTX because “I knew you were trouble.”

This has nothing to do with the securities laws, but since I’m blogging about Taylor Swift I thought I’d point you in the direction of this brand new Duke Law Journal article provocatively titled “Murder and Money: The Dark Side of Taylor Swift.”  If that’s not clickbait, I don’t know what is.

John Jenkins 

April 20, 2023

Non-GAAP: Audit Committee Disclosure Oversight

In a recent blog, Cooley’s Cydney Posner discussed the implications for audit committees of the SEC’s latest enforcement proceeding involving non-GAAP financial measures. This excerpt addresses some of the challenges confronting audit committees in providing oversight to their company’s non-GAAP disclosures:

Just what is the role of the audit committee when it comes to non-GAAP financial measures? The CAQ has characterized the audit committee’s oversight role as an important one that positions the committee to “act as a bridge between management and investors,” assessing whether “the measures present a fair and balanced view of the company’s performance.” But non-GAAP financial measures present challenges for audit committees: why is management using this measure? Is it consistent with the measures used by the company’s peers? Is the disclosure adequate? In addition, to the extent that non-GAAP measures may be used in determining incentive compensation, audit committee oversight becomes even more critical.

Cydney pointed to a PwC memo as a source of guidance to boards on these and other issues implicated in providing appropriate oversight to non-GAAP disclosures.

John Jenkins