Author Archives: Broc Romanek

Here’s the news from this FW Cook blog (also see this Davis Polk blog):

Yesterday evening, Senate Finance Committee Chairman Hatch released details of the Senate’s version of the Tax Cuts and Jobs Act. The most notable development for executive compensation is that the Senate bill generally contains the same executive compensation related provisions that were included in the first, and now outdated, release of the House bill (H.R. 1).

As previously reported, H.R. 1 was amended yesterday to remove Section 3801 of the bill, which provided for sweeping changes to the tax treatment of non-qualified deferred compensation, including stock options, under a new “Section 409B.”

For the moment, the new deferred compensation rules may be back on the table. The Senate Finance Committee meets for the first time on Monday, November 13 to begin consideration of the bill. Both the House and Senate versions are subject to further change, votes, and eventually reconciliation before final passage.

– Broc Romanek

One of the giants from Corp Fin passed away earlier this week – Bill Morley. One of those rare gems that spent their entire career in the government, Bill served in various roles in Corp Fin over his 30 years – but he’s mostly remembered for being the Chief Counsel. One of his many roles was serving as the final arbiter of the shareholder proposal no-action letter process. Bill was considered “fair” by both sides. Not an easy feat to accomplish.

Here’s a remembrance from John Huber, who was Corp Fin Director in the ’80s: “He was my Chief Counsel after Peter Romeo went into private practice. As Chief Counsel, he was on top of no-action letters (reviewing each one before it went out), monitoring telephone calls/interps and keeping up-to-date with operations & rulemaking. At meetings when I asked what he thought, he would sometimes tell the group what the “least worst alternative” was. All that with the kindness & friendliness of a person who was indefatigable, never lost his temper and always cared about protecting investors. One of the best examples of the Corp Fin family.”

Bill retired in 1999. One of those guys that got pushed out by the Internet. Bill never wrote a single email – he didn’t want to learn new technologies. And when he was cleaning out his office, I walked by and realized there were boxes & boxes of historical documents sitting in his trash (we saved that stuff). Bill wasn’t sentimental about leaving at all. He was truly ready to enjoy life. To attend as many U. of Maryland lacrosse games as he could.

A year after retirement, Bill agreed to edit my new shareholder proposal treatise. Fifteen years of informal positions taken by Corp Fin where all up there, in his head. We met once a week for six months – I simply downloaded knowledge that no one else could match. The man sure knew his stuff. I’ve always treasured that time we spent together – such wonderful stories. There are no memorial plans yet – I will blog when we know more about that.

Here’s a 16-minute podcast that I taped with Bill in 2011, as he discussed his life in retirement – including:

– How did you wind up at the SEC?
– How do you recall the shareholder proposal process?
– Did you enjoy recruiting & hiring?
– What are among your fondest memories?
– What are you doing now?

– Broc Romanek

It’s quite rare that I blog other than early in the morning. It’s too tempting to chase news across the day. But I thought I would throw up some big news regarding the earth-shattering House tax bill – even though it could be more complete if I waited til morning (including where we stand with the Senate version). Here’s the skinny about how the House made changes to its tax bill today (see this official summary):

1. The House has deleted the offending provisions about equity compensation from the bill (Section 3801 of the bill) – but it left in the provision allowing deferral of tax of stock options for private companies. And it sounds like the provision is modified that so it no longer applies to RSUs (it originally applied to both RSUs & options).

2. The changes to Section 162(m) still stand (Section 3802 of the bill). I think that’s a done deal, assuming they can get the rest of the bill passed. It’s clearly a revenue raiser and if the corporate tax rate is only 20%, companies probably don’t care about the deduction as much anyway. I’m sure it’s a trade-off many companies are willing to make.

So the upshot is that all of Section 3801 is struck – so no changes to the taxation of NQDC – and 409A still stands, so no big changes to the taxation of options & RSUs. And this is a week of my life I can never get back. We’ll be posting the new horde of memos that are sure to come in our “Regulatory Reform” Practice Area on CompensationStandards.com…

– Broc Romanek

Yesterday, SEC Chair Clayton gave a speech about transparency – here’s an excerpt about the lack of retail voters:

I have become increasingly concerned that the voices of long-term retail investors may be underrepresented or selectively represented in corporate governance. For instance, the SEC staff estimates that over 66% of the Russell 1000 companies are owned by Main Street investors, either directly or indirectly through mutual funds, pension or other employer-sponsored funds, or accounts with investment advisers. And, if foreign ownership is excluded, that percentage approaches approximately 79%. Yet it is not clear whether in our rulemaking processes the views and fundamental interests of long-term retail investors are being advocated fully and clearly, either by individual investors or groups that represent them.

Since I arrived at the agency, I have made concerted efforts to reach Main Street investors across the country, and this has resulted in productive conversations with individuals, as well as those who advocate for them. Many others at the SEC, including Rick Fleming, our Investor Advocate, and the Office of Investor Education and Advocacy, concentrate on retail investors generally and have outreach efforts focused on investors who are teachers, students, serve in the military, or live in retirement communities.

A majority of Main Street America’s dollars are invested in vehicles where the investor – the person with their money at risk – is not the voting shareholder. Often voting power rests in the hands of investment advisers who owe a duty to vote proxies in a manner consistent with the best interests of the fund and its shareholders. A question I have is: are voting decisions maximizing the funds’ value for those shareholders?

In situations where the voting power is held by or passed through to Main Street investors, it is noteworthy that non-participation rates in the proxy process are high. In the 2017 proxy season, retail shareholders beneficially-owned 30% of the shares in U.S. public companies; however, only 29% of those shares voted. This may be a signal that our proxy process is too cumbersome and needs updating.

Meanwhile, NY Times’ Gretchen Morgenson wrote this column recently entitled “Small Investors Support the Boards. But Few of Them Vote”…

Has “Notice & Access” Caused Retail Holders to Stop Voting?

Here’s a note from Lynn Turner: “The proxy retail investor participation rate use to be much higher but dropped dramatically when the SEC took action to eliminate distribution to investors of paper proxies and ballots a decade ago with ‘e-proxy.’ If the SEC wants to increase retail investor interest and voting, the could likely get a good start by undoing their previous mistake! Many people told the SEC at the time that they were making a mistake. History has now proven those people right.

Interesting that the retail investors in this country holding equities are typically older people who have lived long enough to build up larger investment balances. Those are the people who you have to reach to get to vote. In our general elections, many of those use paper mail in ballots which has increased participation in voting. Unfortunately, the SEC took an opposite tack several years ago and chose to reduce participation by retail investors. Their objective was achieved as Chair Clayton notes his speech.”

Novel Ways to Boost Retail Voting: The BofA Story

Some companies with sizable retail bases have found novel ways to boost retail voting. Remember this podcast with Peggy Foran & Ed Ballo about Pru’s “Trees (& Totes) for Votes” program.

More recently, Bank of America’s Ross Jeffries & Gale Chang talked to Carl Hagberg – as reflected in this article in Carl’s “Shareholder Service Optimizer” – about how BofA’s campaign to donate $1 if a shareholder voted produced real results. The number of BofA accounts voting went up 8% with this unique campaign (nearly 50k more voters). Nice!

Here’s an older piece from Carl entitled “A Short-List of Incentives That Might Get More Folks to Vote Their Proxies…“

– Broc Romanek

In the wake of Corp Fin’s new Staff Legal Bulletin No. 14I, we have scheduled a webcast for next Tuesday, November 14th – “Shareholder Proposals: Corp Fin Speaks” – during which Davis Polk’s Ning Chiu will ask Corp Fin’s Matt McNair about how the new SLB should be applied in practice.

As reflected in the memos posted in our “Shareholder Proposals” Practice Area, there are a number of open issues to consider after the SLB – particularly logistical issues about how boards can timely act to qualify for the Staff’s new “ordinary business” position…

Rule 701 & E-Delivery: Corp Fin’s New CDI

Yesterday, Corp Fin issued this new CDI 271.25 under the ’33 Act rules:

Question: To protect against the unauthorized disclosure of Rule 701(e) information, may companies that are using electronic delivery to satisfy Rule 701(e) disclosure requirements implement safeguards with respect to electronic access to Rule 701(e) information?

Answer: We understand that some companies satisfying their Rule 701(e) delivery obligations electronically have concerns about the potential disclosure of sensitive company information. Standard electronic safeguards, such as user-specific login requirements and related measures, are permissible. The use of a particular electronic disclosure medium either alone or in combination with other safeguards, such as the use of dedicated physical disclosure rooms that house the medium used to convey the information required to be disclosed, should not be so burdensome that intended recipients cannot effectively access the required disclosures.

For example, we would expect that physical disclosure rooms would be accessible during ordinary business hours upon reasonable notice. Once access to the required information has been granted, however, the medium used to communicate the required disclosure should provide the opportunity to retain the information or have ongoing access substantially equivalent to personal retention. [November 6, 2017]

It’s Done: 2018 Executive Compensation Disclosure Treatise

We just wrapped up Lynn, Borges & Romanek’s “2018 Executive Compensation Disclosure Treatise” — and it’s been printed. This edition has a major update to the key chapter on the new SEC’s pay ratio rules (now 120 pages long!) & more – this includes the latest pay ratio guidance from the SEC in September. All of the chapters have been posted in our “Treatise Portal” on CompensationStandards.com.

How to Order a Hard-Copy: Remember that a hard copy of the 2018 Treatise is not part of a CompensationStandards.com membership so it must be purchased separately. Act now as this will ensure delivery of this 1650-page comprehensive Treatise soon. Here’s the “Detailed Table of Contents” listing the topics so you can get a sense of the Treatise’s practical nature. Order Now.

– Broc Romanek

Last week’s tax bill from House Republicans would have a tremendous impact on executive pay if enacted into law. We’re posting memos in the “Regulatory Reform” Practice Area on CompensationStandards.com – but here’s a teaser from Skadden that will blow you away:

If enacted, the newly proposed “Tax Cuts and Jobs Act” would effectively put an end to many of the most widely used forms of executive compensation:

– Deferred compensation and stock options would disappear

– Use of performance-based compensation would be severely limited

– Compensation over $1 million to senior executive officers would be nondeductible for public companies and subject to an excise tax for tax-exempt organizations.

Of course, the tax reform bill released by the House Republicans today (November 2) is likely to change, perhaps drastically, in the coming days.

House Passes Two Bipartisan Bills to Facilitate Offerings

Here’s news from this Davis Polk memo:

On November 1, the House passed two bills designed to encourage capital formation by extending JOBS Act testing-the-waters provisions to all companies, codifying the SEC’s earlier expansion of confidential submission of draft registration statements by a non-emerging growth company for its IPO and during the one-year period after going public, and modifying the definition of an accredited investor to make more individuals eligible to participate in private placements.

The bills were passed on a bipartisan basis and echo proposals that were part of the Financial Choice Act passed by the House in June 2017 and the Treasury Department’s recent regulatory reform report on capital markets. We expect the bills would likely be passed and signed into law if they reach the Senate floor for a vote.

Farewell to Walter Schuetze

I note the sad news of the passing of Walter Schuetze. Walter served both the profession & public admirably. He was a courageous & staunch advocate for improving financial reporting through the use of fair value accounting.

As noted in this bio, Walter had an amazing career – one of the original founding members of the FASB. A leader of the KPMG’s National Accounting Technical Office, and the Chair of the AICPA’s Accounting Standards Committee. Served as both the SEC Chief Accountant and SEC Enforcement’s Chief Accountant. He will be missed by many.

Farewell to Dean Hunt

Sadly, former SEC Commissioner Dean Hunt passed away too. Here’s what the SEC’s statement says:

Appointed to the Commission in 1996 at the dawn of the digital age and a truly transformative era of our capital markets, Ike was a powerful voice for making sure our mission of protecting investors, fostering fair and efficient markets, and facilitating capital formation remained timeless in the face of dramatic change.

Always a thoughtful advocate for the rule of law and its fair and consistent application, Ike started his legal career as an SEC staff attorney in 1962. From then, whether in private practice, academia, or serving at the Commission, Ike set a shining example for generations of SEC staff to follow. We thank Ike for his passion and distinguished public service, and offer his family and friends our deepest condolences.

– Broc Romanek

A few days ago, Corp Fin issued Staff Legal Bulletin No. 14I – it’s first SLB on shareholder proposals in two years. And it’s a big one. As CII notes, the SLB creates a path for companies to omit proposals by presenting a “well-developed” description to the Corp Fin Staff of the board’s analysis of the issue raised by the proposal & the issue’s significance to the company – and the SLB places a greater expectation on proponents to tie social or ethical issues to a significant effect on the company’s business.

Here’s a summary of the four main items in the SLB from the Stinson Leonard Street blog:

– Deference to company analyses of significant policy issues under the Rule 14a-8(i)(7)’s “ordinary business” exclusion basis
– Expansion of the “economic relevance” exception under Rule 14a-8(i)(5)
– Additional eligibility requirements for proposals “by proxy” under Rule 14a-8(b)
– Application of Rule 14a-8(d) to the use of images in shareholder proposals & supporting statements and encouraged reliance on Rule 14a-8(i)(3)’s “false and misleading” standard for exclusion

In her Davis Polk blog, Ning Chiu does a good job of identifying the open issues relating to how companies might be able to create the board’s analysis over significant policy issues under (i)(7). More on this SLB soon…

“NASDAQ” v. “Nasdaq”? Branding 101

As Steve Quinlivan noted in this blog, Nasdaq has filed an immediately effective rule change with the SEC to reflect a corporate branding change to Nasdaq’s name. If you read through our stuff – including our fabulous “Nasdaq Listing Standards Handbook” – you’ll see that we have never used “all caps” for Nasdaq. It ain’t Plain English. I’ll use all caps for acronyms – like the “SEC” – but I won’t use all caps otherwise. It’s bad branding…

The irony is that Nasdaq didn’t use all caps long ago – but then changed it to “NASDAQ.” I think it was originally all caps, as it was an acronym for National Association of Securities Dealers Automated Quotations. So it went from upper case to lower case to upper case and now again lower case…

Our New “Deal U. Workshop” Is On!

Our new “Deal U. Workshop” is the perfect way to train those less-experienced in working with M&A. Each attendee receives these three critical – and practical – resources:

1. Deal U. Podcasts – Access to nearly 60 podcasts about M&A activities – tailored to those new to this area. Each podcast ranges between 5-10 minutes – for a total of 7 hours in content. Here’s a list of the podcast topics.

2. Deal U. Situational Scenarios – Our 30+ situational scenarios – with detailed analyses – will help you fully comprehend many different aspects of deal practice.

3. “Deal Tales” Paperbacks – A Three Volume Set – Education by entertainment! This series of three paperback books teaches the kind of things that you won’t learn at conferences, nor in treatises or firm memos. With the set containing over 600 pages, John Jenkins – a 30-year vet of the deal world – brings his humorous M&A stories to bear.

This is a great way to outsource your training – our resources are practical (and entertaining at the same time). Call Albert Chen at 512.960.4823 for a flat firmwide or sliding scale rate – or register now for a single user.

– Broc Romanek

Here’s something that John blogged recently on the “DealLawyers.com Blog”: We recently blogged about the uncertainty surrounding the scope of Reg G’s exemption for disclosure of non-GAAP information contained in projections provided to financial advisors. A few days ago, Corp Fin issued a new CDI that helps address some of that uncertainty.

New Non-GAAP CDI 101.01 provides that financial measures included in forecasts provided to a financial advisor and used in connection with a business combination transaction won’t be regarded as non-GAAP financial measures if & to the extent that:

– The financial measures are included in forecasts provided to the financial advisor for the purpose of rendering an opinion that is materially related to the business combination transaction; and

– The forecasts are being disclosed in order to comply with Item 1015 of Regulation M-A or requirements under state or foreign law, including case law, regarding disclosure of the financial advisor’s analyses or substantive work.

Because the tender offer rules don’t specifically reference the relevant provisions of Item 1015 of Reg M-A, some have contended that the exemption from Reg G’s requirements shouldn’t extend to disclosures contained in tender offer materials. By referring to both the requirements of Item 1015 of Reg M-A and state law, the new CDI clarifies that the availability of the exemption does not depend on whether the disclosure appears in a tender offer document, a proxy statement or a registration statement.

Forecasts may be included in disclosure documents for a variety of reasons, and since the new CDI clarifies that the exemption only applies “if and to the extent” forecasts were provided for the purposes of rendering an opinion, it doesn’t necessarily cover the waterfront.

In connection with the adoption of the new CDI, the Staff renumbered the existing CDIs and deleted references to Item 1015 that previously appeared in what is now Non-GAAP CDI 101.02.

Transcript: “E&S Disclosures – The In-House Perspective”

We have posted the transcript for the webcast: “E&S Disclosures: The In-House Perspective.”

“Pay Ratio & Proxy Disclosure Conference”: Sights & Sounds

Here’s some pics from last week’s “Pay Ratio & Proxy Disclosure Conference”:

Me & Nell Minow

Corp Fin All-Stars: Dave, Meredith, Keith, Brian, Keir & Marty

Virtual reality offered @ BDO’s booth

My dad showing off @ Schwab’s fitness-oriented booth

Global Shares with a digital caricature artist!

Aon’s pig races. Always a fan favorite!

– Broc Romanek

The title of this blog includes multiple question marks because the SEC continues to keep us in the dark when Edgar has problems. I’m not talking about the cyber breach that was recently announced. I’ve been harping for some time that the SEC needs a blog – or some type of other vehicle – to inform the public when Edgar is experiencing problems (and when those problems are resolved). Go back to my March blog entitled “Edgar is Down? (Crickets)” – or this one from a year back from that: “EDGAR is Down”: A Familiar Refrain?”

This is not just my pet peeve. Here’s a note that I received yesterday from a member:

We’ve had problems over the last few days with a couple of Edgar filings that were hung up apparently due to fee processing problems. A quick search for S-1 filings today shows the first five S-1 filings all being time-stamped within a fifteen minute period starting around 3:12 pm today, which strongly suggests a systems problem. I’ve talked to several financial printers and gotten confirmation that other law firms were seeing the same filing problems with fee-required filings yesterday and today. I wonder if this is related to the hack – or just outdated systems. Can you blog about this so you can gather feedback from others.

As of this morning, Edgar is still having trouble accepting filings – the third day in a row. Apparently, this is affecting every deal that’s trying to price & launch. It’s a bit sad that I’m being asked to gather information from the community so that we can figure out what is happening with Edgar. It happens a lot. And the SEC could easily solve this problem by communicating with us as I’ve blogged about many times…

Pay Ratio: Glass Lewis’ Approach

In this note, Glass Lewis has joined the many who have written about the SEC’s new guidance on pay ratio (we’re posting memos about that in our “Pay Ratio” Practice Area). In addition to summarizing the SEC’s guidance, Glass Lewis indicates what approach it will take for pay ratio in this excerpt:

Glass Lewis intends to display the pay ratio as a data point in our Proxy Paper in 2018. At this time, however, we do not intend to incorporate the pay ratio into our assessment and analysis of Say-on-Pay proposals. We recognize that this data point might provide valuable additional information to shareholders on a company’s pay practices; however, we do not believe that this information is material for our analyses of the structures by which, and the disclosures of how, companies pay their NEOs.

By the way, for those registered for our “Pay Ratio & Proxy Disclosure Conference,” the video archives for Wednesday’s panels are now posted…

ISS Survey: Director Comp & Gender Pay Gap

Yesterday, ISS released this 23-page summary from its 2017-2018 policy survey. This year, survey topics were split into two parts, with an initial, high-level survey covering a small number of fundamental and high-profile topics. Here’s two of the pay-related findings for the US:

– Director Pay – Survey respondents were asked which factors should be considered in determining whether a director pay program presents a governance concern with respect to high pay magnitude. Tops for investors was measuring director pay relative to a four-digit GICS peer group, followed by stock market index peers, and, third, measuring a director pay program relative to all companies. Corporate respondents, meanwhile, deemed the measurement of pay relative to a stock market index most appropriate, followed next by pay measurements relative to a four-digit GICS industry peer group. When asked which factors should be considered in determining whether a pay program presents a governance concern with respect to problematic pay structure, both groups agreed that excessive perquisites was most problematic.

– Gender Pay Gap – Over the past two years, shareholders have filed proposals asking for a report on gender pay equity at numerous U.S. companies. ISS’ survey asked whether companies should be disclosing their gender pay gap information, with 60 percent of investor respondents answering affirmatively, compared with 17 percent for corporates. Of the just over one-quarter (27 percent) of investor respondents suggesting the need for such disclosures would “depend” on certain considerations, most indicated they would deem it favorable if the practice became an industry norm and/or the company was lagging its peers.

Read more about the survey results in this Weil Gotshal blog…

– Broc Romanek

Today is the “Say-on-Pay Workshop: 14th Annual Executive Compensation Conference”; yesterday was the “Pay Ratio & Proxy Disclosure Conference” (video archive is 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 (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter Wednesday’s Pay Ratio 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: HTML5, Windows Media or Flash Player). Here are the “Course Materials,” filled with 182 pages of annotated model pay ratio disclosures, 156 pay ratio nuggets, talking points, etc.

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 Eastern.

– 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 this “List: CLE Credit By State.”

Say-on-Pay: Despite Few “Failures,” 12-14% Run Into Problems

Here’s the intro from this interesting blog by Davis Polk’s Ning Chiu:

Although the failure rate for 2017 say-on pay results achieved an all-time low of just 1.3%, the number belies the fact that more than 2,000 say-on pay proposals have either received negative recommendations from ISS or less than 70% support, or both, since say-on-pay resolutions started in 2011.

Approximately 12% to 14% of companies run into problems every year. As companies have become more proactive with shareholder engagement, the number of companies that received “against” recommendations from ISS and still achieved more than 70% support has increased in the last three years, while the number of companies with those negative recommendations that received less than 70% favorable votes have fallen.

What may be most surprising to companies, however, is that about 10 to 15 companies each year received positive endorsement from ISS and still obtained less than 70% support.

More on “The Mentor Blog”

We 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’s a sampling of entries:

– 87% of S&P 500 Disclose Political Spending Policy
– Few Can Fill the CEO’s Job, Directors Say
– Conflict Minerals: What to Consider for Next Year
– What is the “Long-Term Stock Exchange”?
– UK: Guidance in Response to “Green Paper”
– SCOTUS: Big Term for Securities Law Cases

– Broc Romanek