Monthly Archives: May 2023

May 25, 2023

ESG: Are Investors Willing to Pay for Social Responsibility?

One of the big open questions about corporate ESG initiatives is whether investors are really willing to forego returns in order to achieve ESG objectives.  According to a recent study, the answer seems to be that some are – at least to a point. However, it also indicates that a large percentage of investors aren’t willing to forgo a dime of returns to achieve those objectives. Here’s an excerpt from a ProMarket blog by one of the study’s authors:

Our empirical analysis provides the following main results. First, we find that when making investment decisions, individuals are indeed willing to forgo some returns in order to promote social interests: The average willingness to pay in our experiment varies (depending on the particular social cause) between $176 and $253 out of returns of $1,000 on a $10,000 investment (corresponding to returns of between 1.76% and 2.53%, out of a potential total return of 10%).

More importantly, whereas most investors are willing to forgo gains to promote social interests, a substantial proportion of investors (about 32%) are unwilling to forgo even a trivial amount ($10 out of $1,000, or a 0.1% return out of the 10% potential return) to advance any of the four social goals we presented to them through their investment decisions. These individuals have a strong preference to maximize profits over social goals, even where the cost to them of furthering social goals is extremely small.

Not surprisingly, the study found that the divide between investors on this issue parallels the nation’s political divisions. Democrats, women and higher income investors are more willing to forego returns to promote social causes, while Republicans & independents, men and lower income investors are less willing to do so.

John Jenkins

May 24, 2023

Internal Controls: Audit Partners Punished for Negative Opinions?

Earlier this month, Meredith blogged about a surge in the number of material weaknesses disclosed in Form 10-K filings.  According to a new study, that may be bad news for the careers of the audit partners who called out those weaknesses.  Here’s the abstract:

We investigate how audit firms balance the tension between client service and professional responsibility by examining how engagement partners are treated after they issue adverse internal control opinions (ICOs). We find that among 404(b) clients, audit firms are significantly more likely to remove a partner from a continuing engagement when the partner issued an adverse ICO to any of their clients in the previous year. More importantly, we find that individual partners issuing adverse ICOs experience unfavorable changes in their client portfolios in the form of lower fees and less prestigious client assignments.

We also find that partner consequences are greatest when adverse ICOs are likely to be more subjective and when they are issued to more important clients. Our results are consistent with audit partners experiencing negative consequences when they issue opinions that strain auditor-client relations, even though these opinions provide valuable information to capital market participants and are not likely to reflect lower audit quality.

I guess I’m too cynical to be particularly shocked by this, but I think it’s a safe bet that the SEC’s accounting staff is likely to find the study’s conclusions very disturbing. Moreover, in an era where the SEC is stressing the shared responsibility of audit firms and audit committees for ensuring independence, the potential impact of a negative internal controls opinion on an audit partner’s career is a topic that audit committees should be prepared to ask their auditors some tough questions about when evaluating a firm’s independence.

John Jenkins

May 24, 2023

Say-on-Pay Frequency: Reporting Your Decision on Frequency

For many companies, this is a “say-on-pay frequency” year, and as Dave pointed out a few months ago, failing to timely file an Item 5.07(d) Form 8-K disclosing the company’s decision, in light of the results of that vote, about how frequently it will include a say on pay vote in its proxy materials can have significant negative consequences for public companies, including the loss of S-3 eligibility & WKSI status.

There are a number of ways to skin the cat when it comes to complying with the Item 5.07(d) disclosure requirement, and this excerpt from a recent Goodwin blog sets out a few common approaches:

Report Item 5.07(b) and Item 5.07(d) in a Single Form 8-K Report. The company can simultaneously report the results of the annual meeting shareholder votes under Item 5.07(b) and its decision on the frequency of say-on-pay votes under Item 5.07(d) in the same Form 8-K report. It is important to review the Form 8-K report to confirm that it complies not only with Items 5.07(a)-(c) but also with Item 5.07(d) before filing.

Report Item 5.07(b) in a Form 8-K Report followed by Item 5.07(d) in a Form 8-K/A Amendment. If the company reports its annual meeting voting results in an Item 5.07(b) Form 8-K report but does not, or cannot, include the information required by Item 5.07(d) in the same Form 8-K report, the company can report its frequency decision in a Form 8-K/A amendment to the original Item 5.07(b) Form 8-K report. In this case, the Item 5.07(d) report should not be filed as a new Form 8-K report.

Report Item 5.07(b) in a Periodic Report followed by Item 5.07(d) in a Subsequent Form 8-K Report. The company can report the annual meeting voting results in a Form 10-Q or Form 10-K report that is filed on or before the due date for the Item 5.07(b) Form 8-K, as permitted by General Instruction B.3 to Form 8-K. If the company does not, or cannot, report its decision on the say-on-pay frequency vote in the periodic report, it should file a new Item 5.07(d) Form 8-K to report its decision. In this case, the Item 5.07(d) report should not be filed as an amendment to the periodic report. If the filing of the Form 10-Q or Form 10-K report is delayed to a date more than four business days after the company’s annual meeting, the company should comply with Item 5.07 by filing a Form 8-K report before the filing deadline for the Item 5.07(b) report on the shareholder votes on other matters at the meeting.

It’s nice to have alternative ways to comply with this disclosure requirement, but I wish the SEC would consider eliminating it. It made sense when the say-on-pay requirement was introduced and there was uncertainty about how often votes would be held, but with an annual say-on-pay resolution now an almost ubiquitous practice among public companies, this requirement is little more than a trap for the unwary. It seems to me that a better approach would be to require this disclosure only if a company decided to hold its say-on-pay vote on something other than an annual basis.

John Jenkins

May 24, 2023

Changing Your Fiscal Year End: Key Considerations

Perkins Coie recently blogged about 6 things that companies should consider when changing their fiscal year end. This excerpt addresses the SEC filings associated a change in a fiscal year end:

Be prepared to file an Item 5.03 8-K with the SEC. Changing fiscal years triggers an Item 5.03 8-K filing for public companies in most cases. The reporting obligations under Form 8-K vary depending on the way in which a fiscal year is changed. Read the requirements of Item 5.03 of Form 8-K and be prepared to file within four business days of the change.

Think ahead to the “transition report” you’ll be filing with the SEC. SEC rules require public companies that change their fiscal years to file a “transition report” covering the “transition period.” The transition period is the period between the closing of the most recent fiscal year and the opening date of the newly selected fiscal year. A transition report covers the transition period and must include interim period financial statements.

Depending on the length of the transition period, a transition report may be required to be filed on Form 10-KT or Form 10-QT. If the transition period is less than one month, no transition report is required, but then transition period financial statements must be included in the next Form 10-Q.

The blog also highlights Sections 1360 and 1365 of the Financial Reporting Manual as a source of helpful guidance on changing fiscal year ends.  If you’re considering changing your fiscal year end, be sure to also check out our “Fiscal Year Changes” Checklist.

John Jenkins

May 23, 2023

Early Bird Registration for Our Conferences Ends May 31st!

I’m really excited about our “Proxy Disclosure & 20th Annual Executive Compensation” Conferences – and not just because I’ve finally got a speaking part & am no longer the Fredo Corleone of  We’ve got a terrific lineup of expert speakers on 19 different panels over a 3–day period, and with potential implications of the SEC’s ambitious regulatory agenda continuing to loom large in the minds of public companies & their advisors, you can’t afford to miss this year’s conferences! But if you want to take advantage of our “early bird” registration deal for these essential conferences, you need to act now, because early bird registration ends on May 31st.

The Conferences are virtual, September 20th – 22nd. You can bundle registration with the “2nd Annual Practical ESG Conference” that’s happening virtually on September 19th, for an additional discount. Register online by credit card – or by emailing Or, call 1.800.737.1271. Here’s a reminder of the benefits of attending:

– The Conferences are timed & organized to give you the very latest action items that you’ll need to prepare for the flurry of year-end and proxy season activity. Why spend time & money tracking down piecemeal updates to share with your higher-ups & board – all while you’re under a deadline and have other pressing obligations, increasing the risk of mistakes – when you can get all of the key pointers at once?

– Unlike some conferences, the on-demand archives (and transcripts!) will be available at no additional charge to attendees after the event, and you can continue to access them all the way till July 2024. That means you can continue to refer back to the sessions as issues arise. Again, saving time & money.

– Due to new SEC rules, the shareholder proposal environment, the increasing emphasis on risk oversight and pressures that companies are facing from both ends of the political spectrum, the performance of boards, individual directors and – thanks to Delaware’s latest spin on Caremark, individual officers – will be subject to greater & greater scrutiny in the coming proxy seasons. That could affect director elections, as well as your company’s ability to raise capital, and your directors’ and officers’ exposure to derivative claims. Our expert panelists will be sharing practical action items to protect your board & officers – and risks to watch out for. Facing a low vote for any director is a nightmare scenario, even if you’re not the target of a proxy contest. This event will empower you to avoid that situation.

John Jenkins

May 23, 2023

Compliance: Third Party Risk Management Tops List of Priorities

According to a recent survey by Compliance Week & FTI Consulting, third party risk management (TPRM) tops the list of priorities for corporate compliance officers this year:

Compliance Week and FTI Consulting polled 151 legal and compliance decision-makers as part of an online survey benchmarking the use of technology in compliance conducted between February and March. Respondents to the survey largely represented the technology (13%), banking (13%), healthcare (10%), and manufacturing (7%) sectors. The survey asked respondents to choose all that applied from a list of top-of-mind risk areas they expected to require additional focus this year. TPRM was indicated by 62% of overall respondents, far ahead of litigation/regulatory exposure (45%); anti-bribery, anti-corruption (ABAC), anti-money laundering (AML), and fraud (38%); and environmental, social, and governance (ESG) matters (38%).

Survey respondents noted that TPRM is always a compliance priority, because of the lack of control over third parties compared with other areas of compliance risk that companies face. In keeping with the overall emphasis on TPRM, the survey also says it’s the top priority for employing compliance technologies, with 55% identifying TPRM as an area where compliance-related technologies were utilized.

John Jenkins

May 23, 2023

Tomorrow’s Webcast: “Managing the New Buyback Disclosure Rules”

Join us tomorrow at 2 pm eastern for the webcast – “Managing the New Buyback Disclosure Rules” – to hear Era Anagnosti of DLA Piper, Robert Evans of Locke Lord, Allison Handy of Perkins Coie, and Dave Lynn of Morrison Foerster and, address the new disclosure requirements and discuss their implications for public companies.

Members of this site are able to attend this critical webcast at no charge. If you’re not yet a member, try a no-risk trial now. 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. The webcast cost for non-members is $595. You can sign up by credit card online. If you need assistance, send us an email at – or call us at 800.737.1271.

We will apply for CLE credit in all applicable states (with the exception of SC and NE which require advance notice) for this 1-hour webcast. You must submit your state and license number prior to or during the program using this form. Attendees must participate in the live webcast and fully complete all the CLE credit survey links during the program. You will receive a CLE certificate from our CLE provider when your state issues approval; typically within 30 days of the webcast. All credits are pending state approval.

John Jenkins

May 22, 2023

Virtual Meetings: Enhancing the Transparency of Your Q&A

In a recent Soundboard Governance blog, Doug Chia notes the top investor complaint with VSMs is the possibility that companies may be gaming the Q&A session by “cherry picking” the questions they answer in order to avoid the hard ones. The blog compares the different ways that two companies – “Hatfleld” and “McCoy” – handled their virtual annual meetings, and says that Hatfield did a pretty good job when it came to the transparency of its Q&A session:

It’s essential for companies to show its investors during the VSM Q&A session that they are trying to be as transparent as possible. One way Hatfield did this was by having all questions come in live by phone and letting each caller speak once their line was opened by the operator, like they do on talk radio. Based on the questions I heard, it didn’t seem like the company was screening the calls. (One caller opined that the entire accounting profession is a fraud!)

The members of management answered the questions on the spot in a way that didn’t sound scripted. Some of those answers were less than satisfying, but that’s going to happen whether the meeting is in-person or virtual-only. Another way Hatfield tried to convey transparency was by stating in its proxy statement that they would post answers to any pertinent questions not addressed during the Q&A session on their website sometime after the meeting.

The blog acknowledges that the limitations of the VSM format make it difficult to fully address investor concerns about the Q&A session’s transparency, but says that Hatfield handled investor Q&A much better than “McCoy” – which dealt with two questions that Doug submitted so poorly that he no longer feels skeptical about investor concerns that some companies are gaming the Q&A session at VSMs.

Doug’s blog is worth reading by anyone involved in planning a VSM, but I do have one minor quibble that may reflect the fact that Doug’s a bit younger than I am. He chose to use Hatfield & McCoy as pseudonyms for the two companies that served as his examples of good and bad VSM practices – but I think any of my fellow boomers would’ve seen Goofus & Gallant as the more obvious choice!

John Jenkins

May 22, 2023

Corp Fin Welcomes New Deputy Director! Mellissa Campbell Duru

On Friday, the SEC announced that Mellissa Campbell Duru had been named Deputy Director for Legal and Regulatory Policy in the Division of Corporation Finance. Mellissa is an SEC veteran, but most recently served as a senior counsel for Covington & Burling. This excerpt from the SEC’s press release provides more information on her background:

At Covington & Burling, Ms. Duru worked in the Securities & Capital Markets practice, advising clients on securities regulation, capital markets transactions, and strategic corporate governance planning. She also served as a Vice Chair of the firm’s Environmental, Social, and Governance practice. Ms. Duru served at the SEC from 2004 to 2021, including as a Counsel to then-Commissioner Kara Stein, Special Counsel in the Division of Corporation Finance’s Office of Mergers and Acquisitions, and Cybersecurity Legal and Policy Advisor in the Division of Examinations. During her tenure, she also served as an SEC Brookings Institute Legislative Congressional Fellow in the Office of U.S. Senator Jack Reed. She began her SEC career in the Division of Corporation Finance’s Disclosure Review Program.

Mellissa fills the position previously held by Erik Gerding prior to his appointment as Director of Corp Fin earlier this year.

John Jenkins

May 22, 2023

MD&A: Avoiding “Hot Buttons” for Staff Comments

A recent SEC Institute blog points out that there are three changes from the SEC’s 2020 overhaul of the MD&A disclosure requirements that have become frequent topics for Staff comments:

– Critical accounting estimate disclosures
– Quantitative and qualitative disclosures about material changes
– Meaningfully addressing liquidity and capital resources

The blog suggests that one reason for this may be simple fact that a lot of companies simply aren’t updating their disclosures to comply with the new requirements, noting that “old and obsolete beliefs that disclosure changes will attract negative attention from the SEC create resistance that is difficult to overcome,” even when it comes to complying with new disclosure requirements. The blog also offers up some links to its prior commentary on these topics to help companies understand what the Staff is looking for when it comes to MD&A disclosures.

John Jenkins