As I blogged a few weeks ago, “fix it” shareholder proposals are “hot” – & confusing. In this 17-minute podcast, Alan Dye discusses this type of shareholder proposal, including:

– What are “fix-it” shareholder proposals?
– How has Corp Fin processed no-action requests related to these proposals?
– Why are people so confused about why some no-action requests were granted – and some weren’t?

This podcast is also posted as part of my “Big Legal Minds” podcast series. Remember that these podcasts are also available on iTunes or Google Play (use the “My Podcasts” app on your iPhone and search for “Big Legal Minds”; you can subscribe to the feed so that any new podcast automatically downloads)…

Broc Tales: The First Nine

Reg FD-style! Here are the first 9 stories that have run in my new “Broc Tales Blog”:

1. Why Hassle With Training All Employees (When Only a Few Really Need to Know)?
2. The Reg FD Disclosure Team
3. FD Policy Considerations: A Yawner for Some
4. What Good Is a FD Policy?
5. Regulation Fire Department?
6. It’s “Fair”; Not “Full” (& Other Confusions)
7. “Dude, You Wouldn’t Believe What Just Happened. Is That Normal?”
8. “Wanted: Reg FD Chaperone”
9. What (In The World) Am I Doing?

Check ’em out. If you like them, that’s great – insert your email address when you click the “Subscribe” link if you want these precious tales pushed out to you…

More on Our “Proxy Season Blog”

We continue to post new items regularly on our “Proxy Season Blog” for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– CII: Notes from the Spring Meeting
– Shareholder Proposals: Proponent’s Obligation to Present Proposal at Meeting
– Proxy Access: Strange Schedule 14Ns
– The Annual “Warren Buffet” Letter
– Investors Tell Texas to Oppose Anti-LGBTQ Legislation

– Broc Romanek – still employed (but the day is young)…

In this 48-minute podcast, John Huber – who became a Corp Fin Director at age 35! – discusses his long and enjoyable career, including:

– How did you become a lawyer?
– How did you wind up at the SEC?
– How did your role evolve when you were on the Staff?
– What was your philosophy as Director of Corp Fin?
– What was it like launching Edgar?
– How did integrated disclosure come into being?
– How did private practice evolve over your time at Latham?
– What are you doing now?
– Any final words of advice?

This podcast is also posted as part of my “Big Legal Minds” podcast series. Remember that these podcasts are also available on iTunes or Google Play (use the “My Podcasts” app on your iPhone and search for “Big Legal Minds”; you can subscribe to the feed so that any new podcast automatically downloads…

Form AP: Even More PCAOB Staff Guidance

On the heels of last month’s updated Staff Guidance from the PCAOB about Form AP, the PCAOB issued even more guidance recently. As noted in this press release, the latest guidance – which supersedes the prior guidance – primarily deals with the treatment of professional staff in secondment arrangements…

SASB: Guidance & Restructuring

The SASB continues to pump out guidance, as I noted in this recent blog about “materiality.” And the SASB itself is changing to a two-tier governance structure that separates fiduciary duties from standards setting activities. Former SEC luminaries such as Mary Schapiro, Alan Beller and Elisse Walter are involved in the SASB – as well as former FASB Chair Bob Herz and Michael Bloomberg…

Transcript: “The Art of Working With Proxy Advisors”

We have posted the transcript for the recent CompensationStandards.com webcast: “The Art of Working With Proxy Advisors.”

– Broc Romanek – still employed (but the day is young)…

As noted in this press release, yesterday, the SEC adopted new rule & form amendments requiring that the exhibit index in registration statements & ’34 Act reports contain links to the exhibits that are listed – & that these filings be made in HTML. Here’s the 47-page adopting release.

These were adopted substantially as proposed with one exception – this Cooley blog lays out the exception:

Several commenters on the proposing release expressed concerns about correction of inaccurate or non-functioning exhibit hyperlinks. In response, the SEC added an instruction to Rule 105 of Reg S-T providing that, for a registration statement that is not effective, the registrant must correct the hyperlink by filing a pre-effective amendment. For an effective registration statement or an Exchange Act report, the registrant must correct the hyperlink in the next periodic report that requires, or includes, an exhibit pursuant to Item 601 (or in the case of a foreign private issuer, pursuant to Form 20-F or Form F-10). The SEC also provides comfort that an inaccurate exhibit hyperlink would not, by itself, render the filing materially deficient or affect a registrant’s eligibility to use short-form registration statements.

The effective date is delayed for most companies until September 1, 2017 – and for smaller reporting companies and non-accelerated filers that use the ASCII format, until September 1, 2018.

ISS Policies: 11 New/Updated FAQs

Recently, ISS posted 11 new & updated FAQs about its US proxy voting policies. There’s now a total of 88 FAQs. Some new & interesting ones about director attendance disclosures…

Proposed: Inline XBRL

As noted in this press release, yesterday, the SEC proposed the use of Inline XBRL format for the submission of financials for public companies & mutual fund risk/return summaries. The proposal would also eliminate the requirement for filers to post XBRL data on their websites. Here’s the 121-page proposing release.

See this Cooley blog – including this explanation of what is “Inline XBRL” (also see this video explanation from the SEC):

Currently, companies are required to provide the financial statements accompanying their periodic and current reports in “structured,” i.e., machine-readable, format using XBRL, but they provide this XBRL data as an exhibit to their filings. Inline XBRL allows data tagging to be embedded directly in the text of an HTML document, eliminating the need for separate exhibits in most cases.

“Request for Comment”: Industry Guide 3

As noted in this press release, yesterday, the SEC requested comments on changes to Guide 3 – the industry guide for bank holding companies. The proposal asks whether the information solicited is useful anymore – and whether there might be other types of disclosures that may be valuable. Here’s the 86-page “request for comment”…

I grew up on Guide 3. My first tour in Corp Fin found me in one of the two banking branches. Then I went to a law firm whose clients mainly consisted of community banks…

FPIs: IFRS Taxonomy

Yesterday, the SEC posted this IFRS taxonomy for foreign private issuers.

– Broc Romanek – still employed (but the day is young)…

If I had a dollar for every time someone asks me whether Edgar is down, I would be able keep my grand old ’73 Chevy Caprice convertible (soon to be sold after many years of service). This has been at the top of my wish list for some time: that the SEC alert folks when Edgar is down (& when it’s back up). Yesterday, the SEC’s site was down for long stretches – and Edgar was down too (sometimes not in unison).

The SEC could solve this problem by giving its Edgar folks their own blog – and using its popular Twitter handle (which has 233k followers) to give us the news. If the SEC’s entire site is down, an Edgar blog doesn’t help. But Edgar often is down when the SEC’s site is up.

Edgar has outages more often than you would think (so this diatribe isn’t focused just on a day when most of the Internet was down). And I would argue that Edgar is one of the most important assets that the SEC has. If the entire SEC site is down – isn’t that worth a tweet? Today, the SEC has an unprecedented note on it’s home page about the site being down yesterday…

Tomorrow’s Webcast: “Hot Tabulation Issues for Your Annual Meeting”

Did the snafu at the Oscars pique your interest in this topic? Tune in tomorrow for the webcast – “Hot Tabulation Issues for Your Annual Meeting” – to hear independent inspector Carl Hagberg and Broadridge’s Chip Pasfield and Anthony LaPoma sort out the basics – and the hot developments – related to inspecting and tabulating votes at annual shareholder meetings.

Our March Eminders is Posted!

We have posted the March issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

– Broc Romanek – still employed (but the day is young)…

This speech from Friday by Acting SEC Chair Mike Piwowar reminds me of Oprah Winfrey’s famous free car giveaway: “You get a car! You get a car! You get a car! And you get a car! Everybody gets a car!” [Can you believe it’s been 13 years since Oprah did that!]

Here’s an excerpt from the speech (& here’s a related WSJ article):

In my view, there is a glaring need to move beyond the artificial distinction between “accredited” and “non-accredited” investors. I question the notion that non-accredited investors are truly protected by regulations that prevent them from investing in high-risk, high-return securities available only to the Davos jet-set.

Here, I appeal to two well-known concepts from the field of financial economics to show that, in maintaining an “accredited” status in our regulatory structure, we may have forgotten—and in fact disadvantaged—a set of investors. The first is the risk-return tradeoff. Because most investors are risk averse, riskier securities accordingly offer higher returns. Therefore, prohibiting non-accredited investors from investing in high-risk securities amounts to a blanket prohibition on their earning the very highest expected returns.

The second concept is modern portfolio theory. By holding a diversified portfolio of assets, investors reap the benefits of diversification. That is, the risk of the portfolio as a whole is lower than the risk of any individual asset. The correlation of returns is the mathematical key. When adding high-risk, high-return securities to an existing portfolio, so long as the returns from the new securities are not in perfect positive correlation with the existing portfolio, investors may reap higher returns with little to no change in overall portfolio risk. In fact, if the correlations are low enough, the overall portfolio risk can even decrease. As such, excluding certain investors from diversification options deprives them of important risk mitigation techniques.

These two basic concepts of economics demonstrate how even a well-intentioned policy of investor protection can do more harm than good, for instance, by exacerbating inequalities of wealth and opportunity.

Doubts Arise as Investors Flock to Crowdfunded Start-Ups

Meanwhile, as noted in this NY Times article, there are concerns that unsophisticated investors aren’t being protected in crowdfunding. Replete with fraud. Shocker…

Check out this white paper from the SEC’s DERA about investing in OTC companies…

Tomorrow’s Webcast: “Pay Ratio – The Top Compensation Consultants Speak”

Tune in tomorrow for the CompensationStandards.com webcast – “Pay Ratio: The Top Compensation Consultants Speak” – to hear Mike Kesner of Deloitte Consulting, Blair Jones of Semler Brossy and Ira Kay of Pay Governance “tell it like it is. . . and like it should be” about the upcoming implementation of the pay ratio rules.

– Broc Romanek

Here’s a blog by Steve Quinlivan of Stinson Leonard Street:

President Trump has issued an Executive Order which requires the head of each agency to designate an agency official as its Regulatory Reform Officer, or RRO. Each RRO will oversee the implementation of regulatory reform initiatives and policies to ensure that agencies effectively carry out regulatory reforms, consistent with applicable law. Agencies which issue few or no regulations can apply for an exemption.

In addition, each agency must establish a Regulatory Reform Task Force composed of designated individuals. Each Regulatory Reform Task Force must evaluate existing regulations and make recommendations to the agency head regarding their repeal, replacement, or modification, consistent with applicable law. At a minimum, each Regulatory Reform Task Force shall attempt to identify regulations that:

– Eliminate jobs, or inhibit job creation;
– Are outdated, unnecessary, or ineffective;
– Impose costs that exceed benefits;
– Create a serious inconsistency or otherwise interfere with regulatory reform initiatives and policies;
– Are inconsistent with the requirements of section 515 of the Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516 note), or the guidance issued pursuant to that provision, in particular those regulations that rely in whole or in part on data, information, or methods that are not publicly available or that are insufficiently transparent to meet the standard for reproducibility; or
– Derive from or implement Executive Orders or other Presidential directives that have been subsequently rescinded or substantially modified.

Each Regulatory Reform Task Force is to seek input and other assistance, as permitted by law, from entities significantly affected by Federal regulations, including State, local, and tribal governments, small businesses, consumers, non-governmental organizations, and trade associations.

Within 90 days of the date of the Executive Order, and on a schedule determined by the agency head thereafter, each Regulatory Reform Task Force shall provide a report to the agency head detailing the agency’s progress toward the following goals:

– Improving implementation of certain regulatory reform initiatives and policies; and
– Identifying regulations for repeal, replacement, or modification.

Proxy Access: Another Schedule 14 Sighting!

A few months ago, we saw the first Schedule 14N be filed by Gamco Asset Management – only to see it rejected soon afterwards by National Fuel Gas – followed by Gamco’s withdrawal of its nominee.

Now we have a second Schedule 14N filed by Brightleaf Advisory Group relating to Paragon Offshore – but it’s kinda weird, a UK incorporated penny stock? I’m not sure what is going on. Let me know if you figure it out…

Open Commission Meeting: “Links to Exhibits” Adoption & XBRL Proposals

The SEC is holding an open Commission meeting on Wednesday to consider a few XBRL proposals – including “Inline” XBRL reporting for banks. The Commission will also consider adopting rules requiring links to exhibits (here’s our podcast on that proposal from a few months back)…

– Broc Romanek

According to a recent BTI study, the number of businesses facing “bet-the-company” litigation has quadrupled since 2014.  BTI interviewed over 300 lawyers at US companies with more than $1 billion in annual revenues, & over 50% of those companies reported dealing with bet-the-company suits in 2016.  This compares to 37% in 2015 and just 12% in 2014.

Big-ticket litigation is widely perceived to be a uniquely American phenomenon, but Kevin LaCroix has been following developments on the international front – & there may be storm clouds gathering there as well, as this excerpt from a recent D&O Diary blog suggests:

A number of high-profile cases are now working their way through European courts. These cases are being closely watched and their progress could affect the likelihood of further future litigation. If the claims are successful, they could “pave the way” for similar shareholder actions in the future.

These cases include actions in the U.K. involving RBS and Tesco, as well as actions filed in Germany against Volkswagen.

D&O Liability: On the Rise Globally

Consistent with these litigation trends, this recent Allianz study says that D&O liability exposure is increasing across the globe. Here’s an excerpt from the study’s executive summary:

Tightening regulations, emerging technologies, increasing shareholder activism, intensifying class action litigation activity, escalating merger objections and IPO activity and the rise of regulator activism are among the many challenges facing corporate directors and officers. Executive liability is increasing yearly, particularly in areas such as employment and data protection.

The study flags the growing influence of third party litigation funders in the growth of collective actions & notes the impact of an increasingly aggressive regulatory environment on D&O liability:

There is a growing trend towards seeking punitive and personal legal action against officers for failure to follow regulations and standards. According to AGCS analysis, the number one cause of D&O claims by number and value is non-compliance with laws and regulations.

Take Shelter: The Securities Litigation Storm is Here!

I feel a bit like the prophet Jeremiah this morning – so here’s some more glum news from the D&O Diary, which provides this summary of Cornerstone Research’s annual class action review:

There were a record 270 securities class action lawsuits filed in 2016, which is 44 percent greater than the number in 2015 (188) as well as the average number of class action lawsuits filed during the period 1997-2015 (also 188). The filing activity increased as the year progressed; the number of filings in the second half of 2016 was 21 greater than in the year’s first half. The filing activity in the second half of 2016 was the highest for any semiannual period between 1996 and 2016.

What’s driving the increase?  Delaware’s hostility toward disclosure-only settlements is a big part of the story:

Much of the increase in 2016 filing activity is attributable to the increase in federal court merger objection filings; there were 80 federal court merger objection lawsuit filings during the year, more than four times greater than the number in 2015 (as plaintiffs’ lawyers shifted their filings from state court to federal court, as a result of Delaware state court rulings hostile to the kind of disclosure-only settlements that largely characterize the resolution of these cases). The 80 federal court merger objection lawsuit filings during 2016 was the highest number since Cornerstone Research first began separately tracking the M&A lawsuits in 2009.

The litigation exposure of US exchange-listed companies was the highest in 20 years. To put that more concretely, during 2016, approximately 1 in 25 listed companies was the subject of a “traditional” class action lawsuit – and that number doesn’t include merger objection suits!

Have a nice day, everybody.  If you need me, I’ll be hiding under my desk.

– John Jenkins

As we’ve noted in several prior blogs, in recent months, the SEC’s Division of Enforcement has made a cottage industry out of going after companies with provisions in their standard severance agreements that it believes may discourage whistleblowing.  In addition to these SEC actions, last year, Congress enacted legislation – the Defend Trade Secrets Act, or DTSA –  protecting whistleblowers who disclose trade secrets.

This Perkins Coie memo provides some suggested language for inclusion in severance agreements to address the issues identified by the SEC & to conform to the DTSA’s requirements.  Here’s an excerpt with the language:

Savings Clause for Confidentiality Provisions. The “savings clause” BlueLinx agreed to include in its severance agreements to resolve the SEC’s charges is broader in its application than Rule 21F-17 requires. We continue to recommend the shorter version:

“Nothing in this agreement is intended to or will be used in any way to limit employees’ rights to communicate with a government agency, as provided for, protected under or warranted by applicable law.”

Waiver for Severance Agreements. Severance agreements should also include waiver language designed not to violate Rule 21F-17’s prohibition on interference with SEC whistleblower activity:

“Employee agrees to waive the right to receive future monetary recovery directly from Employer, including Employer payments that result from any complaints or charges that Employee files with any governmental agency or that are filed on Employee’s behalf.”

Because this does not require an employee to waive the right to any future monetary recovery from the government in connection with any communication the employee may have with the SEC, there is no violation of Rule 21F-17.

DTSA Language. To comply with the DTSA, we suggest this language in governing the use of trade secrets:

“Employee may not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.”

Non-GAAP: Corp Fin Focused on “Equal or Greater Prominence”

This Andrews Kurth memo reviews recent Corp Fin Staff comments & enforcement activity surrounding presentation of non-GAAP information – and notes the heavy focus on Item 10(e)’s “equal or greater prominence” requirement. Here’s an excerpt discussing recent comments:

Following the issuance of the May 2016 guidance, the Staff increased its focus on the prominence requirement by issuing comments related to issuers’ failure to comply with the requirement. These comments have included, among other things, a failure to:

– Describe or characterize the most comparable GAAP measure in equally prominent terms if a characterization was provided for the non-­GAAP measure (for example, “strong overall results” and “record EBIT”);
– Present the most comparable GAAP measure first in a tabular presentation, including in the required quantitative reconciliation (meaning that the reconciliation should begin with the GAAP measure instead of the non-­GAAP measure);
– Present the GAAP measure first in the body of an earnings release or in its headline;
– Provide similar percentages or prior period amounts for the GAAP measure when provided for the non­-GAAP measure; and
– Include the required disclosure if the issuer relies on the “unreasonable efforts” exception to exclude a quantitative reconciliation for forward­ looking non­-GAAP measures, specifically identifying the information that was unavailable and its probable significance.

Many comments issued during the second half of 2016 were “futures” comments, but the memo says that after an apparent grace period the Staff may increasingly require amendment of prior filings.

Broc & John: The OTC White Paper & The Absence of Snow

We were in the midst of our strategic planning meetings in Siesta Key when Broc suddenly leapt from his chair, smashed his glass on the floor & shouted – “I can whup any man in this bar!” A group of large gentlemen in motorcycle jackets seemed eager to take Broc up on his challenge. At this point, I suggested that we head to the beach for another podcast – and that’s how this 4-minute podcast on DERA’s OTC White Paper & the Absence of Snow came to be. Anyway, that’s my story & I’m stickin’ to it.

This podcast is also posted as part of our “Big Legal Minds” podcast series. Remember that these podcasts are also available on iTunes or Google Play (use the “My Podcasts” app on your iPhone and search for “Big Legal Minds”; you can subscribe to the feed so that any new podcast automatically downloads…

– John Jenkins

This Baker Donelson memo discusses Wadler v. Bio-Rad Laboratories – a recent whistleblower retaliation case in which a jury awarded a former general counsel $8 million. This case is particularly interesting because the plaintiff was permitted to use attorney-client privileged information in support of his claims:

In a seminal trial court decision, the federal court in the Northern District of California ruled in a whistleblower retaliation case that a fired general counsel of Bio-Rad Laboratories could use as evidence otherwise privileged materials. The Sarbanes-Oxley Act’s protection of whistleblowers preempted the attorney-client privilege and provided key evidence leading to an $8 million jury verdict in plaintiff’s favor.

The former general counsel raised concerns about suspected illegal payments in violation of the Foreign Corrupt Practices Act that led to his termination. After he unsuccessfully reported to management, he went to the audit committee, whose internal investigation concluded no violation had happened.

General counsel-turned-whistleblowers previously have not been allowed to use attorney-client protected materials, and this case may signal a new approach. We’re posting memos about this case in our “Whistleblowers” Practice Area. And tune into our upcoming webcast: “Whistleblowers: What Companies Should Be Doing Now.”

IPOs: First Publicly Traded Benefit Corp Hits the Market

Rick Alexander at B Lab blogs that Laureate Education has just become first publicly traded “benefit corporation” – and he isn’t a shrinking violet when it comes to expressing his views on the importance of this milestone:

The most important event to take place in the financial world in 2017 has already happened. It was a simple stock offering. But one facet of that otherwise unremarkable transaction signals that the capital markets are open to a change that might just save the planet.

On January 31, Laureate Education completed an initial public offering, raising $490,000,000. Laureate was the first company to go public as a “benefit corporation,” a corporate form that did not even exist ten years ago. While 4,500 benefit corporations have now been created, each of them was privately held until last week’s IPO.

We’ve previously blogged about benefit corporations – which are organized under separate corporate statutes designed to permit boards to consider additional stakeholders alongside shareholders, & give the board discretion to determine the relative weight to place on shareholders’ and other stakeholders’ interests.  The “B Corp” concept has gotten a lot of traction in recent years – 30 states now have benefit corporation statutes – and it will be interesting to see how the concept fares among public investors.

There’s one point in Rick’s blog that I want to correct – although Laureate is the first benefit corporation to go public in the US, it isn’t the first publicly traded benefit corporation.  As Broc noted several years ago, that honor goes to Natura, which is Latin America’s largest cosmetics company & is publicly traded in Brazil.

Update: Cydney Posner points out that Laureate’s IPO took quite some time to cross the finish line – she first blogged about it in 2015!

Our “Q&A Forum”: The Big 9000!

In our “Q&A Forum,” we have blown by query #9000 (although the “real” number is much higher since many of the queries have others piggy-backed on them). I know this is patting ourselves on the back, but it’s over 15 years of sharing expert knowledge and is quite a resource. Combined with the Q&A Forums on our other sites, there have been well over 28,000 questions answered.

You are reminded that we welcome your own input into any query you see. And remember there is no need to identify yourself if you are inclined to remain anonymous when you post a reply (or a question). And of course, remember the disclaimer that you need to conduct your own analysis & that any answers don’t contain legal advice.

– John Jenkins