Congress is scrambling to avoid a government shutdown by the end of today – but the SEC’s contingency plans appear to be already in place. The SEC posted its “operations plan” for a government shutdown early last month.
As of right now, that plan is not featured on the SEC’s home page – nor is there word about how registration statements on the verge of being accelerated will be handled. The plan covers a total shutdown, not a partial shutdown if the SEC still has some funds available – which is what happened back in 2013 (also see this blog from back then).
There’s been no announcement as to potential timing – but if the SEC implements its plan, about 300 of the SEC’s 4600 staffers would keep on working. Edgar would remain operational, but it appears that most core Corp Fin operations would stop – including registration statement reviews. More to come…
Shareholder Proposals: “Lap Dog” Is In!
Here’s the intro from this blog by Cooley’s Cydney Posner: “From here on out, I guess you can count on seeing your directors described as “lap dogs” in some shareholder proposals or, more accurately, nascent or possible lap dogs. (That helps, doesn’t it?) That’s because, in three separate shareholder proposals submitted to The Boeing Company by three beneficial owners (all working through John Chevedden), the SEC refused to allow the company to exclude portions of the supporting statements that suggested that some of the company’s directors might be “lap dogs.”
Transcript: “The Latest – Your Upcoming Pay Ratio, Tax Reform & Proxy Disclosures”
We have posted the transcript for our recent CompensationStandards.com webcast: “The Latest: Your Upcoming Pay Ratio, Tax Reform & Proxy Disclosures.”
Earlier this week, BlackRock’s CEO Larry Fink sent his “annual letter to CEOs” of companies in BlackRock’s portfolio. This one’s pretty extraordinary – it makes it clear that as far as BlackRock’s concerned, from now on, doing well isn’t good enough:
Society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.
Fink’s letter goes on to say that BlackRock intends to focus on whether companies are serving a social purpose in its engagement efforts. BlackRock expects each of the companies in which it invests to develop a strategic framework for long-term value creation – and that strategic framework must go beyond financial performance:
Your company’s strategy must articulate a path to achieve financial performance. To sustain that performance, however, you must also understand the societal impact of your business as well as the ways that broad, structural trends – from slow wage growth to rising automation to climate change – affect your potential for growth.
These comments are accompanied by a reminder that since BlackRock can’t dispose of shares in its index funds, “our responsibility to engage and vote is more important than ever.”
BlackRock’s new stance is sparking controversy – CNBC reports that investor Sam Zell called its action “extraordinarily hypocritical” and asked whether America was ready to have BlackRock “control the New York Stock Exchange.” Controversial or not, when the world’s biggest fund manager speaks, companies don’t have much choice but to listen.
Here’s a WSJ article, Davis Polk blog – and a Wachtell Lipton memo. Meanwhile, BlackRock hopes to increase the size of its “Investor Stewardship” team globally to over 60 by the end of 2020…
ICOs: “Mama Don’t Take My KodakCoin Awaaay . . .”
So, now Kodak is getting into the cryptocurrency business – because, well, why not? Unlike most of these coin deals, I can actually understand the concept behind this one. Here’s an excerpt from Kodak’s press release:
Utilizing blockchain technology, the KODAKOne platform will create an encrypted, digital ledger of rights ownership for photographers to register both new and archive work that they can then license within the platform. With KODAKCoin, participating photographers are invited to take part in a new economy for photography, receive payment for licensing their work immediately upon sale, and for both professional and amateur photographers, sell their work confidently on a secure blockchain platform.
Kodak is doing this deal on the up & up – it’s structured as a Rule 506(c) private placement, so there’s no attempt to make an end run around the federal securities laws.
Rochester’s my home town, and I’d dearly love to see our fallen giant hit this one out of the park. Unfortunately, while I was kind of intrigued by the concept, the reaction to Kodak’s announcement has been decidedly mixed. Naturally, the stock market loved it because Kodak used the magic word “blockchain” in its announcement – but other observers have been more skeptical. For instance, this article by Bloomberg’s Matt Levine says that there’s a lot less to KodakCoin than meets the eye. Here’s an excerpt:
Look: Kodak wants to run a web crawler and a central database of photographs. You don’t need to do that on the blockchain. It also wants to run a marketplace to match buyers and sellers of photographs. Again you don’t need to do that on the blockchain. You certainly don’t need your own currency to do that; lots of markets — the stock market, the supermarket, the existing market for photographic licensing — run on dollars, and what is convenient about dollars is that if you get dollars for licensing your photographs you can spend them at the supermarket.
The FT Alphaville blog was even more direct – and cutting – in its reaction to Kodak’s announcement:
Listen, a bunch of you out there have obviously programmed your algos to buy any stock that looks sideways at the words ‘blockchain’ or ‘cryptocurrency’. Please, stop it.
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:
– More on “D&O Questionnaires: How to Address Board Diversity?”
– NYC Comptroller’s Office Counts on Active Shareholder Engagement
– A Checklist for Voluntary Filers
– The Acceleration of “Social Good” Campaigns?
– Shareholder Proposals: Companies Seek to Exclude Images
If you’re relatively new to being in-house – or you want to gain that perspective – take advantage of our new “In-House Accelerator“! This online – and offline – training program is free for members of TheCorporateCounsel.net. In addition to the “In-House Accelerator” paperback (paperback consists of 216 FAQs; here’s the “Table of Contents”), there is a series of podcasts & other comprehensive materials covering these four areas:
1. Corporate Governance
2. Proxy Season
3. ’34 Act Reporting
4. Other
Tomorrow’s Webcast: “Pat McGurn’s Forecast for 2018 Proxy Season”
Tune in tomorrow for the webcast – “Pat McGurn’s Forecast for 2018 Proxy Season” – when Davis Polk’s Ning Chiu and Gunster’s Bob Lamm join Pat McGurn of ISS to recap what transpired during the 2017 proxy season and what to expect for 2018. Please print out this “Course Materials” deck in advance.
Tomorrow’s Webcast: “Tax Reform – What’s the Final Word?”
Tune in tomorrow for the CompensationStandards.com webcast – “Tax Reform: What’s the Final Word?” – to hear Winston & Strawn’s Mike Melbinger, Choate Hall’s Art Meyers and PricewaterhouseCoopers’ Ken Stoler talk about how the new tax legislation will impact executive pay arrangements. Please print out this “Course Materials” deck (45 pages!) in advance.
On Friday, the Supreme Court announced that it would hear a challenge to the SEC’s appointment of its administrative law judges. Here’s the intro from this Bloomberg article:
The U.S. Supreme Court will decide whether the SEC’s in-house judges were appointed in violation of the Constitution, agreeing to hear a case that could upend administrative hearing systems across the federal government. The move came at the request of the Trump administration, which switched sides in November and told the justices it would no longer defend the SEC’s system.
The dispute could affect more than 100 cases currently at the SEC, along with a dozen that are on appeal in the federal courts. It also could have ramifications for other government agencies, including the Federal Deposit Insurance Corp. and the Consumer Financial Protection Bureau, which have similar systems for appointing their administrative law judges.
As we blogged at the time, the Trump Administration’s decision to change the government’s position in this case led to the SEC’s reappointment of all its ALJs in an effort to cure any constitutional defects in the appointment process. Left unanswered for now is the question of the effect that a Supreme Court decision invalidating those prior appointments would have on previously adjudicated cases.
This D&O Diary blog has more details on the case and the issues involved – and says that the case is likely to be resolved during the current term.
SEC Updates “Enforcement Manual”
Recently, the SEC updated its “Enforcement Manual” – a great resource for those dealing with SEC enforcement investigations. And second only to our “SEC Enforcement Handbook” in that area.
Also, check out this new Cleary Gottlieb blog – “Cleary Enforcement Watch” – which covers global enforcement, white collar, and regulatory trends & developments.
We haven’t blogged much about FASB’s new lease accounting standard, but now that the new revenue recognition standard’s in place, here’s a reminder – the new lease standard will go into effect for fiscal years beginning after December 15, 2018.
With the deadline approaching, FASB recently issued an exposure draft of a new auditing standard update intended to ease the implementation process. According to FASB’s press release, the proposed ASU would:
– Add an option for transition to ASU No. 2016-02, Leases (Topic 842), that would permit an organization to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in its financial statements
– Add a practical expedient that would permit lessors to not separate nonlease components from the associated lease components if certain conditions are met. This practical expedient could be elected by class of underlying assets; if elected, certain disclosures would be required.
Yeah, I could pretend that I know what this means, but that wouldn’t be a smart play. Fortunately, there’s this Thompson Reuters article on FASB’s proposed action to help us all out. Comments on FASB’s exposure draft are due by February 5th.
The FASB lease accounting standard evolved over a period of years – but this recent blog from Steve Quinlivan says that another new standard designed to address “stranded tax effects” of the new tax reform legislation is being fast tracked. On second thought, since the proposed change has only a 15-day comment period, it might be more accurate to say that it’s being strapped to a rocket sled!
SEC’s Investor Bulletin: How to Comment on Rule Proposals
Recently, the SEC issued this investor bulletin explaining how to submit comments on proposed rules. Also see our own checklist on this topic…
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. Here’s some of the newer entries:
– Why You Ain’t Getting a Board Seat
– Revenue Recognition: Pre-Clearing With Corp Fin Before IPOing
– SEC Investigations: “Are We Covered?”
– HSR: Watch Out for Those Comp Awards!
– Private Funds: ’40 Act Exemptions
– Reg A+ Offerings: Frequently Asked Questions
I was excited to see this Bloomberg article about how a company accidentally ignored a comment letter from Corp Fin because the emails from the Staff went into a spam folder at the company. The reason for my excitement is this: when I started in Corp Fin in the late ’80s – back before widespread use of computers – we had to call counsel to dictate our comments over the phone!
This “pre-computer days” process had these steps from the perspective of a front-line Corp Fin examiner:
1. Since Edgar wasn’t mandatory yet, paper copies of SEC filings were delivered – and if selected for review, they would be placed in a wooden box out in the hallway that was assigned to you.
2. You would review the filing and write out your draft comments by hand.
3. Your reviewer would read your draft comments and literally cross out – or add – comments. No points off for bad handwriting! Tough love for the reviewer.
4. You would call the person whose name was on the transmittal letter. Since there no voicemail back then, you might need to try calling a bunch of times. Or you would reach a secretary and they would try to call you back a bunch of times (but you weren’t around since you were taking a nap down in the SEC’s library). Serious phone tag.
5. Dictating the comments over the phone could take as long as an hour – depending on how many comments there were (remember that you were reading the bad handwriting of the accountants on the Staff too – their comments were combined with the legal comments, just like today) and how clear your diction was (if not clear, you would need to repeat yourself multiple times).
6. Rinse, wash, repeat for each round of comments. The good ole days…but at least companies couldn’t lose their comments in a spam folder!
So the question remains, how does “disclosure controls” fit into all of this…
Here’s the intro from this blog by Cooley’s Cydney Posner:
Is it just me? Am I the only one that finds having to decipher a load of graphics in a proxy statement to be somewhat daunting on occasion? Inclusion of graphics in lieu of copious text has been almost de rigueur in proxy statements for several seasons now as a way to facilitate comprehension of sometimes complex data. And most often, those graphics are relatively effective for that purpose. As we head into the 2018 proxy season, however, this piece on CFO.com suggests that some forms of visual presentation may be, well, a lot more useful than others.
According to the article, featuring some graphics does make sense because research has shown that people “process visual information faster than verbal information. And we do it with a part of the brain that requires less energy.” That’s especially true with line and bar charts. Where things get trickier, the article suggests, is with pie charts: “a pie chart often makes it hard to figure out the exact magnitude of a data point (a slice) and uses a lot of text to display very little data. It also forces readers to rapidly move their eyes back and forth between the legend and the graphic to interpret the data. A simple table can be a lot more elegant, experts say.”
And more sophisticated tools, such as “exploding 3-D pie charts” can compound the problem, according to one academic. He also took issue with “stacked bar charts,” according to the article, “’because they make estimating the values of the variables on the top of the bars difficult.’”
Tomorrow’s Webcast: “Handling the Proxy Season – The In-House Perspective”
Tune in tomorrow for the webcast – “Handling the Proxy Season: The In-House Perspective” – to hear Intuit’s Betsy McBride, Juniper Networks’ Shahzia Rahman and Oracle’s Renee Strandness discuss how to prepare for the proxy season from the in-house perspective…
Tune in tomorrow for the CompensationStandards.com webcast – “The Latest: Your Upcoming Pay Ratio, Tax Reform & Proxy Disclosures” – to hear Mark Borges of Compensia, Alan Dye of Hogan Lovells and Section16.net, Dave Lynn of CompensationStandards.com and Jenner & Block and Ron Mueller of Gibson Dunn discuss all the latest guidance about how to overhaul your upcoming disclosures in response to tax reform, pay ratio and say-on-pay – including the latest SEC positions, as well as how to handle the most difficult ongoing issues that many of us face.
The Delaware Supreme Court found in In re Investors Bancorp Stockholders Litigation that director equity grants based on director discretion are subject to an entire fairness standard of review. According to the Court, “when stockholders have approved an equity incentive plan that gives the directors discretion to grant themselves awards within general parameters, and a stockholder properly alleges that the directors inequitably exercised that discretion, then the ratification defense is unavailable to dismiss the suit, and the directors will be required to prove the fairness of the awards to the corporation.”
Accordingly, the Delaware Supreme Court reversed the Court of Chancery’s decision which found that the stockholder ratification defense applied because the plan provided for “specific limits on the compensation of” the non-employee and executive members of the Board. The Court of Chancery had reasoned that the stockholders’ approval of the plan reflected their ratification of all of the specific awards later approved by the Board. Hence, the Court of Chancery found that the director grants should be subject to the business judgement standard of review.
Tax Reform: The Initial 162(m) Disclosures
In his blog, Steve Quinlivan listed these recent Section 162(m) disclosures:
The cash bonuses paid and equity-based awards granted to executive officers under the MIP are intended to be fully deductible under section 162(m). In addition, the Company has adopted a policy that equity-based awards granted to its executive officers should generally be made pursuant to plans that are intended to satisfy the requirements of section 162(m). However, the Compensation Committee retains discretion and flexibility in developing appropriate compensation programs and establishing compensation levels and, to the extent consistent with the Company’s compensation philosophy, may approve compensation that is not fully deductible. Also, legislation recently signed into law would expand somewhat the number of individuals covered by section 162(m) and eliminate the exception for performance-based compensation effective for our 2018 tax year.
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The Compensation Committee believes that the use of a strict formula-based program for annual awards could have inadvertent consequences such as encouraging the NEOs to focus on the achievement of one specific metric to the detriment of other metrics. In addition, tying compensation to a strict formula would not allow for adjustments based on issues beyond the control of the NEOs. The Compensation Committee recognizes that each NEO other than the CEO (each, a “Senior Executive”) may be most able to directly influence the business unit for which he or she is responsible and therefore believes it is appropriate to use negative discretion to adjust annual awards for each such Senior Executive to take into account the achievement of objectives that are directly tied to the growth and development of their respective business unit. Furthermore, with respect to our overall executive compensation program, the use of discretion provides the Compensation Committee with the flexibility to compensate our NEOs for truly exceptional performance without paying more than is necessary to incent and retain them while structuring awards to be potentially deductible as performance-based compensation under Section 162(m) of the Code, when appropriate. However, as discussed below under “Tax Considerations,” while the tax law included an exception to the $1 million limit on deductibility for “performance-based” compensation under Section 162(m) of the Code when the Compensation Committee made its fiscal year 2017 compensation decisions, this exception was repealed.
At the beginning of fiscal year 2017, the Compensation Committee approved a maximum KEIP award amount for each NEO, other than Mr. Sethi, who became an NEO at the end of fiscal year 2017. The maximum award that each NEO is eligible to receive, however, is not an expectation of the actual bonus that will be paid to him or her, but a cap on the range ($0 to the maximum amount) that an individual may be paid while maintaining the tax deductibility of the bonus as “performance-based” compensation for purposes of Section 162(m) of the Code. See “Tax Considerations” below for a brief discussion of the “performance-based” compensation exception under Section 162(m) of the Code and its repeal. As described above in our “Compensation Philosophy,” the Compensation Committee has historically exercised negative discretion to pay significantly less than the maximum amount available to the NEOs under the KEIP award pool based on its evaluation of the achievement of business unit, Company-wide and individual performance measures for such NEOs, as described above in this CD&A.
In evaluating compensation program alternatives, the Compensation Committee considered the potential impact on the Company of Section 162(m) of the Code. Section 162(m) limited to $1 million the amount that a publicly traded corporation, such as the Company, may deduct for compensation paid in any year to its chief executive officer and certain other named executive officers (“covered employees”). At the time the Compensation Committee made its compensation decisions, the tax law provided that compensation which qualified as “performance-based” was excluded from the $1 million per covered employee limit if, among other requirements, the compensation was payable only upon attainment of pre-established, objective performance goals under a plan approved by our stockholders. However, this exception was repealed in the tax reform legislation signed into law on December 22, 2017. As a result, it is uncertain whether compensation that the Compensation Committee intended to structure as performance-based compensation under Section 162(m) will be deductible.
As a general matter, in making its previous NEO compensation decisions, the Compensation Committee endeavored to maximize deductibility of compensation under Section 162(m) to the extent practicable while maintaining competitive compensation. The Compensation Committee, however, believes that it is important for it to retain maximum flexibility in designing compensation programs that are in the best interests of the Company and its stockholders.
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Salaries are deductible, except for the portion of the CEO’s salary in excess of $1 million. The Compensation Committee designs the ACIP and equity awards, including RSUs that have a financial performance threshold, to comply with the requirements for tax deductibility under Internal Revenue Code Section 162(m) (Section 162(m)), to the extent practicable. The Compensation Committee considers tax reform enacted under the Internal Revenue Code on an annual basis when designing the compensation programs.
To maximize tax deductibility, amounts earned under the ACIP are designed to qualify as performance-based compensation under Section 162(m). This design provides that if certain financial objectives are met, our executive officers may receive up to 2x their target amounts, subject to the Compensation Committee’s negative discretion to pay any amount less than the maximum.
RSUs generally vest in equal annual installments over three years. The RSUs also include a requirement that the Company must meet an adjusted GAAP operating income target (over a 6-month period) in order for them to vest, which is intended to qualify the RSUs for tax deductibility under Section 162(m).
****
Section 162(m) of the Internal Revenue Code generally places a $1 million limit on the amount of compensation a company can deduct in any one year for certain executive officers. While the Compensation Committee considers the deductibility of awards as one factor in determining executive compensation, the Compensation Committee also looks at other factors in making its decisions, as noted above, and retains the flexibility to award compensation that it determines to be consistent with the goals of our executive compensation program even if the awards are not deductible by Apple for tax purposes.
The 2017 annual cash incentive opportunities and performance-based RSU awards granted to our executive officers were designed in a manner intended to be exempt from the deduction limitation of Section 162(m) because they are paid based on the achievement of pre-determined performance goals established by the Compensation Committee pursuant to our shareholder-approved equity incentive plan. In addition, the portion of Mr. Cook’s 2011 RSU Award subject to performance criteria with measurement periods that begin after the June 21, 2013 modification was designed in a manner intended to be exempt from the deduction limitation of Section 162(m).
Base salary and RSU awards with only time-based vesting requirements, which represent a portion of the equity awards granted to our executive officers, are not exempt from Section 162(m), and therefore will not be deductible to the extent the $1 million limit of Section 162(m) is exceeded.
The exemption from Section 162(m)’s deduction limit for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered executive officers in excess of $1 million will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017.
Despite the Compensation Committee’s efforts to structure the executive team annual cash incentives and performance-based RSUs in a manner intended to be exempt from Section 162(m) and therefore not subject to its deduction limits, because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and the regulations issued thereunder, including the uncertain scope of the transition relief under the legislation repealing Section 162(m)’s exemption from the deduction limit, no assurance can be given that compensation intended to satisfy the requirements for exemption from Section 162(m) in fact will. Further, the Compensation Committee reserves the right to modify compensation that was initially intended to be exempt from Section 162(m) if it determines that such modifications are consistent with Apple’s business needs.
Nothing drives me crazier than going to a conference & hearing a panel spend time talking about the “tone at the top.” It’s high-level governance stuff that everybody clearly knows is important. It’s “Parenting 101” – if your parents weren’t good ones, odds are that you had somewhat of a crappy childhood. That’s “tone at the top.”
But just because everybody knows about it, that doesn’t mean ‘good tone’ is widespread. In fact, sound management is quite rare in my experience. I can think of a number of governance organizations that appear to have poor management! And that shouldn’t be surprising given that quite a few folks get tasked with running an organization without any prior management experience – nor do they even recognize that management is a learned skill. They need training. To be honest, you can count me among those in that boat! But in my defense, I don’t really manage anyone – I just “coordinate” our team here. Just the type of thing any bad manager tells themselves, right?
Anyway, Cooley’s Cydney Posner blogged about the NACD’s new report on culture. I received it a while back & posted it in our “Code of Ethics” Practice Area – but couldn’t bring myself to blog about it for the reasons stated above. Sound management starts with a heavy dose of self-awareness by the board & senior management team…
Interactive Tool: Researching Boards Around the World
Pretty cool. Spencer Stuart has an interactive tool that will allow you to compare global board trends in governance, compensation & more. It’s worth checking out as more institutional investors apply an international outlook to their investments.
– Utilizing Social Media in Proxy Contests
– Planning for M&A Cybersecurity Risks
– True-Ups After Chicago Bridge: The Two Sides to Working Capital Adjustments
– Valuation Analysis: Key to Avoiding Failed M&A Deals
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. 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.
When Reg FD was adopted back in 2000, some predicted the death of the investor “one-on-one” – private meetings between investors and top corporate brass. That prediction turned out to be about as accurate as the one that said we’d all be flying our jetpacks to work by now.
Instead, these meetings remain common, particularly among companies seeking to raise their profile with investors. But now the smarty-pantses at Harvard Business School have published a new study that looks what gets asked at those meetings. While a lot of questions are pretty mundane – e.g. “what keeps you up at night?” – some clearly represent an effort to obtain more timely information about companies than what’s been publicly disclosed. Check out this excerpt:
The cash balance of the firm two months after the release of the quarterly report may be stale information. Understanding whether the firm has sufficient cash to continue operations may be salient for an investor’s investment decision so the investor will seek more timely information from management. From a regulatory perspective, timely questions appear to pose the greatest regulatory risk for managers in responding. Nonetheless, we find that most private interactions include at least one timely question posed to management.
Representative examples of timely questions include:
– “How much cash do you have now?”
– “Do you know additional sell side analysts that will be launching initiation reports?”
– “Are you done with recruitment or still enrolling?”
– “Are the Q2 earnings call expectations still valid?”
Management’s responses to any of these questions may raise Reg FD issues – and reaffirming quarterly guidance has been specifically flagged by the Staff as a problem under Reg FD. The study’s results suggest what many of us have long thought – that these private investor meetings are an FD compliance minefield.
Governance Survey: Silicon Valley v. S&P 100
The latest edition of Fenwick & West’s annual governance study surveys the governance practices of companies in the Silicon Valley 150 Index and compares them with those found at S&P 100 companies. Here are some of this year’s highlights:
– Adoption of dual-class voting stock structures has emerged as a recent clear trend among the mid-to-larger SV 150 companies. 11% of Silicon Valley companies surveyed had dual-class structures in 2017 compared to 9% of the S&P 100.
– Classified boards are now significantly more common among SV 150 companies than among S&P 100 companies. Compared to the prior year, classified boards remained fairly consistent, holding steady at slightly less than 7% for the top 15 companies in the SV 150 while the S&P 100 has been at 4% since 2016.
– Fewer Silicon Valley companies have adopted majority voting policies than their S&P 100 counterparts. Approximately 60% of the SV 150 companies have majority voting policies, compared with 97% of the S&P 100.
– 2017 continued the long-term trend in the SV 150 of increasing numbers of women directors and declining numbers of boards without women members. the rate of increase in women directors for SV 150 overall continues to be higher than among S&P 100 companies. When measured as a percentage of the total number of directors, the top 15 of the SV 150 now slightly exceed their S&P 100 peers (the top 15 averaged 25.4% women directors in the 2017 proxy season, compared to 23.9% in the S&P 100).
The study also addresses other governance metrics & tracks changes over time.
Buybacks: Primed for a Tax & Activist Driven Comeback?
I recently blogged about reports on the decline in stock buybacks during most of 2017. Well, it looks like those might come roaring back to life in the new year. This article from “TheStreet.com” says that stock buybacks will be driven by an increased ability to repatriate foreign cash – and pressure from activist hedge funds. Here’s an excerpt:
Activists typically pressure corporations with a lot of cash on their balance sheet to either spend it on the business, launch a big stock buyback program or issue a special dividend. In many cases, corporations have put their cash overseas to avoid U.S. taxes. However, the historic passage of a $1.5 trillion tax overhaul legislation is expected to change the calculus on off-shore cash, considering that a vital component of the package is a provision imposing a low 15.5% repatriation tax for money held offshore. Expect the rule to drive activist hedge funds to put new pressure on companies to repatriate cash, then distribute it to shareholders.
On the other hand, not everybody is buying into this narrative – this Bloomberg article suggests that most Wall Street analysts expect companies to use their tax windfall to increase their capital investments.
