As I promised in my blog yesterday, here’s a blackline of Corp Fin’s non-GAAP CDIs – courtesy of Simpson Thacher’s Yafit Cohn! And here’s the memos that I’m posting in our “Non-GAAP Measures” Practice Area – as one of the memos highlights, pay special attention to the CDI on adjusted revenue measures…
CII’s Testimony on Capital Formation
Here’s CII’s 16-page testimony submitted for the hearing entitled “Legislative Proposals to Enhance Capital Formation, Transparency, and Regulatory Accountability” before the House Financial Services Subcommittee on Capital Markets. The testimony addresses the regulation of proxy advisors & voting in general, among other topics…
Early Bird Discount Expires Tomorrow: Executive Pay Conferences
Here are the agendas – 20 panels over two days. You’ll notice that many panels have a new novel feature – a post-panel commentary by different experts than the experts on the panel. For example, after Corp Fin Director Keith Higgins speaks, Meredith Cross & Mark Borges will kibitz on what we just heard from Keith. Think of it as being akin to post-debate analysis on the cable networks. The panels include:
1. Keith Higgins Speaks: The Latest from the SEC
2. SEC Speaks: Post-Panel Commentary
3. The SEC All-Stars: The Bleeding Edge
4. The Proxy Designers Speak: How to Make Disclosure Usable
5. Navigating ISS & Glass Lewis
6. Hot Topics: 50 Practical Nuggets in 60 Minutes
7. Pay-for-Performance Disclosure: Now What
8. P4P: Post-Panel Commentary
9. Creating Effective Clawbacks (& Disclosures)
10. Clawbacks: Post-Panel Commentary
11. Pay Ratio: Now What
12. Pay Ratio: Post-Panel Commentary
13. Pay Ratio: The In-House Perspective
14. Pay-for-Performance: How to Do The Proper Messaging
15. Proxy Access: Tackling the Challenges
16. Proxy Access: Post-Panel Commentary
17. Pledging & Hedging Disclosures: What to Do Now
18. Pledging & Hedging Disclosures: Post-Panel Commentary
19. Dealing with the Complexities of Perks
20. The Big Kahuna: Your Burning Questions Answered
Early Bird Rates – Act by May 20th: Huge changes are afoot for executive compensation practices with pay ratio disclosures on the horizon. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a special early bird discount rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by the end of this Friday, May 20th to take advantage of the 20% discount.
Yesterday, Corp Fin issued 12 new & revised CDIs. These new & revised CDIs are spread throughout this list of non-GAAP CDIs. About half of the 12 are new – and half are revised. The CDI dates are located at the bottom of each CDI. Tomorrow, I’ll blog a link to a blackline of the changes (I’m be in the air most of today.)
These CDIs should help provide guidance in the wake of the saber rattling that various members of the Staff – and Commission – have made in this area recently. I’ll be posting memos in our “Non-GAAP Measures” Practice Area…
We have a webcast coming up in mid-July – “Non-GAAP Disclosures: What Is Permissible?” – featuring Brink Dickerson of Troutman Sanders; Chris Holmes of E&Y; Deb Kelley of Genesis; and Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster…
PCAOB Re-Proposes Disclosure of “Critical Audit Matters”
Last week, after five years of outreach, the PCAOB once again attempted to make the auditor’s report more relevant and informative to investors by re-proposing the auditor reporting standard, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, and related amendments.
Typically, as you know, auditors just give companies a pass/fail grade and provide no description of any issues or problems that occurred during the audit process; those problems are instead taken up with the audit committee. However, PCAOB Chair Jim Doty commented, “in today’s complex economy, and particularly in light of lessons learned after the financial crisis, investors want a better understanding of the judgments that go into an opinion – not a recitation of the standard procedures that apply to any audit, but the specific judgments that were most critical to the auditor in arriving at the opinion.”
While the reproposal would retain the standard pass/fail model, it would also provide for the inclusion in the auditor’s report of “critical audit matters” and new elements related to auditor independence and auditor tenure. According to the proposing release, the communication of critical audit matters “would inform investors and other financial statement users of matters arising from the audit that required especially challenging, subjective, or complex auditor judgment, and how the auditor responded to those matters.” Here is the press release and a fact sheet.
SEC Enforcement Chief Gives Update on Private Equity
In this blog, Steve Quinlivan covers this speech by Andrew Ceresney, Director of the SEC’s Division of Enforcement, about the SEC’s private equity enforcement initiative…
Spanking brand new. By popular demand, this comprehensive “Escheatment Handbook” covers the entire terrain, from the basics to how to respond to audit requests (including those from contract auditors) & deal with escheatment litigation. This one is a real gem – 22 pages of practical guidance – and its posted in our “Escheatment” Practice Area.
Director Independence: The Role of Relationships Between Fellow Directors
In the context of a defendant motion to dismiss, in Delaware County Employees Retirement Fund v. Sanchez, the Delaware Supreme Court reversed the Court of Chancery on appeal in holding that stockholder plaintiffs in a derivative action alleged facts supporting a pleading stage inference that a director was not sufficiently independent due to a long-standing friendship and business relationship. As described in this Paul Weiss memo, the Court considered the allegations in their totality and focused on:
– Detailed allegations of a close, 50-year friendship, which weighed in favor of a pleading inference that a director lacks independence
– Allegations of a close, long-term friendship as opposed to allegations of more superficial relationships
– Detailed allegations of business relationships between an admittedly interested director and another director (whose independence was disputed) together with allegations of their close friendship, which the Court concluded were sufficient to allege a lack of independence
The memo notes that “it remains to be seen how the Court of Chancery will hold on remand on a more developed record.”
Rental Car Market: Soon to be Disrupted!
Most of us in this community do a lot of traveling – so I’m so happy to report that the crappy rental car oligopoly may soon be dust due to the arrival of Skurt, as detailed in this blog. A few weeks ago, I spent an entire hour between picking up my bags and getting into my rental car – waiting a half hour for the shuttle, then doing the 20-minute shuttle ride and finally a paperwork screw-up. Skurt dramatically reduces all of that hassle. I’ve used Skurt & it indeed is good and is true!
We’ve heard those words before about a college commencement address. But there might not have been anything as amazing as Facebook COO’s Sheryl Sandberg’s remarks at my son’s Cal graduation on Saturday. Sheryl spoke publicly for the first time about her husband’s sudden death last year. She cried periodically throughout – and we all cried with her.
But rather than merely dwell on her misfortune, she leaned on her experience to impart the wisdom she has learned over the past year, struggling to comprehend the incomprehensible. There are many quotes worth noting – but best to read the entire transcript. And at least take in this gem:
You are not born with a fixed amount of resilience. Like a muscle, you can build it up, draw on it when you need it. In that process you will figure out who you really are — and you just might become the very best version of yourself.
You also can watch this amazing speech yourself. And here’s a pic of Sheryl with my sister – who is 25 years younger than me – an hour before the event. Sheryl is so full of passion & energy!
Crowdfunding: Corp Fin Issues 7 New CDIs & Small Entity Compliance Guide
With Regulation Crowdfunding becoming “official” today, Corp Fin issued this “Small Entity Compliance Guide” and these seven CDIs about crowdfunding on Friday…
Webcast: “The Top Compensation Consultants Speak”
Tune in tomorrow for the CompensationStandards.com webcast – “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.”
I am sure many readers saw Monica Langley’s front page Wall Street Journal article earlier this week about Salesforce CEO Marc Benioff and how he uses his position to advance social causes he favors, including most recently, his efforts to combat state legislation concerning transgender bathroom use. The Journal article suggests that Benioff has launched a “new era of corporate social activism.” As the article details, Benioff’s efforts have drawn praise in some quarters, criticism in others. In a May 3, 2016 post on his eponymous blog, UCLA Law Professor Stephen Bainbridge raises some interesting questions about the compatibility of Benioff’s activities with traditional notions of corporate officers’ duties to shareholders.
For those of you who would like to gain some insight into suggested ways to improve ICFR, as well as some of the nuts and bolts involved, CFO.com has an interesting article written by a Deloitte partner about one type of internal control, “management review controls”(MRCs), that delves into some detail. According to the article, PCAOB requirements are now causing auditors “to require a level of precision and specificity for management review controls beyond prior years. Auditors are also reviewing far more documentation than they use[d] to. At the same time, there is a lack of clarity on what exactly is sufficient in management review controls and how precise they need to be.”
What is an MRC? According to the article, MRCs are an “essential aspect of effective internal control” that involve management reviews of the reasonableness of estimates and other financial information. These reviews typically involve an assessment of recorded amounts in light of the reviewers’ expectations, judgment, knowledge and experience, as well as related reports and underlying documents. MRCs are different from regular “transaction” controls: they tend to look at the forest, not the trees.
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:
– Guide Investors Through Your IR Site Via Quick Links
– Political Contributions Disclosure: Pressure Now on Investors
– Online Proxies: More Examples
– Online Proxies: Examples of How to Display Your Board
– Study: Cybersecurity Risk Factors
– Study: Risk Factors Not Specific Enough
Go Bears!
I’m out in Berkeley for my older son’s graduation. Time surely flies…
As noted in this blog from “The SEC Institute,” there truly is no reason for companies to be procrastinating when it comes to the FASB’s new revenue recognition standard (we have a ton of memos posted in our “Revenue Recognition” Practice Area). Here’s the blog:
Let’s face it, almost all of us procrastinate! And when there is a good reason to procrastinate, well, that is all the better! One of the big rationales for procrastinating dealing with the new revenue recognition standard was that the FASB was definitely going to make changes to the original ASU (ASU 2014-09). As the Transition Resource Group identified and discussed issues in the new standard it became clear that the FASB would clarify certain issues and improve the standard in other areas. In fact the FASB started four discrete projects to make changes.
Yesterday that rationale came to an end. The FASB released the fourth of the four ASU’s. They are:
– ASU 2015-14 – Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date – Issued August 2015
– ASU 2016-8 – Revenue Recognition — Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net) – Issued March 2016
– ASU 2016-10 – Revenue Recognition — Identifying Performance Obligations and Licenses – Final Standard Issued in April 2016
– ASU 2016-12 – Revenue Recognition — Narrow-Scope Improvements and Practical Expedients – Issued May 2016
All the core issues are now in the standard as amended! And yes, the TRG and the AICPA’s Industry Task Forces will continue to work on specific issues. You can read about the TRG’s issues.
CEO Removal: How to Do It
Probably the toughest task for a board is to remove a CEO that performs poorly (see this checklist & other resources in our “CEO Succession/CEO Removal” Practice Area). It’s easier – but can still be challenging – to remove a CEO that behaves badly. This new Stanford study delves into that interesting topic (also see this Cooley blog)…
SEC Commissioners: Grundfest Weighs In
Former SEC Commissioner Joe Grundfest recently penned this WSJ op-ed on the saga of trying to get two SEC Commissioner candidates confirmed by the Senate. Here’s an excerpt:
President Obama has nominated Lisa Fairfax, a Democrat, and Hester Peirce, a Republican, to fill two vacancies on the Securities and Exchange Commission. New York Sen. Charles Schumer demands that the nominees promise—in writing—that if the SEC ever considers a rule requiring publicly traded corporations to disclose political contributions, the nominees will support it.
The nominees haven’t done so, and on April 7 Mr. Schumer lambasted them for “fence-sitting” and for feeding him a bunch of “gobbledy gook.” So spurned, Sen. Schumer, joined by fellow Banking Committee Democrats Elizabeth Warren, Robert Menendez and Jeff Merkley, announced that they will oppose the nominees. The confirmation process has now ground to a halt. Are these senators striking a powerful blow for disclosure of campaign-finance reform, or are they merely shooting themselves in the foot? There’s every reason to believe that these senators will end up limping out of the hearing room.
The law is clear that when it comes to adopting a rule, SEC commissioners must be open to persuasion based on public comment. If a commissioner has an “unalterably closed mind”—as the U.S. Court of Appeals for the District of Columbia Circuit put it in a 1980 decision—then she can’t participate.
What better evidence is there of an unalterably closed mind than a nominee’s written promise to support a senator’s policy no matter what? Any nominee who agrees to such a demand effectively disqualifies herself from participating in the rule-making that the senator so ardently desires. By demanding the promise, Mr. Schumer and his colleagues destroy her ability to deliver on the promise. It also transforms the nomination process into a scene from the theater of the absurd: “I promise to support a policy position that I won’t be able to vote on because I am making this promise.”
Here’s an excerpt from this WSJ article by Andrew Ackerman:
Firms that advise shareholders in corporate elections would be subject to stricter government oversight under bipartisan legislation set to be introduced this week, amid complaints from public companies that such firms hold too much sway over investors. The legislation, sponsored by Reps. Sean Duffy (R., Wis.) and John Carney (D., Del.), would require U.S. regulators to impose new registration and disclosure requirements on firms like Institutional Shareholder Services Inc. and Glass, Lewis & Co. that weigh in on governance debates such as executive compensation or the composition of corporate boards. It is the latest sign of how contentious the roles of such firms have become at a time when corporate elections have grown more competitive amid a rise in activist investing. Proxy advisers analyze corporate proxy statements and make voting recommendations to investors. A “no” recommendation from an adviser can make the difference in a close ballot.
Both ISS and Glass Lewis were at the center of a fierce debate in 2013 about whether to split the chairman and CEO jobs at J.P. Morgan Chase & Co., a proposal the firms supported but which ultimately was rejected by shareholders. They also have played a key role in the successful campaign prodding companies to allow shareholders to nominate their own directors directly onto company proxies. Proxy firms oppose the proposed legislation, saying concerns about their businesses are overblown and that they already operate transparently.
The House Financial Services Committee is expected to hold a hearing on the bill next week, a sign the legislation could advance quickly through the chamber.
Disclosure of Audit Partner: SEC Approves PCAOB’s New Rules
A few days ago – and five months after the PCAOB’s adopting release came out – the SEC issued this order approving the PCAOB’s new rules requiring disclosure of the identities of audit engagement partners & other audit firms participating in the audit. Let’s see those Form APs! These PCAOB rules will be effective as follows:
– Disclosure of engagement partner: for audit reports issued on – or after – January 31, 2017
– Disclosure of other auditors: for audit reports issued on – or after – June 30, 2017
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor 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:
– Nominating Committee: Heightened Scrutiny & Responsive Tips
– Why Open Door Policies Don’t Work
– CIOs/CISOs Pressured to Unleash IT Projects Prematurely
– Stanford/S&C Launch FCPA Database
– Helping the Board Understand & Impact Corporate Culture
– Social Media Analytics: Corporate Investigations Tool
Recently, I blogged – yet again – about the saber rattling by the SEC (& others) over how some companies might be playing fast & loose with their non-GAAP disclosures. Last week, SEC Deputy Chief Accountant Wesley Bricker delivered this speech on the topic (read a summary in this Cooley blog). And a week before that, as noted in this memo, Corp Fin Chief Accountant Mark Kronforst spoke at a conference about the topic as well, providing several examples that are attracting attention & concern…
We have a webcast coming up in mid-July – “Non-GAAP Disclosures: What Is Permissible?” – featuring Brink Dickerson of Troutman Sanders; Chris Holmes of E&Y; Deb Kelley of Genesis; and Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster…
When Stars Collide: CEOs v. Analysts
Love this piece from IR Magazine about how a good analyst report might be worth more to a company’s market cap than the company’s CEO!
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:
– Revoking An Irrevocable Proxy
– Shareholder Engagement: Is the DOJ’s ValueAct Case Just “One-Off”?
– Investor Policies: Board Tenure & Retirement Ages
– Splunk’s Proxy Access Disclosure
– BlackRock’s Engagement Activity
– Proxy Access: NYC Comptroller Reports More Success
On Friday, the SEC became the last of the six financial regulators to approve the 488-page joint agency proposal to prohibit incentive-based compensation that may encourage inappropriate risks by financial institutions under Section 956 of Dodd-Frank. The other agencies are the FDIC, Federal Housing Finance Agency, Federal Reserve Board of Governors, National Credit Union Administration and Office of the Comptroller of the Currency. Here’s the memos I have been posting about the proposal on CompensationStandards.com in our “Financial Firms” Practice Area…
In 2015, more than 90% of incidents and data breaches fell into one of nine categories. Most commonly, security incidents were caused by miscellaneous errors, such as sending emails or paper documents to the wrong recipients (11,347 incidents); insider and privilege misuse, such as an employee using unapproved hardware like a USB drive to store sensitive information (10,490 incidents); and physical theft or loss of laptops and paper documents (9,701 incidents). The most serious incidents—those resulting in the most confirmed data breaches—however, were web app attacks, including hacking using stolen credentials and installing malware (908 confirmed breaches) and point of sale or “POS” attacks against environments where debit and credit card retail transactions are conducted (525 confirmed breaches).
2015 found attackers are getting faster at compromising their victims. For example, the time to compromise was almost always on the order of days or minutes. One particularly fast method of accessing sensitive data is phishing, which accounted for 9,576 security incidents and 916 confirmed data breaches in 2015. Phishing (a form of social engineering) involves sending an email message containing a malicious attachment or link to a victim with the intent of tricking him or her into opening the attachment or clicking on the link. In the majority of phishing cases, that click allows the attacker to install persistent malware on the victim’s computer.
The DBIR analyzes several million results of phishing tests conducted by various information security vendors. Their findings show that we may be getting worse, not better, at recognizing phishing messages; the number of targets who opened the test phishing message rose by 7%, from 23% in 2014 to 30% last year, and about 12% of those who opened the message went further and clicked on the malicious attachment. The median time between sending a phishing message and the first click on its attachment? Under four minutes. In fairness to those who clicked, however, the DBIR notes that the main perpetrators of phishing attacks are sophisticated, with significant time and resources to craft believable “bait”: in 2015, 89% of phishing attacks were perpetrated by organized crime syndicates and 9% were perpetrated by state-affiliated actors.
Insider and privilege misuse was also very common, with insiders most frequently motivated by financial gain, followed closely by espionage. The 2016 DBIR looked at how insiders’ motivations have changed since 2009, and while incidents motivated by espionage have risen, incidents motivated by the prospect of financial gain have fallen. Other inside actors are motivated by grudges, ideology, and even just plain fun. Even more concerning, actions by insiders are some of the hardest for organizations and law enforcement to detect. In fact, 70% of these incidents are taking months or even years to discover.
Also check out our checklists related to incident response planning, disclosure practices and risk management – as well as a chart of state laws related to security breaches. And see this blog about a Congressional bill that would amp up internal controls over cybersecurity…
May-June Issue: Deal Lawyers Print Newsletter
This May-June Issue of the Deal Lawyers print newsletter includes:
– Structuring Considerations for Minority Investments
– Insurance Due Diligence: Three Practical Tips
– Basics: Drafting & Negotiating Disclosure Schedules
– Talent Retention: A Toolkit for M&A
– Which Investors Like Which Risks?
Remember that – as a “thank you” to those that subscribe to both DealLawyers.com & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online for the first time. There is a big blue tab called “Back Issues” near the top of DealLawyers.com – 2nd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.
And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to DealLawyers.com will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to DealLawyers.com – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online.
As you’ll find out in this 40-minute podcast with Gibson Dunn’s John Olson, he is a legal giant. In 52 years of practice, he has done it all. Chair of the ABA’s Federal Regulation of Securities committee; Advisory Committee for both the NYSE and NASD. Drafting insider trading legislation for Congress. Just to name a few.
John has proven not to just be a leader among securities lawyers – but also in the field of corporate governance. John may have been in more boardrooms during his life than any other lawyer. More recently, John has spent more time with his true love – teaching. Learn all about him…
Will All Institutional Investor Become “Activists”?
To date, for the most part, when it comes to shareholder activism, the heavy lifting has been done by hedge fund activists. Now, as discussed in this NYT DealBook column, institutional shareholders may be stepping out on their own.
Transfer Agents: Companies Need to Focus on SEC’s Proposal
Recently, Carl Hagberg forced me to read his comment letter over the SEC’s recent transfer agent proposals – as I admit that I didn’t realize that transfer agents can assume – and sometimes create – significant liabilities for companies! This proposal really hadn’t been on my radar screen. The SEC extended the comment period so that it ended a few weeks ago – so I imagine the agency will still accept comments as the deadline typically is soft. Here’s all of the comments submitted so far…
