Here are the results from a recent survey on board minutes & auditors:

1. When it comes to board minutes, our company:

– Provides copies of board minutes to auditors upon request in electronic form only –  48%
– Provides copies of board minutes to auditors upon request in paper form only – 7%
– Provides copies of board minutes to auditors upon request in electronic and paper form – 13%
– Doesn’t provide copies of board minutes to auditors – but we do allow inspection of minutes onsite –  31%
– Doesn’t provide copies of board minutes to auditors – nor do we allow inspection of minutes onsite  – 1%

2. Our auditors ask for copies or inspection of board minutes:

– Each quarter – 97%
– Once a year – 1%
– On irregular basis – 2%
– They never ask for board minutes – 0%

Please take a moment to participate anonymously in this “Quick Survey on Rule 10b5-1 Plan Practices” – and this ““Quick Survey on Codes of Conduct.”

Revenue Recognition: New Disclosures Will Be a Challenge

Speaking of auditors, Deloitte provides this heads up on the disclosure requirements associated with the implementation of FASB’s new revenue recognition standard.  For some companies, the new standard will require them to completely rework their income statements, but all companies will have to grapple with several new disclosure requirements:

The new standard will require entities to disclose much more information about revenue activities and related transactions than they do currently. Consequently, they will need time to implement and test appropriate processes, internal controls, and disclosure controls and procedures (including the identification of relevant personnel and information systems throughout the organization) for (1) data-gathering activities, (2) the identification of applicable disclosures on the basis of relevance and materiality, and (3) the preparation and review of disclosures, including the information that supports such disclosures.

Companies are going to need to be ready to address all of the new disclosure requirements in their first filing after implementation.  Deloitte predicts that things could get messy:

The requirement to consider disclosures as part of preparing quarterly or year-end financial statements most likely will significantly affect an entity’s ability to meet reporting deadlines that are already tight (particularly for SEC filings). In addition, an entity may be unable to obtain the information it needs to satisfy the disclosure requirements (e.g., because of problems related to the collection, preparation, or review of data needed for disclosures), which could result in late filings and the identification of deficiencies in internal controls (e.g., material weaknesses).

New disclosure requirements that may prove challenging to implement include those relating to performance obligations, judgments & estimates, contract balances, and disaggregation of revenues.

The Time May be Ripe for a Debt Buyback

This O’Melveny memo says that the current climate of market uncertainty & the potential for interest rate increases makes this a good time for issuers to think about repurchasing some outstanding debt. This excerpt summarizes the available alternatives for debt buybacks:

Cash repurchases of debt generally can be structured as open-market or private repurchases, cash tender offers, or redemptions pursuant to the contractual terms of the governing indenture. These methods vary in terms of implementation time, cost, and the portion of a given debt series that can be repurchased at one time. The scale of repurchases and the structure used may also depend on restrictive covenants in the company’s indentures and other agreements, as well as the availability of operating losses to offset any taxable gains resulting from the repurchases.

The memo reviews the mechanics of each alternative & addresses the disclosure and tax aspects of a debt repurchase.

– John Jenkins

Here’s the news from this WSJ article by Andrew Ackerman:

The Senate Banking Committee approved a series of modest, bipartisan bills aimed at making it easier for companies to grow and raise cash, the first legislation to move through the panel in the new Congress. Thursday’s bills, which the panel approved as a single package by voice vote, is significant because they are among the first of several deregulatory measures congressional Republicans are expected to advance this Congress.

The measures—most of which were introduced in prior years but failed to clear the Senate—are separate from broader efforts to rollback the 2010 Dodd-Frank financial overhaul which are expected to advance in the House but face an uncertain path in the Senate. The Trump administration, which has laid out plans to roll back Obama-era financial regulations, now appears to be more focused on other parts of its agenda, such as tax changes.

Banking Committee Chairman Mike Crapo (R., Idaho) on Thursday said he wanted to move ahead on bipartisan legislation that lawmakers had already developed in the prior Congress. His panel is working “to build the consensus” on broader changes to Dodd-Frank, though he acknowledged that work is more “contentious” and offered no timetable for such legislation. Only two Democrats, Massachusetts Sen. Elizabeth Warren and Rhode Island Sen. Jack Reed, voiced opposition to Thursday’s package of bills, with Ms. Warren saying she didn’t believe some of the measures had adequate investor protections.

One of the bills, authored by Sens. Pat Toomey (R., Pa.) and Mark Warner (D., Va.) would give privately held firms and startups greater flexibility in awarding stock to employees without triggering what critics say are overly intrusive reporting requirements. The legislation, endorsed by regional grocer Wegmans Food Markets Inc., would boost a $5 million cap in the amount of stock closely held companies can award employees before triggering certain disclosures the companies find meddlesome, such as cash flows and lists of shareholders’ ownership interests. The bill would increase the threshold to $10 million and peg it to inflation.

A second bill, introduced by Sens. Heidi Heitkamp (D., N.D.) and Dean Heller (R., Nev.), would raise to 250 from 100 the number of investors venture-capital funds can acquire before triggering SEC registration requirements. Another measure, also introduced by Mr. Heller, would credit stock exchanges for any fees they may have overpaid the Securities and Exchange Commission.

And a fourth bill, by Mr. Heller and Sen. Gary Peters (D., Mich.), would ease certain restrictions concerning the publication of research on exchange-traded funds. The House Financial Services Committee was expected to approve the same bill on Thursday. A fifth bill, sponsored by Sens. Robert Menendez (D., N.J.) and Orrin Hatch (R., Utah), would impose greater oversight on mutual funds based in, and sold to residents of, U.S. territories like Puerto Rico that have previously escaped SEC regulation.

Financial Choice Act: A Long Shot?

As I’ve blogged before, the “Financial Choice Act” is a House bill that would roll back much of Dodd-Frank (and more). Here’s an excerpt from this Bloomberg article:

Now, though, the drive to wipe out or scale back Dodd-Frank has lost momentum. Trump issued an executive order on Feb. 3 for Treasury Secretary Steven Mnuchin to review the law, but the president made no mention of it in his priority-setting speech to Congress on Feb. 28. As with the Republican vow to repeal Obamacare, the sticking point may be finding a replacement for the law on the books. “We need to regulate more simply, cut back on unintended consequences, and see if we can recalibrate this,” says Douglas Elliott, a partner at management consulting firm Oliver Wyman. “That happens to be an extremely hard thing to do.”

Hensarling does already have a bill in the House, the Financial Choice Act, that’s being given long odds. “We think the chances that the bill becomes law are less than 20 percent—maybe as low as 10 percent,” Brian Gardner, Washington analyst at the investment bank Keefe, Bruyette & Woods, wrote to clients on Feb. 16. Even so, the bill offers a glimpse into Republicans’ thinking on how to shape financial regulation.

Peirce, Fairfax Unlikely to Be Renominated as SEC Commissioners

Living inside the Beltway, you learn that being nominated for a high-ranking government job isn’t the same as obtaining that job. I know all sort of folks that were nominated – and then things got hung up in the Senate for months & years. It’s a brutal wait. All your friends – & work colleagues – presume you’re sliding into this nice new job. But then it never happens. The Twilight Zone. So I feel the pain of Hester Peirce and Lisa Fairfax.

Here’s an excerpt from this WSJ article by Dave Michaels:

Both Hester Peirce and Lisa Fairfax, who were nominated last year to fill two vacant slots at the SEC, rejoined an SEC advisory committee they had stepped away from after former President Barack Obama tapped them to join the agency as commissioners. Ms. Peirce, a Republican, and Ms. Fairfax, a Democrat, both won backing from the Senate Banking Committee last year, but their nominations stalled before they could win approval from the full Senate. In particular, both women faced opposition from Senate Democrats who wanted them to endorse a rule that would require public companies to report their political spending.

Their return to roles on the SEC’s Investor Advisory Committee signals neither Ms. Peirce nor Ms. Fairfax expects to be renominated. Staying away from the SEC advisory committee would be the safe move for a policy wonk or lawyer who expects to face another grilling from partisan senators. Instead, both are now free to make statements about policy that could come back to bite them if they were to face a new Senate hearing.

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

Whoa! Last week, a member received an email claiming to be from EDGAR/SEC that had an attachment for revised 10-K filing instructions. She forwarded the email to her IT department – & it turned out the attachment was a “very nasty piece of malware” that could have infected the entire company. It was a phished email that came from a SEC email address (filings@sec.gov) with a subject line of “Important changes to Form 10-K and Instructions.”

So beware! This is quite a tailored type of malicious email for an in-house lawyer to be receiving! Yesterday, the SEC posted a notice about this phishing scam – see this Fortune article…

How Nasdaq Handles Its FAQs

Recently, a member asked how to best navigate “Nasdaq’s FAQs.” There is this “advanced search” function, which include both open-ended search boxes and topical categories in two drop-down boxes (ie. “Category” and “Sub-Category”).

Each FAQ has its own “Identification Number,” which is now prominently displayed at the end of the Search Results Bar. To search by these ID Numbers, select “Material with this Identification Number” from the Find drop down field. You can also choose to search by date to find what’s new. FAQs can also be shared through email by selecting the envelope icon (or Mailto Link) displayed on the bottom right of each FAQ. Other content in Nasdaq’s Reference Library can be searched in the same way.

Nasdaq also recently added a “Google Site” search function to its “Listing Center” that allows users to search all content available on the Listing Center – including the “Reference Library” – in one place.

Reform: More on the “Rule Reduction” Executive Order

Earlier this week, the White House’s Office of Information & Regulatory Affairs issued this memo to federal agencies, reminding them of their obligations set forth in this executive order – and requiring agencies to submit regulatory reduction plans by the end of this month. Although the executive order doesn’t apply to the SEC, the White House has made it clear that it expects independent agencies – like the SEC – to fall in line…

Meanwhile, as noted in this Bloomberg article, it appears that the SEC has imposed a hiring freeze & non-essential travel ban in anticipation of budget cuts…

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

One of my favorite things is watching how companies continue to innovate & improve the usability of their disclosures. That’s why HP’s new “Annual Meeting” webpage got me smiling. Here’s 4 notable things right off the bat:

1. From this “Committees” page, each of the buttons will take you to an individual committee page – and there’s a video from a committee chair on each one of the pages.
2. Love this agenda page for the meeting.
3. The board page – “Meet your HP Board” – is fully interactive with skills & committees.
4. The PDF of the proxy statement is groovy too.

Hat tip to the HP crew – and their designers at Argyle – for going the extra mile! We have a host of related resources in our “Usable Disclosure” Practice Area – included video archives of an entire conference on the topic…

The “Embattled” CEO

Here’s an excerpt from this article from “The New Yorker”:

Business professors once talked about “the imperial C.E.O.,” but, increasingly, we’re in the era of what Marcel Kahan, a law professor at N.Y.U., calls “the embattled C.E.O.” He told me, “Big shareholders and boards of directors have more power, and are more willing to use it. And C.E.O.s have been the net losers.” The breakdown of the old order began more than thirty years ago, but things have accelerated since the turn of the century. The Sarbanes-Oxley Act, passed in 2002, required greater disclosure to investors, and increased the independence of corporate boards. “In the old days, boards were often loyal to the C.E.O.,” Charles Elson, a corporate-governance expert at the University of Delaware, told me. “Today, they’re more loyal to the company.” The rise of activist investors—who campaign aggressively for change when they’re not satisfied with performance—has exacerbated the trend. One study found that when activist investors succeed in winning seats on the board of directors the probability that the C.E.O. will be gone within a year doubles.

The information revolution has created other dangers for C.E.O.s. In the social-media era, damaging stories travel fast, and boards take public relations very seriously. P.R. disasters have sealed the fate of top executives at no fewer than five advertising companies this year. (The most notorious debacle was at Saatchi & Saatchi: the chairman resigned after telling a reporter that he didn’t think gender inequality in the industry was a problem.)

The predicament of modern C.E.O.s may seem surprising, given their prominence and lavish compensation. Top executives everywhere are paid more than they used to be, and the U.S. has led the way; American C.E.O.s earn, on average, two to four times as much as European ones and five times as much as Japanese ones. Yet it’s precisely these factors that make C.E.O.s vulnerable, because the expectations for their performance are higher. “If you’re paid tremendous amounts of money to make things go right, people naturally feel that you should be held accountable when things go wrong,” Elson says. In that sense, the increasing willingness of boards to fire the C.E.O. is actually the flip side of a fetishization of the position that began in the eighties. In Ralph Cordiner’s day (and in Japan maybe still), belief in a C.E.O.’s power to transform a company was limited. But today’s cult of the C.E.O. is founded on the belief that having the right person at the top is the key to success—from which it follows that a failing company should show its boss the door.

Transcript: “The Latest Developments – Your Upcoming Proxy Disclosures”

We have posted the transcript for the CompensationStandards.com webcast: “The Latest Developments: Your Upcoming Proxy Disclosures.”

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

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