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."
Yesterday, the SEC announced the appointment of Bill Duhnke as Chair and Jay Brown, Kathleen Hamm, Jim Kaiser and Duane DesParte as Board members of the PCAOB. This is the first time since the PCAOB was initially formed 15 years ago that an entire slate of Board Members was tapped at once. Pretty wild. Here’s SEC Chair Clayton’s statement.
“Financials Staleness Calculator”
A nice companion for our “Disclosure Deadlines Handbook” is this “financials staleness calculator” from Latham & Watkins and KPMG. This tool advances any date that falls on a weekend or holiday to the next business day; accommodates any fiscal year end; and can make the calculation outside of the current year…
Yesterday, the SEC announced an enforcement action against Provectus for insufficient controls surrounding the reporting & disclosure of travel and entertainment expenses submitted by its executives. The former CEO swindled millions using fake or non-existent documentation – the former CFO’s take was closer to $200k.
Here’s an excerpt from the SEC’s press release:
The SEC separately charged Dees in federal district court in Knoxville, Tennessee, alleging that, while Dees was Provectus’ CEO, he treated the company “as his personal piggy bank.” According to the complaint, Dees submitted hundreds of falsified records to Provectus to obtain $3.2 million in cash advances and reimbursements for business travel he never took. Instead, he concealed the perks and used cash advances to pay for personal expenses such as cosmetic surgery for female friends, restaurant tips, and personal travel.
As noted in this blog by Steve Quinlivan, the company itself was not hit with a penalty – perhaps due to the board’s cooperation in the investigation. Steve notes that a somewhat similar case drew a $750k penalty from a company about 30 months ago. We’ve added this case to our list of perk enforcement actions in our “Perks” Practice Area…
One of the odder things over the past 5 years or so is the difficulty of the Senate to confirm SEC Commissioner nominees. My memory might be bad, but I don’t recall any nominees having trouble being confirmed before then. But over the past few years, nominees seem to get stuck in “nominee” mode for a long time. Hester Peirce has been in limbo for years!
Anyway, this blog by Davis Polk’s Ning Chiu discusses how Senator Tammy Baldwin has placed a hold on the nominations of Robert Jackson and Hester, pending their responses to questions she raised in letters to each of them…
Farewell to the Society’s David Smith
A few weeks ago, David Smith – who served as head of the Society of Corporate Secretaries for two decades before his retirement in 2010 – passed away. As an active Society member, I got to know David pretty well – both socially and in my capacity as a national board member for the Society for two terms. The thing I remember most about David was his smile. It spread wide. And he always had one.
A kind man. A listener. He was happy to let others take the lead when meeting with the Corp Fin Staff, etc. Sounds like an easy thing to do – but it’s rare for leaders to not wield their ego. And it was his vision & drive that made the Society such a wonderful place for so long. He truly made a difference.
Here are a few more remembrances:
– Bob Lamm notes: “David Smith was a mentor, friend and leader, not only to the Society of Corporate Secretaries (as it was then known), but also to so many of its members individually. I was one of the many beneficiaries of his guidance and enthusiasm, and I am and always will be indebted to him. Over the course of my career, I learned that while it’s critical to do what you love, it’s also critical to leaven hard work with fun. David taught me those lessons, and unlike so many other teachers, he practiced what he preached; he worked hard, he was demonstrably passionate about his work, and he also made sure to have fun doing it.
David certainly made a difference in my life. It’s impossible to say what my career would have been like without him, but it’s certain that it wouldn’t have been as good as it has been. And I know that there are many others who could – and should – say the same thing.”
– Carl Hagberg notes: “Without David’s insight & early action – which was wildly unpopular at the time among the “stodgy older folks” – The “American Society of Corporate Secretaries” would be completely defunct by now…so we owe him a debt of gratitude for sure. He was a really great guy. Here’s a video from a charitable event where David was honored – David’s remarks start about the 7-minute mark.”
– Steve Norman notes: “There’s a photo in the Society’s archives of a national conference held sometime in the early 1950s at the Greenbrier – there were 48 attendees: 47 men and 1 woman. David came to the Society in the early ’90s from a retail background, which undoubtedly helped him reorient the Society to better serve its customers. He led the Society in increasing its relevance & usefulness to the members through changes in personnel, up-to-date policies and also made the place a much more national organization by strengthening the role of the chapters that existed in nearly all regions of the country. We all hope to leave our organizations in better shape than we found them. David gets high marks for doing that.”
– Doug Chia notes: “David Smith was an important figure in the corporate governance community when I first was exposed to the growing field. During his 19-year tenure at the helm of the Society for Corporate Governance (formerly the American Society of Corporate Secretaries and then the Society of Corporate Secretaries & Governance Professionals), David guided its members though dramatic changes in the demographic makeup of the corporate secretarial profession and the legal and regulatory landscape through which corporate secretaries had to navigate. David saw the profession facing unprecedented challenges that required corporate secretaries to enhance their skills and raise their profiles, and he advocated for the corporate secretary to be seen as the corporation’s “chief governance officer” separate from the chief legal officer or general counsel.
David was at his core a kind man. Family was very important to him. He encouraged all Society members to bring their families to the annual National Conference, and many did year after year (including me). This created a special culture that distinguished the Society from other professional associations and instilled loyalty among its members. David was an approachable person who enjoyed cultivating relationships, making him a natural convener and connector of people. He deftly bridged a generation of corporate secretaries predominantly comprised of white males to succeeding generations of corporate secretaries and governance professionals that were increasingly younger and more diverse. To David, the Society was a place for those new to the profession to immediately feel welcome.
For me personally, David was one of a small number of people who meaningfully altered the trajectory of my career. He gave me opportunities that had I not gotten, things might have turned out much differently for me. I’d say that David was really the one who plucked me from relative obscurity and gave me a seat at the table with those at the highest level of the corporate governance profession. David continued to show an interest in me and my career and became the kind of valued sponsor and advocate all of us hope to have, but many never find. I traveled to Scarsdale, New York this past Friday to pay my respects to David, as did others from multiple generations of Society members and staff. I will never forget the important role he played in my career.”
– Jim Reda notes: “David was a good friend and really upgraded the society during his tenure. Back then, the Society was known for the best conferences that provided the best & most friendly atmosphere. We always felt like we were with friends when attending. The content was top notch as well. David and his family led the way making sure there were no strangers in attendence.”
Even More on “Farewell to Corp Fin Giant, Bill Morley”
Recently, I blogged a few times that Bill Morley passed away (here’s Bill’s obit). Here’s a remembrance from Mauri Osheroff, who worked directly with Bill for most of his tenure:
Like so many other people he worked with, I have very fond recollections of Bill. I owe my career success to Bill. When he was Chief Counsel, he selected me as Deputy Chief Counsel. I joked that this was not an example of the old boys’ network; in fact, I didn’t share his interests (cars and sports, especially University of Maryland sports) at all, so we really didn’t have much in common besides securities law! Nevertheless we got on well. He was always well-informed, practical, and cheerful.
He supported my efforts to learn and to train others. He was a great role model. He was one of the most respected authorities on securities regulation, and was constantly called on by staff members and outsiders alike, but he didn’t let the pressure get to him. I always thought that Bill had a good work/life balance, and when he left the office, he was able to stop thinking about work and focus on his family, friends, and leisure activities. He seemed to really enjoy his retirement, and I wish he had been able to do so for many more years.
Recently, I blogged the rumor that SEC Chair Clayton would tap Senate staffer Bill Duhnke as the next PCAOB Chair. According to this WSJ article, that not only appears true – but Chair Clayton also plans to name several other PCAOB Board Members too. Here’s an excerpt from the article:
SEC Chairman Jay Clayton has picked several members including Mr. Duhnke to join the PCAOB, according to people familiar with the matter. Mr. Clayton and the SEC’s two other commissioners are likely to vote on the nominees in the next several weeks, the people said. The names of the other nominees couldn’t be learned.
The near-wholesale replacement of the audit watchdog’s board follows a period during which SEC officials sometimes publicly chastised the PCAOB for the slow pace of its rule making. Mr. Doty, a former SEC general counsel who took over the PCAOB in 2011, pushed rules that forced auditors to disclose more about what they do.
Interestingly, when I ran my blog about the rumor, I ran a poll about whether our community believes that the PCAOB Chair needs extensive auditing experience – the poll results are: 41% believe deep experience would be a good thing; 34% believe a lack of experience would be a good thing; and 15% say it could go either way…
Revenue Recognition: 21 Corp Fin Comments
Recently, as noted in this memo, FEI found a total of 21 Corp Fin comment letters that asked about revenue recognition practices and found these trends:
1. Early adopters have been asked to clarify considerations made for operationalizing different aspects of the standard
2. The SEC began requesting more robust SAB 74 disclosures for periods ending December 31, 2016
3. Several companies have disclosed incorrect effective dates for ASC 606 in their SAB 74 disclosures
Tune in tomorrow for the CompensationStandards.com webcast — “Your Upcoming Pay Ratio Disclosures” – to hear Compensia’s Mark Borges, Gibson Dunn’s Ron Mueller, Wilson Sonsini’s Dave Thomas and Cooley’s Amy Wood discuss all the latest about how to comply with the new pay ratio rule.
PCAOB Inspections: Internal Controls #1 Concern at Companies
Recently, the PCAOB released this report about its observations of inspections of auditor clients in 2016. Deficiencies relating to internal controls continue to be the most frequently-identified deficiency. Bear in mind that only a very small portion of the total number of public company audits are actually inspected – and only a portion of the selected audits, not the entire audit, is actually inspected…
By the way, I think the PCAOB’s release of inspection reports this year is behind the schedule of past years for some auditors. That might not be good news for those auditors…
Transcript: “Evolution of the SEC’s OMA”
We have posted the transcript for our recent DealLawyers.com webcast: “Evolution of the SEC’s OMA.”
Yesterday, Corp Fin announced that its Chief Accountant Mark Kronforst will leave in about a month after serving in that role for 4 years (and in Corp Fin for 14). Kyle Moffatt will serve as Acting Chief Accountant upon Mark’s departure…
D&O Questionnaires: How to Address Board Diversity?
A few months ago, a member posted this question in our “Q&A Forum” (#9223): “We received the letter from the New York City Pension Funds requesting a director matrix that discloses gender and race/ethnicity of the directors. If companies do end up agreeing to this, are they including in the questionnaire a request for how the director self-identifies by race/ethnicity (and perhaps even LGBTQ status)?”
This was Liz’s answer:
I wouldn’t add this type of question to the D&O questionnaire without first talking to the board’s governance committee about the NYC letter and coming up with a plan. Part of that plan may be to include a matrix in the proxy statement, or at least have some general disclosure about the board’s diversity. If that’s what is agreed on, then you could include this in the questionnaire and explain the context to the board. They will also need to understand that some people may decline to answer. These issues can be complex.
And one thing to keep in mind during these discussions is that while boards may support diversity and the female and minority directors in particular may believe in its importance, no one wants to feel like they are on the board for that sole reason or that there is even any suggestion of that. The NYC Comptroller’s initiative is a new development and we’ll be watching how practices evolve…
Our December Eminders is Posted!
We have posted the December issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Sorry. I couldn’t help myself. The title of this blog was the title of a fictional play mentioned in last night’s episode of “Modern Family.” Not related at all to the title of this blog comes this news about a possible new PCAOB Chair, Bill Duhnke – who’s a veteran Staffer for Senator Richard Shelby (who used to be the Senate Banking Committee Chair). Here’s the intro from this Bloomberg article:
A little-known Republican Senate aide is in line to lead the accounting industry’s watchdog, setting up an official who lacks experience in the auditing profession for one of the highest-paying jobs in financial regulation. William Duhnke, a veteran staff member for former Senate Banking Committee Chairman Richard Shelby, is on track to be selected to become chairman of the Public Company Accounting Oversight Board, according to four people familiar with the matter. An announcement by Securities and Exchange Commission Chairman Jay Clayton could be made in the coming weeks, said one of the people, who like the others asked that they not be named discussing the plan.
The job is seen as one of the most attractive regulatory roles in Washington because it pays more than $670,000 per year — well above the president’s $400,000 salary. The selection of Duhnke, whose name has been circulating as a possible pick for more than a year, would likely be controversial among investor advocates concerned that he would promote a pro-business agenda.
Do You Need a Risk Factor for the Proposed Tax Reform?
We love blogging about risk factors – they can be tough judgment calls. And we are constantly updating our “Risk Factors Handbook” as a result. Anyway, this Dorsey blog by Kimberley Anderson gives us some nice “food for thought” (don’t forget to tailor your risk factors to your own company’s circumstances):
Tax reform efforts by Congress are ongoing, and the substance of the tax bills remains fluid. However, for foreign corporations with U.S. operations, there are some specific potential risks to consider, such as additional limitations on the deductibility of interest, the migration from a “worldwide” system of taxation to a territorial system, and the use of certain border adjustments.
Foreign corporations with U.S. operations may want to consider including a risk factor in their periodic reports or offering documents regarding the potential impact of U.S. tax reform. A sample risk factor (based on the current iteration of the tax bills) is below. As the tax bills are amended during the legislative process, the language of the risk factor may need to be edited prior to use.
Possible U.S. federal income tax reform could adversely affect us.
The new U.S. administration and certain members of the U.S. House of Representatives have stated that one of their top legislative priorities is significant reform of the Internal Revenue Code. Proposals by members of Congress have included, among other things, changes to U.S. federal tax rates, imposing significant additional limitations on the deductibility of interest, allowing for the expensing of capital expenditures, the migration from a “worldwide” system of taxation to a territorial system, and the use of certain border adjustments. There is substantial uncertainty regarding both the timing and the details of any such tax reform. The impact of any potential tax reform on our business and on holders of our common shares is uncertain and could be adverse. [Prospective investors should consult their own tax advisors regarding potential changes in U.S. tax laws.]
Poll: Does the PCAOB Chair Need Deep Auditing Experience?
Please take a moment to anonymously indicate whether you think the PCAOB Chair should have extensive auditing experience:
As noted on their blog, Glass Lewis posted 54 pages of ’18 policy updates last week, which includes a summary of the policy changes on the first page (we’re posting memos in our “Proxy Advisors” Practice Area). As the blog notes, the updates include:
– Feature increased discussion of board gender diversity in our reports, including a phased policy that will see nomination committee chairs targeted with against/withhold recommendations if boards do not include a female director, or provide a cogent explanation for their absence, by 2019;
– Set out our phased policy on virtual-only meetings, which from 2019 will hold governance committees accountable if shareholders are not offered the same rights and opportunities to participate as at a physical meeting;
– Address the emergence of proxy access in international markets, including Canada, and explain our rationale for approaching such proposals in the context of the regulatory landscape;
– Harmonize our approach in areas such as board responsiveness and dual-class share structures, including within the context of recent IPOs and spin-offs; and
– Clarify our methodologies, including for our pay-for-performance (P4P) grades and treatment of outside commitments for NEOs, and on shareholder proposals relating to climate change and proxy access.
Whistleblowers: SEC Paid $50 Million in ’17
Recently, as noted in this memo, the SEC published its “Annual Whistleblower Report,” as fiscal ’17 saw over 4,480 tips, $50 million in payments and 700 matters under review or investigation. Which was growth by most metrics…
Cap’n Cashbags Loves Vea World Recipes Crackers!
I love the new “Vea World Recipes” crackers – particularly the flavor of “Andean Quinoa & Spices.” In this 20-second video, Cap’n Cashbags foregoes holiday bonuses for employees so he can buy Vea World Receipes for himself!
We have posted the transcript for the popular webcast – “Shareholder Proposals: Corp Fin Speaks” – during which Corp Fin Staffer Matt McNair was interviewed by Ning Chiu about Staff Legal Bulletin 14I…
Shareholder Proposals: Apple First to Seek New SLB Exclusion
Here’s the intro from this blog by Steve Quinlivan:
In the closely watch area of shareholder proposals, Apple is seeking to exclude a shareholder proposal regarding the establishment of a Human Rights Committee because it involves the company’s ordinary business operations under Rule 14a-8(i)(7). Apple is relying on newly issued Staff Legal Bulleting 14I.
Apple states SLB 14I provides that whether a policy issue is of sufficient significance to a particular company to warrant exclusion of a proposal that touches upon that issue may involve a “difficult judgment call” which the company’s board of directors “is generally in a better position to determine,” at least in the first instance. A well-informed board, according to Apple analyzing the SEC’s views, exercising its fiduciary duty to oversee management and the strategic direction of the company, “is well situated to analyze, determine and explain whether a particular issue is sufficiently significant because the matter transcends ordinary business and would be appropriate for a shareholder vote.”
ISS Releases “Preliminary” Compensation FAQs
Last week, as noted in this FW Cook blog, ISS released these “Preliminary” Compensation FAQs, which provide insight into ISS’ updated quantitative pay-for-performance screening methodology and its Equity Plan Scorecard (EPSC) evaluation for stock plan proposals. “Final” FAQs are expected in a few weeks…see this note from Ed Hauder for more…
As reflected in this Senate tax bill markup, the Senate bill has been amended to reflect how the House bill was amended late last week to preserve Section 409A. I haven’t done a complete analysis of where the executive pay provisions stand in the Senate bill (I’ll blog that tomorrow on our “Advisors Blog” on CompensationStandards.com – or you can read the markup now) – but I can report that Section 409B has been killed thankfully…
