Broc Romanek is Editor of CorporateAffairs.tv, TheCorporateCounsel.net, CompensationStandards.com & DealLawyers.com. He also serves as Editor for these print newsletters: Deal Lawyers; Compensation Standards & the Corporate Governance Advisor. He is Commissioner of TheCorporateCounsel.net's "Blue Justice League" & curator of its "Deal Cube Museum."
Yesterday, ISS Corporate Solutions issued this primer that provides the basics of ISS Research’s Equity Plan Scorecard methodology that will affect meetings occurring on – or after – February 1st (see Appendix D for the ISS 2017 burn rates).
Climate Task Force Releases Proposed Disclosure Recommendations
Recently, as noted in this Davis Polk blog, the Financial Stability Board issued this 74-page set of recommendations that would enhance climate change disclosure on a global level. Participation would be voluntary. As noted in this article, there’s a recommendation to tie CEO pay to climate risk. There’s a 60-day comment period.
The SEC’s Investor Advocate Report
The SEC’s Investor Advocate has issued its annual report. Love the cover! Meanwhile, President Obama signed the legislation providing the SEC with a Small Business Advocate in the New Year (see John’s blog)…
Continuing my tradition of posting holiday disclaimers or what-not, here’s the intro of a funny take on Dr. Seuss by Lawrence Heim of Elm Sustainability Partners:
Oh, the jobs people work at!
Out west near Hawtch-Hawtch there’s a Hawtch-Hawtcher Bee-Watcher. His job is to watch… is to keep both his eyes on the lazy town bee. A bee that is watched will work harder, you see.
Well… he watched and he watched. But, in spite of his watch, that bee didn’t work any harder. Not mawtch.
So then somebody said, “Our old bee-watching man just isn’t bee-watching as hard as he can. He ought to be watched by another Hawtch-Hawtcher! The thing that we need is a Bee-Watcher-Watcher!”
Well…
The Bee-Watcher-Watcher watched the Bee-Watcher. He didn’t watch well. So another Hawtch-Hawtcher had to come in as a Watch-Watcher-Watcher!
And today all the Hawtchers who live in Hawtch-Hawtch are watching on Watch-Watcher-Watchering-Watch, Watch-Watching the Watcher who’s watching that bee.
You’re not a Hawtch-Watcher. You’re lucky, you see!”
Edgar: “Everything Edgar”
Recently, the SEC updated its “Everything EDGAR” page to provide additional information, including Quick Reference Guides…still needs a blog to provide info on outages in my humble opinion…
Check out Alan Dye’s blog on Section16.net about the SEC’s new procedures for setting Edgar passphrases…
Whistleblowers: Yet Another SEC Enforcement Action on Separation Agreements
The SEC’s Enforcement Division is on another whistleblower tear. On the heels of yesterday’s blog about an action involving severance agreements, here’s this settlement with SandRidge Energy over separation agreements. This WSJ article says more of these cases to come…
President-elect Donald Trump’s promise to eliminate regulations on U.S. businesses will likely take years to fulfill given the complex steps involved in reversing them and political and legal challenges from Democratic lawmakers and state attorneys general. Mr. Trump has said his administration will take aim at regulations across industries, and he will be backed by congressional Republicans eager to undo some of the more controversial Obama administration initiatives. Big targets include power-plant regulations and regulatory rules imposed on banks and financial institutions after the financial crisis of 2008, though the effort will also reach deep into the federal bureaucracy to include rules involving labor, telecommunications and health care.
Mr. Trump has a handful of ways to reach his goal, but they mostly point to a slow death of attrition for the Obama rules rather than an immediate elimination. He can opt not to defend rules currently tied up in court. His federal agencies can write new rules to justify revoking the ones he wants to eliminate. He can work with the GOP-controlled Congress to nullify recently completed regulations and restrict funding to certain parts of departments as a de facto way to hamstring a rule’s force.
In some cases, replacing rules will be as arduous as making them in the first place, particularly in the financial sector where some regulations have been issued by multiple agencies. The Volcker rule, which bans banks from making hedge-fund-like wagers, was adopted by five financial regulatory agencies. All five agencies would need to agree to changes for them to apply broadly. The Trump administration could loosen its enforcement of rules promulgated under Mr. Obama. That could make a difference where rules can be interpreted subjectively, such as in the case of the Volcker rule.
But where explicit rules are on the books, companies would be taking a risk by not complying, and there is no guarantee that career government staffers would agree to simply drop their enforcement actions.
Experience shows the difficulty of unraveling rules. Eight years ago the incoming Obama team pledged to review rules from the George W. Bush administration, including many so-called “midnight regulations” that were pushed through as Mr. Bush was preparing to leave office.
But of the more than 4,500 proposed or final regulatory actions cleared by the Bush White House, Mr. Obama repealed just 74 in his first nine months in office, when rules are most-often revisited, according to a 2009 presentation by a former official of the White House Office of Management and Budget. Of those, only 34 were final rules.
Whistleblowers: New SEC Enforcement Action Over Severance Agreements
Yesterday, the SEC announced that Neustar had settled whistleblower charges for routinely entering into severance agreements that contained a broad non-disparagement clause forbidding former employees from engaging with the SEC and other regulators “in any communication that disparages, denigrates, maligns or impugns” the company. Former employees could be compelled to forfeit all but $100 of their severance pay for breaching the clause.
Just one more enforcement case as the SEC continues to hammer home the need to modify agreements that contain anti-retaliation leanings. Tune in next year to our webcast – “Whistleblowers: What Companies Should Be Doing Now“…
Cybersecurity: Bankers Scared to Give Regulators Data
In the wake of the financial crisis, federal regulators are demanding a vast trove of private data to help them better monitor markets. But in the age of routine, sophisticated hacks, many in the financial industry worry the government will be unable to keep that sensitive information secure.
Investment firms cite numerous breaches at federal agencies, most recently the late-October admission by the national bank overseer that a former employee had downloaded 10,000 records with two thumb drives and took them home.
Industry trade groups also fret about what they consider insufficiently specific assurances that regulators are beefing up cybersecurity commensurate with new demands. The Commodity Futures Trading Commission has drawn industry ire with a project to crack down on rapid-fire trading firms, which includes a provision that would require the firms grant the CFTC access to their confidential computer source code without a subpoena. Last month, the SEC completed new rules to increase significantly the volume of data mutual funds report about their holdings, including derivatives instruments and securities-lending activities, to better track risks across the industry. “We remain concerned about the SEC’s ability to safeguard confidential information, as they provide precious little detail about their plans,” David Blass, general counsel for the Investment Company Institute, a mutual-fund lobbying group, said following the rule’s completion.
This is a fun one! In this 22-minute podcast, our NYC trio – Roshni Banker Cariello and Melissa Glass of Davis Polk, as well as Connor Kuratek of Marsh & McLennan – discuss the latest in random things about life, including:
1. Hometowns
2. Office sizes
3. Deal cubes
4. TV shows about NYC
5. Holiday parties
6. Pencils
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…
I haven’t hashed out all the FAQs. But for the peer group ones, the changes are fairly minor & often ministerial, as reflected in this blackline of those FAQs…
SEC’s Chief Accountant Speaks: Disclose More on New Accounting Standards
As noted in these memos posted in our “Conference Notes” Practice Area, the SEC has posted its annual slew of speeches (see the December 5th stuff) – a total of 10 – made by members of its Chief Accountant’s office at the big AICPA conference.
Chief Accountant Wes Bricker’s speech highlighted what the Staff has been out saying before – that the impact of new accounting standards need to be disclosed more fully. With new revenue recognition (see also this speech) & lease standards becoming effective soon, this is something to bear in mind for this proxy season. Wes also covered questions that audit committees should be asking…
John & I had a lot of fun taping our 6th “news-like” podcast. This 8-minute podcast is about the director who was insider trading during a board meeting, placing an order for the target company’s stock when the deal was not yet announced! We also discuss the SEC’s “links to exhibits” proposal.
For those in charge of managing the board, this podcast explains how this SEC enforcement case is your “Golden Ticket”! You want to be aware of this case because it’s a great hook to get the attention of your directors when you’re reminding them of their insider trading & Section 16 obligations. Shucks, it may even help you when you ask for a raise! I highly encourage you to listen to these podcasts when you take a walk, commute to work, etc.
This podcast is also posted as part of our “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…
Cap’n Cashbags: Insider Trading During a Board Meeting
What can be better than a reenactment of how this situation went down? In this 30-second video, a director places a trade with her broker to buy shares in the company being acquired while she is learning about the not-yet-announced deal:
“Off the Record, On the QT, and Very Hush Hush” – Part I
Education by entertainment! The new blog on DealLawyers.com – “John Tales” – will teach you the kinds of things that you don’t learn at conferences, nor in treatises or law firm memos. John Jenkins is a 30-year vet of the deal world & he brings his humorous stories to bear on this new “long-form” blog.
When you check out “John Tales” – located at the top left corner of the DealLawyers.com home page – insert your email address when you click the “Subscribe” link if you want these precious tales pushed out to you!
Bonus! “Broc Tales” is coming to TheCorporateCounsel.net in January!
House Passes “Creating Financial Prosperity for Businesses & Investors Act”
Here’s the intro from this blog by Stinson Leonard Street’s David Jenson:
On Monday, the House of Representatives passed the Creating Financial Prosperity for Businesses and Investors Act (H.R. 6427) (the “Act”) by a vote of 398 to 2. The Act is actually a compilation of six measures that were previously considered and passed by the House in 2016, but that have thus far seen no action in the Senate. Here is a summary of each piece of legislation, along with links to our prior coverage and to the actual text of each provision.
An Awesome Book! “Niagara”
Full disclosure that the author is my cousin. But that’s what makes it even more remarkable. I just love her new book! And not just because I’m fascinated by the history of Niagara Falls. The book is a true thriller! In this 12-minute podcast, Linda Grace discusses her new book “Niagara” (here’s the related Amazon page & the Facebook page), including:
– What was your motivation for writing the book?
– Even though I’ve been a regular visitor to Niagara my entire life, I learned so much history. How do you know all that?
– Is all that history in the book actually true?
– Part of the history tour focuses on Native Americans. That’s an approach that is probably novel for many out there – but yet, it’s such a rich vein to educate. What led you to include those storylines?
– The book is so much more than just a historical tour of the area. It’s got romance, mystery, mystical, slice of life and more. It’s an emotional whirlwind. Was it always your intention to cover so much ground?
– Is the main protagonist drawn from your life at all?
– Any plans to write another book?
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…
Yesterday, the SEC announced that Corp Fin Director Keith Higgins is leaving in early January. I am happy for Keith – sad for the rest of us. Keith did an amazing job under tough circumstances. For example, getting the “disclosure effectiveness” project off the ground was a huge challenge. Having seen the launch of the “aircraft carrier” up close, I know how difficult it is to engage in comprehensive reform. Directors never get the time to achieve their goals these days, as Congress gives them plenty to do. I’m sure we would have even seen more change during Keith’s tenure if he was given the leash.
And Keith is among the best speakers out there. His wit never dimmed, even wearing the “Gov” mantle…I’m glad that Keith got this rousing standing “O” at the ABA meeting last month…
Deputy Director Shelley Parratt will serve as Acting Director as she did during the last transition…
Gender Diversity: Smaller Company Boards Lag
This Equilar study notes that smaller companies lag the S&P 500 when it comes to gender diversity. Only 1.4% of S&P 500 boards of directors in 2016 failed to include at least one woman, which decreased from 11.6% in 2012. In contrast, 23.8% of Russell 3000 companies had all-male boards.
The diversity gap also shows up in board recruitment. Smaller company boards often serve as the first stop on the path to large cap directorships, but Russell 3000 companies lag their larger peers in the percentage of first time directors who are female:
In fiscal 2015, 1,155 directors joined Russell 3000 boards that had never served on any public company board. Of these directors, only 15% were female. Meanwhile, in the S&P 500, of newly elected directors who never served on an S&P 500 or Russell 3000 board, 25.5% were women in 2015.
Fewer women first-time directors at smaller companies could adversely affect the pipeline for large cap positions.
How to Order a Hard-Copy: Remember that a hard copy of the 2017 Treatise is not part of a CompensationStandards.com membership so it must be purchased separately. Act now as this will ensure delivery of this 1600-page comprehensive Treatise soon after it’s done being printed. Here’s the “Detailed Table of Contents” listing the topics so you can get a sense of the Treatise’s practical nature. Order Now.
Recently, a member asked why doesn’t SEC Chair White cram in a bunch of rulemakings while she can. Putting aside how she likely would be sensitive to the optics of that, I reminded the member that Commissioner Piwowar can stop any rulemakings simply by not showing up – as the SEC’s rules require three Commissioners to be present to reach quorum (as noted in this blog).
The question then arises as to how will the SEC reach quorum when Chair White leaves on Inauguration Day. At that point, only Commissioners Piwowar & Stein will be on the Commission – and it likely will take the new Administration awhile to getting around to nominating new Commissioners (& then the Senate to confirming them).
No worries. Back in the 90s, President Clinton was slow to nominate new members to federal agencies and the SEC dropped down to a level of two Commissioners for a spell – Chair Levitt & Commissioner Wallman. In order to get business done, the SEC amended its rules to accommodate the Commission when it drops to such a low level. “The Rule of 2” – adopted in 1995 – is still on the books:
§200.41 Quorum of the Commission.
A quorum of the Commission shall consist of three members; provided, however, that if the number of Commissioners in office is less than three, a quorum shall consist of the number of members in office; and provided further that on any matter of business as to which the number of members in office, minus the number of members who either have disqualified themselves from consideration of such matter pursuant to §200.60 or are otherwise disqualified from such consideration, is two, two members shall constitute a quorum for purposes of such matter.
So the quorum rules are different when there are three sitting Commissioners as compared to two. Thanks to Hunton & Williams’ Scott Kimpel for the help finding this rule…
How Will Trump Approach Executive Pay?
Recently, a member asked: “How do you see the Presidential election influencing incentive compensation and corporate governance in 2017?” Here’s my response:
Although it is difficult to know in practice, on paper, there is a wide gulf in difference in how the markets would be regulated between a Trump Administration & a Clinton one. Whereas a Clinton Administration might have been widely influenced by Senator Elizabeth Warren and resulted in restraints on how Wall Street operated, a Trump Presidency might result in unprecedented deregulation at the behest of a GOP Congress. A Clinton Administration was rumored to pick an investor as the next SEC Chair – which would have been a first. It appears that Trump will tap someone who believes that minimal regulation is good regulation.
So I think it’s clear that restraints on how companies can govern themselves will become looser. However, executive compensation specifically could be another matter. Trump ran a populist campaign, often railing about excessive executive compensation. It’s unknown whether that was empty campaign fodder to generate votes – or whether he’ll follow through and do something concrete in this area. And I note that during a House hearing about Mylan’s controversial EpiPen pricing, some GOP reps really grilled Mylan’s CEO about her pay package…
Also see this note from myStockOptions.com entitled “How The Trump Presidency And Tax Reform May Affect Stock Compensation.” And this Bloomberg BNA article has quotes with experts giving mixed reactions to guessing whether pay ratio will disappear…
Recently, I blogged about how Section 631 of the Financial Choice Act would seriously damage the SEC’s ability to conduct rulemaking. If that didn’t move you, try Section 412 on for size:
The notice and comment requirements of section 553 of title 5, United States Code, shall also apply with respect to any Commission statement or guidance, including interpretive rules, general statements of policy, or rules of Commission organization, procedure, or practice, that has the effect of implementing, interpreting, or prescribing law or policy and that is voted on by the Commission.
As I understand it, Section 631 wouldn’t impact guidance at the Staff level – only guidance issued by the Commission itself. Whew, otherwise it would be nearly impossible to get no-action letters & CDIs out the door. But this would impact the occasional interpretive release that the SEC issues after the Commissioner vote upon it (here’s a list). And while going through the Administrative Procedures Act process is doable – it’s a lot of work & would take much more time to implement…
The Arrival of the Trump Risk Factors
A few weeks ago, I predicted that we would see risk factors related to the change in Administration. This blog by Steve Quinlivan notes that the first batch of these have been filed…
Our December Eminders is Posted!
We have posted the December issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
In this 14-minute podcast, Aaron Cutler – a Hogan Lovells Partner & Former Senior Advisor to House Majority Leader Eric Cantor – discusses what the future holds in Washington DC for corporate & market regulation, including:
– Who will be taking the lead in overseeing the markets in Congress going forward?
– What are the prospects of legislative changes in the near term, including a full – or partial – repeal of Dodd-Frank?
– What type of SEC Chair might we see?
– Can the SEC operate with just two Commissioners (Chair White leaves in January bringing the number of Commissioners down to two; I’ll be blogging on this in a few days)?
This podcast is also posted as part of our “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…
With SEC White leaving in January – and Commissioner Stein’s term ending a few months later in June – President-Elect Trump will get the opportunity to tap 4 new SEC Commissioners within a short period of time. That has to be unprecedented.
SEC Commissioners serve for a term of 5 years – except if they are appointed to fill a vacancy, they only serve for the remainder of their predecessor’s term. If their term expires and a successor is not yet confirmed, they can remain on the Commission beyond the expiration of their term (but not beyond the expiration of the next term of Congress – so they might stay on as long as 18 months after their term expires). Commissioner Stein filled a vacancy (succeeding Elise Walter) – thus, her term is shorter than 5 years. But she may wind up staying on longer than her 4-year term if a successor isn’t confirmed timely.
I’m pulling all this knowledge straight out of Section 4(a) of the Securities Exchange Act of 1934 – the law that established the creation of the SEC. Now some people are saying that the mixed composition of political party backgrounds of the Commissioners is a “tradition” and not required. I’m not sure why they’re saying that – because Section 4(a) also states:
Not more than three of such commissioners shall be members of the same political party, and in making appointments members of different political parties shall be appointed alternately as nearly as may be practicable.
So while it may be true that some federal agencies don’t have this “mixed political party” requirement for their governing body, the SEC does have it baked into long-standing legislation…
Note this statement – “Their terms last five years and are staggered so that one Commissioner’s term ends on June 5 of each year” – from the SEC’s website. This staggering is subtly called for by the last clause in Section 4(a). It’s what happened when the original set of Commissioners were appointed in 1934 – and it has continued since due to way that vacancies are filled…
Trump Transition: Plenty of Resources
This new Davis Polk blog devoted to explaining the nuances of how this transition in power might be the same – or different – from past changes in Administration is awesome. Also check out the numerous memos about the transition posted in our “Regulatory Reform” Practice Area.
