For calendar year companies, the new year begins with the most hectic period of the annual reporting cycle. That’s particularly true for new public companies, which haven’t previously experienced the year-end reporting & proxy frenzy. If this is your first rodeo – or even if it’s not – check out this Harter Secrest memo for tips on how to use this year’s Q4 to make your life easier during next year’s Q1. This excerpt provides some tips on putting together an annual meeting timetable:
Starting with a proposed annual meeting date and working backwards to schedule deadlines for the many workstreams involved in the annual meeting can help your team stay organized throughout one of the busiest times of year and eliminate last-minute surprises. Consider including the following in your timetable:
– Board and committee meetings relating to annual meeting approvals.
– Critical deadlines, such as (i) the record date, (ii) broker search deadline, (iii) dates to deliver materials to your financial printer, (iv) last date to file the proxy statement to incorporate information by reference into the Form 10-K, and (v) last date to file the proxy statement to be able to use notice and access.
– Target dates to send drafts to outside experts and to receive comments back from them.
– Section 16-related tasks: (i) Form 5 deadline; (ii) Schedule 13D or 13G deadline, and (iii) if tied to year-end reporting or meetings, any planned equity grants requiring Section 16 reports.
The memo also provides tips on getting a jump on your D&O questionnaires and 10-K preparation efforts.
Remember a few years ago, when a counterfeit letter purporting to be from BlackRock’s Larry Fink hit the street? Well, the folks who did that apparently had so much fun that they did it again – this time to Vanguard. This excerpt from an Institutional Investor article explains:
The team behind 2019’s fake letter from BlackRock chief executive officer Larry Fink has struck again. This time, they’ve targeted Vanguard and Marvel Entertainment, pitting the two against one another via dueling press releases sent to journalists on Tuesday. Since then, the Yes Men, a group of activist comedians, revealed that they orchestrated this stunt in an effort to push Vanguard toward action on climate change.
For major asset managers like Vanguard, whose exchange-traded funds require ownership of the market at large, acting on climate change is complicated. But because they’re targeting retail investors more than they have in the past, the general public has begun to push for more change.
On Tuesday, a fake press release from Vanguard announced that the firm had set up a “Sustainable Investments” department that would help it strategize on shareholder engagement. The faux announcement also claimed that by 2030, Vanguard would make “fossil-free and deforestation-free funds [the] default option” for investors, and that it would launch a “Vanguardians of the Galaxy” ESG fund for young investors.
In order to close the loop on the “Vanguardians of the Galaxy” thing, the Yes Men also issued a fake press release from Marvel. Fake Marvel characterized Fake Vanguard’s action as “an offensive infringement” of its intellectual property.
These guys call themselves “activist comedians.” I get the activist part, but where’s the comedy come in? I suppose the “Vanguardians of the Galaxy” reference could be a little funny in a “dad joke” sort of way, but this is a pretty elaborate setup for the tiny comedy payoff these guys deliver. I’ll leave it up to you to decide what kind of impact the activist side of the house has made with these pranks, but from a comedic perspective. . . well, I’lI take Letterkenny over the Yes Men every time.
In case you’re not familiar with it, Letterkenny is a Canadian TV comedy that some of my hockey pals suggested to me. The show’s not for everybody – the language would make a longshoreman blush – but if you like non-stop banter & a steady stream of what hockey players call “chirps” delivered in a distinctive dialect, check it out. I think it’s hilarious.
Anyway, Letterkenny reminds me of how many things we import from Canada, including some legal doctrines that we usually think of as home grown. That’s why I thought you might find this Torys memo about proposed climate change regulations issued by the Canadian Securities Administrators interesting. This excerpt from the memo summarizes the highlights of the proposal:
– The proposed rules would be phased-in over a one-year period for non-venture issuers and over a three-year period for venture issuers. For reporting issuers with a December 31 year-end, disclosures would be required in annual filings due in 2024 for non-venture issuers and in 2026 for venture issuers.
– Issuers would be required to make annual disclosure relating to the core elements of the TCFD framework, including governance, corporate strategy, risk management practices and data and metrics in respect of climate change risks and opportunities.
– Issuers would be required to disclose their Scope 1, 2 and 3 emissions or their reasons for not providing such disclosure. In the alternative, the CSA is considering mandatory disclosure of Scope 1 emissions, with the comply-or-explain option available only for Scope 2 and 3 emissions.
– The CSA has opted not to require disclosure of scenario analysis of a company’s resiliency under various climate transition assumptions.
The areas addressed in the proposed regulations track pretty closely those that SEC Chair Gary Gensler has suggested the SEC may address in its own proposal, and the CSA’s discussion of the proposal indicates that Canadian regulators have had to make the same kind of policy choices that the SEC will be making. Since that’s the case, it may well turn out to be a preview of coming attractions.
The latest issue of The Corporate Executive has been sent to the printer (sign up and order this essential resource today). This month’s articles include:
– Key Takeaways from Our Proxy Disclosure & 18th Annual Executive Compensation Conferences
– Compensation Clawbacks in the Courts
– Two Interesting Cases on Termination for “Cause”
It’s also available now online to members of TheCorporateCounsel.net who subscribe to the electronic format – an option that many people are taking advantage of in the “remote work” environment.
In a recent speech to the ABA’s annual White Collar Institute, Deputy AG Lisa Monaco announced some significant changes to the DOJ’s corporate criminal enforcement policies. In addition to tightening up the requirements for cooperation credit, Monaco said that the DOJ is changing the approach that it takes to classifying companies as recidivists, and rescinding any guidance suggesting that the appointment of corporate monitors is disfavored. This excerpt outlines the DOJ’s new approach to cooperation credit:
To hold individuals accountable, prosecutors first need to know the cast of characters involved in any misconduct. To that end, today I am directing the department to restore prior guidance making clear that to be eligible for any cooperation credit, companies must provide the department with all non-privileged information about individuals involved in or responsible for the misconduct at issue. To be clear, a company must identify all individuals involved in the misconduct, regardless of their position, status or seniority.
It will no longer be sufficient for companies to limit disclosures to those they assess to be “substantially involved” in the misconduct. Such distinctions are confusing in practice and afford companies too much discretion in deciding who should and should not be disclosed to the government. Such a limitation also ignores the fact that individuals with a peripheral involvement in misconduct may nonetheless have important information to provide to agents and prosecutors.
The department’s investigative team is often better situated than company counsel to determine the relevance and culpability of individuals involved in misconduct, even for individuals who may be deemed by a corporation to be less than substantially involved in misconduct. To aid this assessment, cooperating companies will now be required to provide the government with all non-privileged information about individual wrongdoing.
The new policy reverses the Trump DOJ’s 2018 decision to ease the requirements for cooperation credit. When it comes to classifying a company as a recidivist, the new policy says that every brush with the law in its past is now fair game for inclusion in the assessment, not just those involving similar conduct. Finally, it seems pretty clear that under the new policy, the DOJ will be insisting on the appointment of independent monitors more frequently than it has in recent years.
In short, there’s a new sheriff in town. We’re posting memos in our “White Collar Crime” Practice Area.
Liz has blogged several times about the problem of exploding proxy distribution costs. In her most recent blog, she noted that the NYSE has adopted a new rule under which companies won’t have to reimburse brokers for costs associated with shares acquired through broker promos. That’s intended to address the practice among some retail-focused brokerages of giving away free shares of stock to new customers. Unfortunately, this excerpt from the most recent issue of Carl & Peder Hagberg’s “Shareholder Service Optimizer” (pg. 11) says that new rule may provide a lot less help than companies think:
The SEC has approved a NYSE rule change to provide that no proxy distribution reimbursements should be paid where “free” or “promotional” stock positions are involved. But unless brokerage systems are upgraded to label such positions (fat chance we say) AND to track them if clients move their positions, as many Gen-Zers have been reportedly doing – how can anyone possibly tell which accounts are eligible and which are not? And even we would have to say that if the holder of a freebie increases their position, the promo prohibition likely becomes null and void.
The article notes that Robinhood has apparently taken the position that it is not bound by the NYSE’s rule, and that FINRA hasn’t acted on requests to pass a similar one.
Today is our “18th Annual Executive Compensation Conference” – Wednesday & Thursday were our “Proxy Disclosure Conference.” Both conferences are paired together and they’ll also be archived for attendees until next August. If you missed the Conferences this week, but want to purchase access to the archives, we’ll have a link available soon on this page to do that. Here’s more info for people who are attending:
– How to Attend: Follow the agenda tab to enter sessions and add them to your calendar. All sessions are shown in Eastern Time – so you will need to adjust accordingly if you’re in a different time zone. Here’s today’s agenda. If you have any questions about accessing the conference, please contact Victoria Newton at VNewton@CCRcorp.com.
– How to Watch Archives: Members of TheCorporateCounsel.net or CompensationStandards.com who have registered for the Conferences will be able to access the conference archives on these sites using their existing login credentials beginning about a week after the event, and unedited transcripts will be available to these members on TheCorporateCounsel.net and CompensationStandards.com beginning about 2-3 weeks after the event. If you’ve registered for the conferences through CCRcorp but are not a member, we will send login information to access the conference footage and transcripts on TheCorporateCounsel.net or CompensationStandards.com.
– How to Earn CLE Online: Please read these “CLE FAQs” carefully to confirm that your jurisdiction allows CLE credit for online programs. You will need to respond to periodic prompts every 15-20 minutes during the conference to attest that you are present. After the conference, you will receive an email with a link. Please complete the link with your state license information. Our CLE provider will process CLE credits to your state bar and also send a CLE certificate to your attention within 30 days of the conference.
Liz blogged last week about BlackRock’s decision to give certain institutional investors the option to vote the shares they hold through BlackRock’s index funds. She also addressed what BlackRock’s decision might mean for public companies. This “Transactional Delights” blog echoes some of Liz’s thoughts, but also raises the possibility that this change may not end up being that big of a deal. Here’s an excerpt:
So, what are some of the potential outcomes of BlackRock allowing its clients invested in its index funds a voting choice? My initial thought is that the cost of proxy contests could go up if there are more beneficial owners to solicit votes for because it might be more difficult from a collective action standpoint to line up all the votes you might need, whether its for a dissident slate of nominees to the board (shareholder activism), or ESG proposals regarding the company in question. Two questions that come to my mind when thinking about this are:
– A lot of the substance behind the ESG hype comes in the form of ESG shareholder proposals and BlackRock has been pretty bullish on embracing ESG principles, what does this portend for the future with BlackRock giving up its voting power?
– How soon after institutional will retail get this ability?
Putting those questions slightly to the side, why might this not be as big of a deal as I think it is? Well, I’m not sure how you can entirely underplay 40% of $4.8 trillion, but, one practical point and a key question to all of this is – do BlackRock’s institutional investors actually want the vote? And furthermore, does retail (no announcement made yet on this) want the vote?
The blog says that the willingness of so many institutional investors to rely on proxy advisors like ISS means that many aren’t likely to be real keen on voting the shares held in BlackRock’s index funds. While the blog doesn’t answer the question that it poses about whether retail investors want the vote, the traditional apathy of retail investors suggests that they probably aren’t all that interested either. Of course, the blog also notes that given the size of BlackRock’s holdings, the ability of its investors to vote their shares will likely be an important strategic consideration in many proxy contests..
My guess is that BlackRock probably has reached the same conclusion about the interest of most of its index fund investors in pass-through voting. But regardless of whether index fund investors actually vote their shares, their ability to do so gives BlackRock something to point to in response to growing concerns about just how much of the world’s corporate equity it owns, and may be part of its strategy to fend off regulatory actions intended to address those concerns.
By the way, this CLS blog points out some interesting fine print in BlackRock’s announcement:
Did BlackRock bury the lede? Consider the following fine print: “BlackRock will determine eligibility criteria under this program based upon . . . financial considerations, including the decision to lend securities.” In an era of rock-bottom management fees, lending shares to short sellers is an important source of revenue for the fund industry. The message is clear: For BlackRock, shareholder empowerment only goes so far. When the price is right, BlackRock will trade away its clients’ votes for short sellers’ cash.
Check out Liz’s recent post on our “Proxy Season Blog” for more on this aspect of BlackRock’s voting policy change.
Digital assets are becoming an increasingly popular investment for public companies. But once you buy them, you need to account for them properly – and this FEI Daily blog says that involves fitting a square peg into a round hole:
Since there are no Generally Accepted Accounting Principles (GAAP) in the United States specific to digital assets, a company that invests in digital assets may end up applying accounting guidance that was not written with digital assets in mind. Many popular digital assets, including Bitcoin, Bitcoin Cash, Litecoin and Ethereum, inherently provide no contractual rights to cash or other assets to the holder. Unlike investment companies or broker-dealers that qualify for specialized accounting, operating companies transacting for the first time need to apply other standards to account for digital asset investments. Cryptocurrencies such as Bitcoin would typically be accounted for as indefinite-lived intangible assets under U.S. GAAP.
Often, rather than taking direct responsibility for securing private keys associated with digital assets, companies may involve a third party, such as an exchange or custodian. Involvements with third parties require an additional level of analysis to understand whether a company owns the digital assets (and they are just being custodied by the third party on the company’s behalf) or whether instead the company has a contractual receivable or other right from the third party that is tied to the value of a digital asset but does not represent current ownership of the digital asset itself. This analysis should involve an evaluation of the contractual agreement(s) between the company and the third party, as well as relevant laws, regulations and legal precedents. The form of the interest can impact the accounting.
Because of the complexities associated with these investments, the blog recommends companies pay close attention to the corporate governance, accounting and internal controls issues associated with them, and offers some specific suggestions on each of these topics.
Since the existing rules are so opaque, it isn’t surprising that the WSJ recently reported that companies are asking FASB to step in and provide additional clarity on how to account for digital assets.
