Shortly before the BRT issued its statement redefining its position on corporate purpose, Andrew Ross Sorkin profiled Jamie Gamble in the NYT DealBook. Gamble is a former Wall Street lawyer who has had a conversion experience and now says that the corporate clients he worked for are legally compelled to act like Patrick Bateman. Here’s an excerpt from his manifesto:
The most important problem in the world is a reasonable sounding provision of the corporate law that governs most major U.S. companies. That’s a big claim. It’s also slightly misleading. A better answer is that the above complex network of horribles all connect back to a common root that is nourished and guarded by the extraordinary power of corporate “persons” who are legally obligated to act like sociopaths.
The rule: corporate management and Boards of directors are obligated by law to make decisions that maximize the economic value of the company. Colloquially: when you invest your money in a company, the people who run that company are required to do their best to bring you the highest possible financial return on your investment rather than using your money to pursue any personal or social agenda.
Sociopath? Yes. The corporate entity is obligated to care only about itself and to define what is good as what makes it more money. Pretty close to a textbook case of antisocial personality disorder. And corporate persons are the most powerful people in our world.
Gamble’s solution – or at least part of it – would be to include language in corporate bylaws requiring boards to consider the interests of a broad range of constituencies beyond shareholders whenever they make a decision. By making this mandatory & providing shareholders with the ability to sue directors for violating these provisions, he thinks the beast can be tamed.
Counterpoint: Like Heck It Does!
Sorkin’s piece initially attracted a lot of attention, but then it sort of got overwhelmed by the sound & fury surrounding the BRT’s decision to bid farewell to shareholder primacy. That’s too bad, because I think Gamble’s views about the legal obligations of corporate directors are based on a false premise, and it’s the same one that seems to have framed at least some of the reaction to the BRT’s new statement of purpose.
I doubt there’s a single corporate lawyer who would dispute the contention that true sociopaths are by no means absent from America’s boardrooms or C-suites. But does the law really require sociopathic behavior? UCLA’s Stephen Bainbridge says no way – and also says that Sorkin & Gamble’s arguments amount to “a mass dump of uninformed silliness.” (You won’t like the Prof. when he’s mad). Here’s an excerpt from his recent blog responding to the DealBook article:
This argument is patently absurd. The corporation is a legal fiction. To paraphrase the first Baron Thurlow, who observed that the corporation has neither a soul to be damned nor a body to be kicked, the corporation has neither a mind to be psychoanalyzed not a brain to be diseased. Corporations are run by people, so if “they” act like sociopaths, it must be because they are run by sociopaths. It is estimated that psychopaths make up at most 1% of the population, so are we to believe they are disproportionately located in corporate C-suites?
Second, both Gamble and Sorkin grossly misstate the law. Sorkin writes:
“It may be an oversimplification, but if they veer from seeking profits in the name of other stakeholders, shareholders may have a legal case against them.”
That is not an oversimplification; it is a gross oversimplification. Absent proof that the directors were engaged in a breach of the duty of loyalty or certain takeover situations, the business judgment rule would preclude courts from reviewing director decisions. To be sure, that is not the purpose of the business judgment rule, but that is its effect.
Prof. Bainbridge is absolutely right on the law (see also this 2015 NYT opinion piece by the late Prof. Lynn Stout). But if you asked directors & officers of public companies what they think their legal obligations are, my guess is that their responses would be pretty consistent with Gamble’s characterization of what the law requires. The “value maximization” imperative has been internalized by a whole lot of D&Os, and has been used to justify some pretty cold-blooded corporate decisions.
By the way, if this debate sounds familiar, pundit Matthew Yglesias tweeted a similar comment last year – and got clobbered by legal academics.
“Stakeholder Governance”: What Happens to the BJR?
This recent blog from Alison Frankel poses an interesting question: if corporations undertake obligations to “stakeholders” & not merely shareholders, what does that mean for the business judgment rule? Here’s an excerpt:
Law firms are beginning to contemplate whether corporate boards will continue to be entitled to the deference afforded by the business judgment rule – which broadly shields directors from liability as long as they’re deemed to have acted in the corporation’s interest – if their decisions are prompted by rationales other than maximizing profits.
That’s particularly relevant in Delaware, where, as Chief Justice Leo Strine explained in a 2015 paper, The Dangers of Denial, corporate law is resolutely focused on stockholder welfare. Strine (who is due to retire from the Delaware Supreme Court by the end of October), is of the view that Delaware precedent does not provide leeway for judges to sanction board decisions that subordinate shareholder interests.
In other words, if directors put the interests of other stakeholders first, they risk losing the protection of the business judgment rule – at least in Delaware. If that’s so, then isn’t Gamble right about the law obligating boards to act like sociopaths in the pursuit of value maximization?
Nope. Except in very limited situations, the authority provided to Delaware directors under Section 141(a) of the DGCL includes the authority to set the time frame for achieving corporate goals without – as the Delaware Supreme Court put it in Paramount Communications v. Time – a “fixed investment horizon.” Deterimining that time frame is a matter of business judgment.
So, if you’re a director who is thinking about the long-term, you’ve got plenty of discretion to conclude in good faith that considering the interests of other stakeholders may be helpful in maximizing long-term shareholder value. But that doesn’t mean that members of the only stakeholder constituency that can vote won’t still lean on you mighty hard to do otherwise.
The sound & fury surrounding the BRT’s pronouncement prompted it to issue a lengthy “clarification” of its position – and it draws heavily on the idea of promoting the interests of other constituencies as being essential in order to create long-term shareholder value.
Dorsey’s Whitney Holmes shared the following comment, which I think nicely summarizes the issue of what Delaware law requires:
I believe that much of the debate misses the point that impact investors understand and now the BRT are starting to understand: for a given corporate decision not involving a sale of corporate control (or enactment of a preemptive defense against an acquisition), if
– choice A demonstrably returns $100 to shareholders and no benefit to anyone else, and
– choice B demonstrably returns $90 to shareholders and a meaningful but unquantifiable benefit to another interest (e.g. the environment, the wellbeing of employees, the community in which a manufacturing facility sits, etc.) that cannot be supported by a vague future benefit to the corporation that might somehow, someday be worth $10 or more, do the corporation’s directors have discretion in line with their fiduciary duties to choose B over A?
He says the answer under Delaware case law is “no,” and I think that’s right. If you’re ultimately called upon to make some sort of corporate “Sophie’s Choice,” you can’t prefer other stakeholders to shareholders – but given the deference under the BJR to the board’s assessment of the future shareholder value a particular decision would create, it’s doubtful that a board would ever find itself in this position.
According to a recent University of Alabama study, when you draft your next 10-K, it might be a good idea to put down your copy of Reg S-K and pick up a copy of “The Power of Positive Thinking.” That’s because, according to this CLS Blue Sky blog on the study, an upbeat 10-K correlates with improved stock performance, while a more downcast filing can result in your stock taking a hit:
Our results show that positive (negative) sentiment predicts higher (lower) abnormal return over days (0, +3) around the 10-K filing date, i.e., the filing period. Both sentiment measures also predict higher abnormal return over event windows of up to one month after the filing period. This finding suggests that the market underreacts to positive sentiment and overreacts to negative sentiment in the 10-K filing during the filing period. Moreover, both sentiment measures are significantly related to abnormal trading volume around the filing date.
By the way, it looks like Norman Vincent Peale was on to something – because the study also says that that companies with happier 10-Ks also produce better results over the course of the year than their more dour counterparts.
Transcript: “Joint Ventures – Practice Pointers (Part II)”
We have posted the transcript for the recent DealLawyers.com webcast: “Joint Ventures – Practice Pointers (Part II).” Here’s the transcript for the first “Joint Ventures – Practice Pointers” webcast.
Our September Eminders is Posted
We’ve posted the September issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
If you’re looking to meld with your couch this holiday weekend, Matt Kelly has identified the best shows and films about corporate compliance, business ethics and regulatory issues (and since he published this, Homecoming also came out – which I knew Matt would also endorse, and he’s now informed me that he devoted an entire separate post to it). Binge-watching these definitely can be justified as “work-related.” Here’s the criteria for the lists:
Several weeks ago I posted a question on LinkedIn: What are some of the best representations of corporate compliance, business ethics, or regulatory issues that you’ve ever seen?
My only requirements were that the shows be fictional, and portray a legal business behaving in a corrupt manner (rather than an illegal business like a drug cartel). The response was overwhelming — nearly 28,000 views of the post in less than a week, plus dozens of suggestions.
We’ve seen people in the “sustainability” industry starting to call for a uniform ESG disclosure framework – like this article from the CEO of the Global Reporting Initiative (GRI). A few bills on that topic also have been introduced. Now, a recent McKinsey study says that investors are also calling for change.
This Cooley blog summarizes the findings – here’s the intro:
Although there has been an increase in sustainability reporting, McKinsey’s survey revealed that investors believe that “they cannot readily use companies’ sustainability disclosures to inform investment decisions and advice accurately.” Why not? Because, unlike regular SEC-mandated financial disclosures, ESG disclosures don’t conform to a common set of standards—in fact, they may well conform to any of a dozen major reporting frameworks and many more standards, selected at the discretion of the company.
That leaves investors to try to sort things out before they can make any side-by-side comparisons—if that’s even possible. According to McKinsey, investors would really like to see some type of legal mandate around sustainability reporting. The rub is that, ironically, it’s the SEC that isn’t on board with that idea—at least, not yet.
As this blog from Elm Sustainability Partners points out, executives also aren’t enthralled with the current approach – they spend a ton of time responding to specialized surveys for what is essentially the same info – e.g. emissions data that is tabulated in different ways to conform to different standards.
Of course, “something is better than nothing” – so companies need to continue to attempt to meet investors’ information demands by providing relevant sustainability info. To get the scoop how companies that may have fewer resources are implementing sustainability initiatives – and making their disclosure as usable as possible – tune in to our October 16th webcast, “Sustainability Reporting: Small & Mid-Cap Perspectives.”
Making Sense of ESG Reporting Frameworks
Until we get a standardized approach to ESG disclosure, companies (and investors) will continue to wade through the current “alphabet soup” of reporting frameworks – and this issue of “Corporate Secretary” is worth a read to make sense of it all. Starting on page 5, it details how companies can use the GRI, SASB and other approaches to ESG disclosure. Here’s an excerpt from the write-up on SASB’s recent work:
In March 2019, SASB and the Climate Disclosure Standards Board published “Laying the groundwork for effective TCFD aligned disclosures,” which includes on page 8 a checklist of 11 preliminary steps companies can take to start integrating the recommendations of the Task Force on Climate-related Financial Disclosures. This is a hands-on, how-to resource that can help both directors and management get started.
Companies can also start their reporting journey by conducting a materiality assessment with the SASB materiality map, an interactive tool to look up industry-specific disclosure topics and metrics and identify and compare disclosure topics across different industries and sectors. SASB’s Engagement Guide for Asset Owners & Asset Managers can be a valuable resource for companies just starting to think about sustainability disclosures.
EU Credit Ratings: Impact of ESG Factors
I’ve blogged about how some credit rating agencies are voluntarily committing to look at ESG criteria in a more systemic way, and are starting to offer one-off explanations of how social issues can diminish or enhance credit ratings. In the EU, regulators appear to be imposing a more uniform approach. This announcement from the European Securities & Markets Authority says that credit rating agencies aren’t required to consider sustainability in their assessments (as explained in more detail in this 38-page document). But if they do, they need to follow new guidelines in explaining how ESG factors impact the rating.
Page 26 of the guidelines say that if ESG factors are a “key driver” behind a change to a credit rating or rating outlook, the rating agency’s accompanying press release or report should:
– Outline whether any of the key drivers behind the change to the credit rating or rating outlook correspond to that CRA’s categorisation of ESG factors
– Identify the key driving factors that were considered by that CRA to be ESG factors
– Explain why these ESG factors were material to the credit rating or rating outlook
– Include a link to either the section of that CRA’s website that includes guidance explaining how ESG factors are considered as part of that CRA’s credit ratings or a document that explains how ESG factors are considered within that CRA’s methodologies or associated models
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…
