Author Archives: Broc Romanek

One of my favorite things is watching how companies continue to innovate & improve the usability of their disclosures. That’s why HP’s new “Annual Meeting” webpage got me smiling. Here’s 4 notable things right off the bat:

1. From this “Committees” page, each of the buttons will take you to an individual committee page – and there’s a video from a committee chair on each one of the pages.
2. Love this agenda page for the meeting.
3. The board page – “Meet your HP Board” – is fully interactive with skills & committees.
4. The PDF of the proxy statement is groovy too.

Hat tip to the HP crew – and their designers at Argyle – for going the extra mile! We have a host of related resources in our “Usable Disclosure” Practice Area – included video archives of an entire conference on the topic…

The “Embattled” CEO

Here’s an excerpt from this article from “The New Yorker”:

Business professors once talked about “the imperial C.E.O.,” but, increasingly, we’re in the era of what Marcel Kahan, a law professor at N.Y.U., calls “the embattled C.E.O.” He told me, “Big shareholders and boards of directors have more power, and are more willing to use it. And C.E.O.s have been the net losers.” The breakdown of the old order began more than thirty years ago, but things have accelerated since the turn of the century. The Sarbanes-Oxley Act, passed in 2002, required greater disclosure to investors, and increased the independence of corporate boards. “In the old days, boards were often loyal to the C.E.O.,” Charles Elson, a corporate-governance expert at the University of Delaware, told me. “Today, they’re more loyal to the company.” The rise of activist investors—who campaign aggressively for change when they’re not satisfied with performance—has exacerbated the trend. One study found that when activist investors succeed in winning seats on the board of directors the probability that the C.E.O. will be gone within a year doubles.

The information revolution has created other dangers for C.E.O.s. In the social-media era, damaging stories travel fast, and boards take public relations very seriously. P.R. disasters have sealed the fate of top executives at no fewer than five advertising companies this year. (The most notorious debacle was at Saatchi & Saatchi: the chairman resigned after telling a reporter that he didn’t think gender inequality in the industry was a problem.)

The predicament of modern C.E.O.s may seem surprising, given their prominence and lavish compensation. Top executives everywhere are paid more than they used to be, and the U.S. has led the way; American C.E.O.s earn, on average, two to four times as much as European ones and five times as much as Japanese ones. Yet it’s precisely these factors that make C.E.O.s vulnerable, because the expectations for their performance are higher. “If you’re paid tremendous amounts of money to make things go right, people naturally feel that you should be held accountable when things go wrong,” Elson says. In that sense, the increasing willingness of boards to fire the C.E.O. is actually the flip side of a fetishization of the position that began in the eighties. In Ralph Cordiner’s day (and in Japan maybe still), belief in a C.E.O.’s power to transform a company was limited. But today’s cult of the C.E.O. is founded on the belief that having the right person at the top is the key to success—from which it follows that a failing company should show its boss the door.

Transcript: “The Latest Developments – Your Upcoming Proxy Disclosures”

We have posted the transcript for the CompensationStandards.com webcast: “The Latest Developments: Your Upcoming Proxy Disclosures.”

– Broc Romanek – still employed (but the day is young)…

As I blogged a few weeks ago, “fix it” shareholder proposals are “hot” – & confusing. In this 17-minute podcast, Alan Dye discusses this type of shareholder proposal, including:

– What are “fix-it” shareholder proposals?
– How has Corp Fin processed no-action requests related to these proposals?
– Why are people so confused about why some no-action requests were granted – and some weren’t?

This podcast is also posted as part of my “Big Legal Minds” podcast series. Remember that these podcasts are also available on iTunes or Google Play (use the “My Podcasts” app on your iPhone and search for “Big Legal Minds”; you can subscribe to the feed so that any new podcast automatically downloads)…

Broc Tales: The First Nine

Reg FD-style! Here are the first 9 stories that have run in my new “Broc Tales Blog”:

1. Why Hassle With Training All Employees (When Only a Few Really Need to Know)?
2. The Reg FD Disclosure Team
3. FD Policy Considerations: A Yawner for Some
4. What Good Is a FD Policy?
5. Regulation Fire Department?
6. It’s “Fair”; Not “Full” (& Other Confusions)
7. “Dude, You Wouldn’t Believe What Just Happened. Is That Normal?”
8. “Wanted: Reg FD Chaperone”
9. What (In The World) Am I Doing?

Check ’em out. If you like them, that’s great – insert your email address when you click the “Subscribe” link if you want these precious tales pushed out to you…

More on Our “Proxy Season Blog”

We continue to post new items regularly on our “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:

– CII: Notes from the Spring Meeting
– Shareholder Proposals: Proponent’s Obligation to Present Proposal at Meeting
– Proxy Access: Strange Schedule 14Ns
– The Annual “Warren Buffet” Letter
– Investors Tell Texas to Oppose Anti-LGBTQ Legislation

– Broc Romanek – still employed (but the day is young)…

In this 48-minute podcast, John Huber – who became a Corp Fin Director at age 35! – discusses his long and enjoyable career, including:

– How did you become a lawyer?
– How did you wind up at the SEC?
– How did your role evolve when you were on the Staff?
– What was your philosophy as Director of Corp Fin?
– What was it like launching Edgar?
– How did integrated disclosure come into being?
– How did private practice evolve over your time at Latham?
– What are you doing now?
– Any final words of advice?

This podcast is also posted as part of my “Big Legal Minds” podcast series. Remember that these podcasts are also available on iTunes or Google Play (use the “My Podcasts” app on your iPhone and search for “Big Legal Minds”; you can subscribe to the feed so that any new podcast automatically downloads…

Form AP: Even More PCAOB Staff Guidance

On the heels of last month’s updated Staff Guidance from the PCAOB about Form AP, the PCAOB issued even more guidance recently. As noted in this press release, the latest guidance – which supersedes the prior guidance – primarily deals with the treatment of professional staff in secondment arrangements…

SASB: Guidance & Restructuring

The SASB continues to pump out guidance, as I noted in this recent blog about “materiality.” And the SASB itself is changing to a two-tier governance structure that separates fiduciary duties from standards setting activities. Former SEC luminaries such as Mary Schapiro, Alan Beller and Elisse Walter are involved in the SASB – as well as former FASB Chair Bob Herz and Michael Bloomberg…

Transcript: “The Art of Working With Proxy Advisors”

We have posted the transcript for the recent CompensationStandards.com webcast: “The Art of Working With Proxy Advisors.”

– Broc Romanek – still employed (but the day is young)…

As noted in this press release, yesterday, the SEC adopted new rule & form amendments requiring that the exhibit index in registration statements & ’34 Act reports contain links to the exhibits that are listed – & that these filings be made in HTML. Here’s the 47-page adopting release.

These were adopted substantially as proposed with one exception – this Cooley blog lays out the exception:

Several commenters on the proposing release expressed concerns about correction of inaccurate or non-functioning exhibit hyperlinks. In response, the SEC added an instruction to Rule 105 of Reg S-T providing that, for a registration statement that is not effective, the registrant must correct the hyperlink by filing a pre-effective amendment. For an effective registration statement or an Exchange Act report, the registrant must correct the hyperlink in the next periodic report that requires, or includes, an exhibit pursuant to Item 601 (or in the case of a foreign private issuer, pursuant to Form 20-F or Form F-10). The SEC also provides comfort that an inaccurate exhibit hyperlink would not, by itself, render the filing materially deficient or affect a registrant’s eligibility to use short-form registration statements.

The effective date is delayed for most companies until September 1, 2017 – and for smaller reporting companies and non-accelerated filers that use the ASCII format, until September 1, 2018.

ISS Policies: 11 New/Updated FAQs

Recently, ISS posted 11 new & updated FAQs about its US proxy voting policies. There’s now a total of 88 FAQs. Some new & interesting ones about director attendance disclosures…

Proposed: Inline XBRL

As noted in this press release, yesterday, the SEC proposed the use of Inline XBRL format for the submission of financials for public companies & mutual fund risk/return summaries. The proposal would also eliminate the requirement for filers to post XBRL data on their websites. Here’s the 121-page proposing release.

See this Cooley blog – including this explanation of what is “Inline XBRL” (also see this video explanation from the SEC):

Currently, companies are required to provide the financial statements accompanying their periodic and current reports in “structured,” i.e., machine-readable, format using XBRL, but they provide this XBRL data as an exhibit to their filings. Inline XBRL allows data tagging to be embedded directly in the text of an HTML document, eliminating the need for separate exhibits in most cases.

“Request for Comment”: Industry Guide 3

As noted in this press release, yesterday, the SEC requested comments on changes to Guide 3 – the industry guide for bank holding companies. The proposal asks whether the information solicited is useful anymore – and whether there might be other types of disclosures that may be valuable. Here’s the 86-page “request for comment”…

I grew up on Guide 3. My first tour in Corp Fin found me in one of the two banking branches. Then I went to a law firm whose clients mainly consisted of community banks…

FPIs: IFRS Taxonomy

Yesterday, the SEC posted this IFRS taxonomy for foreign private issuers.

– Broc Romanek – still employed (but the day is young)…

If I had a dollar for every time someone asks me whether Edgar is down, I would be able keep my grand old ’73 Chevy Caprice convertible (soon to be sold after many years of service). This has been at the top of my wish list for some time: that the SEC alert folks when Edgar is down (& when it’s back up). Yesterday, the SEC’s site was down for long stretches – and Edgar was down too (sometimes not in unison).

The SEC could solve this problem by giving its Edgar folks their own blog – and using its popular Twitter handle (which has 233k followers) to give us the news. If the SEC’s entire site is down, an Edgar blog doesn’t help. But Edgar often is down when the SEC’s site is up.

Edgar has outages more often than you would think (so this diatribe isn’t focused just on a day when most of the Internet was down). And I would argue that Edgar is one of the most important assets that the SEC has. If the entire SEC site is down – isn’t that worth a tweet? Today, the SEC has an unprecedented note on it’s home page about the site being down yesterday…

Tomorrow’s Webcast: “Hot Tabulation Issues for Your Annual Meeting”

Did the snafu at the Oscars pique your interest in this topic? Tune in tomorrow for the webcast – “Hot Tabulation Issues for Your Annual Meeting” – to hear independent inspector Carl Hagberg and Broadridge’s Chip Pasfield and Anthony LaPoma sort out the basics – and the hot developments – related to inspecting and tabulating votes at annual shareholder meetings.

Our March Eminders is Posted!

We have posted the March issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

– Broc Romanek – still employed (but the day is young)…

This speech from Friday by Acting SEC Chair Mike Piwowar reminds me of Oprah Winfrey’s famous free car giveaway: “You get a car! You get a car! You get a car! And you get a car! Everybody gets a car!” [Can you believe it’s been 13 years since Oprah did that!]

Here’s an excerpt from the speech (& here’s a related WSJ article):

In my view, there is a glaring need to move beyond the artificial distinction between “accredited” and “non-accredited” investors. I question the notion that non-accredited investors are truly protected by regulations that prevent them from investing in high-risk, high-return securities available only to the Davos jet-set.

Here, I appeal to two well-known concepts from the field of financial economics to show that, in maintaining an “accredited” status in our regulatory structure, we may have forgotten—and in fact disadvantaged—a set of investors. The first is the risk-return tradeoff. Because most investors are risk averse, riskier securities accordingly offer higher returns. Therefore, prohibiting non-accredited investors from investing in high-risk securities amounts to a blanket prohibition on their earning the very highest expected returns.

The second concept is modern portfolio theory. By holding a diversified portfolio of assets, investors reap the benefits of diversification. That is, the risk of the portfolio as a whole is lower than the risk of any individual asset. The correlation of returns is the mathematical key. When adding high-risk, high-return securities to an existing portfolio, so long as the returns from the new securities are not in perfect positive correlation with the existing portfolio, investors may reap higher returns with little to no change in overall portfolio risk. In fact, if the correlations are low enough, the overall portfolio risk can even decrease. As such, excluding certain investors from diversification options deprives them of important risk mitigation techniques.

These two basic concepts of economics demonstrate how even a well-intentioned policy of investor protection can do more harm than good, for instance, by exacerbating inequalities of wealth and opportunity.

Doubts Arise as Investors Flock to Crowdfunded Start-Ups

Meanwhile, as noted in this NY Times article, there are concerns that unsophisticated investors aren’t being protected in crowdfunding. Replete with fraud. Shocker…

Check out this white paper from the SEC’s DERA about investing in OTC companies…

Tomorrow’s Webcast: “Pay Ratio – The Top Compensation Consultants Speak”

Tune in tomorrow for the CompensationStandards.com webcast – “Pay Ratio: The Top Compensation Consultants Speak” – to hear Mike Kesner of Deloitte Consulting, Blair Jones of Semler Brossy and Ira Kay of Pay Governance “tell it like it is. . . and like it should be” about the upcoming implementation of the pay ratio rules.

– Broc Romanek

Here’s a blog by Steve Quinlivan of Stinson Leonard Street:

President Trump has issued an Executive Order which requires the head of each agency to designate an agency official as its Regulatory Reform Officer, or RRO. Each RRO will oversee the implementation of regulatory reform initiatives and policies to ensure that agencies effectively carry out regulatory reforms, consistent with applicable law. Agencies which issue few or no regulations can apply for an exemption.

In addition, each agency must establish a Regulatory Reform Task Force composed of designated individuals. Each Regulatory Reform Task Force must evaluate existing regulations and make recommendations to the agency head regarding their repeal, replacement, or modification, consistent with applicable law. At a minimum, each Regulatory Reform Task Force shall attempt to identify regulations that:

– Eliminate jobs, or inhibit job creation;
– Are outdated, unnecessary, or ineffective;
– Impose costs that exceed benefits;
– Create a serious inconsistency or otherwise interfere with regulatory reform initiatives and policies;
– Are inconsistent with the requirements of section 515 of the Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516 note), or the guidance issued pursuant to that provision, in particular those regulations that rely in whole or in part on data, information, or methods that are not publicly available or that are insufficiently transparent to meet the standard for reproducibility; or
– Derive from or implement Executive Orders or other Presidential directives that have been subsequently rescinded or substantially modified.

Each Regulatory Reform Task Force is to seek input and other assistance, as permitted by law, from entities significantly affected by Federal regulations, including State, local, and tribal governments, small businesses, consumers, non-governmental organizations, and trade associations.

Within 90 days of the date of the Executive Order, and on a schedule determined by the agency head thereafter, each Regulatory Reform Task Force shall provide a report to the agency head detailing the agency’s progress toward the following goals:

– Improving implementation of certain regulatory reform initiatives and policies; and
– Identifying regulations for repeal, replacement, or modification.

Proxy Access: Another Schedule 14 Sighting!

A few months ago, we saw the first Schedule 14N be filed by Gamco Asset Management – only to see it rejected soon afterwards by National Fuel Gas – followed by Gamco’s withdrawal of its nominee.

Now we have a second Schedule 14N filed by Brightleaf Advisory Group relating to Paragon Offshore – but it’s kinda weird, a UK incorporated penny stock? I’m not sure what is going on. Let me know if you figure it out…

Open Commission Meeting: “Links to Exhibits” Adoption & XBRL Proposals

The SEC is holding an open Commission meeting on Wednesday to consider a few XBRL proposals – including “Inline” XBRL reporting for banks. The Commission will also consider adopting rules requiring links to exhibits (here’s our podcast on that proposal from a few months back)…

– Broc Romanek

Here’s the 3rd annual “Audit Committee Transparency Barometer,” jointly issued by the Center for Audit Quality (CAQ) and Audit Analytics. As noted in this Audit Analytics blog, among the highlights are:

– 31% of S&P 500 companies’ proxy statements present enhanced discussion of the audit committee’s considerations in recommending the appointment of the audit firm, up from 13% in 2014. 21% of MidCap companies show enhanced discussion (up from 10% in 2014) compared to 17% of SmallCap companies (up from 8% in 2014).
– 17% of S&P 500 companies’ explicitly stated the role audit committees play in negotiating audit fees, more than doubling from 8% in 2014.
– 34% of S&P 500 companies disclose the evaluation or supervision of the audit firm, more than quadrupling from just 8% in 2014.

Transcript: “Audit Committees in Action – The Latest Developments”

We have posted the transcript for our recent webcast: “Audit Committees in Action – The Latest Developments.”

Study: 14 Years of Audit Fees (& Non-Audit Fees)

As noted in this blog from Audit Analytics, audit fees have increased by 9% over the past year. The ratio of audit fees over revenue (including audit related fees for tasks such as due diligence, accounting consultations, and internal control reviews) increased to a 2015 value of $599 per $1 million of revenue…

FASB’s New Cash Flow Guidance

Recently, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the Emerging Issues Task Force)…

– Broc Romanek

Lights, camera, action! There certainly is a lot of action so far by President Trump. Here’s an excerpt from this Reuters article:

President Donald Trump is planning to issue a directive targeting a controversial Dodd-Frank rule that requires companies to disclose whether their products contain “conflict minerals” from a war-torn part of Africa, sources familiar with the administration’s thinking.

Reuters could not learn precisely when the directive would be issued or what the final version would say. However, a leaked draft that has been floating around Washington, D.C., and was seen by Reuters on Wednesday calls for the rule to be temporarily suspended for two years. Reuters could not independently verify the authenticity of the document.

Someone sent me this draft executive order – but as Reuters notes, it’s unclear if it’s the real deal. This executive order apparently will be based on a “national security interests” rationale.

Anyway, conflict minerals filings are still due on May 31st – until we know otherwise. I’ll post the transcript from our recent webcast on conflict minerals in the next day or so (audio archive available now)…

Here’s a Mother Jones article about the impact (or lack thereof) of the conflict minerals disclosure rule…

Challenged in Court: Trump’s “2-for-1” Regulatory Order

Last week, I blogged about President Trump’s executive order that requires federal agencies to eliminate two regulations for every new one created. This order doesn’t apply to the SEC & other independent agencies. This order has been challenged now in this lawsuit: Public Citizen v. Trump. Here’s a press release from Public Citizen – and this blog summarizes the complaint.

White House’s Interim Guidance Encourages “Net Zero” Rulemaking

Meanwhile, the Administration issued this interim guidance last week about how to implement the “2-for-1” executive order – which includes language that encourages independent agencies that aren’t subject to the order – including the SEC – “to identify existing regulations that, if repealed or revised, would achieve cost savings that would fully offset the costs of new significant regulatory actions.”

– Broc Romanek