I continue to team up with Courtney Kamlet of Vontier to interview women (and their supporters) in the corporate governance field about their career paths – and what they see on the horizon.
Our latest episode is a 19-minute interview with Rhonda Brauer about her path from the NYT’s corporate secretary department to running her own advisory firm, where she consults with both companies and investors. Rhonda shared about her experience working on ICCR’s “climate lobbying” campaign during the last proxy season – as well as her thoughts about how companies should approach evolving ESG issues.
A few short weeks ago, BlackRock announced a big change to how its institutional investor clients can vote. We’ve already written three follow-up blogs! We’ve covered:
We’ll obviously be discussing this quite a bit in the months (and years?) to come. And now we can add a prediction from this Olshan memo – that institutional investors’ additional voting control could benefit activists. Here’s an excerpt:
We believe this could be a positive development for shareholder activists and potentially lead to a higher overall success rate in contested elections. In prior years, BlackRock has been particularly unsympathetic to activists in contested elections. According to Insightia, during the 2020/21 proxy season BlackRock supported at least one dissident nominee in only two of 14 election contests (including withdrawn and settled contests), or 14.3% of the time (down from 25% of the time in the 2019/20 season).
Allowing BlackRock’s institutional clients to depart from the firm’s historical tendency to vote in favor of management by giving these clients the ability to vote on their own could tilt voting results in favor of activists at shareholder meetings of companies where BlackRock is a significant shareholder. BlackRock also stated that it will explore extending these expanded voting choice capabilities to other clients in its ETF, index mutual funds and other products. This could give an even greater boost to the success rate of activists in election contests at companies where BlackRock is a shareholder.
Although the actual impact this initiative will have on voting results in contested elections is difficult to predict, it will likely influence strategic and capital deployment decisions both companies and activists will make when BlackRock is a shareholder. We envision companies and activists will widen their solicitation outreach to target not only the BlackRock Investment Stewardship team, but also individual institutional clients who could potentially take control of their proxy voting under the new voting framework. Proxy solicitation firms typically hired by both the company and activist in these campaigns will be tasked with ferreting out the identities of BlackRock clients as part of their solicitation efforts.
I loved this Time interview with Sidley’s Holly Gregory and Kai Liekefett and Louis Pierro of Pierro, Connor & Strauss – discussing what is & isn’t accurate about Succession (they agree it’s pretty accurate overall). Yet another sign that corporate governance is becoming glamorous! Here’s an excerpt talking about something that everyone knows to be true but can’t say out loud when real clients are involved:
How do Kendall’s public allegations against his father impact Waystar’s proxy battle against Sandy and Stewy?
Liekefett: In the proxy fight world, we use a lot of terminology from political elections, and we are always concerned about the so-called ‘October Surprise.’ This is the ultimate October Surprise, and the nightmare of any defense attorney that something like this would happen shortly prior to the annual meeting. If that were to happen in my practice, we’d probably be dead in the water.
With that level of dysfunction — where the son of the CEO and chairman goes out and accuses his father of these kinds of wrongdoing — shareholders in 99 out of 100 situations would say, ‘O.K., enough said. I don’t even care who is right, father or son. The level of dysfunction here is so unbearable, that we need some adults in the boardroom. Anything is better than the status quo, we need some fresh faces here as directors.’ It would be the death knell of any proxy fight.
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.
