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."
This article predicts that even a smooth Senate confirmation process for Chair-nominee White might not take place til March…
Transcript: “The Litigation Explosion in Executive Compensation”
In talking to one of my law firm friends, it sounds like quite a few in-house counsel didn’t wake up to the new wave of executive compensation litigation until this WSJ article came out yesterday. Tell your friends to stop relying on the WSJ for news in their field and start reading this blog (or the daily blogs I post on CompensationStandards.com’s “The Advisors’ Blog” – or the Borges and Melbinger blogs on that site)! And the past two issues of The Corporate Counsel have covered this topic too. Good grief, the proxy season is half over already.
Anyways, I have posted the transcript for our recent CompensationStandards.com webcast:”The Litigation Explosion in Executive Compensation.”
Judges Needed for Fordham Securities Law Moot Court Competition
Each spring, Fordham Law School hosts the Kaufman Memorial Securities Law Moot Court Competition, which has a rich tradition of bringing together complex securities law issues, talented student advocates and top legal minds. This year’s Kaufman Competition will take place on March 22-24, with a focus this time around on two issues that arise in the fallout of Ponzi schemes: application of SLUSA, which was recently granted cert by the Supreme Court and whether the “stockbroker safe harbor” of the Bankruptcy Code applies to Ponzi operators.
They are currently soliciting folks to judge oral argument rounds and grade competition briefs. No securities law experience is required to participate and CLE credit is available – here is contact information to participate.
Recently I blogged a new Corp Fin position that has led Broadridge to eliminate the “vote with management” button, both online and by phone. Instead, Broadridge now encourages holders to vote on individual items and indicates that if the holder clicks on “submit” without selecting any items individually, proxies and vote instructions will be cast in accordance with board recommendations.
It is my understanding that the SEC also has asked transfer agents (and others that deal with registered shareholders) to ensure that – if their phone and Internet voting applications have a “vote with management” button – they must also have a “vote against management” button. In other words, Corp Fin’s position applies to both beneficial and registered holders.
Please take a moment to participate in this “Quick Survey on Voting Options for Registered Shareholders” to indicate where you are in the planning process for this big change…
Also take a moment for this “Quick Survey on End-User Exception for Swaps” and “Quick Survey on Shareholder Engagement.”
GAO Report: Dodd-Frank Progress
Recently, GAO issued this report that identified 236 provisions of Dodd-Frank that require regulators to issue rulemakings across 9 key areas. As of December 2012, regulators had issued final rules for about 48% of these provisions – however, in some cases the dates by which affected entities had to comply with the rules had yet to be reached. Of the remaining provisions, regulators had proposed rules for about 29% – and rulemakings had not occurred for 23%.
More on “The Mentor Blog”
I continue to post new items daily on our blog – “The Mentor 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:
– Australia Threatens Auditors with Mandatory Rotation
– Notice-and-Access Adopted in Canada
– PowerPoint: Insider Trading Training for Restricted Employees
– More on “Bad Grades Are Rising for Auditors”
– S&P’s Governance Criteria
Recently, many members have been reaching out about how to determine who is an “affiliate” for purposes of the Iran Threat Reduction and Syria Human Rights Act of 2012 and the new disclosures that are required for any periodic report due after tomorrow. As noted during our recent “The ‘Former’ Corp Fin Staff Speaks” webcast, the “affiliate” definition is quite broad – and might elicit disclosure of transactions that may not even be prohibited by any of these law’s restrictions. See this part of the webcast’s transcript (there is also good stuff about the need for ongoing diligence regarding insiders given this new law is not just an annual disclosure). We have been posting memos regarding this new disclosure requirement in our “Iran Sanctions” Practice Area.
Many of the questions we have been getting relate to recent informal SEC Staff acknowledgement that “affiliate” might pick up brother-sister private equity portfolio companies. This Staff acknowledgement is informal (ie. even more informal than the 7 CDIs issued in December; Staff guidance is considered “informal” since it’s not blessed by the Commissioners) – but seems to be based on the fact that Congress didn’t limit the broad “affiliate” definition of Exchange Act Rule 12b-2 when it passed this legislation. As always, companies should make reasonable efforts to obtain the necessary information in order to comply with the disclosure requirements.
FINRA’s New FAQs on Public Offering Reviews
Thanks to David Jenson for alerting us to these new FAQs from FINRA on its public offering review process in this blog…
Transcript: “The Latest Developments: Your Upcoming Proxy Disclosures–
What You Need to Do Now!”
We have posted the transcript from our recent CompensationStandards.com webcast: “The Latest Developments: Your Upcoming Proxy Disclosures–What You Need to Do Now!”
Webcast: “Rule 10b5-1 Plans Under Attack: The Latest Practices”
Tune in tomorrow for the webcast – “Rule 10b5-1 Plans Under Attack: The Latest Practices” – to hear Alan Dye of Hogan Lovells and Section16.net, Howard Dicker of Weil Gotshal, Ron Mueller of Gibson Dunn and Sue Morgan of Perkins Coie analyze the latest practices given the heightened scrutiny of these plans.
Transcript: “Dissecting the Quarterly Earnings Process”
We have posted the transcript from our recent webcast: “Dissecting the Quarterly Earnings Process.”
As noted in this Dechert update, the Supreme Court granted certiorari last week to resolve a circuit split concerning the extent to which the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) preempts state law claims that indirectly arise out of securities claims. The case could have important implications for investor suits against hedge funds and other investment funds that are not themselves covered by SLUSA, but that are set up for the purpose of investing in equities, options, and other covered securities.
Meanwhile, the briefs are pouring in on the Gabelli v. SEC case before the Supreme Court, including this brief from the SEC. Here is the page containing all the proceedings, orders and filings related to that case…
Webcast: “Activist Profiles and Playbooks”
Tune in tomorrow for the DealLawyers.com webcast – “Activist Profiles and Playbooks” – to hear Bruce Goldfarb of Okapi Partners, Dan Katcher of Joele Frank Wilkinson Brimmer Katcher, Chuck Nathan of RLM Finsbury and Damien Park of Hedge Fund Solutions identify who the activists are – and what makes them tick.
Transcript: “Pat McGurn’s Forecast for 2013 Proxy Season: Wild and Woolly”
We have posted the transcript for the webcast: “Pat McGurn’s Forecast for 2013 Proxy Season: Wild and Woolly.”
I know. Probably the last thing you want to be doing during proxy season. As I blogged recently, ISS has changed its governance rating service from “GRId” to “QuickScore” (the upshot is that it’s more like the predecessor CGQ now).
And now ISS is in the process of getting its data verified, with a deadline of input from companies by February 15th – but the real deadline is February 8th because any verification after that won’t get ISS feedback til some later date (whereas verification by 2/8 will get you feedback by 2/15). The 44-page technical document is now available – albeit a little dense – and it applies globally so only certain questions apply to US companies, as noted by Davis Polk’s Ning Chiu in this blog.
“Whistleblower!: The Movie
Gotta love this brief movie from David Smyth of the “Cady Bar the Door” blog. Love the use of air quotes…
Webcast: “Alan Dye on the Latest Section 16 Developments”
Tune in tomorrow for the Section16.net webcast – “Alan Dye on the Latest Section 16 Developments” – to hear Alan Dye of Section16.net and Hogan Lovells discuss the most recent updates on Section 16, including new SEC Staff interpretations and Section 16(b) litigation.
Last week, the NYSE revised its proxy distribution fee proposal. The revised proposal is intended to move forward the NYSE Proxy Fee Advisory Committee’s recommendations and address certain technical changes that were made to the NYSE’s initial filing based on comments provided by the SEC.
The new proposal also addresses two Committee recommendations that were not included in the NYSE’s initial filing:
1. The NYSE proposes a new “success fee” to encourage brokers to adopt an investor mailbox/enhanced broker internet platform (EBIP). The Committee recommended the NYSE further explore this idea as a possible means to increase voting participation by retail shareholders.
2. The NYSE proposes a new rule related to issuer requests for record date-related NOBO lists where positions above or below a certain level can be eliminated at no extra charge and issuers would only be charged for the positions requested. The NYSE will also codify certain fees already in place in the industry for NOBO list requests.
The revised proposal is subject to further review and comment by the SEC and other interested parties. If the revised proposal was approved by the SEC, the net effect of these proposed changes will result in a modest decrease in overall proxy distribution fees of approximately 4%, with the impact varying depending on your circumstances.
Our Pair of Popular Executive Pay Conferences: A 33% Early Bird Discount
We are excited to announce that we have just posted the registration information for our popular conferences – “Tackling Your 2014 Compensation Disclosures: The Proxy Disclosure Conference” & “Say-on-Pay Workshop: 10th Annual Executive Compensation Conference” – to be held September 23-24th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas for the Conferences.
Early Bird Rates – Act by March 8th: Huge changes are afoot for executive compensation practices and the related disclosures – that will impact every public company. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a special early bird discount rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by March 8th to take advantage of the 33% discount.
FINRA recently posted two updates to its Private Placement Filing Requirements FAQs. In the first update, FINRA clarified that the Rule 5123 filing obligation applies to private placements to any individual accredited investor, which includes officers, directors and general partners of the issuer (Rule 510(a)(4)) and entities in which all the equity owners are individual accredited investors (Rule 501(a)(8)).
In the other update, it stated that private placements sold solely to accredited investors that satisfy the Regulation D four categories of accredited investors that are not natural persons (Rule 501(a)(1), (2), (3) and (7) are exempt from the Rule 5123 filing requirements. Those categories include the following:
– bank, insurance company, registered investment company, employee benefit plan or small business investment company;
– private business development company;
– charitable organization, corporation or partnership with assets exceeding $5 million; or
– trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
Yesterday, President Obama named Mary Jo White as the new SEC Chair. Mary Jo served for nearly a decade as the US Attorney for the Southern District of New York, the first woman to hold that post – and more recently has served as the head of Debevoise & Plimpton’s litigation practice. It’s been a while since a “cop” has been the SEC Chair (maybe ever, as this NPR piece says she is the first former prosecutor to be the Chair) so it should be interesting to see how her tenure might differ from recent Chairs. The confirmation hearings could be interesting due to revolving door concerns, as noted in this article – but also see this article that praises her from all corners. Note that Mary Jo is married to Cravath’s John White, who was Corp Fin Director not all that long ago…
When Mary Jo is confirmed, Elisse will go back to her Commissioner job. During her short tenure, Elisse began to lay out her priorities, as noted in this article and this article.
By the way, former SEC General Counsel Dan Goelzer – who was a founding member of the PCAOB (and a long-serving member) – is rejoining Baker & McKenzie in Washington.
The SEC at a Crossroads: Can Things Be Turned Around?
This January-February issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:
– Billion Dollar Companies: Not Too Big for Hostile Shareholder Activism
– News from the SEC: Tender Offer Funding Conditions & Dual Track Processes
– Runaway MAC Carve-Outs
– Delaware Enjoins “Don’t Ask, Don’t Waive” Standstill Provision & Holds Not Per Se Unenforceable (But Use & Effect Should Be Disclosed)
If you’re not yet a subscriber, try a 2013 no-risk trial to get a non-blurred version of this issue on a complimentary basis.
As the Chamber’s lawsuit against the SEC’s conflict minerals rulemaking remains pending – with briefs being filed recently – companies need to continue gearing up for compliance. We continue to post many resources in our “Conflict Minerals” Practice Area, including this Checklist for Step One…
Court Rules for CFTC & Against ICI & the Chamber of Commerce
Speaking of Chamber lawsuits, the US District Court for DC delivered this decision last month arising from the Chamber of Commerce and Investment Companies Institute (the trade organization for the mutual fund business) suing the CFTC to stop Dodd-Frank rulemaking involving commodity pool operators. The decision has been appealed, along with a motion for expedited consideration of the appeal.
Meanwhile, as noted in this Reuters article, House Oversight Chair Darrell Issa and Rep. McHenry have written to the PCAOB as part of its probe into whether sufficient cost-benefit analysis is being conducted by the PCAOB…
In a recent speech, Craig Lewis, the SEC’s Chief Economist and Director of its Division of Risk, Strategy and Financial Innovation, described an initiative to develop an “Accounting Quality Model.” According to Mr. Lewis, the model will seek “to provide a set of quantitative analytics that could be used across the SEC to assess the degree to which registrants’ financial statements appear anomalous.”
The model will be designed to identify possible instances of “earnings management,” though Mr. Lewis is quick to say that earnings management (as he defines it) is not necessarily indicative of fraud but may reflect permissible applications of GAAP. Without delving too much into the technicalities, the model will identify “total accruals” (difference between cash flow and income before extraordinary items), and then seek to determine, based on a large set of factors, which of those accruals are discretionary and which are non-discretionary. If the discretionary accruals are out of line compared to peer companies, then the company may be flagged for further analysis.
Mr. Lewis indicates that the model’s analytics can be used for various purposes, including informing the Division of Corporation Finance’s filing review process, use by the Enforcement Division to focus its investigative process, and evaluating claims by tipsters. For most companies, this new model is unlikely to have much impact. But the fact that the Commission staff is developing this model illustrates the SEC’s continuing efforts to enhance its ability to carry out its regulatory objectives by “integrat[ing] rigorous data analytics into the core mission of the SEC.”
One of the greater challenges last proxy season was ISS rolling out an updated governance ratings service – GRId 2.0 – in the late stages of the proxy season. Last week, ISS sent out the letter below to companies explaining how GRId is changing – including its name – along with a timeline of the new QuickScore launch (it seems there is potential for another “midst of the proxy season” surprise; I’ll ask Pat about this during tomorrow’s webcast):
Most public companies in established markets worldwide are familiar with Institutional Shareholder Services (ISS) and the corporate governance research and proxy voting services we provide to global investors. One of those services is our Governance Risk Indicators (GRId) database, which was designed to assess companies’ governance practices, assigning low, medium and high risk concern levels across practices related to board, executive compensation/remuneration, audit and shareholder rights.
Effective late February/early March 2013, ISS will replace GRId with ISS Governance QuickScore™, which is the first in a suite of ISS QuickScore solutions designed to identify risk within portfolio companies. The ISS Governance QuickScore, which identifies governance risk within a company, will be made available to institutional investors and companies in late February.
Although similar to GRId in concept, ISS Governance QuickScore™ differs in the following ways:
– Methodology – ISS Governance QuickScore uses a quantitatively-driven methodology that looks for correlations between governance factors and key financial metrics, with a secondary policy-based overlay that aligns the qualitative aspect of governance with ISS policy. The methodology is based on best practices across various governance factors, with the number of factors applied varying by region. Details regarding regional factors will be included in a forthcoming technical document.
– Scoring – Moving away from GRId’s color-coded concern levels, ISS Governance QuickScore uses a numeric, decile-based score that indicates a company’s rank relative to region. Companies will still be assessed on four independent dimensions: board, compensation/remuneration, shareholder rights, and audit, and will also receive an overall Governance QuickScore and assessment. In the latter half of the year, scores relative to industry sector will be introduced.
– Coverage – Initially, ISS QuickScore coverage will encompass 4,100 companies in 25 markets, including the largest 3000 U.S. companies by market cap, the largest 250 Canadian companies by market cap and UK, Europe, Japan and Asia Pacific companies in the MSCI-EAFE index.
Companies within this QuickScore coverage universe will have access to ISS’ free data verification site, beginning Monday January 28. At that time, companies can begin to review the data ISS has collected on the QuickScore factors. Note that during this period, only the governance profile for your company will be available for review until Governance QuickScores are published in late February/early March. If you need a log-in ID to the free data verification site, please email us.
– Today through January 25 – GRId data and concern levels remain in effect and are displayed through all current distribution channels.
– January 28 – Data review and verification site opens for companies to review their data against the Governance QuickScore factors. GRId data and concern levels are unavailable.
– February 15 – Data review and verification site closes (although the site will open again and remain open after QuickScores are calculated and released in late February/early March)
– Late Feb/early Mar – ISS Governance QuickScore launches. Governance QuickScores are applied to all 4,100 companies in the coverage universe. GRId is retired. We anticipate a Governance QuickScore launch date on or around February 25, but will confirm/update that date in subsequent communications.
For all covered companies, the ISS Governance QuickScore will be displayed on ISS’ proxy research reports beginning with the late February/early March launch.
Over the coming weeks, you will receive a series of informative communications providing additional details about ISS Governance QuickScore that should answer most of your questions. Look for communications next week that will include access to the ISS Governance QuickScore Technical Document, FAQs and sample reports. If you still have questions after receiving these materials next week, you can email us.
Starting in late February/early March, GRId subscribers will see their current GRId view within ICS’ Governance Analytics platform replaced with modeling and analytical tools based on the new ISS Governance QuickScore methodology.
ISS Updates P4P Methodology Whitepaper
Hat tip to Ed Hauder of Exequity for notifying us of this development: ISS recently posted its whitepaper detailing its pay for performance (P4P) methodology:
The Evaluating Pay for Performance white paper provides an overview of ISS’ approach in evaluating Pay for Performance alignment. Originally published prior to the 2012 proxy season [Note: a revised version of the whitepaper was published in February 2012], the document incorporates further updates for 2013 that describe ISS’ new peer selection methodology and approach to measuring realizable pay.
Webcast: “Pat McGurn’s Forecast for 2013 Proxy Season: Wild and Woolly”
Tune in tomorrow for the always entertaining webcast – “Pat McGurn’s Forecast for 2013 Proxy Season: Wild and Woolly” – Pat McGurn of ISS and the proxy season expert, will recap what transpired during the 2012 proxy season and what to expect for 2013. Please print off these “Course Materials” in advance.
