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."
With so many companies now improving their proxy disclosures, I’ve decided to hold an annual contest for proxy disclosures. The deadline for nominations is Wednesday, July 1st. The winners will be decided by you – via anonymous popular voting. In three weeks, I will post the nominees to be voted upon in the following 14 categories – in the meantime, please submit your nominations by emailing them to me.
– Self-nominations permitted
– Max of 3 nominations per company
– No need to explain why you’re nominating a proxy for a category(ies). Just let me know the company name and the category(ies) for which it is being submitted.
Here’s the categories:
1. Best Overall Proxy (Combined Online & Print)
2. Best Print Proxy – Large Cap
3. Best Print Proxy – Mid-to-Small Cap
4. Best Online Proxy – Large Cap
5. Best Online Proxy – Mid-to-Small Cap
6. Most Improved Print Proxy
7. Most Improved Online Proxy
8. Most Persuasive Supplemental Letter/Additional Soliciting Materials
9. Best Executive Summary
10. Best CD&A
11. Best CD&A Summary
12. Best Shareholder Engagement Disclosure
13. Best Director Bios Disclosure
14. Best Shareholders Letter
Sights & Sounds: “The Women’s 100 Conference ’15″
Just wrapped both of my “Women’s 100” Conferences over the past two weeks – DC and Palo Alto. Like last year, they were very interactive & loads of fun. Here’s a nice note from Mintz Levin’s Megan Gates about it. [By the way, Megan & her team are doing a great job with their new blog – check it out!] Also check out this emotional speech by Prudential’s Peggy Foran, who earned the “Linda Quinn Lifetime Achievement Award” in DC.
Here’s a 40-second video that gives a little bit of the DC event’s flavor (with a nice wave cheer) – and then below that is a 40-second video of the Palo Alto event (great “boom shakalaka boom” at the end):
Here’s some thoughts from Baker & McKenzie’s Dan Goelzer: Recently, Audit Analytics released its annual report on financial restatement trends, “Financial Restatements 2014–A Fourteen Year Comparison.” The study concludes that the absolute number of restatements is constant and the severity of restatements is relatively low, although there is a trend toward more restatements by large public companies. According to the report synopsis and AA’s blog:
– During the last five years, the number of public company restatements has remained essentially flat. Restatements peaked at 1,842 in 2006. By 2009, restatements had fallen to 761. Restatements rose to 836 in 2010 and have remained near that number through 2014.
– While the overall number of restatements is relatively constant, the number of accelerated filers – the largest public companies – announcing restatements is rising. In 2009 and 2010, 171 accelerated filers restated. That number has increased each year since 2010. In 2014, 309 accelerated filers restated.
– The severity of restatements remained low in 2014, consistent with AA’s findings during the past several years. In 2014, the average public company restatement resulted in an income adjustment of $1.9 million, the lowest adjustment amount in eight years. In addition, AA’s blog states that “virtually all” of the severity indicators tracked by Audit Analytics remained low in 2014. The severity indicators are negative impact on net income; average cumulative impact on net income per restatement; percentage of restatements with no impact on income statement; average number of days restated; and average number of issues identified in restatement.
A somewhat different perspective emerges from a report released by Cornerstone Research. That report, entitled “Accounting Class Action Filings and Settlements—2014 Review and Analysis,” finds that securities class actions with accounting-related allegations increased in 2014; 69 new accounting cases were filed, an increase of 47 percent over 2013. (Cases are considered “accounting cases” if they involve allegations related to Generally Accepted Accounting Principles (GAAP) violations, auditing violations, or weaknesses in internal control over financial reporting.) Other highlights of the Cornerstone report include:
– More than one in four of the accounting class action complaints referred to an SEC inquiry or action. This is the highest level of private accounting suits that parallel SEC enforcement cases since Cornerstone began tracking this variable in 2010.
– Accounting cases involving restatements increased to the highest level in seven years – both in terms of the number of cases filed (29) and as a percentage of total accounting cases (42 percent).
– Since 2010, the majority of accounting cases have included allegations of internal control weaknesses. In 2014, 60 percent of cases filed involved internal control weaknesses.
– The “Disclosure Dollar Loss Index” for accounting cases involving restatements increased to its highest level since 2005. The Disclosure Dollar Loss Index is a measure of the decline in market capitalization at the end of the class period.
In Cornerstone’s press release, Dr. Elaine Harwood, a Cornerstone Research vice president and head of the firm’s accounting practice, offered this explanation for the increase in class action litigation alleging accounting violations: “The increase appears to be, at least in part, a result of the SEC’s heightened focus on accounting-related fraud as demonstrated by the substantial growth in accounting case filings that refer to inquiries or actions by the SEC.” As to the reasons why more class actions relating to restatements were filed in 2014, Dr. Laura Simmons, a Cornerstone Research senior advisor, observed: “The increase in filings of cases involving restatements is consistent with our finding of a relative increase in negative stock price movements surrounding restatement announcements in 2014 as compared to recent years.”
Comment: The Audit Analytics study is consistent with other research indicating that the reliability of financial reporting has increased post-Sarbanes-Oxley. However, as Cornerstone’s research indicates, market-moving restatements, while rarer than in earlier years, still can have severe consequences, both in terms of SEC action and private litigation.
A few months ago, I blogged an excerpt from an article that quoted the SEC’s Chief Accountant Jim Schnurr as saying that “there is virtually no support to have the SEC mandate IFRS for all registrants.” Now, a few weeks ago, Jim gave a speech in which he seemed to disagree that IFRS is dead in the US (as noted in this article). Here’s an excerpt from his speech:
As I mentioned publicly last month, the staff has recently heard from a number of different constituents about IFRS: preparers, investors, auditors, regulators and standard-setters. We heard three key themes through those discussions: There is virtually no support to have the SEC mandate IFRS for all registrants. There is little support for the SEC to provide an option allowing domestic registrants to prepare their financial statements under IFRS. There is continued support for the objective of a single set of high-quality, globally accepted accounting standards. So, while full-scale adoption or an option does not appear to have support, it does not mean we ‘bury’ the underlying objective of a single set of high-quality, globally accepted accounting standards. On the contrary, constituents continue to support that idea. So, the real questions are: what is the path to achieve that objective and how do we get there?
Delaware House Approves Curb on Fee-Shifting Bylaws
Here’s news from the Delaware Law Weekly (also see this memo):
The state House of Representatives on Thursday unanimously approved SB 75, the annual package of amendments to the Delaware General Corporation Law, which included a measure that would prevent stock corporations from enacting bylaws that impose attorney fees and costs on plaintiffs who lose after filing lawsuits alleging corporate waste or wrongdoing. The measure now goes to the desk of Gov. Jack Markell, who is expected to sign it into law.
“SB 75 helps preserve the balance between shareholders and management and ensures that shareholders in Delaware corporations have access to the Court of Chancery,” said Kelly Bachman, Markell’s press secretary. “The governor would like to thank the Corporation Law Council for its continued efforts to improve Delaware law and preserve Delaware’s place as the leading state of incorporation.”
Approval—which required a two-thirds vote—came on a 40-0 vote with one state representative absent.
Chief Deputy Secretary of State Richard J. Geisenberger came to the chamber before the vote to answer lawmakers’ questions and said its drafters were confident that the bill would maintain the delicate balance of Delaware’s franchise in corporate regulation, which he said is worth $1.1 billion annually to the First State. The state should aim, Geisenberger said, “to strike a balance between the attractiveness of our corporate statute to managers and [the needs of] raising capital from shareholders.”
He added that he did not think banning stock corporations from adopting fee-shifting bylaws posed a risk to Delaware’s attractiveness as a state of choice for incorporation. He stressed that another key provision of the act allows corporations to state in their bylaws that claims under the DGCL be brought only in the courts of Delaware.
Recently, Corp Fin announced a new policy that the Staff will publicly release “no review” letters for registration statements that are not selected for review. These “no review” letters will be posted on Edgar in a company’s “correspondence” stream. A company and its advisors would already know about a registration statement not being selected for review – so this move really only benefits third parties who wanted to know.
Some folks want Corp Fin to issue “no review” letters for preliminary proxy statements since the existing practice is that companies can presume that no comments from Corp Fin are forthcoming if they don’t hear from the Staff within 10 calendar days of filing, per Rule 14a(6)(a). Learn more about this process in our “Preliminary Proxy Statements Handbook.”
On the other hand, most folks like the fact that the Staff is silent and doesn’t issue a “no comments” letter if its ’34 Act filings are reviewed and the Staff has no comments. In other words, it’s possible that your 10-K was reviewed but the Staff had no comments – but you wouldn’t know that since they never contacted you. Typically, the ’34 Act review is only of the company’s financials, conducted by Corp Fin’s accounting staff. This review is necessitated by Section 408 of Sarbanes-Oxley, which mandates that every company’s periodic disclosures must be reviewed at least once every 3 years.
The rationale for not wanting a “no comments” letter is that you don’t want the CFO and Controller’s office getting excited and thinking they are doing a great job because Corp Fin didn’t issue any comments. Better to keep them on their toes…
Court Finds SEC’s Use of ALJ Likely Unconstitutional
The debate over whether the SEC’s use of administrative law judges in enforcement proceedings has ratcheted up a few notches. Last week, in Hill v. SEC, the US District Court for the Northern District of Georgia preliminarily enjoined the SEC from conducting the administrative proceeding brought against an alleged insider trader, finding a substantial likelihood that he will succeed on the merits of his claim that the SEC has violated the Appointments Clause of Article II of the US Constitution.
As noted in this blog, the Appointments Clause requires that “inferior officers” be appointed by the President, department heads or courts of law. SEC administrative law judges are not appointed by the SEC – they are hired by the SEC’s Office of Administrative Law Judges, with input from the Chief Administrative Law Judge, human resource functions and the Office of Personnel Management. The Court looked to the powers of the administrative law judge which are functionally comparable to that of a judge in making its decision.
As noted in this blog, this WSJ article indicated that the SEC will likely resolve this issue by having the Commissioners appoint its ALJs directly. But in the meantime the court’s ruling could spur similar challenges to the validity of current and past SEC proceedings – but the US government is fighting this new decision.
Tomorrow’s Webcast: “Proxy Season Post-Mortem – The Latest Compensation Disclosures”
Tune in tomorrow for the CompensationStandards.com webcast – “Proxy Season Post-Mortem: The Latest Compensation Disclosures” – to hear Ken Bertsch of CamberView, Alan Dye of Hogan Lovells, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn analyze what was (and what was not) disclosed this proxy season.
The SEC truly is getting it from all sides these days. As noted in this article, the House Appropriations Committee marked up a bill yesterday that would hold the SEC’s funding flat for the next fiscal year. The “2016 Financial Services and General Government Appropriations” bill would provide $1.5 billion for the SEC in fiscal 2016, the same budget level the agency is operating on this year. That number is $222 million less than what the Obama administration requested. The bill provides funding toward information technology projects at the agency – but prohibits the SEC from spending money out of a reserve fund established by Dodd-Frank…
Proxy Access: 5 Law Firm Comment Letter
A few days ago, five law firms – which handle the bulk of the Rule 14a-8 work out there – submitted this comment letter to the SEC regarding the agency’s ongoing review of the shareholder proposal process for no-action requests made under Rule 14a-8(i)(9) (ie. conflicting proposals).
There are 5 comment letters posted so far – including this one that includes a blog that I posted from an anonymous member as an attachment. Finding these comment letters can be tricky since there is no proposed rule – they are housed under the Corp Fin page, then head to the “Current Topics” box on the right side and you will see a link to “Share Your Views” on the Staff review of conflicting shareholder proposals – which has a link to “submitted comments” at the bottom…
Here’s the latest status check into how proxy access shareholder proposals fared during this proxy season.
Non-Partisan SEC Commissioners: Seeking Transfer Agent Update
A lot of ink has been spilled lately about the politicization of the SEC. But yesterday’s joint statement from short-timer Commissioners Aguilar & Gallagher – which was followed by a joint statement of support from Commissioners Stein & Piwowar! – do show that sometimes Commissioners from different political parties do work together. The Commissioners seek an overhaul of the transfer agent regulatory framework since that hasn’t been done in 30 years.
It’s amazing to me how often that individual SEC Commissioners put out their own statements – including dissents – these days. I wonder if that practice will continue beyond this current group of Commissioners…
Meanwhile, this WSJ article entitled “The SEC’s Recruiting Problem: Its Former Officials” talks about how former SEC Commissioners & Staffers are warning candidates for the upcoming two Commissioner slots that the job is full of dysfunction and that even the vetting process can be quite a challenge. Even with that as a backdrop, I’m pretty confident that a number of qualified individuals would be more than happy to become a Commissioner…
The SEC is now moving fast on the last of its Dodd-Frank rulemakings! Yesterday, as noted in this press release, it released additional analysis from its “DERA” (former nickname of “RiskFin”) Division related to its pay ratio proposal. Comments on this new analysis are due by July 6th (coincidentally, the same deadline as the P4P proposal). As I blogged yesterday, the SEC has become more cautious during its rulemaking process since a 2011 court decision struck down part of the SEC’s proxy access rule after finding the economic analysis was incomplete – so the practice of releasing additional economic analysis for public comment is becoming fairly common.
In addition to reading this review of the SEC’s new analysis (& this MarketWatch piece), check out my example that helps illustrate the SEC’s new findings:
– If the standard deviation of compensation (meaning the variability among positions) is 55%, and the exclusion of non-US, part time and seasonal jobs results in the elimination of 20% of the workforce from the calculation, the ratio would decrease by 15%
– Thus, a ratio of 300:1 would become 255:1
– If the standard deviation is only 25% – and the exclusion removes 20% of the workforce from the calculation – the impact is only 6.5%, thus the 300:1 ratio might drop to 281:1
Today is the last day left at the reduced rate. The SEC’s new pay-for-performance & hedging proposals – not to mention the coming clawback proposal and final pay ratio rules – are causing a stir – and you should prepare now. These rules will be among many topics that Corp Fin Director Keith Higgins & other experts will be talking to at our popular Conferences — “Tackling Your 2016 Compensation Disclosures” — to be held October 27-28th in San Diego and via Live Nationwide Video Webcast on TheCorporateCounsel.net. Act by the end of today, Friday, June 5th for the phased-in rate to get more than 20% off.
The full agendas for the Conferences are posted — and include the following panels:
– Keith Higgins Speaks: The Latest from the SEC
– The SEC’s Pay-for-Performance Proposal: What to Do Now
– Creating Effective Clawbacks (& Disclosures)
– Pledging & Hedging Disclosures
– Pay Ratio: What Now
– Proxy Access: Tackling the Challenges
– Disclosure Effectiveness: What Investors Really Want to See
– Peer Group Disclosures: The In-House Perspective
– The Executive Summary
– The Art of Communication
– Dave & Marty: Smashmouth
– Dealing with the Complexities of Perks
– The Big Kahuna: Your Burning Questions Answered
– The SEC All-Stars: The Bleeding Edge
– The Investors Speak
– Navigating ISS & Glass Lewis
– Hot Topics: 50 Practical Nuggets in 75 Minutes
You might recall that Dodd-Frank requires that the SEC to review the “accredited investor” definition for natural persons beginning in 2014 and every four years thereafter. As part of its review process, the SEC has received a significant number of recommendations from comment letters and from two SEC advisory committees. While the vast majority of commenters recommended not changing the current definition, others recommended raising the financial thresholds cited in the definition or adjusting them for inflation. Still others offer alternate recommendations, including adding a new category for financial sophistication or allowing a percentage of income or net worth to be used in qualifying private placements. This memo does a great job of summarizing all this activity…
Also check out this Cooley summary of the latest meeting of SEC’s Advisory Committee on Small & Emerging Companies, focusing on the SEC’s disclosure effectiveness project. And see this “Crazy Quilt Chart of Regulation” graphic from SEC Commissioner Gallagher..
This is a challenging – and complex – question. A fair answer truly can’t be given unless you happen to work right now at the SEC at the highest levels. But I still can give my 10 cents without the benefit of true inside baseball. I’ll go out on a limb with an answer of “not really ‘destroying,’ but things aren’t good – and not necessarily for the reasons expressed by many today.” Here’s what I mean by that:
1. The Commissioners Certainly Are More Rebellious – SEC Commissioner unity is a thing of the past. Over the past decade or so, each succeeding slate of Commissioners have publicly fought more and more. As I’ve blogged before, back when I worked for a Commissioner in the late ’90s, Chair Arthur Levitt rarely would take a matter to a vote unless he knew he had a 5-0 vote in his pocket. And he certainly wouldn’t have tolerated public displays of contention. There occasionally were heated debates behind the scenes – but I don’t recall any of that spilling out into the open. Chair White – just like Chair Schapiro before her – doesn’t have that luxury. Oral & written dissents are a regular occurrence; not a rarity.
2. Rebellion Isn’t Necessarily a Bad Thing – My observations about Commissioner dissent above don’t mean that I think that’s a bad thing. I’m just noting a trend. Since it only takes three Commissioner votes to approve something, the fact that there are two dissenting votes – or even that a Commissioner is vocal in expressing displeasure – shouldn’t impact the agency’s daily operations. Of course, divisive dissent does have an impact on Staff morale – and certainly on how the public views the agency. But in terms of rulemaking & pursuing Enforcement cases, etc., that alone should be a small speedbump given the limited power that Commissioners have by themselves (learn more about that from the transcript of our webcast: “How the SEC Really Works”). You certainly don’t want Commissioners acting as rubber stamps.
3. Congress Is The Primary Partisan Problem – Partisan politics has seeped from Capitol Hill down into all the federal agencies – and the SEC is no exception. It used to be that a Congressional Committee Chair might only occasionally ask something of an agency head. Now it’s all the members of a Congressional Committee seeking an audience, with a greater frequency. During Chair Schapiro’s term, I blogged several times about the abuse – asking SEC officials to constantly testify in hearings. It’s hard to get real work done when you are constantly preparing to testify – or to respond to lengthy written requests from Congress. These shenanigans continue. Very little of this is driven by a desire to protect investors or benefit our markets. Most of it is purely for “show” – or an attempt to disrupt how the agency functions.
4. Rulemaking Will Always Be Hard Going Forward – Today’s WSJ article entitled “SEC Bickering Stalls Mary Jo White’s Agenda” provides us with some nice statistics for this point. It notes how Chair White has brought a record 755 enforcement actions in the latest fiscal year – but only finalized 7 rules in ’14 (compared to an average of 17 per year over the past decade). In my opinion, the largest factor for this rulemaking dearth is how hard it is to get a rule over the line since the DC Circuit’s 2011 proxy access decision in the Business Roundtable/Chamber lawsuit. Trust me, rulemaking was hard before that – now the requisite enhanced economic analysis & other new mandated processes increases the difficulty by an untold magnitude.
And things are bound to get worse before they get better. Congress continues to explore ways to meddle in affairs for which they have limited expertise. The latest is the “Regulation Sensibility Through Oversight Restoration Resolution of 2015,” which establishes a joint select committee charged with reviewing how agencies adopt rules – including holding hearings on how to reduce regulatory overreach. The SEC could only get 7 rules adopted last year – is that overreach? The circus plays on…
“Bad Actor” Waivers: Now for Forward-Looking Statements
A few days ago, SEC Commissioner Piwowar gave a speech supporting waivers relating to a company’s’ ability to rely on the PLSRA statutory safe harbor for forward-looking statements. Here’s a related blog by Steve Quinlivan:
The Securities Act (Section 27A(b)) and the Exchange Act (Section 21E(b)) exclude reliance on the safe harbor for forward-looking statements if, among other things, the statement is made with respect to an issuer that has, within the past three years, been convicted of any felony or misdemeanor described in paragraphs (i) through (iv) of Section 15(b)(4)(B) of the Securities Exchange Act of 1934. The Securities Act and the Exchange Act each provide the disqualifications may be waived “to the extent otherwise specifically provided by rule, regulation, or order of the Commission.” The SEC granted this waiver to Barclays PLC to continue be able to continue to rely on the safe harbor for forward looking statements as a result of a guilty plea for a violation of the Sherman Antitrust Act.
Meanwhile, another day, another waiver dissent from a SEC Commissioner…
IPO Analyst Research: FINRA Issues 7 FAQs on Conflicts
Many market participants were left in a quandary following FINRA enforcement actions in connection with member firm research analyst “participation” in meetings with prospective issuers. Recently, FINRA published a handful of Frequently Asked Questions relating to its research rules.
The FAQs outline three stages of an IPO a pre-IPO period, a solicitation period, and a post-mandate period. Each such stage is described in the FAQs and FINRA also describes the attendant risks associated with a research analyst’s activities during these various stages. Of course, during the pre-IPO stage, the attendant risks are attenuated and FINRA believe that these attenuated risks can be addressed adequately through properly designed policies and procedures. However, FINRA cautions that member firms ought to be sensitive to any communications that would suggest the issuer already had determined to proceed with an IPO. The guidance also provides FINRA’s view regarding when the “solicitation period” would be deemed to begin, although this would seem, in real life, to be a highly fact-specific matter. In the post-mandate period, again, the risks are attenuated, in FINRA’s view, and may be effectively addressed by member firms through their policies and procedures. The guidance is particularly strident with respect to valuation analyses. For example, the FAQs note that a member firm that is competing for an IPO role must repudiate any communication that would seemingly indicate that a valuation reflects the analyst’s views and expressly note that the firm cannot make any representations about the analyst’s views on valuation.
The big news comes from this WSJ article, which says that the SEC will “soon” propose the clawback rules required by Section 954 of Dodd-Frank. If it happens as rumored, this surely is Exhibit A that the SEC’s Reg Flex Agenda is meaningless (as I hammer home down below) – because the SEC’s new Reg Flex Agenda had an April ’16 date for this activity. Here’s my quote in the WSJ piece:
Broc Romanek, a former SEC attorney who edits the websites CompensationStandards.com and TheCorporateCounsel.net, said the SEC should make sure it implements the new clawback requirements in a way that makes practical sense for companies and allows them discretion in determining whether it is economically efficient for them claw back pay, given legal, administrative or other expenses that may be involved. “It would not be ideal if a company is forced to spend more resources clawing back than [what] they would get in return,” he said.
The critical issue is whether the proposed clawback rules will be principles-based or prescriptive (remember how the recent P4P rule proposal was proscriptive, which was surprising to some). “Principles-based” means “just disclose what you have that you treat as a clawback.” And there are lots of tough questions about how a financial misstatement impacts compensation that may be indirectly – but not directly – based on financial performance, such as stock options (ie. how much is the stock price influenced by a restatement, as compared to performance criteria that is tied to EPS which is much more directly influenced). Remember this blog from last year: “Clawbacks & The New Revenue Recognition Rules: On a Collision Course?”
Whether the proposal is prescriptive or principles-based will in turn impact how much the rules drive a certain type of conduct – the more prescriptive, the more the SEC is making a judgment call and companies will have to come in line with what the SEC determines to be encompassed. And remember as to timing, the SEC’s rulemaking will just be the first step – because SEC will be proposing rules that the stock exchanges then have to adopt standards to implement…
Yesterday, Senator Elizabeth Warren wrote this 13-page letter to SEC Chair White expressing her unhappiness with the pace of the SEC’s rulemaking. Warren isn’t happy – and even used the Reg Flex Agenda as one reason why she feels that White hasn’t been truthful with her (see my blog below about how that is meaningless). Pretty wild stuff.
Though the SEC has recently reported it now expects to complete the rule by next spring, Ms. Warren said that deadline—revealed in a list of agency projects published by an arm of the White House—appears to contradict what Ms. White said in a face-to-face meeting last month with Ms. Warren. In that meeting, the SEC chairman predicted the SEC would complete the rule “by fall,” Ms. Warren wrote. “I am perplexed as to why you told me personally that the rule would be completed by the fall of 2015 when it appears that you were or should have been aware of additional delays,” Ms. Warren wrote.
The SEC’s New Reg Flex Agenda is Out (But It’s Meaningless!)
I continue to see so many people citing the SEC’s Regulatory Flexible Agenda as an indication for when the agency will propose and adopt rules. Don’t believe that – it’s not true! As I’ve blogged about before, all kinds of whacky and aspirational stuff makes it into the Reg Flex Agenda, which then winds up as part of the OMB Unified Agenda (in this blog, Keith Bishop explains what the OMB Unified Agenda is). And then the timelines for proposing & adopting rules are rarely accurate.
The internal process at the SEC (and other agencies) is complicated – maybe one day I’ll explain it in detail (eg. pet projects get thrown in that have zero chance of moving; timelines thrown in simply to fill out the form). But trust me, it has NEVER been a reliable source for when things might move at the SEC. But go ahead and keep citing it if it makes you happy – even though it will likely prove you wrong in the end (as it does over and over). I find it funny how the Reg Flex Agenda is now a newsworthy item after being completely ignored for decades.
Wrapping up a project that I feverishly commenced two years ago, we are happy to say the inaugural 2015 Edition of Romanek’s “The In-House Essentials Treatise” is done being printed. Here’s the 79 pages of our “Detailed Table of Contents” listing the topics so you can get a sense of the Treatise’s practical nature. You will want to order now so you can receive it as soon as possible.
With over 1400 pages, this tome is the definition of being practical. You can return it any time within the first year and get a full refund if you don’t find it of value.
Compliance Program Improvement: DOJ Gives Cooperation Credit for 1st Time
A few weeks ago, the DOJ made good on a promise made last fall to give credit to companies that improve their compliance programs when a Barclays plea deal included a provision along those lines. Here’s an excerpt from this memo:
For the first time, the antitrust division of the U.S. Department of Justice (DOJ) has awarded a company sentencing credit for implementing an effective compliance program after the start of an investigation. Getting credit for compliance efforts should not be as hard as space travel, but up until last week, a company’s chances for getting any credit (short of being the winner-takes-all leniency applicant) were no better than landing on the moon. Barclays PLC, along with four other investment banks, entered into a plea agreement with the DOJ on May 20, 2015, for its participation in the alleged FOREX cartel conspiracy to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market.
The sentencing credit is apparent from a single line in the plea agreement: “The parties further agree that Recommended Sentence is sufficient, but not greater than necessary to comply with the purposes set forth in 18 U.S.C. §§ 3553(a), 3572(a), in considering, among other factors, the substantial improvements to the defendant’s compliance and remediation program to prevent recurrence of the charged offense.”1 The four other major banks that entered into plea deals did not have this same provision, and it appears that they did not receive credit for their compliance programs.
Shareholder Engagement: ESG Style
In this 68-page guide, BlackRock & Ceres have teamed up to provide guidance for institutional investors on how to engage on sustainability issues. The guide includes tactics & case studies as 30 institutional investors describe their priorities and strategies they use to engage with companies across different asset classes, both internationally and domestically, on ESG matters. Here’s more from this Davis Polk blog…
Meanwhile, as reported in the Society of Corporate Secretaries’ Alert, based on data from Proxy Insight (see pages 8-9), CalSTRS is one of the least likely of the public pension funds to support the election or re-election of directors – supporting management nominees just 36.7% of the time. CalSTRS is also almost twice as aggressive as the next pension fund on the list identified as least likely to vote for management’s slate – the Illinois State Board of Investment – coming in at 67.4% support.
Sights & Sounds: “The Women’s 100 Conference” in DC
I’ll be blogging more about yesterday’s magical event in the near future. But I can’t resist posting this pic of the two men shepperding the event – my newly graduated high school son & me:
Parsing through the dozens of memos about the SEC’s recent KBR action, law firms seem to vary about what you should be doing now with your agreements. The positions fall into one of these three camps: (a) KBR settlement language is sufficient; (b) KBR settlement language is overly broad; or (c) not sure at all what is sufficient. The SEC’s Enforcement Division seems to still be looking at – and asking – for agreements to review – but I believe that will settle down soon enough. I’ve just calendared a September webcast that includes the SEC’s Chief of the Whistleblower Office Sean McKessy to help us sort through these choices (and more).
Meanwhile, here’s an excerpt from this WSJ article entitled “Whistleblowers Find SEC Rewards Slow and Scarce”:
The SEC program pays out based on sanctions that have been collected, rather than the amounts imposed by a judge that are up to the agency to recover. That can leave whistleblowers with nothing to show for their efforts if the money has vanished in the fraud or if the perpetrator has fled beyond U.S. jurisdiction. So far, more than 10,000 tips have been submitted to the SEC whistleblower program, about 300 people have applied for awards and 17 payouts have been made, according to SEC data. An SEC spokeswoman declined to say how much money has been collected for any of the 658 enforcement actions the agency’s website lists as being potentially eligible for awards. She also declined to say how many, if any, of the pending award claims relate to cases in which no bounty is available, even if the claim is approved.
Montana Joins Massachusetts in Regulation A+ Challenge
As I added late to last week’s blog, Montana has joined Massachusetts in suing the SEC over Regulation A+. Here’s the Montana scheduling order – the Montana & Massachusetts cases have been consolidated by the US Court of Appeals for DC…
Even though contingent fee audits in the escheatment area have been around for some years now, companies continue to be shocked when they find themselves subject to one. Tune in tomorrow for the webcast – “Escheatment Soup to Nuts: Handling Unclaimed Property Audits & More” – to hear Reed Smith’s Diane Green-Kelly, Keane’s Valerie Jundt and Exelon’s Scott Peters cover everything you need to know about escheatment, from the basics to handling the growing number of unclaimed property audits.
Cleary Gottlieb just created this chart with the status of the SEC’s Dodd-Frank rulemakings fyi
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As the PCAOB continues to toy with the long-floated idea of “expanded” audit reports – which means that auditors would be required to include some narrative in their boilerplate – I thought it would be helpful to provide an example of what that might look like. Since 2012, companies in the UK have been required to provide this type of expanded audit report. And last year’s audit report (see page 130) for Rolls Royce has been held up as one of the best since the company & its auditor – KPMG – go further than what the UK’s Financial Reporting Council’s rules require. Here’s an excerpt from this CFA Institute Blog:
In short, the auditor reports the greatest risk of material misstatement and how it responded to those risks. KPMG could have stopped there to be in compliance with the new standard, but that wasn’t good enough for Rolls Royce. With the investor user in mind, KPMG in cooperation with management took it a step further and included the findings. Aside from the communicative value of this information to investors, extending the auditor’s report to include the findings demonstrates a willingness on the part of the auditor and management to work together toward meaningful communication to investors — a major departure from past practice.
In addition, check out this explanation from KPMG about what they did – and this article about the UK requirements…
PCAOB Seeks Comment on Specialists Use
Yesterday, the PCAOB issued this Staff Consultation Paper – “The Auditor’s Use of Specialists” – that seeks input on potential changes to standards for the auditor’s use of the work of specialists, specifically the objectivity and oversight of specialists and the use of their work in audits.
BE-10 Reports: Deadline Flexibility & How to File
Here’s a question posted yesterday on our “Q&A Forum” (#8437): “Tomorrow, May 29, 2015 is the due date. Does anyone know if the BE-10 reports must be in the hands of the BEA by tomorrow or is it sufficient if it is postmarked with tomorrow’s date? Also, any reason we can’t Fed Ex the survey? The instructions however state to send the reports filed by mail “through the U.S. Postal Service.”
Here’s an answer that I received from Gibson Dunn’s David Wolber: “I haven’t heard officially from BEA on the due date aspect – and haven’t seen much explicit guidance – but I note the BE-10 Instructions say: ‘A fully completed and certified BE-10 report comprising Form BE-10A, and Form(s) BE-10B, BE-10C, or BE-10D is due to BEA no later than May 29, 2015 for U.S. Reporters required to file fewer than 50 forms, and June 30, 2015 for U.S. Reporters required to file 50 or more forms.’ This would tend to imply the report must be in there hands by sometime on Friday.
However, note that the BEA recently extended the deadline for all ‘new filers’ to June 30th. A new filer is ‘a U.S. company or person that is required to file on the BE-10 survey but has never filed any BEA survey of U.S. direct investment abroad, including the BE-10, BE-11 and BE-577 surveys.’ This is probably good news for quite a number of folks. Also, it appears that 30- and 60-day extensions are being readily granted.
Regarding method of delivery, BEA guidance in the BE-10 Instructions and in FAQs on the website contemplates a range of acceptable methods including mail, hand delivery and fax. Although I haven’t seen anything official from BEA on this, overnight would seem to be a safe choice, and I suspect that, as long BEA gets the report at the end of the day, they shouldn’t care too much if it arrived via USPS or some other carrier such as FedEx.”
