Here’s a blog that I posted last week on the new “John Tales” Blog on DealLawyers.com:
Yesterday, the SEC announced that Allergan had admitted securities law violations and agreed to pay a $15 million penalty for failing to disclose merger negotiations that were taking place with third parties while the Company was the target of a tender offer from Valeant in 2014. The SEC’s order summarized the applicable disclosure requirement:
Rule 14d-9 and Item 7 of Schedule 14D-9 (incorporating Item 1006(d) of Regulation M-A) provide . . . that the person filing the statement must disclose “subject company negotiations.” Item 1006(d) requires disclosure of any negotiation which is underway or is being undertaken and which relates to, among other things, a tender offer or a transfer of a material amount of assets by the subject company. Item 1006(d)(2) of Regulation M-A requires disclosure of any transaction, board resolution, agreement in principle, or signed contract that is “entered into in response to [a] tender offer.” Item 1006(d)(1) of Regulation M-A requires a subject company to state “whether or not [it] is undertaking or engaged in any negotiations in response to [a] tender offer” that relate to an extraordinary transaction.
Allergan ran afoul of these requirements by failing to disclose discussions with two prospective merger partners – one of which it was looking to buy – that took place while the tender offer was ongoing. The admission is an unusual step, but it may reflect the fact that the Staff raised the possible need for disclosure of these negotiations on several occasions – and Allergan pushed back for some time before ultimately making disclosure.
In other settings, the Staff has taken a flexible approach to disclosure of preliminary merger negotiations. For example, it generally takes the position that MD&A’s known trends requirement does not mandate disclosure of such negotiations. However, if your deal is a tender offer, and you engage in negotiations with another bidder after the tender offer’s been launched, you’ll have an obligation to disclose those negotiations without regard to how preliminary they are.
Why? Because – as the SEC’s order points out – there is a specific line item in Schedule 14D-9 that will prompt this disclosure. Item 7 of Schedule 14D-9 – and Item 1006 of Reg M-A, which is incorporated into it – requires the target of a tender offer to disclose if any negotiations are going on. In some circumstances, you may be able to avoid disclosing the identity of the other party or the terms of the transaction, but you’ll still have to disclose the existence of those negotiations. (This is also true for “Going Private” deals – even if they don’t involve a tender – Item 1006 of Reg M-A applies there too.)
If the negotiations are ongoing when you make your first 14D-9 filing, you need to disclose them there. If they happen after you file the 14D-9, you’ll have to immediately (as in one day) amend it to disclose them. The SEC is dead serious about this and has been for a long time – when I started practice, a very prominent Wall Street lawyer got in the enforcement staff’s cross hairs because he told his client that it didn’t have to disclose merger negotiations during the pendency of a tender offer until they were material.
Unfortunately for him, he was a director of the company, and the SEC went after him for causing their violation of law. The ABA and the securities bar went ballistic – and the full SEC ultimately backed off – but nobody who was practicing in this area at the time will ever forget that situation. In fact, it even got a mention in the poor guy’s obituary when he passed away a few years ago.
Every 33 Years Like Clockwork: ABA’s Newly Revised “Model Business Corporation Act”
The ABA recently announced that it has issued the first comprehensive revision to the “Model Business Corporation Act” since 1984:
Beginning in 2010, the Corporate Laws Committee has undertaken a thorough review and revision of the Model Act and its Official Comment. This effort has resulted in the adoption and publication of the Model Business Corporation Act (2016 Revision). The 2016 Revision is based on the 1984 version and incorporates the amendments to the Model Act published in supplements regularly thereafter, with changes to both the Act and its Official Comment. Also included are notes on adoption and revised transitional provisions that are intended to facilitate legislative consideration in adopting the new version of the Model Act.
The MBCA is the model for more than 30 state corporate statutes, so it’s an extremely influential publication. On a personal note, the foreward to the new edition gives special recognition to the MBCA’s Reporter Emeritus – the late Prof. Michael Dooley. I was fortunate enough to have Prof. Dooley for Securities Regulation when I was in law school – he was an excellent teacher, a distinguished scholar & a real gentleman.
Board Committees: How the S&P 500’s Approach is Evolving
This EY study addresses how practices regarding the use of board committees are evolving among large-cap companies. The study reviewed board structure at S&P 500 companies between 2013 and 2016 made five observations about changes in committee practices during that period:
– Over 75% of S&P 500 companies have at least one board committee in addition to the required audit, nominating/governance and compensation committees, up from 61% in 2013.
– Executive committees are the most common type of additional committee. Finance, compliance and risk committees are also becoming more common, reflecting the benefits to some boards of having specialist committees on these oversight areas.
– Cyber & IT matters are not only for the Audit Committee. While over half of the companies that address these matters ,a growing number assigned responsibility to an additional committee. In the past year alone, the number of such committees grew by one-third.
– Compliance, risk & technology committees have seen the most growth over the past three years.
What about small caps? EY reviewed the S&P SmallCap 600 board committee structure and noted that 46% of smaller companies have at least one additional board committee, with the five most common being the executive, risk, finance, strategy & compliance committees.
This blog from Steve Quinlivan shares the details on the Trump Administration’s decision to order an immediate freeze on the adoption of new regulations. Media reports have noted that the incoming Obama and Bush Administrations both instituted a similar freeze – but as this Davis Polk blog points out, those reports have overlooked the fact that Trump’s freeze doesn’t apply to independent agencies, like the SEC:
Like past memoranda, the Priebus Memo does not attempt to freeze rulemaking by independent agencies, nor does it request that independent agencies voluntarily comply with a regulatory moratorium, as did a similar memorandum issued shortly after the inauguration of President George W. Bush. Accordingly, the Priebus Memo means little for the financial sector, because most financial regulatory agencies—including the CFTC, FDIC, Federal Reserve, OCC, SEC and, at least for the meantime, the CFPB—are treated as independent agencies.
Although there wasn’t a request for voluntary compliance with the freeze, with an interim GOP Chair now in place, it’s unlikely that the SEC would “go rogue” and issue new regulations in any event.
Unlike the actions taken by the last two incoming Administrations, the Priebus Memo freezes not only executive-agency rulemaking, but also the issuance of any “guidance document[s]” by an executive agency. Again, because the SEC is an independent agency, this directive does not apply to it – but for those agencies subject to it, issuance of formal agency guidance on existing rules & statutory provisions is off the table for the duration of the freeze.
Tomorrow’s Webcast: “Audit Committees in Action – The Latest Developments”
Tune in tomorrow for the webcast – “Audit Committees in Action: The Latest Developments” – to hear Morgan Lewis’ Rani Doyle, Deloitte’s Consuelo Hitchcock and Gibson Dunn’s Mike Scanlon catch us up on a host of new SEC & PCAOB developments that impact how audit committees operate – and more.
Cybersecurity: The Russians Are Coming! The Russians Are Coming!
This Womble Carlyle memo reviews the DHS/FBI report on Russia’s hacking of the DNC in connection with the 2016 election, & says it’s time for US companies to start building cyber-fallout shelters:
The report is best understood as a call to arms for U.S. private sector and government entities to strengthen their vigilance and defenses against Russian Intelligence Services and join DHS and FBI in their effort to counter them. Many organizations believe that because they hold no state secrets, defense related intellectual property, or sensitive information on government employees, they have no stake in geopolitical cyber security. DHS and the FBI are saying that this is not true.
The national interest in cyber security is materially weakened whenever organizations with credibility and standing allow their domains to be breached and used conduits for cyber attacks on others – as happened in the DNC breach. Furthermore, data collected from breaches of non-traditional targets is often used to create the highly targeted and highly credible email packages for use in spear phishing campaigns against more traditional targets.
Aside from the recent unpleasantness, the Center for Strategic & International Studies’ cybersecurity recommendations for the incoming President include actions to “incentivize companies to make cybersecurity and data protection a priority for Boards and C-Suites.”
As we watch the peaceful transition of power & wonder if we will come together as a nation after a deeply divisive election, there’s one question on everyone’s mind this Inauguration Day – “So, is Edgar open?” According to this press release from the SEC, the answer is “yes.”
The SEC’s press release notes that due to Inauguration activities, there will only be limited filer support – as DC is shut down & government employees there aren’t heading into the office. The press release doesn’t address the issue of whether today is a “business day” for purposes of determining filing due dates. However, as Broc pointed out in this blog from 2009, Inauguration Day is not a national holiday – so in the absence of any guidance from the SEC to the contrary, companies should assume that it is a “business day.”
The “Make-Whole” Investor Revolt
This Bloomberg News story tells the tale of a revolt among bond investors over efforts by issuers to change indenture language relating to make-whole payments. Apparently, a number of high-profile issuers were sent back to the drawing board earlier this month after investors refused to come on board for new language intended to prohibit make-whole payments in connection with defaults.
Make-wholes entitle investors who have their notes redeemed to receive the discounted present value of the future payments they would have received absent the redemption. They have historically been payable only in connection with optional redemptions. Last fall, two judicial decisions imposed make-whole obligations on issuers in non-traditional settings. The first, Wilmington Savings v. Cash America (SDNY 9/16) applied a make-whole as a remedy for a “voluntary” non-bankruptcy default. The second, In Re Energy Future Holdings (3d Cir. 11/16) held that a make-whole was payable in a bankruptcy redemption.
In response, issuers added language to indentures “undoing” the result in these cases – by clarifying that no make-whole is due upon default or bankruptcy.
The investor revolt was prompted by comments from a covenant review service to the effect that this new language was “the end of covenants” and the “single worst change” ever to emerge in the bond market. This Davis Polk memo responds to these contentions by trying to provide some historical perspective:
Not all capital markets notes include an optional right of redemption. We believe that market participants and practitioners have generally understood that an issuer’s right of redemption, including at a stated premium or make-whole, exists to provide flexibility for the benefit of the issuer. It would be odd, to say the least, if when an issuer defaults on notes without this feature, the issuer only has to pay principal and interest, but if that additional feature is included–for the issuer’s benefit– the issuer must pay a premium.
Accordingly, the memo contends that this new language “is not really much of a change at all from what has been, in our view, established practice.”
Yesterday, the SEC sanctioned MDC Partners for violating Reg G & Item 10(e) of Reg S-K in connection with its use of non-GAAP financial measures. Some people are calling this the first non-GAAP enforcement case – but that’s not quite right. There aren’t many, but this isn’t the first non-GAAP case. In fact, this isn’t even the first non-GAAP case since the new CDIs!
Despite agreeing to comply with non-GAAP financial measure disclosure rules in December 2012 correspondence with the Commission’s Division of Corporation Finance, MDCA continued to violate those rules for six quarters by failing to afford equal or greater prominence to GAAP measures in earnings release presentations containing non-GAAP financial measures. Furthermore, for seven quarters between mid-2012 and early-2014, MDCA did not reconcile “organic revenue growth,” which as calculated by MDCA was a non-GAAP financial measure, to GAAP revenue.
In addition, the SEC announced that the company agreed to pay a $1.5 million penalty to settle charges that it failed to disclose certain perks enjoyed by its then-CEO. In April 2015, the company disclosed that the SEC was investigating its CEO’s expenses & the company’s accounting practices.
The SEC’s order says that the company disclosed a $500k annual perk allowance for its CEO – but didn’t disclose millions of dollars in additional perks. These included private aircraft usage, club memberships, cosmetic surgery, yacht and sports car expenses, jewelry, charitable donations, pet care, & personal travel expenses. The CEO resigned in July 2015 and returned $11.3 million worth of perks, personal expense reimbursements, and other items of value improperly received over a 5-year period. We’ll be posting memos regarding this case in our “Non-GAAP Disclosures” Practice Area.
Update: Francine McKenna tipped us off to this MarketWatch article, which notes that the earlier post-CDI non-GAAP enforcement case also resulted in a criminal indictment.
Internal Controls: GM Sanctioned for Deficiencies Related to Ignition Switch Recall
Yesterday was a busy day for the SEC’s Division of Enforcement. The SEC announced that General Motors agreed to pay a $1 million penalty to settle charges that deficient internal accounting controls prevented it from properly assessing the potential financial statement impact of a defective ignition switch found in some vehicles.
According to the SEC’s order, ASC 450 requires companies dealing with potential loss contingencies – such as GM’s potential recall – to assess the likelihood of whether the potential recall will occur & provide an estimate of the loss or range of loss, or provide a statement that such an estimate cannot be made. In GM’s case, shortcomings in its controls prevented that from happening:
The SEC’s order finds that the company’s internal investigation involving the defective ignition switch wasn’t brought to the attention of its accountants until November 2013 even though other General Motors personnel understood in the spring of 2012 that there was a safety issue at hand. Therefore, during at least an 18-month period, accountants at General Motors did not properly evaluate the likelihood of a recall occurring or the potential losses resulting from a recall of cars with the defective ignition switch
The GM proceeding is the second involving internal controls this month. Last week, the SEC announced that L3 Communications agreed to pay a $1.6 million penalty to settle charges that it failed to maintain accurate books and records and had inadequate internal accounting controls.
More on our “Proxy Season Blog”
We continue to post new items regularly on our “Proxy Season Blog” for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Proxy Access: Is NYC Comptroller Graduating to Submitting Candidates?
– Shareholder Proposals: GHG Emissions Excludable
– Shareholder Proposals: “Bringing in the Vote” Disclosure
– Climate Change Chart: How Mutual Funds Vote
– SEC Comment Letters: Top Issues in 2016
We have posted the transcript for our popular webcast: “Non-GAAP Disclosures: Analyzing the Comment Letters.”
Whistleblowers: BlackRock Nailed in Separation Agreement Enforcement Action
As Yogi Berra might put it, “it’s like deja vu all over again.” Yesterday, the SEC tagged BlackRock for language in separation agreements that it believed created disincentives for whistleblowing. According to the SEC’s order, more than 1,000 departing BlackRock employees signed separation agreements containing violative language stating that they “waive any right to recovery of incentives for reporting of misconduct” in order to receive severance payments. This action is notable because BlackRock is one of the biggest institutional investors out there!
Last month, Broc blogged about the latest separation agreement case – the day after he blogged about another separation agreement case – and noted that more were on the way.
The SEC’s ongoing emphasis on separation agreements hammers home the need to modify agreements that may create impediments to whistleblowing. It’s also another excellent reason to tune into our upcoming webcast – “Whistleblowers: What Companies Should Be Doing Now”…
Tomorrow’s Webcast: “Privilege Issues in M&A”
Tune in tomorrow for the DealLawyers.com webcast – “Privilege Issues in M&A” – to hear Alston & Bird’s Lisa Bugni, Bass Berry’s Joe Crace & Akin Gump’s Trey Muldrow discuss how to deal with the attorney-client privilege in M&A transactions.
This Davis Polk blog discusses an abundance of legislative initiatives designed to enhance Congressional control over the agency rulemaking process. In early January, the House passed two separate statutes that would make it easier for Congress to intervene in the regulatory process. Naturally, the proposed statutes have the kind of colorful & politically charged names that we’ve come to expect from our lawmakers.
First, there’s the “Midnight Rules Relief Act of 2017,” which would enable Congress to pass omnibus disapproval resolutions that cover multiple regulations submitted during the final year of a President’s term. Next comes the “Regulations from the Executive in Need of Scrutiny (REINS) Act of 2017,” which provides that “major rules” – those identified as likely to cause annual economic effects of at least $100 million — could only take effect if Congress adopted a joint resolution approving of the rule.
A third bill, the “Require Evaluation Before Implementing Executive Wishlists (REVIEW) Act of 2017,” has also been introduced. Under this statute, agencies would have to postpone the effective date of “high-impact” rules—those determined to impose annual economic costs of $1 billion or more—until after the final disposition of all actions seeking judicial review of the rule.
The blog’s skeptical that any of this legislation will pass absent a decision by the Senate to eliminate the filibuster, but this excerpt suggests that these statutes reflect the mood of Congressional Republicans:
Congressional Republicans are both eager to unwind the Obama Administration’s regulatory agenda and cognizant of the difficulties of doing so through notice-and-comment rulemaking. Moreover, these bills signal the desire of many in Congress to play a greater role in the regulatory process and a view that, according to the Purpose section of the REINS Act, “Congress has excessively delegated its constitutional charge while failing to conduct appropriate oversight and retain accountability for the content of the laws it passes.”
While reforms as sweeping as those proposed in some of these statutes are not expected, we should expect further efforts by Congress to increase its control over agency rulemaking.
But Wait! There’s More!
Remember when I said we should expect further Congressional action on rulemaking? This blog from Cydney Posner says that they’re already back at it. After passing the REINS Act & the Midnight Rules Relief Act, the House of Representatives came back the following week with another round of legislation:
On Wednesday, the House Republicans (with five Democratic votes) passed H.R. 5, the “Regulatory Accountability Act,” a bill that would change the way federal agencies issue regulations and guidance. This bill would require agencies to, as part of their rulemaking processes, expand the factual determinations required, provide advance notice with regard to certain important rule proposals and follow specified procedures for issuing important guidance, among other processes. Included as part of the same bill is the “Separation of Powers Restoration Act,” which provides for de novo judicial review of agency actions.
Another bill has been introduced in the House that has the SEC’s rulemaking process squarely in the cross-hairs. The “SEC Regulatory Accountability Act” would enhance the requirements for cost-benefit analyses of proposed SEC rules & provide for post-adoption impact assessment and periodic review of existing regulations.
In what is likely to be her final speech as SEC Chair, Mary Jo White today pushed back against legislative initiatives to remake the rulemaking process. In particular, she said that the SEC Regulatory Accountability Act would provide “no benefit to investors beyond the exhaustive economic analysis we already undertake” and that the Act’s requirements would prevent the SEC from “responding timely to market developments or risks that could lead to a market crisis.”
Tomorrow’s Webcast: “Pat McGurn’s Forecast for 2017 Proxy Season”
Tune in tomorrow for the webcast – “Pat McGurn’s Forecast for 2017 Proxy Season” – when Davis Polk’s Ning Chiu and Gunster’s Bob Lamm join Pat McGurn of ISS to recap what transpired during the 2016 proxy season and what to expect for 2017. Please print these “Course Materials” in advance…
A new Equilar study notes that while more than 1/3rd of the S&P 500 disclose in their proxy statements that they have a CEO succession plan, only about 3% provide any details about what that plan entails. As this excerpt notes, CEO turnover has increased significantly over the past five years:
In the last five years, the number of S&P 500 CEO retirements, resignations or terminations has increased incrementally year over year, to the point where there has been more than 10% turnover at the CEO position every year across the index. As of October 31, 2016, there had been 59 CEOs who had either left their positions or announced that they would before the year’s end, up from 56 in all of 2015 and from 48 in 2012—nearly a 25% increase in a five-year timeframe.
While there’s no line-item requirement compelling disclosure about CEO succession planning, increased investor & proxy advisor scrutiny in recent years has turned up the heat on boards to clarify their strategy and risk oversight in public filings – and if CEO turnover continues at a high rate, pressure for more detailed disclosure may rise.
Post-IPO Governance: How Much Do Companies Change?
This EY study reports on how the governance practices of the IPO class of 2013 have evolved since the time of their IPOs. Findings include:
– The 2013 IPO companies have actively refreshed their boards, ushering in slightly older, more independent directors with more CEO and public company board experience.
– New directors often replace directors representing the early-stage investors who brought the companies public. Reflecting this fact, 65% of the directors who left their positions had an M&A or private equity background.
– They have also brought more women into the boardroom, but still lag behind more seasoned companies. The average S&P 600 small-cap board was 14% female in 2016, compared with 12% for the 2013 IPO companies.
– The percentage of 2013 IPO companies with independent board chairs has increased from 26% to 34%, while the percentage of those with independent lead directors has grown from 35% to 40%.
Interestingly, the 2013 IPO companies have been slow to adopt a couple of the current good governance talismans – annual election of directors (23% to 28%) & majority voting (11% to 18%).
“SEC Small Business Advocate Act” Heads for President’s Desk
This blog from David Jenson notes that the Senate has passed the “SEC Small Business Advocate Act” – and that it will now head to President Obama’s desk for signature. If signed into law, the Act will establish an “Office of the Advocate for Small Business Capital Formation” within the SEC – which will be modeled after the Office of the Investor Advocate established under Dodd-Frank.
The Act would also establish the Small Business Capital Formation Advisory Committee, which would provide the SEC with input on capital raising, reporting and governance issues on behalf of privately held small businesses and public companies with a public float of less than $250 million.
This article touts the benefits of the proposed legislation. Maybe I’m too jaded, but – aside from allowing politicians to boast about how they’re looking out for “small businesses, the real job creators and the engines of economic growth” – I’m skeptical that establishing another bureaucratic cubbyhole in an agency that already has too much on its plate is going to do much to move the needle for small business.
Andrew Abramowitz has an interesting take on the potential for crowdfunding & new Regulation A to tilt the playing field in favor of issuers:
Traditional capital-raising involves spending an enormous amount of time with potential investors, explaining the business, responding to due diligence requests, etc. In addition, when there is an investor syndicate rather than just one investor, the different members of the syndicate may have different requests/concerns, so the process is like herding cats. In contrast, at least in theory, with crowdfunding and Regulation A, once the proper disclosure is prepared and posted for investor review, the investors make their choices, and if there’s enough interest, you just go ahead and close.
Of course, a potential crowdfunding investor can decide to ask detailed questions of the company and try to negotiate terms of the offering. However, the dynamic is different than the venture capital scenario if the questioning investor is proposing to invest, say, $1,000. The company may try to be responsive up to a point, but when the individual investments are in small increments, it’s easier for the company to maintain a take it or leave it attitude.
Time will tell whether there is enough investor interest for crowdfunding to be a workable alternative to traditional methods of fundraising. But if we get to a point where a company only needs to take a week or so to put together the necessary disclosure, rather than taking out a few months or more to negotiate with individual investors, crowdfunding could prove to be an attractive way to do things.
Speaking of crowdfunding’s potential to flip the script – check out VidAngel. This company reportedly raised over $6 million in the first part of its Reg A+ offering in just two days. It took a break to blue sky the deal in more states, reopened it to investors – and promptly raised another $4 million in three days. The deal’s done – but the entertaining video offering circular lives on!
Reg AB: Corp Fin Issues Guidance for ABS Issuers
Corp Fin recently issued 23-pages of guidance for asset-backed issuers to help them file on Edgar, which has undergone programming changes that relate to revised Regulation AB and new Exchange Act Rule 15Ga-2. Not gonna lie – I have no idea what anything I just wrote means, but anyway, God bless. . .
Joe Hall on Life as a Corporate Lawyer
Check out this 30-minute podcast with Joe Hall of Davis Polk in Manhattan, another born n’ bred big legal mind. With nearly 30 years of practice under his belt, Joe leads the corporate governance practice at Davis Polk – one of Broc’s favorite law firms – and has a wealth of capital markets experience, both on the issuer and the underwriter side.
Joe has left Davis Polk twice: once to go in-house for a few years and once to work for SEC Chair Bill Donaldson in DC, during the height of Sarbanes-Oxley rulemaking – but has always returned to what he feels is his true home, Davis Polk.
More recently, Joe has led his firm into the art of podcasting – launching the firm’s “Before the Board” podcast series. Check it out on iTunes & other platforms today!
This podcast is also posted as part of our “Big Legal Minds” podcast series. Remember that these podcasts are also available on iTunes or Google Play (use the “My Podcasts” app on your iPhone and search for “Big Legal Minds”; you can subscribe to the feed so that any new podcast automatically downloads…
This blog from Covington & Burling’s Len Chazen argues that the migration of fixed income investors to dividend-paying common stocks during 2016 could result in these investors becoming an independent force to be reckoned with in shareholder activism. Here’s an excerpt:
Dividend-minded shareholders are a potential third force in the contest for influence between institutional investors who want the corporation to be managed to enhance long-term profitability, and shareholder activists who want the board to maximize the current price of the stock. As supporters of higher dividends these new shareholders are natural allies of the activists, but unlike the typical shareholder activist, they have a long term stake in the corporation and an interest in limiting stock buy backs and dividends to a level that does not impair the ability of the corporation to continue paying dividends in the future.
Governance Survey: Silicon Valley v. S&P 100
This Fenwick & West study surveys the landscape of Silicon Valley’s governance practices and compares them with those found at S&P 100 companies. Not surprisingly, the study found significant differences between Silicon Valley and Corporate America. Here are some highlights:
– Silicon Valley directors & executives owned larger average equity stakes in their companies than did their peers at S&P 100 (10.3% v. 2.8%).
– The total voting power of Silicon Valley directors & executives also skews higher than the S&P 100 (14.2% v. 4.8%)
– Silicon Valley companies have smaller boards (8.2 directors v. 12.4) & less frequent meetings (8.1 v. 8.9) than S&P 100 companies
– More insiders serve on Silicon Valley boards, but 52% of Silicon Valley boards have an independent chair as compared to only 18% of the S&P 100.
Consistent with other surveys, this study also found Silicon Valley boards to be significantly less gender diverse than their S&P 100 counterparts – 26% did not have a single woman director, while all S&P 100 companies had at least one. As in other surveys, however, this one indicates that there appear to be signs of improvement on the diversity front.
The study also addresses other governance metrics and tracks changes over time.
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Issuing Shares Via Blockchain: Delaware Poised to Act
– Describing an Officer’s Duties 101
– Data Privacy: More Federal Agencies Join Enforcement Bandwagon
– Stats: Controlled Companies
– How Law Firms Should Strengthen Their Cybersecurity
Last week, the US Supreme Court officially removed stock tips from this year’s holiday gift list. In Salman v. United States, the Court unanimously affirmed that a tipper’s gift of inside information can satisfy the “personal benefit” requirement of Dirks v. SEC. The Court rejected the view of the 2nd Circuit’s 2014 decision in U.S. v. Newman, which required a “tangible benefit” in order to support an insider trading conviction. In his opinion, Justice Alito wrote that:
To the extent the Second Circuit held that the tipper must also receive something of a ‘pecuniary or similarly valuable nature’ in exchange for a gift to family or friends . . . we agree with the Ninth Circuit that this requirement is inconsistent with Dirks.
This Sullivan & Cromwell memo notes that although Salman resolves uncertainties that Newman created about the personal benefit requirement, it leaves many unanswered questions:
Salman removes the uncertainty about insider-trading liability introduced by Newman, reaffirming the long-standing principle that a mere gift of information to “a trading relative or friend” is sufficient to constitute the requisite “personal benefit” to support liability for both the tipper and tippee. Yet Salman left unanswered important questions about the reach of liability, including:
(1) what sort of relationship is sufficient to meet the “relative or friend test”?
(2) where a tippee is not a “friend or relative,” what constitutes an exchange sufficient to constitute a non-pecuniary “personal benefit”? and
(3) what will constitute legally sufficient proof of knowledge of a “personal benefit” by remote, downstream tippees?
In late November, the UK government issued a “Green Paper” soliciting input on a variety of potential governance reforms. Proposals include pay ratio reporting, enhanced say on pay approval requirements, minimum holding periods for stock awards, & various alternatives for board level stakeholder input.
From an American perspective, the most provocative aspect of the proposals may be the decision to solicit input on whether corporate governance standards should be imposed on the UK’s largest privately held companies. The US hasn’t crossed that particular Rubicon yet – and it will be interesting to see the British reaction to it.
Transcript: “This Is It! M&A Nuggets”
We have posted the transcript for our recent DealLawyers.com webcast: “This Is It! M&A Nuggets.”
