In its long-awaited FAQs, ISS indicates that it will generally recommend in favor of management and shareholder proposals for proxy access which allow for nominations to be made by shareholders owning not more than 3% of the voting power for 3 years, with “minimal” or no limits on the number of shareholders permitted to form a nominating group, and allowing nominations for up to 25% of the board. ISS will also review the reasonableness of any other restrictions and may recommend against proposals that are more restrictive than these guidelines.
ISS is tracking 96 shareholder proposals on proxy access. For companies that present both a board and a shareholder proxy access proposal in their proxy statement, ISS will review each proposal separately. Yesterday, we issued a memo on a decision framework for evaluating proxy access, including for those companies that do not have the proposal this season but are watching these governance developments, which is available here.
In addition, ISS will recommend a vote against one or more directors (individual directors, certain committee members, or the entire board based on case-specific facts and circumstances), if a company excludes a shareholder proposal, unless it has obtained (a) voluntary withdrawal by the proponent; (b) no-action relief from the SEC or (c) a U.S. district court ruling. ISS may issue negative recommendations in these situations regardless of whether there is also a management proposal on the same topic. This is under ISS’ governance failures policy and expand beyond proxy access, to other situations where companies had also attempted to exclude conflicting shareholder proposals through the SEC no-action letter process, such as proposals requesting the right to call a special meeting. If a company has taken unilateral steps to implement the proposal, the degree to which the proposal is implemented, including any material restrictions, will also factor into the assessment.
Striking a Balanced View of Non-GAAP Disclosures
Non-GAAP measures have received some bad press recently – and in some cases, deservedly so. The WSJ reported that some companies are excluding costs that would seem to belong in earnings calculations such as “regulatory fines, ‘rebranding’ expenses, pension expenses, costs for establishing new manufacturing sources, fees paid to the board of directors, severance costs, executive bonuses and management-recruitment costs.”
Yet another WSJ article cites questions about exclusions of executive bonueses, fees for stock offerings and acquisition expenses, and notes that the SEC has sent comment letters to more than 30 companies in the past two years for giving their non-GAAP measures “undue prominence” in their filings. And this CFO article notes comments made by a PCAOB representative at an accounting conference about companies’ “increasing abuse” of non-GAAP measures, and an example he cited of a company’s exclusion of director fees because they allegedly related to governance – purportedly unrelated to company operations.
However, non-GAAP measures aren’t inherently bad. Used appropriately – in conformance with the letter and the spirit of SEC rules – they can significantly enhance comparability and provide tremendous insights into the business, ongoing operations and future prospects that aren’t otherwise discernable based on the use of GAAP alone. Rather than be deterred by – or ignoring – the bad press, companies should revisit the non-GAAP measure basics, and continue to use them effectively to enhance the utility of their disclosures.
PwC’s recent IPO study, although IPO-focused, provides a nice overview of the objectives, uses and SEC requirements pertaining to non-GAAP measures – as well as SEC comment letter examples that, for the most part, apply equally to mature companies. In addition, this Deloitte report (pgs. 72 – 74) includes a helpful discussion of recent SEC comment letter trends pertaining to non-GAAP measures that is instructive for future disclosures.
In this post, FASB Member Marc Siegel addresses some of the murmurings and studies on the use non-GAAP measures – and shares his view that the combination of GAAP and non-GAAP information is “more impactful” for purposes of understanding a company’s business than either dataset on its own.
Observations that non-GAAP measures may indicate how similar information might be better organized or presented in the income statement appears to be the genesis for FASB’s Financial Performance Project:
If this project is officially added to our agenda, we would look to find ways to improve the relevance of information presented in the performance (income) statement for public and private companies. Our goal would be to increase the understandability of the performance statement by presenting certain items that may affect the amount, timing, and uncertainty of an organization’s cash flows. Specifically, the research is developing a framework for defining operating activities and distinguishing between recurring and infrequent items.
The project is currently in the research phase.
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:
– Study: 10-K Tax Disclosure as a IRS “Roadmap”
– Revealing Whistleblower’s Identity is Retaliation
– Darden Announces Governance Reforms
– Basics of Board Delegations
– Comment Letter Summary: Advertised Private Placements Under Rule 506(c)
– Giving Good Guidance
– Study: Director Appointment Trends
– CPA: More Companies Pull Back Veil on Political Spending
– IPOs: Use of Non-GAAP Measures
– Revenue Recognition Changes & SEC’s Five-Year Summary
– Free Database of Fortune 500 Codes & Policies: Useful?
– Whistleblower Hotline Checklist
In the context of increased investor interest and activism in corporate governance practices, governance roadshows are no longer deemed to be solely crisis-driven – i.e., they should be among the several tools companies may consider in the ordinary course to enhance their rapport and posture with major institutional and other investors.
This recent blog does a fine job of identifying upsides & downsides of governance roadshows, or – more broadly – engaging with investors’ governance teams, as well as discussing several recommended “success factors” assuming a decision to proceed with engagement.
Potential upsides include:
Seeking direct input from governance experts will help the board make informed decisions on governance matters and emerging issues (e.g., board tenure, board diversity, proxy access), and can also limit the surprise of a future vote.
Creating a forum for companies to explain their rationale and philosophy on governance matters may in turn help influence the way investors vote.
Direct engagement will allow companies to establish a personal relationship with proxy voters – theoretically facilitating future discussions and mutual understanding.
There is an expectation that activist investors are themselves communicating directly with investors’ governance teams so as to further their own proxy-voting objectives. So company engagement is viewed as a preemptive measure.
Potential downsides include:
Many companies don’t dedicate enough time to their core IR programs – so adding new responsibilities and yet more meetings to the annual schedule is difficult.
Investment firms’ governance departments are usually small and historically weren’t staffed to accommodate meetings with executives from all of their portfolio companies. As a result, big companies are getting an audience, but smaller companies – those that may also have serious governance issues to be discussed – can be boxed out.
Governance-side meetings are viewed by some as a waste of time, because proxy votes often follow a formulaic policy – if not the exact recommendations of the proxy advisors.
Opening up a dialog about controversial governance topics may have unintended negative consequences. If a governance expert takes a meeting and makes a suggestion around a specific bylaw or issue, the company will be expected to respond or make changes. If they don’t, it could worsen the relationship rather than improve it.
Possibility that starting a dialog may raise issues to the attention of busy governance experts that were previously under the radar or unconsidered
Understanding Governance Engagement from the Investor POV
In this article, CamberView Partners discusses key considerations relevant to successful governance engagement including investor diversity, identifying the most appropriate company participants for engagement, and the fact that such engagements commonly involve a 2-way dialogue – topics that were also very effectively addressed by Vanguard and BlackRock in our recent “Governance Roadshows” webcast.
Here are some of the many key insights from our webcast:
Sarah Goller, Senior Manager, Vanguard: First, there’s no one definition for governance roadshow or what we as investors want to get out of it. I think the one common denominator is that we always want a productive exchange. Firms like BlackRock and Vanguard hold shares of thousands of different companies in meaningful amounts. So we do hundreds of engagements every year, and it’s important that they’re productive.
It can vary a lot by meeting, but we always want to gather information. We want to understand what’s important to the company, what’s changing about the business, what changes they are thinking about on the governance front, within the board or about compensation, and understanding their rationale for those changes. Beyond that, we always want to be asked for feedback.
So we always want a call or a meeting to have a purpose. Maybe you’re thinking about a change. Maybe you’re thinking about something that will impact governance at a board and you want to hear what we’re saying. It’s also important to define the agenda in advance. We want to have a clear purpose for the meeting and the right sort of people at the meeting. We want the meeting to allow us to exchange information, to listen to each other, and then to provide us with the opportunity to give feedback.
Michelle Edkins, Managing Director, BlackRock: When it comes to considering who in senior management attends and represents the company, I think companies need to be more thoughtful, without wishing to offend anyone, about not having people with a very traditional mindset, where you just do meetings with shareholders to broadcast the company’s message. That’s a real missed opportunity to hear shareholders’ views, and to listen for things perhaps not said. It’s important to hear shareholder’s views on issues and clarify what shareholders don’t understand about the company. Often that’s quite a significant factor, especially if in six months’ time there is an event where that lack of understanding means that the outcome is not optimal for the company.
In my experience, the role of the Corporate Secretary is becoming increasingly important in those “listening” meetings, rather than “broadcasting” meetings. I think that companies would do themselves a real service by thinking about how they structure that role and make it a more significant part of the outreach to their long-term steady-state shareholders.
If you haven’t already done so, be sure to check the webcast transcript out.
Podcast: Individual Director Evaluations
In this podcast, Kris Veaco of the Veaco Group discusses individual director evaluations, including:
– Why aren’t individual director evaluations more common?
– What is the process for evaluating individual directors?
– What do you do with the evaluation results?
– What are some of the benefits of individual director evaluations?
– Any final thoughts?
An analysis of ISS Governance QuickScore data finds: 54.3% of Russell 3000 companies have a policy prohibiting hedging of company shares by employees, while 84% of large capital S&P500 companies have such a policy. Executive or director pledging of company shares was prevalent at just 14.2% of Russell 3000 companies, and, notably, 15.8% of S&P500 companies.
In reaction to the SEC’s hedging & pledging policy disclosure proposal last week, I received this nifty chart on possible approaches from one in-house member – as well as this note below:
From where I sit, companies would do a disservice to themselves – and their stockholders – by adopting a blanket “one-size-fits-all” rule with regard to hedging of company securities. Instead, I believe we should consider different policy decisions on how we view hedging with regard to (i) outstanding equity awards v. shares owned outright and (ii) rank-and-file employees v. directors and officers. Also, even though the proposed rules are focused on hedging activity, I believe that companies should re-visit their pledging policies because they raise similar issues. See my attached snapshot summary.
Company performance relative to industry medians is incorporated into ISS’ evaluation of shareholder proposals seeking an independent chair and for ISS’ evaluation of director performance. However, the TSR sector medians in ISS’ reports are updated monthly and align with the subject company’s fiscal year end.
Two former CFOs have agreed to return nearly a half-million dollars in bonuses and stock sale profits they received while their Silicon Valley software company, Saba Software, was committing accounting fraud. While not personally charged with the company’s misconduct, the SEC’s position is the two CFOs are still required under Section 304 of the Sarbanes-Oxley Act to reimburse the company for bonuses and stock sale profits received while the fraud occurred.
Senior employees responsible for the fraud were told on multiple occasions by the finance department that the company’s accountants and auditors needed to understand exactly how many hours were being worked and when (regardless of whether or not they were billed to the customer) in order to ensure that revenue was recognized accurately, and they understood that inaccurate time-keeping would lead to misstatements in Saba’s reported professional services revenue and violate the Company’s policies regarding financial reporting. The two CFOs each consented to the entry of the SEC’s order without admitting or denying the finding that they violated Section 304 of the Sarbanes-Oxley Act.
Last year, the SEC charged Saba Software and two former executives responsible for the accounting fraud in which timesheets were falsified to hit quarterly financial targets. As part of that settlement, the SEC similarly reached an agreement with the former CEO to reimburse the company $2.5 million in bonuses and stock profits that he received while the accounting fraud was occurring, even though he was not charged with misconduct.
Recently, I blogged last year’s stats for virtual annual meetings – noting that growth was relatively flat in 2014. Virtual-only meetings has grown slowly, with 53 meetings in ’14, 35 in ’13 and 27 in ’12. The notable thing about all these virtual meetings, however, are that the companies doing them are not household names. That is about to change. As noted in this Reuters article, Hewlett-Packard will hold a virtual annual meeting next month. Wow! Here’s the table of contents for H-P’s proxy statement – and here are the FAQs about how the meeting will work.
Over the years, I have blogged numerous times about virtual annual meetings (and even have a set of FAQs about them posted in our “Virtual Shareholder Meetings” Practice Area. CII and some institutional investors continue to rail against them – and I continue to believe it’s a problematic practice if the company is facing turbulent waters (as noted in this blog). It will be interesting to see how H-P’s shareholders react…
Speaking of annual meetings, Whole Foods has filed this Form 8-K announcing it has postponed its meeting due to its proxy access flap, with the SEC reversing course on its no-action request. Meanwhile, Jim McRitchie blogs that the SEC has reversed two (i)(9) no-action responses related to special meetings upon reconsideration…
The SEC Is Closed Due to Snow: Form 5s & Schedule 13Gs Still Due Today!
In DC, all federal government agencies are closed due to a snowstorm. I’ve blogged numerous times over the years about the impact of a closed government on the operations of the SEC and Corp Fin specifically. Even though there is no weather-related information posted on the SEC’s site so far today, we can assume that the information in this blog holds true today. The main points are:
– EDGAR Still Operational – Federal government closings due to weather doesn’t shut down EDGAR – so filings can continue to be made despite the snow storm. Form 5 and Schedule 13G filings are still due today! I understand that the SEC has Staffers at home who are processing requests for new Edgar filing codes. And snowstorms that close the federal government in DC still are “business days” for purposes of counting when a Form 4, etc. is due.
– Critical Registration Statements Can Still Be Declared Effective – Corp Fin has procedures in place to help as Staffers are available to assist with filings even though the government is shut down by the storm. When OPM shuts down the government in DC, emergency personnel (ie. “essential”) still must show up for work – and as a result there will be Corp Fin staffers available to ensure that essential operations continue. In addition, with the Staff now having remote access to their databases, etc., any Staffer can access their EDGAR in-box from home. An Assistant Director (or Office Chief) can take a filing effective just as easily from home as from the office.
The most important thing when faced with this situation is getting in touch with someone at the SEC – leaving a message with the examiner assigned to your filing probably isn’t going to be sufficient. Rather, you will need to work the phones to get in touch with (or leave a message for) the Assistant Director of the group that is handling your filing, or call the Corp Fin Front Office. These numbers are available in our constantly-updated “Corp Fin Staff Organization Chart.” To play it safe, you should attempt to make contact with the Staff as soon as possible if you anticipate a need to go effective this week so that any last minute issues can be resolved (although the snow here isn’t all that much and my guess is that the government will be open as usual tomorrow).
– Non-Critical Registration Statements Not Going Anywhere Today – If you are expecting comments from Corp Fin and there is no urgent need to go effective, you may experience some delay in the processing of your filing thanks to the snow. There is no need to contact the limited Staff available to ask about the status of your comments, because they probably won’t be able to step in and move the process along, particularly right now. The Staffers that are available during the government shutdown are really there to deal with the most urgent situations, so bogging them down with less urgent matters isn’t the best idea…
NYSE Proposes to Clarify Proxy Solicitation Mechanics
Here’s a blog from Stinson Leonard Street’s Jill Radloff:
The NYSE proposes to amend Section 402.05 of the Listed Company Manual to clarify that listed companies soliciting proxy material through brokers or other entities must comply with SEC Rule 14a-13. Rule 14a-13 mandates that listed companies must inquire of the record holder whether other persons are beneficial owners of the subject shares and, if so, how many copies of the relevant proxy or other soliciting materials must be provided to supply such materials to the beneficial owners. SEC Rule 14a-13 further sets forth the timeline on which inquiry of the record holder must be made.
The Listed Company Manual, in addition to requiring compliance with Rule 14a-13, also separately states that a listed company’s inquiry of brokers must be made not less than 10 days in advance of a record date. The NYSE imposed this absolute 10 day minimum in recognition of the fact that the provisions of SEC Rule 14a-13 allow, in certain limited circumstances, for a listed company to inquire of brokers less than 20 days in advance of a record date for a special meeting (but not for an annual shareholders’ meeting).
The NYSE believes that the 10-day period presently described in Section 402.05 is in conflict with the requirements of Rule 14a-13. For example, although the NYSE makes specific reference to the SEC’s 20-day advance inquiry rule (i.e., SEC Rule 14a-13), the NYSE believes Section 402.05 could be read as requiring only a 10-day advance inquiry.
The NYSE proposes to revise Section 402.05 of the Listed Company Manual to clarify that listed companies soliciting proxy material through brokers or other entities must comply with the provisions of SEC Rule 14a-13 and that the NYSE does not impose any additional requirements with respect to the relevant inquiry of brokers. Further, the NYSE proposes to delete the requirement in Section 402.05 of the Listed Company Manual that listed companies immediately advise the NYSE if it becomes impossible for them to make an inquiry of brokers at least ten days before a record date. Given that listed companies are required to comply with SEC Rule 14a-13 and the NYSE has no authority to waive compliance with such rule, the NYSE believes that such notice requirement is unnecessary.
Farewell to Harvey Goldschmid!
Sad to hear about the passing of former SEC Commissioner Harvey Goldschmid. Harvey also served as the General Counsel for the SEC before he came back as a Commissioner. As noted in this statement by SEC Chair White and NY Times article, Harvey was very active teaching at Columbia and was the driving force behind adopting Reg FD. Here’s a nice piece by the New York Law Journal – and here’s Harvey’s obituary.
This memo summarizes the AICPA’s recent additional guidance for independent private sector audits (IPSA) contemplated by the Conflict Minerals Rule. The additional guidance suggests a fairly robust list of representations for auditors to consider including in the IPSA management rep letter, and addresses the auditor’s responsibility for understanding and testing the company’s internal controls.
As noted in Cydney Posner’s recent blog, in view of Corp Fin’s 2014 Statement following the US Court of Appeals decision in the conflict minerals litigation and the rule’s temporary transition period, few companies provided IPSAs last year.
Access previously issued AICPA guidance on these topics:
A 2014 Tulane University Law School study investigating the market impact of the conflict minerals rule reveals that each company that filed a Form SD invested an average of approximately $546,000 (approximately $190,000 for small issuers < $100 million) worth of time and effort to comply with the law – largely consisting of in-house corporate time, external human resources, an IT evaluation and IT system expenses. In the aggregate, companies reportedly incurred a total of approximately $710 million to establish conflict minerals programs to furnish the required information by the law’s June 2, 2014 deadline.
Companies that participated in the survey most frequently cited these reservations about the rule:
– The law renders affected companies less competitive due to the heavy cost burden
– It is unlikely the desired impact is being achieved in the DRC
– The law is unfair in that it is trying to fight a war in the business world with only public companies
– The SEC is notintended as a regulator of social responsibility
Another survey targeting the balance of the 3TG (Tin, Tantalum, Tungsten and Gold) supply chains is planned to be conducted this Spring.
January-February Issue of “The Corporate Executive”
We have mailed the January-February Issue of The Corporate Executive, which includes pieces on:
– ISS’s New Equity Plan Scorecard – A Closer Look
– Rate Your Plan with Our Sample Scorecard
– The Cost Basis Reporting Trap
– Final Section 162 (m) Rules for CHiPs
Act Now: Get this issue rushed to when you try a 2015 No-Risk Trial to The Corporate Executive.
Yesterday, General Electric filed this Form 8-K, disclosing that the company has adopted a proxy access bylaw, so that a shareholder, or a group of up to 20 shareowners, owning 3% of the company’s common stock continuously for at least 3 years to nominate directors constituting up to 20% of the board. This blog notes two other companies have done this too: HCP and CF Industries. So it looks like these companies have figured out a way to avoid placing competing proxy access proposals on the ballot, etc. – and perhaps they will now file a no-action request with Corp Fin, making a “substantially implemented” argument under Rule 14a-8(i)(10). We’ll see.
Yesterday, ISS posted 104 new FAQs – over 43 pages – on its US compensation policies, covering all sorts of topics…
Trouble in SEC Commissioner Paradise Continues: Lost Comment Letter Triggers Dissent
This WSJ article by Andrew Ackerman describes a situation that will not help the already-soured relationships among some of the SEC Commissioners (also see this Reuters article):
Shortly after the Securities and Exchange Commission voted on January 14 to finalize a batch of post-crisis rules for the multi trillion-dollar swaps market, SEC staffers realized they forgot something: they had lost a comment letter filed by a key industry group. The 20-page letter was one of several filed by the International Swaps and Derivatives Association. It outlined a range of technical points about the rules, which would establish data hubs to collect and store information on swaps trades for the portion of the market overseen by the SEC. Unfortunately, the SEC misplaced it because of a clerical error.
Because the letter was not considered by the five-member agency when it met last month to complete the rules, staff scrambled to quickly analyze it, amend the final rules and vote on the measure again this week. While the substance of the rules didn’t change, the modified version includes references to the previously-omitted letter.
For the multitrillion-dollar derivatives industry, that is good news, as the SEC on Wednesday was finally able to post the text of the final rules on its website, nearly a month after the initial vote.
But that’s not the end of the story. The SEC’s two Republican commissioners, Daniel Gallagher and Michael Piwowar, who voted against the rules in January, lodged another dissent to the amended text. They cited the fact the letter was not considered by staff in developing their original recommendation to the commission nor published on the SEC’s website for the benefit of the general public. “The innocent nature of this mistake does not alter the fact that a fully transparent public comment process is the foundation of the SEC’s rulemaking process,” the two commissioners wrote in a joint statement Wednesday. “We cannot support the publication of this modified rulemaking release, as it glosses over a significant failure of our internal processes.” ISDA, for its part, had no comment on the matter.
Yesterday, Corp Fin Director Keith Higgins delivered this interesting speech entitled “Rule 14a-8: Conflicting Proposals, Conflicting Views.” There are some really interesting things in this speech on counterproposals, etc., although there isn’t much that helps those companies grappling with proxy access shareholder proposals this proxy season (but there is some, such as #6 below). Here’s some notables from Keith’s speech (and here’s more analysis from this Cooley blog):
1. (i)(9) Rarely Invoked Before 2009: “The substantial uptick in Rule 14a-8(i)(9) activity began in 2009 with proposals involving the right of shareholders to call a special meeting of shareholders.”
2. Keith’s Disclaimer Disclaims Some of His Own Speech: “Of course, because the Division has just begun its review, all of these thoughts are very preliminary and, as mentioned in my disclaimer, do not reflect anyone’s views, in this case likely including my own. But, it’s a place to start.” [emphasis included in the speech]
3. Precatory v. Mandatory Nature of Proposals Not Historically a Factor: “The Division has not considered the precatory/mandatory distinction as factoring into our view of Rule 14a-8(i)(9) conflicts. There are two reasons for this. First, virtually all shareholder proposals are precatory. Applying the precatory/mandatory distinction to conclude there is no conflict would make the exclusion applicable to a small number of situations. Perhaps the exclusion was meant to be narrow; the regulatory history is not clear. Second, even accepting that the vote on the shareholder proposal would be a data point for the directors to consider, the concern was that the data, taken as a whole, may be ambiguous for the directors to interpret and, just as importantly, that it would make it difficult for shareholders to decide how to send their message.”
4. Proxy Rules Could Be Structural Obstacle to Dealing With Competing Proposals: “As we do our review, we may consider whether there may be a structural limitation in our current proxy rules that makes it difficult to have a side-by-side comparison. Exchange Act Rule 14a-4(b)(1) requires that a form of proxy permit a shareholder to vote for or against or to abstain from voting on each separate matter other than the election of directors or say-on-frequency votes. Putting the 10% and the 25% proposals side-by-side and asking shareholders to choose which one they prefer may provide the board with better information than full “for” and “against” votes on conflicting proposals, although it still would not accommodate the preferences of shareholders who either want a different threshold or do not believe that shareholders should be entitled to call a special meeting at all. But should Rule 14a-4(b) be amended to permit more flexibility than a thumbs up or thumbs down approach?”
5. Concerns Over Company Motives: “The concern about management’s motives goes further. We have heard the concern expressed that management could continue year after year to come up with a slightly different proposal for the purpose of keeping the shareholder proposal from ever making it into the proxy materials. While we have not yet seen this concern materialize, it is certainly not beyond the realm of possibility. Should the Commission consider addressing this concern by, for example, amending Rule 14a-8(i)(9) so that the exclusion is not available to a company two years in a row for the same shareholder proposal or perhaps another shareholder proposal on the same subject matter?”
6. Need for More Disclosure When Companies Exclude Shareholder Proposals?: “Should the Commission, for example, require that when management uses Rule 14a-8(i)(9) to exclude a shareholder proposal, it needs to include in the proxy statement something akin to a “Background of the Merger” discussion that appears in a merger proxy statement to explain the circumstances that led it to present its proposal, a discussion of alternatives and management’s rationale for crafting its proposal as it did? Another approach might be to require the company to allow the shareholder proponent whose proposal was excluded to include a statement in opposition, much as management does when it is required to include a shareholder proposal in the proxy.”
7. Reminders About False & Misleading Arguments: “To be clear, we did not abdicate our responsibility over shareholder proposals that may be materially false or misleading. From our perspective, there are three threshold questions we consider when asked to exclude a proposal or supporting statement as false or misleading. First, is it really a “fact”? Sometimes, we are asked to exclude based on inferences and opinions. These generally seem like issues best addressed in the opposition statement. Second, is it false or misleading? The Commission’s rules make clear that the company has the burden of demonstrating that it is entitled to exclude a proposal. So the staff is looking for objective, demonstrable evidence of falsity. Finally, is it “material”?”
I received quite a few emails from members expressing surprise that Keith would address this topic in the midst of the SEC’s review of how it will apply (i)(9) going forward. I find it quite useful – both for its analysis of the issues, as well as a way to publicize the fact that the Staff is soliciting comments on (i)(9) as part of its review (even though it’s not obligated to do so). This comment solicitation gives the speech the feel of a proposing release, which may be prudent given the Chamber’s recent letter expressing concerns about the Staff not taking a view on the possible exclusion of proxy access shareholder proposals during this proxy season…
Don’t forget our upcoming webcast: “Proxy Access: The Halftime Show.” And don’t forget to tune in today for the webcast – “Conflict Minerals: Tackling Your Next Form SD” – to hear our own Dave Lynn of Morrison & Foerster, Schulte Roth’s Michael Littenberg, Elm Sustainability Partners’ Lawrence Heim and Deloitte’s Christine Robinson discuss what you should now be considering as you prepare your Form SD for 2015.
Yesterday, the SEC posted this proposing release on hedging disclosure, a rulemaking dictated by Section 955 of Dodd-Frank. It came out of the blue, based on seriatim action taken by the Commissioners – not at an open Commission meeting. Commissioners Gallagher & Piwowar supported getting the proposal out of the gate, but they issued this joint statement noting there are aspects of the proposal that they have concerns about (meanwhile, Commissioner Aguilar issued this statement supporting the proposal). That might be one of the reasons why the proposing release is loaded with specific requests for comments, running on longer than the explanation of the proposed rule! Anyways, this Cooley blog summarizes the rule proposal, as well as the novelty of Commissioners issuing written statements on a proposal. And here’s a blog from Mark Borges.
There is a 60-day comment period. And we’re posting memos in our “Hedging” Practice Area. It’s hard to predict whether this means that we’ll soon see action on the other “Four Horsemen” rulemakings left from Dodd-Frank, including adoption of the pay ratio rules…
Webcast: “Conflict Minerals: Tackling Your Next Form SD”
Tune in tomorrow for the webcast – “Conflict Minerals: Tackling Your Next Form SD” – to hear our own Dave Lynn of Morrison & Foerster, Schulte Roth’s Michael Littenberg, Elm Sustainability Partners’ Lawrence Heim and Deloitte’s Christine Robinson discuss what you should now be considering as you prepare your Form SD for 2015.
Elm Sustainability Partners’ Lawrence Heim is seeing a good deal of interest in IPSAs and mock IPSAs for both 2014 and 2015. However, even though the SEC considers IPSAs to be a “non-audit service” for purposes of Regulation S-X, auditor independence standards are still applicable – this article should be read before making any decisions about engaging an audit firm for either…
Meanwhile, this blog notes the point/counterpoint of the reputational risks & human rights implications of the conflict minerals rule…
On Friday – after a battle lasting 3 years! – the SEC announced that the China-based affiliates of the Big 4 (Deloitte Touche Tohmatsu, Ernst & Young, KPMG and PwC) settled SEC administrative charges by each paying $500k and admitting that prior to the commencement of the agency’s enforcement proceedings, they didn’t provide the SEC with the work papers for audits conducted for US companies. As noted in this Reuters article, the settlement also lays out the process that the firms must follow for future record requests and also details the consequences that may face if they fail to follow it.
It’s amazing how long this battle dragged out – an administrative law judge from the SEC suspended the Big 4’Chinese affiliates over a year ago. And bear in mind that WSJ reported last June that settlement talks had commenced. Not easy to settle with four large organizations based overseas…
Meanwhile, as noted in this blog, the SEC’s concept release on audit committees is expected as early as next month…
SEC Grants Second Bad Actor Waiver With Conditions: Redux
Recently, I blogged about the SEC granting its second bad actor waiver with conditions – to Oppenheimer & Co. Since then, there has been some backlash starting off with this dissent from SEC Commissioners Aguilar and Stein (which was issued about a week after the SEC’s order) and more, as noted in this blog – and this WSJ article and DealBook column…
SEC Approves PCAOB Budget
Last week, the SEC approved the 2015 budget of the PCAOB and the related annual accounting support fee.
Notes from San Diego
Mike Gettelman has been dribbling out notes from the recent Northwestern securities conference in San Diego in his blog, with his unique take on many topics including fee-shifting and forum selection bylaws, economic shareholder activism, financial advisor liability, Section 162(m) disclosure, the disclosure reform project, crowdfunding alternatives available now, class action claims administration, admissions in SEC Enforcement actions, accounting stuff, and numerous gems from the lips of Delaware CJ Strine. Don’t forget to sign up on Mike’s blog to get future entries pushed to you…
Early Bird Rates – Act by April 24th: 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 April 24th to take advantage of the 33% discount.
Pay Ratio: Petition Hits 36k
A month ago, I blogged about how I would be shocked if this Politico article was correct when it predicted that the SEC would finalize its pay ratio rules by mid-January. I’m still laughing about that one! Anyways, check out this online petition from Credo Action, which has hit 36,000 so far…
Speaking of petitions, over a million folks have written in to the SEC in support of the agency conducting rulemaking in the “disclosure of corporate political spending” area. It’s remarkable because no one ever writes in about a mere petition of rulemaking. The SEC is not obligated to consider – or act – on a rulemaking petition…
Transcript: “Pat McGurn’s Forecast for 2015 Proxy Season”
We have just posted the transcript for the webcast: “Pat McGurn’s Forecast for 2015 Proxy Season.”
