I am always the first to admit that I am not an M&A guy. I recall working on my one and only M&A assignment when I was an associate, and I am pretty sure that I barely made it through that deal. I still feel bad for the attorney who had to supervise me on that one. But you don’t have to be an M&A person to know that we are in a whole new world when it comes to antitrust merger reviews and enforcement. While we talk a lot about how the environment has significantly changed at the SEC over the past year, the extent to which the pendulum has swung on the antitrust front is next level stuff.
That is why you should definitely join us on DealLawyers.com next Tuesday, December 7th at 2:00pm EST for the webcast “The Brave New World of Antitrust Merger Review & Enforcement.” In this brave new world, merger review and enforcement decisions will affect our clients and companies, so it is important to understand where things are going – even if you are not an M&A person!
If you do not have a subscription to access all of the great resources on DealLawyers.com like this webcast, email sales@ccrcorp.com today.
For those that have been doing this long enough to recall the dark days of the options backdating scandal back in the 2000s, you may also recall that a variety of other equity award granting practices were in the spotlight back in those days, including “spring loading” and “bullet dodging.” Spring loading occurs when a company issues stock options shortly before the release of information that it expects to cause an increase in its stock price, while bullet dodging occurs when a company delays its option awards until after the release of information that it expects to cause a decrease in its stock price.
As Emily notes in the Advisors’ Blog on CompensationStandards.com, after all of these years, the SEC Staff has issued guidance on the proper accounting when an issuer is “spring loading” an option grant. As stated in the SEC’s press release, new Staff Accounting Bulletin No. 120 says that companies estimating the fair value of spring-loaded awards in accordance with ASC Topic 718 “must consider the impact that the material nonpublic information will have upon release.” Here are the main changes that Staff Accounting Bulletin No. 120 makes:
Amends and replaces the interpretive guidance in Topic 14.D., Certain Assumptions Used in
Valuation Methods. SAB No. 120 states that when companies are granting share-based awards while in possession of MNPI, companies should consider “whether adjustments to the current price of the underlying share or the expected volatility of the price of the underlying share for the expected term of the share-based payment award are appropriate when applying a fair-value-based measurement method to estimate the cost of its share-based payment transactions.”
Rescinds guidance in Subtopic 14.A., Share-Based Payment Transactions with Nonemployees, noting that ASU 2018-07 made Subtopic 14.A. no longer relevant.
Edits to the following subtopics to conform to updated GAAP terminology from FASB’s ASC Topic 718 (as updated by FASB’s Accounting Standards Updates): Subtopics 14.B., Transition from Nonpublic to Public Entity Status; 14.C., Valuation Methods; 14.D., Certain Assumptions Used in Valuation Methods; 14.E., FASB ASC Topic 718, Compensation – Stock Compensation, and Certain Redeemable Financial Instruments; 14.F., Classification of Compensation Expense Associated with Share-Based Payment Arrangements; 14.I., Capitalization of Compensation Cost Related to Share-Based Payment Arrangements; and 5.T., Accounting for Expenses or Liabilities Paid by Principal Stockholder(s).
As this Law360 article notes, SEC Chair Gary Gensler appeared with former SEC Chair Jay Clayton at the Digital Asset Compliance & Market Integrity Summit yesterday, and they expressed a rare meeting of minds when it comes to regulating digital assets. When Gensler called for crypto firms to come within the SEC’s current registration framework, Clayton stated “we’re very much of the same mind on this, ask what is the form and function that’s being provided, what is the product, and map that to the traditional model space, and look to that for the type of regulation that applies.” The article goes on to note:
“While acknowledging the potential for blockchain technology to transform the modern financial system, both Gensler and Clayton were dubious of the notion that the decentralized quality of certain DeFi products and platforms, or indeed just their being labeled as “decentralized,” excused those products from the SEC’s reach.”
During Clayton’s tenure at the SEC, the ICO boom reached a fevered pitch, and the SEC took a number of steps toward trying to regulate the sale of tokens that were “investment contracts” under the Howey test, such as through the The DAO Section 21(a) Report, numerous Staff statements on the applicability of the federal securities laws to token offerings, no-action letters and a variety of Enforcement actions.
In the latest Deep Dive with Dave Podcast, Brinkley Dickerson from Troutman Pepper joins me for an MD&A Workshop. With the SEC’s significant changes to MD&A now in effect for this reporting season, it is a great time to get a handle on how to tackle those changes and improve the overall quality of your MD&A.
Liz recently blogged about EY’s 10th annual survey of audit committee disclosures, and now the Center for Audit Quality is out with its 8th annual Audit Committee Transparency Barometer. All of this tracking of audit committee disclosures is indicative of the fact that the audit committee’s role in oversight of financial reporting and the auditors is still very much of interest to investors, including disclosure that goes above and beyond the bare minimum required by the SEC.
CAQ’s analysis focused on disclosures of audit committee oversight in proxy statements of companies in the S&P Composite 1500. Overall, the CAQ observed slight increases with some stagnation among disclosures that have been tracked over the years. The one big exception is cybersecurity – the CAQ indicates that disclosure regarding the audit committee’s oversight of cybersecurity increased by 5 to 7 percentage points among S&P 500 companies each year since 2016.
The most common disclosures that CAQ observed in 2021 continue to be related to non-audit services and potential impact to independence, auditor tenure, criteria considered to evaluate the audit firm and involvement in audit partner selection. Moderate levels of disclosure were observed on the topics of oversight of cybersecurity, engagement partner rotation, considerations when appointing the auditor, and stating the evaluation of the auditor occurs at least annually. The lowest rates of disclosure involve the audit committee’s negotiation of auditor fees, an explanation of changes in auditor fees, consideration of fees in the context of audit quality and disclosure of significant areas addressed with the auditor. The CAQ indicates that these areas present the greatest opportunity for increased transparency by the audit committee.
The SEC’s Investor Advisory Committee is set to meet tomorrow, and on the agenda is a deep dive into digital assets. The agenda notes:
The panel will explore the intersection of digital assets and investor protection, with a specific lens on the regulatory framework covering digital assets, market structure issues, and defining risk in emerging technologies. Additional covered topics include blockchain technologies, crypto-based EFTs, and stablecoins.
In the afternoon, the Investor Advisory Committee plans to address the SEC’s potential role in addressing elder financial abuse issues.
I often lament that one day the robots will be coming for my job (perhaps I watched a little too much Westworld), and we may just be a little bit closer with the SEC’s new exempt offering navigator. The Staff in the Office of the Advocate for Small Business Capital Formation has been doing a great job of expanding the resources available to small business seeking capital, and the navigator is one part of that effort. The capital-raising landscape for smaller companies can be daunting, with the patchwork of exempt offering alternatives making it difficult to figure out which exemption works best for a company’s needs. What the Staff has done with the navigator is to steer companies to the most relevant resources, based on answers to a series of straightforward questions.
The navigator pages are careful to note that the information provided is neither a legal interpretation nor a statement of SEC policy, and that if someone has questions, they should consult with an attorney who specializes in securities law. I think this sort of tool can be very helpful to inform entrepreneurs about their potential capital-raising paths so that they can have informed conversations with their lawyers when deciding how to raise capital. I encourage everyone to take a spin through the navigator today!
It is hard to believe that the CPA-Zicklin Index is celebrating its ten-year anniversary. The index, which is a joint collaboration between the Center for Political Accountability (CPA) and The Carol and Lawrence Zicklin Center for Business Ethics Research at the Wharton School of the University of Pennsylvania, has been benchmarking political spending at the largest companies since the Supreme Court decided the Citizens United case in 2010. Today, the CPA-Zicklin Index benchmarks the political spending practices of the S&P 500 companies.
Some key trends from this year’s CPA-Zicklin Index are:
The number of S&P 500 companies with policies for general board oversight of political spending is 295, up 13.9 percent from 259 companies in 2020;
Companies with board committee review of direct political contributions and expenditures increased to 217 this year, up 9 percent from 199 in 2020;
Companies with board committee review of payments to trade associations and other tax-exempt groups increased to 196 companies this year, up 11.4 percent from 176 in 2020;
The number of companies that fully or partially disclosed their political spending in 2021 or that prohibited at least one type of spending is 370, representing over 75 percent of the S&P 500 companies evaluated and a record high since this tracking began;
The number of companies that fully or partially disclosed their political payments to state or local candidates or committees, or that prohibited them, was 334, another high;
The number of companies that disclosed some or all of their political spending was 293; and
The number of companies that prohibited direct donations to state and local candidates, political parties, and committees was 136.
The CPA-Zicklin Index also highlights some of the most-improved companies, as well as the companies that is considers “basement dwellers,” and includes some very insightful perspectives on the political spending environment today.
One of the key risks that we often consider when addressing any disclosure or corporate governance issue is whether the outcome could expose the company and its officers and directors to securities class action litigation. My MoFo colleague Judson Lobdell recently published this very helpful Summary Guide to Securities Class Action Litigation, which does a great job of walking through the legal bases for such claims, the risk factors that can lead to litigation, and the action items that companies should prioritize both before and after the threat of litigation arises. This resource, along with many other related resources, are highlighted in MoFo’s Above Board resource center, which provides relevant resources that are specifically curated for directors and senior management.
