Barry Summer is retiring from the SEC this week, after spending 36 years, 9 months and a few days in the Division of Corporation Finance.
Barry has held a number of roles in Corp Fin over the years, including serving as an Associate Director, Assistant Director and Special Counsel in the Division. During his time in these roles, Barry has been integrally involved in the evolution of Corp Fin’s disclosure operations function, has led various rulemaking projects and worked on various interpretive and policy initiatives. Barry has also been an adjunct professor of law at the Georgetown University Law Center since 2007. Over the years, Barry also taught at the American University Washington College of Law, Howard University Law School and the University of Virginia Law School.
I first met Barry when I joined Corp Fin in 1995, and he was always a great person to learn from in Corp Fin. Barry was an outstanding colleague and friend while we worked together at the SEC, and he has been a practical, thoughtful regulator during his incredible 36+ years of service to the SEC. I wish Barry all the best for his retirement!
For those who practice in the capital markets area, it should come as no surprise that the WSJ reports IPOs are dead for now – in a big way. Citing recent Dealogic data, the WSJ notes that, so far this year, traditional IPOs have raised only $5.1 billion, way off the $33 billion pace that is typical at this point in the year (going back to 1995). Last year at this point, traditional IPOs had raised more than $100 billion.
Not surprisingly, the last time we saw the IPO market this slow was back in 2009, during the dark days of the post-financial crisis Great Recession. Even with the market window closed at the moment, there is certainly hope that companies will be clamoring again to go public. The article notes:
Even though the IPO market isn’t healthy right now, many companies still have a burning desire to go public, bankers say. Some need the cash. Others are running against a ticking clock for restricted stock units issued to employees through vesting plans. And some are eyeing acquisitions but need stock or money to complete offers.
A number of economic and market factors point to continued uncertainty in the financial markets and therefore a tough sell for risky assets such as IPOs – high inflation, rising interest rates, recession, the war in Ukraine and countless other reasons for a high degree of market volatility and as overall negative outlook.
One of the most frustrating things for those practicing in capital markets (and no doubt for the bankers and people working at companies seeking to go public) is the way in which the “window” for IPOs opens and shuts over time. As a result, you can be working hard to get an IPO to the finish line one day, and then the next day you get the inevitable order to go “pencils down.” Then, when the window cracks open again, a frenzied effort commences to try to get the IPO done before the window closes again. For some IPOs, this cycle can happen several times. My advice to those new to the practice or for those considering an IPO is pretty much “get used to it.” IPOs are viewed as among the riskiest of investments, and therefore they require the perfect set of market circumstances to facilitate their marketing. We will get through this latest IPO drought, and the IPO window will open again – it is just a matter of time.
A few weeks ago, I blogged about a number of statutory changes that went into effect in Delaware at the beginning of this month, including changes that will allow Delaware corporations to adopt charter provisions to exculpate officers from personal liability in certain contexts. Now the question is coming up, will Delaware corporations advance proposals at their next annual meeting to implement the exculpation provisions, and how will shareholders react to such proposals?
The short answer is that it is perhaps too early to tell. The concept of exculpation for officers in certain circumstances makes a great deal of sense and has been permitted for directors for some time, and implementing the new provision of the Delaware General Corporation Law should generally be a straightforward exercise of proposing a few tweaks to the Certificate of Incorporation. The need to seek shareholder approval of those amendments complicates matters, because institutional investors and the proxy advisory firms may not necessarily be completely sold on the idea of relieving officers of liability in certain circumstances, even though it is now permitted under Delaware law.
ISS, for its part, specifies in its proxy voting guidelines that it will take a case-by-case approach to proposals on director and officer indemnification and liability protection. More specifically, ISS indicates that it will vote against any proposal that would eliminate entirely directors’ and officers’ liability for monetary damages for violating the duty of care. Glass Lewis’s proxy guidelines are silent on the topic of exculpation, but note:
While Glass Lewis strongly believes that directors and officers should be held to the highest standard when carrying out their duties to shareholders, some protection from liability is reasonable to protect them against certain suits so that these officers feel comfortable taking measured risks that may benefit shareholders. As such, we find it appropriate for a company to provide indemnification and/or enroll in liability insurance to cover its directors and officers so long as the terms of such agreements are reasonable.
Institutional investors’ proxy voting guidelines vary in terms of whether they address liability protections, and in some cases are more focused on protections for directors rather than officers. We suspect that the proxy advisory firms and institutional investors may revisit their policies on exculpation proposals in the coming months, and the topic may therefore be a good one to float at shareholder engagement meetings coming up during the remainder of this year.
Ropes & Gray recently published a rundown of the comments submitted to the SEC in response to its ground-breaking climate change disclosure proposals. The memo notes:
By the time the comment period on the SEC’s proposed climate disclosure rules closed, the SEC had received approximately 14,000 comment letters. Over 1,000 of these letters were substantive, an extraordinarily high number. In this analysis, we provide statistics on the comment letters and note some of the many significant comment letters submitted.
The type of organization that submitted the most comment letters were, not surprisingly, trade associations, with the largest number in that category representing the financial services, agriculture and energy and extractive resources industries. There were 200 comment letters from corporations, representing a very significant turnout from individual issuers. Institutional investors were just behind corporations, submitting 133 letters. Other sources of comment letters include academia, consultants and service providers, standard-setting organizations, government, various think tanks and other organizations. The sheer volume and range of letters submitted in response to the proposal certainly gives the SEC staff and Commissioners a lot to consider when formulating final rules.
The SEC recently consolidated its resources for small businesses under a new Small Business Capital Raising Hub that is accessible from the SEC website’s main page under the “Education” tab. The new hub combines resources from the Office of the Advocate for Small Business Capital Formation with resources from Corp Fin’s Office of Small Business Policy. We expect that the staff will continue to update this new hub with more resources as they become available.
This week, we will mark six months since Russia invaded Ukraine, and the crisis continues to unfold in ways that we probably could not have imagined at the beginning of this year. We reflect on the terrible human toll that the conflict has wrought, and we hope for a peaceful resolution as soon as possible.
As I recently noted in the blog, the war has presented many disclosure challenges for public companies over the past six months, and will no doubt continue to do so as long as the conflict continues. We have covered the impacts of the war in a number of our publications, but I would like to point you to our Ukraine Crisis Practice Area here on TheCorporateCounsel.net. In the Practice Area, we continue to post useful resources on a wide range of topics, including sanctions, disclosure issues, board oversight considerations, and commercial and investment issues.
If you are not already a member of TheCorporateCounsel.net with access to the Practice Areas and other critical resources, sign up now and take advantage of our no-risk “100-Day Promise” – During the first 100 days as an activated member, you may cancel for any reason and receive a full refund. The prices for an annual membership increase on September 1st, so please act now.
In the latest Deep Dive with Dave podcast, I am joined by Chris Gaskill, Executive Vice President, Chief Legal Officer and Secretary at Summit Materials, to discuss the hottest topics for MD&A, including:
• The COVID-19 pandemic
• Inflationary pressures in the world economy
• Supply chain issues
• The war in Ukraine
• The use of non-GAAP financial measures
• Key takeaways for drafting your MD&A
You can still register for our always-popular conferences – the “Proxy Disclosure & 19th Annual Executive Compensation Conferences” – to be held virtually Wednesday, October 12th – Friday, October 14th. With new SEC rules, record numbers of shareholder proposals, and relentless regulatory & investor scrutiny, your proxy disclosures – and the actions that support them – are more important than ever. Our Conferences provide practical guidance about rule changes, Staff interpretations, emerging disclosure risks, investor and proxy advisor positions, executive pay expectations, the board’s role, and more.
Here’s who should attend:
– Anyone responsible for preparing and reviewing proxy disclosures – including ESG and executive pay disclosures and responses to shareholder proposals.
– Anyone responsible for implementing executive and equity compensation plans or who counsels or advises boards on their oversight responsibilities, including CEOs, CFOs, independent directors, corporate secretaries, legal counsel, HR executives and staff, external reporting teams, accountants, consultants, and other advisors.
For more details, check out the agenda – 18 panels over 3 days. Our speakers are fantastic and this is truly a “can’t miss” event for anyone involved with proxy disclosures, corporate governance, and executive compensation.
Conference attendees will not only get access to our unique & valuable course materials (coming soon) – we’ll also be making video archives and transcripts available after the conference, so that you can refer back to all of the practical nuggets when you’re grappling with your executive pay decisions, disclosures and engagements. Plus, our live, interactive format gives you a chance to earn CLE credit and ask real-time questions.
Register today! In addition, check out the agenda for our “1st Annual Practical ESG Conference” – which is happening virtually on Tuesday, October 11th. This event will help you avoid ESG landmines and anticipate opportunities. You can bundle the Conferences together for a discount.
I blogged yesterday about my dismay in reading that today’s retail investors find equity investing to be hopelessly complicated. Law Profs Christina Sautter & Sergio Alberto Gramitto Ricci sent a word of encouragement, by pointing me to their latest paper. It was just posted last week and addresses the important topic of “investing education” in the age of mobile apps & financial inclusion. The paper is a response to another recent analysis – “Regulating Democratized Investing” – by Abraham Cable, which proposes a way to encourage investor choice & access on new apps, without people losing their life savings in misguided day trading.
In their paper, Christina & Sergio walk through the rise of “finfluencers” – social media influencers who have become informal educators to a huge number of retail investors, for better or for worse. Companies that get mentioned often have to contend with misinformation & rumors. The professors suggest that mandatory investing education at the high school level would help the public navigate information sources (and save corporate secretaries from headaches).
Here’s the part that I found especially thought-provoking:
Private Ordering: … In the future, Fisch’s “just-in-time education” recommendation could also be extended to proxy materials and proxy voting to make materials and corporate governance more accessible and engaging for retail investors. Although many retail investors care about corporate governance engagement, they are not generally well versed in corporate governance legal terminology. There are examples on social media of retail shareholders showing a lack of knowledge regarding the meaning of a “record date,” what happens on the record date, and when voting occurs.
Retail investors are not just unfamiliar with corporate law terminology but also the mechanics of corporate governance as well as the substantive issues at play in proxy items. For example, some technicalities like a partially completed proxy card resulting in the remainder of votes being cast in accordance with management recommendations is not necessarily intuitive. Investing education courses should include instruction not just on investing but these intricacies of corporate governance to empower retail investors.
Including Corporate Governance in Education: Civics education has been found to nurture political engagement with positive ramifications on equality and citizens’ agency. In a globalized world, with corporations rivaling nation states in power and influence, the benefits of widespread investing education cannot be overstated. Corporate governance allows citizens to partake in decision making affecting virtually all aspects of their lives. Share ownership is the key that provides access to corporate governance.
Including corporate governance in investing education curricula not only completes the set of knowledge necessary for investing in companies’ shares, but also enhances the agency of investors as citizens. Investing education bridges the gap between citizens and Wall Street. It also provides citizens with the tools to engage with the companies in which they invest.
There you have it: a call to action for corporate governance experts to save the world. Maybe I can finally convince my non-lawyer friends to follow this blog.
In a new 18-minute episode of our “Women Governance Trailblazers” podcast, Courtney Kamlet & I interviewed Rachel Kahn-Troster, Executive VP at the Interfaith Center on Corporate Responsibility, about her unique career path and mentor experiences.
Rachel also shares her thoughts on how companies can continue to improve on human rights issues – and how she works with ICCR members to engage with companies on this and other topics. It’s worth hearing Rachel’s perspective, because as I blogged earlier this week, members of the ICCR coalition engaged in a record level of activity during the 2022 proxy season.
