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."
I have calendared a webcast to help you prepare for your next Form SD. Meanwhile, enjoy this note from Elm Sustainability Partner’s Lawrence Heim:
This is an interesting time in the realm of conflict minerals. Calendar year 2014 is almost over, meaning companies need to be working on two important aspects of their program: preparing for their (or their customers’) CY2014 SEC filing and planning for CY2015 to be the year the “undeterminable” concept ends. The CY2014 filings are likely to differ from CY2013 in several respects. Among other things, we expect there to be more filings made and more Independent Private Sector Audits, or IPSAs, conducted (customer demand will likely drive this in advance of the SEC requirement).
Due to last year’s erroneous disclosure by a number of high profile companies of North Korea as a gold source, expectations of smelter/refiner due diligence are higher for both suppliers and issuers. Key aspects of CY2015 filings tied to the specific classification wording continue to in limbo pending resolution of the First Amendment challenge and SEC’s administrative action. We expect those matters to be resolved in time for the CY2015 filing, and for now recommend that companies proceed as the original disclosure requirement envisioned.
SEC Finds Crowdfunding Site To Be Both General Solicitation & Broker Rule Violation
In this blog, Steve Quinlivan notes that the SEC recently settled this enforcement action against a crowdfunding website because it failed to implement procedures reasonably designed to prevent U.S. persons from accessing and investing in securities through its crowdfunding website. The defendant operated a global, online, securities-based, crowdfunding platform that connects issuers with investors to raise funds in exchange for equity. Its website hosted offerings of securities from non-US based companies.
Also check out this CrowdFund Insider blog entitled “A Funny Thing Happened on the Way to the (2014 SEC Government Small Business) Forum” about the track record of the SEC implementing recommendations from its annual Small Business Forum…
– What’s the Big Deal? Why Some Seemingly Material Acquisition Agreements Might Never See the Light of Day
– The Quest for Universal Ballots: Might Boards Benefit Too?
– Amendment to Delaware’s Statute of Limitations Rules: Drafting Tips
– The Continuing Importance of Process in Entire Fairness Review: In re Nine Systems
– Respecting Boilerplate: Scope and Communications Provisions
If you’re not yet a subscriber, try a 2015 no-risk trial to get a non-blurred version of this issue on a complimentary basis.
I recently got this fascinating stream-of-consciousness from a member (feel free to share any human interest stories you have, I can post them anonymously or with attribution):
Ah, Fall of 2004. How I remember it well…
Running from on-campus interview to on-campus interview, declining call-backs, requesting post-offer meetings with associates…trying to decide which offer to accept, based on Firm differentiators such as salary and reputation, but also width of hallways, number of windows per associate office, and various other “decision makers.” My biggest concern that semester was trying to disguise my pregnancy, while wearing suits that hung perfectly in July and barely buttoned during late October. Did I want to practice transactional law or litigation? I hadn’t a clue and was eager to experience both. And that was perfectly okay.
Fast forward, Fall of 2006. How I remember it well…
My colleagues and I, arriving at the Firm — our Firm — wearing new suits and new shoes, with new haircuts. Corporate, securities, finance, and other transactional work all were booming. Deal after deal after deal. We heard about how Firms had such trouble retaining mid-level corporate associates, and, sure enough, nearly every few weeks, we saw another second, third, fourth year colleague heading to greener in-house pastures in search of balance.
As know-nothing first-years, we already were receiving weekly calls from head-hunters, and our salaries were raised, in part, to compete with the allure of the money offered by the investment banks, hedge funds, and private equity firms we represented. While at lunch, “interviewing” prospective summer associates, we promoted interest in transactional work — emphasizing the size of transactions, what we were learning, the newly-discovered joy of “deal rush,” while de-emphasizing the crazy hours and consistently frantic pace.
Our practice group was so invested in recruiting and hiring lateral associates that almost any lateral associate, whether transactionally-trained or litigator, would do; we became familiar with the technical term “re-tooling.” “You want to do Corporate work?” “When can you start?”
Now it’s Fall of 2014.
I’m the mid-level now – and things are just a little bit different. The “interview” lunches are all but gone – and the law students who trickle into the hallways are smiling hard and barely breathing. Gone are the tough questions about work-life balance, and the smart ones don’t even pretend to want to pursue the transactional path I’ve taken. Our Firm has selected a team of “primary interviewers” – and for the first time, we have a Fall Recruiting Launch, designed to ensure that we present a consistent recruiting message and apply consistent evaluation criteria.
Any questions? “What if a candidate asks if we expect to be hiring in that area?” We should say that we are continually monitoring the marketplace and that our hiring decisions for particular practice areas will be based on the needs of our Firm at the time of hiring. “But if the candidate expresses that he or she only wants to do Corporate law, then that may be a factor in assessing the candidate’s judgment.” Hmmm.
I’ve been asked to travel with some partners, out-of-state, to attend a recruiting meet-and-greet for “promising” law students, all of whom go to “better” law schools than I attended, and who, no doubt, have more flawless transcripts. Receptions, conventions, meetings, I’m a good Firm cheerleader. I love to meet new people, mingle, talk about our Firm, school, life, my kids, my crazy Fall recruiting stories.
On this particular day, however, I feel a bit like a spy or a decoy. I try to hint to the students with whom I’m chatting that my Firm is particularly busy in certain practice groups and that, this year, it certainly doesn’t hurt to be interested in litigation. I tacitly invite them, urge them, not to show too much interest in what I do — corporate, securities, finance work. “Yes, I love it. It’s so funny, though; when I was a summer associate, I really thought that litigation was my thing. It’s a good idea to keep an open mind, you know? How do you feel about litigation? Our Firm does a lot of commercial litigation, and we’re always hiring for that. Oh, you really want transactional? Well, you know, bankruptcy is booming right now, and that has a mix of litigation and transactional. That partner over there is a bankruptcy expert.” Hint. Hint. Hint.
I try my best, say my goodbyes, and board the train back to my home city. The next day, as expected, an e-mail appears, which says something like, “Thank you for traveling on behalf of the Firm last night. To assist our recruiting efforts, please indicate the names of any students whom you believe the Firm should invite for a call-back interview. Please also indicate the names of any students whom you believe may not be a good fit for the Firm, and please indicate why.” We are urged to rank candidates.
I carefully list the names of my favorites from the preceding night, after struggling to pin the names on the appropriate faces in my mind. I hesitate. But then I do it. Quickly and shamefully. I type two names under the “not good fit” category. Yes, in my opinion, they were the least outgoing and the most socially awkward. But that’s not the reason. Not this year. Despite my best efforts, all of my hard work, my steering, my hints, those two never wavered. So, under the “why,” this Corporate lawyer typed what may have become the new interviewee taboo, “ONLY interested in Corporate law.”
1. Regarding the archiving of earnings calls on our corporate web site:
– We archive them for one quarter – 31%
– We archive them for six months – 3%
– We archive them for between 6 and 12 months – 6%
– We archive them for 12 months – 40%
– We archive them for over one year – 11%
– We don’t archive our earnings calls – 9%
2. When we make/provide our earnings calls and related materials timely by a broadly available webcast and/or teleconference:
– We always file (or “furnish”) the transcript and related materials on a Form 8-K – 14%
– We sometimes file (or “furnish”) the transcript and related materials on a Form 8-K – 3%
– We never file (or “furnish”) a transcript and related materials on a Form 8-K (unless material information was disclosed during the earnings call that was not disclosed in the earnings release) – 84%
3. During the past few years:
– We have changed our earnings release practices, so that such releases coincide with our 10-Q filings – 28%
– We have kept our earnings release practices the same, and they get released a few weeks before our 10-Q filings – 22%
– We have kept our earnings release practices the same, and they get released a few days before our 10-Q filings – 17%
– We have changed our earnings release practices, so that they get released closer to the time of our 10-Q filings – 8%
– Our earnings releases have always been released at the same time as the 10-Q filings – 25%
– We decided to no longer provide earnings releases at all – 0%
4. In the near future:
– We definitely intend to revise the timing of our earnings releases so that they coincide with our 10-Q filings (or no longer provide earnings releases at all)- 0%
– We might revise the timing of our earnings releases so that they coincide with our 10-Q filings (or no longer provide earnings releases at all) – 10%
– We don’t need to change our earnings release practices because we recently did so – 43%
– We are comfortable with our earnings releases being issued before our 10-Q filings and don’t need to review those practices – 47%
– We already no longer provide earnings releases at all – 0%
5. We issue our earnings releases:
– Immediately before the start of the earnings calls – 17%
– Two hours before start of the earnings calls – 42%
– More than two hours before the start of the earnings calls – 42%
– During or immediately after earnings calls – 0%
– After, but within four business days of the earnings calls – 0%
6. We disclose earnings guidance:
– In the text of the earnings release – 23%
– During the earnings call, but not in the text of the earnings release – 17%
– On a Form 8-K filing, but not in the text of the earnings release – 0%
– In the text of the earnings release as well as during the earnings call – 23%
– On a Form 8-K filing and in the text of the earnings release – 3%
– During the earnings call, on a Form 8-K filing and in the text of the earnings release – 17%
– We do not give earnings guidance – 17%
7. We provide archives of our earnings calls (eg. calling them “podcasts” sometimes):
– On our website only – 75%
– On iTunes only – 0%
– On both our website and iTunes – 0%
– We do not provide audio archives of our earnings calls – 25%
Fifth Time’s A Charm: Series Of Corporate Disclosures, Together, Can Be A “Corrective Disclosure”
As noted in this blog, a federal appeals court recently revived a securities class action that had been dismissed by the trial court for failure to plead loss causation. In Public Employees Ret. Sys. of Mississippi v. Amedisys, 13-30580 (5th Cir.; 10/14), the court found that a series of partial disclosures could collectively constitute a “corrective disclosure” of the defendant’s misrepresentations, which the plaintiffs plausibly alleged caused a decline in the defendant’s stock price.
Transcript: “The Art of Negotiation”
We have posted the transcript for the recent DealLawyers.com webcast: “The Art of Negotiation.”
Last Monday, I blogged about a study that found that paying subscribers appear to gain access to SEC filings ahead of the rest of us. Good news! This WSJ article notes how that advantage has steadily dwindled over the past week since the mass media has been covering this story. Here’s an excerpt from that article:
On Tuesday, filings were published on the SEC’s website an average of 35 seconds after Mr. Jackson received them on his direct feed. The lag dropped to 27 seconds on Wednesday, when the Journal article was published. On Thursday and Friday the delay narrowed even more, with filings appearing on the SEC’s “Edgar” site an average of about three seconds and 2.5 seconds, respectively, after being published on Mr. Jackson’s feed. The drop in the lag time continued Monday, according to Mr. Mitts.
Poll Results: When Did EDGAR Filings Become Available in Real-Time? Shocking Answer of 2002
I also ran a poll in this blog about when EDGAR filings became available to the general public in real-time. For some reason, I wasn’t shocked that only 22% guessed the right answer – that the delay of SEC’s EDGAR database being available to the general public only after a 24-48 hour delay ended in 2002. I wasn’t shocked because the right answer is so unbelievable. Anyways, 41% guessed 1995 and 29% guessed 2000 (6% guessed 1989 and 2% guessed 1987). My lack of surprise is that it’s shocking that this incredible delay continued for years and years after EDGAR was born…
More on “ISS Announces QuickScore 3.0: Verify Your Data by November 14th”
A few weeks ago, I blogged that ISS announced that QuickScore 3.0 will be launched on November 24th for the 2015 proxy season (in other words, that’s the first date the new governance ratings will be included in research reports). Since then, ISS changed the home page of QuickScore 3.0 to this page – and posted the related technical document on that page. In addition, I have posted the best of the memos in the “Governance Ratings” Practice Area – including this nifty one from Sullivan & Cromwell.
Remember that data verification for QuickScore 3.0 ends on Friday! Meanwhile, we are posting oodles of memos on the policy updates for both ISS & Glass Lewis in our “Proxy Advisors” Practice Area…
Poll Redux: How Are You Responding to Your SDX Shareholder Engagement Letter?
Back in September, I ran a poll in this blog to address the query about how companies were responding to the SDX engagement letter (here’s those results). Some members have asked that I re-run the poll to see if there are any changes to what folks are doing. Here it is:
Here’s an excerpt from this blog by Akin Gump’s Francine Friedman:
Yesterday, a coalition of 44 service and retail industry trade associations sent a letter to congressional leadership, urging the House and Senate to adopt a single data breach notification standard at the federal level. The letter, addressed to the Majority and Minority Leaders of each chamber, states that “a single, federal law applying to all breached entities would ensure clear, concise and consistent notices to all affected consumers regardless of where they live or where the breach occurs.”
Meanwhile, the Chamber of Commerce has sent this letter to the SEC seeking to work with the agency’s cybersecurity working group…
Latest CPA-Zicklin Index: More Political Disclosures Being Made
Recently, the Center for Political Accountability published its “2014 CPA-Zicklin Index of Corporate Political Disclosure and Accountability” for the fourth year in a row. The latest shows continued growth of political spending disclosures and more board oversight of the spending. Learn more in this blog I posted yesterday in “The Mentor Blog”…
The Securities and Exchange Commission’s new chief accountant said Thursday he hopes to make a recommendation in the next few months on whether the SEC should move toward switching U.S. companies to using global accounting rules. In his first public comments since taking over as chief accountant a month ago, James Schnurr didn’t tip his hand over whether he favors a U.S. move toward the global rules, known as International Financial Reporting Standards, or IFRS. But “I would hope that within the next few months there would be movement on this,” Mr. Schnurr said on a panel at a Practising Law Institute securities-regulation conference in New York.
Meanwhile, check out this speech by PCAOB Board Member Jay Hanson entitled “The PCAOB and Audit Committees – Common Goals”…
Haven’t done this before. Deciding to scrap a blog of substance for this more personal one. At age 64, Stevie Wonder put on a mesmerizing show last night in DC, touring on his “Songs in the Key of Life” album forty years after its creation. This review of his stop in Madison Square Garden calls the show “emotional” and that nails it on the head. Stevie laughed. He cried. And he must have told the audience “I love you” at least a dozen times. His voice – and amazing skills on at least a dozen instruments – remain as strong as ever. So he didn’t need the 40-piece band and 6 back-up singers. But he used them.
But the best part was when he spoke truth about the world and urged us to simply love each other. So I will pass that on and say “I love you” to my faithful readers. Thank you for reading and spread the joy of love, which is the gift of life. Here’s Stevie with India.Arie:
On the heels of posting my blog yesterday that I had found the ’15 policy updates for Glass Lewis, ISS released their ’15 policy updates for 2015. Here’s a blog by Steve Quinlivan – I will be posting memos regarding both these developments in our “Proxy Advisors” Practice Area. And a “Proxy Advisors Handbook” is coming soon…
Dodd-Frank: Republican Senate Takeover Could Bring Changes
Many are asking what the GOP’s takeover of the Senate might mean for the SEC’s pay ratio proposal, among others. It’s too soon to tell – but it’s a good bet that Chair White’s “hope & expectation” to adopt the pay ratio rules by the end of this year might not happen. But you never know. Anyways, this memo from Greenberg Traurig lays out a bunch of possibilities about how Dodd-Frank could change, including an observation that 60 votes in the Senate is needed to pass changes to Dodd-Frank (meaning that some Democratic Senators must cross party lines) and musings about who is now likely to chair the Senate Banking Committee, which oversees the SEC (Sen. Richard Shelby (R-AL) – again!)…
This Boston Globe article notes other efforts to implement laws to enact pay ratios…
Transcript: “Private Company Trading Markets: The Latest”
We have posted the transcript for our recent webcast: “Private Company Trading Markets: The Latest.”
Without much fanfare – or maybe I accidentally found them? – Glass Lewis has posted its “Guidelines for the 2015 Proxy Season,” which includes a summary of the changes to its policies for the upcoming proxy season on pages 1-3. I haven’t seen anyone else mention this development – including silence on the Glass Lewis Blog – but when I get some commentary, I’ll let you know…
SEC Brings 10 Enforcement Actions for Failing to File “Stock Dilution” 8-Ks
Yesterday, the SEC announced enforcement actions against 10 companies for failing to file Form 8-Ks about financing deals and unregistered sales that diluted their stock. Companies are required to file a 8-K when stock is sold in transactions that are not registered and constitute at least 5% of their outstanding stock. Companies also must file a 8-K when they’ve entered into a financing agreement not made in the ordinary course of business. Each of the 10 companies failed to make the required 8-K disclosure – and 3 additionally failed to use accurate numbers when later reporting the dilution in 10-Qs/10-Ks. All of the companies settled the SEC’s charges, each paying $25-50k for a total of $350k in penalties among the group.
– Item 1.01 of Form 8-K, a registrant must disclose within four business days its entry into a material definitive agreement.
– Item 3.02 of Form 8-K, a smaller reporting company must disclose within four business days the unregistered sales of equity securities unless they constitute less than 5% of the number of last reported shares outstanding of the class of equity securities sold.
– Form 10-Q or 10-K, issuers must disclose the number of outstanding shares of their common stock as of the latest practicable date, and the information must be true, correct, and complete.
Here’s an excerpt from this blog by Steve Quinlivan: “The majority of the charged issuers appeared to be sitting ducks, with the increases reportedly being between 95% and 35,000%, with others at 7%, 15%, 25% and 50%. Seven percent may be a “broken window” but it seems hard to take that position with some of the others. It is also interesting no one was charged for disclosure controls and procedure violations and no individuals were charged.”
Proxy Access: Many Shareholder Proposals Coming!
Did you see this NY Times article that notes that 75 companies will be receiving shareholder proposals seeking proxy access from a group of institutions led by the New York City pension funds? Wow! Here’s the NY Comptroller’s press release, a list of the companies receiving the proposals – and a sample proposal. The initiative is called the “Boardroom Accountability Project.”
Also, as noted in this blog by Davis Polk’s Ning Chiu, the CFA Institute recently came out with a study that is being cited in shareholder proposals that proxy access has the potential to raise U.S. market capitalization by between $3-$140 billion. As Ning notes, by examining 16 companies that have adopted proxy access globally, including 4 US companies, the study concludes that slightly more than half of the companies experienced positive one-day returns following proxy access, 63% had positive returns in the year following the adoption, and around 71% outperformed their industries. Some of the other studies analyzed demonstrated negative outcomes – and a few were not included due to what the study deemed to be faulty methodology.
By the way, there’s a free lunch event on Monday, November 17th co-sponsored by the CFA Institute at the Ronald Reagan Building in Washington DC to go over the study. Here’s the agenda – and here’s the registration page.
On Monday, the Supreme Court heard oral arguments in Omnicare v. The Laborers District Council Construction Industry Pension Fund, No. 13-435, to decide the standard of liability for statements of opinion. Is it enough for a plaintiff to show that a statement of opinion was incorrect or lacked a reasonable basis? Or should a plaintiff also be required to show that the opinion was subjectively false? Liability under that standard would turn on whether the speaker sincerely believed the opinion or not. This MoFo memo covers what was argued in the briefs filed – as well as summarizes what transpired during oral argument. And here’s the analysis from the SCOTUS Blog that the court is likely to affirm – and analysis from Lane Powell’s Claire Loebs Davis…
Securities Class Actions: Gutting the Loss Causation Requirement
As noted in this Akin Gump blog by Michelle Reed, “securities class action plaintiffs generally consider the conservative 5th Circuit to be shark infested waters for pursuing federal securities claims, with very rigorous pleading and proof standards imposed with exactness. After a ruling in Public Employees’ Retirement System of Mississippi v. Amedisys, Inc. (5th Cir. Oct. 2, 2014), plaintiffs may consider the waters slightly less dangerous. In Amedisys, the Court held that a series of five partial disclosures spanning two years may be considered together to plead loss causation.” Read the blog for more…
Also see this Reuters article which notes that US District Judge Jed Rakoff has warned of the SEC’s growing use of administrative proceedings to handle securities fraud cases poses “dangers” to the impartial development of the law.
SEC Sanctions Auditor & Requires Lead Partner Rotation
As noted in this blog by Brooks Pierce’s David Smyth, the SEC’s recent administrative action against an independent auditor should give pause to smaller companies. The SEC required the auditor to rotate its lead partners on its engagements with clients…
This CFO.com blog entitled “The Split Over Convergence” covers how the FASB and IASB backed away from the goal of a single global accounting language…
Did you know that filings on the SEC’s EDGAR database used to be available to the general public only after a 24-48 hour delay (unless they paid a premium service to get them sooner)? Old-timers will remember that piece of trivia (the poll below asks you to guess when filings became available to the general public in real-time).
As crazy as that is, it appears that some remnants of favoring those that pay for EDGAR access might still be alive and well. According to this study by three professors, paying subscribers gain access to filings on EDGAR by an average of 10 seconds. Hints of the flap over high frequency trading! Here’s a Bloomberg article – and here’s the study summary from the authors:
We use a large recent sample of Form 4 insider trading filings to provide evidence on the process through which SEC filings are disseminated via EDGAR. We find that while the delay from a filing’s acceptance by EDGAR to its initial public availability on the SEC website is relatively short, with a mean (median) posting time of 40 (36) seconds, in the majority of cases the filing is available to Tier 1 subscribers before its availability on the public SEC site. We further show that prices, volumes, and spreads respond to the filing news beginning around 30 seconds before public posting, consistent with some market participants taking advantage of the posting delay. These results raise questions about whether the SEC dissemination process is really a level playing field for all investors.
Poll: When Did EDGAR Filings Become Available in Real-Time?
This poll asks you to guess when EDGAR filings became available to the general public in real-time:
customer surveys
Disclosure Effectiveness: SEC Awards Contract to Modernize EDGAR
Recently, the SEC acted on this RFP to modernize Edgar, a massive undertaking which is an important component of the disclosure effectiveness project. Fulcrum IT was awarded this contract, although I’m not certain if that is for the entire reform (as I can’t find any press release/article written about it – and this contract is worth $5 million; entire modernization estimated to cost $16 mil). The SEC is looking to effectively replace EDGAR by reducing its complexity and reduce costs both to the agency and filers – including a reduction in the number of form types and acceptable data formats.
Our November Eminders is Posted!
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