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."
I have posted the transcript for the popular webcast on the SEC’s conflict mineral rules. I believe Corp Fin continues to collect questions ahead of providing some interpretive guidance in this area. Here is a postscript note I added to the transcript about a common question on Form S-3 ineligibility:
Note that the question of whether a late Form SD will impact adversely a registrant’s eligibility to file a new Form S-3 or update an effective Form S-3 for purposes of Section 10(a)(3) remains unresolved.
The Form S-3 eligibility requirements provide that a registrant must be both current and timely. Specifically, Form S-3 is available only to a registrant that (i) has filed all material required to be filed pursuant to Exchange Act Sections 13, 14 or 15(d) for a period of at least twelve calendar months immediately before the filing of the Form S-3; and (ii) timely filed all reports required to be filed during the twelve calendar months and any portion of a month immediately preceding the filing of the Form S-3. For purposes of Form S-3, the SEC staff historically has interpreted these “reports” and “materials” to include only Sections 13(a) and 15(d) reports and Sections 14(a) and 14(c) materials. See Securities Act Forms C&DI 115.04.
Because the new Form SD is prescribed by Exchange Act Sections 13(p) and 13(r) and the rules promulgated thereunder, it is arguable that a late Form SD should not impair Form S-3 eligibility (and, thus, also not make the registrant an “ineligible issuer” under Securities Act Rule 405 or cause the public information requirement under Securities Act Rule 144(c) not to be satisfied). The SEC Staff has been asked for its views on this question, but to date the Staff has not weighed in with definitive guidance. Hopefully this topic will be in addressed in any Staff guidance issued on the new Form SD filing rules.
Note this Cooley news brief about the pressure these rules are placing on smelters and refiners.
JOBS Act: FINRA Adopts Changes Research Analyst Rules
Last week, the SEC published a FINRA rulemaking that changes Rule 2711 and incorporates NYSE Rule 472 to conform to the JOBS Act so that EGCs can raise capital with reduced restrictions related to communication between EGCs and research analysts at investment banks and eliminate the research quiet period after an EGC’s IPO or secondary offering.
As noted in this White & Case memo, the rule amendments are effective immediately with retroactive effect to April 5, 2012 (with an exception to retroactive implementation for the termination of the restriction on publishing research for 10 days after a secondary offering by an EGC and on publishing research during the 15 days following the termination of a lock-up agreement related to an EGC; this is not retroactive since it’s not JOBS Act-related). We have posted memos in our “Analyst Research” Practice Area – and here is a MarketWatch article noting how these rules may bring back dot.com conflicts…
The PCAOB’s Roundtable on Auditor Independence & Rotation
Yesterday, the PCAOB posted statements from the speakers ahead of its auditor independence and rotation roundtable that was held yesterday.
Rightfully so, all of the attention over the Rule 10C-1 rulemaking has been on the NYSE Euronext and Nasdaq National Market proposals. In all of the excitement, I forgot to note the five other proposals from these exchanges, several of which were released just last week (these are posted in CompensationStandards.com’s “Compensation Committee” Practice Area):
SEC’s Study: Ability of SEC to Enforce ‘ 34 Act Registration Thresholds
As required under Section 504 of the JOBS Act, the SEC has sent its Special Study to Congress on its ability to enforce Exchange Act Rule 12g5-1 and Subsection (b)(3). Check out Prof. Larry Hamermesh’s reaction to the study, particularly to footnote 70.
We just mailed the Lynn, Borges & Romanek’s “2013 Executive Compensation Disclosure Treatise & Reporting Guide” to those that ordered a hard copy. The thing is huge at 1200-plus pages – on the verge on needing to be two volumes.
How to Order a Hard-Copy: Remember that a hard copy of the 2013 Treatise is not part of a CompensationStandards.com membership so it must be purchased separately – however, CompensationStandards.com members can obtain a 40% discount by trying a no-risk trial now.
And note there an additional 40% off when you purchase this Treatise in combination with the just finished Romanek’s “Proxy Season Disclosure Treatise & Reporting Guide.”
Yesterday, ISS posted its draft 2013 Policy Updates, with a comment deadline of Halloween. That’s just two weeks – so no time to procrastinate. Mike Melbinger has posted a chart of the significant proposed changes in his blog. And Ning Chiu has summarized them in her blog – and here is a Gibson Dunn memo…
By the way, ISS now has FAQs about how its research department works…
Corp Fin Issues a New “Shareholder Proposals” Staff Legal Bulletin
As it often has in recent years about this time of the year, Corp Fin issued a Staff Legal Bulletin relating to shareholder proposals yesterday. Some new Rule 14a-8 guidance just before companies start preparing no-action requests.This year’s installment – Staff Legal Bulletin No. 14G – covers these topics: ownership verification; informing proponents of failure to prove ownership and use of website references in proposals and supporting statements. Here are memos from Gibson Dunn and O’Melveny & Myers on the guidance.
Transcript: “M&A Deal Protections: The Latest Developments and Techniques”
We have posted the transcript from our recent DealLawyers.com webcast: “M&A Deal Protections: The Latest Developments and Techniques.”
Tune in tomorrow for the webcast – “Secrets of the Corporate Secretary Department” – to hear the current Chair of the Society of Corporate Secretaries – and three former Chairs – as they debunk myths on how to run the corporate secretary department as well as provide oodles of practice pointers. The panel includes Lydia Beebe of Chevron; Ken Wagner of Peabody Energy; Carol Ward of Mondelez International (formerly Kraft Foods); and Susan Wolf, formerly of Schering-Plough.
Among the topics of this program are:
– How to leverage outside resources & technology
– Best ways to feed and care for the board
– How to best manage a budget
– Ways to streamline the board materials process
– Ways to optimize director orientation & education
– How best to involve directors in shareholder engagement
– Being a governance subject matter expert and resource
– Logistics, contingency plans and last minute changes for board meetings
Nuggets in Responses to Corp Fin Comment Letters: Iran & Syria Travel Plans
Recently, Michelle Leder of footnoted.com (who recently bought back her site from Morningstar) tweeted about the interesting stats on travel to Iran and Syria booked via Expedia in this response to a Corp Fin comment letter. The comments came from Corp Fin’s Office of Global Security Risk. You never know what you’ll find in responses to comment letters…
Catch-Up Now: “Say-on-Pay Workshop Conference”
The video archive of last weeks’ pair of Conferences – the “7th Annual Proxy Disclosure Conference” & “Say-on-Pay Workshop: 9th Annual Executive Compensation Conference” – are posted. Hopefully, you’ve talked to some of the many that attended this event and heard how much practical guidance was imparted (people come from all over the world; I sat at lunch one day with someone that came all the way from Israel). Our panels really delivered this year – and it’s not too late to watch them as you can still register and watch the panels now or when you are gearing up to draft your proxy materials.
Our Week of Conferences: Sights
It was New Orleans, so there were numerous thrills outside the Conference, starting with a Sunday NFL night game next door in the beautifully lit Super Dome – those Saints fans sure know how to get dressed up. The next day, the city temporarily lost it’s drinking water:
The Conference wouldn’t feel right without the annual race of pigs from AON Hewitt/Radford (see this video from a few years back):
As a button maker myself, I was excited to see these magnets from Kenexa that had hilarious statements on them:
Spanking brand new. Posted in our “D&O Questionnaires” Practice Area, this comprehensive “D&O Questionnaire Handbook” provides a heap of practical guidance about how to navigate this tricky task. This one is a real gem – 76 pages of practical guidance…
In the wake of the Facebook debacle, the chorus to challenge multi-class voting structures – seen as a poor governance practice – continues as CII has announced a campaign to urge the NYSE and Nasdaq to make new companies that have two or more classes of common stock with unequal voting rights ineligible for listing. This press release contains links to the letters sent to the NYSE and Nasdaq by CII…
Webcast: “Evolution of M&A Executive Pay Arrangements”
Tune in tomorrow for the DealLawyers.com webcast – “Evolution of M&A Executive Pay Arrangements” – to hear Sullivan & Cromwell’s Matt Friestedt, Wachtell Lipton’s Jeremy Goldstein and Simpson Thacher’s Andrea Wahlquist cover the latest in executive compensation arrangements in deals.
As I return from our week of executive pay conferences, Scott Kimpel of Hunton & Williams gives us this news:
A collection of industry groups has sued the SEC in federal district court to block implementation of the resource extraction disclosure rules promulgated in late August under Section 1504 of Dodd-Frank. The plaintiff trade groups raise a number of claims, including a faulty cost-benefit analysis and deficiencies under the Administrative Procedures Act, the Securities Exchange Act and the 1st Amendment. The act of filing suit does not immediately stay the rules. In recent challenges to SEC rules, the Commission has generally stayed the controversial rules on a voluntary basis after negotiation with plaintiffs’ counsel. Should the Commission refuse to do so here, the plaintiffs could then petition the court for that relief.
The action concerning Section 1504 begs the question as to what may happen to its companion statute, Section 1502, concerning conflict minerals. The two rulemakings employed similar arguments concerning Congressional intent and the scope of Congress’s mandate; a putative plaintiff may choose to raise some of the criticisms leveled in the 1504 complaint against the Section 1502 release as well. It remains to be seen if any groups will in fact come forward with a challenge.
To be clear, the apparent objective of this challenge is not necessarily to make the prospect of rulemaking go away forever. Unless the plaintiffs are successful in setting aside the entire statute as violative of the Constitution – or absent an amendment of Dodd-Frank – the Commission will have to go back to the drawing board if the rules are eventually struck down (which is far from certain) after all appeals are exhausted. This suit presents a different scenario than the SEC’s rules on mutual fund governance, equity-indexed annuities and proxy access–each of which was struck down, but none of which was compelled by statute, which gave the Commission discretion not to re-propose.
Starting Monday: Draft Registration Statements Required to Be Submitted Using EDGAR
Yesterday, Corp Fin announced that draft registration statements are required to be filed via Edgar starting this Monday, October 15th. This applies to both emerging growth companies under the JOBS Act and foreign private issuers. Here are related blogs leading up to this development…
President’s “Iran Sanctions” Executive Order Impact Foreign Subsidiaries and Require SEC Disclosure
On Tuesday, President Obama issued an Executive Order implementing certain sanctions set forth in the “Iran Threat Reduction and Syria Human Rights Act of 2012”, which was signed into law in August. The Act expands the reach of the U.S. sanctions law against Iran by expanding the types of activities subject to sanctions and extending the prohibitions to foreign entities owned or controlled by U.S. persons. The Act also creates a new obligation for SEC reporting companies to disclose in their filings whether they or their affiliates knowingly engaged in Iran-related activities as noted in these memos posted in our “National Security” Practice Area.
As noted in this article, this study made the rounds a few months back and caused a stir. Here is the abstract from the study:
We provide new insights into earnings quality from a survey of 169 CFOs of public companies and in-depth interviews of 12 CFOs and two standard setters. Our key findings include (i) high-quality earnings are sustainable and are backed by actual cash flows; they also reflect consistent reporting choices over time and avoid long-term estimates; (ii) about 50% of earnings quality is driven by innate factors; (iii) about 20% of firms manage earnings to misrepresent economic performance, and for such firms 10% of EPS is typically managed; (iv) CFOs believe that earnings manipulation is hard to unravel from the outside but suggest a number of red flags to identify managed earnings; and (v) CFOs disagree with the direction the FASB is headed on a number of issues including the sheer number of promulgated rules, the top-down approach to rule making, the curtailed reporting discretion, the de-emphasis of the matching principle, and the over-emphasis on fair value accounting.
Talk About Overboarded!?!
I don’t know much about hedge funds and their boards, but this NY Times article was stunning as it revealed that quite a few directors serve on as many as 25 boards – and one dude sits on 262 hedge fund boards, per this chart.
Law Firms: Your Deal Data is Being Hacked!
This Bloomberg article entitled “China-Based Hackers Target Law Firms to Get Secret Deal Data” scared the daylights out of me. Check it out!
Much discussion here at our Conferences about the role of proxy solicitors during the say-on-pay process (here is the video archive from yesterday’s “The Say-on-Pay Workshop: 9th Annual Executive Compensation Conference”). Here are survey results on the use of proxy solicitors:
1. Does your company use a proxy solicitor for the proxy season:
– Yes, every year – 64.9%
– Only in years of special need – 24.3%
– No, we don’t use proxy solicitors – 10.8%
2. If a proxy advisor (ie. ISS/Glass Lewis) recommended a vote ‘against’ your company’s say-on-pay proposal, your proxy solicitor’s SOP projection (at record date vs. final voting results) was:
– Less than 3% (small margin between what estimated and what occurred) – 4.2%
– Within ± 3% – 5% – 16.7%
– Within ± 5% – 10% – 8.3%
– Within ± 10% – 15% – 12.5%
– More than 15% (large margin) – 0%
– Other/Don’t know – 58.3%
3. If your proxy solicitor’s say-on-pay projection substantially missed the mark during your latest proxy season, do you feel it was:
– Likely due to a good reason (eg. unforeseen circumstances) – 18.2%
– Not likely due to a good reason (ie. they just blew it) – 9.1%
– Don’t know – 72.7%
Please take a moment to participate in this “Quick Survey on Conflict Minerals” and this “Quick Survey on Delegation of Authority.”
Day Trading During Proxy Contests
In this DealLawyers.com podcast, Chuck Nathan of RLM Finsbury discusses an interesting – and potentially novel – situation in a proxy contest in which The Clinton Group (led by Greg Taxin, formerly a Glass Lewis founder) is seeking to remove 6 out of 7 directors through a written consent campaign and replace them with five new directors of Clinton’s choosing. Clinton seems to be day trading Wet Seal stock, which may be the first instance in which an activist investor day traded the stock of a company during a proxy contest it was sponsoring.
An Update for Internal Audit Standards
Recently, the Institute of Internal Auditors (IIA) announced changes to the International Standards for the Professional Practice of Internal Auditing Standards effective January 1st. In total, 18 revisions were made.
Today is the “Say-on-Pay Workshop: 9th Annual Executive Compensation Conference”; yesterday was the “7th Annual Proxy Disclosure Conference” – and the video archive of that Conference is already posted. Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our staff. Both Conferences are paired together; two Conferences for the price of one.
– How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (a prominent link called “Enter the Conference Here” on the home pages of those sites will take you directly to today’s Conference (and on the top of that Conference page, you will select a link matching the video player on your computer: Windows Media or Adobe Flash Player).
Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is today’s Conference Agenda; times are Central.
– How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few – but hours for each state vary; see the CLE list for each Conference in the FAQs.
M&A Lawyers and New Careers
In this DealLawyers.com podcast, Chuck Nathan of RLM Finsbury discusses his big life change, including:
– Why did you make the move?
– What will you be doing?
– How has the practice of law in M&A evolved over the years?
US Supreme Court to Decide Potential Landmark Case on Application of Statute of Limitations to SEC Civil Penalties
As noted in this Akin Gump alert, in Gabelli v. SEC, No. 11-1274, the U.S. Supreme Court has agreed to determine whether the “discovery rule,” the concept that a statute of limitations is tolled until the underlying harm is discovered, applies to SEC enforcement actions seeking civil penalties.
Today is the “Tackling Your 2013 Compensation Disclosures: 7th Annual Proxy Disclosure Conference”; tomorrow is the “Say-on-Pay Workshop: 9th Annual Executive Compensation Conference.” Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our staff. Both Conferences are paired together; two Conferences for the price of one.
– How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter the Conference Here” on the home pages of those sites will take you directly to today’s Conference (and on the top of that Conference page, you will select a link matching the video player on your computer: Windows Media or Adobe Flash Player).
Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is today’s Conference Agenda; times are Central.
– How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few – but hours for each state vary; see the CLE list for each Conference in the FAQs.
ISS’ 2013 Voting Policy Survey Results Now Available
Last week, ISS posted the results from its policy survey – 370 responses were received. Not surprising, executive compensation is the top area of focus across the globe. A summary of ISS’s summary is in this Davis Polk blog…
Study: 20% of Companies Smooth Earnings
As noted in this WSJ article – which dissects this study – around 20% of CFOs interviewed believe that companies smooth earnings. Here is an excerpt from the piece:
Taken in isolation, this finding isn’t that surprising. It is an open secret that companies play around with “cookie-jar” reserves, accruals, and other accounting instruments to flatter, or even depress, earnings.
The tricks are well-known: A difficult quarter can be made easier by releasing reserves set aside for a rainy day or recognizing revenues before sales are made, while a good quarter is often the time to hide a big “restructuring charge” that would otherwise stand out like a sore thumb.
What is more surprising though is CFOs’ belief that these practices leave a significant mark on companies’ reported profits and losses. When asked about the magnitude of the earnings misrepresentation, the study’s respondents said it was around 10% of earnings per share.
