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."
Loving this CNet article about Snap’s impending IPO (Snapchat was renamed “Snap” last year; the company, not the app). The first sentence of the article is: “This may be the first time the word “sexting” has been included in an SEC filing.” Also see this CNet article about Snap’s Form S-1.
By the way, as noted in this article, Snap’s proposed governance structure is controversial – only non-voting stock is being offered to the public. Here’s a CII press release expressing anger about this structure…
Raytheon Adopts New Recognition Revenue Standard Early!
This blog from “The SEC Institute” tells us that Raytheon – in its 4th-quarter earnings release – announced it has adopted the new revenue recognition standard as of January 1, 2017, a full year before the required adoption date. Raytheon elected the full retrospective adoption method.
CII Report: How Proxy Access Private Ordering Is Faring
Last week, CII released this 11-page report about proxy access & private ordering. The conclusion states in part:
Reliance on private ordering (rather than a more standardized approach envisaged by the SEC in 2010) has meant that this area is even more complex, with the potential for various creative ways to block or frustrate what shareowners would see as legitimate uses of the mechanism. For example, some remarkably broad provisions require a nominating shareholder to file with the SEC anytime it communicates with another shareholder, regardless of whether that communication triggers a filing requirement under the SEC’s own regulations. CII is monitoring these and other onerous provisions, and intends to release an update to its 2015 Best Practices document in the second half of 2017.
He’s on a tear! Yesterday, Acting SEC Chair Mike Piwowar issued yet another statement directing the Corp Fin Staff to revisit another set of existing rules – the pay-ratio disclosure rules. Last week, Piwowar did the same thing with the conflict minerals rules.
The stated rationale for the reconsideration is that some companies are experiencing “unanticipated compliance difficulties that may hinder them in meeting the reporting deadline.” No mention of employee morale – or the desire to avoid negative publicity with the general public. Comments should be submitted on the pay ratio rules within the next 45 days.
Although this statement doesn’t repeal – or even suspend – the looming deadline for the effectiveness of the pay ratio rule, it evidences a clear intent to re-visit the rule. It also gives a strong indication that the rule is going to be under scrutiny from both regulators & Capital Hill over the next few months. Since pay ratio disclosures aren’t mandated until next proxy season, there is some time for this to play out. But not a whole lot of time…
In this blog yesterday, I noted this list of “major” rules that are on the potential “hit list” under the “Congressional Review Act” – the resource extraction rules were just killed under that Act. Conflict minerals & pay ratio aren’t on the list.
How Fast – Or Slow – Can the SEC Act?
That is the question of the day. Here’s an excerpt from this WSJ article:
Republicans on the SEC could be stymied by the commission’s own procedures on the pay-ratio rule because undoing a regulation is handled by an often lengthy process that is similar to creating one. It also is difficult for the SEC to delay it outright, because of the commission’s depleted ranks. There are just two sitting commissioners—Mr. Piwowar and Kara Stein, a Democrat—meaning the SEC is politically deadlocked on most matters. Ms. Stein on Monday signaled opposition to efforts to ease the pay rule. “It’s problematic for a chair to create uncertainty about which laws will be enforced,” she said.
But Maybe Congress Will Act Faster…
Mark Borges notes that this Bloomberg/BNA article reports that a new version of the “Financial Choice Act” will be introduced in Congress later this month. Not only is this bill likely to include a provision that would repeal of the pay ratio rule, it appears that it will also contain a version of the “Proxy Advisory Firm Reform Act of 2016.” As you will recall, that’s the bill that was introduced last year that would require the major proxy advisory firms register with the SEC and, among other things, disclose potential conflicts of interest.
On Friday, President Trump issued this Executive Order calling for a comprehensive review of Dodd-Frank. Here’s the pertinent language which applies to a broad swath of laws & regulations – including, but not necessarily limited to – Dodd-Frank:
Directive to the Secretary of the Treasury. The Secretary of the Treasury shall consult with the heads of the member agencies of the Financial Stability Oversight Council and shall report to the President within 120 days of the date of this order (and periodically thereafter) on the extent to which existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies promote the Core Principles and what actions have been taken, and are currently being taken, to promote and support the Core Principles. That report, and all subsequent reports, shall identify any laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies that inhibit Federal regulation of the United States financial system in a manner consistent with the Core Principles.
The “Core Principles” referenced in this directive are set forth in the first section of the Order:
It shall be the policy of my Administration to regulate the United States financial system in a manner consistent with the following principles of regulation, which shall be known as the Core Principles:
(a) empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;
(b) prevent taxpayer-funded bailouts;
(c) foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;
(d) enable American companies to be competitive with foreign firms in domestic and foreign markets;
(e) advance American interests in international financial regulatory negotiations and meetings;
(g) restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.
Here’s some analysis from “Mark Borges’ Blog“: It’s all very general in nature – but within the next four months (presumably sometime around the end of May), the Treasury Department will be delivering its report and (again presumably) it will address whether (and to what extent) Dodd-Frank promotes or does not promote the Core Principles. I expect that this report will cover the various executive compensation-related provisions of Dodd-Frank, including the CEO pay ratio requirement. While it’s still too early to know what this all means – or how it will play out, the Order clearly signals the start of the long-promised re-working of the law. This will likely include the repeal of some provisions, the modification and amendment of others, and, possibly, the survival of some provisions intact.
Also, it is being reported that Representative Jeb Hensarling (R-TX), Chair of the House Financial Services Committee and the catalyst behind last year’s Financial Choice Act, is expected to unveil legislation soon that will “overhaul” Dodd-Frank.
So, events appear to be picking up. Further, given the recent activity out of the White House, it’s entirely possible to that the Administration will want to demonstrate some degree of immediate progress on revamping the current law. If that’s the case, could a repeal – or delay – of the CEO pay ratio rule be in our immediate future?
Death of the SEC’s Resource Extraction Rule: R.I.P.
On Friday, the Senate passed a resolution under the “Congressional Review Act” that disapproves the SEC’s rule on resource extraction payments. As noted in this blog – citing this article – the vote was conducted pre-dawn! The House had already passed the resolution – so the rule is no longer in effect once the President signs it. The rule had a tortured history from the beginning, leaving it vulnerable to action under the Congressional Review Act…
Keir Gumbs notes: Interesting stuff. There is still a statutory mandate for resource extraction disclosures. Unclear what will happen if the rule is repealed & the mandate stands. The irony is that they only re-adopted it after they were ordered to by a federal court. Technically, the SEC will be required to move forward on the rule again until the relevant provision of Dodd-Frank is removed.
Given the recent change in Administration, it is doubtful that the SEC will pick this up again, which means that global transparency activists will have to pursue other means to get US companies to disclose this information. Notably, there is a comparable obligation in the EU that many US companies will have to comply with even though the US rules have been (or will be) repealed.
Form F-7: Green Light for Canadian Companies
From Paul Dudek of Latham & Watkins: On Friday, Corp Fin issued this no-action letter relating to MJDS Form F-7 rights offers by Canadian companies. Canadian securities regs were revised in 2015 – and there was a question as to whether companies could use F-7 with offers under the new regs. The Staff confirmed that rights offers under the new regs could be registered on a Form F-7. The incoming letter notes the number of Canadian rights offers taking place which have not been registered under the MJDS. This clarification could encourage more Canadian issuers to extend their rights offers to US holders through the MJDS.
Last year, we blogged about Corp Fin’s new policy of not asking for Tandy Letter reps in comment letter responses and acceleration requests. Apparently, IM also ceased requiring similar representations in connection with their review of 1933 Act and 1934 Act filings.
So I presumed that Tandy letters were dead. But I forgot about the SEC’s Office of Chief Accountant (known as “OCA”; not to be confused with Corp Fin’s own Chief Accountant’s office). OCA has required a stand-alone Tandy letter for auditor independence determinations for a long time – and still does. I can be forgiven for forgetting this as lawyers don’t often get involved in auditor independence issues…
Is there any way for the SEC’s Enforcement Division to better bring a message case then using the hit musical – “Hamilton” – in the title of a press release?
Form AP: Updated PCAOB Staff Guidance
Recently, the PCAOB issued Staff Guidance on Form AP that updates its guidance from June. Here’s the press release, which notes that the primary addition is an explanation of the filing deadline for companies that don’t file reports with the SEC…
FASB Proposal: Call Out Debt Waivers on Balance Sheet
This Deloitte memo discusses FASB’s recent proposal to simplify the process of determining whether debt should be classified as “current” or “noncurrent” – that’s “long-term” to us Earthlings – on a balance sheet. One part of the proposal that caught my eye relates to the disclosure of lender waivers of covenant defaults:
Entities would be required to separately present the amount of debt that is classified as noncurrent as a result of the waiver exception on the face of a classified balance sheet.
Some folks have tried to play games with disclosure of covenant waivers over the years, but I think there’s a recognition of the need for greater transparency about them. Under the new proposal, there would be no place to hide.
Shrinkage. One of the best Seinfeld episodes. Anyway, the Trump Administration is targeting a smaller Federal government with much fewer benefits, as noted in this Washington Post article. Although the SEC doesn’t seem to be specifically targeted, it likely will be impacted by these efforts in a major way. The question remains – just how much?
We have come full circle from the aftermath of the ’07 financial crisis, when hiring 800 new Staffers was being bandied about – and eventually happened, an increase of total staff by over 20%!
How to Reduce the SEC’s Regs By 75%…
Speaking of shrinkage, let’s talk about President Trump’s goal of reducing government regulations by 75%. As I blogged a few days ago, the SEC is not impacted by the Executive Order. But let’s pretend it was. I wonder how the SEC would go about doing such a thing. Give me your feedback as to which rules & regs would go on your own personal “eliminate vs. keep” list.
But note that the rules of the game are that you have to keep or eliminate entire rule or regs, not merely portions. Give me your feedback & then I’ll roll up your answers – anonymously – into a poll so that we can crowdsource this thing. Thanks to Eliot Robinson of Bryan Cave for the idea!
Our Pair of Popular Executive Pay Conferences: A 30% Early Bird Discount
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Last night, SEC Acting Chair Piwowar released this statement, announcing that the SEC would be reconsidering its conflict minerals “2014 guidance.” Here’s an excerpt from Lawrence Heim’s note:
Although there is ambiguity in this statement that we hope to get clarity on soon, it appears that the statement may only relate to the 2014 guidance and not the rule as a whole. In addition, it also appears that the outcome of the SEC’s action in relation to Piwowar’s statement applies to filings covering calendar year 2017 and therefore may not impact activities currently underway by issuers preparing for their CY2016 filings.
The statement notes that Chair Piwowar visited Africa last year & has seen the rule’s unintended consequences firsthand (and see more analysis in this Gibson Dunn blog). Comments on the reconsideration can be submitted over the next 45 days.
This news comes just in time for our webcast tomorrow – “Conflict Minerals: Tackling Your Next Form SD” – featuring our own Dave Lynn of Morrison & Foerster, Ropes & Gray’s Michael Littenberg, Elm Sustainability Partners’ Lawrence Heim and Deloitte’s Christine Robinson. They will discuss what this latest development means for you, as well as what you should be considering as you prepare your Form SD for this year.
Steve Quinlivan blogs that the resource extraction rules might turn to dust soon as the House seeks a “joint resolution of disapproval” today…
The Investor Stewardship Group’s Governance Framework
Yesterday, the “Investor Stewardship Group” wrapped up two years of work to release these long-term value principles: “Framework for U.S. Stewardship and Governance.” The group includes 16 large institutional investors & global asset managers: BlackRock, CalSTRS, Florida State Board of Administration, GIC Private Limited (Singapore’s Sovereign Wealth Fund), Legal and General Investment Management, MFS Investment Management, MN Netherlands, PGGM, Royal Bank of Canada (Asset Management), State Street Global Advisors, TIAA Investments, T. Rowe Price Associates, ValueAct Capital, Vanguard, Washington State Investment Board and Wellington Management.
Our February Eminders is Posted!
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Heavens. I could launch a new blog just devoted to the topic of dramatically cutting the number of rules with the stroke of a pen. Here’s the intro from Cydney Posner’s blog about this:
The WSJ reports about yet another executive order that was signed today, this one designed to cut back on federal regulation. Under the executive order, federal agencies will need to eliminate two regulations for every new one created. The intent of the order, according to the new President, is to cut at least 75% of all federal regulations. In addition, according to the WSJ, the order “caps costs of new regulations for the remainder of the fiscal year and creates a budget process for new regulations in the next fiscal year, which begins in October. This budget, separate from the congressional appropriation process, will be set by the White House.”
It sounds great in theory. But implementing a regulatory reduction like this – forcing agencies to kill two rules for every new one – is bound to result in disaster. There needs to be some sort of sophisticated – & holistic – approach. Perform surgery with a scalpel. Or I guess you could just go at it with a meat cleaver. This Politico article says it would take years to accomplish, with costly court challenges along the way.
Anyway, thanks to Keith Bishop for pointing out that this executive order doesn’t apply to the SEC! After the order was issued, Reuters reported the following clarification:
The White House confirmed on Monday that a new executive order to slash regulations will not apply to independent regulatory agencies such as the Securities and Exchange Commission, a spokeswoman said.
Transcript: “Pat McGurn’s Forecast for 2017 Proxy Season”
We have posted the transcript for the webcast: “Pat McGurn’s Forecast for 2017 Proxy Season.”
Tomorrow’s Webcast: “The Art of Working With Proxy Advisors”
Tune in tomorrow for the CompensationStandards.com webcast – “The Art of Working With Proxy Advisors” – to hear Strategic Governance Advisors’ Amy Bilbija, Davis Polk’s Ning Chiu, Teneo Governance’s Martha Carter and CamberView Partners’ Allie Rutherford analyze how to interact with proxy advisors to get the most out of your proxy season.
ESG – particularly sustainability & climate change – continues to grow in importance. There continues to be a multitude of standards to be aware of. The latest is a group of new standards from GRI (“Global Reporting Initiative”). The new GRI standards are modules that replace the former 4th generation of GRI standards, as fully explained on their site. We continue to post all the latest standards in our “ESG” Practice Area – as well as all sorts of memos on the latest (such as this 118-page guide on ESG integration for investors)…
Delaware Supreme Court Finds Relationships Taint Director Independence, Promotes Internet Searches
Here’s the intro from this blog by Davis Polk’s Ning Chiu:
Recently, the Delaware Supreme Court reversed the Court of Chancery in Sandys v. Pincus on findings of director independence at Zynga. The Court of Chancery had dismissed the suit for failure to make pre-suit demand on the board or alleging that demand would have been futile, but the Delaware Supreme Court found that the plaintiff had created a reasonable doubt that the board could have properly exercised independent, disinterested business judgment in responding to a demand. If director independence is compromised, then demand is excused.
Attorney-Client Privilege: In-House Counsel Can’t Talk to Former Employees!
In a blow to in-house lawyers, the Washington Supreme Court has ruled that communications between corporate counsel and former employees are not privileged and are freely discoverable. The 5-4 decision states that attorney-client privilege doesn’t exist because the former employee no longer has an ongoing principal-agent relationship with the corporation. The case involves a parents’ suit against a school district, claiming that their football-playing son allegedly was sent back into a game after suffering a concussion.
General counsel are clearly bothered by the ruling, according to Amar Sarwal, vice president and chief legal strategist for the Association of Corporate Counsel in Washington, D.C. Sarwal says that they have been emailing him since it came down on Oct. 20, including “four or five within the first 24 hours.” The main problem, according to Sarwal, is that the ruling is going to interfere with in-house investigations that seek to determine the facts surrounding misconduct. “Former employees tend to have a stockpile of information,” Sarwal says. “They are a treasure trove of information about what happened, and in-house counsel need to speak with them to find out. But this decision will assure that never happens.”
I try to innovate with something new every year. In 2016, it was the “Big Legal Minds” podcast series. The year before was a facelift for the home pages of our sites (with new features like our “Job Board“). In 2014, I launched the “Women’s 100” events & started posting the popular videos on CorporateAffairs.tv.
For 2017, it’s this new “Broc Tales” blog – as well as a counterpart on DealLawyers.com, “John Tales” – which attempts to educate through storytelling. The stories on “Broc Tales” will relate to the topic at hand – Reg FD for the bulk of ’17. Within the stories, I’ll be throwing in personal anecdotes occasionally. Inspired by the writings of Sarah Vowell. Hoping to spice it up. Here’s the first two entries:
But maybe my life ain’t your cup of tea. Not much I can do about that. Go ahead & subscribe to this blog now (using this “Subscribe” link) so that you can receive my new entries pushed by email during the coming year! And if you do check it out, let me what you think! It’s a new style of writing for me, so I imagine I will be improving over time…
To assist audit committees in their oversight efforts, the Center for Audit Quality has just released a new publication, “Preparing for the New Revenue Recognition Standard,” a tool for audit committees. The publication is organized in four parts and provides important and sometimes quite specific and detailed questions for audit committees to ask management. The first section, Understanding the New Revenue Recognition Standard — What Is It?, is designed to help audit committees understand the new standard by providing a brief overview of its core principles. Generally, the new standard provides a five-step model for recognition of revenue “when the customer can use or benefit from the good(s) or service(s) provided.” The CAQ suggests that audit committee members ask management to explain the standard and how it affects (or does not affect) the company and encourages members to oversee the company’s decision regarding the appropriate transition method and consider the market impact.
Audit Engagement Partners: CAQ’s Take on Form AP
The CAQ recently published this white paper on the new Form AP. For more on this new reporting requirement for audit engagement partners, see the memos posted in our “Auditor Engagement” Practice Area.
I had a lot of fun taping this 38-minute podcast with Stan Keller of Locke Lord. The dude can ball (meaning shoot hoops). I highly encourage you to listen to these podcasts when you take a walk, commute to work, etc. Stan tackles:
1. How did you become a lawyer in this field?
2. What was it like practicing in the ’60s?
3. What was it like drafting a state corporate code?
4. How has the ABA’s Business Law Section changed over the years?
5. What was it like presiding over the Federal Regulation of Securities committee during the Sarbanes-Oxley era?
6. How has it been working at a law firm that has gone through a succession of mergers?
7. Any final words of advice for new lawyers?
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…
ISS Buys an ESG Research Firm
Last week, ISS announced that it had bought IW Financial, a ESG research firm which has technology that allows users to comparatively rate companies based on user-defined criteria…
– The Disclosure of Material Relationships by Financial Advisors
– Small Company M&A: “Boy, Could This Deal Use a Few More 000s!”
– Proxy Access a’ la Private Ordering? Not So Fast!
– Tips for a Successful Working Capital Adjustment
– Questions Abound: FTC Antitrust Actions Under the New Administration
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