If there’s one thing we know about cryptocurrencies, it’s that celebs love them. We’ve blogged about rapper Ghostface Killah’s unsuccessful efforts to launch his own cryptocurrency, and we also mentioned how boxer Floyd Mayweather & music impresario DJ Khaleed managed to get themselves sideways with the SEC due to their involvement in touting some ICOs on social media.
Now Spencer Dinwiddie of the Brooklyn Nets has entered into the crypto game with his SD8 coin offering. This excerpt from a recent Forbes article explains what he’s up to:
After nearly three months of delays, including a threat from the NBA to ban him from the league during negotiations, Brooklyn Nets point guard Spencer Dinwiddie plans to launch his token-based investment vehicle on Monday in conjunction with a bid to get selected to his first career All-Star Game.
I reported in October that the 26-year-old planned to launch DREAM Fan Shares, a blockchain-based investment platform, where he’ll sell 90 SD8 coins that will enable Dinwiddie to collect up to $13.5 million of his guaranteed three-year, $34 million contract upfront, as a business loan. But Dinwiddie ran into some disagreements with the NBA about this first-of-its-kind initiative, which he outlined over the phone on Sunday as Brooklyn arrived in Orlando for a game the next night against the Magic.
The third year of Dinwiddie’s Nets contract is a player option for just over $12.3 million. And his original tokenization plan called for the possibility of significant dividends for investors if he elected to opt out of the final year of his deal in 2021 and come to terms on a more lucrative contract with Brooklyn or another team. And that is where the NBA had some real issues, according to Dinwiddie.
“Pretty much what they said was that the player option was gambling,” he said, “and that would’ve been cause for termination.”
Dinwiddie ultimately agreed to tweak his coin to eliminate the portion of it that related to his 3rd year player option, and the NBA backed down. While the NBA may not have liked his deal, it appears that Dinwiddie’s trying to stay on-side with the SEC. He’s doing his offering in reliance on Reg D, and will sell the coins to accredited investors only.
Venture Capital: Marky Mark Backed Co. to Toe the IPO Mark
You know what celebs love even more than the crypto? That’s right – cocaine! venture capital! We’ve blogged about Snoop Dogg’s venture investments, but there are lots of other celebrities in the venture capital game. This recent Coinspeaker article says that Mark “Marky Mark” Wahlberg’s investment in F45 Training Fitness may be ready for an IPO as soon as the first half of this year. And the article says that his investment has already paid off big-time:
The franchise has quickly gained traction. In March 2019, it attracted an American actor, producer, businessman, model, rapper, singer and songwriter Mark Wahlberg. Hollywood celebrity once tried the F45 Training program. After that, his Investment Group and FOD Capital bought a minority stake in F45 Training. The investment made as much as $450 million.
Wow – talk about Good Vibrations! Makes me want to buy a pair of parachute pants. Wahlberg appears to have really hit the jackpot here, and it looks like that in addition to his achievements in show biz, when it comes to venture investing, he can now echo the words of one of his most famous characters: “I’m a star. I’m a star, I’m a star, I’m a star. I’m a big, bright shining star.”
Blue Sky Cops & Robbers: “The Story You are About to Hear is True. . .”
I’ve been a huge fan of “Dragnet” since I was a little kid. I still can’t get enough of Joe Friday and his partners & their true crime tales from the files of the LAPD. Maybe that’s why I was excited to read Keith Bishop’s recent blog discussing a new series of podcasts from the North American Securities Administrators Association.
The series is called “Real Life Regulators”, which NASAA’s press release says recounts “true crime stories straight from the investigative files of the securities regulators closest to investors.” That sounds awesome. Here’s a link to the first episode.
You may have noticed that I referred to Joe Friday’s “partners” in the first sentence. That’s not a typo. Sgt. Friday actually had 4 partners on TV & radio before Officer Bill Gannon: Ben Romero, Ed Jacobs, Bill Lockwood and Frank Smith.
Last fall, Liz blogged that ISS was suing the SEC to overturn the Commission’s August 2019 interpretations saying that proxy voting advice is “proxy solicitation” under SEC rules. As reported in Bloomberg Law, that lawsuit is now on hold.
As part of the stay, the SEC has indicated that its guidance issued last August doesn’t have the effect of law and it won’t be invoked while the stay is in place. All of the underlying court filings are available on Pacer.
Insider Trading: Bharara Task Force Weighs In
A few years ago, I blogged over on The Mentor Blog about the establishment of a task force led by former SDNY chief Preet Bharara to make recommendations about reforming insider trading law. The task force recently issued its report, which recommends enactment of a new statute setting forth the elements of insider trading. Here’s an excerpt from the executive summary summarizing what the task force thinks that statute should include:
The language and structure of any statute should aim for clarity and simplicity.
– The law should focus on material nonpublic information that is “wrongfully” obtained or communicated, as opposed to focusing exclusively on concepts of “deception” or “fraud,” as the current case law does.
– The “personal benefit” requirement should be eliminated.
– The law should clearly and explicitly define the knowledge requirement for criminal and civil insider trading enforcement, as well as the knowledge requirement for downstream tippees who receive material nonpublic information and trade on it.
The task force’s report includes specific language that it would like to see included in any statute, including this definition of what it means to “wrongfully” obtain MNPI:
“Wrongfully shall mean obtained or communicated in a manner that involves (a) deception, fraud, or misrepresentation, (b) breaches of duties of trust or confidence or breach of an agreement to keep information confidential, express or implied, (c) theft, misappropriation, or embezzlement, or (d) unauthorized access to electronic devices, documents, or information.”
There’s a lot to unpack in this definition, but among other things, the inclusion of language covering the breach of an NDA would address one of the key weaknesses in the SEC’s failed enforcement action against Mark Cuban, while the language in clause (d) would shore up insider trading cases against data hackers, which also face some impediments under existing law.
Building Better Board Evaluations
Over the years, some boards have become pretty good at implementing effective & insightful self-evaluation schemes. But others struggle with a formulaic, “fill-in-the-blanks” process that leaves many directors wondering just exactly what this all was supposed to accomplish. If you advise any boards that fall into this latter category, this Weil memo laying out a framework for more effective board evaluations may be a helpful resource. Check it out!
Goldman Sachs’ CEO David Solomon made news at Davos last week by announcing that his firm would no longer help companies go public unless they had “at least one diverse board candidate, with a focus on women.” I knew women were underrepresented on IPO boards, but Solomon’s statement made me wonder exactly what the gender composition of IPO boards was like. So, I did a little digging, and now I’m kind of sorry that I asked.
Last May, this Quartz article looked at the gender diversity of the 10 biggest IPO filings of 2019. While it was early in the year, the list included Uber, Lyft, Pinterest, Slack, Chewy, WeWork & CrowdStrike – so the kind of unicorns that banks like Goldman court were all in the mix. The results were pretty dismal:
Of the 10 biggest companies that have gone public or filed to go public this year, none is led by a woman, and the average number of women on their boards is less than two. Excluding WeWork, which filed its registration confidentially, the average number of women on the list of the highest paid executives, disclosed in each company’s S-1 filing, is 0.56.
WeWork’s public filing disclosed one woman on the list of its highest paid executives, but it also didn’t have a single woman serving on its board. Uber and Lyft were the medalists in the group, with both companies having 3 women on their board. In terms of overall percentage of women board members, Pinterest topped the list with 2 women serving on its 6 member board.
This isn’t just a problem among tech unicorns. According to this Equilar report, in 2018, the 4 most popular IPO industry sectors all averaged fewer than 2 female board members. Tech & Consumer companies led the way with an average of approximately 1.3 women on their boards, while Financial companies averaged 1.0 women and Healthcare companies brought up the rear with an average of less than one woman per board. Healthcare’s not necessarily an outlier. A 2018 Equilar report said that only about 60% of recent IPOs had a woman on their boards.
It remains to be seen how scrupulously Goldman Sachs will stick to its pledge and whether any of its cohorts in the “bulge bracket” will follow its lead, but the numbers indicate that there’s a lot of work to be done. Check out this Cydney Posner blog for more on Goldman’s decision.
This Bloomberg Law analysis says that Goldman’s decision has the potential to cost it more than $100 million in underwriting fees – and that’s nearly 1/3rd of the fees that it earned from underwriting U.S. IPOs last year.
Brexit: FAQs
I guess I’ve been paying a lot more attention to Megxit than to Brexit lately. But while Harry & Meghan sip on free Tim Horton’s coffee & plot to seize the Canadian throne, Britain’s withdrawal from the EU becomes effective on Friday – and that means after the end of an 11 month transition period, the Continent will be cut off!
In case you haven’t been paying as much attention to Brexit as you should, then you’ll find this Hogan Lovells memo helpful. It’s a series of FAQs designed to help businesses sort out the legal consequences of the UK’s departure from the EU. Topics include the provisions of EU law that will continue to apply during the transition period, the consequences of a failure of the UK & EU to reach a trade agreement before the end of the transition period, and the impact of Brexit on the enforceability of UK judgments in EU states.
The NYSE’s Annual Compliance Letter
The NYSE has sent its “annual compliance letter” to remind listed companies of their obligations. There aren’t any new rules this year – but the letter highlights the enhanced functionality of the NYSE’s “listing manager” app, which replaced the egovdirect.com website last spring & is now the way that companies submit materials to the Exchange.
On Friday, Corp Fin issued three new Regulation S-K CDIs addressing interpretive issues arising out of last year’s Fast Act rule changes that, under some circumstances, permit companies to exclude the discussion of the earliest of the 3 years covered by the financial statements from their MD&A. Here they are:
Question 110.02
Question: A registrant providing financial statements covering three years in a filing relies on Instruction 1 to Item 303(a) to omit a discussion of the earliest of three years and includes the required statement that identifies the location of such discussion in a prior filing. Does the statement identifying the disclosure in a prior filing incorporate such disclosure by reference into the current filing?
Answer: No. A statement merely identifying the location in a prior filing where the omitted discussion can be found does not incorporate such disclosure into the filing unless the registrant expressly states that the information is incorporated by reference. See Securities Act Rule 411(e) and Exchange Act Rule 12b-23(e). [Jan. 24, 2020]
Question 110.03
Question: May a registrant rely on Instruction 1 to Item 303(a) to omit a discussion of the earliest of three years from its current MD&A if it believes a discussion of that year is necessary?
Answer: No. Item 303(a) requires that the registrant provide such information that it believes to be necessary to an understanding of its financial condition, changes in financial condition and results of operations. A registrant must assess its information about the earliest of three years and, if it is required by Item 303(a), include it in the current disclosure or expressly incorporate by reference its discussion from a previous filing. [Jan. 24, 2020]
Question 110.04
Question: A registrant has an effective registration statement that incorporates by reference its Form 10-K for the fiscal year ended December 31, 2018. In its Form 10-K for the fiscal year ended December 31, 2019, the registrant will omit the discussion of its results for the fiscal year ended December 31, 2017 pursuant to Instruction 1 to Item 303(a) and include a statement identifying the location of the discussion presented in its Form 10-K for the fiscal year ended December 31, 2018. The filing of the Form 10-K for the fiscal year ended December 31, 2019 will operate as the Section 10(a)(3) update to the registration statement. After the company files the Form 10-K for the fiscal year ended December 31, 2019, will the company’s discussion of its results for the fiscal year ended December 31, 2017 be incorporated by reference in the registration statement?
Answer: No. The filing of the Form 10-K for the fiscal year ended December 31, 2019 establishes a new effective date for the registration statement. As of the new effective date, the registration statement incorporates by reference only the Form 10-K for the fiscal year ended December 31, 2019, which does not contain the company’s discussion of results for the fiscal year ended December 31, 2017 unless, as indicated in Question 110.02, the information is expressly incorporated by reference. [Jan. 24, 2020]
We’ve gotten a few questions on our “Q&A Forum” about the mechanics of omitting the discussion of the earliest year from a company’s MD&A, and one of the things I’ve learned from them is that I’m not the only one who finds that process a little disorienting. Fortunately, this recent SEC Institute blog includes a bunch of MD&A examples from companies that opted to take advantage of the new rule, so now we all have plenty of precedent to look at.
Farewell to Bob Bostrom
All of us here at TheCorporateCounsel.net were saddened to learn of the passing of Bob Bostrom, and extend our sincere condolences to his family. Bob enjoyed a distinguished & award-winning legal career and generously shared his expertise with other practitioners. Here’s a remembrance from ACC President Veta Richardson.
Transcript: “Pat McGurn’s Forecast for 2020 Proxy Season”
We have posted the transcript for our recent webcast: “Pat McGurn’s Forecast for 2020 Proxy Season.”
Red state or blue state, Fox News or MSNBC, everybody can agree that when it comes to public companies, we’re all for good governance. But what exactly do we mean by that term? According to this recent Stanford article, nobody has the foggiest idea of what “good governance” really entails. Here’s the intro:
A reliable corporate governance system is considered to be an important requirement for the long-term success of a company. Unfortunately, after decades of research, we still do not have a clear understanding of the factors that make a governance system effective. Our understanding of governance suffers from two problems.
The first problem is the tendency to overgeneralize across companies—to advocate common solutions without regard to size, industry, or geography, and without understanding how situational differences influence correct choices. The second problem is the tendency to refer to central concepts or terminology without first defining them. That is, concepts are loosely referred to without a clear understanding of the premises, evidence, or implications of what is being discussed. We call this “loosey-goosey governance.”
The article identifies several governance practices that have become talismans of good governance – including independent chairs, elimination of staggered boards and the absence of dual class capital structures – and concludes that empirical support for their impact on the quality of governance is inconclusive at best. Other common good governance principles, like pay for performance and board oversight, are poorly understood and difficult to evaluate.
This article really resonated with me. I’m very dubious about a lot of corporate governance “best practices,” because I think many of them simply reflect the ideological position that shareholders and not directors should have control over the destiny of public companies. If after decades of research, we still can’t answer the question “what makes good governance?” then maybe cynics like me are onto something here.
Board Agendas: What’s On the List for 2020?
Deloitte recently published its list of topics that are likely to feature prominently on the agenda of many corporate boards during the upcoming year. These include the usual suspects – oversight of risk, strategy, executive compensation, board composition & shareholder engagement – as well as some more cutting edge topics. This latter group includes the role and responsibilities of the company in society. Here’s an excerpt on corporate social purpose:
Perhaps the most dramatic development―or, rather, series of developments―that boards may need to consider in 2020 is the intense focus on the role of the corporation in society. Starting in late 2017, companies have been urged to focus on and disclose more about their “social purpose” and their place in society.
Several theories have been advanced as to the origins of and continuing pressure for corporate social purpose, including concerns about persistent economic inequality, climate change, and the availability and cost of healthcare, as well as concerns about the ability of governments to address these and other issues. However, regardless of the reasons, investors, media, and other constituencies are asking companies to look beyond their bottom lines.
ESG Activism: YourStake’s Portfolio Analyzer
It isn’t news that ESG issues are a high-priority item for many investors. Last year, I blogged about a new organization called “Stake” that was intended to help amplify the voice of retail investors on these issues. It looks like that platform – now rebranded as “YourStake.org” – is expanding its capabilities.
Jim McRitchie recently blogged that YourStake’s booth was getting a lot of traffic at the SR130 investor conference due to a new tool targeted at financial advisors. The tool is designed to allow retail investors to evaluate the environmental & social impact of their investment portfolios. While there’s still a lot of “noise” around ESG-focused investing, it’s interesting to see the development of tools like this one – particularly when it’s targeted to retail investors & paired with a platform that’s intended to increase their ability to influence the companies in which they invest.
In response to uncertainties surrounding insider trading law under Section 10(b) of the Exchange Act, in recent years federal prosecutors have increasingly opted to rely on another federal statute – 18 U.S.C. §1348 – in bringing criminal insider trading cases. On its face, that statute, which was enacted as part of Sarbanes-Oxley, requires only the existence of fraudulent intent and a scheme or artifice to defraud in connection with the sale or purchase of a security. That allows prosecutors to avoid dealing with Section 10(b)’s more thorny requirements, such as the need to establish the existence of a relationship of trust or confidence and the receipt of a personal benefit.
The ability of federal prosecutors to rely on this statute was recently given a boost by the 2nd Circuit’s decision in U.S. v. Blaszczak, (2d. Cir.; 12/19), which affirmed that 18 U.S.C. §1348 doesn’t require the government to establish a personal benefit. This excerpt from Proskauer’s memo on the case explains the Court’s reasoning:
The court explained that “the personal-benefit test is a judge-made doctrine premised on the Exchange Act’s statutory purpose,” which is “to protect the free flow of information into the securities markets” while “eliminat[ing] [the] use of inside information for personal advantage.”
Securities fraud under Title 18, in contrast is “derived from the law of theft or embezzlement,” where a breach of duty (including receipt of a personal benefit) is not an additional prerequisite. “In the context of embezzlement, there is no additional requirement that an insider breach a duty to the owner of the property, since it is impossible for a person to embezzle the money of another without committing a fraud upon him.
Because a breach of duty is thus inherent in . . . embezzlement, there is likewise no additional requirement that the government prove a breach of duty in a specific manner, let alone through evidence that an insider tipped confidential information in exchange for a personal benefit.”
The defendant complained that this interpretation of the statute would broaden the government’s enforcement power with respect to insider trading cases – but the Court concluded that this was a feature of the law, not a bug.
Insider Trading: What Does Blaszczak Mean for SEC Enforcement?
Because 18 U.S.C. §1348 is a criminal statute, the Blaszczak decision isn’t going to be much use to the SEC in its civil insider trading enforcement proceedings. In those cases, the SEC is going to have to continue to satisfy the somewhat murky requirements imposed by Section 10(b). As this WilmerHale memo notes, that seems a little goofy:
The decision also raises the prospect that a person could be criminally prosecuted for securities fraud for tipping schemes that could not be reached in a civil securities fraud action brought by the Securities and Exchange Commission—a seemingly illogical result.
The memo goes on to suggest that this disconnect “is likely to strengthen calls for insider trading legislation that would create a consistent standard.”
Last year, we blogged about the SASB’s publication of the first-ever the first-ever industry-specific sustainability accounting standards. The standards covered 77 different industries, and were designed to enable businesses to identify, manage & communicate financially-material sustainability information to investors. According to this recent IR Magazine article, the SASB standards appear to be gaining traction with both companies & investors:
It’s been one year since the Sustainability Accounting Standards Board (SASB) launched its 77 industry-specific reporting standards, and the non-profit says 120 companies are now using the standards in their ESG reporting.
SASB launched its standards in November 2018, having worked with a large investor advisory group since 2011 to determine the material ESG factors issuers should be updating investors on. The investor advisory group continues to expand, and SASB announced last week that six new investors had signed up to participate – bringing the count to 49 firms, representing more than $34 trillion in assets under management.
The SASB’s sustainability accounting standards are available on its website. Early adopters of the standards include GM, Nike, Merck & JetBlue.
I’ll admit to a certain bias here, but to me 2019’s two greatest fiascos were the performance of my Cleveland Browns & the aborted WeWork IPO. While early returns suggest that nobody affiliated with the Pumpkin Helmets has learned anything from their disastrous 2019 campaign, this recent PitchBook article says that VCs actually may have learned a thing or two from WeWork. The article suggests that their hard earned wisdom may be a game changer for the IPO class of 2020:
The collapse of WeWork shook up Silicon Valley, and it will likely mean elevated levels of scrutiny for any unicorn that’s planning to go public in 2020, a list that could include names like Airbnb, DoorDash and GitLab.
Taken as a whole, the debacle was the single biggest cause of a reckoning among VCs and startups that occurred in the final months of the year. It brought a renewed focus on profitability (or at least the potential thereof), as well as questions about whether VCs have become too founder-friendly and pushback against SoftBank-style excess used to finance explosive growth at all costs.
Silicon Valley seems to be embracing a newfound austerity, and WeWork deserves much of the credit—or much of the blame.
With its hockey-stick growth, heavy losses and extremely founder-friendly share structure, WeWork was a lot like some of the other unicorns that went public earlier in the year (including names like Lyft and CrowdStrike), only more so. In recent years, VCs had accepted that red ink and bowing at the feet of founders were the prices they had to pay to get in on rounds being raised by the hottest startups. But WeWork showed what can happen when those trends reached their logical endpoint.
The article says that Wall Street’s new-found unwillingness to buy into the fever-dream valuations of these companies appears to have woken VCs up to the risks associated with dumping piles of cash into money-losing ventures with governance provisions designed to cater to the whims of diva founder CEOs. If so, good for them.
On the other hand, I guess we’ll just have to see whether the Browns have learned anything about catering to the whims of their own underachieving divas. We fans have two decades of reasons to be skeptical about that.
SOX 404: Point & Counterpoint on Auditor Attestations
Over on Radical Compliance, Matt Kelly recently blogged about the status of the SEC’s proposed changes to the accelerated filer definition – which would have the effect of increasing the number of companies that would not have to comply with SOX 404(b)’s auditor attestation requirement for their reports on ICFR.
The blog notes that Corp Fin Director Bill Hinman’s recent comments at the AICPA suggest that a final rule should reach the SEC soon, and also acknowledges that proponents of the rule change have a point when they talk about the disparate impact of compliance costs on smaller companies:
Smaller companies devote much more of their revenue to audit fees. For example, if you’re a firm with $10 million in annual revenue, for every $1,000 that comes in the door, $29.70 goes back out to your audit firm. For a company with $50 billion in revenue, that amount is just 57 cents.
What’s more, the burden on smaller companies has increased substantially over the past decade. The blog says that in 2007, a hypothetical $10 million firm devoted only $17.73 to audit fees for every $1,000 in revenue. But it goes on to say that the increase isn’t necessarily just attributable to SOX 404 compliance – there have been substantial changes to financial reporting over that same time period.
While acknowledging the cost disparity, the blog also says that smaller companies are more likely to have weaker internal controls than larger firms, and that’s what Section 404(b) audits are meant to address. So, while changes may decrease some companies’ audit costs, they’re also likely to lead to more restatements – the cost of which will be borne by investors.
Materiality: Executive Health Disclosures
Over on “The Mentor Blog,” I recently blogged about a WSJ opinion piece by 2 Stanford profs addressing disclosures about executive health. Now Fenwick & West has prepared this 12-page memo diving into the details of the various issues surrounding whether disclosure about executive health is appropriate & suggesting some best practices for dealing with these issues. It’s definitely worth reading.
Tomorrow’s Webcast: “The Latest – Your Upcoming Proxy Disclosures”
Tune in tomorrow for the CompensationStandards.com webcast – “The Latest: Your Upcoming Proxy Disclosures” – to hear Mark Borges of Compensia, Alan Dye of Hogan Lovells and Section16.net, Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster and Ron Mueller of Gibson Dunn discuss all the latest guidance – including the latest SEC positions – about how to use your executive & director pay disclosure to improve voting outcomes and protect your board, as well as how to handle the most difficult ongoing issues that many of us face.
With all the emphasis on increased candor in disclosures about cybersecurity in recent years, it’s a little surprising that, according to this recent ProPublica report, there’s one type of cyber breach that companies are unwilling to call by its name – specifically, a ransomware attack. Here’s an excerpt:
Each year, millions of ransomware attacks paralyze computer systems of businesses, medical offices, government agencies and individuals. But they pose a particular dilemma for publicly traded companies, which are regulated by the SEC. Because attacks cost money, affect operations and expose cybersecurity vulnerabilities, they sometimes meet the definition used by the SEC of a “material” event — one that a “reasonable person” would consider important to an investment decision. Material events must be reported in public filings, and failure to do so could spur SEC action or a shareholder lawsuit.
Yet some companies worry that acknowledging a ransomware attack could land them on the front page, alarm investors and drive down their share price. As a result, although many companies cite ransomware in filings as a risk, they often don’t report attacks or describe them in vague terms, according to experts in securities law and cybersecurity.
The report points out that ransomware attacks are often featured in risk factor disclosure, but many companies victimized by these attacks seem to take the position that they aren’t material because customer data hasn’t been compromised.
There may be an argument for that position, but companies that consider adopting it should take a hard look at the language of their risk factor disclosure about ransomware. As Facebook found out last year, while it’s prudent to warn about risks that haven’t happened, disclosure that suggests an event is merely a risk when it has actually occurred may well be misleading.
Oscar Wilde once said (well, sort of) that the U.S. and the U.K. are two peoples separated by a common language. Now, it looks like their regulators’ approach to auditor independence may be another area in which they differ. While the SEC recently proposed to loosen the reins on auditor independence, this FT article says that the U.K.’s Financial Reporting Council is taking the opposite approach. Here’s an excerpt:
UK regulators have banned audit firms from providing a number of advisory services to listed companies and financial institutions in an effort to strengthen auditor independence after a series of scandals. The Financial Reporting Council on Tuesday issued a “radical” update to its ethical standards for audit firms, which have been scrutinised over poor audits and possible conflicts of interest in the wake of corporate collapses such as at Carillion, BHS and Thomas Cook.
The regulator banned accounting firms from providing all recruitment and remuneration services and due diligence from the public interest entities they audit — mostly listed companies, banks and insurers. It also prohibited them from giving tax advice, advocacy and acting in any management role.
In fairness, some of these services are already prohibited under U.S. independence rules, but it certainly suggests a more skeptical regulatory climate when it comes to independence issues than the one that’s currently prevailing here.
CEO Leadership: Don’t Hate Me Because I’m Beautiful
A recent study says that I’m putting a real crimp in my wife’s chances to succeed as a CEO. How come? Not to brag, but it’s my smokin’ hotness that counts against her. If that’s not bad enough, it turns out that – here’s a shock – it works the other way for men. Here’s an excerpt from the study’s abstract:
Study 1 found that while partner’s attractiveness enhanced the perceived leadership of male CEOs, female CEOs’ leadership was downgraded in the presence of an attractive partner. Study 2 validated that the leadership penalty for female CEOs increased when they were seen with more attractive males than with less attractive males.
I suppose that some of you may take issue with my view of myself as a “trophy husband.” Well, I can assure you that despite my strong resemblance to The Addams Family’s Uncle Fester, I radiate an inner beauty – or at least that’s what my mother says.
Happy Thanksgiving! I hope everybody gets a break from work, avoids travel nightmares & gets a chance to spend some time with family and friends over the holiday. Now, I’m going to speak bluntly – when it comes to cooking your turkey, I think most of you are doing it wrong. See that Norman Rockwell bird to the left? Chances are, you’re preparing yours the same way Mr. & Mrs. “Freedom from Want” did in 1942, and like theirs, I’d wager yours looks great, but tastes pretty mediocre.
I do most of the cooking in our house, which my wife thinks is only fair considering that I do most of the eating. I’ve been cooking Thanksgiving dinners for decades, and for most of that time, my turkey was a crapshoot. Usually, it turned out okay, but sometimes, it ended up so dry that you needed to drown it in about half a gallon of gravy in order to choke it down.
I read all sorts of tips about how to cook the turkey, and finally got so befuddled that I ended up with a bird in the oven that looked like it was wearing a tin foil hat to protect against gubmint mind control rays and that had so many meat thermometers sticking out of various parts that it looked like it was on life support in a poultry ICU. Meanwhile, I was spending Thanksgiving Day hanging around the kitchen adjusting the oven temp & basting the thing every 15 minutes for 3+ hours, while everybody else was drinking Christmas Ale & watching football.
This was sub-optimal & I kept thinking that there had to be a better way. A few years ago, I finally stumbled upon it. No, it’s not the deep fried thing. I’ve had deep fried turkey, and it tastes like chicken wings. I like chicken wings, but not for Thanksgiving. Also, I’m not comfortable with what seems to be about a 1-in-4 chance of having flames engulf everything I own that goes along with deep frying a turkey.
Anyway, here’s the big reveal – if you spatchcock your turkey, you will achieve true Thanksgiving bliss. What’s “spatchcocking” a turkey all about? It’s simple really, you butterfly the bird by cutting out the backbone with poultry shears, and then flip it over and press down on it until the wishbone breaks. Then season it & toss it breast side up into a preheated oven – or do as I do, and throw it onto your grill – and prepare to be amazed.
The first thing you’re going to notice about this method is how fast it is. I cooked an 18 lb. turkey on my “Big Green Egg” grill last year & it took just about 80 minutes at 400 degrees. For those of you for whom my description of spending an afternoon with a baster in hand struck a cord, that may sound absurd – but no kidding, it really is that fast.
The other thing is that the bird turns out really juicy with nice, crispy skin. Because it’s flattened out, it cooks more evenly and you don’t end up drying out the white meat in order to avoid poisoning the folks who like dark meat. The backbone also will help you make a richer stock for your gravy, if you’re so inclined.
So, if you want to simplify cooking Thanksgiving dinner & end up with a much better result, give this method a try. Here’s the recipe from the “Serious Eats” website that I use (although I find a 400 degree temperature works better on my grill). Finally, regardless of how you how you cook your bird (or your Tofurky), have a great holiday!
Anybody interested in a little C-suite soap opera today? I’ve recently stumbled across a number of studies addressing various aspects of the CEO-CFO relationship, and since it’s a slow news day, I thought it might be kind of fun to blog about a couple of them. The first item is a recent study that found that younger CFOs may deter earnings management activities by older CEOs, which in turn results in lower audit fees. Here’s an excerpt:
CEO-CFO career heterogeneity suggests that younger non-CEO executives have different career concerns and career goals with the pre-retirement CEOs. Therefore, younger non-CEO executives are less likely to be cooperative with pre-retirement CEOs on earnings management behavior. We find a negative and significant association between audit fees and CEO-CFO career heterogeneity.
The results suggest that auditors perceive CEO-CFO career heterogeneity as a favorable factor of firms’ internal governance and therefore may decrease audit risks. Further, we find that firm’s financial performance, as well as the corporate governance, moderates the relationship between audit fees and CEO-CFO career heterogeneity.
So, if you want to lower the risk of your audit & the size of your fees, hire a millennial CFO to keep a lid on your boomer CEO’s desire to live a little dangerously.
Audit Fees: The Cost of Conflict Between CEOs & CFOs
On the other hand, you also need to make sure your CEO & CFO get along, because if they don’t, another study says you’re likely to pay higher audit fees. Here’s an excerpt from that one:
We investigate the relation between audit fees and differences in CEO and CFO personality traits. Audit fees should reflect engagement risk associated with a client. This risk is likely influenced by the client’s top management team’s personalities and how they differ. For example, top management teams that experience more disagreement about key strategic decisions may pose higher risks to auditors. We proxy for CEO-CFO conflict by using differences in CEO and CFO “Big Five” personality traits. We examine whether these personality differences help explain audit fees after controlling for other determinants of audit fees in the literature.
We find that CEO-CFO personality differences are positively associated with audit fees, consistent with auditors assessing risk from conflicting personalities in the C-suite.
The study does say that the effect of a personality clash between the CEO & the CFO on audit fees can be mitigated by the number of years they’ve worked together, the company’s corporate governance practices & the tenure of its auditor.
But before you decide to send your CEO & CFO to couples therapy, it turns out that a little personality conflict isn’t always a bad thing. As I blogged over on DealLawyers.com, another recent study says that the winning combination for M&A appears to be a visionary, upbeat CEO paired with a CFO who’s always reading to pour cold water on the CEO’s fever dreams.
November – December Issue: Deal Lawyers Print Newsletter
This November-December issue of the Deal Lawyers print newsletter was just posted – & also sent to the printers – and includes articles on:
– How the Type of Buyer May Affect the Target’s Remedies in a Public M&A Deal
– The Risks of Not Strictly Complying with a “No Shop” Clause
– When Passive Investors Drift into Activist Status
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