We’ve posted the transcript for our recent webcast for members, “The (Former) Corp Fin Staff Forum.” This was an action-packed discussion among “All-Stars” – Sidley’s Sonia Barros, WilmerHale’s Meredith Cross, Gibson Dunn’s Tom Kim, Broadridge’s Keir Gumbs and Morrison & Foerster’s Dave Lynn – and it was full of useful info. Here’s something Dave shared about sample comment letters, which is all the more relevant in light of the sample letter that Corp Fin published yesterday:
Another interesting area to pay attention to is one of the topics Sonia just mentioned: climate change disclosure. The Staff took the step that’s become a tried-and-true strategy of putting out a sample comment letter. The concept is, while we could all wait around and see what comments the SEC has issued on climate change after the reviews have been completed and correspondence is put up on EDGAR, but by that time you’ve lost the momentum.
For many years, the Staff has pursued this concept of putting up a sample comment letter that addresses the range of issues. As Sonia mentioned, these letters focused on the applicability of the 2010 interpretive guidance that came from the Commission, as well as the relationship between the type of information that companies put in their investor communications on their website, for example their sustainability reports, relative to what information they determine was “material” for the purposes of their SEC filings. One interpretive “shot across the bow” was putting out those comments so that people could see the positions the SEC was taking in real-time through those letters.
Similarly, we’ve seen a sample letter posted regarding China-based companies. That letter is focused on various risks that have been identified and have been a focus of Congress and the Commission over the last few years, including the applicability of the Holding Foreign Companies Accountable Act. The level of detail in the China-based companies’ letter was significant in terms of the disclosure that was expected in the filings regarding the structures employed by these entities and the involvement of authorities in China with respect to the company’s business and the like. There was specific guidance in there around SPACs, as well.
If you are not a member of TheCorporateCounsel.net, email sales@ccrcorp.com to sign up today and get access to the full transcript – or sign up online. With our “100-Day Promise,” during the first 100 days as an activated member, you may cancel for any reason and receive a full refund!
Join us tomorrow at 2pm Eastern for the second event in PracticalESG.com’s 3-part DEI workshop series. This 90-minute session is on the topic of “Understanding and Using Equity Audits and Civil Rights Audits.” Not only will this FREE workshop deliver info to help you understand what civil rights audits, racial equity audits, and pay equity audits are intended to accomplish – you will be hearing from the top leaders in this space. In a “fireside chat” format, you’ll hear from:
– Eric Holder – Senior Counsel at Covington, advising on civil rights audits and complex investigations, and 82nd US Attorney General – the third longest-serving Attorney General in U.S. history and the first African American to hold that office
– Laura Murphy – President of Laura Murphy & Associates, civil rights leader, and pioneer of civil rights audits with work at Airbnb and Facebook
Eric and Laura are not only civil rights trailblazers, they worked together on Airbnb’s audit and will have a lot to talk about. Then, stay for our informative panel discussion, featuring:
– Megan Cacace – Director of Anti-Discrimination & Equity Programs at Airbnb, which in 2016 was the first company to conduct a civil rights audit
– Aaron Lewis – Partner at Covington, leading clients through the process of conducting civil rights audits
– Tejal Patel – Corporate Governance Director at SEIU Affiliates’ Supplemental Savings Plan/SOC Investment Group – which is the proponent behind the McDonald’s proposal and successful racial equity audit initiatives at several big banks and other companies
The accomplished Ruth Umoh will moderate these discussions. Ruth is currently an Editor at Fortune and a former Editor of Forbes, CNBC Reporter, and Producer for Rolling Stone Magazine.
Every person who is doing DEI and ESG work, tasked with managing stakeholder outcomes, or advising boards on shareholder initiatives that could affect the proxy statement and director support, needs to understand this emerging practice. Ngozi blogged last week about the signs that suggest these audits will become more mainstream and inform more DEI and ESG work. Sign up today for this free workshop (it only takes a minute) and join us tomorrow at 2pm Eastern.
If you can’t make the live session, a replay will be available for members of PracticalESG.com. Here’s the replay of the first session, “Collecting Diversity, Equity & Inclusion Data: What to Measure & Why.” That event featured DiversityIQ’s Cheryl Cole, Fossil Group’s Sheri Crosby Wheeler, Aon’s Aria Glasgow, Pipeline Equity’s Katica Roy, Fortune’s Ruth Umoh, and Ngozi – and was full of practical guidance.
If you aren’t already a member, sign up online or by emailing sales@ccrcorp.com or calling 800-737-1271. Our “100 Day Promise” allows you to try a subscription at no risk for 100 days – within that time, you may cancel for any reason and receive a full refund!
It’s impossible to know the internal machinations of any sensitive board decision – but there sure is a lot of speculation about how Twitter’s board arrived at approving Elon Musk’s (initial & only) offer to buy that company. A lot of commentary stems from statements made at an all-hands meeting. In that meeting, the company’s CEO emphasized that the board had to act in the best interest of the shareholders, and determined this offer was the best they could do:
As I’ve said, the board decides based on two factors. We act in the interest of our shareholders and look for value for them in the long term. Our job is to think about the price, and consider any offer on the table. And we compare that against the intrinsic value of the company based on the future-looking outlooks we have financially.
We get a lot of advice from several lawyers and bankers in the process … And when we looked at all the information and all of the data, every one of us concluded that based on our fiduciary responsibility … this offer at the price it ended up at was in the best long-term interest of our shareholders.
So if Twitter’s board had said “Twitter is not worth $54.20 per share and never will be, but we declined Musk’s offer anyway because we think it is bad for users and the product,” that would have been at least a risky move. But if it had said “we declined Musk’s offer because we think it is bad for users and the product, and we think that if we continue to improve the product and user experience then in the long run this obviously important social network should be worth more than $54.20 per share,” that would have been a defensible position even if, like, three-year earnings projections did not really support a $54.20 price.
It would help, in making that case, if Twitter’s board and managers had a long-term plan. What is strange here is that the richest person on earth came in out of the blue with a not-particularly-preemptive offer to buy a service that he is obsessed with and that seems crucial to his success. Hearing that, you might think things like “huh this product must be pretty valuable.” You might sit down and try to think of ways to extract value from it, other than selling it to Musk at the first price he proposed. Twitter’s board had no ideas.
One view is to say that the Twitter deal shows that the BRT statement didn’t change anything. Another view is that it makes long-term strategy even more important.
In this 30-minute LinkedIn interview between Daniela Liscio and Bev Behan (who Courtney Kamlet and I also interviewed late last year for our “Women Governance Trailblazers” podcast), Bev says that the speed and surprise of the Musk/Twitter deal underscores the importance of staying alert to corporate governance practices, director skill sets, and vulnerabilities.
According to Bev, the bottom line is that no matter how safe your board might feel, unanticipated “black swan” events can and will happen. Whether you’re dealing with a small or large company, difficult discussions that the board thought would be private may come to light – and their decisions will be heavily scrutinized with 20/20 hindsight. The fallout of that can go beyond shareholder value and affect director reputations.
– “Protecting Your Board from the Next Maelstrom” – featuring Soundboard Governance’s Doug Chia, Gibson Dunn’s Beth Ising, Cozen O’Connor’s Kathy Jaffari, and Digimarc’s Board and Nom/Gov & Sustainability Committee Chair Alicia Syrett
– “ESG Disclosures – Staying Out of Hot Water” – with Prudential’s Peggy Foran, MoFo’s Dave Lynn, Skadden’s Brian Breheny and Wachtell’s Leo Strine, Jr.
In addition, join us for the “1st Annual Practical ESG Conference.” For both of these events (which can be bundled together for a discount), our seasoned and diverse speakers will be sharing practical guidance in a fast-moving format. Sign up online, email sales@ccrcorp.com, or call 1-800-737-1271.
Sign up today for the best rate, because our “Early Bird” pricing ends June 10th!
The SPAC market has been decidedly cooler this year – due to market conditions that are affecting all IPOs, yes – but also due to SEC skepticism that culminated in a March 30th rule proposal. As noted in this article from Bloomberg’s Preston Brewer, the proposal is causing some underwriters to reconsider work on SPAC deals. John also blogged that at least one deal died because the SEC didn’t act on the acceleration request.
In case all that still isn’t enough to dampen enthusiasm, SEC Investor Advocate Rick Fleming also recently contacted the Nasdaq and NYSE to urge more stringent listing standards for SPACs. This Fried Frank blog explains:
SEC Investor Advocate Rick A. Fleming urged Nasdaq and the NYSE to revise their listing standards so that special purpose acquisition company (“SPAC”) business combinations could only be consummated when 50 percent or more of public shares would be invested in the SPAC post-combination.
In Memoranda to the exchanges, Mr. Fleming, stated that “we have significant reservations about the consequences of the current listing standards that allow for empty voting and otherwise permit significant conflicts of interest.” He highlighted the SEC’s proposed rule to increase disclosure in IPOs by SPACs and in business combination transactions involving shell companies such as SPACs, (see prior coverage).
In the Memoranda, Mr. Fleming asserted that (i) the exchanges’ elimination of a conversion rights percentage threshold and (ii) the replacement of voting protections with registration statement risk disclosures of underfunded business combinations enabled many companies to go public even when most SPAC IPO investors had redeemed their shares. He contended that this allows the occurrence of business combinations even when assets are depleted due to the exercise of conversion rights, which in turn gives early investors economic incentives to allow low-quality deals to happen. The Investor Advocate concluded that these measures (i) enabled “empty voting” and conflicts of interest and (ii) “benefitted SPAC sponsors and sophisticated IPO participants . . . at the expense of public investors.”
For more on the ongoing ins & outs of SPAC deals, visit our “SPACs” Practice Area – where we cover SEC and exchange regulations, de-SPACs, accounting issues, litigation & enforcement, and more.
If you’re not already a member with access to these resources, sign up for TheCorporateCounsel.net online or by emailing sales@ccrcorp.com or calling 800-737-1271. Our “100 Day Promise” allows you to try a subscription at no risk for 100 days – within that time, you may cancel for any reason and receive a full refund!
An observant member posted this question last week in our “Q&A Forum” (#11,109):
Does anyone have insight into when the SEC will be raising the annual gross revenue cap for a company to qualify as an emerging growth company? The JOBS Act requires the SEC to index to inflation the revenue cap every five years, and the last adjustment (from $1.0B to $1.07B) was on March 31, 2017, effective April 12, 2017 when it was published in the Federal Register.
John noted:
I have not heard anything on this, but the 10th anniversary of the JOBS Act was April 5th, so I would expect the SEC to issue something in the very near future.
It’s hard to believe that the JOBS Act is 10 years old. We have Practice Areas for “Emerging Growth Companies” and for the “JOBS Act” (and the related FAST Act) for any members looking for instruction on how to apply these regulations.
Last week on our Proxy Season Blog, I highlighted a Goodwin analysis saying that nearly 80% of Nasdaq companies have included a board diversity matrix in their proxy statement this year, rather than waiting for the August deadline to post on their website.
For those companies that have not yet published a matrix, a new memo from Compensation Advisory Partners runs through example matrices based on the most recent Nasdaq instructions from February of this year. Here are the 6 examples – check out the memo to see what they look like:
1. Matrix showing all required components as well as supplementary info
2. Matrix that excludes categories that aren’t applicable to the company’s directors
3. Matrix that shows all required categories with additional rows below the matrix about director demographics that aren’t included in Nasdaq’s listed categories (e.g., military veterans, etc.)
4. Matrix with accompanying narrative disclosure
5. Matrix for foreign company with supplementary rows below
6. Matrix for foreign company where disclosure of race is prohibited in the home country – the company must still disclose gender stats
For Nasdaq-listed companies that go the “website posting” route for the board diversity matrix, the Nasdaq instructions require completing Section 10 of the Company Event Form (accessed through the listing center) within one day of posting the matrix on your website. You’ll need to include a link to the matrix on that form.
Will the SEC extend the comment period in response to these requests? As the most recent extension request aptly points out:
The 39 days allotted for comment since the proposed rule was published in the Federal Register are woefully inadequate for the magnitude of this rule, which runs to 506 pages, contains 1,068 footnotes, references 194 dense academic and governmental reports, imposes a $10.235 billion cost on society, and seeks answers to 196 discrete questions. The public requires ample time to consider all the materials SEC has laid out in this rule in order to thoughtfully and thoroughly respond. Likewise, SEC has a statutory obligation to provide the public with a meaningful opportunity to comment. Thirty-nine days does not constitute a meaningful opportunity when there are so many wide-ranging economic and financial impacts from this rule.
But does the SEC care what commenters think? A 39-day comment period on a rule proposal of this significance does not signal that it does, and could only hurt the Commission’s position in the inevitable litigation that will follow adoption of the rules. In the meantime, I am going to keep going on the comment letters I am working on!
Over the course of this year, I have been taking a walk down memory lane and looking back on 15 years of contributing to CCRcorp publications. Since the beginning of my time with CCRCorp, I have been a contributor to and editor of The Corporate Counsel newsletter, and now I serve as Senior Editor of that publication along with John Jenkins. The Corporate Counsel newsletter is our flagship publication and has been a go-to resource for me for as long as I have been practicing law. I can remember being at the SEC when I first started out and waiting for the latest issue to circulate through people’s inboxes until it reached my desk, and I would read it cover-to-cover to take in all of the great practical guidance. I credit The Corporate Counsel with teaching me many of the practical things about the securities laws that I use in my practice every day. I refer to the online back issues of The Corporate Counsel several times a week – and you should too!
While it is hard to tell because The Corporate Counsel does not have bylines, I have written many of the articles that have been published in The Corporate Counsel over the past 15 years. With so many articles in print, it is difficult to pick just one as a favorite. But if I have to choose, I would say that my article about the integration doctrine in the January-February 2021 issue of The Corporate Counsel was my favorite, because it gave me an opportunity to tell the recent history of the integration doctrine while paying tribute to my late friend and former editor of The Corporate Counsel, Marty Dunn. The article recounts how Marty’s “integration manifesto” shaped the development of the integration doctrine, and how those concepts influenced the SEC’s rulemaking on integration in the 2020 harmonization release. To me, the article does everything I strive for in an article for The Corporate Counsel – it tells a good story, it gives some history and perspective and offers some useful, practical guidance.
I hope that you enjoy the free copy of the January-February 2021 issue of The Corporate Counsel that I have provided in this blog. If you do not have a subscription to the print or online issues of The Corporate Counsel, be sure to email our sales team today at sales@ccrcorp.com.
As Ngozi blogged earlier this week, civil rights audits are an emerging issue that companies and boards need to understand and that can impact DEI work. This workshop will feature valuable guidance from leaders in the civil rights audit space – including former US Attorney General Eric H. Holder, Jr., Laura Murphy (the pioneer of this practice), Airbnb’s Megan Cacace, Covington’s Aaron Lewis, and SOC Investment Group’s Tejal Patel.
The workshop is free and if you can’t make the live event (or if you want to re-watch it), a replay will be available for members of PracticalESG.com. If you aren’t already a member, sign up online or email sales@ccrcorp.com.
For more information, go to PracticalESG.com. My firm Morrison & Foerster LLP is proud to be a sponsor of the DEI Workshop and I encourage everyone to attend.
