Author Archives: Liz Dunshee

“You get out of it what you put into it,” is how my high school track coach always responded when we begged for an “easy” practice. As much as I disliked that response back then, over the years I’ve found that it’s a workable mantra for just about any scenario: including board evaluations.

We all know that there’s a wide divergence across the 99% of companies who conduct some form of evaluation. The Spencer Stuart 2024 Board Index offers a couple of pointers that can help turn board assessments into a meaningful tool for continuous improvement. Here’s an excerpt:

– Run frequent & robust board assessments: Boards should conduct meaningful evaluations via an independent third party every two or three years. In addition, the annual evaluation should include getting feedback from the management team to ensure a 360-degree review process for assessing the board’s contributions, effectiveness and areas for improvement.

– Implement individual director evaluations: Peer evaluations, carried out by an independent third party, should be conducted every two or three years.

I also love this infographic from Denise Kuprionis at The Governance Solutions Group, which shows that a few basic steps can help boards get more out of the evaluation process:

We have additional resources – and a list of facilitators that includes Denise and others – available in our “Board & Director Evaluations” Practice Area.

– Liz Dunshee

Yesterday, the NACD announced a new “Blue Ribbon Commission” report to assist directors with overseeing the strategic opportunities & risks of rapidly evolving technologies. If you’re advising boards, be on alert that this may prompt questions and/or projects. The Executive Summary articulates the factors driving “technology governance” – and provides 10 recommendations for boards:

Strengthen Oversight

1. Upgrade board structures for technology governance.

2. Clearly define the board’s role in data oversight.

3. Define decision-making authorities for technology at board and management levels.

4. Ensure trustworthy technology use by aligning it with the organization’s purpose and values.

Deepen Insight

5. Establish and maintain necessary technology proficiency among the board.

6. Evaluate director and board technology proficiency.

7. Ensure appropriate and clear metrics for technology oversight.

Develop Foresight

8. Recognize technology as a core element of long-term strategy.

9. Design board calendars and agendas to ensure appropriate focus on forward-looking discussions.

10. Enable exploratory board and management technology discussions.

It’s worth noting that at many companies, the strategic importance of technology is one of the factors influencing board refreshment. The Spencer Stuart 2024 Board Index reports that technology/telecommunications was the most common industry background of new directors who joined S&P 500 boards this past year. That said, while it’s helpful to have a “tech director,” they typically aren’t “one-trick ponies” – and the full board (or a committee) still has oversight responsibility. NACD’s toolkit (for members) includes resources on evaluating director technology proficiency and assessing technology governance.

– Liz Dunshee

It’s hard to believe we are just one week away from our “Proxy Disclosure & 21st Annual Executive Compensation Conferences” – bundled together as one great event that you can attend with us in person in San Francisco or virtually!

On October 14th, we’ll take a deep dive into the upcoming proxy season with the “2024 Proxy Disclosure Conference” – with panels on shareholder activism, governance & disclosure of AI, cyber-related disclosure trends, shareholder proposal trends, climate disclosure updates, and more. Plus, you don’t want to miss our first-ever “All-Star Feud,” during which our intrepid “SEC All-Stars” will face off gameshow-style over burning questions on proxy disclosure and executive compensation.

On October 15th, we turn our attention to critical executive compensation matters at the “21st Annual Executive Compensation Conference” – including key updates on proxy advisors, clawback practices, compensation trends, and perks.

In addition to live and on-demand access to these fast-paced sessions, Conference attendees get exclusive access to our Course Materials – which include unique & practical bullet points and examples from our experienced speakers on each topic we’ll be covering. Our speakers go the extra mile to provide usable takeaways. The Course Materials are an invaluable resource to refer back to as proxy season approaches!

For those seeking CLE credit, here’s a list of states in which credit is available – and CLE FAQs about live and on-demand credit.

Act Now: The Conferences begin next Monday, October 14th. With 17 sessions over 2 days, you’ll walk away with action items to help support director elections and say-on-pay, leverage your executive compensation, and avoid costly mistakes. You can still register. Sign up online or by calling 1-800-737-1271.

Lastly, if you have registered, remember that your unique access link and attendance instructions will be emailed to you from no-reply@events.ringcentral.com. Here’s more detail on what to watch for.

– Liz Dunshee

Late last week, the SEC posted notice that it was extending the time period for action on Nasdaq’s proposal to accelerate the delisting process for non-compliance with minimum bid price requirements. I blogged about the proposed amendment when it was published in August – and Meredith shared follow-up commentary that AI and biotech startups are most at risk of delisting if the rule is approved.

The Commission has now designated November 21st as the date by which it will either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change.

– Liz Dunshee

I’m delighted to return, with Vontier’s Courtney Kamlet, for the 6th season of our “Women Governance Trailblazers” podcast. In our latest 20-minute episode, we interviewed Karen Boykin-Towns, who is an independent director at iFit, Vice Chair of the NAACP National Board of Directors, President/CEO of Encore Strategies, and a Senior Advisor of FGS Global. Karen is also a former Pfizer executive (her leadership roles include its first-ever Chief Diversity Officer in 2008). We discussed:

1. Karen’s career path, current endeavors and what she’s been most proud of over the course of her career.

2. Karen’s thoughts on the current state of corporate diversity, equity and inclusion programs and commitments.

3. How companies can balance the call to numerically measure progress in DEI initiatives with the arguments that inclusion can’t be measured and that quotas create legal risk.

4. Karen’s experience on the iFit board, including the decision to withdraw the company’s IPO.

5. Advice to boards and management for adapting to rapidly shifting information, and for monitoring their corporate reputation and emerging issues before they become a crisis.

6. What Karen thinks women in the corporate governance field can add to the current conversation on the societal role of companies.

To listen to any of our prior episodes of Women Governance Trailblazers, visit the podcast page on TheCorporateCounsel.net or use your favorite podcast app. If there are “women governance trailblazers” whose career paths and perspectives you’d like to hear more about, Courtney and I always appreciate recommendations! Shoot me an email at liz@thecorporatecounsel.net.

– Liz Dunshee

Yesterday, the SEC posted a settlement of an administrative action relating to a bribery scandal that has been the topic of shareholder derivative litigation and DOJ enforcement (with the politician who was involved now serving a 20-year prison sentence). In its bite at the apple, the Commission’s enforcement claims were based on:

– False & misleading statements – that the company acted properly and ethically with respect to its political contributions

– Failing to disclose related-party transactions – because the company made payments to a 501(c)(4) that, while appearing independent on paper, was controlled by company executives

– Inadequate disclosure controls & procedures – the company’s accounting records did not correctly describe the payments as illegal or reflect them as related party transactions

The company settled the SEC’s claims for $100 million. While this situation was egregious, it’s a reminder that if “crisis communications” aren’t accurate, they can end up deepening the crisis – a violation of “Dave’s First Law of Holes.” Check out my blog from last year about reducing risks associated with corporate political spending.

– Liz Dunshee

I shared a few trends last month about newly filed insider trading policies. This Gibson Dunn blog adds observations from the 49 S&P 500 companies that were required to comply with the new “Exhibit 19” requirement as of June 30th (remember that for calendar-year companies, the new exhibit is first required with the Form 10-K to be filed in spring 2025). Here are 12 key takeaways:

1. Who’s Subject to the Policy: In addition to covering all company directors & personnel, and their family members, 82% expressly state that they apply to legal entities whose transactions are controlled or influenced by company personnel.

2. Gifts: 61% prohibit gifts when an insider as MNPI and/or apply the blackout & pre-clearance restrictions to gifts, and 8% restrict gifts only if the donor has reason to believe the donee will sell while the donor has MNPI. Of the policies that do not apply gift restrictions to all employees, a majority restrict gifts only for certain covered persons that are subject to additional restrictions, such as blackout periods and/or pre-clearance procedures.

3. Options: 69% exempt exercises of options when there is no associated sale on the market; however, exercises of options where there is a sale of some or a portion of shares delivered upon exercise (e.g., cashless broker exercise) are typically treated like any other sale.

4. Other Equity Awards: 59% exempt vesting and settlement of equity awards, such as RSUs and restricted stock, and 51% of the policies specifically provide that withholding of shares for tax purposes (i.e., net share settlement) is exempt.

5. Shadow Trading: 82% prohibit trading in the securities of another company when the person is aware of MNPI about such company that was learned in the course of or as a result of the covered person’s employment or relationship with the company. The remainder of the policies apply the prohibition more broadly to trading in the securities of another company while aware of MNPI about that company, without specifically addressing how the information was learned.

6. Who’s Subject to Blackouts/Windows: 88% subject directors, executive officers and a designated subset of employees to regular quarterly blackout periods, with a few policies applying two different blackout periods to different groups of employees.

7. Blackout Dates: The start date of the quarterly blackout periods ranges from quarter end to four weeks or more prior to quarter end. Under almost half of the policies (45%), the quarterly blackout periods start approximately two weeks prior to quarter end, 14% start the blackout periods three to four weeks prior to quarter end, and 18% start four weeks or more prior to quarter end. A significant majority of the policies (76%) end the quarterly blackout periods one to two full trading days after the release of earnings, with more policies ending after one trading day (51%) than two trading days (24%).

8. Pre-Clearance: For 65% of the policies, the preclearance persons are a subset of the persons subject to blackout periods, while for a minority of the policies (29%), they are the same as the persons subject to the blackout periods.

9. Other Prohibited/Discouraged Transactions: All of the policies prohibit or otherwise restrict certain types of transactions regardless of whether they involve actual insider trading. The most common prohibitions addressed: hedging transactions (96%);[8] speculative transactions (96%); pledging securities as collateral for a loan (90%); and trading on margin or holding securities in margin accounts (82%). A significant majority of the policies do not specifically address standing or limit orders or short-term trading, but of the ones that do, a significant majority take the approach of discouraging such transactions rather than strictly prohibiting them. Even where standing or limit orders are not strictly prohibited, some policies require that such orders be cancelled if the person becomes aware of MNPI (or prior to the start of a blackout period, if applicable).

10. Rule 10b5-1 Plans: All of the policies address the availability of Rule 10b5-1 plans. 71% describe the specified conditions under the SEC rules for a plan to qualify as a Rule 10b5-1 plan, although some do so in a more streamlined manner than others. Of these policies, a majority include Rule 10b5-1 plan requirements within the body of the policy, a minority do so in an appendix and one company filed the plan guidelines as a separate exhibit. 29% do not describe the specified conditions under Rule 10b5-1, but provide a general statement regarding the affirmative defense and refer covered persons to the officer administering the policy.

11. Company Transactions: Item 408(b) of Regulation S-K requires a public company to disclose whether it has adopted insider trading policies and procedures governing transactions in company securities by the company itself, and, if so, to file the policies and procedures, or if not, to explain why. Of the 23 S&P 500 companies subject to Item 408(b) that filed a Form 10-K and proxy statement prior to June 30, 2024, 78% did not address insider trading policies or procedures governing companies’ transactions in their own securities. Of the ones that did, most included a brief sentence or two about the company’s policy of complying with applicable laws in trading in its own securities. Only one company in our surveyed group filed a company repurchase policy as a separate exhibit.

12. Exhibit Filing: 88% of the companies filed only a single insider trading policy and no other related policies or documents (even where they referenced other related policies in their insider trading policy).

The blog notes that it’s still appropriate for specific provisions to vary from company to company. But when it comes to key policy terms that your insiders might ask about, it helps to understand “what’s market.” Make sure to check out our “Insider Trading” Practice Area for additional practical guidance.

This topic is also on the agenda at our “2024 Proxy Disclosure & Executive Compensation Conferences” – which are less than a month away! We’ll be sharing reminders for your next Form 10-K as well as practice pointers & trends. If you can’t make it to the Conferences in person, we also offer a virtual option. Register today by visiting our online store or by calling us at 800-737-1271.

– Liz Dunshee

Earlier this year, the SEC prevailed on a “shadow trading” theory in SEC v. Panuwat. Although the outcome of that case was obviously fact-specific, many companies are considering the verdict as they continue to refine their insider trading policies & trainings.

Some folks were also holding out hope that the court would reconsider its verdict. Alas, it doesn’t appear that will happen, since the judge has now denied the defendant’s request for a new trial, which was premised in part on whether the jury should have been instructed that the SEC’s case was based on a new theory of liability. Bonnie Eslinger from Law360 recaps:

The relative rarity of the SEC enforcement action was not relevant to the jury’s determination, and framing it as such would have been prejudicial, Judge Orrick said. That’s why, he added, no one at trial was allowed to say the enforcement action as brought without fair notice, or characterize it as “unique,” “novel,” “highly unusual” or other such descriptors.

The SEC brought the case under a misappropriation theory of insider trading, not traditional insider trading, and the jury was told the difference, the judge said.

“That the jury found in the SEC’s favor is not a function of any prejudice arising from use of the term ‘insider trading’ throughout the trial, but rather a function of the jury finding that Panuwat misappropriated information for his own personal profit, in violation of the securities laws,” Judge Orrick wrote.

The former executive was fined $321k. The judge noted that the civil penalty would function as an appropriate deterrent to the defendant and others, and that the verdict wouldn’t “permanently damage his career” because it didn’t include a D&O bar.

– Liz Dunshee

The SEC Regulations Committee of the Center for Audit Quality recently posted these highlights from its June 2024 meeting with the SEC Staff. The discussion included this reminder about non-GAAP measures in earnings releases:

The Committee has observed recent staff comments on measures that are calculated in accordance with a company’s debt covenant indicating that a company should limit its discussion of these measures to the liquidity section of a filing (e.g., Form 10-K or Form 10-Q) and that these measures should not be discussed in a company’s earnings release.

The staff noted that it looks to Question 102.09 in the C&DIs on Non-GAAP Financial Measures which addresses the disclosures of material debt covenants. Disclosure of a covenant measure in an earnings release is not objectionable if it is clear that the information regarding the covenant is being presented only because it is material to the company’s financial condition or liquidity and is similar to the disclosure presented as part of the liquidity and capital resources section of the company’s MD&A.

However, if these disclosures appear to present the covenant measure as an indicator of performance rather than liquidity (e.g., highlighting it in the earnings release, comparing it to prior period results, and analyzing it like measures of the company’s performance), and that measure does not comply with the non-GAAP rules and regulations, the staff will comment and will likely object.

The meeting also covered:

– Staff feedback on cybersecurity annual disclosures (10-Ks) and incident reporting (8-Ks) since the new rules went into effect

– Regulation S-K C&DI 128D.18 – Stock and option awards subject to a dual vesting structure

– Applicability of S-X Rules 3-09, 4-08(g), 10-01(b)(1) and 8-03(b)(3) to investments accounted for under the Proportional Amortization Method

– Applicability of the non-GAAP rules to the presentation of more than one measure of a segment’s profit or loss

– Inventory Valuation Allowance

– Applicability of S-X Rule 3-01(c) [Rule 8-08, for SRCs] if the registrant has not been in existence for two full fiscal years preceding the most recently completed fiscal year

– Liz Dunshee

Don’t forget! Accelerated 13G reporting deadlines go into effect at the end of this month and will affect all categories of investors that use Schedule 13G to report their greater-than-5% beneficial ownership. Recent SEC comments show that the SEC is monitoring ownership filings. This Barnes & Thornburg memo summarizes how the rules are changing (also see this Skadden memo). Here are the key points:

1. Initial Filing Due Dates

– Qualified Institutional Investors (Rule 13d-1(b)(2)) – Within 45 calendar days after end of calendar quarter in which beneficial ownership exceeds 5% as of last day of such quarter; or within 5 business days after end of month in which beneficial ownership exceeds 10% as of last day of such month.

– Passive Investors (Rule 13d-1(c)) – Within 5 business days after acquiring more than 5% beneficial ownership.

– Exempt Investors (Rule 13d-1(d)) – Within 45 calendar days after end of calendar quarter in which beneficial ownership exceeds 5% as of last day of such quarter.

2. Interim Amendment Due Dates

– Qualified Institutional Investors (Rule 13d-2(c)) – Within 5 business days after end of month in which beneficial ownership exceeds 10% as of last day of such month; and thereafter, within 5 business days after end of month in which beneficial ownership increased or decreased by more than 5% of class as of last day of such month.

– Passive Investors (Rule 13d-2(d)) – Within 2 business days after acquiring more than 10% beneficial ownership; and thereafter, within 2 business days after increasing or decreasing beneficial ownership by more than 5% of class.

3. Quarterly Amendments for All Filers (Rule 13d-2(b)) – Due within 45 calendar days after end of calendar quarter if, as of the end of that calendar quarter, there are any material changes in the information reported in prior Schedule 13G.

For the quarterly amendments, the memo notes that if an investor that filed a Schedule 13G before September 30, 2024 concludes that a “material” change to its existing disclosure has occurred as of September 30, 2024, the investor will have to file a Schedule 13G amendment not later than November 14, 2024. While the SEC hasn’t expressly defined what will constitute a “material” change, it has pointed towards the “reasonable investor” test and Rule 13d-2(a) as instructive. Rule 13d-2(a) deems the acquisition or disposition of beneficial ownership of 1% or more of a covered class as a material change in the Schedule 13D amendment context.

Check out the transcript from our January webcast – and our “Schedule 13D & 13G” Practice Area – for additional practical guidance on the new rules and how to comply.

– Liz Dunshee