At a recent conference, I wound up in a fascinating conversation with someone who spends a lot of time inside boardrooms. The topic was whether boards were talking about race. Talking about race at all – whether in the context of board diversity or business strategy in general. The upshot was not surprising. People are scared to talk about race – and that includes directors.
This doesn’t mean that those hesitant to talk about race are racists. It’s simply that people are uncomfortable talking about race. At least the people I know – which tends to be a whole lot of white people. Which is most of the people in our field. Our field is dominated by white people. That has changed little in the 30 years that I’ve been in it. And if we don’t talk about it, that won’t change.
If you have ideas – or have seen initiatives – to improve this situation, please email me. I’d like to see real change in my lifetime. I remember SEC Chair Levitt really pushing for diversity in the financial world in the ’90s. I’d like to help push for more diversity among corporate lawyers & governance professionals.
Why Women Rarely Serve on Dissident Slates
Our “Women’s 100” events are governed by the ‘Chatham House’ rule – but Aneliya Crawford of Schulte Roth gave me permission to share this nugget with you. During one of these events, Aneliya was interviewed on the topic of dealing with activists. She represents many of them – and she was asked about why so few women serve as director nominees for activists during a proxy fight.
Aneliya responded that she’s studied this question in depth – and has concluded that the answer isn’t that activists don’t want nor seek women. Rather, the qualified women that they approach only want to serve on the board if the proxy fight settles. In general, they otherwise don’t want to be on a dissident slate and have their name slung through the mud. I don’t blame them. I wouldn’t want that either…
Conflict Minerals: Disclosures Over Past Few Years Similar
Recently, the GAO conducted its annual conflict minerals review as required under Dodd-Frank – and here’s the report. Here’s an excerpt from this Cooley blog that summarizes the findings:
The GAO found that, generally, the disclosures filed in 2017 were similar to those filed in the prior two years. The GAO estimated that, out of 1,165 companies that filed conflict minerals disclosures, almost all companies reported in 2017 that they performed country-of-origin inquiries. As a result of those inquiries, an estimated 53% reported whether the conflict minerals in their products came from the DRC or one of the adjoining countries, up from estimated 49% in 2016 and 2015—which you could characterize as an increase that crosses a significant “majority“ threshold except that the estimates have a margin of error of plus or minus 10 percentage points at the 95-percent confidence level. The percentage is 2017 was, however, significantly higher than the estimate of 30% in 2014.
Here’s the second “list” installment from Nina Flax of Mayer Brown (here’s the first one):
1. Email – With three subparts to this item on my list:
a. The VOLUME is exhausting.
b. Because responses are expected near instantaneously, I can never find quiet time during the waking hours to get deep thinking tasks done.
c. Part of the VOLUME is the deleting/filing/etc. I have flushed away hours of my life organizing emails and trying to dwindle down my inbox (in my personal system, getting below 1000 is a serious accomplishment).
2. Travel – Now, part of this is my own doing, admittedly. But when I have to travel to the east coast, I prefer to take red eyes so that I can put my son to sleep the night I am leaving. I similarly plan all outbound flights to all other locations to maximize awake hours with my son. Depending on why I am traveling, and where I am traveling, I usually turn right back around which means that I am gone for 24-28 hrs. Yes, even on trips to the east coast. One time I landed, got in my car, got on the highway, was going the speed limit (or under) and saw police lights behind me. Apparently in my trudge I had forgotten to turn on my headlights. I know, they should be on automatic – my husband always tells me that.
3. Time Entry – Being in private practice I should revere time entry. I don’t. I have debated with friends and colleagues over the most efficient way to track time, and everyone certainly seems to have their own system. Mine is entering everything myself. Others make chicken scratch notes that their assistants enter, but then they have (in my mind) the extra step of reviewing the entries to make sure everything got it. I don’t think timers within entry systems are all that useful – you still have to enter the descriptions, etc.
4. There Is No Break; It Never Ends – But seriously, my favorite vacation from a true break perspective that I have taken since starting at the firm was to North Korea – because they confiscated all electronic items at the border. It was bliss. I read books, talked to my dad (my travel companion) and slept. By contrast, on my husband’s first trip to Europe (to Italy), we landed, went and dropped off our bags, walked to the Spanish Steps, and he promptly fell asleep as I sat there on a two hour call. I know I am not alone on never really having a vacation.
One of my good friends has a husband who is also still in Big Law. She has a series of pictures of him working from their various vacations at all times in all random places. There are so many, and it is so hilarious, friends on Facebook asked for a custom calendar. I made one for myself. I love it. To center at the end of this one, I know I am blessed to even be able to “take” a vacation to begin with, but this is still my life! How I wish I were still in school. But really, can I go back?
Note to self: Should likely stop mentioning North Korea. Suspect I am already on one or more government watch lists even though my life really isn’t that interesting.
Top Ten Human Capital Topics of Interest to Investors
Davis Polk’s Ning Chiu has taken a page from Nina’s book & created her own list in this blog – this one about what investors are looking for when it comes to “human capital”…
CTRs: Changes to the SEC’s FOIA Rules
Recently, the SEC finalized an overhaul of its FOIA rules that impacts confidential treatment requests. Here’s an excerpt from this Cooley blog:
Most of the rules describe the procedures and fees for requesting documents. For those seeking to protect the confidentiality of documents, Section 200.80(c) of the new rules provides that a “request for records may be denied to the extent the exemptions in 5 U.S.C. 552(b) apply to the requested records”—that would include Exemption 4 contained in 5 U.S.C. 552(b)(4) for “[t]rade secrets and commercial or financial information obtained from a person and privileged or confidential,” on which Confidential Treatment Requests commonly rely—and the “(A) Commission staff reasonably foresees that disclosure would harm an interest protected by the applicable exemption; or (B) The disclosure of the requested records is prohibited by law or is exempt from disclosure under 5 U.S.C. 552(b)(3)” As a technical matter, note that the revisions eliminate certain provisions in the SEC’s current FOIA regs that were considered unnecessary because they simply repeated information contained in the FOIA statute.
Among the provisions eliminated were the nine categories, previously set forth in Section 200.80(b) of the superseded regs, that are exempt from disclosure under 5 U.S.C. 552(b). One of these eliminated categories is the oft-cited 200.80(b)(4), which repeated the statutory Exemption 4. (The statute remains—it’s only the repetitive regs that are being eliminated, so no substantive change there.) Accordingly, those preparing CTR requests will need to update legends and other references in CTRs to delete citations to the soon-to-be-defunct 200.80(b)(4) (and review any other references to the FOIA rules) and consider instead whether another reference is appropriate, such as to the statute itself or to 200.80(c).
You’ll be hearing a lot about the SEC’s Enforcement action against Dow Chemical over poor perk disclosures. As you can learn from the SEC’s order (and memos posted in the “Perks” Practice Area on CompensationStandards.com) – the company was not only fined $1.75 million – but it was ordered to retain a consultant for a period of one year to review its perks policies, controls & training (note that no individuals were charged, just the company). Wow! There were $3 million of perk omissions over four years.
So what can you do? For starters, we have an 82-page chapter on perk disclosure as part of the Lynn, Borges & Romanek’s “Executive Compensation Disclosure Treatise” posted on CompensationStandards.com. The entire Treatise is 1650 pages – and it’s just about pay disclosure! In addition to being posted on CompensationStandards.com, you can order a hard copy.
Then, we’ve had a panel about perk disclosures for 16 straight years as part of our annual “Proxy Disclosure” conference – which is coming up soon: September 25th & 26th in San Diego and also available by video webcast. This upcoming big disclosure conference has nearly 20 panels. Register by August 10th for a reduced rate.
Tomorrow’s Webcast: “The Evolving Compensation Committee”
Tune in tomorrow for the CompensationStandards.com webcast – “The Evolving Compensation Committee” – to hear FW Cook’s Bindu Culas, Semler Brossy’s Blair Jones and Davis Polk’s Kyoko Takahashi Lin discuss how to untangle the complex issues that compensation committees face in exercising their fiduciary duties against a backdrop of increased shareholder activism, potent proxy advisor policies, an active plaintiff’s bar and heightened media scrutiny.
Mandatory Arbitration: Six State Treasurers Say “No”
We’ve blogged a bit (here’s the latest) about whether the SEC would consider mandatory arbitration under SEC Chair Clayton’s reign. This article notes that six state treasurers recently wrote a letter to the SEC Chair requesting that a move to mandatory arbitration not be done…
I’m sure most of us have experienced situations where the Corp Fin review process seemed to drag on for what seemed to be forever. For most companies, even an extensive review process usually ends after 3 or 4 rounds of comments & responses – but for a select few, the comment letter process really does turn into “Purgatory.”
This “Audit Analytics” blog takes a look at those companies. Audit Analytics looked at 27 listed companies that had Corp Fin reviews involving at least 10(!) back & forth letters during the period from 2016 – April 2018, and tried to determine why they ended up in this predicament. The answers were interesting:
In many cases, long SEC reviews appear to be correlated with other significant failures including SEC enforcement actions. For example, in 2017, MDC Partners Inc appeared on our radar after the company was charged in an SEC Enforcement action. One of the legal charges was related to using misleading custom metrics – the same metrics that were questioned by the SEC in some of the MDC’s comment letters.
Zynga had a conversation that spanned eleven letters and 150 days. Some of the comments were centered on presentation of individually tailored non-GAAP metrics, a presentation that is explicitly prohibited by the SEC rules.
A major red flag for comment letters is noted when the SEC asserts that a company partially or completely failed to address the comments. Arguably, a company’s failure to respond should be taken in the context of the overall controls environment of the company. Since 2016, three companies failed to respond to SEC comments, including Axon Enterprise, Inc and Dana Inc. In such a case, the SEC will typically issue a separate letter warning that if the comments are not resolved the agency will terminate the review and release the comments to the public.
A slightly more common scenario is the failure to incorporate previously agreed upon disclosure text from SEC review into the subsequent filings. Audit Analytics identified six instances where the SEC noted inconsistencies between the disclosure and previous responses to SEC comments.
Under the circumstances, I don’t think it’s too surprising that any of the companies cited found the Corp Fin review process to be a very long & winding road.
By the way, if you’re wondering how long a company’s stay in SEC purgatory can be, the blog notes that Iconix Brands spent a total of 723 days in the review process. During that time, the company & the SEC exchanged a staggering 29 rounds of correspondence. Two other companies, MDC Partners (540 days/18 letters) & Acacia Research (427 days/26 letters) spent more than a year under review.
Revenue Recognition: Trends in Staff Comments
While we’re on the subject of Corp Fin comments, here’s a FEI memo that reviews comments issued on the new revenue recognition standard and identifies some trends. FEI says that Staff comments have focused on the following areas of ASC 606:
– Disaggregation of revenue
– Disclosure of performance obligations; consideration of significant payment terms
– Disclosure of performance obligations; determination of whether promised goods/ services are distinct
– Timing of satisfaction of performance obligations
– Principal versus agent considerations
– Transaction price determination and allocation to specific performance obligations
– Costs to obtain and fulfill a contract
The memo reviews & provides links to individual Staff comment letters and company responses.
“Hey, Why is the SEC Advertising ICOs in its Emails?”
Several members have mentioned to us that they’re confused as to why the SEC is including a link to an advertisement for an ICO in all of its email announcements. If you share this confusion, go ahead and click on the ad – it sends you to the SEC’s “HoweyCoins.com” mock ICO site.
I’m sure the SEC is usually quite concerned if a communication from the agency leaves members of the public scratching their heads – but if people are intrigued enough to click on the ad, I’ll bet they’re pleased that this one does.
In 2017, Delaware amended its corporate statute to permit corporate records to be maintained using distributed ledger technology – aka “blockchain.” While it’s not a Delaware corporation, Banco Santander recently became the first company to use blockchain as part of the voting process for its 2018 annual meeting. This “IR Magazine” article suggests that the results were impressive. Here’s an excerpt:
At this year’s Santander AGM, held on March 23, investors were asked to cast their vote twice: once in the traditional manner and once on the distributed ledger. Investors accessed the distributed ledger through Broadridge’s web application. One in five (21 percent) of the AGM participants made use of the new technology.
The results of the votes cast using blockchain were available within two days of the AGM, compared with the usual two or three-week wait with traditional proxy voting. In the near future, voters will be told real-time what the results are, according to Broadridge Financial Solutions.
The article notes that 60% of the company’s shareholders are institutions, and that its blockchain initiative is designed to increase turnout among those investors.
We’ve previously blogged about initiatives to use blockchain technology for voting at shareholder meetings – one of these initiatives involved Broadridge & several banks (including Santander), while another involved Nasdaq.
As we’ve blogged in the past, corporate America continues to look for ways to enhance the diversity of its boards of directors, with Amazon’s recent adoption of a “Rooney Rule” being the latest initiative in this area. Recently, however, investors in a company called “Destination Maternity” used a different route to increasing the number of women on its board directors – a good old fashioned proxy fight. This excerpt from a recent “Corporate Secretary” article has the details:
Shareholders have secured the rare replacement of an entire board – and the installation of a majority-female set of directors – following a proxy tussle at Destination Maternity.
The company late last month said that all four director nominees of investors Nathan Miller and Peter O’Malley had been elected to the board at Destination Maternity’s AGM. The company bills itself as the world’s largest designer and retailer of maternity apparel. The new board comprises Holly Alden, Christopher Morgan, Marla Ryan and Anne-Charlotte Windal.
The vote followed disagreements between Miller and O’Malley and the former board over the strategic direction and performance of the company. The investors have a turnaround plan they intend the new board to implement. The previous board – which comprised three men and one woman – insisted it had always acted in the best interests of company shareholders and criticized what it said were the investors’ ‘inexperienced and under-qualified candidates’ for directors.
Miller and O’Malley disputed this characterization and argued that the company needed to have a majority-female board. Despite the unusual demand, O’Malley, managing partner with Kenosis Capital, insists he and Miller are not activists but long-term investors. ‘We thought a maternity company should be run by women, who would be simpatico with customers,’ he tells Corporate Secretary.
Diversity initiatives are swell, but sometimes breaking a little furniture works wonders. . .
Securities Class Actions: Last Year’s “Bigliest” Winners
Kevin LaCroix recently blogged about an ISS report ranking 2017’s Top 50 plaintiffs’ law firms in terms of total cash settlements of North American securities class actions. Here’s an excerpt listing last year’s top 5 firms:
The report lists the Bernstein Litowitz law firm as having had the highest total of shareholder recoveries during the year, with $639 in total settlement funds recovered during 2017. $210 million of the law firm’s total is attributable to the largest 2017 settlement in the Salix Pharmaceuticals case. As I noted in a prior post discussing ISS Shareholder Class Action Services’ updated report on the Top 100 all-time securities settlements, the Bernstein Litowitz firm has the most Top 100 settlements, with the firm serving as lead or co-lead counsel in the 33 of the Top 100 securities class action lawsuit settlements.
The Robbins Geller law firm came in at second place on the 2017 Top 50 list, with $344 million in total settlement funds recovered. The report notes that Bernstein Litowitz and Robbins Geller have both finished in the top two positions on the list, in various orders for five straight years. As discussed in my prior post about the Top 100 all-time settlements, the Robbins Geller firm (inclusive of predecessor law firms) is second on the Top 100 list, with 17 of the largest settlements (including the largest ever settlement in the Enron case.)
Places three through five on the Top 50 list include the Cohen Milstein firm, in third place, with recoveries of $203 million; the Levi & Korinsky law firm in fourth place, with recoveries of $200 million; and the Block & Leviton law firm at $198 million. A total of eleven law firms had aggregate shareholder recoveries during the year in excess of $100 million.
Kevin speculates that Berstein Litowitz’s efforts may have netted it as much as $126 million last year. Nice work if you can get it.
On Friday, Liz blogged about the SEC’s changes to the definition of a “smaller reporting company” & its adoption of a new requirement for companies to use Inline XBRL in their filings. This Steve Quinlivan blog points out that changes have been made to many of the SEC forms due to this new regime. We’re posting memos about this development in our “Smaller Reporting Companies” Practice Area.
This excerpt from Steve’s blog notes the effect of the new Inline XBRL requirement – and points out that changes to the form may be applicable before compliance with the new requirement becomes mandatory:
The new Inline XBRL rules include conforming amendments to the cover pages for certain periodic reports, including Forms 10-K and 10-Q. The change to the cover pages eliminates reference to compliance with the website posting requirement. While there is a generous phase in period for required use of Inline XBRL, the rules are technically effective 30 days from publication in the Federal Register. Therefore, these changes to the cover page are potentially applicable to second quarter Form 10-Qs for calendar year issuers.
The changes to the “smaller reporting company” definition have resulted in conforming amendments to the cover pages for registration statements (Forms S-1, S-3, S-4, S-8, S-11, Form 10) & periodic reports (Forms 10-K and 10-Q). The change reflects the fact that while the new rules specify a larger threshold for SRC status, the definition of “accelerated filer” remains unchanged. The rules are effective 60 days from publication in the Federal Register.
Forget Fireworks – The Future Belongs to Flame-Throwing Drones!
If I had this awesome device, I’d win the 4th of July pyrotechnics contest in my neighborhood for sure. Enjoy the holiday – and don’t hurt yourself.
Lots of interesting stuff in this Proskauer memo analyzing market practices & trends for US-listed IPOs in 2017. Here are some of the highlights:
– In 2017, the average base deal size was $285 million and the median base deal size was $141 million, compared to $214 million and $116 million in 2016, respectively.
– 70% of EGCs included two rather than three years of audited financial statements (a 32% increase since 2013) and 56% of EGCs included only two years of selected financial statements (a 21% increase since 2013). Only 4% of EGCs included five years of selected financial statements in 2017, compared to 29% in 2013.
– Outside of 2014, IPOs in 2017 had the fastest time from the first confidential submission or filing with the SEC to pricing; the average number of days to pricing was 135 and the median was 103. In 2016, the average time from first submission/filing to pricing was 220 days.
– Since 2014, there has been a 41% decrease in the average number of first-round SEC comments and 37% decrease in the median number of comments.
– Approximately 30% of issuers went public with multiple classes of common stock in 2017 as compared to 18% of issuers in 2016. Almost 68% of these issuers provided for unequal voting rights among classes.
There’s plenty more where that came from – including information on “hot button” comments and data on pre-IPO private placements.
Insider Trading: Another Equifax “Guesser” in the Hot Seat
We previously blogged about the SEC’s filing of insider trading charges against a former Equifax executive who sold the company’s shares based on his correct guess that the company had experienced a massive data breach.
Last week, the SEC filed an insider trading complaint against another former Equifax employee, and this excerpt from the SEC’s press release indicates that the agency’s “insider guessing” theory features prominently in this new proceeding as well:
In a complaint filed in federal court in Atlanta today, the SEC charged that Equifax software engineering manager Sudhakar Reddy Bonthu traded on confidential information he received while creating a website for consumers impacted by a data breach.
According to the complaint, Bonthu was told the work was being done for an unnamed potential client, but based on information he received, he concluded that Equifax itself was the victim of the breach. The SEC alleges that Bonthu violated company policy when he traded on the non-public information by purchasing Equifax put options. Less than a week later, after Equifax publicly announced the data breach and its stock declined nearly 14 percent, Bonthu sold the put options and netted more than $75,000, a return of more than 3,500 percent on his initial investment.
As we noted in a prior blog, the SEC lost a case in 2010 premised on an insider guessing theory, so it will be interesting to see how the theory stands up as these actions move forward.
Our July Eminders is Posted!
We’ve posted the July issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Yesterday, the SEC announced that it adopted amendments to expand the number of “smaller reporting companies” that qualify for scaled disclosure. Here’s the 105-page adopting release – and we’re posting memos in our “Smaller Reporting Companies” Practice Area (also see this blog from Cooley’s Cydney Posner & this blog from Dorsey’s Cam Hoang). These are the key points:
– Companies with a public float of less than $250 million will qualify as SRCs.
– A company with no public float or with a public float of less than $700 million will qualify as a SRC if it had annual revenues of less than $100 million during its most recently completed fiscal year.
– A company that determines that it does not qualify as a SRC under the above thresholds will remain unqualified until it determines that it meets one or more lower qualification thresholds. The subsequent qualification thresholds, set forth in the release, are set at 80% of the initial qualification thresholds.
– Rule 3-05(b)(2)(iv) of Regulation S-X is amended to increase the net revenue threshold in that rule from $50 million to $100 million, so that more companies may be able to omit dated financial statements of acquired businesses.
– The final amendments preserve the application of the current thresholds contained in the “accelerated filer” and “large accelerated filer” definitions in Exchange Act Rule 12b-2. As a result, companies with $75 million or more of public float that qualify as SRCs will remain subject to the requirements that apply to accelerated filers, including the timing of the filing of periodic reports and the requirement that accelerated filers provide the auditor’s attestation of management’s assessment of internal control over financial reporting required by Section 404(b) of the Sarbanes-Oxley Act of 2002.
That last point was emphasized during the SEC’s open meeting (here’s Commissioner Stein’s Statement – and here’s Commissioner Piwowar’s Statement). Corp Fin has begun to formulate recommendations to the Commission for possible additional changes to the “accelerated filer” definition that, if adopted, would have the effect of reducing the number of companies that qualify as accelerated filers (and are subject to auditor attestation requirements). Some – but not all – believe this would promote capital formation by reducing compliance costs for those companies.
SEC Adopts Inline XBRL
Yesterday, with Commissioner Peirce dissenting, the SEC announced amendments to require the use of Inline XBRL for financial statement information. This means that companies will embed XBRL data directly into Edgar filings instead of posting separate files – and the new data will be readable by both humans & machines. The amendments also eliminate the requirements for companies to post XBRL data on their websites.
There’s no change to the categories of filers or scope of disclosures subject to XBRL requirements. Here’s the 143-page adopting release – also see this Cooley blog.
There’s a phase-in period to comply:
– Large accelerated filers that use U.S. GAAP will be required to comply beginning with fiscal periods ending on or after June 15, 2019.
– Accelerated filers that use U.S. GAAP will be required to comply beginning with fiscal periods ending on or after June 15, 2020.
– All other filers will be required to comply beginning with fiscal periods ending on or after June 15, 2021.
– Filers will be required to comply beginning with their first Form 10-Q filed for a fiscal period ending on or after the applicable compliance date.
SEC Proposes Changes to Whistleblower Program
In March, John blogged about the largest whistleblower award to-date – and noted that the SEC has awarded more than $262 million to 53 whistleblowers since the program’s inception in 2012.
Yesterday, the SEC proposed amendments to its whistleblower program. The amendments will allow awards based on deferred prosecution & non-prosecution agreements and clarify the requirements for anti-retaliation protection, among other things. There’s also a controversial proposal to cap award amounts. Here’s the SEC’s announcement & fact sheet. The comment period will remain open for 60 days following publication of the proposing release in the Federal Register.
This review from ISS Analytics shows that there were 127 virtual-only meetings through mid-May, compared to just 99 last year. And for the full year, at least 300 companies are expected to hold some sort of virtual annual meeting (including hybrid) – compared to 236 in 2017 (this doesn’t include companies that webcast meetings on their own). A recent Broadridge summary also notes:
– 10% of virtual meetings were hybrid
– Of the 24 companies that held a hybrid meeting in 2016, 12 of them switched to virtual-only in 2017
– 97% of virtual-only meetings were conducted with live audio, rather than video
– 57% of the companies holding virtual meetings were small-cap, 26% were mid-cap & 17% were large-cap
– 98% of companies allow questions to be submitted online during the live meeting
P&G’s Close Contest: Registered & Plan Shares to Blame for Uncertainty?
Broadridge recently reported this finding from the voting review of Proctor & Gamble’s short-slate proxy contest – where the voting margin ended up being less than 1% of votes cast:
The uncertainty in the validity of the votes occurred entirely within the registered shares and plan shares, while the votes of all of the street name shares were accepted as accurate and not contested.
Proxy Cards & VIFs Will Be More Identical
According to this newsletter, Broadridge is redesigning its “Voting Instruction Form” to make more space for full proxy card language. Here’s an excerpt from the newsletter:
Mr. Norman referred to previous discussions held with the SEC staff on the nature and use of abbreviations when faced with proxy language that is too voluminous to fit within the standard voter instruction form (VIF). He stated that in his recent discussions with the staff, the staff had expressed the view that the VIF should be revised so that it could allow the same language that appears on the proxy card, rendering the need for abbreviations obsolete.
Members of Broadridge management stated in response they were working on a redesign of an expanded VIF designed to permit full use of proxy card language on the VIF. A prototype of the proposed VIF has been drafted and is being submitted for quality assurance testing, with the goal that the new VIF form will be ready for use in September, the beginning of the 2018 fall “mini” proxy season.
Recently, Broc blogged about the SEC allowing anyone to track who reads filings on Edgar. Now we have a different “big data” concern: banks are tracking readership of sell-side research. Here’s an excerpt from this WSJ article:
Banks, under pressure to find new ways to boost revenue in their giant research arms, are collecting loads of data on what their clients are reading and when. Beginning about two years ago, banks started moving from the old system of emailing PDFs to using new websites using HTML5 – a web coding language that allows for more tracking of user activity – for distribution of research notes. With the new technology, they can typically see in real-time exactly what pages are being read, for how long, and by which users.
There’s reason for large investors to feel uneasy about this – and they do:
Some bankers said that hedge funds have asked if they can see a stream of aggregated research data, such as what notes are the most read, or longest read, but also that their banks weren’t selling that information, people familiar with those requests said.
The amped up data-tracking has rankled some customers, who worry that even anonymized readership habits, if shared with other clients, could allow rivals to get ahead of their trades. Capital Group, a Los Angeles firm with about $1.7 trillion in assets under management, has asked banks and other research providers to archive readership data related to the firm and not use it in any way for a period of time, according to people familiar with the discussions.
Are the investors getting that promise in writing? For better or worse, it’s exceedingly common these days for companies to capture & share customer information. I blogged a few months ago on “The Mentor Blog” about how that practice is leading to new liability exposures for officers & directors…
Off-Cycle Engagement: Avoiding Blunders
This Cleary Gottlieb memo gives eight tips on how to handle off-cycle engagement – from shareholders themselves. The intro explains why you should care:
Notwithstanding the chorus of shareholder-engagement advisors & investors singing the praises of holding off-cycle meetings – the truth is that the upside of these meetings is somewhat limited and the downside risks are significant. When pressed, any investor will tell you that if there were an actual proxy contest, even a company with a record of excellent off-cycle engagement is far from immune from a decision by the investor to vote in favor of an activist’s short-slate – and it often happens at the 11th hour of the proxy contest.
More importantly, a poor off-cycle meeting can be more detrimental than no meeting. Indeed, investors report that they regularly leave these meetings with a worse impression of companies. And since many institutional investors will each hold portfolios consisting of hundreds or even thousands of companies, many of them won’t take a meeting each year due to limited bandwidth – which amplifies the adverse consequences of a poor meeting.
Tomorrow’s Webcast: “Proxy Season Post-Mortem – Latest Compensation Disclosures”
Tune in tomorrow for the CompensationStandards.com webcast — “Proxy Season Post-Mortem: The Latest Compensation Disclosures” – to hear Mark Borges of Compensia, Dave Lynn of CompensationStandards.com and Morrison & Foerster, and Ron Mueller of Gibson Dunn analyze what was (and what was not) disclosed this proxy season.
