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."
As I’ve remarked on occasion, it’s been mindblowing how many times rumors seem to leak from the highest levels of the SEC to the media over the past decade (eg. here’s an example). That sort of thing never happened before then. As noted in this CNBC article, the SEC’s Inspector General recently spent months trying to uncover who leaked details about a closed Commission meeting about the JPMorgan “London Whale” settlement – but no smoking gun was found. Here’s an article from the Hill.
According to the articles, the level of detail in this 16-page report from OIG is pretty wild, even with parts of it redacted. It notes who was interviewed during the investigation (all of the SEC commissioners, 5 staffers of the Office of the Chair and 18 staffers of the Offices of the Commissioners) and much more. In his blog, Steven Quinlivan breaks down some of it too.
Bizarrely, I couldn’t find this OIG report on the SEC’s site. Here’s OIG’s webpage with all of its available reports if you want to check yourself. Instead, it was released as part of a FOIA request I believe based on the document’s URL…
More on “The SEC Commissioners Rebel! Are the Wheels Coming Off?”
A few months back, I blogged about how the battles among the SEC Commissioners has intensified in ways not previously seen before in public. This Bloomberg article profiling Commissioner Kara Stein – entitled “Ghosts of 2008 Haunt SEC’s ‘Outsider’ as She Pushes for Tough Rules” – adds some more backstory to this theme…
This DealBook article really slams the performance of SEC Chair White after one year…
Good Ole Days: The Zany Dash for Filing the First CEO/CFO Certifications
Today is the 12th anniversary of the due date for the first batch of CEO/CFO certifications from the 1000 largest companies (ie. that their past filings contained no material misstatements nor material omissions). It was a wild time as Sarbanes-Oxley had just been enacted a few weeks before. For those practicing back then, you will recall how the passage of Sarbanes-Oxley came out of the blue as reform legislation had little chance of becoming law until WorldCom suddenly failed and Congress acted swiftly in response.
I’ll say it again. It was completely unexpected.
The importance of that can’t be underscored enough. So there wasn’t much lobbying on the bill nor was there much attention paid to the details of the law by the law’s drafters since it sailed through Congress in a heartbeat. The law was relatively huge in scope, with a potpourri of topics – and as we all got back from vacation and started to look at it, it became clear that Congress seemed to overlook that one of the key provisions took effect pretty quick as the rest of the law’s provisions required SEC rulemaking first. Although the Section 302 CEO/CFO certifications required SEC rulemaking first, that delay did not apply to the initial set of Section 906 certifications due with the next batch of 10-Qs. Yikes! I blogged about this back on July 31, 2002, the day after SOX was signed into law.
So these first certifications were due on August 14th, just two weeks after Sarbanes-Oxley was enacted. And CEOs and CFOs suddenly had to attest to their company’s financials, etc. with scant time to prepare – nor did they have the comfort of the sub-certification machinery that many companies have today. Throw in that Section 906 was regulated by the DOJ (which was the principal reason why these certs were not delayed) and had criminal possibilities attached to them. Truly, an anxious time.
And this was during an era before webcasts were born. Instead, I held an impromptu CEO/CFO certification teleconference and folks had to RSVP by fax. My fax machine went berserk for days…
I’ve blogged recently about the issues related to directors as whistleblowers. What about lawyers as whistleblowers? Here’s news from the “Legal Ethics Forum Blog” (here’s some memos on that angle):
The WSJ reports on a dispute between Vanguard and a former in-house lawyer who has filed a complaint in NY alleging Vanguard has underpaid federal taxes. Vanguard is reported to accuse the lawyer of breaching confidentiality; the lawyer has asked the SEC to intervene on his side.
Such cases may raise two distinct issues: the report itself, which may fall within exceptions to confidentiality in a Model Rules jurisdiction or under the SEC’s rules, and backup for the report in the form of information–such as documents either in hard copy or digital form–the reporting lawyer might take from his or her employment. Even if we assume the report is protected the taking of documents raises distinct issues regarding client property.
I tend to think those issues should be resolved as issues regarding the report are resolved–i.e., taking such information does not violate a duty to a client to the extent the information is reasonably necessary to facilitate a permissible report. In essence the report would create a privilege (in the tort law sense) covering the disclosure to enforcement officials or courts; no privilege would attach if the lawyer put the documents up on the internet or mailed them to a reporter.
The documents issue lurks in the background of Meyerhofer v. Empire Fire & Marine Ins. Co., 497 F.2d 1190, 1194–96 (2d Cir.), cert. denied, 419 U.S. 998 (1974). Often discussed as a self-defense case there are actually two disclosures in that case–an initial report (including documents) to the SEC and a subsequent disclosure (of the material provided the SEC) to plaintiffs’ counsel on a self-defense basis. It provides some clues but, arising in the context of self-defense, does not decide these issues.
Books & Records: Delaware Extends Inspection Rights to Privileged Internal Investigation Documents
As always happens this time of year, our Conference Hotel – the Las Vegas Mandalay Bay Hotel – is nearly sold out. Our block of rooms is indeed sold out – but there are still rooms outside our block available at essentially the same rate. Reserve a room now by calling 877.632.9001 (so no need to mention our conference at this time). If you have any difficulty securing a room, please contact us at 925.685.9271.
And if you haven’t registered for the conference, register now. If you really want to go, but you’re having budget issues – drop me a line…
Big Daddy is back from vaca and has something for you that is spanking brand new! Posted in our “Annual Shareholders’ Meetings” Practice Area, this comprehensive “Annual Report & 10-K Wrap Handbook” provides a heap of practical guidance about how to deal with Rule 14a-3. This one is a real gem – 43 pages of practical guidance.
More on “Should CEOs Even Be on Boards?” v. “Should CEOs Conduct CEO Successions?”
Recently, I blogged on the topics of “Should CEOs Even Be on Boards?” v. “Should CEOs Conduct CEO Successions?” and asked for feedback. Here are two differing views that I received:
– Kris Veaco notes: “I’m not a fan of hard and fast rules – no CEO as Chair, no CEOs on boards. I believe it all depends on the board, the personalities and experience of the particular CEO. I’ve worked with boards where the CEO was a member and boards where the CEO was not a member. In any event, the CEO’s voice is one of many and brings to the discussion information on the business that is useful to the other members of the board. Executive sessions would exclude the CEO in any event. It should depend on the particular situation.”
– Jim McRitchie notes: “Ideally, CEOs shouldn’t be on boards. I used to head California’s cooperative development program before it was killed. The co-ops and credit unions I dealt with had boards that didn’t include the CEO. CEOs attended the meetings and made many of the presentations but they didn’t get a vote and it was very easy to meet without them and discuss their performance and succession planning. Many of the large co-ops failed but it certainly wasn’t because of separating the two positions.”
Transcript: “Divestitures: Nuts & Bolts”
We have posted the DealLawyers.com transcript for the webcast: “Divestitures: Nuts & Bolts.”
The numerous comments after this short “Adams Drafting” blog about high-stakes redlining practices is a dialogue that only a lawyer could love. Check it out. You can tell I’ve been “banking” this particular blog for years…
I gotta mention that Max & Mark Webb are retiring after a fine career in Corp Fin. I wish them well. Great guys!
Sample Reps & Warranties: Conflict Minerals
As I’m scrambling to get out of here on an “email-less” vacation for two weeks, I thought I would cheat and blog this item that I used on the DealLawyers.com Blog on Friday: Recently, we got the question from a member who was marking up a definitive agreement for the purchase of target company – a manufacturer of metal products – whom they believed to be utilizing conflict minerals. The member asked “Has anyone seen and reps and warranties being given for the use/non-use of conflict minerals in stock purchase agreements and, if so, what is being represented/warranted?”
My response was: These reps are pretty boilerplate. In the first example below, note that Oracle/Micros has a covenant that the seller has undertaken commercially reasonable efforts to eliminate conflict minerals from its supply chain:
Yesterday, Corp Fin Director Keith Higgins delivered this testimony before the House Financial Services Committee’s Capital Markets Subcommittee – talking about the state of the Division, with an emphasis on the status of Dodd-Frank and JOBS Act rulemaking. No earth-shattering revelations – but here are notables:
1. Pay Ratio – “Division staff is carefully considering those comments and is preparing recommendations for the Commission for a final rule”
2. Three Other Horsemen – “Division continues to work to implement provisions of the Dodd-Frank Act relating to executive compensation matters”
3. Accredited Investor Definition – “Division and other Commission staff currently are conducting a review of the accredited investor definition”
4. Crowdfunding – “Commission has received over 300 comment letters and the Division is preparing recommendations for the Commission on final rules”
5. Regulation A+ – “Commission has received over 100 comment letters and the Division is preparing recommendations for the Commission on final rules”
There were other rulemakings addressed – but you get the idea: “We are working on it.” There were also questions asked about the Ackman/Allergan situation. As noted in this Reuters article, Keith also addressed questions about WKSI waivers, a hot topic among the SEC Commissioners lately.
Keith did talk about the disclosure effectiveness project, noting that the initial set of recommendations would hone in on the business and financial disclosures in the ’34 Act area (with coordination with FASB). And noting that subsequent phases “will include compensation and governance information included in proxy statements.”
As for operational stats, 4500 companies had their filings reviewed last year – with the Division on the same pace for ’14. Over 400 no-action letter requests are processed annually – of which over 300 relate to shareholder proposals.
Time to Benchmark? Our Horde of Corporate Governance Surveys
We are constantly adding new “Practice Areas” to this site – with now over 500 of them! One of the latest is this one about “Corporate Governance Surveys,” which contains over 70 recent surveys on governance topics…
Connecting Middle-Market Bankers
In this DealLawyers.com podcast, Andy Jones, President of PEI Services, discusses his company – an online information services company providing up-to-date & accurate information about financial buyers to the middle market investment banking community and associated M&A service providers, including:
– What is PEI Services generally & who are the intended users?
– Can you describe your research database?
– How do you source your data and ensure data quality?
– Do you license your data for use within internal CRM systems, or as a plug-in to other corporate data systems?
As the result of a collaborative effort between Ginsberg Jacobs’ Anthony Zeoli, Crowdcheck and Seyfarth Shaw’s Georgia Quinn, here is a comparative summary chart where you can go to compare all of the enacted instrastate crowdfunding exemptions side-by-side – and here’s a chart with the proposed intrastate crowdfunding exemptions…
More on “New Intrastate Offering Exemptions: Not Useful”
Back in April when Corp Fin issued 3 CDIs about the intrastate offerings exemption, I ran a blog noting that they weren’t useful. Now Joe Wallin explains more about why that’s the case in his blog – and also see this piece by Sam Guzik…
I’ve been posting a slew of new checklists recently. This checklist is about whether it’s worth the hassle of converting old board minutes from paper to digital – and if so, how to best do it…
I know the title of this particular blog sounds sensational – but the opening of this DealBook column by Andrew Ross Sorkin about shareholder engagement is “What if lawmakers never spoke to their constituents?” So let me deal with the top 10 points that I see in this column since it created a stir yesterday:
1. “Within the clubby world of directors, communicating with shareholders, big or small, is overtly frowned upon”
My take: I agree that it’s quite strange that the notion of shareholder engagement is something that only recently is in vogue. Then again, the term “corporate governance” was barely used – or understood – until about a dozen years ago. I make fun of this sudden fascination with engagement in this 90-second video entitled “10 Silly Ways Towards Better Shareholder Engagement.” I should note that The Conference Board issued a statement yesterday clarifying its position about directors engaging (i.e. they support directors speaking directly with investors, particularly in special circumstances such as when investors have lost confidence in a board or management)- Sorkin didn’t characterize their position quite right.
2. “At least 1,000 large United States public companies to receive a letter this month from a group of shareholders representing more than $10 trillion in assets with a demand: Talk to us.”
My take: Here’s the July 2nd letter if you haven’t seen it. The letter doesn’t demand direct shareholder-director engagement. Rather, it asks boards to “consider adopting and clearly articulating a policy for shareholder-director engagement, whether through adoption of the SDX Protocol or otherwise.” The letter notes that JPMorgan’s proxy statement explicitly endorsed the SDX protocol – and that its board met with shareholders representing 40% of its base. The letter notes that less than 25% of the S&P 500 disclosed their engagement efforts in their proxy (I note that even the ones that disclosed their engagement efforts likely didn’t mention shareholder-director engagement).
3. “Some directors avoid meetings, worried about speaking with one voice”
My take: This seems like a valid concern on its face – but smart shareholders know that each director has their own views. Those shareholders seeking to meet a particular director typically just want to ascertain whether they are truly independent and capable of doing their job. They are not looking to meet a politician.
4. “Most don’t consider it their responsibility”
My take: Directors are supposed to represent shareholders. Although I agree it’s not a primary responsibility – and most directors don’t have the time to do a bunch of meetings – they shouldn’t shun shareholders.
5. “Some are anxious about accidentally disclosing sensitive information”
My take: If a director isn’t capable of meeting with someone and not giving away material nonpublic information, they shouldn’t serve in that role. Note that Corp Fin has issued Reg FD CDI Question 101.11 which clarifies that directors are not prohibited from speaking privately with shareholders. This CDI should give directors comfort that private meetings are not intrinsically problematic so that they can participate in governance engagement efforts.
6. “Some chief executives are insecure and don’t want shareholders to get too close to their boards for fear they will have undue influence”
My take: This is an interesting one. On its face, the CEO shouldn’t be insecure as these typically are short and simple meetings (and normally a company officer accompanies the director). But look how lobbying has destroyed Congress. So long as the engagement process is kept in check, this concern isn’t a valid one.
7. “Many top executives seem to think that board members cannot be trusted with such interactions”
My take: It’s true that most boards will have some directors that are not “camera ready.” But smart shareholders will know that and not expect (nor want) a board full of politicians.
8. “If a board becomes too enamored with a particular view from a set of shareholders, it could lead to short-term thinking that undermines long-term performance”
My take: True dat.
9. “Large investors might have the opportunity to meet with directors while small retail investors almost certainly never will”
My take: This is reality. But as I blogged yesterday, companies can post video interviews with directors so that anyone can get a feel for a director.
10. “The shareholders despite saying they want a dialogue, actually aren’t interested”
My take: This is a real problem: boards going on governance roadshows with few attendees. At our executive pay conference, the comments made during my “investors speaks” panels illustrate that there are a variety of views towards whether directors need to meet with shareholders. Shareholders have limited time availability, just like directors. By the way, I just posted this sample Powerpoint that can be used for a governance roadshow…
Our “Shareholder Engagement Checklists”
For me, the upshot is that boards should consider adopting shareholder engagement policies – and this is a topic ripe for proxy disclosure (many of the proxies I highlighted in my video series this year included this disclosure). Remember that we have a lot of good practical stuff in our “Shareholder Engagement Checklists”:
It’s Done: 2015 Edition of Romanek’s “Proxy Season Disclosure Treatise”
Just ahead of my vacation, I have wrapped up the 2015 Edition of the definitive guidance on the proxy season – Romanek’s “Proxy Season Disclosure Treatise & Reporting Guide” – and it’s gone to the printer. You will want to order now so that you can get your copy as soon as it’s done being printed. With over 1450 pages – spanning 32 chapters – you will need this practical guidance for the challenges ahead…
In this podcast, John Seethoff of Microsoft explains how the company has showcased its directors through video interviews, including:
– Why did Microsoft decide to tape videos of the directors?
– How do I find the videos?
– What typically is discussed in these videos?
– How much production is involved? Is it costly?
– Was it difficult to convince the directors to do them?
– What has feedback been from investors? From employees?
As noted in this MoFo blog, SEC Chair White & Corp Fin Director Higgins will testify on Thursday before the House Financial Services Committee about the status of Dodd-Frank’s rulemakings, as well as the disclosure effectiveness project…
Unclaimed Property: Delaware’s Voluntary Program Extended
As noted in this memo, the deadline to enter Delaware’s SOS VDA Program has been extended until September 30, 2014 (bumped up from June 30th) – and the deadline to resolve all unclaimed property liability under that program has been extended until June 30, 2016.
July-August Issue: Deal Lawyers Print Newsletter
This July-August Issue of the Deal Lawyers print newsletter includes:
– Materiality Scrapes Trending Upward in Private Deals
– Hushmail: Are Activist Hedge Funds Breaking Bad?
– Recent Trends: Antitrust & Regulatory Risk-Shifting in M&A Agreements
– Respecting Boilerplate: Preamble
For many years, ISS has posted a host of resources to help investors conduct due diligence, including a set of “questions you should ask” and a “due diligence checklist” in this 11-page due diligence compliance package. In addition, here’s a letter from Sullivan & Cromwell about a conflict policy review it conducted in ’07. So these materials were not posted in response to the SEC’s recent Staff Legal Bulletin that deals with the responsibilities of investment advisers to vote and hire proxy advisors, but they are definitely helpful now…
ISS Seeks Input: Annual Policy Survey
As noted in this Gibson Dunn blog, ISS has opened its annual survey ahead of updating its policies. The survey closes on August 29th – and then the results are released a few weeks later. Then there’s an open 30-day comment period in October – with the final policy updates arriving sometime in November typically. The entire policy process is described on ISS’ website..
Webcast: “Career Advice: The In-House Perspective”
Tune in tomorrow for the webcast – “Career Advice: The In-House Perspective” – during which Oracle’s Chris Ing, Governance Solutions Group’s Denise Kuprionis, Northeast Utilities’ Rich Morrison, former Northrup Grumman Kathie Salmas and Tennant’s Heidi Wilson will impact career advice from decades of in-house experience. The panel will cover:
– Determining Whether Going In-House is Right for You
– How to Evaluate a Potential Employer
– How to Market Yourself – Internally & Externally
– Salary Negotiations
– How to Best Work With Your Law Firm Lawyer
– Challenges in Setting Yourself Up as a Consultant After You “Retire”
James Garner was one of my favorites. From the “Rockford Files,” Jimmy Joe Meeker was his best alter ego…
A while back, I was surprised to discover that SEC Commissioner Dan Gallagher has his own Twitter account. Not that there’s anything wrong with it. In fact, I am all for it. I was just surprised because too many in the business world – and the government – are a tad bit paranoid about social media. He’s been on Twitter since last October and has tweeted 99 times. The Commissioner follows no one and has just under 1000 followers. Here’s a recent tweet as a sample:
I'm shocked, SHOCKED, that heavy-handed gov’t intervention into the economy is creating systemic risk. http://t.co/GPzSUVanrT
— Dan Gallagher SEC (@DanGallagherSEC) July 7, 2014
Social Media: Seeking Alpha Wins Court Case to Keep Contributors Anonymous
This note posted on Seeking Alpha’s site brings us the news that the NY Supreme Court dismissed a case seeking to compel Seeking Alpha to reveal the identity of a pseudonymous contributor who criticized a company and its management. Afterwards, Q4 ran this blog, providing full details about the case and post-case remarks from Seeking Alpha’s CEO.
For those that don’t know Seeking Alpha, it is an important site for you to familiarize yourself with as many independent analysts, professional investors and retail investors share insights & opinions there about investing in specific companies. Folks that post – known as a “contributor” – can do so anonymously or they can choose to identify themselves (and they get paid for their contributions if they reach a certain number of views). And companies can even participate themselves in the forums, although I’m not sure if any actually do like they do on StockTwits. The primary difference between Seeking Alpha & StockTwits is that Seeking Alpha has long-form content, whereas StockTwits has very short pieces (limit of 140 characters like a tweet). Each platform has millions of users as noted in this recent academic study…
This Akin Gump blog from last year describes how traders on Wall Street are obsessed with Snapchat. This led me to the idea of conducting this poll about how many readers of this blog use that app:
