Broc recently blogged about Gretchen Morgenson’s NY Times column on the growth of virtual annual meetings. Frankly, I can see why the virtual-only approach might be attractive to many companies whose live meetings are attended – much like my traumatic 10th birthday party – only by a handful of people who are paid to be there.
Still, I confess that even after decades of watching executives read from turgid scripts written by junior lawyers (“I move that the reading of the minutes of the 2016 annual meeting of shareholders of the Company be dispensed with blah, blah, blah. . .”), I’m kind of a fan of in-person annual meetings.
Done well, an annual meeting can provide a great opportunity to connect with retail shareholders, and there’s also something to be said for requiring the CEO to stand in-person before shareholders once a year without a mute button and a team of advisors to help with a response to a tough question. But there’s more to recommend them than just that.
From microcap meetings held in a conference room to Berkshire-Hathaway’s annual epic, annual meetings frequently provide an endearing slice of Americana. Warren Buffett’s “Woodstock for Capitalists” is famous for its folksy charm – but you don’t have to go to Omaha for that. At a community bank meeting that I attended last year in a small Ohio town, a very nice retiree proudly showed me a copy of a passbook for a savings account that her father opened for her at the bank in the 1930s (she brought it to show the CEO, who knew her by name, asked about her family, and very much admired her memorabilia).
For larger companies, annual meetings can also provide entertainment that rivals anything on reality TV. Where else can you see Jesse Jackson spar with Meg Whitman or watch Bill Ackman get verklempt in front of a couple thousand people for free? If that’s not your style, how about the guy who became a folk hero in Minneapolis by showing up at the Green Bay Packers annual meeting wearing a Vikings jersey? Perhaps your taste runs to the “annual meeting as performance art.” If so, check out Google’s 2014 gala or Facebook’s fiesta from that same year.
Seriously, why would anyone want to get rid of an event that can offer everything from Norman Rockwell to the “Gathering of the Juggalos”? So, while the future of shareholder engagement may well be in cyberspace, I hope that the in-person annual meeting doesn’t completely go the way of the Dodo. We’ll sure lose a lot if it does.
By the way, if you think annual meeting wackiness is a recent phenomenon, here’s an article describing the shouting match between Mitch (“Sing Along with Mitch”) Miller and legendary gadfly Evelyn Davis at the 1964 Xerox shareholders meeting.
Virtual Annual Meetings: New York Comptroller’s Not a Fan
This O’Melveny memo says that I’m not the only one who prefers live annual meetings. New York’s Comptroller has a strong preference for them too – and it looks like New York’s pension funds intend to express that preference with their votes. Here’s an excerpt:
In addition to sending letters outlining his concerns to S&P 500 companies that have held virtual-only meetings, Comptroller Stringer has recommended that the trustees of the $170 billion New York City Pension Funds approve a new proxy guideline to discourage virtual-only meetings. If approved, the New York City Pension Funds would vote against all governance committee members of S&P 500 companies that hold virtual-only meetings in 2017, and would extend this voting policy to all US portfolio companies in 2018.
S&P 500 companies holding virtual-only meetings in 2017 could avoid an “against” vote from governance committee members only if they commit in advance of their 2017 annual meeting to hold their 2018 annual meeting in person or as a hybrid (virtual and in-person) meeting. The Pension Funds’ trustees are expected to vote on the voting-policy change in April 2017.
Class Actions: More, More, More
Remember how 2016 set all kinds of records for securities class actions? Well, Kevin LaCroix at The D&O Diary blogs that 2017 is on course to blow those records away:
The annualized pace of the 1st quarter’s litigation rate of 10.8% is more than four times the 1997-2015 litigation rate of 2.5%. In other words, at the current filing pace, if continued for the rest of the year, U.S. publicly traded companies would face a likelihood of getting hit with a securities suit four times greater than the average annual likelihood of a securities suit during the last two decades.
Kevin says that during the 1st quarter, U.S. publicly traded companies were being sued at an annualized rate of nearly 11%. That compares to a 5.8% rate for the record-breaking 2016 year, and an average litigation rate of just 2.5% from 1996 to 2015. Merger objection litigation is part of the story, but far from all of it. Check out Kevin’s blog for more details.
Yesterday, the SEC announced enforcement proceedings against 27 firms and individuals arising out of alleged violations of the “anti-touting” provisions of the federal securities laws . According to the SEC’s press release, the defendants left the impression with investors that their publications promoting various company stocks were independent & unbiased – when in fact the writers were compensated for touting them. Here’s an excerpt describing the allegations:
SEC investigations uncovered scenarios in which public companies hired promoters or communications firms to generate publicity for their stocks, and the firms subsequently hired writers to publish articles that did not publicly disclose the payments from the companies. The writers allegedly posted bullish articles about the companies on the internet under the guise of impartiality when in reality they were nothing more than paid advertisements. More than 250 articles specifically included false statements that the writers had not been compensated by the companies they were writing about, the SEC alleges.
“If a company pays someone to publish or publicize articles about its stock, it must be disclosed to the investing public. These companies, promoters, and writers allegedly misled investors by disguising paid promotions as objective and independent analyses,” said Stephanie Avakian, Acting Director of the SEC’s Division of Enforcement.
According to the SEC’s orders as well as a pair of complaints filed in federal district court, deceptive measures were often used to hide the true sources of the articles from investors. For example, one writer wrote under his own name as well as at least nine pseudonyms, including a persona he invented who claimed to be “an analyst and fund manager with almost 20 years of investment experience.” One of the stock promotion firms went so far as to have some writers it hired sign non-disclosure agreements specifically preventing them from disclosing compensation they received.
Fraud charges were filed against 7 stock promotion firms & 3 public companies – 2 company CEOs, 6 individuals at the firms, and 9 writers were also charged. The SEC announced that 17 of the defendants agreed to settlements ranging from approximately $2,200 to nearly $3 million based on the frequency & severity of their actions. Actions against 10 other defendants are pending in a New York federal court.
One other settled action is worth noting – the SEC brought separate charges against another company that was in registration at the time the publications were circulating. The agency alleged that these communications were therefore prospectuses that didn’t comply with Section 10 of the Securities Act.
My initial thought was that this was an unprecedented “sweep” – but it turns out that the SEC did something similar 19 years ago, when it brought anti-touting actions against 44 defendants in connection with Internet promotional scams.
SEC Enforcement: Harder Line on Private Equity?
This blog from Jenner & Block’s Andrew Lichtman and Howard Suskin says that the SEC may be taking a harder line in enforcement actions involving private equity fee allocations & conflicts of interest:
Over the last several years, the SEC has targeted private equity funds for various fee allocation arrangements and conflicts of interest. Rather than describing the fee practices as fraudulent, which would require a showing of scienter, the SEC has concluded that the private equity advisers committed disclosure violations. However, a recent proceeding in which the SEC secured a settlement based on both breach of fiduciary duty and fraud may foreshadow a more aggressive approach.
The SEC’s first private equity enforcement proceeding of 2017, In re SLRA Inc. (Feb. 7, 2017), involved allegations of breach of fiduciary duty & fraud against Scott Landress, the founder of a private equity fund, in connection with improper withdrawals of fees from the fund. While the SEC’s decision to pursue fraud charges may simply reflect its assessment of the egregiousness of the conduct at issue, the blog suggests that there’s reason to believe that fraud allegations may be on the table in a broader range of fee disclosure settings:
The SEC’s order stated that the failure to disclose the related-party transaction was a breach of fiduciary duty “[e]ven if” Landress had in fact hired the affiliate to perform the work. That finding suggests that the SEC may be more inclined to bring breach of fiduciary duty or fraud claims where private equity advisers fail to disclose improper fee arrangements.
Crystal Ball: Justice Gorsuch on Securities Law
The Supreme Court’s newest member doesn’t have a long record of securities law opinions as an appellate judge, but this recent post from “The Boardroom Blog” reviews Justice Neil Gorsuch’s more significant opinions & speculates that he’s likely to be skeptical of both securities plaintiffs’ claims and the idea of judicial deference to the SEC.
As Broc blogged earlier this month, the DC District Court entered a final judgment in the conflict minerals case – which placed the rule’s future squarely in the SEC’s lap.
On Friday, Corp Fin issued a statement indicating that, pending further review, it would not pursue enforcement proceedings against companies that didn’t comply with the source and “chain of custody” due diligence requirements in Item 1.01(c) of Form SD. Here’s an excerpt from Corp Fin’s statement:
Although the district court set aside those portions of the rule that require companies to report to the Commission and state on their website that any of their products “have not been found to be ‘DRC conflict free,’” that court and the Court of Appeals left open the question of whether this description is required by the statute or, rather, is a product of the Commission’s rulemaking.
In addition, as a result of a request by the Acting Chairman, we have received several comments regarding the desirability of additional guidance or whether relief under the rule is appropriate. Those comments identified several areas for the Commission to consider.
The court’s remand has now presented significant issues for the Commission to address. At the direction of the Acting Chairman, we have considered those issues. In light of the uncertainty regarding how the Commission will resolve those issues and related issues raised by commenters, the Division of Corporation Finance has determined that it will not recommend enforcement action to the Commission if companies, including those that are subject to paragraph (c) of Item 1.01 of Form SD, only file disclosure under the provisions of paragraphs (a) and (b) of Item 1.01 of Form SD.
While the conflict minerals rule remains alive, the source & chain of custody due diligence requirements in Item 1.01(c) are widely regarded as its most burdensome aspects. In a separate statement, Acting Chair Mike Piwowar offered the SEC’s rationale for the decision to halt enforcement of this aspect of the rule:
The primary function of the extensive and costly requirements for due diligence on the source and chain of custody of conflict minerals set forth in paragraph (c) of Item 1.01 of Form SD is to enable companies to make the disclosure found to be unconstitutional.
Piwowar added that until the issues raised by the Court’s decision are resolved, “it is difficult to conceive of a circumstance that would counsel in favor of enforcing Item 1.01(c) of Form SD.”
So what are you supposed to do now with your Form SD? This Gibson Dunn blog – and this Steve Quinlivan blog – review the reporting obligations that remain in effect.
EU: Full Steam Ahead on Conflict Minerals
The future of conflict minerals disclosure may be uncertain in the US – but it’s full steam ahead in the EU. This recent blog from Cooley’s Cydney Posner reports that the European Parliament overwhelmingly approved new rules on conflict minerals. There are many similarities between the US & EU versions of the rules, but the blog highlights a number of important differences. Here’s an excerpt highlighting some of the differences in approach:
Unlike Dodd-Frank, which is primarily disclosure-based, EU Member State authorities will verify compliance by EU importers by examining documents and audit reports and, if necessary, carrying out on-the-spot inspections of an importer’s premises.
The EU rules are largely more prescriptive than the U.S. rules, even though both look to the OECD due diligence framework. Importers will be required to adopt and communicate a supply chain policy (including standards consistent with the OECD model), to incorporate the policy into supplier agreements, to structure their internal management systems to support supply chain due diligence and to establish grievance mechanisms.
The rules will also require EU importers to implement an elaborate supply chain traceability system that will require detailed information about the identity of the suppliers, the country of origin, the type & quantity of minerals and when they were mined. Even more information will be required for minerals originating in conflict-affected areas. The rules are scheduled to go into effect in 2021.
FCPA: DOJ Extends Pilot Program
As noted in these memos, the DOJ has announced that it will extend its pilot program on FCPA enforcement – the 1-year period would otherwise have expired in a few weeks. See this speech by Acting Assistant AG Ken Bianco about the program.
Earlier this week, the SEC announced that it had adopted amendments increasing the amount that companies can raise under Regulation Crowdfunding in order to adjust for inflation. Companies can now raise $1.07 million under Regulation Crowdfunding – up from the $1 million limit initially established by the JOBS Act. Corresponding changes were made to the income threshold ($100K to $107K) for determining investment limits and the maximum amount ($2K to $2.2K) that can be sold to an investor who doesn’t meet that income threshold.
Financial statement disclosure thresholds – which are based on offering size – were also adjusted upward to account for inflation (i.e., $100K to $107K, $500K to $535K, and $1 million to $1.07 million).
That same day, the Staff also issued these two new Regulation Crowdfunding CDIs:
The new CDIs address thresholds for disclosure of related party transactions under Rule 201(r) & eligibility to terminate ongoing reporting obligations under Rule 202(b)(2).
Regulation A+: 6 New CDIs
It’s been a busy week or so at the SEC for matters relating to small issuers. The JOBS Act amendments & new Regulation Crowdfunding CDIs followed on the heels of these 6 new Reg A+ CDIs that were issued last Friday:
Here’s an excerpt from this MoFo blog that provides a brief summary of the new CDIs:
These address an issuer’s ability to use Form 8-A to register securities under the Exchange Act concurrent with completion of a Tier 2 Regulation A offering; the suspension of Tier 2 reporting obligations in the case of a withdrawn offering; the age of required financial statements for a Tier 2 offering; the requirement to file a tax opinion as an exhibit to Form 1-A; the inclusion of an auditor’s consent to use an audit report included in a Form 1-K annual report as an exhibit to the Form 1-K; and the application of Item 19.D of Guide 5 to Regulation A offering sales materials.
Speaking of small issuers, what child of the 1970s & 1980s does not have a soft spot for Ronco? C’mon, think about how many of this company’s products have made the transition from cheap consumer crapola to genuine pieces of Americana – the “Vegematic” . . . “Popeil’s Pocket Fisherman”. . . the “Showtime Rotisserie” – I could go on & on.
I even bought my mom the “Ronco Buttoneer” for Christmas one year (cut me some slack – I was 11 years old & she’s forgiven me).
Anyway, the latest incarnation of this American corporate icon – Ronco Brands – recently filed for a Reg A+ IPO. Here’s the preliminary offering circular.
Yesterday, the Senate held a confirmation hearing on Jay Clayton’s nomination to serve as SEC Chair. In his opening statement, Jay touched on some of his priorities – and improving the competitiveness of America’s capital markets is one of them:
For over 70 years, the U.S. capital markets have been the envy of the world. Our markets have allowed our businesses to grow and create jobs. Our markets have provided a broad cross-section of America the opportunity to invest in that growth, including through pension funds and other retirement assets. In recent years, our markets have faced growing competition from abroad. U.S. – listed IPOs by non-U.S. companies have slowed dramatically. More significantly, it is clear that our public capital markets are less attractive to business than in the past. As a result, investment opportunities for Main Street investors are more limited. Here, I see meaningful room for improvement.
He also expressed his commitment to “rooting out any fraud and shady practices in our financial system” – and pledged to show no favoritism to anyone.
This WSJ article on the hearing notes that Jay faced tough questions from Democratic Senators on potential conflicts of interest arising from his years in the trenches as a deal lawyer:
Mr. Clayton’s background as a top Wall Street lawyer at Sullivan & Cromwell was praised by many Republicans but attracted sharp questions from Sen. Elizabeth Warren and other Democrats. Ms. Warren said ethics restrictions would force Mr. Clayton to recuse himself on enforcement matters related to former clients, such as Goldman Sachs Group Inc. and Barclays PLC, as well as companies represented by his firm before the SEC.
In an ethics agreement with the SEC, Mr. Clayton wrote that he couldn’t vote for one year on matters that directly affect his former clients or involve Sullivan & Cromwell.
Ms. Warren said that could lead to a deadlocked commission on certain cases if the remaining commissioners are split along political lines. “Then major enforcement actions don’t go forward and serious wrongdoing may go unpunished,” she said.
Mr. Clayton denied that his recusal from a case would necessarily lead to a deadlocked commission and said most enforcement matters are decided unanimously by the commission.
Recusal issues could be important, given the existing vacancies at the SEC. As Broc blogged earlier this month, President Obama’s two nominees are unlikely to be re-nominated – and that could leave the SEC with only 3 Commissioners for an indefinite period.
Study: Governance & Nominating Committees
This EY study reviewed Fortune 100 governance & nominating committee charters and governance guidelines to see how these committees define their responsibilities & carry out their role in board governance, board effectiveness, director selection and board succession planning.
Here’s an excerpt on the study’s findings about the committee’s role in board governance:
The role and profile of the nominating and governance committee have expanded in recent years with the continuing rise in corporate-investor engagement and growing awareness of the need to address governance-related risks.
– Governance policies and practices. The committee is explicitly responsible for the board’s and company’s governance guidelines and policies (100% of reviewed committees). In some cases, committee responsibilities may extend to maintaining the company charter, bylaws and policies on ethics and compliance matters.
– Shareholder proposals and engagement. 48% reference oversight of stakeholder focus areas, such as political spending and environmental sustainability.
– Risk management. 15% are specifically charged with oversight of the company’s reputation, as well as governance and nonfinancial risks, or have responsibilities regarding enterprise management risk, such as reviewing the company’s ERM process, business continuity plans, and strategy for workplace and product safety.
Tips for Managing Your “Quiet Period”
This Westwicke Partners blog provides tips to companies for effectively managing the quarterly “quiet period” – the period prior to the release of financial statements when public companies generally refrain from communicating with investors & analysts. Here’s an excerpt addressing the duration of the quiet period:
Be consistent about the duration. If you use a two-week quiet period during one quarter, try to stick to the same time frame in subsequent periods. It’s a lot easier to defend management silence in your conversations with investors if you can point to a history of similar quiet periods. Why? Investors may try to read into quiet periods of differing lengths and get nervous if the period is seemingly longer than usual. Don’t let your silence create a kind of static that outsiders perceive as meaningful on the downside.
Other topics addressed include the need to keep the IR team fully-informed about quiet periods to avoid inadvertent slip-ups, and managing those communications that must take place during the quiet period. Also see the oodles of resources in our “Window Period Procedures” Practice Area…
Yesterday, the SEC adopted an amendment to Rule 15c6-1(a) mandating a T+2 settlement cycle. Here’s the 146-page adopting release. The amendment prohibits a broker-dealer from effecting – or entering – into a contract that provides for payment & delivery of securities later than 2 business days after the trade date – unless otherwise expressly agreed to by the parties at the time of the trade.
The settlement cycle for firm commitment underwritings is unaffected by the amendment.
By the way, the blog’s title isn’t a quote from the latest installment of the “Terminator” franchise – it comes from Acting Chair Mike Piwowar’s statement at the open Commission meeting. Commissioner Stein’s statement wasn’t as colorful, but was equally supportive.
As I previously blogged, the SEC approved NYSE & Nasdaq rules providing for a T+2 settlement cycle last month. Brokers will be required to comply with the new settlement cycle rules beginning on September 5th.
IPOs: Reg A+ Issuer Seeks NYSE MKT Listing
This blog from Steve Quinlivan notes that Myomo, a medical device company, has filed an offering statement with the SEC for a Reg A+ deal in which it discloses its intention to list on the NYSE MKT – the NYSE’s small cap market & the answer to the question “whatever became of the AMEX?”
This excerpt from the offering statement summarizes the hoops that a Reg A+ issuer needs to jump through to obtain an exchange listing:
We intend to apply to list our Common Stock on the NYSE MKT under the symbol “MYO.” Our Common Stock will not commence trading on the NYSE MKT until all of the following conditions are met: (i) the Offering is completed; and (ii) we have filed a post-qualification amendment to the Offering Statement and a registration statement on Form 8-A (“Form 8-A”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and such post-qualification amendment is qualified by the SEC and the Form 8-A has become effective.
Pursuant to applicable rules under Regulation A, the Form 8-A will not become effective until the SEC qualifies the post-qualification amendment. We intend to file the post-qualification amendment and request its qualification immediately prior to the termination of the Offering in order that the Form 8-A may become effective as soon as practicable. Even if we meet the minimum requirements for listing on the NYSE MKT, we may wait before terminating the offering and commencing the trading of our Common Stock on the NYSE MKT in order to raise additional proceeds. As a result, you may experience a delay between the closing of your purchase of shares of our Common Stock and the commencement of exchange trading of our Common Stock on the NYSE MKT.
The listing would be the NYSE’s first for a Reg A+ offering, but Myomo wouldn’t be the first Reg A+ issuer to be welcomed by an exchange. That honor belongs to Energy Hunter Resources, which was approved for listing on Nasdaq in December 2016. This article from TheStreet.com suggests more listings are on the way.
Of course, it’s one thing to get your shares approved for listing – it’s quite another to get your offering done, and these companies are still working on that. It’s still pretty hard sledding out there for a small cap.
Transcript: “Activist Profiles & Playbooks”
We have posted the transcript of our recent DealLawyers.com webcast: “Activist Profiles & Playbooks.”
This blog from “The Conference Board” reports the results of a recent study on the impact of gender diversity on boards. Here’s a summary of the conclusions:
Among the findings in the report, the authors concluded that the real value of adding women to boards came not from their gender per se, but from the fact that they were more likely to be outsiders. They were also more likely to be foreigners, have expertise in more diverse business issues and functions than their male counterparts, and to have risen through the ranks outside the traditional elite networks. The authors conclude that bringing these different perspectives can substantively improve the collective decision-making of a board.
The conclusions are based primarily on interviews with directors & stakeholders of French companies conducted after France instituted a gender quota system for public company boards.
Gender Quotas on Boards?
Did that last sentence catch you off-guard? Me too – but I’ve recently learned that board gender quotas are actually pretty common in Europe. These quotas have been implemented through legal mandates (Germany, France, Belgium, Iceland, & Italy) or through the establishment of voluntary goals (Austria, Finland, the Netherlands, Spain, Sweden, & the UK). The quotas range from 25 to 40% of the board.
This Harvard Business Review article reports that quotas are popular among directors in countries where they’ve been implemented, but despised among directors in countries where they haven’t. That most definitely includes the good ol’ US of A:
One male director said that, with regards to quotas; “I think it is dumb and destructive — demeaning to people who are only on the board because they are in a specific category.” Female directors also expressed doubts. “No one wants to be a second-class citizen,” said one, explaining that she would not want to be on a board that had been mandated to have a female member. “Quotas are just anathema in the U.S. — I don’t think we will ever see quotas here,” said another.
The willingness of European countries to force the issue through quotas has left the US as a laggard when it comes to the representation of women on boards. The article points out that women comprise only 18.7% of board members at S&P 500 companies. This figure hasn’t moved much in the last decade, and it pales in comparison to the figures in most of Europe.
“Just Vote No”: State Street’s Alternative to Quotas
Many people will likely agree with the sentiments expressed by US directors of both genders – there’s something about the word “quota” that’s deeply offensive to American ears. So what’s the alternative for getting more women on corporate boards? State Street Global Advisors has an idea of its own – it’s giving 3,500 US public companies a year to get their act together and make tangible progress on gender diversity at the board level.
State Street’s initiative includes prescriptive guidance intended to “drive greater board gender diversity through active dialogue and engagement with company and board leadership.” It’s also giving companies a potentially significant downside:
In the event that a company fails to take action to increase the number of women on its board, SSGA will use proxy voting power to influence change – voting against the chair of the board’s nominating and/or governance committee if necessary.
The 3,500 companies in which State Street invests represent $30 trillion in market value. Coupled with BlackRock’s decision to make gender diversity an engagement priority, this is an initiative that could well move the needle.
This Stanford study finds little inclination toward leniency among the American public or corporate boards for CEOs who engage in unethical or immoral behavior. As far as public sentiment goes, there’s strong support for throwing the book at these folks:
When presented with a series of generic scenario that are based on real situations reported in the press in which CEOs engage in potentially unethical or immoral behavior, many Americans are willing to dole out severe punishment. 45% believe that CEOs should be fired or worse (including sent to prison) for potentially unethical transgressions involving employees, customers, the board of directors, and shareholders. 25% believe that CEOs should not be fired but instead should lose compensation (in the form of reduced bonus or salary), 25% believe they should be reprimanded by the board, whereas 15% believe they should receive no punishment whatsoever.
So, the American public doesn’t have much patience with wayward CEOs. As it happens, corporate boards have less:
A comparison sample involving 38 real-life examples of CEOs who engage in behavior or actions that are highly analogous to the scenarios presented in this study shows a higher rate of termination than the public demands. Over half (58%) of these real-life scenarios resulted in the eventual termination of the CEO. In 40% of these cases, the board docked the CEO’s compensation through the elimination of bonus or forced forfeiture of unvested equity awards.
The study found that boards are most severe in punishing CEOs for financial misdeeds – in these situations, the CEO was terminated 100 percent of the time.
OMB Speaks on “2-for-1 Regulatory Cuts” Order
This blog from Steve Quinlivan notes that the OMB has issued guidance on President Trump’s executive order mandating two regulatory cuts for each new regulation adopted. In addition to confirming that the order doesn’t apply to the SEC & other “independent” agencies, the guidance addresses the mechanics by which agencies are to implement it. Here’s an excerpt:
In general, the guidance notes that executive departments and agencies (“agencies”) may comply with the EO by issuing two “deregulatory” actions for each new significant regulatory action that imposes costs. The savings of the two deregulatory actions are to fully offset the costs of the new significant regulatory action.
In addition, beginning immediately, agencies planning to issue one or more significant regulatory action on or before September 30, 2017, should for each such significant regulatory action:
– A reasonable period of time before the agency issues that action, identify two existing regulatory actions the agency plans to eliminate or propose for elimination on or before September 30, 2017; and
– Fully offset the total incremental cost of such new significant regulatory action as of September 30, 2017.
Sounds like Yul Brynner in “The Ten Commandments” – “So it shall be written. So it shall be done.”
What Motivates Insider Traders?
Here’s an interesting article from Andrew Snyder about what motivates insider traders – besides greed. Snyder notes that the infamous spy John Walker compared his espionage to insider trading, and suggests that the motivations for espionage & insider trading are similar. Here’s an excerpt :
Dr. David Charney, a Virginia-based psychiatrist and a consultant to the U.S. intelligence community, is an expert on the mind of the spy following his work for the defense of captured insider spies — most notably FBI moles, special agents Robert Hanssen and Earl Pitts.
In his white paper,“True Psychology of the Insider Spy”, Charney writes that most cases of insider spying originate from injuries to male pride and ego. Hence, he puts forward that the core psychology of the insider spy is an intolerable sense of personal failure as privately defined by that person.
Life’s adversities and major stressors (personal, professional, financial) pile on and become insurmountable for the potential insider spy during a decisive period usually in the six to 12 months before he crosses over the line into espionage. What’s pivotal, according to Charney, is how the potential insider spy manages the intolerable sense of personal failure.
Spanking brand new. By popular demand, this comprehensive “WKSI Handbook” covers the entire terrain, from communications issues, loss of WKSI status to waiver requests. This one is a real gem – 58 pages of practical guidance – and its posted in our “WKSIs” Practice Area.
Non-GAAP: Anticipating & Responding to SEC Comments
Like many of you, I’ve become pretty paranoid when I’m asked to review a client’s press release or presentation for compliance with Item 10(e) of S-K or Reg G. So, I thought this MoFo memo with practice points on anticipating & responding to Corp Fin Staff comments on non-GAAP information was a helpful resource. The memo is only 7 pages long, but it covers a lot of ground:
We look at common themes or areas of concern identified by the Staff in these comment letters, as well as responses given by registrants. We also highlight pronouncements by senior members of the Staff on the important “critical gatekeeper” role audit committee members play in ensuring credible and reliable financial reporting, including compliance with the Updated C&DIs. Finally, we look at industry initiatives aimed at improving the dialogue among management, audit committee members, external auditors and other stakeholders with respect to the use and disclosure of non-GAAP financial measures.
Silicon Valley: Innovative New Financing Technique – “Bank Loans”
This Bloomberg article discusses an innovative financing technique being tried out among tech start-ups. As VC investors pulled back somewhat during 2016, tech start-ups pioneered a new financing approach – borrowing money from a bank. Apparently, the process involves applying for a loan from a bank, which, if funded, requires the company to repay the principal amount of the loan, together with interest at a contractually prescribed rate. Personally, I’m skeptical that something like this will catch on.
Posted in our “Blockchain” Practice Area, this Cooley memo notes that this year’s proposed DGCL amendments would grant statutory authority for the use of “blockchain” or “distributed ledger” technology for the administration of corporate records. Last year, Broc blogged about a possible move by Delaware in this direction.
Blockchain technology allows for the creation of an “open ledger” shared among a network of participants, instead of relying on a single, central ledger. Information is stored in “blocks” that record all network transactions and permit the ownership and existence of assets to be independently validated. Advocates of the technology see great potential for using it to address the shortcomings of the current stock transfer and record-keeping process.
The amendments would allow a Delaware corporation to rely on the contents of a distributed ledger as its stock ledger. But the memo points out that the distributed ledger must meet several requirements:
As amended, Section 219(c) would define “stock ledger” to include “one or more records administered by or on behalf of the corporation.” As amended, Section 224 will provide that any records “administered by or on behalf of the corporation” may be “one or more distributed electronic networks or databases.”
Not just any ledger will suffice however. The amendments would require that the ledger:
– Be convertible into clearly legible paper form within a reasonable time;
– Be able to be used to prepare the list of stockholders specified in Section 219 as well as in Section 220, dealing with stockholder demands to inspect the corporations books and records;
– Records the information specified in Section 156 for consideration for partly paid shares, Section 159 for the transfer of shares for collateral security, Section 217(a) for pledged shares, and Section 218 for voting trusts; and
– Records transfers of stock as governed by Article 8 of the Delaware Uniform Commercial Code.
Board Trends: Directors are Older, But a Little More Diverse
This MoFo blog reviews a recent IRRC & ISS report on board refreshment trends at S&P 1500 companies. Here are some of the highlights:
– Board tenure continues to rise, with average and median director tenures of 8.7 years & 7 years, respectively.
– Directors are getting older, with the average age of directors reaching 62.5 years 2016 – was the highest recorded during the study period.
– More than 50% of S&P 1500 added at least one new director to their boards in 2015. From 2012 to 2016, the prevalence of “zero change” boards steadily decreased.
– From 2008 to 2016, women and persons aged 50 to 59 years old made up the majority of the incoming class of “new” directors.
– Women are gradually gaining ground. Among S&P companies the number of female directors increased from 11.9% (in 2008) to 17.8% (in 2016). In 2008, 33% of all boards were all male—however, this number dropped to 13.8% in 2016.
– Minority representation remains low, with minority directors occupying slightly more than 10% of all board seats. Larger cap companies typically had at least one minority director, but smaller cap companies in the group typically did not.
Transcript: “Hot Tabulation Issues for Your Annual Meeting”
We have posted the transcript for the recent webcast: “Hot Tabulation Issues for Your Annual Meeting.”
