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."
Spanking brand new. Posted in our “Form 10-K” Practice Area, this comprehensive “Form 10-K Handbook” provides a heap of practical guidance about how to deal with Form 10-K. This one is a real gem – 41 pages of practical guidance.
The Dangers of Social Media: The SEC’s Enforcement Division Is Social Too
Here’s news from Vince Pisano of Xtract Research: Recently, the SEC commenced an action for insider trading against an investor in Thailand who purchased common stock, out of the money call options, and single stock futures on common stock of Smithfield Foods in the week before the announcement of its acquisition by Shuanghui International Holdings. The SEC alleged that the investor was tipped to an impending transaction by a Facebook friend, who was a former employee at the investor’s employer and is now employed by an investment bank that counseled a competing bidder. In eight days, the investor reaped unrealized gains of $3.2 million on an investment of approximately $2.7 million. The investor’s purchases of options and single stock futures were so large, they constituted almost the entire market. Perhaps he thought no one would notice.
Since the investor is said to be an employee of a plastics factory in Thailand, either additional persons will be soon be implicated or applications for jobs at Thailand plastics factories will soar. The regulators were obviously drawn to this investor by the size of his positions – but notably, the only connection to inside information alleged in the SEC’s complaint is to a Facebook friend. First emails and now social media sites. The SEC has computers and knows how to use them.
In this blog, David Smyth notes how quickly the SEC’s Enforcement staff brought this action – which involves the largest-ever acquisition of a U.S. company by a Chinese company…
Webcast: “A Proxy Season Post-Mortem: Lessons Learned”
Tune in tomorrow for the webcast – “A Proxy Season Post-Mortem: Lessons Learned“- to hear Ning Chiu of Davis Polk; Marty Dunn of O’Melveny & Myers; Keir Gumbs of Covington & Burling; and Dave Lynn of TheCorporateCounsel.net & Morrison & Forester analyze the latest developments that transpired during the proxy season.
There have been a dozen more failures during the past few days, including three more companies that have failed two years in a row – and two more have failed three years in a row! At three-peater Nabor Industries, two comp committee members failed to receive majority support and tendered their resignations, which were not accepted by the board – and as noted in this WSJ article, the company engaged in some shady vote counting on its proxy access proposal. Wow…
Here are the latest failures:
– Nabors Industries – Form 8-K (33%; also failed in 2012 with 25% and in 2011 with 42%)
– OpenTable – Form 8-K (47%)
– Big Lots – Form 8-K (31%; also failed in 2012 with 31%)
– East West Bancorp – Form 8-K (42%)
– Tutor Perini – Form 8-K (38%; a 3-peat with 38% in 2012, 49% in 2011)
– The Children’s Place Retail Stores – Form 8-K (17%)
– Gleacher & Company – Form 8-K (39%)
– Insite Vision – Form 8-K (38%; also failed in 2012 at 49%)
– Radioshack – Form 8-K (46%)
– Delcath Systems – Form 8-K (49% support)
– Equal Energy – Form 8-K (44% support)
– Healthways – Form 8-K (32% support; failed in 2012 with 33% support)
– Hercules Technology Growth Capital – Form 8-K (49%)
Thanks to Karla Bos of ING for the heads up on these! Also check out this Towers Watson article entitled “Smaller Companies Seeing More Say-on-Pay Failures.”
More on “Confusion Reigns: Dealing with the New Independence of Advisors Requirement”
I told you that I could blog about this topic every day (hence this upcoming CompensationStandards.com webcast – “Law Firms & Independence: What to Do Now“). Here’s a note that I received from a member:
As the July 1st deadline approaches, advisers to companies, particularly outside legal counsel, and board compensation committees have been focusing on what it means to “provide advice” as contemplated by the Instruction to Rule 10C-1(b)(4). The Securities Law Committee of the Society of Corporate Secretaries and Governance Professionals reported in a Society Alert that this question was discussed recently at its regular meeting with the Staff of the SEC’s Division of Corporation Finance.
At this meeting, Tom Kim, the Division’s Chief Counsel, clarified an informal Staff response to a question raised at the beginning of the month on how to determine whether a company’s outside legal counsel (or other outside adviser) was indirectly “providing advice” to a compensation committee. He indicated that, while the question does not lend itself to a “bright line” test, in-house legal counsel should be in the best position to make the determination and control the vetting process. For example, if in-house legal counsel has a lawyer outside the door of the compensation committee meeting and goes out and gets advice and then comes back in and transmits that advice, then obviously that adviser should have been vetted. He called this the “ventriloquist” scenario.
On the other hand, if in-house legal counsel speaks to several outside legal counsel as a matter of course and then is in a compensation committee meeting giving advice based on what he or she has heard and formulated in his or her own mind, this situation would not require that these counsel be vetted.
For everything else – including the more realistic scenario of in-house legal counsel talking to one outside law firm on a regular basis – it is up to the company to use its judgment as to whether, based on the relevant facts and circumstances, a party is providing advice to the compensation committee and, thus, an independence assessment is required.
Transcript: “FCPA Issues in Deals Today”
We have posted the transcript for the DealLawyers.com webcast: “FCPA Issues in Deals Today.”
Last week, I was excited to see the SEC’s new Edgar search page, the first facelift for the page in a decade. For example, check out the beta view for company filings – here is Capital One as an example.
The display is much nicer than the old search tool. The upgrade begins to overcome one of my long-standing complaints – obscure nomenclature for the form names – since the form description is easily viewed (although there is still room for improvement, eg. a proxy statement is described as “Other definitive proxy statements” – and the form types still aren’t intuitive to a typical investor, eg. DEF 14A). Overall, the upgrade gets a “groovy” grade!
The new page’s tagline of “Free access to more than 20 million filings” reminds me of the old days of McDonald’s marketing campaign of “X million served“…
You Ever Wonder What Annual Shareholder Meetings Look Like?
In case you have never seen an annual shareholder meeting before, The National Center for Public Policy Research has posted videos for some of the 32 meetings this year that it has presented as a proponent. It also has posted press releases for each of those meetings, explaining what it’s activist position is for each company.
We have two post-mortem webcasts on the proxy season next week. On Tuesday, there is this one for non-pay issues on this site – and on Wednesday, there is one for executive pay issues on CompensationStandards.com. Tune in!
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:
– Big Banks Beat Back “Break ‘Em Up” Shareholder Proposals
– ISS, Notices of Exempt Solicitation and HP
– Proxy Season Preview: ESG Proposals
– Declassified Boards: Shareholder Rights Project’s Results for ’13
– Lead Directors: Limited to Serve Only At One Board In That Capacity
– Disney’s Proxy Access Shareholder Proposal Doesn’t Pass
My lessons learned from this case relate to the quite detailed description in the court opinion about the deliberations of whether Gary Prince should have been deemed a Section 16 officer by the law firm and the company. Starting at page 35 and going on for at least 8 pages is a description of the action taken by the law firm weighing in on whether disclosure was necessary. Scary for those of you in firms. Here’s a statement from Alan at the end of his blog that hammers this point home:
The decision also offers a lesson in communications between outside counsel and a corporate client and communications among law firm lawyers in developing their advice to a client. The court lays out a pattern of communications between Integral Systems and its outside counsel in which the company sought the firm’s concurrence that Prince was not an executive officer, but resolution of the issue was left unclear at best.
More on “SEC Extends Comment Period on Proxy Fees”
Recently, I blogged that the SEC has extended the comment period on the proxy fee proposal that has been outstanding for a while. The Society of Corporate Secretaries has posted this interview with Time Warner’s Paul Washington – who chaired the Proxy Fee Advisory Committee -, about what is at stake for companies in this proxy fee proposal. Paul is persuasive – particularly at the end – and it would be unfortunate if the fee proposal is turned down. There should at least be a clear and short timeline for getting a better structure approved.
Webcast: “Conflicts of Interest: How to Handle in Deals”
Tune in tomorrow for the DealLawyers.com webcast – “Conflicts of Interest: How to Handle in Deals” – to hear Steven Haas of Hunton & Williams, Mike Reilly of Potter Anderson and Melissa Sawyer of Sullivan & Cromwell discuss how boards deal with conflicts of interests in the wake of El Paso, Del Monte and Southern Peru, including in relation to stapled financing.
We have posted the transcript for our webcast: “Social Media: Parsing the Hypos.” Note that the number of companies announcing social media channels via Form 8-K has slowed to a trickle. Here’s our list.
Since Dell is going through a going private transaction that has hit some speed bumps – and its IR department maintains the only in-house IRO blog that I am aware of – I thought it would be interesting to see what the DellShares Blog says about the deal. Only a handful of entries devoted to the deal – but Dell has created a stand-along web page devoted to information about the deal process, which I learned of because of the blog…
I’m speaking at NIRI’s annual conference on a social media panel next week. It will be interesting to see how IROs view the latest development from the SEC compared to the lawyers. I’ll report back…
– Why are more E&S proposals being submitted?
– Any particular types the most common?
– Which investors are most interested in them?
– Any surprises this year compared to last year?
Study: Corporate Governance Practices & Trends for 3000 US Companies
Speaking of Kelly, she was part of the E&Y team that joined with the Society of Corporate Secretaries to produce this study on governance trends and practices at US companies, including a review of small- and mid-sized companies.
Cool Places: The Union League in Philly
Yesterday, I was at the Union League in Philly for a full-day meeting of the MidAtlantic Chapter of the Society of Corporate Secretaries. The Union League is one of those grand old buildings. Our conference was held in this room with old bookcases and a large statue of Abe Lincoln right in the middle of the wall, as you can see below. Very cool…
In this podcast, Jeff Mahoney, General Counsel of Council of Institutional Investors, discusses CII’s recent letters to the SEC in a push for rulemaking or interpretive guidance regarding Rule 10b5-1 plans (here is the May letter – and the December letter), including:
– Why did CII send in letters to the SEC about Rule 10b5-1 plans?
– What are you hearing from investors about possible Rule 10b5-1 plan abuses?
Unclaimed Property & Escheatment: Delaware
Here’s an interesting Forbes article entitled “Once A Friendly Locale To Business, The Modern State Of Delaware Is A Bully.” As noted in the memos in our “Escheatment” Practice Area, Delaware’s voluntary disclosure program ends at the end of June…
Our June Eminders is Posted!
We have posted the June issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Prepare for a snowstorm of law firm memos! Yesterday, the SEC finally issued two sets of FAQs – conflict minerals and resource extraction. Both are filled with helpful stuff, including this list pulled from a Cleary Gottlieb email:
Form SD Generally
– Voluntary filers must file Form SD with any applicable specialized disclosure.
– Failure to timely file Form SD will not cause an issuer to lose its eligibility to use short-form registration on Form S-3. (The FAQ does not mention Form F-3, used by foreign private issuers, but the reasoning would apply equally.)
Conflict Minerals
– The conflict minerals disclosure requirements apply to a reporting company and all of its consolidated subsidiaries.
– The packaging and container for a product are not considered to be part of the product, even if the packaging or container is necessary to preserve the usability of the product up to and following the product’s purchase. (Packaging and containers sold independently of the product are considered products in their own right.)
– If a company manufactures a product, there is no distinction in the required analysis and disclosure between the components that the issuer manufactures itself and “generic” components that the issuer purchases for inclusion in the product.
– Services are not products, and equipment that an issuer may manufacture or contract to manufacture to allow it to provide a service is not itself a product.
– Tools, machines and other equipment that an issuer manufactures or contracts to manufacture for use in the manufacture of other products are not themselves products, even if the issuer later sells them.
– Mining companies that engage only in activities customarily associated with mining, including processing and smelting, are not considered to be “manufacturing” the minerals they mine.
– Following an IPO, an issuer may begin providing conflict minerals disclosure for the first calendar year that begins no sooner than eight months after the effective date of the IPO registration statement.
Resource Extraction Payments
– A company that provides only services associated with exploration, extraction, processing and export of a resource will not generally be considered to be a resource extraction issuer.
– Transportation activities are generally not covered by the rule, unless the activities are directly related to the export of the resource.
– Penalties and fines related to resource extraction paid to government agencies are not reportable.
– Payments may not be reported on an accrual basis; they must be presented on a cash basis for the year in which they were made.
– If an issuer pays corporate level income tax on many different sources of income in a particular country, it need not segregate its tax payments to report the amount corresponding solely to resource extraction activities, although it may choose to do so. If the issuer presents information on an aggregate basis, it may disclose that the information includes payments made for purposes other than commercial development activities.
As noted on NAM’s site, oral argument for the conflict minerals case is currently set for July 1st. As noted in this blog, Leonard Street’s Steve Quinlivan writes:
We previously noted that the challenge to the SEC’s conflict minerals rules was transferred from the Court of Appeals to the United States District Court for the District of Columbia. A scheduling order has been entered in the case which provides that the parties’ cross-motions for summary judgment will be decided on the basis of briefs transferred from the Court of Appeals. The Court also granted the parties’ request to expedite the cross motion for summary judgment.
We also noted that the Court of Appeals dismissed the challenge to the SEC’s resource extraction rules for lack of jurisdiction and that the case would proceed in the United States District Court for the District of Columbia. The District Court has likewise entered a scheduling order which provides that the plaintiffs’ motion for summary judgment will be decided on the briefs submitted by the parties to the Court of Appeals.
Big Jump in Anti-Pledging Policy Disclosures
In this blog, McGuire Woods’ William Tysse notes: According to this Wall Street Journal item, the number of companies disclosing anti-pledging policies so far this proxy season has increased to 107 from just 8 last year:
Proxy-advisory firm Institutional Shareholder Services said in November that it could begin looking at any hedging or pledging of company stock by executives as a “failure in risk oversight,” since a margin call could force executives to sell their stock at an inopportune time. ISS said it would consider whether companies disclosed an antipledging policy in their proxies, but could recommend that investors vote against corporate directors if there is “significant” pledging.
Last week, the SEC issued this order extending the comment period for revising the fees that companies pay to have their proxy materials distributed. The order summarizes the comments received to date.
Yesterday, the SEC came out with its own version of “The Internship” movie. No Vince Vaughn or Owen Wilson though…
Nasdaq Agrees to $10 Million Fine for Facebook IPO
Yesterday, the SEC announced that Nasdaq had settled with the SEC for securities laws violations resulting from its poor systems and decision-making during the Facebook IPO by paying a $10 million penalty – the largest ever against an exchange. This Bloomberg article gives a play-by-play…
Federal Court Accords Deference to SEC’s Whistleblower Rules
Last week, the US District Court for the Southern District of New York joined four other district courts in holding – in Murray v. UBS Securities – that the SEC’s rules implementing the Sarbanes-Oxley whistleblower protection provisions are entitled to deference.
Supreme Court Grants Certiorari in Sarbanes-Oxley Whistleblower Case
Last week, as noted in this article, the Supreme Court granted certiorari in Lawson v. FMR to address whether an employee of a privately-held contractor or subcontractor of a public company is protected from retaliatory discharge by Section 806 of Sarbanes-Oxley, the whistleblower provision. A divided First Circuit had held that Sarbanes-Oxley didn’t apply to such employees.
Recently, a Texas judge granted summary judgment to Waste Connections in Federal District Court for the Southern District of Texas after the company had filed suit seeking a declaratory judgment to exclude a shareholder proposal from John Chevedden purportedly on behalf of Jim McRitchie and Myra Young. There is no court opinion – just the pleadings and summary judgment order. However, this Rule 14a-8(j) exclusion notice to Corp Fin from Waste Connections includes the company’s side of the story.
The complaint filed by Waste Connections alleged that Chevedden himself did not own any shares of the company and argued that his proposal was improper because Rule 14a-8 doesn’t permit a shareholder to grant a proxy to another person for that other person to submit a shareholder proposal. This “proposal by proxy” issue is not new. For example, it was the basis for an exclusion request in this Ameriprise Financial no-action letter from late 2012 in which Corp Fin did not grant exclusionary relief when Chevedden filed a proposal “on behalf of” Kenneth Steiner.
So the Texas court reached a different conclusion from the Corp Fin Staff. As one member puts it, the takeaway is the increasing perception that companies might fare better in federal court than before the SEC Staff.
Interestingly, the complaint notes that John has submitted more shareholder proposals than anyone in history, accounting for more than 11% of all shareholder proposals considered by Corp Fin in the no-action process during that time (879 out of 6958 proposals).
Annual Meetings: Don’t Bar the Press
Best way to get negative press about your annual meeting? Bar the press. This Pittsburgh Gazette article perfectly illustrates the point as a company gets slammed for barring the press. Only five shareholders attended the meeting. Was the bar worth it? I highly doubt it.
And its a practice pointer made time and again during my annual webcasts on conducting annual meetings. Also see our checklist on annual meetings and the press…
Here’s an interesting article from an Australian director entitled “The AGM is badly broken.”
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:
– Corp Fin Declines to Exclude Proposals on Basis of Inflammatory or Incorrect Supporting Statements
– Unbundling Lessons Learned from the Apple Case
– Apple: Judge Dismisses Say-on-Pay Injunction Request
– A European Report on Proxy Advisors
– Climate Risks at Banks: Corp Fin Doesn’t Allow Shareholder Proposal Exclusion
On Thursday, President Barack Obama nominated Kara Stein to succeed SEC Commissioner Elisse Walter whose term has expired. Kara is a lawyer and a long-time aide to Senator Jack Reed (D-RI), who is a senior member of the Senate Banking Committee. The President also nominated Michael Piwowar to succeed SEC Commissioner Troy Paredes whose term expires at the end of June. Michael is the Senate Banking Committee’s Republican chief economist and has served in that role since ’09 – he previously worked as a staff economist for the SEC for four years. Here’s a Bloomberg article – and one from DealBook.
Since they both work for the Senate Banking Committee, their confirmation hearings should be smooth…and some think the fact that they both come from Congress will lead to more bipartisan work at the SEC. As if those in Congress provide a beacon of bipartisanship…
PCAOB Starts Making Nice With Chinese Regulators (Or Vice Versa): Access to Work Papers
As noted in this DealBook article, a memorandum of understanding between the China Securities Regulatory Commission, the Ministry of Finance for China and the PCAOB was signed on Friday that should finally give access to work papers that the PCAOB has sought for quite some time (as noted in this blog). But it’s baby steps as the agreement applies only to enforcement cases against auditors; not cases against companies. Another big caveat is captured by this excerpt from the article:
Whether the agreement will result in more cooperation remains to be seen, however. China retained the right to reject requests if they violated Chinese law or “essential national interest.” In addition, the agreement covers only enforcement actions, not routine inspections of audit firms.
Happy 80th Birthday to the Securities Act of ’33!
Many of us owe our livelihood to deals (or did at some point in our career). Thus, it’s appropriate to recognize the 80th anniversary of the enactment date for the Securities Act of 1933, which was yesterday. Lionel Richie says it best:
Well my friends the time has come
raise the roof and have some fun
throw away the work to be done
let the music play on
Everybody sing everybody dance
lose yourself in wild romance
we’re going to party, fiesta forever
come on and sing along
we’re going to party, fiesta forever
come on and sing along
