Broc Romanek is Editor of CorporateAffairs.tv, TheCorporateCounsel.net, CompensationStandards.com & DealLawyers.com. He also serves as Editor for these print newsletters: Deal Lawyers; Compensation Standards & the Corporate Governance Advisor. He is Commissioner of TheCorporateCounsel.net's "Blue Justice League" & curator of its "Deal Cube Museum."
Your time is too valuable to waste during a prime networking opportunity like a conference. Plan ahead to maximize your conference experience – and have more fun to boot! Below is my ten cents in this “Take Two Video” about “How to Attend Conferences.” I’m going to take my own advice and meet 10 new people during the Society of Corporate Secretaries Annual Conference that kicks off tomorrow:
One topic at the conference surely will be whether to adopt an exclusive forum bylaw now – here is a “Quick Survey of Exclusive Forum Bylaws” for you to weigh in anonymously…
California’s Department of Corporations Renamed: “Department of Business Oversight”
As noted in this blog by Keith Bishop, the California Department of Corporations and the Department of Financial Institutions have “merged” to form the Department of Business Oversight in accordance with the Governor’s reorganization of state departments.
Following up on yesterday’s blog about “Does Congress or the PCAOB Oversee the Auditors?,” the House passed a bill last night that would bar the PCAOB from mandating auditor rotation, as noted in FEI’s blog.
More on our “Proxy Season Blog”
We continue to post new items regularly on our “Proxy Season Blog” for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Shareholder Proposals: Leadership Changes
– Proxy Access Proposal Barely Passes at Verizon
– Law Mandates CalPERS/CalSTRS Support Shareholder Proposals Supporting Religious Minorities
– Audit Committee Disclosure Trends
– European Commission Moves on ESG Reporting
Here’s a note from Lynn Turner: “Congress established the PCAOB to oversee and regulate the auditing profession. Now Congress is stepping in and limiting what the PCAOB can do. It perhaps is becoming clear the large audit firms have more clout with their checkbooks with Congress than does the PCAOB. Members of the PCOAB do not appear to have publicly pushed back against such efforts by Congress this year – or last year when limits were imposed on the PCAOB by the JOBS Act.
This story below how the GAO will be asked to study mandatory auditor rotation once again. However, the last study by the GAO was in fact not a study, but more of a survey of auditors and management of the companies they audit. There was limited surveying done of investors.”
The House Financial Services Committee passed 52-0 a bill that would prohibit the PCOAB from dictating which auditor a company is audited by or requiring companies to adhere to mandatory auditor rotation. Republican and Democratic members of the committee agreed that mandating public companies to company with audit firm rotation was not good policy. The PCAOB, which Congress created in the 2002 Sarbanes-Oxley Act, floated the mandatory auditor rotation idea in an August 2011 concept release on auditor independence. The rotation is still under review, and the PCAOB has not issued a specific proposal for implementing it.
During today’s mark-up session, the committee agreed to an amendment offered by ranking member Maxine Waters to require the GAO to study the issue once again, including a cost-benefit analysis of mandatory rotation of auditors.
Study: How Auditors Miss Signs of Fraud
As noted in this Reuters article, this new study of 87 SEC enforcement actions against auditors over 13 years found that most common accounting mistakes involved failing to question documents which appeared to be fake and a lack of professional skepticism. Here’s the related press release.
Webcast: “Post-Closing Claims: What Really Happens”
Tune in tomorrow for the DealLawyers.com webcast – “Post-Closing Claims: What Really Happens” – to hear Goodwin Procter’s Larry Chu and Shareholder Representative Service’s Paul Koenig analyze what truly happens in deals – including practice tips to make your post-closing claim process go as smoothly as possible. Here are Course Materials to print out in advance…
As noted in this Morrison & Foerster blog, the SEC has calendared an open Commission meeting for next Wednesday to finally adopt rules relating to Title II of the JOBS Act, which should facilitate the ability to conduct Rule 506 offerings as they include the elimination of the general solicitation bar for Reg D and Rule 144A offerings as well as other changes to Reg D (including the “bad actor” disqualification), Form D and Rule 156. Note that this doesn’t include the crowdfunding rules in Title III of Dodd-Frank…
New Type of Myanmar Disclosure Requirements Starts Monday
Hat tip to the Society of Corporate Secretaries for pointing out this NY Times article that describes a new annual disclosure requirement for US companies that invest a certain amount or way in Myanmar. This disclosure is not made through SEC filings – but rather through a report that eventually is made public on an embassy website. Bizarre stuff…
The Society’s alert also notes that there is a bipartisan bill pending in the House to require companies to disclose activities in North Korea: H.R. 1771: “North Korea Sanctions Enforcement Act of 2013.”
The SEC’s loooong losing streak in major cases continues. Yesterday, Judge John Bates of the US District Court for DC vacated the SEC’s resource extraction rules and remanded the case back to the SEC (just before he leaves for another job). This case was brought jointly by the Chamber and the American Petroleum Institute. Oxfam America had joined the SEC as a defendant to defend the rule.
Either the SEC will appeal or it will conduct new rulemaking which takes into account the Judge’s twin concerns of public disclosure of individual payments to foreign governments and lack of an exemption for countries that have laws that bar disclosure of payment information. If the agency goes the rulemaking route, it may simply revise its existing rules or go through an entirely new rulemaking process (bear in mind the SEC has a new Chair and two new Commissioners coming in). Either way, the deadline of reporting payments starting October 1st is bound to be substantially delayed. The SEC can’t simply drop the rulemaking since adopting a rule is mandated by Dodd-Frank.
This does not bode well for the future of the conflict minerals rules, since a similar case is pending before the same court with a decision expected soon (oral argument took place two days ago in that case, as noted in this article). Nor does it bode well for federal agencies in general trying to promulgate rules, even though the Chamber lost one of these “cost-benefit analysis” cases against the CFTC last week…
Yesterday, the SEC issued a press release to announce these three new initiatives:
– “Financial Reporting and Audit Task Force” dedicated to detecting fraudulent or improper financial reporting.
– “Microcap Fraud Task Force” targeting abusive trading and fraudulent conduct in securities issued by microcap companies, including social media & website use.
– “Center for Risk and Quantitative Analytics” employing quantitative data and analysis to profile high-risk behaviors and transactions and support initiatives to detect misconduct.
Happy 4th! Stay Hydrated My Friends…
Looking forward to the “most interesting woman in the world” campaign! My favorite fact: “He once had an awkward moment, just to see how it feels.”
Inspired by the recent 80th anniversary of the ’33 Act, I put together this short video about this first piece of legislation to regulate deals, including a look at the quartet that drafted the law:
50th Anniversary! Special Study of Securities Markets
It’s been 50 years since the Special Study was conducted by the SEC in 1963 – a study often referred to as the most important in the SEC’s history. Learn more about the study from the SEC Historical Society by perusing the numerous papers collected from that era (scroll down to 1963)…
How To Make a Better Phone Calls in Business
Many of us are led through online demos or other calls from those that have something useful to offer – but the demos or calls often meander and don’t match our needs (even though the product or service might). This blog from Mark Suster provides great tips to those leading those calls. You should read the entire blog – but at least read this excerpt:
1. Prepare! Write your set of bullet points on paper before the call. Write out the reason you’re calling, your key points and “the ask” in advance and your time allotment so you can always refer back and make sure you’re tracking to your plan.
2. You can start informally with banter – If I’m calling somebody I know a bit I usually try to start with a little friendly banter. If I know they like a sports team that might be a good start. If I saw their company in the press, heard that they saw somebody at an event that I know, they live in a town where a storm just rolled through – whatever. I think trying to humanize the call from the outset is good. When you jump straight into “sales pitch mode” it feels a bit strange.
Two things to watch for: 1) if you’re trying banter to build rapport but not “feeling it” then quickly shift to business. Some people just aren’t “chit chatters” and prefer to get on with things. I find that kinda boring, but I know some people are just wired that way. 2) some callers take this banter too far It starts to border on disrespectful of the person’s time or wasteful of your 15 minutes. Don’t be that person.
How long you go for is really a judgment call because there’s no right answer. If it’s somebody that I know really well and I confirm that they’re not rushing to do something else I might even take 10-15 minutes just to “catch up.” If it’s a general acquaintance it’s probably more like 3-4 minutes. If it’s a first time call you might try to keep the banter at 2 minutes or less.
So even if the person you called is really chatty don’t be undisciplined and let them talk too long. You have limited time on the call, presumably you called for a reason and you’re chewing up your valuable clock.
3. Let them know why you’re calling – When you’re ready to pivot the conversation your next line should be some derivative of, “listen, the reason I’m calling is … blah, blah, blah” 25% of people or less actually do this. They just talk and I’m not really sure why they called.
If you’re calling for a reason, the sooner the recipient knows the sooner they can help. If the clock runs out they’re not going to be able to help. Even if you don’t have a single “ask” I recommend saying something like, “listen, I’m going to make this call short. I don’t have anything I’m asking for, I was just hoping to get 10 minutes of your time to tell you what we’re up to so that the next chance we get to meet down the line you’ve got more of an understanding.”
4. Don’t hang yourself – One of the other big mistakes callers make is going “off to the races” talking about their business without getting any feedback from the recipient of the call. This is bad enough in person but I promise you if you do it over the phone the recipient will start to tune out. If you listen closely you’ll probably even hear the tapping of a keyboard. You can talk for a bit but then seek feedback and make sure the other person is “with you.” When I used to do a lot of recruiting we used to call it “hanging yourself” because people who talk for long periods of time without seeking feedback are generally not self-aware or good at human interaction. Don’t be that person.
5. Ask questions – The best trick for creating a two-way conversation is to ask questions. You can do this too early in the call and you can’t be an interview factory, but polite questions relevant to your topic are appropriate. It will help ensure that you don’t do all the talking. Plus, when you listen you learn more anyways.
6. Know what “the ask” is – If you’re set up a call with somebody then know in advance why you’re calling and what you plan to ask for. Don’t ask for four things or you’ll get none. Don’t ask for big favors unless you have a tight relationship. Don’t assume that this will be the one and only time you’ll ever talk to the person. If you cultivate a good long-term relationship through patience, persistence and reciprocity there will be many more occasions. So by all means have an “ask” but make it: obvious, easy for them to achieve and of a limited number – preferably one.
7. Stick to your budgeted time – maybe less – When you think of your relationship with the individual as a relationship you’ll build over time and over many calls, discussions, chats at conferences or whatever you’ll realize you need to be known for being respectful of other’s time. If you’re known as the person who’s always long winded you’re less likely to get the next few calls on the calendar. Less is better, I promise.
In this blog, Steve Quinlivan provides the latest in crowdfunding – including more Congressional testimony. Meanwhile, in our “Crowdfunding” Practice Area, I have posted this PowerPoint that goes over the state of play for crowdfunding from Kelley Drye’s Jeanne Solomon, Matthew Zucker and Maura Gallagher.
The Sequester is Real (Even If It Fell from the National News)
Still no word on how the sequester might impact the SEC, but I can tell you from living inside the Beltway that the sequester is real and starting to take effect. Many of my neighbors and friends have received furlough notices from federal agencies and will not be working one day every two-week pay period. Their workload will remain the same of course – but they are not allowed to work on their furloughed day off, even if they want to! Learn more about how the sequester is impacting us in this David Cay Johnston piece. And today’s Washington Post ran this article about the sequester…
Our July Eminders is Posted!
We have posted the July issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
For a long time, companies have been seeking to know the identities of their shareholders so that they can more efficiently communicate with them (many shareholders are OBOs, whose identities are shielded from the company). This is a desire that I always believed had little chance of becoming reality given the pushback by those investors who wish to remain anonymous.
Thus, I was surprised to see this Gibson Dunn memo, which describes the recent G8 Summit and how leaders agreed on eight core principles to clamp down on money-laundering, tax evasion and tax avoidance. The first principle is “companies should know who ultimately owns and controls them and that information should be adequate, accurate, and current.” So if the USA ultimately fully complies, companies would get their dream fulfilled. Wow!
FINRA’s New Private Placement Due Diligence Form
Last week, FINRA filed a proposal with the SEC that would amend Rule 5123, its private placement rule, to require that FINRA members file a Private Placement Form electronically via FINRA Firm Gateway – and the form would include “due diligence-related information concerning the offering, the issuer and its management” via a series of questions. These questions go far beyond the notice-type information required before this rulemaking.
Although FINRA states that a member can respond “unknown” if the member does not know the requested information, the rule filing references FINRA Regulatory Notice 10-22, which provided guidance on the scope of a firm’s responsibilities to conduct a reasonable investigation of private placement issuers in fulfillment of its suitability obligations. While some of the requested information should be found in the offering document, it appears possible that the inability of a FINRA member to respond to a question could be viewed by the FINRA Staff as indicating that the member has not conducted an adequate “reasonable-basis” suitability review of the issuer and the offering since FINRA designates the questions as “due diligence-related.”
FINRA requested immediate effectiveness of the rule change and has asked the SEC to waive an otherwise required 30-day delay on implementation so that the change can be imposed immediately. Thus, unless the SEC Staff disagrees with FINRA’s waiver request within 60 days and suspends the new rule, the rule change was effective as of June 20th. The SEC has not yet published its release regarding the rule change.
Specifically, the Private Placement Form includes these questions:
- Whether the offering is a contingency offering;
- Whether independently audited financial statements are available for the issuer’s most recently completed fiscal year;
- Whether the issuer is able to use offering proceeds to make or repay loans to, or purchase assets from, any officer, director or executive management of the issuer,
sponsor, general partner, manager, advisor or any of the issuer’s affiliates;
- Whether the issuer has a board of directors comprised of a majority of independent directors or a general partner that is unaffiliated with the firm;
- Whether the issuer has engaged, or does the member anticipate that the issuer will engage, in a general solicitation in connection with the offering or sale of the
securities; and
- Whether the issuer, any officer, director or executive management of the issuer, sponsor, general partner, manager, advisor or any of the issuer’s affiliates has
been the subject of SEC, FINRA or state disciplinary actions or proceedings or criminal complaints within the last 10 years.
CII Petition: Bar Directors Who Don’t Get Majority Support to From Continuing to Serve
Last week, CII petitioned the NYSE and Nasdaq asking them to amend their standards for listed companies to require that directors who do not receive a majority of votes in uncontested elections resign promptly and not be reappointed.
This article from the New York Times provides a bit more color on the SEC Chair’s decision to refuse to allow defendants in some cases to settle without admitting wrongdoing. (See my blog from last week.)
In an interview, Mary Jo White said that admissions “will help with deterrence, and it’s a matter of strengthening our hand in terms of enforcement.” She did, however, repeatedly emphasize that that “most cases would still be settled under the prevailing ‘neither admit nor deny’ standard, which, she said, has been effective at encouraging defendants to settle and speeding relief to victims.” “Although she acknowledged that “‘Judge Rakoff and other judges put this issue more in the public eye, … it wasn’t his comments that precipitated the change….I’ve lived with this issue for a very long time, and I decided it was something that we should review, and that could strengthen the S.E.C.’s enforcement hand.'” In addition, the author quotes Ms. White as saying that “‘our aim is to apply this policy in appropriate cases, and we’ll do this in the public interest….Will this lead to more cases going to trial? It’s hard to say going in, but it might. We have to be prepared to go to trial, and we have to make people believe we’re prepared.'”
In addition, in a memo to the enforcement staff, the co-directors of the SEC’s enforcement division said “there might be cases that ‘justify requiring the defendant’s admission of allegations in our complaint or other acknowledgment of the alleged misconduct as part of any settlement….Should we determine that admissions or other acknowledgment of misconduct are critical, we would require such admissions or acknowledgment, or, if the defendants refuse, litigate the case.’ The article reports that the memo “cites three criteria: ‘misconduct that harmed large numbers of investors or placed investors or the market at risk of potentially serious harm’; ‘egregious intentional misconduct’; or ‘when the defendant engaged in unlawful obstruction of the Commission’s investigative processes.'”
The author of the article contends that “[r]elatively few of the high-profile financial crisis cases, including the big mortgage fraud cases …, would seem to meet those criteria, because the misconduct that was alleged wasn’t that egregious, the evidence in some cases was ambiguous, and the victims were limited to a few sophisticated financial institutions rather than large numbers of the investing public.” However, Ms. White declined to comment on any specific cases, indicating that “[n]o one case precipitated this. From this point forward, we’ll be looking for appropriate cases in which to apply the policy.”
Meanwhile, SEC Chair White testified about the agency’s budget for fiscal year 2014 before the Senate Appropriations Subcommittee on Tuesday. As noted by Steve Quinlivan in this blog, the budget would finance 25 new Corp Fin positions.
Rulemaking Cost & Benefit Analysis: Appeals Court Rules Against ICI & Chamber of Commerce
A few days ago, the US Court of Appeals for the DC Circuit upheld the District Court’s summary judgment order dismissing challenges from the Investment Company Institute and the Chamber of Commerce to CFTC rules requiring SEC-registered investment companies engaging in the activities of a commodity pool operator to register with the CFTC. Here’s a Morrison & Foerster memo – and here’s an excerpt from this Knowledge Mosaic blog:
In doing so, the Court made two notable points: agencies can change their minds (especially when authorized by Congress to do so), and the Administrative Procedures Act’s cost-benefit requirements cannot be used to challenge an agency’s method for obtaining data on the ground that the agency has not yet obtained the necessary data.
The Court’s opinion principally addressed two of the four challenges presented by the Investment Company Institute and the Chamber: that the CFTC’s rules violated the Administrative Procedures Act by failing to address why it was changing an existing rule that exempted investment companies from the CPO registration requirements, and offering an inadequate evaluation of the rule’s costs and benefits.
House Financial Services Committee Approves Ban on Mandatory Auditor Rotation
The House Financial Services Committee has approved a bill that would prohibit the Public Company Accounting Oversight Board from imposing mandatory auditor rotation. The bill, which passed with bi-partisan support, provides that the PCAOB shall have no authority “to require that audits conducted for a particular issuer in accordance with the standards set forth under this section be conducted by specific auditors, or that such audits be conducted for an issuer by different auditors on a rotating basis.” As with all proposed legislation, it is, at best, uncertain whether this bill will become law. But it does send something of a signal to the PCAOB.
Yesterday, Delaware Chancellor Strine delivered this eagerly awaited decision on forum selection bylaws. I’m posting memos in our “Exclusive Forum Bylaws” Practice Area. Here’s a brief summary from Claudia Allen of Neal Gerber:
Chancellor Strine’s opinion upholds the facial validity under the DGCL of the forum selection bylaws adopted by Chevron and Fed Ex, and holds that such bylaws are contractually valid even though adopted without shareholder consent. This is an important decision since it will help corporations address the inevitable strike suits and associated forum battles that follow the announcement of mergers and acquisitions. Both parties indicated during oral argument that any decision would be appealed, so the Delaware Supreme Court will likely have the last say.
If the decision is upheld on appeal, we can expect to see more public companies adopt forum selection bylaws providing for intra-corporate disputes to be litigated exclusively in the Court of Chancery (or any state or federal court located in Delaware). The court acknowledged that a plaintiff might still chose to sue in a different jurisdiction and then argue in response to a motion to dismiss that enforcing the forum selection bylaw would be unreasonable or that the forum selection provision is being for an inequitable purpose in inconsistent with the directors’ fiduciary duties.
Here’s Kevin LaCroix’s blog about the case – and Keith Bishop’s blog about why a California Court might not follow Delaware. And for a “bigger picture” perspective, this blog by Prof. Brian Quinn predicts that this decision – combined with arbitration provisions in bylaws – could ultimately harm Delaware’s position as a corporate law leader in the long run.
SEC’s Money Fund Proposals May Significantly Impact Corporate Treasuries & Commercial Paper Issuers
Most of the law firm memos on the SEC’s proposed rule on money market funds have been authored by our cousins in the 1940 Act bar and focus on the regulatory impact on the funds themselves. So far, this Hunton & Williams memo is the only one I have seen that tackles the potential impact on public companies that either use the product for cash management or look to “prime” institutional money funds to buy their commercial paper.
Transcript: “Conflicts of Interest: How to Handle in Deals”
We have posted the transcript for our recent DealLawyers.com webcast: “Conflicts of Interest: How to Handle in Deals.”
Spanking brand new. Posted in our “E-Proxy” Practice Area, this comprehensive “E-Proxy Handbook” provides a heap of practical guidance about how to deal with Rule 14a-16. This one is a real gem – 39 pages of practical guidance.
On Thursday, the Senate will hold a confirmation hearing for SEC Commissioner nominees Kara Stein and Michael Piwowar…
Retail Voting: Still Down
As noted in this ProxyPulse report from Broadridge and PwC, there are still challenges in getting retail shareholders to vote, with only 30% of retail shares voting recently. Notice & access is a factor in the drop – with only 17% of retail holders receiving a notice voting compared to 36% of those retail holders who received full paper packages. Learn more during tomorrow’s webcast.
Webcast: “E-Proxy Practice Tips: Five Years Later”
Tune in tomorrow for the webcast – “E-Proxy Practice Tips: Five Years Later” – to hear Tom Ball of Morrow & Co., Chuck Callan of Broadridge Financial Solutions, Keir Gumbs of Covington & Burling and Paul Schulman of MacKenzie Partners provide practice tips and cover the latest e-proxy developments.
