Yesterday, SEC Commissioners Rob Jackson & Allison Herren Lee issued this joint statement about the “modernization” amendments to Reg S-K that were proposed several weeks ago. Although they’re in favor of the proposed addition of human capital disclosure requirements, they want to encourage comments on the shift towards principles-based disclosure and the absence of the topic of climate risk. Here’s the body of their statement:
The proposal favors a principles-based approach to disclosure rather than balancing the use of principles with line-item disclosures as investors—the consumers of this information—have advocated. The flexibility offered by principles-based disclosure makes sense in some cases, but the benefits of that flexibility should be carefully weighed against its costs.
One concern with principles-based disclosure is that it gives company executives discretion over what they tell investors. Another is that it can produce inconsistent information that investors cannot easily compare, making investment analysis—and, thus, capital—more expensive. Our concern is that the proposal’s principles-based approach will fail to give American investors the information they need about the companies they own.
For example, the proposal takes a crucial step forward for investors who have long asked for transparency about whether and how public companies invest in the American workforce. But, because it favors flexibility over bright-line rules, the proposal may give management too much discretion—sacrificing important comparability—when describing a company’s investments in its workers.
That’s why investors representing trillions of dollars, and our Investor Advisory Committee, have urged the SEC to require specific, detailed disclosures reflecting the importance of human capital management to the bottom line. We hope that commenters will make sure we get this balance right by letting us know what, if any, specific measures would be useful for investors.
Additionally, the proposal does not seek comment on whether to include the topic of climate risk in the Description of Business under Item 101. Estimates of the scale of that risk vary, but what is clear is that investors of all kinds view the risk as an important factor in their decision-making process. Yet it remains tough for investors to obtain useful climate-related disclosure. One argument against mandating such disclosure is that climate risk is too difficult to quantify with acceptable accuracy. Whatever one thinks about disclosure of climate risk, research shows that we are long past the point of being unable to meaningfully measure a company’s sustainability profile.
For example, recent work shows that some sustainability measures reveal material information to the market. Despite early skepticism about the utility of those measures, recent efforts to refine them through engagement with issuers and investors have borne real fruit. We hope commenters will weigh in as to whether and how this topic should be included in a final rule. In addition, to the extent the SEC may consider whether and how additional rules should be updated to provide more transparency on climate risk, we hope commenters will provide data and analysis to help guide that important work.
Audit Committee Disclosure: Cyber Risks Getting More Play
Deloitte’s annual survey on audit committee disclosure shows that large companies are continuing to increase the amount of information they voluntarily provide – with more than half now explaining why the audit committee decided to appoint the independent auditor, and nearly 80% explaining how the independent auditor is evaluated.
As has been the case for a few years, 99 companies in the S&P 100 also disclose the audit committee’s role in risk oversight. What’s new on that front is that a growing number specifically describe whether & how the audit committee is involved in overseeing cyber risks.
Deloitte gives these suggestions to further enhance transparency & usefulness of the proxy (also see our newly updated “Audit Committee Disclosure Handbook“):
3. Discuss issues encountered during the audit and how they were resolved (see KMI’s 2019 proxy statement)
4. Enhance readability by using graphics, or personalize the audit committee with photos or other messages tailored to readers (see Visa’s 2019 proxy statement)
Transcript: “Company Buybacks – Best Practices”
We’ve posted the transcript for our recent webcast: “Company Buybacks – Best Practices.”
Last week, the SEC issued this fee advisory that sets the filing fee rates for registration statements for fiscal 2020. Right now, the filing fee rate for Securities Act registration statements is $121.2 per million (the same rate applies under Sections 13(e) and 14(g)). Under the SEC’s new order, this rate will increase to $129.8 per million, a 7.1% increase.
Although we saw a modest 2.6% reduction in fee rates last year, this price hike puts fees back on the upward trajectory – they increased by 7-15% in fiscal 2018 and 2017. And since the annual adjustments to the SEC’s fee rate have been made under a formula prescribed by the Dodd-Frank Act since 2010, the “politics” of the timing and amount have been removed for a while.
As noted in the SEC’s order, the new fees will go into effect on October 1st (as has been the case since 2011, and as mandated by Dodd-Frank). That’s a departure from the old way of doing things – before Dodd-Frank, the new rate didn’t become effective until five days after the date of enactment of the SEC’s appropriation for the new year – which often was delayed well beyond the October 1st start of the government’s fiscal year as Congress and the President battled over the government’s budget.
Low-Cost Index Funds: Management’s “Absentee” Best Friend?
John’s blogged a couple of times about efforts by large institutional investors to avert a gathering storm of criticism. Maybe they can add this research to their fodder – it says that index funds are 12.5% more likely than “active” funds to vote with management’s recommendations when they differ from ISS, with that percentage being even higher for funds with low expense ratios (presumably, because they have fewer resources to spend on monitoring).
The research acknowledges that funds could be voting with management and still monitoring to ensure corporate governance – by either selling their shares, or by engaging with the company and then supporting pre-negotiated proposals. Sales are rare, as you’d expect from an index fund. But here’s the surprising part: in a complete departure from all anecdotal evidence and company complaints about the outsized influence of institutional investors, the researchers conclude that there’s no evidence of engagement. Zero!
If they’re right, maybe companies really can rest easy about the prediction that the “Big 3” will control 40% of the S&P 500 within the next 20 years. In my opinion, though, they’ve reached that conclusion based on a flawed understanding of Schedule 13D filing requirements and the shareholder proposal & engagement process. Specifically:
– They ignore the fact that engagement on executive compensation, social issues and corporate governance doesn’t disqualify a shareholder from filing a Schedule 13G
– They assume that there’s no engagement in the absence of a fund submitting its own proposal or voting against the company in a proxy contest
Glass Lewis Going “All In” With CGLytics…And Considering Pay-for-Performance Changes
Here’s something I blogged yesterday on on CompensationStandards.com: In June, I blogged that Glass Lewis is now using CGLytics (instead of Equilar) for compensation & data analysis of North American companies. According to this Georgeson blog, Glass Lewis has now elaborated on what that means – and confirmed that its new business partner will be its exclusive global provider of peer groups, compensation data and analytics.
In light of this move and client & company feedback, the proxy advisor is considering changes to its pay-for-performance peer review and scoring methodology. We’ll know more about the potential changes in a few months. For now, effective January 1st, Glass Lewis will:
– Use CGLytics as the sole provider of compensation data and analytical tools globally
– Provide model access exclusively through Glass Lewis and CGLytics
– No longer use Equilar’s peer groups
– No longer use Equilar data in any of their products
– Be the exclusive access point to Glass Lewis research reports and vote recommendations
FASB is taking pity on smaller reporting companies – who are finding it especially challenging to implement the slew of recent changes to accounting standards. According to this Proposed Accounting Standards Update, the Board has tentatively approved a new philosophy that will extend how effective dates are staggered between larger public companies and all other entities – including smaller reporting companies, private companies and employee benefit plans. This Deloitte blog explains:
The FASB tentatively decided that – subject to the Board’s discretion – a major accounting standard would become effective for entities in Bucket 2 (SRCs, etc.) at least two years after the effective date applicable to entities in Bucket 1 (large public companies). Further, the FASB indicated that entities in Bucket 1 would apply the new accounting standard to interim periods within the fiscal year of adoption while entities in Bucket 2 would apply it to interim periods beginning in the fiscal year after the year of initial adoption.
Historically, the FASB has issued standards with different effective dates for (1) public companies and (2) all other entities. Note that the Board’s tentative decisions would not affect the relief granted under SEC rules related to the adoption of new accounting standards by emerging growth companies.
For smaller reporting companies, this new philosophy would apply to the standard on current expected credit losses – so the proposal would extend the effective date by three years, to 2023. A lot of companies stand to benefit, especially in light of the SEC’s recent expansion of the SRC definition. But not everyone thinks this new philosophy is a good approach. This “Accountancy Daily” article reports on Moody’s anxiety about the change:
The proposal – initiated to give smaller companies more time to implement the new accounting changes – would hinder the credit analysis process by compromising comparability between public and private issuers and delaying, for adoption laggards, the enhanced disclosures these new standards bring.
New PCAOB Staff Guidance: Auditing Estimates & Use of Specialists
Last week, the PCAOB announced Staff guidance on four requirements that will be effective at the beginning of 2021. Here are the new guidance documents:
According to the announcement, the first two documents explain aspects of the PCAOB’s new auditing standard for accounting estimates & fair value measurements (AS 2501). That standard enhances the process for auditors to assess the impact of estimates on the risk of material misstatements. The other two documents highlight aspects of new requirements in AS 1201 and AS 1210 that apply when auditors use the work of specialists in an audit and when an auditor uses the work of a company specialist as audit evidence.
Report From the SEC’s “Small Business Capital Formation” Meeting
The SEC held its 38th annual “Small Business Forum” a couple weeks ago, along with a meeting of the “Small Business Capital Formation Committee” the day before. This Cooley blog summarizes some of the happenings – including a tentative timetable for revising the “accredited investor” definition and this background on the SEC’s proposal to change the definition of “accelerated filer”:
Director Hinman said the question was whether to pursue the SEC’s more nuanced approach or to just conform the non-accelerated filer definition with the SRC definition? Is an attestation worthwhile for companies with public floats over $75 million? According to Hinman, the reason the SEC proposed the narrowly tailored exception for low-revenue companies—“fine-tuning” as Hinman characterized it—was that the DERA analysis was more supportive of that approach: the DERA analysis showed that the risk of problems was greater for companies with revenues in excess of $100 million.
In any case, even without the auditor attestation, the auditors still need to review the quality of the controls as part of the audit, he noted, and the management is still required to perform a SOX 404(a) assessment of internal controls. And there are certainly costs associated with the attestation, especially “system upgrades” that are needed when the attestation process commences. A number of comments received on the proposal argued that, while an attestation can add to the company’s cost, it also saves funds by reducing the cost of capital. As structured, the proposal allows low-revenue companies to make that decision.
Chair Clayton observed that, first, it was important to emphasize that high-quality financial statements are the bedrock of our system. But, with more than a decade of experience with SOX 404(b) and over five years of experience with the JOBS Act and its exemption from 404(b) for EGCs, he suggested, the market is telling us something. With many EGCs now starting to “age out” of that exemption, is the market just “rubbing its hands” in anticipation of 404(b) attestations for these post-EGC companies? He wasn’t seeing it (and some of the company representatives later indicated that, although they were aging out of EGC status, their investors were not asking for 404(b) attestations). Was there a “Wild West” premium for non-accelerated filers?
With reputational issues continuing to emerge as a real risk for companies, I wonder if we might someday see risk factors about high profile leaders within a company being politically active on one side of the partisan fence or the other. A case in point is Stephen Ross, the board chair of the parent company for Equinox and SoulCycle – Ross held a fundraiser for the President and, as noted in this article, members of those fitness centers have been cancelling their memberships in droves.
With a Presidential election only about a year away – and the influence of social media these days – I imagine this sort of thing is bound to happen more frequently. With real-world implications for a company’s bottom line…
Risk Factors: Gun Violence
Last week, John blogged about “active shooters” causing companies to consider risk factors about gun violence. In addition to the recent shootings causing people to take to the streets to protest the lax gun laws in this country, with the rising number of shareholder proposals targeting gun violence in recent years, it shouldn’t be a surprise that risk factors focusing on this topic are surfacing. Here’s the intro from this WSJ article:
A handful of public companies have begun quietly warning investors about how gun violence could affect their financial performance. Companies such as Dave & Buster’s Entertainment, Del Taco Restaurants and Stratus Properties, a Texas-based real-estate firm, added references to active-shooter scenarios in the “risk factor” section of their latest annual reports, according to an analysis of Securities and Exchange Commission filings. The Cheesecake Factory Inc. has included it in its past four annual reports.
The disclosures come as fatalities in mass public shootings have surged in recent years. Between 2016 and 2018, active shooter incidents left 306 people dead and 850 wounded, according to the Federal Bureau of Investigation. That’s up from the previous three years, when active shooters killed 136 and wounded 181. The FBI defines an active shooter incident as one or more shooters attempting to kill people in a crowded area.
How to Track Changes on Corp Fin’s CDIs Pages
A few days ago, I was moaning about the challenges of determining which CDIs were updated when Corp Fin makes a change. My good friend – McKesson’s Jim Brashear – reminded me about the tracking software available out there. For many years, I used Copernic to track many pages on the SEC’s site – but then that software was no longer supported and I got lazy and stopped tracking anything.
Jim informs us that there are some SAAS apps that provide similar functionality to Copernic. Some of the more prominent ones are ChangeTower, Distill.io, Fluxguard, Sken.io, Versionista, Visualscalping and Wachete..
I imagine I could place “better than sex” in the title for any blog and it would wind up as the most popular blog for the year. So thank me for not using that type of trick on the regular. But yes, the SEC did issue guidance on proxy advisors yesterday. Proxy advisors. A topic that many can’t get enough of. So that truly is gold for bloggers looking for attention. I didn’t really need the “better than sex” hook I guess. But I “doubled down” anyway.
Here’s what the SEC did:
1. The SEC issued this 14-page interpretive release about how the proxy rules impact proxy advisors. It forces proxy advisors to take more steps to disclose how they craft their recommendations – and the SEC issued a broad warning for when they convey incorrect information.
2. The SEC issued this 26-page interpretive release about proxy voting responsibilities for investment advisors, providing steps that mutual fund managers should consider if they become aware of potential factual errors or weaknesses in a proxy advisor’s analysis. (Here’s the press release about both of the SEC’s new interpretive releases – and here’s a WSJ article.)
3. Each piece of guidance passed with a vote of 3-2, with the two Democrat Commissioners dissenting (Robert Jackson & Allison Herren Lee).
4. All five of the SEC Commissioners pushed out their opening statements about the new guidance promptly – they came out even before the SEC’s press release. I believe that was a first…
In response to the mechanical questions about how to handle the Inline XBRL for ’34 Act filings – including the exhibit index – Corp Fin issued a set of 9 CDIs yesterday in the area. Here’s a Gibson Dunn blog about them. Hopefully, this will be the last time I ever blog about Inline XBRL…
By the way, the new CDIs don’t show up under “What’s New” on the Corp Fin page. And the way the relatively new CDI section is constructed, the only way to sleuth which CDIs are new – when the SEC pushes out an email indicating there is something new – is to click on each section of the CDIs and look at the “update” date. Something for which I receive a handful of complaints from members each time any CDIs are added or changed…
SEC Brings First Reg FD Case In Nearly Six Years
Yesterday, the SEC brought this Reg FD enforcement case against TherapeuticsMD based on its sharing of material, nonpublic information with sell-side analysts without also disclosing the same to the public. This should be one of the least controversial FD actions the SEC has brought – with pretty clear “selective disclosure” violations of FD on two occasions. Really egregious conduct including the fact that the company didn’t have FD policies or procedures. The company was fined $200k…
The SEC hadn’t brought a Reg FD case since September 2013 (the SEC never did bring a Reg FD enforcement action against Elon Musk for his tweets last year) – here’s a list of the 16 SEC enforcement actions involving Reg FD over the years…
Mandatory Gender Quotas for Boards: California Gets Sued
As noted in this press release, Judical Watch has sued the State of California over its new law that requires up to three women being placed on the boards of companies incorporated in that state. The primary claim of the lawsuit is that the law is unconstitutional. Here’s an article from the “Sacramento Bee” – and see this Cooley blog…
Yesterday, the Business Roundtable got a ton of press by issuing this statement with its view that the “purpose” of a corporation should be changed so that “shareholder primacy” is a thing of the past. Nearly 200 CEOs signed onto the BRT’s statement. Bye-bye Milton Friedman’s decades-old theory to “maximize value for shareholders.” How many of you will need to cover your tattoo of that phrase?
Shifting from shareholder primacy would be quite a change in focus for management & boards – from one devoted primarily to shareholders to one that would be a mix of stakeholders, including employees, customers, suppliers, the environment, communities and shareholders. Under the BRT’s new formulation, companies say they’ll consider the competing interests of the stakeholders (presuming they’re not conflicted). While most state corporate law already allows for this in some form, things like promoting employee welfare at the short-term expense of shareholders are typically justified by boards & management as something that will also improve long-term shareholder value (some shareholders are more amenable to that than others).
Elizabeth Warren loves the idea – she proposed legislation along these lines last year. But understandably, large shareholders aren’t happy about the BRT’s move – here’s a statement from the Council of Institutional Investors.
A few years back, I was at a non-business cocktail party, chatting with someone I had just met. It was a great conversation, as I recall, until I learned that he was a board member of a company in which I held stock, and I shared that fact with him. My holdings were small, comparatively, but large enough to be very relevant to me. This may have been a wonderful opportunity for this board member to ask some questions of me, get my opinions — you know, get to know one of the owners. The other parts of our conversation had been vigorous and interesting.
You can guess what happened, of course. The conversation died out quickly, and drinks needed refilling. And we didn’t speak again that night, or any other time. Fully understanding the desires and goals of shareholders is a key to good company governance, and in this regard directors at publicly traded companies can take a lesson or two from their private company counterparts, especially when it comes to the growing conversations around environmental, social and governance (ESG) issues.
Transcript: “Current Developments in Capital Raising”
We’ve posted the transcript for our recent webcast: “Current Developments in Capital Raising.”
Hats off to Stinson’s Steve Quinlivan for listing recent SEC filings with CAMs in them. Steve notes that “there are a number of audit reports from smaller accounting firms on smaller issuers which indicate no CAMs were identified. Some may think this will change when the Big 4 start issuing reports on those beneath the large accelerated filer tier. That may be the case, but large accelerated filers by their nature seem to have complex accounting, which may not be true for smaller issuers and a finding of no CAMs may be appropriate.” And note this quote from this article by MarketWatch’s Francine McKenna:
Even though CAMS should, in theory, “enhance the informativeness of the audit report,” the researchers caution that their findings suggest that business priorities “may discourage auditors from disclosing important direct-to-investor communications that might make their clients look bad, and instead encourage auditors to withhold such information.”
Are Companies Punishing Their Auditors for Flagging Their Material Weaknesses?
As reflected in this article by MarketWatch’s Francine McKenna, this new study about internal controls reporting by independent auditors is getting a lot of press. Here’s the intro from this “Accounting Today” article (also see this WSJ article):
Auditing firms that tend to find material weaknesses in companies’ internal controls are seen as less attractive in the audit market, according to a new study. The study, by Stephen P. Rowe and Elizabeth N. Cowle of the University of Arkansas, looked at 13 years of data from 885 local offices of 358 audit firms in the U.S., and found offices that reported material weaknesses in internal controls over financial reporting for one or more clients in the course of a year saw their average fee total in the following year grow by about 8 percent less than would have been the case had they issued none. That decline was in addition to lost fees from clients who were found to have internal control material weaknesses, or ICMWs, and responded by switching auditors, which was something that companies tagged with ICMWs were often found to do by the researchers.
“Don’t Make Me Look Bad: How the Audit Market Penalizes Auditors for Doing Their Job.” That’s the title of a study being presented at this week’s annual meeting of the American Accounting Association. While it may not portray companies in the most favorable light, at the same time it’s merely the latest suggestion that auditors might not necessarily lean toward rendering unbiased opinions on paying clients.
“Presumably, audits that provide useful information to users of financial statements should serve to increase the credibility of financial statements and, in turn, increase auditor reputation,” the study’s authors write. But the research found exactly the opposite, at least with respect to one essential service auditors are required to perform: flagging material weaknesses in companies’ internal controls over financial reporting, a responsibility mandated by the Sarbanes-Oxley Act (SOX).
It’s a subject that has come up before, but now there is research that suggests that women CEOs are at higher risk of a brush with an activist than their male counterparts. Because these activists have the ear of institutional shareholders and strike fear in the heart of board members, creating a concrete plan for confronting these threats should top the to-do list of any female CEO. Nelson Peltz, a well-known activist who has targeted his share of female CEOs, told CNBC he is “gender blind.” Whether a firm lives up to its potential is all he cares about, he says. If it’s performing up to expectations, he’ll leave it be. If it ain’t making the numbers, he swoops in.
An investment banker who works on activist issues told me this week that Messrs. Icahn and Peltz could look at three dozen or so criteria in evaluating whether to launch a campaign against a company. “Whether the CEO is a man or woman is absolutely, positively not on that list.” Academics started taking a look for potential bias after a string of prominent women leaders—including Marissa Mayer (Yahoo), Mary Barra (GM), Meg Whitman (HP), Indra Nooyi (Pepsi) and Sandra Cochran (Cracker Barrel)—had battles with activists, who are almost exclusively men. Former Mondelez International Inc. CEO Irene Rosenfeld told The Wall Street Journal in 2015 that dealing with Mr. Peltz consumed 25% of her time. Ursula Burns relinquished Xerox Corp.’s CEO title after a confrontation with Mr. Icahn. Ellen Kullman led Dupont’s successful fight against Mr. Peltz in 2015, but abruptly retired five months later amid deteriorating results.
Around here, we’ve come to expect big things from unicorn IPO filings – and I’m delighted to say that ’The We Company’’s Form S-1 does not disappoint. I’ll let others comment on the company’s decision to use an Up-C structure, its financial performance & its corporate governance. I’m just going to let the document speak for itself. I’m sure the lawyers involved spent lots of time toning this thing down from what the business folks wanted – but in the end, “unicorns gonna unicorn.” Here’s the paragraph that leads off the “Prospectus Summary”:
We are a community company committed to maximum global impact. Our mission is to elevate the world’s consciousness. We have built a worldwide platform that supports growth, shared experiences and true success. We provide our members with flexible access to beautiful spaces, a culture of inclusivity and the energy of an inspired community, all connected by our extensive technology infrastructure. We believe our company has the power to elevate how people work, live and grow.
My oldest son works for a startup in Chicago that’s housed in a WeWork space, but I haven’t seen any evidence of elevated consciousness in him. I don’t think they have free beer – or as page 145 of the prospectus refers to it, “Craft on Draft” – in the Chicago locations anymore, so maybe that’s what’s missing. Anyway, the company’s mission statement may sound goofy to a middle-aged guy like me, but management wants everybody to know they’re serious – so they put it in the “Risk Factors” section:
We may make decisions consistent with our mission that may reduce our short- or medium-term operating results.
Our mission is integral to everything we do, and many of our strategic and investment decisions are geared toward improving the experience of our members and the attractiveness of our community. While we believe that pursuing these goals will produce benefits to our business in the long-term, these decisions may adversely impact our short- or medium-term operating results and the long-term benefits that we expect to result from these initiatives may not materialize within the timeframe we expect or at all, which could harm our business and financial results.
Given how much media attention has been devoted to this offering, it’s no surprise that there’s also a gun-jumping risk factor on page 49. Apparently, it relates to comments that CEO Adam Neumann & CFO Artie Minson made to Axios & Business Insider back in May. Hey, if you’ve got a mission to raise the world’s consciousness, you’re sort of obligated to preach your evangel whenever the opportunity presents itself, right?
Related Party Transactions: We’ll Get to That Stuff – But First, Adam is Awesome!
I could go on like this, but I’ll do just one more – the “Related Party Transactions” section. To soften the blow of the nearly 11 full pages of related party transactions disclosure, the section begins with a testimonial to the CEO’s overall awesomeness:
Adam has served as the Company’s Chief Executive Officer and Chairman of the Company’s board of directors since our inception. From the day he co-founded WeWork, Adam has set the Company’s vision, strategic direction and execution priorities. Adam is a unique leader who has proven he can simultaneously wear the hats of visionary, operator and innovator, while thriving as a community and culture creator. Given his deep involvement in all aspects of the growth of our company, Adam’s personal dealings have evolved across a number of direct and indirect transactions and relationships with the Company. As we make the transition to a public company, we aim to provide clarity and transparency on the history of these relationships and transactions, as well as the background to the strategic governance decisions that have been made by Adam and the Company.
I’ve read this several times, and I love it more each time – especially the part about how the CEO’s “personal dealings have evolved across a number of direct and indirect transactions. . .” Of all the unicorn disclosure I’ve ever read, this just may be the “unicorniest”!
The Weed Beat: U.S. Capital Markets More Open to Cannabis-Related Businesses
This recent blog from Duane Morris’s David Feldman reviews recent U.S. financing activities involving cannabis-related businesses, and says that they have positive implications for U.S. based-businesses:
These developments likely will lead to fewer US companies feeling the need to go public in Canada, where previously companies believed capital was easier to access. Second, the growers and sellers of cannabis in the US, those that “touch the plant,” have not yet been permitted to list their shares on a national exchange. It will be interesting to see if and when the exchanges relent on their reticence to list these now large and fast-growing entrepreneurial enterprises as the march to US legalization continues. In the meantime, capital as fuel for growth is more and more available to these US businesses.
Every few years, we survey the practices relating to blackout & window periods (we’ve conducted over a dozen surveys in this area). Here’s the results from our latest one:
1. Which factor is most important in allowing a blackout period to end one day after an earnings release:
– Filer status being large accelerated filer and a WKSI – 19%
– Number of analysts providing coverage on company – 23%
– Average daily trading volume for the company – 10%
– None of the above is important – 48%
2. How many analysts covering the company is considered sufficient to allow blackout period to end one day after an earnings release:
– 1-5 – 3%
– 6-10 – 26%
– 11-15 – 13%
– 16 or more – 6%
– None of the above is important – 52%
3. What average daily trading volume is considered sufficient to allow blackout period to end one day after an earnings release:
– 1% of its outstanding common stock – 7%
– $5 million or more in average daily trading volume (daily trading volume x stock price) – 3%
– $10 million or more in average daily trading volume (daily trading volume x stock price) – 6%
– $25 million or more in average daily trading volume (daily trading volume x stock price) – 15%
– None of the above is important – 69%
Please take a moment to participate anonymously in these surveys:
Last week, the CII published a list of 159 directors who served on boards of 2018 & 2019 IPO companies that went public with dual-class share structures & no sunset provisions. The CII’s “Dual-Class Enablers Spreadsheet” identifies the other public boards on which these directors serve. Here’s an excerpt from the CII’s press release discussing its rationale for the “naming & shaming” approach:
“The board that brings a company to public markets with unequal voting rights is responsible for the decision to disempower public shareholders,” said CII Executive Director Ken Bertsch. “The board’s decision can be a red flag of discomfort with accountability to outside shareholders.” He said that investors “may want to raise concern about that in their engagement with other boards on which these directors serve. Some investors may choose to vote against directors of single-class companies who participated in pre-IPO board decisions to adopt dual-class equity structures without sunsets elsewhere.”
The release also says that the list may have a deterrent effect on private companies considering dual class structures. Perhaps that’s the case. After all, this is the first time that the CII has taken action that provides a potential reputational downside for the directors of these companies. But personally, I’m skeptical. I still think that companies will only be deterred from going public with dual class structures when investors finally abandon their “buy now, whine later” approach to investments in them.
BlackRock: “Remain Calm! All is Well!”
Remember my recent blog about BlackRock’s defense of the size of its investment positions in public companies? Well, it published another blog on the Harvard Governance Forum that defends the voting power those investments represent. BlackRock reviews various proxy voting scenarios – elections, M&A, say-on-pay & shareholder proposals and the average margins of victory for each. From that data, they draw this conclusion:
The view that asset managers are ‘determining’ the outcome of proxy votes is not supported by the data. The vast majority of ballot items are won or lost by margins greater than 30%, meaning that even the three largest asset managers combined could not change the vote outcome. While the small subset of votes on shareholder proposals tend to be closer, the considerable variation in voting records among asset managers negates the concept of a multi-firm voting bloc as the ‘swing vote”.
In other words, – “most votes aren’t close, so you shouldn’t worry that we have the ability to determine the outcome of all close votes.” These blogs certainly suggest that BlackRock is worried about the potential for regulatory intervention. But I don’t think they’re helping themselves by putting forward arguments that are so specious you can practically see beads of sweat forming on their upper lip.
