Twitter is so 2016. At our recent “Women’s 100 Conference,” one forward-thinking company said their IR team prefers live Q&A via “Sli.do” – an audience interaction platform that lets you crowd-source & filter questions in real time. Some companies are also considering holding live meetings on Facebook & Periscope – if they can get comfortable with Reg FD. Learn more about social media & Reg FD in our newly updated “Regulation FD Handbook“…
Risk Oversight: Social Media & Your Brand
One challenge of a social media crisis is that everyone – customers, shareholders, employees, directors – sees & reacts to it simultaneously. This Deloitte memo outlines how boards can be more nimble by preparing in advance for this risk. Here’s an excerpt:
Board members who understand the brand and reputational risks posed by social media and make an effort to understand how brands are positioning themselves can better help their organizations prepare and respond to brand-threatening incidents. Board members can ask questions like these to help senior executives clarify brand positioning and mitigate potential damage on social media:
1. Is our messaging on social media platforms consistent with our core values?
2. Do we have the data and analytics to show that our actions on social media live up to our brand promise?
3. Which tools are we using to monitor our social media channels and conversations about the brand? How are we using the insights to inform our strategy and mitigate risk?
4. Is there a crisis management plan or playbook for a social media incident?
5. Have we developed and communicated the appropriate social media policies to our employees and if so, how are they monitored and reinforced?
SCOTUS: Whistleblower Case Is a “Go”!
Yesterday, the US Supreme Court agreed to review a Ninth Circuit opinion – Somers v. Digital Realty Trust – to consider whether employees who report misconduct internally within their companies (and not to the SEC) are entitled to anti-retaliation protections as “whistleblowers.” Here’s the news from this WSJ article by Andrew Ackerman:
The announcement is welcome news for corporate defendants that have lamented the broad way in which the SEC and some federal courts have interpreted the 2010 Dodd-Frank financial-overhaul law, which is ambiguous about whether employees who make only internal corporate reports of securities fraud are protected under federal law.
The Dodd-Frank law included a number of provisions aimed at encouraging people to speak out about alleged wrongdoing at their employers. Those included new incentives, such as giving tipsters a portion of the penalties imposed on firms if they report misconduct to the SEC. It also included new penalties for employers seen as discouraging the reporting of misconduct—so-called anti-retaliation provisions.
Monday’s case narrowly focuses on whether such anti-retaliation provisions apply to people who report misconduct to their employers, but not to the SEC. The high court will consider the matter in the fall of 2017 when it meets for its next term, giving the justices a platform to potentially narrow the scope of protection in this area.
Two circuit courts have held internal reporting is protected under the Dodd-Frank Act, and one circuit court has found the protections apply only when misconduct is reported to the SEC.
The SCOTUS decision is expected by the end of next June.
We’ve blogged a few times about Vanguard’s updated proxy voting guidelines and the impact they might be having on recent climate change proposals. We shouldn’t overlook that Fidelity’s also joined the party. Here’s an excerpt from its updated “Proxy Voting Guidelines,” which were previously silent on environmental & social issues:
FMR generally will vote in a manner consistent with management’s recommendation on shareholder proposals concerning environmental or social issues, as it generally believes that management and the board are in the best position to determine how to address these matters. In certain cases, however, Fidelity may support shareholder proposals that request additional disclosures from companies regarding environmental or social issues, where it believes that the proposed disclosures could provide meaningful information to the investment management process without unduly burdening the company.
For example, Fidelity may support shareholder proposals calling for reports on sustainability, renewable energy, and environmental impact issues. Fidelity also may support proposals on issues such as equal employment, and board and workforce diversity
I blogged a few weeks ago about the historic climate change proposal at ExxonMobil – it passed with 62% support. BlackRock voted in favor of the proposal, and this vote bulletin explains why. Here’s a teaser:
The BlackRock Investment Stewardship team has identified climate risk disclosure, in line with the Task Force on Climate-related Financial Disclosures (TCFD), as one of our five engagement priorities for 2017-18.
In the past year, we’ve engaged more directly on Exxon’s reporting of climate-related risks. We have also engaged with the shareholder proponents to better understand their views. We believe it is in long-term shareholders’ best economic interests for Exxon to enhance its disclosures. We therefore voted in favor of the shareholder proposal focused on the 2-degree Celsius warming target (the “2-degree scenario”) as outlined in the Paris Agreement under the United Nations Framework Convention on Climate Change.
In addition, we have repeatedly requested to meet with independent board directors over the past two years to better understand the board’s oversight of the company’s long-term strategy and capital allocation priorities amidst major strategic challenges and regulatory inquiry (including but not be limited to oversight of climate risk). The company declined to make directors available, citing a non-engagement policy between independent board members and shareholders.
So a couple takeaways here are – first, to understand your shareholders’ priorities – and second, if a key shareholder asks to meet with directors…make it happen. Last week’s blog has some tips on both of these topics.
Sustainability Reports: Published by 82% of the S&P 500
This recent Governance & Accountability Institute study found that 82% of the S&P 500 are publishing a sustainability or corporate responsibility report. Up from 20% just 5 years ago! Here’s a chart that shows the declining number of non-reporters by industry:
At our “Women’s 100” Conferences, we heard from some institutional investors who look at sustainability as a risk issue – and not one that applies just to extractive industries. They want to understand what the company’s doing to stay competitive for years to come. You can share this info in your proxy statement in the absence of a full-blown sustainability report, but still check out Clorox’s “Integrated Report” – it’s a cool example & shows what types of topics to cover. We have even more resources in our “ESG” Practice Area. And tune in for our October 10 webcast – “E&S Disclosures: The In-House Perspective” – featuring experts from the Coca-Cola Company, Bristol-Myers Squibb, Apple & Clorox.
Last week, John blogged about evolving MD&A disclosures under the new revenue recognition standard. Check out this SEC Institute blog for more examples of early adopters – Alphabet, Ford, Raytheon & others. Here’s an excerpt from First Solar’s Form 10-Q:
We adopted ASU 2014-09 in the first quarter of 2017 using the full retrospective method. This adoption primarily affected our systems business sales arrangements previously accounted for under ASC 360-20, which had required us to evaluate whether such arrangements had any forms of continuing involvement that may have affected the revenue or profit recognition of the transactions, including arrangements with prohibited forms of continuing involvement. When such forms of continuing involvement were present, we reduced the potential profit on the applicable project sale by our maximum exposure to loss.
With 6 months till the new revenue recognition standard is required, only about 20 companies in the Russell 3000 have adopted it. This blog from Audit Analytics shows as-reported progress towards adoption & provides industry-specific examples of revenue streams that are likely to be materially affected. It also cautions that the SEC is commenting on transition disclosure that’s too generic. Here’s an excerpt from a recent letter:
You state that you are in the process of evaluating the impact that the amended revenue recognition guidance in Topic 606 will have on your consolidated financial statements. Please revise to provide qualitative financial statement disclosures of the potential impact that this standard will have on your financial statements when adopted. In this regard in your next filing, include a description of the effects of the accounting policies that you expect to apply, if determined, and a comparison to your current revenue recognition policies. Describe the status of your process to implement the new standard and the significant implementation matters yet to be addressed. In addition, to the extent that you determine the quantitative impact that adoption of Topic 606 is expected to have on your financial statements, please also disclose such amounts. Please refer to ASC 250-10-S99-6 and SAB Topic 11.M.
Canada Tries for Single-Regulator Framework: Now Doomed?
This Blakes memo notes that the Quebec Court of Appeal ruled against Canada’s proposed nationwide framework for securities regulation – finding part of it unconstitutional because it infringes on provincial sovereignty. This ruling might delay implementation, which was planned for next June. Here’s some thoughts on next steps:
One option is to push ahead with implementing the Cooperative System in a form modified to address the Council’s powers that the Court of Appeal identified as incompatible with parliamentary sovereignty and the division of powers between the federal and provincial governments.
Another, and more likely, option is for the federal government to seek the Supreme Court of Canada’s (SCC) opinion on the Cooperative System. If it chooses this option, the federal government could either appeal the Quebec Court of Appeal’s decision to the SCC or direct a separate reference to the SCC. The SCC’s decision would take precedence over that of the Quebec Court of Appeal.
At the risk of depressing our resident “Annual Meeting Fanboy” – this Joe Nocera article is notable just because the mainstream media doesn’t report much on the state of annual meetings. Joe attended four meetings – in a single day! – as background for his piece.
He suggests annual shareholder meetings aren’t what they used to be (and perhaps they never really did have much value). No more free coffee! No more swag! Here’s an excerpt:
Look, I get why good-governance types want to prevent companies from holding online-only meetings. As my old friend Nell Minow, a long-time corporate governance expert, put it in an email, “I think the threat of looking unhappy investors in the eye and having to answer questions in person still makes a difference.” My Bloomberg View colleagues made a similar argument, among others, in an April 12 editorial.
But from what I can see, this reasoning, though sensible in theory, doesn’t reflect reality. None of the shareholders I’ve seen are likely to strike fear in a chief executive or board member. And shareholders who do have the clout to shake up a company, like Carl Icahn, hardly wait around for the annual meeting. They own enough stock to command private meetings with management.
Virtual-Only Meetings: CII Weighs In
Recently, Broadridge reconvened its “Committee for Best Practices for Annual Shareholder Meetings” in an effort to update its guidelines for virtual annual meetings since they’re five years old. Earlier this month, CII sent this letter to the Committee to reaffirm its opposition to virtual-only meetings.
New Lease Accounting: Parsing an Example
Beginning in 2019, under the FASB’s ASU 2016-02, companies will need to recognize assets & liabilities for operating leases (see these memos in our “Lease Accounting” Practice Area). This blog by Steve Quinlivan gives the following example:
Lessee enters into a 10-year lease of an asset, with an option to extend for an additional 5 years. Lease payments are $50,000 per year during the initial term and $55,000 per year during the optional period, all payable at the beginning of each year. Lessee incurs initial direct costs of $15,000.
At the commencement date, Lessee concludes that it is not reasonably certain to exercise the option to extend the lease and, therefore, determines the lease term to be 10 years. Lessee also determines the lease is an operating lease.
The rate implicit in the lease is not readily determinable. Lessee’s incremental borrowing rate is 5.87 percent, which reflects the fixed rate at which Lessee could borrow a similar amount in the same currency, for the same term, and with similar collateral as in the lease at the commencement date.
At the commencement date, Lessee makes the lease payment for the first year, incurs initial direct costs, and measures the lease liability at the present value of the remaining 9 payments of $50,000, discounted at the rate of 5.87 percent, which is $342,017. Lessee also measures a right-of-use asset of $407,017 (the initial measurement of the lease liability plus the initial direct costs and the lease payment for the first year).
Lessee determines the cost of the lease to be $515,000 (sum of the lease payments for the lease term and initial direct costs incurred by Lessee). The annual lease expense to be recognized is therefore $51,500 ($515,000 ÷ 10 years).
At the end of the first year of the lease, the carrying amount of Lessee’s lease liability is $362,093 ($342,017 + $20,076; the $20,076 represents accrued interest on the lease liability), and the carrying amount of the right-of-use asset is $375,593 (the carrying amount of the lease liability plus the remaining initial direct costs, which equal $13,500).
As John blogged last week, Microsoft is voluntarily adopting the new lease standard on July 1st – you may be able to glean some pointers from their disclosure.
Yesterday, the SEC announced that Rob Evans will serve as a Deputy Director for Corp Fin – joining existing Deputy Director Shelley Parratt (Rob will head the “Legal & Regulatory Policy” side; Shelley will continue to lead “Disclosure Operations”). Rob comes to the SEC from Shearman & Sterling – he worked there with Corp Fin Director Bill Hinman before Bill moved to Simpson Thacher. Rob was also a colleague of former Corp Fin Director Linda Quinn.
SEC Commissioner Nominees: Hester Peirce Back in the Mix?
Broc blogged last year – and again a few months ago – about the nomination saga of Hester Peirce. Now – according to this Bloomberg article – her name’s reportedly returned to the top of the list for the open Republican seat at the SEC:
Hester Peirce, a former U.S. Securities and Exchange Commission counsel and Senate aide, is the Trump administration’s likely choice to fill the open Republican seat at the Wall Street regulator, according to people familiar with the matter.
Should President Donald Trump pick Peirce to be an SEC commissioner, her nomination will likely be paired with a candidate backed by Senate Democrats for another vacant seat at the agency, according to the people, who weren’t authorized to speak publicly about the process. Candidates that have been discussed for the Democratic spot include Robert Jackson, a Columbia University law professor, and Bharat Ramamurti, an aide to Senator Elizabeth Warren, the people said.
SEC’s Chief Accountant: Guidance for Audit Committees
A recent speech by SEC Chief Accountant Wes Bricker addressed how attention by audit committees to their core responsibilities can help promote the integrity of financial reporting & our capital markets. Here’s an excerpt from Ning Chiu’s blog:
– New Revenue Recognition Standard. Audit committees should understand management’s implementation plans and the status of the progress on the new revenue recognition standards, including any required updates to internal control over financial reporting. The audit committee should also communicate with auditors about any concerns the auditors may have regarding management’s application of the standard.
– Auditor Independence. Audit committees should “own” the selection of the audit firm, including making final decisions in the negotiation of audit fees. In its oversight of the audit relationship, audit committees must oversee auditor independence. The Office of the Chief Accountant (OCA) encourages audit committees and management to address independence questions with the SEC staff. If an auditor submits an independence matter to OCA, the SEC staff will sometimes reach out to the audit committee to understand its position.
The speech also touched on the PCAOB’s proposed changes to audit reports, which I blogged about earlier this month.
Recently, we held the 4th Annual “Women’s 100 Conferences” – in both Palo Alto & New York City. I’ve been attending these from the beginning & this year’s continued to live up to the hype! Here are 5 things I learned:
1. How To Know Your Shareholders: If you don’t have a centralized database to track notes from your shareholder engagement meetings (and your shareholders’ voting guidelines) – start one. Some companies have added this element to existing IR software – e.g. Ipreo. Others have a more basic approach. The bottom line is that institutional investors expect you to know where they stand on important issues. And they don’t want to rehash the same issues every year – you should just cover how their concerns have been considered or resolved. Your notes should also include your shareholders’ current contact procedures & preferences, which often change from year to year.
2. How To Know Your Potential Shareholders: We didn’t debate whether “the law of attraction” applies to shareholder engagement – but several people recommended thinking not only about your existing shareholders, but also the type of shareholders you’d like to get. This plays out in governance structures (e.g. single v. dual-class shares), environmental & social initiatives and your outreach efforts. Don’t overlook the communication value of your public disclosures for both existing & potential shareholders.
3. The Art of Using Directors in Off-Season Engagement: Shareholders might ask to meet with a director if there’s been a big strategic or executive pay change – or if there was low support for a company proposal at the annual meeting. They want to understand the board’s decision-making process & how it’s processing shareholder feedback. Directors can be really helpful, particularly if there are messages that are difficult to convey in a written proxy statement. But it’s extremely important to prep them on that shareholder’s policies & concerns – and how they relate to the company & its existing disclosures. Avoid cringe-worthy moments like “we just approved the pay package because the consultant recommended it.”
4. Icebreakers Work: Everyone introduced themselves at the beginning of both events – super helpful for anyone trying to connect with a particular person. On the West Coast, we all described our practice – but almost everyone’s was similar. On the East Coast, we had everyone say a “favorite” – book, movie, band, travel destination, etc. In addition to getting some good recommendations, I learned that this 10 minutes can really set the tone for the day. People were relaxed & jumped in with lots of questions during the panels.
5. We’re Building Community: I’ve always loved these conferences because the format encourages lots of interaction – you can meet heavy-hitters during speed-friending & connect over lunch with peers at the same career stage. So it was especially cool to talk with two women who are now close friends, after meeting at the conference a few years ago. We hope this becomes common!
Sights & Sounds: “Women’s 100 Conference ’17”
This 1-minute video captures the sights & sounds of the “Women’s 100” events that just wrapped up in Palo Alto & NYC:
The debate over voting rights (or lack thereof) wound up being the hottest issue of the proxy season. As Broc recently blogged, the debate over Snap’s dual-class structure continues. More recently, this Form S-1 filed by Blue Apron has created a stir. Here’s an excerpt that describes its triple-class voting rights:
We have two classes of voting common stock, Class A common stock and Class B common stock, and one class of non-voting stock, Class C capital stock. Each share of Class A common stock is entitled to one vote and each share of Class B common stock is entitled to ten votes. Shares of Class C capital stock have no voting rights, except as otherwise required by law.
Holders of Class A common stock and Class B common stock vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by law. Upon the completion of this offering, the holders of the outstanding shares of Class B common stock will collectively have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change in control transaction.
We are issuing shares of Class A common stock in this offering. The outstanding shares of Class B common stock are held by our executive officers, employees, directors and their affiliates, and certain other stockholders who held our capital stock immediately prior to this offering. The Class C capital stock is available for use for, among other things, strategic initiatives, including financings and acquisitions, and the issuance of equity incentives to employees and other service providers.
As described in this blog from Cooley’s Cydney Posner, Professor Charles Elson predicts that Delaware courts will be reluctant to apply the business judgment rule when there are multi-class structures like this. See this blog by Manifest for a UK perspective on multiple classes.
Pay Ratio: Odds of a Delay?
Here’s an excerpt from this blog by Steve Seelig & Puneet Arora of Willis Towers Watson:
If the SEC follows the lead of the Department of Labor (DOL), which recently decided it will not further delay its controversial fiduciary rule, we may not get a delay of CEO pay ratio. In essence, the DOL determined that as a matter of regulatory procedure, it cannot move to delay a final rule without reopening the rulemaking process for additional comments.
Regarding pay ratio, we think Acting Chairman Michael S. Piwowar’s request for additional comments earlier this year may have been anticipating this regulatory hurdle, so it is possible the SEC would view those comments as supporting a delay.
Even if this was the thinking, the question would not be considered until the SEC has a sufficient number of Commissioners in place. As of today, Jay Clayton (R) is Chairman, with Kara M. Stein (D) and Mr. Piwowar (R) holding the other seats. SEC rules require three commissioners to constitute a quorum, and the thinking is that Commissioner Stein would not agree to attend a meeting where delay of the CEO pay ratio rule would be on the agenda.
– Special Considerations in California M&A Deals
– Alternatives to Traditional Working Capital True-Ups: The Locked Box Mechanism
– Chart: Delaware Standards of Review for Board Decisions
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Yesterday, after nearly a decade since the project kicked off, the PCAOB adopted a new standard for audit reports – “AS #3101.” Weighs in at 236 pages. The SEC still needs to approve the standard.
Among other items, audit reports will need to describe the auditor’s take on “critical audit matters” that are communicated to the audit committee. These are matters that relate to material financial statement accounts or disclosures & involve especially complex judgment. Here’s the PCAOB’s press release. And see this Jack Ciesielski blog – and this WSJ article. We’ll be posting memos in our “Audit Reports” Practice Area.
This represents the first major revision to the audit report in over 50 years. It requires a major revision in how auditors think about what – and how – they communicate to boards and investors. It requires increased transparency on the part of auditors, who will need to adapt to the change – or face the consequences. This is a positive development for both investors and auditors if done right.
If approved by the SEC, parts of the rule – relating to the auditor’s tenure & role – would be effective for 2018. And the requirement to describe critical accounting matters would be effective for large accelerated filers beginning mid-2019; all other companies starting in 2021.
Here’s an excerpt from the statement by PCAOB Board Member Steven Harris:
Today’s action is a direct response to calls from investors for the Board to expand the auditor’s report to include information about the difficult parts of the audit, and information that the auditor gained from the audit that he or she would like to know as an investor – basically what “kept the auditor awake at night.”
Audit Reports: What Other Countries Already Do
For an idea of what the newly-enhanced audit report in the USA will look like, we can look to the UK & other countries that already have similar requirements. See this excerpt from Deloitte’s 2016 report on Marks and Spencer, courtesy of this SEC Institute Blog:
We performed a full scope audit on seven components representing 99% of the Group’s revenue, 90% of the Group’s profit before tax and 90% of the Group’s net assets. During our first year as auditor of the Group, we visited all significant locations. For our second year, we have implemented a rotational approach to these visits. We determined materiality for the Group to be £30 million. We reported all audit differences in excess of £1 million.
PCAOB’s Proposal: Auditor’s Specialist Use
Yesterday, in this 142-page proposing release, the PCAOB proposed to strengthen requirements that would apply when auditors use the work of specialists in an audit. Here’s the PCAOB’s press release. Comments are due by August 30th.
PCAOB’s Proposal: Auditor’s Estimates (Including Fair Value Measurements)
Yesterday, in this 152-page proposing release, the PCAOB proposed to enhance the requirements that apply when auditing accounting estimates, including fair value measurements. Here’s the PCAOB’s press release. Comments are due by August 30th.
We haven’t seen many successful climate change proposals in past years, but this year is different. Last week, Broc blogged about the proposal at Occidental Petroleum for a “2-degree scenario analysis” – notably passing with BlackRock’s support. Yesterday, ExxonMobil shareholders approved a similar proposal – with 62% supporting! – bringing the tally to three major companies this month (PPL being the third).
This Washington Post article suggests that in addition to BlackRock & State Street, Vanguard also voted in favor of the ExxonMobil proposal – which would be consistent with its recently updated E&S policies. But as noted in this article, this would be a break for Vanguard because they rarely challenge management. This new trend in institutional investor voting practices means we’ll probably see many more climate proposals in the near future.
As far as PPL, Oxy & ExxonMobil, this excerpt from Cydney Posner’s blog explains the next steps:
As is typical, these proposals are all precatory, but, as you know, companies do feel the heat when a proposal receives a majority vote in favor. According to Reuters, a PPL spokesman said that the company “is committed to sustainable energy” and that the board “‘will carefully consider the results and determine the best path forward.’”
Reuters also reported that the ExxonMobil CEO indicated that “the board would review the request.” Bloomberg BNA reported that the Chair at Occidental acknowledged shareholder support for the proposal and said that the company looked “forward to continuing our shareholder engagement on the topic and providing additional disclosure about the company’s assessment and management of climate-related risks and opportunities.” Reuters also noted that proposals have been submitted at several other companies but were withdrawn the companies conceded to take steps the proponents viewed as acceptable.
Are “Operating Metrics” the New Non-GAAP?
Earlier this month, SEC Chief Accountant Wes Bricker remarked that lessons from recent non-GAAP scrutiny also apply to disclosure of operating metrics, forecasts & other kinds of supplemental information:
I believe that much of the recent experience with non-GAAP financial metrics also provides lessons for other kinds of reporting by companies. Similar to non-GAAP financial reporting, key operating metrics and forecasts may also be distorted via bias – for example, painting a potentially misleading picture – error, or fraud, all of which undermine the credibility of the reporting. Therefore, it is important that companies proactively and thoughtfully address risks to their reporting.
Companies should first understand the other information being reported, including how operating metrics are defined.
Companies then should have adequate disclosure controls and procedures in place. In some respects, these other reporting processes may require more steps than some GAAP processes, not fewer. This is because, for example, a company’s other reporting does not have the benefit of standard-setting due process, which solicits stakeholder views on a representationally faithful manner of reporting a particular event or transaction and the types of disclosures needed by financial statement users. When a company determines a supplemental reporting framework, it does not have the benefit of a standard setter’s due process and must look to its own policies, audit committee, and other stakeholders for input.
Finally, companies should consider whether it would be beneficial to obtain insight into their other reporting processes from those outside of the finance and investor relations functions. Sometimes a fresh perspective can provide new insight into potential risks and ways to maintain the effective operation of essential controls and procedures.
This blog from Cooley’s Cydney Posner delves into more details. She notes that the SEC’s accounting staff used the big AICPA conference last year to forewarn of their impending crackdown on misleading non-GAAP practices. We’ve been talking about Corp Fin’s updated CDIs – and the related comment letters and Enforcement sweep – ever since.
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Reportedly, SEC Chair Jay Clayton plans to tap one of his former Sullivan & Cromwell partners to lead the SEC’s Enforcement Division – Steve Peikin. Sounds like Steve will be the co-head with Stephanie Avakian, who was elevated from Deputy Director to Acting Director back in December. Here’s an excerpt from this WSJ article by Dave Michaels:
The decision to hire two top managers for the SEC’s enforcement division would ease some of the issues created by Mr. Peikin’s past work for Wall Street. Mr. Peikin has done high-profile defense work for Barclays PLC and Goldman Sachs Group Inc. Under SEC ethics rules, he would be barred for one year from supervising any cases that affect Goldman or other clients of Sullivan & Cromwell.
Mr. Peikin, a graduate of Harvard Law School, leads the criminal defense and investigations group at Sullivan & Cromwell. From 1996 to 2004 he was an assistant U.S. attorney in Manhattan, where he oversaw the Southern District of New York’s securities and commodities task force. During that era, Mr. Peikin earned headlines for his prosecution of star technology banker Frank Quattrone, who was convicted of obstructing a government investigation and witness tampering, although an appeals court later threw out the judgment.
More recently, Mr. Peikin was part of the defense team for futures trader Michael Coscia, who became the first U.S. trader criminally convicted of spoofing, a fraudulent trading strategy. Spoofing, which became illegal under the 2010 Dodd-Frank Act, involves placing orders that one doesn’t intend to fulfill, in an effort to trick other traders into altering their prices in a direction that benefits the spoofer. Mr. Coscia’s case is now pending before a federal appeals court.
This wouldn’t be the first time the Enforcement Division had Co-Directors. Broc blogged about Mary Jo White’s decision to “split the baby” back in 2013. The use of co-heads solves any conflict issues caused by bringing in someone from outside the agency to lead the Division…
D&O Insurance: Structuring Concerns
No director wants sub-par insurance coverage – and counsel is at least partially on the hook if that happens. This blog by Kevin LaCroix explains why program structure matters & how competing interests affect coverage decisions. Here’s the intro:
Most D&O insurance buyers understand the critical importance of limits selection – that is, deciding how much insurance to buy. But an equally important question involves the issue of program structure – that is, how the insurance program is put together.
Many insurance buyers understand that, in order to be able to purchase an insurance program with the desired limits of liability, their D&O insurance will be structured with a layer of primary insurance and one or more layers of excess insurance. In addition, these days many D&O insurance buyers also purchase an additional layer – usually on the top of program – of Side A Difference in Condition (DIC) insurance.
As noted in a recent post on the “Pillsbury Policyholder Pulse” blog, no coverage may be less understood than the Side A DIC policy. But even if frequently misunderstood, the coverage provides corporate directors and officers an important safety net. Moreover, there are other important D&O insurance program structure issues, beyond just the need for Side A DIC insurance.
D&O Insurance: What Startups Need To Know
D&O insurance is also important for private companies – more than 25% have had claims in the last three years & the average loss was $387,000. For early-stage ventures, it’s purchased around the time the company gets outside investors & directors, or at the time of hiring employees – but the list of potential claimants can also include customers, vendors, suppliers, creditors & others.
This Morrison & Foerster article gives tips on deciding what coverage to get – and when & how to get it (also see this blog by Kevin LaCroix). Here’s some intel on how coverage & premiums are determined:
A startup can plan on approximately $15,000 in premiums for $1 million of coverage, depending on market condition & policy wording. Specific premium amounts are largely determined by the company’s current financial statements – income statement & balance sheet. Any prior claims will also have a negative impact on pricing.
It’s critical to be able to negotiate policy wording to extract the broadest coverage grants for the business. Policy premiums may vary among insurance providers, but a startup can expect to pay higher premiums for greater coverage.
