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."
A while back, I ran our 1st annual contest for the cutest dog. It was so popular that the Internet almost broke with all the voting (just under 1k votes cast) – Skadden flexed their muscles and Hagen Ganem’s “Teddy” crushed the competition. And some members responded by emailing me with pictures of their dogs. So let’s do it again – the poll is at the bottom of this blog:
Last night, the SEC posted this Sunshine Act notice to announce it will hold an open meeting next Tuesday, November 5th to propose rule changes for proxy advisors & shareholder proposal thresholds – here’s the agenda. My blog yesterday included an excerpt from an FT article about what may be in the proposals. Check that out for a possible preview.
We’ll be covering this, along with the SEC’s recent Rule 14a-8 proposal during our upcoming webcast – “Shareholder Proposals: What Now” – on Thursday, November 21st. In that program, Davis Polk’s Ning Chiu, Morrison & Foerster’s Marty Dunn and Gibson Dunn’s Beth Ising will also be discussing Corp Fin’s new approach for processing shareholder proposal no-action requests and the expected impact of Staff Legal Bulletin No. 14K.
SEC Starts Posting “Edgar Is Down” Notices
Just last week, Broc blogged his frustration about how the SEC wasn’t posting “Edgar is down” notices as we thought they would be doing. Yesterday afternoon, the SEC posted their first one:
EDGAR System Technical Difficulties
The EDGAR system is experiencing technical issues, which may impact filers’ ability to make submissions to EDGAR. Our technical staff is working to resolve the issues. We apologize for any inconvenience caused. Please note that updates regarding the resolution of this issue will be posted on this site. Once the outage has been resolved, we will work with filers who are impacted to resolve any impact from the inability to file.
Update – For those Issuers who are unable to furnish or file an Item 2.02 Report on Form 8-K to meet the requirements of paragraph (b)(1) of Item 2.02, but are unable to do so because of these difficulties, the staff will adjust the receipt date of such report so that it will be deemed furnished or filed at the time the Issuer first attempted to submit such report.
Update – The technical issue has been resolved. EDGAR is operating normally. Filers who attempted to file but were unable to do so as a result of the outage should submit their filing as soon as possible, and contact Filer Support at 202 551-8900, or email EDGARFilingCorrections@sec.gov. Please provide the CIK, accession number of the impacted filing.
TCFD: Real-World Disclosures
A few months ago, I blogged about the “TCFD Implementation Guide” – it has annotated mock disclosures that show how companies could present climate-related financial info. Now, SASB and the Climate Disclosure Standards Board (CDSB) are back with this 50-page “Good Practice Handbook.”
The Handbook teases out specific examples of effective reporting from companies around the world. It focuses on the 4 core TCFD elements of governance, strategy, risk management, and metrics & targets.
Yesterday, the SEC issued this 168-page proposing release to modernize filing fee disclosure that companies provide – and proposed changes to the agency’s payment method process. Among other changes, the SEC proposes:
– Amend most fee-bearing forms, schedules, statements & rules to require each fee table and accompanying disclosure to include all required information for fee calculation in a structured format (this Cooley blog explains the proposed revised format)
– Add the option for fee payment via Automated Clearing House (“ACH”)
– Eliminate the option for fee payment via paper checks & money orders
I doubt many folks pay via paper check or money orders these days. But I do remember how most paid that way thirty years ago before Edgar was mandatory and registration statements were hand-delivered to the SEC’s filing desk. By the way, calculating filing fees can be hard sometimes – it took me quite a while to put together our “SEC Filing Fees Handbook” to address those complex situations…
Yes, Edgar is Still Down. What If You Need to File Your Earnings Release?
For the life of me, I can’t understand why the SEC can’t get its act together to be transparent about when Edgar is down. A year ago, I blogged about how the SEC would post notices on this page when Edgar goes down “significantly” (and when the problem is resolved). Well, a year has gone by since the SEC indicated they would do this – but there hasn’t been a single notice posted. And as a member posted in our “Q&A Forum” (#10043) yesterday, Edgar was down most of the day – preventing this company from being able to file it’s Form 8-K with an earnings release. Boo, hiss…
September-October Issue of “The Corporate Counsel”
We recently mailed the September-October issue of “The Corporate Counsel” print newsletter (try a no-risk trial). The topics include:
– Beyond the Big 3: The Skinny on Other Standing Board Committees
– Standing Committees v. Special Committees
– Do Boards Establish Additional Standing Committees?
– How Much Authority May the Board Delegate to a Standing Committee?
– Some Things to Think About When Forming a Standing Committee
– Proxy Disclosure
– the Big 3: Other Common Standing Committees
– Key Takeaways About Standing Committees
John has been doing a great job blogging about the interesting varieties of insider trading cases that the SEC has brought in recent years (see this one as an example). It’s amazing to me that folks engaging in insider trading don’t realize how easy it is for the SEC Staff to follow an electronic breadcrumb trail.
Even more amazing is when a former member of the SEC Enforcement Staff is oblivious about how easy it is to follow an electronic trail. Here’s an excerpt from this “FT” story about a former SEC Staffer obstructing justice and ignoring his own electronic footprint (also see this blog for the DOJ complaint):
A former employee of the Securities and Exchange Commission was charged on Wednesday for allegedly leaking information about an investigation into a private equity group that he subsequently joined.Michael Cohn, who was a securities compliance examiner in the SEC’s enforcement division, was accused by federal prosecutors in Manhattan of giving investigative information to senior management at GPB Capital Holdings.
Mr Cohn left the SEC in October 2018 to take a job as chief compliance officer at the company, where he earned $400,000 a year, prosecutors said.“[T]he defendant abused the trust placed in him as an SEC employee, obstructing an active investigation,” said Richard Donoghue, the US attorney for the eastern district of New York. Mr Cohn is charged with obstruction of justice, unauthorised computer access and unauthorised disclosure of confidential information. He was arraigned on Wednesday morning and released on a $250,000 bond.“Mr Cohn is innocent of these charges and looks forward to vindicating himself at trial,” said Scott Resnik, his attorney.
The case is the second in the past two years involving allegations of staffers at the SEC and related institutions leaking information to companies as they sought jobs in the private sector. Last year, former employees of the Public Company Accounting Oversight Board, which is overseen by the SEC, were indicted for leaking information about inspections of audits at KPMG, where they had sought or taken jobs. KPMG agreed to pay $50m to settle the matter with the SEC earlier this year.
Mr Cohn had worked in the asset management unit of the SEC’s enforcement division, which he joined in 2014 from the private sector, according to a January announcement of his hiring by GPB. David Gentile, GPB’s founder, said at the time that Mr Cohn’s “deep knowledge and experience will be valuable to us”. GPB and an outside representative for the group did not immediately respond to requests for comment. A receptionist reached by phone said they would pass on the FT’s request for comment to others in the group.
In March, Investment News reported that the company had acknowledged an unscheduled FBI visit to its offices the prior month. Prosecutors accused Mr Cohn of accessing “numerous SEC databases” in September 2018 to steal information about the commission’s investigation into GPB. At the time, he was interviewing with the company for a position and had told individuals at GBP he had “inside information”, prosecutors alleged. He left the SEC on October 12 last year and accepted a job with CPB four days later, according to the government.
“When Cohn left the SEC to join GPB, he left with more than his own career ambitions,” said William Sweeney, assistant director-in-charge of the FBI’s New York field office, in a statement on Wednesday. “The proprietary information he allegedly retrieved — from databases he wasn’t authorised to access — included compromising information about a GPB investigation and sensitive details related to the same,” Mr Sweeney added.
All of this reminds me of my “Cap’n Cashbags video” that parodies a real-life SEC enforcement action involving napkins & insider trading tips…
Deal Cubes: “Lunch Atop a Skyscraper”!
Every once in a while, I still add deal cubes to my extensive “Deal Cube Museum” (found under the “Photos” tab on our home page). I just love this new one from Jessica Pearlman and Naomi Ogan of Fortive. The deal cube is a three-dimension depiction of the famous “Lunch Atop a Skyscraper.” Corbis Images owns the negative to this famous photo and it sold assets to Unity Glory International – hence, the deal cube in this image…keep sending in those deal cubes!
The Beauty of This Job
When I left the board of the MidAtlantic Chapter of the Society of Corporate Secretaries a few years ago (after 15 years of service), I received this wonderful handwritten card (as well as a gift certificate). For a guy that works from home, I haven’t seen a handwritten note for years! I was touched.
A long, long while back, I blogged about the creation of the SEC’s new “Division of Risk, Strategy and Financial Innovation” and noted that the nickname may be an acronym (which wound up as “RiskFin”). Some members back then took the ball and ran with it – one member voted for a nickname of “RSFE” pronounced “ris-fee” or “riskfee.” Another wanted a name change to “Division of Risk, Innovation (Financial) and Strategy,” aka Division of RIFs. One said it sounds eerily close to Riski.org, cool new open-source platform. As I blogged six years ago, that Division has now changed its name to the “Division of Economic & Risk Analysis,” with a nickname of “DERA.”
In that blog, I answered a bonus question of when was the Division of Corporation Finance formed. In response to that, some members noted that there were several divisions before the 1942 birth of Corp Fin, in which Staffers reviewed registration statements – including the “Division of Registration” which was formed in 1935. Old-timers out there, keep ’em coming…
A member reported this a while back: “Thought you’d be amused that when I imported your old podcast regarding the impact of FASB codification on SEC filings into iTunes, Apple classified it as “Blues” music! Such is the life of a corporate lawyer.”
Online Legal Training for New Lawyers: Compare the Pricing…
This blog about a new site offering legal training cracked me up in a few ways. First of all, this type of training is exactly what we’ve been doing both on TheCorporateCounsel.net – and DealLawyers.com – now for some time. And I haven’t sampled the stuff from the new site, but I’m willing to wager without seeing it that our stuff is much more practical.
And secondly, check out the new site’s pricing! Here’s an excerpt from the blog about that:
For a 1000-lawyer law firm, the first topic is $14,000 with the price dropping to $9,000 per topic if the firm subscribes to all six ($45,000). For a 500-lawyer firm, the all-in price is $27,000. For a 100-lawyer firm, the price is $9,000. On a per lawyer basis, this provides larger firms with a slight pricing discount ($45/lwyr for 1000-lawyer firm, $90/lwyr for 100-lawyer firm, $500 for solo practitioners or a 1-person legal department).
Wow! Compare that to the pricing for our popular “In-House Accelerator” Training on this site. That’s free for members of TheCorporateCounsel.net (and it’s popular not just with folks that are in-house, but also with those in firms that want to learn how to think like they’re in-house). And our “Deal U. Workshop” over on DealLawyers.com isn’t free for members of that site – but ours is much cheaper (and includes copies of the “Deal Tales” Paperbacks – a three volume set)…
California Dreaming…
Saw this picture that Jim McRitchie posted of a California license plate:
The SEC has cancelled tomorrow’s open Commission meeting about proposing changes to its whistleblower office. I think this is the third cancelled open meeting in as many months. Does it matter? Not really. Is it worth blogging about? Probably not. Did I blog about it anyway? Yes.
Here’s a few thoughts:
1. Are You Sure It Doesn’t Matter?– For starters, when the SEC has cancelled other open meetings in recent months, it still took action through the seriatim process. So in terms of taking action, the net result was the same. But even if the SEC hadn’t taken action, I don’t think cancelling open meetings by itself is a big deal. Over the decades since the SEC was born, I doubt a Commissioner has ever been persuaded by arguments made at an open meeting to change the way they intended to vote.
In rare cases, a SEC Chair will calendar an open meeting to force an issue to a vote. Then, as the meeting date gets closer, there may be some accommodation that allows the Commission to act by seriatim to get something done.
In the old days, some would travel to DC to attend open meetings – so cancellation would have disappointed those with flights scheduled. But that no longer is an issue because the meetings are webcast and very few people attend in person these days. Plus, I think some people have realized that there simply isn’t much value in “reading the tea leaves” by watching an open meeting in the first place. I haven’t watched one since Bill Donaldson was SEC Chair – that’s 15 years ago.
2. How Many SEC Staffers Attend Open Meetings? – Not many more than those required to go. I do remember attending my first open meeting when I was a Staffer in the late ’80s – the proposal of Regulation S. It was crowded. I got a glimpse of how the SEC operated at the highest level. But my mere attendance as a lowly Staffer was a bit of a novelty – in fact, if my boss knew I snuck down to the open meeting room, I might have been in trouble.
I would wager that well over 90% of the people who work at the SEC have never attended an open meeting (back then and now). There’s no reason for them to see one unless they happen to be curious about what it’s like…
3. Is the SEC Required to Hold Open Meetings? – I blogged about this topic a while back. The upshot is that it’s conceivable that the SEC could take various actions for years without an holding an open Commission meeting. But it doesn’t do so because of the interest in holding the meetings, both within the SEC and outside.
4. Why Does the SEC Keep Calendaring & Then Cancelling Open Meetings?– I have no idea. But it seems a little strange. I’ve never seen so many meetings cancelled in such a short period of time.
Typically, a meeting is cancelled because at least one Commissioner suddenly is unavailable. Particularly if the agenda items are not the “hottest” around, action is then just taken in seriatim. Note that the SEC can take action in seriatim without first announcing (and cancelling) an open meeting.
5. Why Was This Particular Meeting Cancelled?– I doubt that Commissioner unavailability is the reason why this whistleblower meeting was cancelled – the SEC’s cancellation notice indicates that the meeting may be rescheduled for November. So it’s unlikely we shall see action taken in seriatim for this one. My guess is that the SEC needs more time to formulate its proposal.
Audit Committees Must Enforce Auditor Independence Rules? What Gives?
Here’s a note from Lynn Turner: Have you looked at this guidance from the PCAOB Staff? It essentially “guts” the auditor independence rules. It states that if an auditor has violated the independence rules:
1. It must communicate that to the audit committee. No communication of that is required to be made to investors who believe the auditor has complied with such rules.
2. The auditor must have fixed the violation, or alternatively, even thought the violation still exists, must put a plan in place to fix it.
3. The PCAOB Staff still permits an auditor to say in their report they were – and are – independent during the audit engagement time period, even though in fact they are not. This is, at best, misleading to investors. Some might say it’s lying.
This is particularly troublesome because the process relies on an audit committee. Nearly all the audit committees that I have known have scant expertise when it comes to the auditor independence rules. In fact, I can say I have never known an audit committee member who was truly knowledgeable in this area. Even most auditors are not well-versed on the independence rules, although they should be. That is why the SEC required audit firms – back in 2000 – to establish internal quality controls.
However, recent enforcement cases illustrate how these controls are not effectively working inside the big audit firms, as the firms continue to do whatever is necessary to hang onto their audit clients. It is my understanding that auditors do not have to rotate off – or inform any of the investors in – the companies for which their audit independence has been compromised as noted in these enforcement actions.
Today, an auditor can operate under the policy of “It is better to beg forgiveness than to ask for permission.” Investors should be asking if there really are any independence rules.
Meanwhile, two Senators have sent this letter to SEC Chair Clayton asking what is going on with the PCAOB, including why Commissioner Peirce received such a new prominent role overseeing the PCAOB and why the PCAOB’s General Counsel and Enforcement Director positions have been vacant for so long…
SEC Seeking Ideas So Small-Caps Not So Thinly Traded…
Last week, the SEC issued this statement asking for ideas how to boost the liquidity of stocks that currently are thinly traded. See this Mayer Brown memo – and this background paper from the SEC…
There’s nothing I like more than an annual meeting web page that is “usable.” I think that Southern Company’s annual meeting page is one of the best in the US (European companies have been ahead of the game in this area for years). Among the cool features:
– One-stop-shop for proxy & other materials (annual/sustainability reports, etc.)
– Simple presentation of voting items and a link to the voting page have reduced broker non-votes – so the page provides tangible ROI
– HTML is SEO-friendly & easy to read
– Static PDF spreads can be brought to life like this one, making it easy to see who serves on which board committee, etc.
– Graphics & other features can be “reactive”
DOJ’s New “Inability to Pay” Guidance
As noted in these memos posted in our “White Collar Crime” Practice Area, the DOJ recently issued new guidance on how prosecutors should evaluate requests by corporate defendants for a reduction in fines and penalties based on an inability to pay – and announced a restructuring of its “Securities & Financial Fraud Unit” as the “Market Integrity & Major Frauds Unit”…
Tomorrow’s Webcast: “M&A in Aerospace, Defense & Government Services”
Tune in tomorrow for the DealLawyers.com webcast – “M&A in Aerospace, Defense & Government Services” – to hear Hogan Lovells’ Carine Stoick, Michael Vernick, & Brian Curran address some of the unique issues faced by companies doing deals that implicate the government in some way.
What a freak show the now-aborted WeWork IPO wound up being. For example, this falls into the “news of the weird” category – check out this excerpt from this article about the role the CEO’s spouse played in preparing the company’s Form S-1:
An S-1 is meant to be a bland financial document, but WeWork’s took a different direction. With Adam’s encouragement, Rebekah became unusually involved in the artistic presentation of the document. “The traditional approach to producing an S-1 is bankers and lawyers hashing this out, but the process was continually usurped by Rebekah’s involvement,” one executive said, echoing a sentiment expressed by multiple people who worked on the project. “She treated it like it was the September issue of Vogue.”
WeWork had hired a former director of photography at Vanity Fair, and Rebekah insisted on selecting the photographers chosen to take photos of WeWork offices and members, and approved every photo that appeared in the S-1, of which WeWork included many more than most companies that go public. (She wasn’t the only picky one: Adam Kimmel, the company’s chief creative officer, became unhappy with how the company’s offices looked in its official pictures, so new photographers were sent around the world to reshoot them.)
As the summer wore on, WeWork employees found themselves making so many trips to meet with Rebekah at the Neumanns’ home in Amagansett that “He’s ‘out east’ tomorrow” became a euphemism for describing a colleague spending their day driving to and from the Hamptons. “The thing that’s so damning about all that is that it’s just not the point of the document,” a person who worked on the project said. “That’s the thing about WeWork: You’re spending all this time working on the surface of it instead of the actual truth of the thing.”
CalPERS Votes Against 53% of Pay Plans!
This blog by Jim McRitchie is mindblowing! Here’s a summary:
CalPERS, the largest U.S. pension fund which manages more than $380 billion in assets, has already started implementing its new compensation framework. In an effort to drive more accountability and improved pay for performance alignment, CalPERS reports voting against 53% of compensation plans at portfolio companies during the 2019 proxy season. That is up from 43% last year.
This September-October issue of the Deal Lawyers print newsletter was just posted – & also mailed – and includes articles on:
– Five Observations on Recent Use of Universal Proxies
– Delaware Chancery Upholds Waiver of Appraisal Rights
– Does Your Acquisition Agreement Trigger a Form 8-K?
– Disclosure of Projections: Will Delaware’s Approach Still Rule the Roost?
Right now, you can subscribe to the Deal Lawyers print newsletter with a “Free for Rest of ‘19” no-risk trial. And remember that – as a “thank you” to those that subscribe to both DealLawyers.com & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online. There is a big blue tab called “Back Issues” near the top of DealLawyers.com – 2nd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.
And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to DealLawyers.com will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to DealLawyers.com – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online.
As it has for the past few election cycles, executive compensation is working itself into the 2020 Presidential campaign. Bernie Sanders announced a proposal this week that would increase the corporate tax rate if a large company’s pay ratio is 50x or more (it would apply to any public or private company with more than $100 million in revenue). Here’s some news articles about it:
If you follow the SEC’s Enforcement actions, you find quite a few that can be entertaining. As Cooley’s Cydney Posner blogs, this one involving Marvell Technology is interesting because the company ran a “revenue management scheme” and the SEC took action not because of the scheme itself, but rather because the company failed to publicly disclose the scheme in its MD&A (or to disclose its likely impact on future performance). The SEC’s order demonstrates that, even if a scheme involving unusual sales practices may not amount to chargeable accounting fraud, failure to disclose may be actionable..
More on “Proxy Season Blog”
We continue to post new items on our blog – “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:
– Firearms Responsibility: Will Shareholders Show Renewed Interest?
– Proxy Voting: Impact of Mutual Fund Board Connections
– Uncontested Director Elections: Impact of Negative ISS Recommendations
– Proxy Plumbing: Recommendations From SEC’s “Investor” Subcommittee
– Shareholder Engagement: A UK Study of Investor Trends
Here’s a blog that I drafted before Corp Fin made its recent announcement about how it will process Rule 14a-8 requests for shareholder proposals going forward – it’s still worth sharing: Last month, I had lunch with a friend who started foaming at the mouth about the need for Corp Fin to remove itself as the referee in the no-action process for shareholder proposals. After his foam had dried, I replied that Corp Fin would like nothing more. The problem historically has been that whenever Corp Fin suggests that it diminish its role, participants on all sides scream bloody murder.
Processing no-action requests under Rule 14a-8 is labor intensive in Corp Fin. Most requests come in during a short window and are time sensitive. The Staffers working on them still have their regular workload to deal with (at least when I served in Corp Fin). Being placed on the “Shareholder Proposal Task Force” feels like punishment. Long hours. Very long. Highly sensitive situations in some cases – the kind that can derail your career. And not exactly intellectually rewarding.
Here’s an excerpt from the SEC’s adopting release in 1998, the last time the SEC significantly changed Rule 14a-8:
Some of the proposals we are not adopting share a common theme: to reduce the Commission’s and its staff’s role in the process and to provide shareholders and companies with a greater opportunity to decide for themselves which proposals are sufficiently important and relevant to the company’s business to justify inclusion in its proxy materials. However, a number of commenters resisted the idea of significantly decreasing the role of the Commission and its staff as informal arbiters through the administration of the no-action letter process. Consistent with these views, commenters were equally unsupportive of fundamental alternatives to the existing rule and process that, in different degrees, would have decreased the Commission’s overall participation.
Processing Shareholder Proposals: Life Can Be Rough
A story to illustrate. When I first joined Corp Fin in ’88 for my first tour of duty at the SEC, I was right out of law school. That was typical back then. And each branch was required to contribute one person to the Shareholder Proposal Task Force. You were “it” if you were the newest person in the branch. So the Task Force was comprised of a dozen people who were right out of law school.
Nothing was electronic back then. We wrote out our analysis & recommendation for each no-action request by hand. There was only one computer for the entirety of Corp Fin. So you would have to wait until “after hours” to be able to access it and print out precedent to support your analysis (the Division had a Lexis account on this prized computer that sat over in the Office of Chief Counsel). To top off this charmed experience, I was chewed out by a crazed supervisor over one of my first recommendations. By the end of his diatribe, he realized he had gone over the top and invited me out to go drink whiskey (I declined).
I wouldn’t blame him except I was right out of law school. My training when I arrived consisted of my boss handing me a rulebook and saying “here, read this over the next week.” So I read S-K – and the ’33 Act &’34 Act rules – straight. Those things are not meant to be read straight. So I learned nothing, Other than that the SEC’s rules & regulations are not written in anything close to plain English. There was literally no training. If you got lucky, your office mate was experienced & willing to teach. Yes, life was tough in the old days…
