As I’ve blogged, studies that show many investors are now taking ESG seriously. For example, in this “Proxy Season Blog”, I noted that State Street’s Rakhi Kumar was encouraging boards to become more familiar with SASB and the growing importance of ESG scores in driving investment.
So it’s not a big surprise that proxy advisors have begun incorporating ESG ratings into their reports & recommendations. Broc blogged about how ISS is starting to do this through its “E&S QualityScore” (aided by its slew of recent acquisitions in the ESG space). Now, Glass Lewis has announced that it’s taking a step in that direction. It will soon start displaying SASB standards in its research reports and on its voting platform – which is a nice boost for SASB in light of all the competition in the “ESG disclosure framework” space. Here’s more detail (also see this blog from Davis Polk):
Guidance on material ESG topics from the Sustainability Accounting Standards Board (SASB) will be integrated into Glass Lewis Proxy Paper research reports and its vote management application, Viewpoint. As a SASB Alliance Organizational Member since mid-2017 Glass Lewis is familiar with the value provided by SASB’s industry-specific standards, and has now been granted the right to display this content directly within its standard proxy research as well as its vote management platform.
As such, users of Glass Lewis’ services will be able to easily identify whether items are aligned with the SASB standards, helping inform the clients’ proxy voting and engagement activities. SASB’s information will be incorporated into Glass Lewis’ products in advance of the 2019 season after the SASB standards are codified, and available for thousands of companies across Glass Lewis’ global coverage universe.
ICOs: Court Says Coins Might Be “Securities”
About a year ago, the SEC brought its first ICO enforcement action – against the promoters of RECoin, which was supposedly a cryptocurrency backed by real estate, but (spoiler alert) wasn’t actually backed by real estate, and didn’t actually provide investors with any form of token or currency.
Now, the same defendant is fighting litigation in the first-ever federal district court case on ICOs – where the issue is whether federal securities laws can be used to prosecute ICO fraud. And wouldn’t you know, he’s not faring so well. Last week, the judge denied his motion to dismiss, in which he’d argued that the ICO didn’t involve “securities.” This Proskauer blog describes the judge’s reasoning (also see these memos):
The definitions of “security” in the relevant securities laws includes “investment contracts,” and whether the investment schemes at issue in this case are investment contracts is a question reserved for the ultimate fact-finder, which will be required to conduct an independent Howey analysis based on the evidence presented at trial.
At the motion to dismiss stage, the court must decide whether the “elements of a profit-seeking business venture” are sufficiently alleged in the indictment such that, if proven at trial, a reasonable jury could conclude that investors provided the capital and shared in the earnings and profits, and that the promoters managed, controlled and operated the enterprise. Judge Dearie concluded that such elements were sufficiently alleged in the indictment, and that if such allegations were proven, they would permit a reasonable jury to conclude that Zaslavskiy promoted investment contracts.
We don’t know for sure what’ll happen at trial, but the defendant’s argument seems a little shaky. Particularly because RECoin wasn’t a “utility token” that could be used in transactions – it was supposedly an investment in tokens that represented interests in assets. And it probably doesn’t help that a Florida magistrate judge recently applied the Howey test to another sketchy ICO – and ruled against the promoters (as described in this DLA Piper memo). But the bigger question is what impact the holding and dicta in these cases will have on ICOs that don’t involve fake tokens and imaginary asset interests.
Are ICOs Insurable?
If you’re in the cryptocurrency service space – e.g. security, custody, transfers, investments – or even if you just accept cryptocurrency for payment, it might be time to have a chat with your insurance broker. This “D&O Diary” blog says that you might even be able to get coverage for ICOs and D&O exposure, in addition to business risks. It’s timely advice, since last week the SEC reminded everyone that the legal risks of ICOs aren’t limited to ICO promoters – e.g. unregistered broker-dealers are also fair game for an enforcement action.
Of course, you’ll have to jump through some hoops to get coverage, in the form of extensive underwriter diligence as well as negotiations on policy limits. This “D&O Diary” blog cautions that coverage will be different from what you’d get in a traditional IPO – and elaborates on the attributes of an “insurable ICO”:
– The company is institutionally/VC backed and has already undergone fundraising
– The company is already an established corporate with an experienced management team & a good track record
– The insurer has been able to fully evaluate all of the relevant exposures, including systemic exposures
– The company can justify that the project underpinning the ICO cannot be achieved or the issue solved without blockchain technology
– The company is able to provide a white paper, regulatory authorizations, evidence of compliance controls, legal opinions, audit reports, banking agreements and outsourced service agreements
The “Ceres Investor Water Hub” – a working group of more than 100 investors that represent $20 trillion in assets – has published an “Investor Toolkit” to foster engagement with companies on water issues. Among other topics, it covers:
– Types of water risks – physical, regulatory, social – and how to assess materiality
– Shareholder resolutions & trends linked to water
– Database of proxy voting guidelines that integrate water issues
– Engagement tips for investors
– Recommendations for incorporating water issues into investment decisions
This Forbes op-ed from Ceres’ CEO Mindy Lubber notes that 81% of major U.S. companies in water-dependent sectors have water stewardship programs – though only 37% have set qualitative targets to better manage water resources. It doesn’t take too much imagination to predict that there’ll be more requests for disclosure in this area.
Why Do Some Companies Go Public Through Debt IPOs?
I don’t see much written about private companies issuing public debt, so this study caught my eye. Here’s an excerpt:
As compared to companies in the same industry that conduct an equity IPO in the same year, companies that go public via debt are typically significantly larger and more easily able to disclose their important performance data through their financial statements (versus non-financial disclosure). When the debt-first companies eventually go public by issuing equity, they face lower underpricing than companies without public debt.
Ownership structure (backing by a financial sponsor such as a venture capital or private equity firm) and the relative cost of information production in debt versus equity markets appear to be significant in explaining why these firms choose debt before equity and their subsequent decision to issue equity. Future research on IPOs should take into account that firms do not just face a simple choice between going public and staying private, but also an intermediate choice of issuing public debt but staying private.
More on “Proxy Season Blog”
We continue to post new items daily on our blog – “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:
– More on “Shareholder Meetings: What to Do With a Tied Vote?”
– Shareholder Meetings: What to Do With a Tied Vote?
– 6 Reasons Why Corp Fin Denies Exclusion Under SLB 14I
– Icahn, Elliott & Activist Peers Grab the Mic in Meeting Season
– Management Proposals: Factors for Those That Just Eke By?
Check out the latest report from BarkerGilmore – a boutique executive search firm – about in-house counsel compensation trends. Among the findings:
1. The median salary increase has fallen 0.5% – to 3.8%
2. 41% of in-house counsel believe they’re underpaid
3. GCs at public companies earn a lot more than GCs at private companies, due to long-term incentives
4. On average, female in-house counsel earn 84% of what their male counterparts are paid – the gap is wider at the GC level
5. The lowest paying in-house jobs tend to be in the professional services industry
Investor Views on “Equity Choice Programs”
With only 2 weeks left before our “Proxy Disclosure Conference,” we thought we’d give you a taste of some of the practical nuggets from our “Course Materials” – which are now available to everyone who’s registered to attend the conference, whether in-person in San Diego or via live video webcast. Here’s one topic from Bob McCormick of CamberView:
While still used by just a small percentage of companies in their long-term incentive programs – mainly in the technology and bio-pharmaceutical industries – equity choice programs are growing in popularity. Shareholders will have an open mind about equity programs that allow for some measure of choice by the employee of the type of equity award they will receive subject to some basic parameters:
1. Irrespective of the type of award, shareholders will want to see a significant part of the long-term equity awards tied to one or more performance metrics.
2. Shareholders will expect that the performance metrics will be both tied to long-term corporate strategy and subject to transparent, challenging targets.
3. Some shareholders and proxy advisors may not consider options to be inherently performance-based so, if stock options are one of the equity choices, there should be accompanying disclosure that describes the board’s rationale for including options as one of the equity choices. The disclosure should include the board’s views on the benefits of the use of options including why the board considers that options provide a strong performance incentive that is linked to long-term corporate performance.
4. Purely time-based awards may be acceptable if complemented by performance based awards but most shareholders prefer performance based awards make up the largest percentage of the grants.
5. All awards should be subject to substantial (e.g. at least three years) performance/vesting periods.
6. Awards types and amounts should not allow employees to game the system by opting for the type of award with a higher value.
7. Companies should consider whether excluding senior executives is desirable to avoid investor reaction to the executive team’s equity choice based on the executives’ views on the company’s performance prospects.
It’s Done: 2019 Edition of Romanek & Dunshee’s “Proxy Season Disclosure Treatise”
We have wrapped up the 2019 Edition of the definitive guidance on the proxy season – Romanek & Dunshee’s “Proxy Season Disclosure Treatise & Reporting Guide” – and it’s printed. With over 1750 pages – spanning 33 chapters – you will need this practical guidance for the challenges ahead. Here’s the Detailed Table of Contents listing the topics so you can get a sense of the Treatise’s practical nature. We are so certain that you will love this Treatise, that you can ask for your money back if unsatisfied for any reason. Order now.
A few months ago, I blogged that National Association of Manufacturers (NAM) had launched an “anti-ESG campaign.” Now, 45 companies that sit on NAM’s Executive Committee & Board are caught in the middle of that organization’s beef with ESG advocacy. Walden Asset Management & CalSTRS announced that they have led more than 80 investors to write letters that urge the companies to distance themselves from NAM’s effort to limit engagements. Here’s an excerpt:
We believe your company may have a very different perspective than that expressed by MSIC & NAM and that your continued affiliation with them could pose reputational risks to your company. Thus, we urge you, as a member of the leadership team of NAM, to question your Association’s research funding priorities and its working alliance with MSIC. In addition, we are interested in your answers to the following questions about your company’s positions on these issues:
– Are you aware of the new NAM paper and its attack on the efficacy of shareholder resolutions and ESG investing factors?
– What are your views on the priorities and objectives of NAM’s, new partner, Main Street Investors, and its work to discredit shareholder resolutions?
– Will you help clarify for the record and the investing public where the company stands on the right of investors to file shareholder proposals and your thoughts on efforts to significantly limit the ability to present such proposals?
If your company’s position differs from that of the MSIC’s stated mission, we ask the company to communicate with NAM’s management your disagreement with the positions being taken by Main Street Investors and urge NAM to distance itself from these positions. We also request that you state this publicly to inform concerned investors.
Gender Pay Gap: Heightened Employee Focus
Here’s something I recently blogged on CompensationStandards.com’s “The Advisors Blog”: We’ve blogged about how activist shareholders increasingly want companies to disclose how they analyze & address gender pay inequity – and about mandatory gender pay reporting for companies with a UK presence. But companies also need to prepare for employee questions. A new Pearl Meyer survey shows that 62% of companies are – or expect to be – fielding gender pay questions from their workforce. Some think that the #MeToo movement has been the “tipping point” to elevate discussions that have been brewing for years.
The survey also shows that employee understanding of pay practices is mediocre at best. Only 8% of respondents believe the quality of their pay communications is “excellent.” Here’s some other key findings:
– In the last two years, almost half of the companies surveyed (48%) have increased compensation communication
– A majority of companies (52%) don’t share information about base salary ranges with all employees
– About two-thirds of managers are trained to have formal compensation conversations with their direct reports, but the majority (70%) of those surveyed believe those conversations are not effective
– Less than a quarter of respondents believe employees can appropriately compare their compensation to colleagues (21%) or compare their compensation to similar positions in other organizations (22%)
– Of the 62% who are or expect to receive questions about gender pay equity, a majority have clear and detailed information ready to share or are currently drafting their responses.
Perks: “If You’ll Be My Bodyguard”
And here’s something else that I recently blogged on CompensationStandards.com’s “The Advisors’ Blog”: I can only speculate about what it’s like to be a VIP tech CEO. One part that doesn’t sound too appealing is having a personal security detail. Because if someone is attacking Mark Zuckerberg, they’re probably after more than his $350 t-shirt. But if there’s a bright side, it’s that you don’t have to pay your bodyguards out of your own pocket – they’re pricey! This article looks at how much a few well-known companies spend on security & travel for high-profile executives – and how they describe those “perks” in their proxy statements:
1. Facebook – $7.3 million for CEO security & $1.5 million for CEO use of private aircraft ($2.7 million for COO)
2. Amazon – $1.6 million for CEO business & travel security
3. Oracle – $1.5 million for Executive Chair home security ($104k & $0 for the co-CEOs)
4. Salesforce – $1.3 million for CEO security
5. Google – $636k for CEO security and $48k for CEO use of chartered aircraft
6. Apple – $224k for CEO security and $93k for air travel
7. Qualcomm – $138k for Chair’s “insurance premiums, security & home office” and $153k for Chair use of corporate aircraft
8. IBM – $178k for CEO use of corporate aircraft
A member emailed to point out that there’s a reason security is expensive:
I met an executive’s bodyguard once. Former cop & one of the friendliest, most down to earth people I’ve ever met. He was very devoted to the executive, for whom he’d worked for nearly 30 years. However, it was also clear to me that this guy knew 6 ways to kill you with a paper napkin.
Remember that our recently-updated “Executive Compensation Disclosure Treatise” has a chapter devoted to perks – with comprehensive guidance on disclosure of airplane use & personal security, among other topics.
Here’s the news from Annalisa Barrett: On Wednesday, the California Assembly passed Senate Bill 826, which requires that companies headquartered in the state which are traded on a major stock exchange have women on their boards.
If the bill is signed by Governor Brown, companies with their principal executive offices located in California will face monetary penalties if they do not have at least one female director serving on their board as of December 31, 2019. As of June 30th, among Russell 3000 companies that are headquartered in California:
– 20% of boards (85 companies) had no women
– 38% of boards had one woman
– 29% of boards had two women
– 14% of boards had three women
California’s New Gender Diversity Law: The Details
Annalisa Barrett also sends us these details: The Russell 3000 Index does not include many of the microcap companies headquartered in the California. A recent study of microcap boards nationwide found that most do not have female directors; therefore, it stands to reason that the number of companies affected immediately by the bill is much higher than 85. In fact, Board Governance Research has identified more than 120 California-headquartered companies which have all-male boards.
The bill further requires that nearly all companies headquartered in California have more than one female director by December 31, 2021. The number of female directors required by that date varies by board size, as follows:
– 4 or fewer directors: 1 female director required
– 5-member board: 2 female directors required
– 6 or more directors: 3 female directors required
Based on board size and composition as of June 30, 2018, 377 of the Russell 3000 companies headquartered in California will need to add a total of 684 female directors by December 31, 2021.
Boards which do not add the requisite number of women to their boards by the 2019 and 2021 deadlines will have to pay fines to the Secretary of State. The first time a company is not in compliance, the fine will be $100,000. In the event of subsequent years of noncompliance, the fine increases to $300,000. However, while the monetary impact of non-compliance is important, the reputational damage may be even more impactful. Since the bill requires that the California Secretary of State publish an annual update of compliance, the scrutiny from the press and public will likely lead to negative publicity for any company with an all-male board.
However, one could argue that this negative publicity will occur even if the Governor does not sign the bill. Therefore, companies headquartered in California would be well served to begin the process of identifying female director candidates if they have not already done so. And, given the nationwide attention that the bill is receiving (e.g., this WSJ article), companies across the US with all male boards should expect intensified scrutiny as well.
This WSJ article notes that opponents of the mandate believe it will result in unfair discrimination against men – so they intend to challenge the law in court. It also points out that the legislation provides for creating an extra board seat to accommodate a new female member, rather than removing a man already on the board.
Board Gender Diversity: Russell 3000 Adds Women
Earlier this week, Equilar reported that the percentage of women on Russell 3000 boards has increased for the third consecutive quarter – to almost 18%. And from April to June of this year, 35% of new board seats went to women. However, 485 companies – about 17% of the Russell 3000 – continue to have all-male boards.
Here’s the second “list-of-lists” installment from Karla Bos of Aon (here’s the first one):
1. Things I’ve Moved To My JOMO List – To Practice The “Joy Of Missing Out”
2. Reasons Everyone Should Move Across Country At Least Once
3. The Name Of Every Plant In My Yard, Where I Bought It, What I Paid For It & When I Planted It
4. Barriers I Have Implemented/Need to Implement So Rattlesnakes Can’t Get Into My Yard
5. Home Improvement Projects My Husband & I Want To Do Ourselves
6. Home Improvement Projects My Husband Wants To Do (But I Think We Should Hire Someone)
7. Ways That “Urgent” Work That Gets In The Way Of “Important” Work & How I Try To Balance That
8. My MinimaLIST – Items I Never Use & Should Donate, Items I’ve Donated This Year, Things I Need To Let Go Of
9. Verbal Commands For Our Home Automation System That I Can Never Remember
10. Things I Need To Research & Source Before Buying (AKA What Not To Buy If Enough Time Passes & Apparently I Didn’t Need It After All)
11. Foods My Niece & Nephew Will – And Won’t – Eat These Days
12. Rattlesnake Emergency & Removal Contacts – And What To Do If Bitten
Sustainability Disclosure: “Give The People What They Want”
This recent 31-page report from Ceres – “Disclose What Matters” – benchmarks sustainability disclosure from almost 500 companies worldwide to see whether they’re providing the information that investors actually need.
The report acknowledges that sustainability disclosure has grown by leaps & bounds during a short time period. But some of it’s akin to throwing everything at the wall to see what sticks. According to Ceres, here’s what investors want:
1. Comparability: There’s been a lot of progress here – 70% of companies now use the Global Reporting Initiative Standards, often in conjunction with other overlapping reporting standards. As painful as it might be, it’s time to familiarize yourself with the available standards and help select one or more for your company.
2. Integration: Only about 20% of companies connect the dots to describe how their systems integrate sustainability values & assessments into business processes. Reiterating its spring 2018 report on “systemic” sustainability, Ceres suggests describing the board’s oversight role, materiality assessment processes, how assessment results are used in the business, financial relevance, and stakeholder engagement.
3. Reliability: Only 42% of companies give any indication that there’s been formal assurance for sustainability disclosures, and fewer than 10% provide the “holy grail” of third-party verified disclosures and recommendations for improvement.
The report also includes sector & regional findings – 80% of American companies are classified as “median” or “poor” performers – and provides “best practice” examples.
Transcript: “Retaining Key Employees in a Deal”
We have posted the transcript for our recent DealLawyers.com webcast: “Retaining Key Employees in a Deal.”
According to two recent studies, the days of CEOs staying out of politics are pretty much over. The jury’s out on whether that’s good for business. This Weber Shandwick study says that 46% of people are more likely to buy from a company whose CEO speaks out on an issue (that they agree with), but 35% of people have boycotted a company because of CEO activism. And 7% of people say it’s led them to buy a company’s stock – while 5% say it’s led them to sell. This Morning Consult study reflects similar findings.
With stats like that, you might think CEOs should just avoid risk by keeping a low profile. That might’ve worked 5 years ago – but now a big chunk of people view silence as activism too. This WSJ op-ed suggests that it’s as likely to alienate customers & business partners as public declarations. It contends that the way to simultaneously please the “stick to business” crowd & the “social justice” crowd is to make statements that link the issue to the company’s bottom line – not personal moral views.
Board Oversight of CEO Political Activism
If CEO social & political activism is the “new normal,” the next question is whether – and how – boards can manage the related risks & opportunities. This “Corporate Board Member” article and this NACD article give some recommendations on how to proactively establish CEO communication guidelines that address:
1. The company’s mission, audiences, and relevant social & political issues
2. How to handle specific topics (Practice in advance. Get diverse views to recognize “blind spots.”)
3. Whether & how to use social media
4. Using a “personal opinion” disclaimer for comments related to the CEO’s personal convictions
5. Ways to monitor sentiments of employees, shareholders & other stakeholders – and make timely updates to company policies on evolving issues
6. How the CEO’s internal & external communications will be evaluated as part of the performance review
Earlier this month, I blogged about a heightened focus on “impact investing” among funds, foundations, banks, family offices and pension funds. This study (from an asset manager that specializes in impact investing) suggests that’s probably a result of client demand. About half of the 1000 survey participants were interested in using their investment dollars to make a positive impact on society, in addition to their obvious desire to garner a financial return. Here are the finer points:
– 49% of people found impact investing “appealing” – compared to 38% in 2016
– 56% of Millennials are interested in impact investing – compared to 52% of Gen Xers and 44% of Boomers
– 45% of people say they intentionally choose to do business with companies whose “values align” with their own
– Popular causes for impact investing ranked as healthcare/disease prevention, environment/sustainability, education, mitigating poverty, and alignment with religious principles
Last week, the SEC issued this fee advisory that sets the filing fee rates for registration statements for 2019. Right now, the filing fee rate for Securities Act registration statements is $124.50 per million (the same rate applies under Sections 13(e) and 14(g)). Under the SEC’s new order, this rate will decrease to $121.20 per million, a 2.6% decrease. This reduction modestly offsets the price hikes from the past couple of years.
As noted in the SEC’s order, the new fees will go into effect on October 1st like the last six years (as mandated by Dodd-Frank) – which is a departure from years before that when the new rate didn’t become effective until five days after the date of enactment of the SEC’s appropriation for the new year – which often was delayed well beyond the October 1st start of the government’s fiscal year as Congress and the President battled over the government’s budget.
Recently, the NYC Comptroller & NYC Pension funds compiled 18 “best practice” board matrices from companies that were targeted by the “Boardroom Accountability Project 2.0” – which we’ve blogged about on our “Proxy Season Blog.”
Each of the “best practice” companies discloses director skills on an individual basis. When it comes to gender and race & ethnic diversity, the companies are grouped into two categories: (1) voluntary self-identification of individual directors and (2) aggregate board self-identification.
EYCBM’s “Proxy Season Review” (pg. 2) says that 29% of companies in the S&P 500 are now disclosing director-specific skills – and 17% of companies are disclosing skills on an aggregate basis. Those stats are up from 10% and 1% just three years ago.
SEC’s ALJs Get a “Do-Over”
Remember earlier this summer, when SCOTUS held that the SEC’s ALJ appointment process was unconstitutional? At that time, all pending administrative proceedings were stayed – and there was even some question of whether prior ALJ decisions were valid.
Well, it looks like the SEC is now doubling down on its ALJs. Last week, it issued an order to ratify the appointment of previously-approved ALJs and lift the stay on administrative proceedings, effective immediately. But, there will be completely new hearings in front of a different ALJ for all of those stayed proceedings – almost 200 cases! This Ropes & Gray memo analyzes the order. Here’s an excerpt:
First, the Order attempts to confirm that the SEC has appointed those ALJs as per the Appointments Clause of the Constitution, and that the ALJs may adjudicate cases.
Second, the Order addresses the Lucia majority’s only definitive command regarding a remedial scheme – that Lucia be afforded the opportunity for a new hearing in front of a different ALJ than the one who had previously decided his case. In fact, the Order grants all respondents in the newly un-stayed proceedings the “opportunity for a new hearing before an ALJ who did not previously participate in the matter,” and remands all cases pending before the Commission to the Office of the ALJs “for this purpose.”
Moreover, the Order vacates “any prior opinion” the Commission has issued in nearly 130 matters pending before the Commission. Chief ALJ Brenda P. Murray confirmed via notice on August 23, 2018 (the “Notice”) that another nearly 70 cases pending before ALJs prior to the Order would be reheard pursuant to the Order. As a result of this Order, respondents (and possibly the SEC) who received a negative initial decision from an ALJ prior to the SEC’s Ratification Order but have not yet exhausted their appeal, will now get a fresh “bite at the apple” and a completely new hearing before a different ALJ.
Recently, the IRS issued long-awaited initial guidance – via Notice 2018-68 – on how awards made on or prior to November 2, 2017 can continue to qualify for the “performance-based” exception of Internal Revenue Code Section 162(m) – notwithstanding its elimination by the Tax Cuts & Jobs Act last December. Recall that the result of the tax reform amendments is that companies can’t deduct any “covered employee” pay above $1 million (the definition of “covered employee” was also expanded).
Over on CompensationStandards.com, Mike Melbinger is analyzing all of the “ins & outs” of the new guidance on his blog. Here’s his overview of the framework that will apply:
The guidance answers nearly all of our questions, but it’s not nearly as favorable as we hoped – and not even as favorable as we expected. It contains more than 14 detailed examples, which are more helpful than the text itself. However, the guidance (and the examples) are full of twists and turns and exceptions to the exceptions.
One thing the guidance does make absolutely clear is that the first step in determining whether any payment to any person in any year after 2017 is subject to the draconian limits of Section 162(m) is to determine whether there was a written binding contract in effect on November 2, 2017, which created a legal obligation on the company under any applicable law (e.g., state contract law) to pay the compensation under such contract if the employee performs services or satisfies the applicable vesting conditions. Every one of the many examples provided in the guidance begins with a determination of whether the plan or agreement created a legal obligation on the company. In the examples, some do and some don’t.
The existence of discretion to reduce any promised payment does not always make the full payment subject to the deduction limit of 162(m), but it usually reduces the amount of the payment that is grandfathered. However, the failure, in whole or in part, to exercise negative discretion under a contract does not result in the material modification of that contract.
As we predicted in a few blogs from earlier in the year, the accrued benefits and accounts under non-qualified deferred compensation plans are most likely to qualify for grandfathering protection. In many cases, future payments to the company’s CFO will be grandfathered and remain deductible. However, as we feared, benefits and accounts under plans that reserve to the company the right to amend or terminate the plan prospectively (which includes all well-drafted plans) will only be grandfathered to the extent they are legal obligations as of November 2, 2017.
Art Meyers, Takis Makridis and I will be drilling deeply into this topic (among others) at the upcoming NASPP Conference in our session titled: “Hot Topics in Equity Compensation.” The topic heading is deliberately vague to allow us to cover exclusively issues like this, which have developed or evolved since the deadline for submitting topics and materials for the Conference.
Last week, the PCAOB Staff posted this updated “Audit Report Guidance”– updating original guidance that came out in late 2017. The updated guidance doesn’t say anything new about “critical audit matters” – but it gives more instruction for these areas:
– Voluntarily disclosure about audit participants (including sample language)
– Calculating & describing auditor tenure
– Reporting when other regulators require internal control audits
– Explanatory & emphasis paragraphs
– Supplemental & interim financial information
– Special reports
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:
– A Hostile “Token-Over?”
– Activism: Want a Settlement? It’ll Cost a Comp Committee Seat
– ICOs: A Dip in the Action?
– Cybersecurity: Will the SEC’s New Guidance Spur New Disclosures?
– Sustainability: Differentiator for Sell-Side Analysts’ Survival?
A friendly competition is brewing between our two “list-makers.” In the first edition of “The ‘Karla Bos’ Files,” Karla said she keeps of list of the 10 things (or more) that she accomplishes before 8:30 am every weekday. Inspired, Nina Flax decided to share her own morning rituals – so eventually we’ll be able to compare how two powerhouse individuals start their day. From Nina:
Here is one for the “Flax-Bos Throwdown of 2018.” Or maybe dance off. Though I don’t know if I’m “Team Britney” or “Team Justin.” Here are 10 things (not more) I accomplish before 8:30 a.m. every workday:
1. Wake Up. This is a MAJOR accomplishment for me. I am not a morning person, never have been. Would much prefer to stay up until 4 a.m. and sleep until 11 a.m. (but who am I kidding, I never get 7 hours of sleep anymore). Now there is child in my life. So, when he wakes up shouting “Papa, the sun is awake!” I too am awake. Even when I’ve been up past 2 a.m. working – or making lists…
2. Scan Email for Urgent Messages. I have taken to putting my phone in airplane mode at night, and leaving it not on the bedside table but on the floor (I think maybe this is helping my sleep?) – but I still scan my emails first. Being in California, I wake up to so many emails every morning from people further east and need to have the peace of mind that I have responded to everything urgent.
3. Kiss Child. Every morning – though sometimes by FaceTime. Funny aside on this. I have a very close friend who works at Facebook. My parents are very close to said very close friend, and when they come to visit me, they like to visit her on campus. I can’t take the time to describe the awesomeness of campus – but a particular focus of my father’s is their meatza (meat pizza). On one of my parents’ first visits to campus, my father said (out loud, he is not quiet and the area we were in was completely open plan): “You know, [friend]. You tell that Mark Zuckerberg that he missed the boat letting Apple get the name FaceTime.” I’m not kidding. It was hilarious.
4. Get Ready for Work. Usually while trying to continue to monitor emails and/or scanning LinkedIn for any interesting news updates. This usually includes cajoling child to brush his teeth. It is a real struggle.
5. Make Sure Creatures are Fed. Well, not all creatures. My husband always feeds the dogs (and in this I will not be upset when he uses the word always – this is different from arguments). But I usually make sure that child and fishy (or, I should say fishy 2.0) will get food – even if this is asking someone else to make sure it happens. That counts, right?
6. Drive to Work; Call Dad. (a) I don’t like to be on the phone at home, (b) somehow even though I live in Silicon Valley there are many dead spots in my house, and (c) I can’t (or at least I’m not supposed to) monitor emails while driving. So I always try to get the most out of my time in the car by making calls. The vast majority of the time one of my calls is to father mentioned above. We kibbitz and I sometimes try to explain how to accomplish various tasks on his iMac or iPad. Which is actually really hard without being able to look at your own screen to explain the way different icons and menus look. The rest of my calls are to colleagues to connect quickly on outstanding tasks, catch up on matters, etc.
7. Park Between the Lines. If you lived around here, you would know that many people do not accomplish this. I really don’t understand it. (My husband if he were talking to you would point out that I too, once, parked outside the lines – and got a ticket.)
8. Shout Hello to My Group. Anyone who sits by me in the office knows when I arrive. I am a big believer in hello’s & goodbye’s (and other things to connect – which I will save for another list).
9. Run to the Kitchen to Get Coffee. I am addicted to caffeine. I am okay with this.
10. Really Start to Work. When I lived in Chicago, trust me, this was a rarity before 8:30 a.m. I never subscribed to the Midwest way of earlier to work (but also was in the office later than most on a regular basis – see accomplishment #1 above).
Limits on Director Information Rights
We’ve blogged a couple of times – see this blog and this blog on DealLawyers.com – about the ongoing dispute between CBS & its controlling shareholder. If you like to “nerd out” on corporate law issues, this litigation just keeps on giving. Here’s the intro from this Francis Pileggi blog:
In the latest iteration of the ongoing litigation, the Delaware Court of Chancery recently provided a textbook summary of the general rule that directors have the right to unfettered access to corporate data, with three general exceptions. In this case, one of those exceptions to the general rule applied to prevent directors who were adverse to a Special Committee from obtaining communications with counsel for the Special Committee.
Lease Accounting: FASB Proposes Changes
It seems that FASB has noticed the sad state of implementation efforts for the new lease accounting standard. Earlier this week, they proposed a few changes aimed at easing the burden. The Exposure Draft addresses these topics:
1. Sales taxes & other similar taxes collected from lessees
2. Certain lessor costs paid directly by lessees
3. Recognition of variable payments for contracts with lease & non-lease components
