Tune in tomorrow for the webcast – “Audit Committees in Action: The Latest Developments” – to hear Deloitte’s Consuelo Hitchcock, Maynard Cooper’s Bob Dow, Tapestry Networks’ Eric Shor, and E&Y’s Josh Jones discuss the ever-expanding responsibilities of audit committees in today’s environment and provide practical guidance on navigating the challenges they face.
If you attend the live version of this 60-minute program, CLE credit will be available. You just need to fill out this form to submit your state and license number and complete the prompts during the program.
Members of TheCorporateCounsel.net are able to attend this critical webcast at no charge. The webcast cost for non-members is $595. If you’re not yet a member, subscribe now by emailing sales@ccrcorp.com – or call us at 800.737.1271.
– John Jenkins
I swear, I try to take crypto seriously – I really do. I mean, there are trillions of dollars being invested in it and lots of smart people think it’s the future. But it’s hard not to be dubious when so many of the crypto schemes I’ve seen people touting remind me of either the South Park underpants gnomes or episodes of the 1990s cartoon Pinky & the Brain. Last time we visited the world of crypto, we discussed a public offering of NFTs by a piece of conceptual art in corporate form. I didn’t think we could top that one – until I read this article about a DAO that’s pursuing a project that’s even more “out there”. Meet BitMouse DAO:
A new decentralized autonomous organization (DAO) wants to genetically engineer mice so that they carry Bitcoin inside them. BitMouseDAO launched on January 25. As of this writing, it has exactly two investors, almost no money, and no Discord. One investor, who put in .01 ETH, commented “Lmao,” while the other who put in the same amount said, “crazy.” The scheme, according to the DAO’s pitch, is to experiment with genetic technology to put Bitcoin inside a mouse.
The anonymous mind behind this project claims to be an artist who got the idea as they were going to sleep one night. They jotted the idea down and began to ponder its possibilities. “Over the next few weeks I started looking around to see if it was possible to carry out the experiment,” theys said in a blog post. “I was excited to imagine how this would affect us in the future.”
After namechecking artist Eduardo Kac’s genetically engineered phosphorescent rabbits, BitMouseDAO then rambles about how cool it will be to make a living thing into literal money. “We have tied the value of the mouse directly to Bitcoin, and it will fluctuate with the daily value of Bitcoin,” they said. “Maybe in ten years it will be worth $100 million, or maybe it will be worth nothing.”
I guess the way this is going to work is that the DAO will pay to have scientists figure out a way to edit the mouse’s genetic code to carry the private key that controls the bitcoins. Why would they do that? Look, don’t ask me. I’ve read the article and I still don’t know. Maybe you should check with the underpants gnomes or – since this is all about genetically engineered mice – the folks behind Pinky & the Brain.
– John Jenkins
In light of the increasingly sympathetic approach that Delaware courts have taken to Caremark claims in recent years, some commenters have observed that the risk of potential liability for directors’ breach of their oversight responsibility is much higher than it used to be. In that regard, this Proskauer blog says that one of the lessons of recent Delaware cases is that the growing demand for board oversight on ESG issues may increase the chances of viable Caremark claims:
Recent cases finding complaints to have sufficiently pled Caremark allegations may dovetail with the ever-increasing role of ESG in corporate policy and strategy. Corporate boards may be required to oversee corporate conduct with an eye towards how the company’s financial health intersects with and relies upon its commitment to sustainability, transparency and regulatory compliance. But with these added oversight obligations may come a higher risk of liability if the Caremark standards are not met.
In order to reduce this risk, the blog says that boards need identify “mission critical” aspects of the company’s business by focusing on its essential functions. Mechanisms for actively overseeing these functions should be evaluated and enhanced if necessary. In addition, the full board should regularly address mission critical aspects of the business and ensure that any complaints or significant issues concerning them find their way to the board.
– John Jenkins
For years, one of my “go to” resources for quickly referencing independence and other requirements applicable to public company directors has been Weil’s chart on those requirements. I was pleased to learn that the firm has just issued an updated version of that chart which we’ve posted in our “IPOs” Practice Area. Check it out – it covers NYSE & Nasdaq listing standards for boards and committees, as well as SEC disclosure requirements relating to directors.
– John Jenkins
While the universal proxy rules won’t go live for most companies until next year, this Goodwin blog recommends including some language in this year’s proxy about next year’s deadline for submitting the names of dissident nominees and other information required under new Rule 14a-19. This excerpt provides some sample language as well as a brief explanation of why the firm is making this recommendation:
Because universal proxy will apply to contested director elections at all 2023 annual meetings, we recommend including disclosure regarding the universal proxy deadline in this year’s proxy statement, including for companies that hold their annual meeting well in advance of the September 1, 2022 mandatory compliance date.
Sample disclosure for this purpose could be as follows: “to comply with the universal proxy rules (once effective), stockholders who intend to solicit proxies in support of director nominees other than the company’s nominees must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act no later than [INSERT DATE THAT IS 60 DAYS PRIOR TO ONE YEAR ANNIVERSARY OF 2022 ANNUAL MEETING].
This additional voluntary disclosure could be particularly useful for companies with no advance notice bylaws or with advance notice bylaws that provide a notice deadline of less than 60 days prior to the meeting, and could also be useful for companies that have longer advance notice deadlines, but move their meeting date and thereby create new accelerated deadlines.
While the blog recommends this disclosure – which is called for under new Rule 14a-5(e)(4) – for meetings held prior to September 1, 2022, it also acknowledges that the universal proxy rules don’t require that disclosure for meetings held prior to that date. If you’re interested, check out Topic #10934 in our Q&A Forum, which notes that some major companies (including Apple and Starbucks) have opted to include similar disclosure in their proxies. You’ll also find there my half-baked musings about some other reasons to consider this kind of disclosure.
– John Jenkins
When a company experiences a cybersecurity incident, a disciplined communication strategy is essential in order to protect attorney-client privilege and mitigate the legal and business risks associated with the unintended disclosure of internal communications about the incident. This Bryan Cave blog lays out some “dos” and “don’ts” when it comes to communicating internally about a breach. Here are some of the don’ts:
– DO NOT include subjective conclusions/assessments (e.g., “this was a big mistake,” “our systems were not adequately protected”) in email communications.
– DO NOT circulate forensics or other reports via email, particularly in draft form. Reports should be reviewed using a screen sharing application or similar means, and any dissemination via email or otherwise should be done only when the report has been finalized and at the direction of counsel.
– DO NOT communicate about the incident via other unofficial means (e.g., texts, instant messaging, other non-company communication applications), unless the nature of the incident mandates use of an approved secondary communication method.
– DO NOT destroy or delete any written communications related to the incident until receiving specific instructions to do so.
While the tips provided by the blog are intended to address communications surrounding a cybersecurity incident, many of the dos & don’ts laid out in the blog apply generally to internal communications arising out of other crisis situations.
– John Jenkins
The January-February issue of “The Corporate Counsel” newsletter is in the mail. 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 (subscribe here to be “in the know”). The issue includes articles on:
– SEC Looks to Amend Rules on Issuer and Insider Securities Transactions
– Is Your Insider Trading Policy Ready for Prime Time?
Dave & I also have been doing a series of “Deep Dive with Dave” podcasts addressing the topics we’ve covered in recent issues. We’ll be posting one for this issue soon. Be sure to check it out on our “Podcasts” page!
– John Jenkins
This recent Bass Berry blog discusses a recent comment letter exchange in which the Staff questioned a registrant’s conclusion that a director who also served as its corporate secretary was “independent” under applicable Nasdaq rules. Here’s an excerpt:
Because the determination of director independence is crucial for maintaining SEC and stock exchange compliance (as well as Delaware law process protections in some situations), in-house and outside securities counsel often closely scrutinize the facts and circumstances of various relationships to confirm that director independence would not be jeopardized. Companies will often produce written memoranda that carefully analyze the specifics facts and circumstances of a director to help support the board’s determination that a director or director nominee is “independent” under the applicable standards.
It is with this background that we found interesting a recent comment letter exchange in which the Securities and Exchange Commission (SEC) Staff questioned the registrant about its disclosure that a director was deemed independent notwithstanding the fact that the director was then-serving as the company’s corporate secretary.
The registrant took the position that the director was “independent” under the rules because (i) a corporate secretary position is not included in the definition of “officer” as defined by the SEC, and (ii) it did not consider the corporate secretary position as an employment relationship because the director did not receive any compensation for serving in the role and had only performed minor services in the role.
The blog also notes that the director agreed to step down from his position as corporate secretary in order to help resolve the comment. I linked to the registrant’s response letter in the first paragraph, and it is also presented in its entirety in the blog. The Staff did not comment further, and the final prospectus (p. 60) continues to classify the director as independent.
– John Jenkins
Yesterday, the SEC announced that it was reopening the comment period for the Dodd Frank-mandated pay-for-performance disclosure rules that the agency proposed way back in 2015. Here’s the 29-page reopening release & the 2-page fact sheet. This excerpt from the fact sheet summarizes the reasons for the SEC’s decision to reopen comments as well as some changes to the initial proposal that are being contemplated:
The Commission received numerous comment letters on the 2015 proposing release. In light of the regulatory and market developments since 2015, the Commission is providing the public the opportunity to submit additional comments on the 2015 proposal, and to address the additional requirements the Commission is considering in the reopening release issued today. These additional requirements include, among other things:
– Whether registrants should be required to disclose additional performance measures beyond total shareholder return;
– Whether, if required, pre-tax net income and net income would be useful additional financial measures;
– Whether registrants should be required to disclose the measure that in the registrant’s assessment represents the most important performance measure used by the registrant to link compensation actually paid during the fiscal year to company performance (which is called the “Company-Selected Measure”); and
– Whether registrants should also be required to disclose a tabular list of a registrant’s five most important performance measures used to determine compensation actually paid.
Commissioner Peirce issued a brief dissenting statement in which she contended that “the additional requirements raised in this release go well beyond the statutory mandate of Section 953(a), are not responsive to the comment file, and do not seem warranted in light of current executive compensation practices related to company performance.” Commissioner Lee weighed in with a supporting statement and Commissioner Crenshaw provided one as well.
The reopened comment period will expire 30 days after publication of the release in the Federal Register. However, the SEC hasn’t exactly been rocketing into print with its recent rule proposals – the10b5-1 & buybacks proposals still haven’t been published – so it’s possible that the reopened comment period actually may be quite a bit longer than that.
– John Jenkins
Pardon me for using this blog to share some personal news, but it’s kind of a big deal – at least for me. You see, today is my final day at Calfee, Halter & Griswold LLP, the law firm I’ve worked at since I graduated from law school 35 years ago. They say that “time flies,” and while I’ve had many days that seemed to drag on forever during my legal career (I’m looking at you, Bowne & Donnelley), that expression sure seems apt when you’re looking through the rearview mirror.
I guess I expected to feel a little more wistful about resigning, but I think I don’t feel that way primarily because this is my second try at it. When Broc & Nathan Brill offered me a position here back in 2016, I actually resigned, but the firm was going through some other transitions and asked me to stay on. Now, I think we’ve both agreed that I’ve reached my expiration date!
Anyway, I’ll certainly miss my colleagues at Calfee. It’s a great firm, and I wish them all the best. But I am not sad to go. Through no fault of my own, I stumbled onto the best job in the world five and a half years ago. I’m incredibly grateful to Nathan and Broc for giving me that opportunity, and to all of my colleagues, past and present, for making this such a great place to work. I hope to have the chance to work with everyone here for a long time to come.
There’s something else I’m looking forward to as I leave my law firm, and that’s saying goodbye to the knot in my stomach that’s been there for 35 years. I think most of you know exactly what I’m talking about. If you’re a securities lawyer, you learn fast that you’re working without a net. Your entire career is based on your reputation, and when it comes to preserving it, you’re only as good as the last thing you screwed up.
You get used to making high-stakes judgment calls on a shot clock, even though you often don’t have all the information you need. It comes with the job, but it also comes with a price – and the knot in your stomach that never completely goes away is a big part of that price. Hopefully, my colleagues and I are able to come up with some things that help loosen the knot in your stomach every now and again.
So, what are my parting words for my friends and colleagues at the law firm where I’ve spent my entire professional career? Heh-heh, you know, I’ve always wanted to do this, and I know they’d all be disappointed in me if I didn’t – take it away, Edith!
– John Jenkins
