Last month I blogged about a shareholder proponent that sued a Montana energy company seeking to force the company to include the proponent’s proposal on the company’s proxy ballot. Well, last week, the court ruled in the company’s favor and said the proposal could be excluded. What implications might this case have for shareholder proposal litigation? A timely Jones Day memo helps walk through that analysis. Here’s an excerpt from the memo:
The Court determined that under the Auer doctrine it should defer to the SEC’s formal releases, but that informal SEC staff interpretations, such as Staff Legal Bulletins and no-action letters, were entitled to “consideration” but not “persuasive weight.” Drawing on the Third Circuit’s analysis in Trinity Wall Street, a decision that the SEC staff had disavowed in a prior Staff Legal Bulletin, the Court held that the proposal could be excluded under the “ordinary business” exclusion of SEC Rule 14a-8.
Looking Ahead: The ruling may impact shareholder proposal litigation in two ways. First, the decision’s approach to Auer deference may breathe renewed life into certain Rule 14a-8 exclusions that were previously interpreted narrowly by informal SEC staff pronouncements. Second, the Court’s reliance on Trinity Wall Street reinforces the Third Circuit’s issuer-friendly analysis of the “ordinary business” exclusion.
Future of the PCAOB
As reported in various news outlets (here’s one from Accounting Today), President Trump’s 2021 budget includes a proposal that would consolidate the PCAOB into the SEC. Consider me a skeptic as to the likelihood of this actually happening, but then again it’s up to Congress so we’ll see. This blog from Baker Botts discusses some of what this might mean for issuers and auditors if it really happens. Here’s some considerations:
– Would the monitoring of public accounting firms be carried out in the same manner as it has been under the PCAOB? Would the SEC replicate the scope, magnitude, and rigor of the PCAOB’s regulatory activities?
– The proposed budget raises the possibility that funding will be reduced, does this mean auditor oversight activities would be reduced under the SEC—or would consolidation truly save millions without a reduction in oversight activities?
– Would the SEC would assume the PCAOB’s standard-setting function?
– Would audit firms and auditors lose confidentiality protections, which were explicitly required when Congress created the PCAOB, that aren’t necessarily available for charges brought by the SEC?
As alluded to in the blog, perhaps even if the consolidation doesn’t happen, there may be other changes in store for the PCAOB.
Managing Data Privacy Compliance
With 2020 bringing the effectiveness of the California Consumer Privacy Act and the New York Stop Hacks and Improve Electronic Data Security Act (otherwise known as the “SHIELD Act”) – and other state legislatures preparing to advance their own data privacy laws – this Jackson Lewis blog provides a list of 10 steps to help manage data privacy compliance. The list is a helpful reminder for managing any program but especially helpful as many compliance departments may be feeling overwhelmed with the proliferation of data privacy laws. Here’s an excerpt:
– Set expectations – remember staying on top of privacy laws will be an on-going effort
– Build interdisciplinary teams – include not only IT, but also HR, legal, operations and other business area representatives
– Evaluate new technologies carefully – not all technologies may have been developed or designed with an eye toward data privacy or security
– Remember to manage data retention – retain data and information strategically and deliberately
As for the CCPA, California’s Attorney General proposed two rounds of amendments to the regulations in February. This Cleary memo provides a summary of the proposed changes and we’re posting additional memos in the “state law” section of our “Cybersecurity/Privacy/Data Governance” Practice Area.
Yesterday, the SEC issued this 341-page proposing release intended to “simplify, harmonize, and improve certain aspects of the exempt offering framework.” The SEC’s press release summarizes the changes. Among other changes, the SEC proposes:
– Revisions to current offering and investment limits for certain exemptions for Reg A, Regulation Crowdfunding and Rule 504 of Reg D
– Amendments relating to offering communications, including:
New rule permitting issuers to use generic solicitation of interest materials to “test-the-waters” for an exempt offer of securities prior to determining which exemption it will use
Rule amendment permitting Regulation Crowdfunding issuers to “test-the-waters” before filing an offering document with the Commission in a manner similar to Reg A
New rule providing that certain “demo day” communications would not be deemed a general solicitation or general advertising
– Amendments to eligibility restrictions in Regulation Crowdfunding and Reg A, which would permit use of certain special purpose vehicles to facilitate investing in Regulation Crowdfunding issuers, and would limit the types of securities that may be offered and sold in reliance on Regulation Crowdfunding
– Changes to the Securities Act integration framework by providing a general principle of integration that looks to the particular facts and circumstances of the offering, and focuses the analysis on whether the issuer can establish that each offering either complies with the registration requirements of the Securities Act, or that an exemption from registration is available for the particular offering
– Four non-exclusive safe harbors from integration
– A change in the financial information that must be provided to non-accredited investors in Rule 506(b) offerings to align with financial information issuers must provide to investors in Reg A offerings
– A new item in the non-exclusive list of verification methods in Rule 506(c)
– Simplification of certain requirements for Reg A offerings
– Harmonization of bad actor disqualification provisions of Reg D, Reg A and Regulation Crowdfunding
The comment period on the proposing release will remain open for 60 days following publication of the release in the Federal Register. It’s hard to say whether these amendments will make everyone happy but with all the confusion caused by the current rules, one would think the amendments will bring some improvement.
SEC Issues COVID-19 Coronavirus Exemptive Order
Yesterday, the SEC took steps to address COVID-19 concerns and issued an unprecedented COVID-19 exemptive order. The SEC’s order provides publicly traded companies, subject to certain conditions, an additional 45 days to file certain disclosure reports that would’ve otherwise been due between March 1 and April 30, 2020. Companies seeking to rely on the order, need to furnish a Form 8-K – or 6-K – by the later of March 16th or the original reporting deadline.
The SEC filing relief isn’t available for all companies though as companies seeking to avail themselves to the SEC’s filing relief need to satisfy certain conditions, which are listed in the order and include among other things, a company’s inability to meet its filing deadline due to circumstances relating to COVID-19. The order also lists the information requirements for the Form 8-K or 6-K.
The order also provides relief for furnishing of proxy and information statements to shareholders “when mail delivery isn’t possible” and the order lists conditions for that relief.
In addition to providing filing relief to certain companies, the SEC’s press release reminds companies of their disclosure obligations:
For example, where a company has become aware of a risk related to the coronavirus that would be material to its investors, it should refrain from engaging in securities transactions with the public and to take steps to prevent directors and officers (and other corporate insiders who are aware of these matters) from initiating such transactions until investors have been appropriately informed about the risk.
When companies do disclose material information related to the impacts of the coronavirus, they are reminded to take the necessary steps to avoid selective disclosures and to disseminate such information broadly. Depending on a company’s particular circumstances, it should consider whether it may need to revisit, refresh, or update previous disclosure to the extent that the information becomes materially inaccurate.
Companies providing forward-looking information in an effort to keep investors informed about material developments, including known trends or uncertainties regarding the coronavirus, can take steps to avail themselves of the safe harbor in Section 21E of the Exchange Act for this information.
As stated in its press release: the “Commission may extend the time period for the relief, with any additional conditions it deems appropriate, or provide additional relief as circumstances warrant. Companies and their representatives are encouraged to contact SEC staff with questions or matters of particular concern.”
The development of COVID-19 has certainly made this year’s annual meeting season more complicated and has everyone watching for the latest guidance addressing a host of issues. To help – we’re posting memos about COVID-19 implications in our “Risk Management” Practice Area.
More on “Annual Meetings: Planning for COVID-19 Developments”
Yesterday, I blogged about possible COVID-19 implications for annual shareholders’ meetings and said maybe interest in virtual annual meetings would pick up. Thanks to Brooke Goodlett of DLA Piper for pointing us to Starbucks. Just yesterday, Starbucks filed an amendment to its proxy statement changing its annual shareholders’ meeting to a virtual-only meeting. Last year, Starbucks held an in-person meeting along with a webcast and according to this year’s original proxy statement, the company had been planning for the same format again this year.
Starbucks annual meeting is coming up in just a couple of weeks, so this is a pretty late-breaking development. It’s worth noting that Starbucks is a Washington company, not Delaware. DLA Piper’s memo on coronavirus considerations suggests companies consider, to the extent permissible by the company’s charter documents and state law, virtual board and shareholder meetings.
Last month we included a guest blog from Rhonda Brauer, and we’re excited to bring another post from Rhonda to you:
Since my last guest blog on the sustainability reporting frameworks, UK-based Aviva Investors published a thoughtful inhouse article on “Climate data: Seeing through the fog”, as part of a larger climate-related series. Many of us interviewed for this article agreed that required, not voluntary, reporting would be the best solution to the problem of not having comparable, relevant and transparent corporate ESG disclosures. The article goes on to explore how “big data” — which is too complex to be analyzed using traditional processing applications — and artificial intelligence (AI) could help solve this problem in the interim, particularly when applied to climate change and similar issues.
Highlights include:
Although the use of satellites, sensors and big data analytics to measure emissions and inform investment decisions is just beginning, much of the data and computer programmes that make it possible exist and are constantly improving.
Whether to measure direct emissions from factories, across a company’s supply chain, or at a country level, an increasing number of options are emerging including mobile data, big data analytics from online sources, satellite measures and data available from a plethora of sensors scattered around the world.
This type of approach allows analysts and researchers to find and assess relevant data that does not feature in companies’… disclosure reports… through scraping (compiling information from online and offline sources) and crawling (using programmes to search across online sources)… Using AI to sort and analyse the mass of information gathered could make sense of it without deploying armies of researchers.
One cited example of how big data and AI can help reduce carbon emissions: Deforestation can now be predicted and detected through digital solutions, which form the basis for proactive action through monitoring and improving agriculture, reforestation and peatland restoration.
The article also includes examples of data gleaned from government satellites that make their data public versus commercial satellites and drones, how such data can be used and influenced by both equity and debt investors to inform financial decisions and to better detect “greenwashing” or manipulation of data, gaps that remain when using such data, how investors can play a critical role, and how companies should be using similar analyses for their business models.
Annual Meetings: Planning for COVID-19 Developments
In case you missed it, here’s something I blogged yesterday on our Proxy Season blog: This memo from Davis Polk walks through some of the things you might want to think about if you’re worried about the COVID-19 coronavirus and how it might affect where or when you hold your annual shareholders’ meeting. The memo looks at these considerations in context of SEC proxy rules and Delaware law. With COVID-19 developments moving quickly, the memo is timely and helpful because someone is bound to ask what your plan is in case you need to move the meeting location, etc.
For those that have already mailed the proxy statement:
In the event you have a last minute change in your meeting location or date, the memo discusses whether you would need to re-mail the proxy statement – the answer is “no” except for special circumstances described in the memo. Even though you likely wouldn’t need to re-mail the proxy statement, the memo says you should disclose the change as soon as possible by issuing a press release and filing the press release with the SEC as supplemental proxy materials.
For those that are still working on your proxy statement:
If you’re still working on your proxy statement and haven’t mailed it yet and you’re considering the possibility of a last minute change in venue or date, the memo suggests disclosing the possibility of a change in your proxy statement but says a change to the proxy card itself is likely unnecessary.
I often worried about what we would do if our meeting venue was suddenly unavailable, not to mention worries about technical snafus and our team had back-up plans “just in case”. To help you prepare and hopefully avoid any annual meeting surprises, here’s a reminder to visit our “Checklists” Portal – especially this one on “Annual Meeting Surprises.”
Virtual Meetings
A few weeks ago, I blogged about things to consider if you’re thinking of holding a virtual annual meeting. Maybe interest will pick up but again, it’s not for everyone. If you want to look into this further, here’s another comprehensive resource about virtual meeting considerations sent to us from the folks at Veaco Group.
Also, it has been reported that in advance of Apple’s shareholder meeting last week, Apple warned those planning to attend to take extra health and safety precautions due to the ongoing development of COVID-19.
Really? SEC Cancels Another Open Meeting
It happened again, the SEC has cancelled an open meeting scheduled for today about proposed changes to rules on private offerings. Broc blogged last fall about how the SEC was cancelling open meetings on what was turning out to be a regular basis. Unclear what led to the cancellation this time, maybe a Commissioner is unavailable at the last minute or perhaps the Commissioners will take action in seriatim and still get something done, we’ll see and stay tuned!
Yesterday, the SEC voted to adopt amendments that significantly change the financial disclosure requirements for guaranteed debt offerings under Regulation S-X Rule 3-10 and Rule 3-16. The changes are intended to improve the quality of disclosure and increase the likelihood that issuers register debt offerings and provide investors with protections they wouldn’t receive in unregistered offerings.
Here’s the 265-page release. The SEC’s press release summarizes amendments to Rule 3-10, which will be amended and partly relocated to new Rule 13-01, high-lights include:
– 100% ownership replaced by consolidation
– Condensed consolidating financial information reduced
– Disclosure may be made outside the financial statement footnotes
– Disclosure ends when Exchange Act reporting ends
Here’s the SEC’s press release summary of the new Rule 13-01 high-lights:
– Replace the condition that a subsidiary issuer or guarantor be 100%-owned by the parent company with a condition that it be consolidated in the parent company’s consolidated financial statements
– Replace condensed consolidating financial information, as specified in existing Rule 3-10, with certain new financial and non-financial disclosures. The amended financial disclosures will consist of summarized financial information, as defined in Rule 1-02(bb)(1) of Regulation S-X, of the issuers and guarantors, which may be presented on a combined basis, and reduce the number of periods presented. The amended non-financial disclosures, among other matters, will expand the qualitative disclosures about the guarantees and the issuers and guarantors. Consistent with the existing rule, disclosure of additional information about each guarantor will be required if it would be material for investors to evaluate the sufficiency of the guarantee
– Permit the amended disclosures to be provided outside the footnotes to the parent company’s audited annual and unaudited interim consolidated financial statements in all filings
– Require the amended financial and non-financial disclosures for as long as an issuer or guarantor has an Exchange Act reporting obligation with respect to the guaranteed securities rather than for as long as the guaranteed securities are outstanding
The SEC’s press release also summarizes amendments to Rule 3-16, which will be replaced with requirements in new Rule 13-02, high-lights for these amendments include:
– Separate financial statements for each affiliate whose securities are pledged replaced by financial & non-financial disclosures
– Disclosure required unless immaterial
Here’s the SEC’s press release summary of the new Rule 13-02 high-lights:
– Replace the existing requirement to provide separate financial statements for each affiliate whose securities are pledged as collateral with amended financial and non-financial disclosures about the affiliate(s) and the collateral arrangement as a supplement to the consolidated financial statements of the registrant that issues the collateralized security. The registrant will be permitted to provide the amended financial and non-financial disclosures outside the footnotes to its audited annual and unaudited interim consolidated financial statements in all filings
– Replace the requirement to provide disclosure only when the pledged securities meet or exceed a numerical threshold relative to the securities registered or being registered with a requirement to provide the proposed financial and non-financial disclosures in all cases, unless they are immaterial
If it seems like these amendments were a long time coming, they kind of were – John blogged about the proposed amendments back in July 2018. The amendments will be effective January 4, 2021 but voluntary compliance is permitted starting now.
SEC Calendars ‘Open Meeting’: Private Offerings on Agenda
Last week, the SEC issued a Sunshine Act notice for an open meeting scheduled for tomorrow – March 4th. Here’s the agenda saying:
The Commission will consider whether to propose rule amendments that would facilitate capital formation and increase opportunities for investors by expanding access to capital for entrepreneurs across the United States. Specifically, the proposed amendments would simplify, harmonize, and improve certain aspects of the framework for exemptions from registration under the Securities Act of 1933 to promote capital formation while preserving or enhancing important investor protections. The proposed amendments seek to address gaps and complexities in the exempt offering framework that may impede access to investment opportunities for investors and access to capital for issuers.
In December, I blogged about the proposed amendments to expand the definition of accredited investors and last summer Liz blogged about the SEC’s concept release that included discussion of a lot of topics, including among other things, whether there should be any changes to streamline capital raising exemptions, especially Rule 506 of Reg D, Reg A, Rule 504 of Reg D, the intrastate offering exemption, and Regulation Crowdfunding and the accredited investor definition. Since then, the concept release generated a lot of comment letters.
So, we’ll see what’s all included with the proposed amendments tomorrow and whether they can truly satisfy everyone. We’ll be blogging about the meeting’s outcome and will post memos as they come in.
Regular Compliance Reporting Boosts Director Confidence
A recent study from FTI Consulting and Corporate Board Member found that director confidence in internal ethics and compliance programs is declining. The study – based on interviews with over 300 public company directors – found that only 35% of survey respondents said they were “very confident” in their company’s internal compliance programs compared to 46% a year earlier. The study lists several reasons that may have contributed to declining confidence such as increased complexity of rules and regulations, pace of change and disruption and uncertainty introduced by advanced technologies.
All is not lost though, the study also found that of directors who say they receive regular ethics or whistleblower reports, only 5% of those directors reported low confidence in the company’s internal ethics and compliance programs. The study lists steps an organization can take to help bolster confidence among their directors, here’s an excerpt:
Take a hard look at the organization’s internal ethics and compliance programs and ensure they meet high standards in the following areas:
– Establish direct and autonomous reporting by the head of compliance to the board, or the audit committee
– Set formal metrics for the board to measure the effectiveness of the compliance program
– Ensure effective hotline and whistleblower processes and report activity to the board regularly
– Enhance compliance functions by using advanced technology
It’s hard to know for sure whether astroturfing is part of the SEC comment letter process. Last fall, John blogged about the flurry of comment letters received at the SEC on the S-K Modernization Proposal and the potential that some would assert this resulted from an astroturf campaign. And Broc blogged last fall about the “fishy” comment letters submitted to the SEC ahead of its proposed rulemaking on proxy advisors.
Congressional leaders are apparently taking the notion of astroturfing seriously and a recent blog from Jim Hamilton summarizes a hearing held by the Subcommittee on Oversight and Investigations of the House Financial Services Committee on alleged astroturfing of the Administrative Procedure Act (APA) process for submitting comment letters on agency rulemaking – and as a reason for the hearing, the subcommittee cited reports of astroturfing relating to proposals by several agencies, one being the SEC.
Jim Hamilton’s blog provides an interesting read of the back and forth testimony about possible solutions to concerns about astroturfing. Here’s an excerpt:
Beth Simone Noveck, a professor from New York University, testified that the notice and comment period on proposed federal regulations is sometimes referred to as the “notice and spam” period due to the volume of duplicate comment letters agencies receive. She recommended that the agencies use readily available tools to address voluminous, duplicative, and fake comments. These include machine learning to summarize voluminous comments, “de-duplication” software to remove identical comments, and filtering software to sift out “the real and the relevant.”
Others, including Steven Balla, a professor from George Washington University, and Ranking Member Barr recommended Congress focus its attention on fake comment letters not mass comments.
Ranking Member Barr questioned whether the APA should be amended to standardize the comment letter collection process as it currently allows agencies discretion for determining how they collect and post comment letters. A GAO representative noted that a 2019 GAO study recommended certain agencies clearly disclose how they post comments and associated identity information, including the SEC, and the SEC has implemented these recommendations. The SEC issued a memorandum reflecting the SEC’s internal policies for posting duplicate comments and associated identity information and added a disclaimer on the SEC’s main comment posting page.
Possible solutions aside, it doesn’t sound like the Subcommittee settled on any immediate actions and it’s unclear if there are any next steps.
SEC Extends Comment Period for NYSE Direct Listing Proposal
In December, we were tracking the NYSE Direct Listing proposal, which the SEC rejected soon after the exchange submitted it, and then right on the heels of the rejection, the exchange submitted a revised proposal. Since then, nothing but crickets…until last week, likely because the comment period was set to expire. Last Thursday, the SEC issued this notice extending the comment period for the revised proposal, which will now close on March 29th. The notice says the SEC received 8 letters with comments and it needs more time to consider the proposed rule and comments.
Might be early to jump to conclusions but judging solely on the low count of comments so far, it doesn’t sound like astroturfing is going on here.
January-February Issue of “The Corporate Counsel”
We recently mailed the January-February issue of “The Corporate Counsel” print newsletter (try a no-risk trial). The topics include:
1. Annual Season Items
– Time for a Risk Factor Tune-Up?
– Getting Back to Basics
– Rooting Out Hypothetical Risk Factor Disclosure
– Brexit – What’s Next?
– LIBOR Transition
– IP and Technology Risks Associated with International Business Operations
– Tariffs and Trade
– World Health Concerns
– Data Privacy
2. Omitting Third Year Comparisons from MD&A: The Staff Weighs In
3. More on MD&A: The Commission’s Interpretive Release on KPIs and Metrics
4. A Brave New World for Confidential Treatment: Asking for Forgiveness Instead of Permission
– A New Streamlined Confidential Treatment Process Dawns
– Self-Executing Rules
– Staff Review of Exhibits
– New Streamlined Extension Confidential Treatment Request Procedures
– Enter the Supremes: The Impact of Argus Leader
– The SEC’s New Confidential Treatment Request Guidance
Responding to SEC comment letters can be tricky, so it’s always nice to read tips from Corp Fin on how to make the response process more efficient. This Deloitte memo summarizes Staff comments at a recent AICPA conference, which were aimed at helping companies respond to comment letters. Here’s an excerpt:
– Provide the Staff with contact e-mail addresses for the responding company and its outside counsel
– Before providing courtesy paper copies, ask the reviewer if copies are needed or will be used.
– Clearly and directly address the issues raised in the comments.
– Share views on materiality with the Staff early in the process to increase overall efficiency
– Don’t assume that the SEC has accepted an item solely because it has been reported similarly in another company’s filing
– When calling the Staff with an interpretive or procedural question, don’t assume that the Staff has all the facts. Responding companies should do the appropriate research, provide sufficient background information, and present an analysis that points to relevant authoritative literature
– Communicate the intended use of novel transactions up front
– Call the Staff to discuss or get clarification on a Staff comment
Also, don’t forget that members have access to our Handbook on the “SEC Comment Letter Process” – a 39-page guide to help you through responses.
Change to Nasdaq Definition of “Family Member” Approved
Last week, the SEC issued an order granting accelerated approval of Nasdaq’s amended proposal to change the definition of a “family member” for purposes of determining director independence under Nasdaq’s Listing Rules. Under the new definition:
“Family Member” for purposes of determining whether a director is independent under Nasdaq Rule 5605(a)(2) means a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person’s home. As stated by Nasdaq, the purpose of the proposed rule change is to exclude domestic employees who share the director’s home, and stepchildren who do not share the director’s home, from the types of relationships that always preclude a finding that a director is independent.
This Cooley blog from Cydney Posner discusses more of the details as the new definition leaves the board to determine whether stepchildren not residing at home with the director still have a relationship with the director that could interfere with the director’s exercise of independent judgment.
More on “Cyber Response Plan Testing”
Yesterday, I blogged about the importance of testing a cyber response plan. Another great planning tool is reviewing and analyzing a real life example of how another company handled disclosure and response to a data breach.
Thanks to Jay Knight at Bass, Berry & Sims for sending along this blog that does just that – it walks through Chegg, Inc.’s disclosure and response to a 2018 data incident. The blog includes the back and forth between Chegg, Inc. and Corp Fin as they worked through the comment letter process. It’s a quick, helpful read – topics covered in the exchange between Chegg, Inc. and Corp Fin include:
I’m fresh off a high from attending Oprah’s “2020 Vision Tour” last month (yes, she visited Minnesota in January, maybe because as this video shows she’s a huge fan of Mary Tyler Moore). So I’m extra excited to share the latest “list” installment from Nina Flax of Mayer Brown (here’s the last one):
Another new year, another time many of us are setting goals and making resolutions. As a quick recap, the main goal I shared last year was reading more books for pleasure. Of the 12 books on my list, I read 3 – Bad Blood, The Girl Who Smiled Beads and The Queen’s Poisoner (and the rest of the Kingfountain series). I also read the Crazy Rich Asians series and one other book – bringing me to a grand total of 14. Which I think is a good first step to prioritizing reading for pleasure, but certainly improvable. So for this new year, I decided to double down on reading, formalize watching less TV (because since it was a “soft” goal last year, I of course let it slip) as well as numericize other things (because I clearly do better with specifics and measurements). For accountability’s sake (and thank you for giving me that feeling around reading last year!), here is what I’ve landed on:
1. Read More Books For Pleasure. My goal for this year is 28. I am hoping I exceed this number, but we will see… I decided to not choose my books in advance this year, because doing so last year actually discouraged me a bit. I tried to force myself to read ones from my list that just were not clicking. Where in previous years I would quickly move on if I wasn’t absorbed in the first chapter or two, this past year I wasted time trying to force myself to read words I clearly was not interested in. Several books started and not finished despite more time spent = lesson learned!
2. Work Out At Least Once a Week. Working out at all was a goal for last year. I did work out – some. But now that I am at an age where I definitely do not feel like I’m 20 anymore, I want to take the fact that I only have one body and want it to be healthier for longer more seriously. Plus, framing this as something I’m doing also for the sake of the child motivates me. Plus, I have a friend who said she wants to do this as well, and we agreed we would hold each other accountable.
3. Watch Less TV. I am going to try to limit TV, and want to try to watch only as I am working out. So if I want to finish watching the remainder of The Originals series (I have seen like every other vampire thing out there, and had not yet seen this, so I started over the holiday season, which = bad news for my 2019 soft goal), I better get on a bike or treadmill!
4. Track What Matters Most. One of my funniest, most driven friend’s father is Marshall Goldsmith, who is a leading business educator and coach. I heard many moons ago about his daily questions spreadsheet. I have wanted to implement something like this, but have not previously prioritized it. This year, it is a priority. I don’t think I’m going to have all of the questions he does (I really do not want to track my weight every day), nor will I have someone calling me every day to track for me (how cool would that be though?!), but I have come up with a few things I would like to watch more closely. Some on my list: Was I there at bed time for my son? Did I speak to my parents? Did I say or do something nice for my husband? Did I exercise? Did I watch TV when I was not exercising? Did I spend time reading for pleasure? As you can see, some redundancy built in to encourage meeting my other goals!
As in 2019, I will end this post with a quote from someone I knew as a child – Each year you should take a long walk, make a new friend and read a good book. Here’s to 2020 being great.
Nasdaq Clarifies “Closing Price” for Transactions Other than Public Offerings
Last week, this Notice of Filing and Effectiveness says that Nasdaq filed a proposed rule change clarifying the term “closing price” in Rule 5635(d)(1)(A) relating to shareholder approval for transactions other than public offerings. The rule change clarifies that closing price means the Nasdaq Official Closing Price (as reflected on Nasdaq.com). The Notice says there may have been some confusion and that Nasdaq believes this change will reflect Nasdaq’s original intent when adopting the amendment to Rule 5635(d) in September 2018.
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 entering their email address on the left side of that blog. Here are some of the latest entries:
– D&O: Common Law & Statutory Claims Aren’t Covered “Securities Claims”
– Shareholder Engagement Trends
– Auditor Independence: What Audit Committees Should Watch For
– 5 Tips For Creating a “Tech-Savvy” Board
– Executive Successions: Include Process for “SOX” Certifications
A shareholder proponent has filed a lawsuit against a Montana energy company in an attempt to ensure the proponent’s proposal is included on the company’s proxy ballot. The proposal asks the company to end using coal-fired generation of electricity from a power plant it operates no later than the end of 2025 and to replace the electricity with non-carbon emitting renewable energy.
The lawsuit follows the company’s no-action request to the SEC on grounds that the proposal relates to the company’s ordinary business operations and that the proposal contains materially false or misleading information about the company’s carbon emission rate. As shown in the SEC’s chart detailing SEC responses to shareholder proposal no-action requests, the SEC has “no view” and indicates that litigation is pending.
Last year, Liz blogged about how the NYC Comptroller filed a lawsuit as it sought to ensure a proposal related to greenhouse gas emissions would be included on a company’s proxy ballot. In that case, SEC correspondence shows the company withdrew its no-action request and included the proposal on its ballot. Voting results for the company’s shareholder meeting show the proposal failed to receive majority support.
Time will tell how the proponent fares in federal court for the district of Montana and/or whether the company relents and includes the proposal on its ballot. The company’s no-action request says that the company intends to file its proxy materials on or about March 6, 2020 – stay tuned.
IFRS: Proposed Changes Strike a “Reg G” Note
At the end of December, the International Accounting Standards Board proposed new rules that would impact companies audited under International Financial Reporting Standards. This Davis Polk memo summarizes the proposal – here’s an excerpt:
In an interesting departure from U.S. generally accepted accounting principles, IASB is proposing to require companies to disclose information about non-GAAP measures in a note to their financial statements when such measures (i) are used in public communications outside financial statements; (ii)complement totals or subtotals specified by IFRS standards; and (iii) communicate to users of financial statements management’s view of an aspect of the company’s financial performance. Companies would have to explain why such measures provide useful information, how they are calculated, and how they relate to the most comparable profit subtotal specified by IFRS, and would also have to provide a reconciliation to the IFRS-mandated measure. This requirement would be similar to Item 10(e) of Regulation S-K, which currently governs such measures, but would be substantially less prescriptive.
The January-February Issue of the Deal Lawyers print newsletter is available now and focuses on Earnouts. Learn how to survive M&A’s “Siren Song.” This edition of the Deal Lawyers print newsletter covers:
– Overview of Earnouts
– Prevalence of Earnouts & Common Terms
– Tax & Financial Reporting Issues
– When Earnouts Are “Securities”
– The Risk of Post-Closing Disputes
– Earnout Litigation: Plenty to Fight About
– How Much Protection Does Good Documentation Provide?
– Key Issues in Structuring & Negotiating an Earnout
– Conclusion: The Sirens Still Sing
Here are FAQs about the Deal Lawyers print newsletter – including how members of DealLawyers.com who also subscribe to the print newsletter can access the issues online.
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Yesterday, Reuters reported (along with other outlets) that SEC Commissioner Rob Jackson will be stepping down on February 14th to return to his faculty post at the NYU School of Law. Rob’s term expired last June, so this has been expected for a while. Here’s a statement from SEC Chair Jay Clayton.
We don’t have a definite timeline for Jackson’s successor, but it’s expected that the White House will nominate Caroline Crenshaw – who’s currently an attorney in Rob’s office – to fill his seat (see this Cooley blog). Depending on how long it takes to confirm his successor, the SEC may be down to four Commissioners for a while after Rob’s departure.
“Top 10” Risks for 2020
This “risk barometer” report from Allianz identifies “top 10” risks for 2020 – as well as the macro trends behind those risks, which companies should watch. It’s based on responses from over 2,700 risk management professionals and is a helpful read, especially in light of SEC Enforcement’s focus on “hypothetical risk factors” – which I blogged about on Tuesday. Here’s an excerpt – see the full 23-page report for more (as well as my blog from yesterday on risk factor disclosure trends):
Cyber risk tops the list for the first time with businesses facing a number of challenges such as larger and costlier data breaches, more ransomware incidents and the increasing prospect of litigation after an event. The playing out of political differences in cyber space also ups the ante while even a successful M&A can result in unexpected problems.
Further down on the list was new technologies. The report says that while new technologies present opportunities, they can also bring considerable risk. Technologies identified as coming with the greatest risk potential include artificial intelligence, digital platforms, internet of things/smart objects, autonomous vehicles and digital assistance systems/virtual reality.
Tune in Tuesday, January 21 for the webcast – “Deciphering ‘Corporate Purpose'” – to hear Morrow’s John Wilcox, Freshfields Bruckhaus’ Pam Marcogliese and Morris Nichols’ Tricia Vella discuss the debate over “shareholder primacy” – including what it means for directors’ fiduciary duties and disclosure.
It’s that time of year again! Larry Fink – BlackRock’s CEO – is out with his annual letter to CEOs. This year, he says BlackRock is taking a more aggressive stance on sustainability. Here’s the high points:
– Continued emphasis that corporate purpose and consideration of a broad range of stakeholders is the “engine of long-term profitability”
– Encouraging companies to publish SASB-based sustainability info and disclose TCFD-based climate-related risks – BlackRock will use the disclosures and engagements to determine whether companies are adequately managing risks
– BlackRock will vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them
That last one is a biggie – but there’s not a lot of detail on what it really means. So as usual, some are skeptical of whether BlackRock’s commitments will go as far as the letter implies. But, as emphasized in this NYT article and a recent blog from Liz, the asset manager is getting more and more pressure from its investors to “walk the talk” on E&S issues. At the same time that the CEO letter went out, BlackRock published this letter to clients that details its sustainability efforts. Here’s some interesting tidbits from that:
– For active funds, BlackRock will accelerate to a “sustainable investing” approach and divest from the coal sector (i.e., as Matt Levine points out, maybe they’ll nudge clients into more sustainable investments, but this Bloomberg article explains that divestment won’t touch some of the biggest diversified producers)
– BlackRock is working with index providers to provide – and standardize – sustainable versions of flagship indexes (which will exclude businesses with high ESG risks)
– BlackRock’s engagement priorities for this year will be mapped to the UN Sustainable Development Goals
– BlackRock will start disclosing its votes quarterly – or “promptly” in the case of high-profile votes (as Liz has blogged on our “Proxy Season Blog, prompt – or even advance – disclosure of voting decisions is an emerging trend that could have a big impact)
– BlackRock’s annual stewardship report will start disclosing topics discussed during each engagement with a company
The client letter also touts that (just last week) BlackRock became a signatory to Climate Action 100+, which is led by Ceres. Here’s Ceres’ press release – which explains that members of the coalition commit to engage with companies to reduce emissions, implement a strong governance framework which explains the board’s role in overseeing climate risks & opportunities, and improve disclosure. However, as this Financial Times article points out, firms are under no obligation to vote for climate change resolutions even after joining Climate Action 100+.
We’re constantly posting ESG info in our “ESG” Practice Area. There you’ll find information on ESG voting and disclosure trends, investor policies and other engagement tips and resources. We also have information posted in our “Institutional Investors” Practice Area.
Risk Factors: Disclosure Trends
The other day I blogged about considerations for this year’s 10-K disclosures – and one of the biggest things to think about is your risk factors. For more on that topic, this recent Intelligize blog summarizes risk factor trends over the last year. Not too surprising, the “top 5” most common risk factors were:
– Failure to compete effectively
– Dependence on employees
– Business (miscellaneous)
– Cybersecurity, data privacy, and information technology
– Operational disruptions
And, for risk factors that saw the biggest increase in citations, the top 3 were:
– International trade restrictions
– Employee misconduct
– Anti-corruption law
As John blogged last summer, sadly “active shooter” risk factors were also rising among certain companies.
Investors Want You To Think About Stakeholders?
Despite some of the backlash to the BRT’s redefined statement of corporate purpose, a recent report from Edelman, a communications firm, found that most institutional investors want companies to balance the needs of all stakeholders – shareholders, customers, employees, suppliers and communities. The report summarizes findings from a survey of over 600 institutional investors – and appears to align with statements made by some large shareholders, e.g. BlackRock & Vanguard. Here’s what I found most interesting:
– 86% of surveyed investors said that they would consider investing with a lower rate of return if it meant investing with a company that addresses sustainable or impact investing considerations
– 90% of surveyed investors said that they would support a “reputable” activist investor if they believed change was necessary at a company