Join us tomorrow for the webcast – “Investment Stewardship: Understanding the ‘New Era’ of Expectations and Engagement” – to hear T. Rowe Price’s Donna Anderson, Davis Polk’s Ning Chiu, BlackRock’s Michelle Edkins and Neuberger Berman’s Caitlin McSherry take stock of how “investment stewardship” has changed…and how it’s stayed the same. This program will help you understand how stewardship teams are operating these days – and what that means for your board, your engagements, and your voting outcomes.
If you attend the live version of this 60-minute program, CLE credit will be available! You just need to submit your state and license number and complete the prompts during the program.
Members of this site are able to attend this critical webcast at no charge. If you’re not yet a member, subscribe now. The webcast cost for non-members is $595. You can renew or sign up online. If you need assistance, send us an email at info@ccrcorp.com – or call us at 800.737.1271.
This Skadden memo (pg. 6) outlines 10 steps for boards to take right off the bat when responding to allegations of executive misconduct. It also identifies these 4 common mistakes to avoid:
− Delaying the start of an investigation, or failing to investigate additional or related reports.
− Failing to consider external optics, including potential conflicts, with respect to oversight of review and outside advisers.
− Inconsistent communications, external or internal, and delayed disclosures.
I’ve been hearing some pushback from the securities law community about the need for so-called 10b5-1 “reform.” Here are some of the pointed questions that people are asking me and each other:
– Where are the SEC cases against insiders for entering into these plans when they are tainted with MNPI – which would violate the 10b5-1 safe harbor requirements?
– Why are we all jumping on the “10b5-1 reform” bandwagon when the SEC itself hasn’t found evidence of wrongdoing with these plans — as is evidenced by the dearth of enforcement cases?
– Why are we letting academic studies not supported by any meaningful SEC enforcement demonize 10b5-1 plans that have been used by individuals looking to do the right thing re: portfolio diversification and by companies looking to do the right thing by returning value to stockholders via stock buyback programs?
On a related note, some securities law practitioners are also starting to take issue with the terminology of so-called “cooling off” periods – and refer to them as, more accurately, “just in case I’m tainted” provisions. Said differently, what are insiders “cooling off” from? Being ice cold regarding MNPI on 10b5-1 execution date? It’s not universal, but some in-house folks view this as a biased and inaccurate term and are concerned that it is coloring public perceptions.
Ransomware attacks are getting more common – and responding to them is getting more difficult in light of attackers’ new techniques and regulators taking steps to discourage companies from paying. That’s according to this Milbank memo, which also points out that responding to these incidents continues to be a board issue because of the business & legal risks. In order to navigate these risks, board advisers need to have a high-level understanding of the issues and the response plan.
The memo delves into three assessments that could affect how to respond. Here’s an excerpt:
The fact that paying the ransom is not illegal in and of itself does not make deciding whether to pay any less difficult. Planning how to make that decision is key. Companies and their boards that have methodically pre-identified important factors in paying the ransom will be prepared to pragmatically and decisively address the problem when it arises. We recommend three assessments for victim companies deciding whether to pay: (i) the value of the breached data in light of modern ransomware attacks; (ii) the risks from paying the ransom; and (iii) negotiation and payment options.
On the first prong of evaluating whether paying the ransom makes sense because of the value of the stolen data, the memo suggests considering whether the captured data has been backed up or can be rebuilt, whether there are publicly available data keys that can decrypt locked data, and whether the company will face legal or regulatory claims, or reputational and relationship issues, if the stolen data is released to the public.
I’m thrilled to announce that we’ve made two great additions to our team:
Julie Gonzales has joined us as an Associate Editor after spending 16 years at a publicly traded company in the oil & gas industry, including as the Stock Plan Administrator, Corporate & Securities Paralegal and Assistant Corporate Secretary. Julie can be reached at jgonzales@ccrcorp.com.
Emily Sacks-Wilner is our newest Editor. Emily has spent time in fintech and at large firms, working closely with public companies and pre-IPO companies on numerous equity offerings, periodic SEC filings, M&A and corporate governance matters. Emily has also served as in-house M&A counsel for an S&P 500 company. She can be reached at eswilner@ccrcorp.com – and will be joining our blogging lineup soon!
Emily & Julie both bring tons of practical experience and have jumped in with very helpful contributions to our resources. I’m excited for you to get to know them. Feel free to drop them a welcome note!
The PCAOB recently published this 14-page summary of observations on its 2020 inspections of public accounting firms. The report highlights obstacles & good practices at audit firms, which can be helpful for audit committees to know when they’re engaging & overseeing auditors. Here’s one takeaway that’s good if you’re using a firm that’s inspected annually (which are listed on this page):
For the majority of the annually inspected audit firms, we identified fewer findings in 2020 compared to our 2019 inspections. In our triennially inspected audit firms, some improvements were noted, although deficiencies continue to remain high.
The report says that revenue recognition remains an area with room for improvement – so expect auditors to continue to be very focused on that. And, if your company has experienced a cybersecurity incident, the ICFR impact of that is going to get a second look during an inspection:
We continue to review audits of public companies that experienced a cybersecurity incident during the audit period. We observed in our reviews how the auditor considered the cybersecurity incident in their risk assessment process and, if applicable, in their response to identified risks of material misstatement.
In certain audits reviewed, the auditor evaluated he severity and impact of the cybersecurity incident but did not consider whether the incident affected their identification or assessment of risks of material misstatement; whether modifications to the nature, timing, or extent of audit procedures were necessary; and whether the incident could be indicative of one or more deficiencies in ICFR.
We’ve posted the transcript for our recent DealLawyers.com webcast: “Navigating De-SPACs in Heavy Seas.” This program provided a lot of great practical guidance on handling the increasingly complex and challenging De-SPAC process. Erin Cahill of PwC, Bill Demers of POINT BioPharma, Reid Hooper of Cooley and Jay Knight of Bass Berry & Simms addressed the following topics:
– Overview of the Current Environment for SPAC Deals
– Negotiating Key Deal Terms/Addressing Target Concerns
– The PIPE Market and Alternative Financing Methods
– Target Preparations to Go Public Through a SPAC
– Managing the Financing and Shareholder Approval Process
– Post-Closing Issues
We made this webcast available as a bonus to member of TheCorporateCounsel.net, and so we’ve posted the transcript on this site as well.
On the heels of last week’s SEC proposal for enhanced proxy voting disclosure, yesterday BlackRock announced that it will give institutional index investors, such as pensions & endowments, the option to vote their own holdings – rather than having the asset manager cast votes on their behalf. This change will begin on January 1st and will apply to about 40% of BlackRock’s managed assets – a big expansion from the limited number of existing BlackRock clients who’ve been able to do this to-date.
BlackRock also said that this is just the beginning of a bigger initiative. Tulane Law prof Ann Lipton pointed out on Twitter that this could even be a step toward pass-through voting. Here are a couple of excerpts from the announcement:
Beginning in 2022, BlackRock is taking the first in a series of steps to expand the opportunity for clients to participate in proxy voting decisions where legally and operationally viable. To do this, BlackRock has been developing new technology and working with industry partners over the past several years to enable a significant expansion in proxy voting choices for more clients.
And:
BlackRock is committed to exploring all options to expand proxy voting choice to even more investors, including those invested in ETFs, index mutual funds and other products. This initiative will require the cooperation of additional partners across the investment and proxy voting ecosystem. In certain instances, it will also require regulatory and operational system change.
The asset manager says that it expects many clients will continue to want BlackRock Investment Stewardship to vote on their behalf, but it is making this option available because some clients want greater participation in proxy voting. Here are the ways that eligible investors will now be able to vote:
– Use their own proxy voting policies and transmit their votes using their own voting infrastructure.
– Choose from a menu of third-party proxy voting policies (e.g., sustainability policies, etc.) and have votes cast using BlackRock’s voting infrastructure.
– Vote directly on select resolutions or select companies using BlackRock’s voting infrastructure (This option is available only to clients in institutional separate accounts.)
– Continue to have BlackRock Investment Stewardship cast proxy votes using BlackRock’s voting policies and using its voting infrastructure.
– Liz Dunshee
Programming Note: Our office is closed on Monday, October 11th and we aren’t blogging that day. We’ll be back on Tuesday, October 12th.
BlackRock’s announcement says that its change to voting options is due to client demand. That would make sense, given the investment world’s growing interest in having their voice heard on ESG matters. The announcement may also ease the unease that some have expressed about the level of influence that can currently be exercised by a handful of behemoth asset managers.
In hindsight, though, some people who wished that BlackRock had less power over votes might end up regretting this “wish come true.” It is very early to predict exactly how this policy will play out in practice. But it seems that it may make it even more difficult for companies to track & predict votes during proxy season. Companies will now need to engage not just with BlackRock, but will also need to understand whether the index investor whose funds BlackRock manages will be following their own unique voting policy, following a specialty voting policy, continuing to use BlackRock Investment Stewardship, or casting unique votes only at particular companies or on particular resolutions. That’s a lot to figure out and track each year! Aon’s Karla Bos sent me this note:
Without attaching any judgment here, it certainly appears one logical result of extending more say in voting to institutional clients will be that it becomes more challenging for companies to know / reach / influence the voting shareholders and predict voting behavior across BlackRock-held shares. And that has broader implications given the explosion in ESG focus and voting support—although it is difficult for me to guess how that will manifest, e.g., will the voting institutions take a more or less stringent or consistent approach than BIS?
We also don’t know yet whether other big asset managers will follow BlackRock’s lead and offer something similar (Vanguard had already transitioned some of its voting power back in 2019). Even if they don’t, it’s possible that more investors who are interested in voting alternatives will migrate to BlackRock because of this “competitive advantage.” At any rate, on top of the changing number & nature of retail investors, changes to shareholder proposal rules, evolving ESG expectations, and the question mark on proxy advisor rules, 2022 is already shaping up to be a challenging proxy season. You might want to line up your proxy solicitor now, in case they get booked up.
Just in time for our “Proxy Disclosure & Executive Compensation Conferences” next week – where our agenda includes a panel covering “clawbacks” issues – the SEC issued this Sunshine Notice about an open meeting next Wednesday, October 13th. The purpose of the meeting is to consider whether to re-open the comment period for the clawback proposal that the Commission issued back in 2015, which would – at a very high level – direct the stock exchanges to require listed companies to implement policies to recover incentive-based pay in the event of an accounting restatement.
This doesn’t come as a huge surprise, because consideration of a re-proposal has been an item on the SEC’s “Reg Flex Agenda” for the past two years. Consistent with the priorities that he identified in that Agenda, SEC Chair Gary Gensler also has been remarking at recent conferences, such as the CII Fall Conference, that he wants to knock out remaining Dodd-Frank rulemaking in short order.
If & when clawback rules are finalized, that would satisfy the requirement in Section 954 of the Dodd-Frank Act. As I blogged a couple weeks ago for members of CompensationStandards.com, the SEC has proposed “say-on-pay” voting disclosure requirements that would take care of the rulemaking mandates under Section 951 of that Act. The list of outstanding Dodd-Frank rulemaking requirements rightfully continues to shrink.
