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."
Here’s something that Liz blogged about on CompensationStandards.com: One of the most frequent questions we get about this year’s pay ratio disclosure is, “How much detail is necessary if you’re not rerunning the ‘median employee’ calculation?” In other words, you’re either using the same median employee – or one of the alternates – that you identified last year. A timely blog from Stinson Leonard Street’s Steve Quinlivan provides examples from four recent filers.
You’ll see that the companies didn’t get too elaborate. All of them basically parrot Instruction 2 to Item 402(u) – i.e. they say they used the same median employee (or an alternate) since there was no change in the employee population or employee compensation arrangements that they believed would significantly change the pay ratio disclosure. And since Steve notes in this blog that he’s found zero Corp Fin comments so far on pay ratio disclosures, that’s probably just fine.
Tomorrow’s Webcast: “The Top Compensation Consultants Speak”
Tune in tomorrow for the CompensationStandards.com webcast — “The Top Compensation Consultants Speak” — to hear Mike Kesner of Deloitte Consulting, Blair Jones of Semler Brossy and Ira Kay of Pay Governance discuss these topics:
– Second year of pay ratio
– Evolution of clawbacks
– Adjustments to incentive plan actual performance or goals & goal-setting plans
– Incorporating E&S metrics into plans
– How to handle pay equity & gender/ethnicity pay gaps
– The changing role of the compensation committee
“Valley of the Boom”: Loved It
Have you seen the 6-part miniseries from National Geographic called “The Valley of the Boom“? Very well done (I don’t know why the ratings on Metacritic aren’t higher). Brought back lots of memories from the mid-90s when I earned my stripes as the “Internet guy” in Corp Fin.
It’s the most entertaining thing I’ve seen on the Internet boom. A mix of a documentary and a reenactment of how things played out at Netscape, TheGlobe.com (which was Facebook before Facebook) and a scam artist who actually had high quality video streaming before anyone else. The documentary part has remarks from those who were at Netscape & Microsoft (remember the “browser wars”?), as well as commentary from celebrities like Mark Cuban and Arianna Huffington…
We’ve been blogging about the bills in Congress seeking to change stock buybacks practices (here’s the latest). Expounding on prior research he conducted last summer, SEC Commissioner Robert Jackson sent this letter to the Senate last week providing further evidence to show that corporate insiders are using buybacks to cash out.
Here’s a MarketWatch article noting that, at a Senate Banking Committee hearing, SEC Chair Jay Clayton said that he thought Jackson’s results may be coincidental, since that timeframe may coincide with when companies open their trading window for insiders. To investigate Clayton’s comment about it being potentially coincidental, Jackson extracted data on all buybacks for a two-year period – estimating the length of pre-announcement trading blackouts, since companies have different policies.
But even after taking pre-announcement differences into account, Jackson found that, on average, executives sell more stock after they announce a buyback than on an ordinary day. 38% of the companies conducting buybacks had no trading in the 30 days prior to their buyback announcement date – but a majority had insiders making their own transactions during the eight days after a buyback was announced.
More on “SEC Seeks Contempt Order for Tesla’s Musk Over New Tweet”
Recently, Liz blogged about Tesla’s Elon Musk tweeting some production stats without getting internal pre-approval and the SEC subsequently filing a motion for contempt. This CNBC article contains some analysis of how the court may rule. Yesterday, Musk’s responded that the SEC is infringing on his 1st Amendment “freedom of speech” rights and that his tweets didn’t violate his settlement agreement with the SEC (here’s his court filing). I imagine we will get a court ruling soon.
Meanwhile, institutional investors have filed a lawsuit in the Delaware Court of Chancery seeking a declaratory judgment against Elon and Tesla’s board for violation of their fiduciary duty, injunctive relief relating to the Twitter use and monetary damages…
– Two Recent Delaware Decisions Provide Practical Transaction Guidance
– Antitrust Merger Review: The Worst Case is Worse Than You Think
– Cross-Border Carve-Out Transactions: Due Diligence and Purchase & Sale
– Shareholder Activism: Nine Lessons Learned
– The Couple in the Conference Room
Remember that – as a “thank you” to those that subscribe to both DealLawyers.com & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online. There is a big blue tab called “Back Issues” near the top of DealLawyers.com – 3rd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.
And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to DealLawyers.com will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to DealLawyers.com – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online.
As this season’s batch of proxy materials roll in, we highlight some of the notables as we always do. We often cover developments from General Electric (see this video about GE’s ’14 proxy, with 1400 views) – and this year is no exception. GE has simplified its glossy annual report. The first “Letter to Shareholders” from new CEO/Chair Larry Culp includes these refinements:
– The first “Letter to Shareholders” from new CEO/Chair Larry Culp is much more concise than in prior years, honing on GE’s two priorities
– The future focus continues with an infographic that presents innovations yielded from investments in the GE’s high-tech healthcare, power, renewable energy & aviation businesses
– On page 6, an infographic presents GE’s businesses and their leadership positions, and also presents the company’s “extended industries”
– On page 8, GE uses a single ‘easy-to-read’ page to highlight segment performance, alongside a brief description of each segment’s mission and business units
People seem to like it. This CNBC article contains a quote about “In our view, the filing marked another step forward in GE’s journey towards increased transparency, simplified reporting, and clearer communications to investors.” And here’s a WSJ article. Plus here’s an excerpt of a (poorly made) transcription of Jim Cramer’s comment about it:
General electric ceo annual letter came out last night, hopefully his first of many. it is honest it is straightforward. in short it’s the most un-ge piece of correspondence i have ever seen. you want to understand it was the most complex where you could never figure out how to do it. the numbers were borderline incomprehensible i had to search for a glossary it explained how many divisions were holding up.
How Do We Fix Congress’ Approach to Changing the Securities Laws?
I’m digging this blog by my friend Bob Lamm of Gunster about how Congress might be floating as many as 20 bills at a time in the securities law & governance area – and how this scattered approach might not be the best way to make applesauce…
Tune in tomorrow for the DealLawyers.com webcast – “Activist Profiles & Playbooks” – to hear Anne Chapman of Joele Frank, Bruce Goldfarb of Okapi Partners, Tom Johnson of Abernathy MacGregor and Damien Park of Spotlight Advisors identify who the activists are – and what makes them tick.
I remember a time when you didn’t even know which political party that a particular SEC Commissioner was from. It didn’t matter because the SEC’s mission of investor protection was politically colorblind. I still believe that many SEC Commissioners operate with that same philosophy. Although that gets harder & harder to accomplish these days when the backgrounds of most SEC Commissioners seem to be former staffers of the Senate Banking Committee.
Anyway, this Reuters article entitled “Republican frustrations grow as SEC chair proves frequent ally of Democrats” angered me because I still believe that the SEC’s primary mission should be investor protection. And that it shouldn’t be a political football. The SEC is intended to be an independent agency. But without self-funding, that can be difficult to avoid sometimes…
Interpretive Guidance: From the Staff or Commission?
Meanwhile, the debate about whether the SEC should communicate its views with Commission-level guidance – not Staff-level guidance – continues with this recent speech from SEC Commissioner Hester Peirce (and some people even want less Commission-level guidance; remember when former Commissioner Piwowar suggested shorter adopting releases). This debate has a partisan tinge to it as some GOP members of Congress have been harping on this issue for more than a decade.
I’m not a big fan of Commission-level guidance. Most Commissioners don’t have the depth of experience in securities laws matters that senior SEC Staffers do – and they certainly don’t have the same level of resources. There are only so many hours in the day. And for what it’s worth, I think a lot more Staff guidance gets run past the Commissioners than ever before – which should make this topic a non-issue. I could be wrong but I believe non-controversial CDIs go out without Commission input, but more significant guidance – like Staff Legal Bulletins & things like conflict minerals guidance – almost certainly get run past the Commissioners (or at least the Chair) before they are issued by the Staff. There isn’t any formal vote; I think it’s more an informational thing…
Broc Tales: “Career Advice”
After over two years of Reg FD-related blogging on my “Broc Tales Blog,” the latest batch of stories come in the form of a dialogue between John & me about how to best manage your career. Some of the topics we tackle include:
1. Be Willing to Adapt
2. Be Ready at All Times
3. Be Prepared for Lifelong Learning
4. Set Regular Goals
5. Push Yourself (& Be Mindful When You Do)
6. Don’t Be Afraid to be a Trailblazer
7. Save Cash
8. Be Responsive
9. Hang Out With Good People
10. Hang Out With Good People (Online)
A few weeks ago, Liz blogged about a Senate bill from two Democrats that would allow companies to repurchase shares only if they pay their workers well (see this MarketWatch article for the potential consequences). Now Republican Senator Marco Rubio has released a report that calls for ending the tax advantages that buybacks enjoy over dividends (see this article). So there is a bipartisan push to limit stock repurchases, although with far different approaches to doing so…
Here’s a press release from CII about its views on buybacks – essentially warning Congress against regulation and urging better disclosure from companies about the rationale for their buybacks…
ISS Bribery Scandal: Conviction for Former Georgeson Employee
A long while back, I blogged about an ex-Georgeson solicitor who bribed an ISS employee to get confidential voting information. As noted in this Goodwin alert (scroll down), that person has been convicted and is now facing up to 20 years in prison…
Yikes. I could see how there’s a grey area in there, which is scary with all the client entertainment that goes on at all types of firms. Hopefully, the prosecutors won’t pursue the max sentence…
D&O Cyber Lawsuits Continue
Recently, Melissa Krasnow of VLP Law Group sent over this article describing how many D&O cyber lawsuits were filed after the EU’s GDPR went into effect on May 25th. Melissa also sent this recent decision to allow the federal securities law class action cyber lawsuit to proceed against Equifax and its former CEO.
Before disclosing the data breach to the public for the first time, Equifax’s former CEO said, in a presentation that is available on YouTube: “when you have the size database we have, it’s very attractive for others to try to get into our database, so it is a huge priority for as you might guess. [Data fraud] is my number one worry, obviously.”
Melissa anticipates that the trend of D&O cyber lawsuits will continue and more lawsuits will be filed due to:
– Cyber events that occur
– Existing and evolving privacy and cybersecurity regulation and enforcement in the US, Canada, EU and globally
– Interest of plaintiffs attorneys in pursuing these lawsuits
– Settlement of some of these lawsuits (which has occurred in certain lawsuits)
– Blind spots/shortcomings regarding how certain organizations and their executives and directors address privacy and cybersecurity (including lack of awareness/information regarding these lawsuits)
With this proposal, the SEC seeks to allow all companies to benefit from all the changes that the JOBS Act gave EGCs. Some of the JOBS Act benefits had already been widely available, as Corp Fin opened up the confidential filing process to all companies two years ago. If this proposal is adopted, the “testing-the-waters” part of the JOBS Act will also be extended to a broader range of companies. There’s a 60-day comment period.
Nasdaq Clarifies “Direct Listing” Rule Change
Recently, John blogged about high-profile companies starting to use the “direct listing” route to go public rather than the traditional IPO path. This type of offering was facilitated by the NYSE changing its rules last year to permit a direct listing.
As noted in this Steve Quinlivan blog, Nasdaq recently filed an immediately effective rule proposal with the SEC that clarifies how the process works for direct listings on that exchange without an IPO. Over the years, there have been a handful of direct listings on Nasdaq…
Internal Controls: Some EGCs Might Get Their 404(b) Exemptions Extended
Here’s the intro from this blog by Cooley’s Cydney Posner:
A bipartisan group of senators has introduced a new bill, the ‘Fostering Innovation Act of 2019’ (S. 452), that would amend SOX to provide a temporary exemption from the auditor attestation requirements of Section 404(b) for low-revenue issuers, such as biotechs. The bill is designed to help those EGCs that will lose their exemptions from SOX 404(b) five years after their IPOs, but still do not report much revenue. For those companies, proponents contend, the auditor attestation requirement is time-consuming and expensive, diverting capital from other critical uses, such as R&D.
According to the press release, the bill would provide “a very narrow fix that temporarily extends the Sarbanes-Oxley Section 404(b) exemption for an additional five years for a small subset of EGCs with annual average revenue of less than $50 million and less than $700 million in public float.”
This CNBC article describes how Tesla recently used a new plaform – called “Say” – for retail shareholders to ask questions during an earnings call. It reminds me of “Moxy Vote,” which went belly up in 2012. Here’s a 2011 podcast that I taped with Moxy Vote’s CEO.
Here’s the intro from the CNBC article (also see this blog from Jim McRitchie for an overall look at this market):
Tesla Chief Executive Office Elon Musk speaks at his company’s factory in Fremont, California. Tesla opened its fourth quarter conference call on Wednesday by fielding questions submitted through a mobile app by some of its mom and pop investors. It’s was a far less contentious call than the one last May, when CEO Elon Musk sparred with professional Wall Street analysts over their questions about Tesla’s production issues and cash burn rate. Musk lashed out at one analyst who asked about Tesla’s capital requirements, saying “Boring, bonehead questions are not cool.” He later apologized.
Earnings conference calls normally feature a polite repartee between company executives and research analysts and are seldom open to questions from news reporters (CNBC’s Phil LeBeau did slip in a question during the October call) much less ordinary investors. But Musk’s conference calls in recent quarters have been a little higher-octane. The call in May featured a surprising guest in the form of a 20-something YouTuber and small Tesla shareholder named Galileo Russell, who was allowed to pepper Musk with questions.
Russell, whose YouTube channel is a grass roots forum for Tesla shareholders, teamed up with a tech startup called Say that is backed by hedge fund manager Steve Cohen’s private Point72 Ventures. Say is a mobile app that aims to give individual shareholders more power in voting on company issues and communicating with companies as shareholders.
Say was the app gathering the questions submitted to Musk on Wednesday. Musk and other executives on the call ended up answering four of them, including one about how a recession could affect demand (Musk said he still sees orders of 500,000 for Model 3 in a recession environment), the time-line for self-driving features (Musk said they’re working on traffic light technology and navigating complex parking lots), batteries (wouldn’t comment on product development), and Tesla semi and Model Y (Musk says they might unveil the Tesla pickup truck this summer).
Musk has had to shore up his shareholder relations after sending everyone into a frenzy last year by casually tweeting that he was considering taking Tesla private. He paid $20 million to settle with the SEC over that tweet. The questions submitted for Wednesday’s call represented a tiny sliver of Tesla’s 171 million shares outstanding. Musk didn’t directly answer one about reputation issues. But on the Say app, where people were voting on which questions they wanted asked, it was the most popular one going into Wednesday’s call.
So How Does “SAY” Work?
According to this set of FAQs on SAY’s site, shareholders get verified by linking their brokerage account and confirming they own company stock. Then, they can submit as many as 3 questions. Shareholders can also “vote” in support of questions raised by other shareholders on the SAY platform. SAY’s site displays how many votes each question receives – as well as the total number of shares that those votes represent.
Today’s Webcast: “Audit Committees in Action – The Latest Developments”
Tune in today for the webcast — “Audit Committees in Action: The Latest Developments” — to hear Deloitte’s Consuelo Hitchcock, EY’s Josh Jones and Gibson Dunn’s Mike Scanlon catch us up on a host of new SEC, FASB & PCAOB developments that impact how audit committees operate — and more.
Is there a difference between a “concept release” and a “request for comment”? That’s what I pondered when I wrote my blog about the SEC’s open meeting on quarterly reports a few weeks ago. I think the distinction is that a “concept release” includes within it a request for comment – and a “request for comment” standing on its own is distinguished by not having all of the background information & identification of various alternatives or concepts as you see in a concept release. What’s your ten cents?
Poll: The SEC’s Concept Releases
Please take a moment to participate in this anonymous poll:
find bike trails
Anti-Activism: US Chamber Announces “Aggressive & Comprehensive” Campaign
Yesterday, US Chamber President Tom Donohue delivered this speech that announced a new aggressive offensive to stop attacks on companies. Here’s an excerpt from page 7:
So today we’re announcing that the Chamber is launching an aggressive and comprehensive new campaign to meet these coordinated attacks head on. We are pursuing regulatory and legislative changes that make it easier for businesses to go and stay public … and that allow companies to focus on long-term growth. We’re working with the SEC and Congress to bring real transparency and oversight to proxy advisory firms and to reform the shareholder voting process. We’re educating directors so they are better armed to deal with public policy battles that are waged in the boardroom.
We’re vigorously opposing proposed legislation to federalize large public and private companies through the requirement of a federal charter. That’s one of the worst ideas I’ve heard in a town that knows no shortage of bad ideas. And we will work for meaningful ESG reporting that is grounded in reality and reflects the diversity of American business, across sectors and all over the country.
Daddy, tell me a bedtime story. Do you want to hear the one about when the SEC was closed for the longest time ever? If so, you’re living it. While the government has been shut down before, the SEC nearly always has had “emergency” funds that allowed it to run at full strength while other agencies were closed. For the long government shutdown in ’95 – which this shutdown will soon pass for the “longest ever” – my recollection is that the SEC Staff was off only for a few days. The current SEC shutdown far exceeds that – two weeks today.
So we truly are in a “brave new world.” And the number of shutdown-related questions that members are posting in our “Q&A Forum” grows daily…
Removing the Delaying Amendment: More Examples
Following up on yesterday’s blog that included an example of someone removing the delaying amendment, Jeffrey Rubin of Ellenoff Grossman sent the additional examples below. Interesting to note that some companies include a reference to Section 8(a) (“This registration statement shall hereinafter become effective in accordance with the provisions of Section 8(a) of the Securities Act of 1933, as amended”), while others are silent. Some of these registration statements erroneously state that they shall become effective “As soon as practicable after this Registration Statement is declared effective.” If a registration statement is filed with no delaying amendment, companies should consider language such as “As soon as practicable after the effective date of this Registration Statement” or some variant thereof.
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Securities Litigation: The Rise of “Event Driven” Claims
– How Common are “Finance Board Committees”?
– Annual Meeting Minutes: Must They Be Signed?
– Audit Committees: What to Consider Now
– “Fake News”: Crisis Management’s New Horizon?
Now that we’re getting pretty deep into this government shutdown, you might be wondering whether all those no-action requests for Rule 14a-8 are just sitting in a pile in Corp Fin’s Office of Chief Counsel. Yep, they are (except everything is digital now – that really kills the imagination). Given that most no-action letter requests come in towards the end of December – beginning of January, that could really back things up this proxy season. And this webpage on the SEC’s site shows a bunch of requests pending from November & December. At some point, those companies may have to decide whether to exclude (or not) without the benefit of a Corp Fin no-action response…
Here’s a few random thoughts:
1. Any other former members of Corp Fin’s “Shareholder Proposal Task Force” fantasize about being called back into action for a short stint to help the Staff catch-up? An all-nighter with pizza & apple sodas? Akin to a “hackathon”…
2. When I get asked how I think I’m gonna go – yes, people do ask me that! – I typically reply “death by suffocation.” They then ask me to explain. And I describe being in a small room with someone pouring in reams of blank paper from a hole in the ceiling. Not stopping til I can’t breathe anymore…
3. Headline news when shutdown ends? “Staff Decides All No-Action Requests by Flip of a Coin.”
Removing the Delaying Amendment: An Example
Speaking of the SEC’s shutdown, Bass Berry’s Jay Knight blogged yesterday about an example of someone pulling their “delaying amendment.” Last month, I blogged about how Corp Fin’s 14 FAQs for the shutdown allow for this – and I noted how that’s pretty wild stuff given the sacred nature of “delaying amendments” to this former Staffer…
Tomorrow’s Webcast: “Pat McGurn’s Forecast for 2019 Proxy Season”
Tune in tomorrow for the webcast — “Pat McGurn’s Forecast for 2019 Proxy Season” — when Davis Polk’s Ning Chiu and Gunster’s Bob Lamm join Pat McGurn of ISS to recap what transpired during the 2018 proxy season — and predict what to expect for 2019. Please print these “Course Materials” in advance – it’s Pat’s deck that he will be working with…