Independent financial regulators met at the White House on Monday to discuss the implementation of the Dodd-Frank Act, and as this Bloomberg article notes, the President conveyed a “sense of urgency” in fully implementing the yet-to-be-adopted Dodd-Frank rules. The participants included the Treasury secretary, Comptroller of the Currency, the Director of the Consumer Financial Protection Bureau,, the Acting Director of the Federal Housing Finance Agency, and the chairs of the Board of Governors of the Federal Reserve System, the CFTC, the FDIC, the NCUA, and the SEC.
In a statement released after the meeting, the White House noted that the topics discussed included progress on implementing Dodd-Frank to date and what remained to be completed, as well as potential improvements to the housing finance system. Not surprisingly, the participants discussed the challenges faced by the current budget environment and the importance of providing adequate funding for independent regulatory agencies to achieve their core missions.
Will this sort of meeting break the logjam on Dodd-Frank rulemaking at the various financial regulators? Maybe not, as the agencies have no doubt already felt the same sense of urgency that the President feels as we begin this fourth year after Dodd-Frank was passed. Much of what is left to be done includes the most difficult aspects of the legislation, and as we discuss in the just mailed May-June issue of The Corporate Counsel, the rulemaking process has never been harder.
FINRA Updates Private Placement Form
With the increased focus on private placements as Rule 506(c) of Regulation D comes online next month, FINRA recently published Regulatory Notice 13-26 to announce updates to FINRA’s Private Placement Form, which is required to be filed pursuant to FINRA Rules 5123 and 5122. The updates to the Form are consistent with FINRA’s efforts to improve member firm due diligence in private placements.
FINRA states that the Form assists FINRA in prioritizing its review of private placement reviews. It notes that firms can respond “unknown” to any of the questions, although we believe answering “unknown” is likely to trigger heightened scrutiny by FINRA, particularly because the questions address basic diligence questions. FINRA’s statistics show that since July 1, 2013, on average, 18% of filers have answered “unknown” to at least one of the six questions: of these, approximately 28% have answered “unknown” to the question regarding SEC, FINRA, or state disciplinary actions or proceedings or criminal complaints within the last 10 years; and approximately 8% have answered “unknown” to the question whether the issuer has independently audited financial statements available for its most recent fiscal year.
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: Impact of Dodd-Frank on Community Banks
– Three Recent Surveys Provide Insights On Corporate Governance
– More on “Director Access to Attorney-Client Privileged Communications”
– Director Access to Attorney-Client Privileged Communications
– “End-User Exception” for Swaps: Governance Action Items for Companies
There continues to be social media developments – both in the corporate finance & corporate governance areas. Although LinkedIn & Twitter both get leveraged by folks in our community, it is at nowhere near the levels of other professions. For example, I have 2500 followers on Twitter – but only a few dozen of them tweet regularly about things in our profession. But still, there are lots of cool things happening, such as this Adidas’s social media policy – in the form of cartoons.
Here are a handful of articles, etc. that you may find interesting:
In this podcast, Vinny Jindal of Stockr describes what his platform can do, including:
– What is Stockr?
– How does it compare to other social media platforms for investors?
– Can companies create a verifiable presence on it (here is the CVS channel and the NetSol channel)?
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:
– Proxy Access Proposals in 2013: Anybody Out There?
– The Impact of the ISS Policy Against Pledging
– 10 Trends from the Proxy Season
– The Empowered Shareholder
– Recap of the Proxy Season
I’ve added this Form 8-K from JC Penney to my list of directors who resigned after they have disagreed with the board. This director resignation was big news for the company as hedge fund manager Bill Ackman is the one who left (also see this piece from the New Yorker – and this Money Talks podcast).
I bother to blog about this since it’s fairly rare that a 8-K is filed due to director disagreement – and it’s rare that a board speaks out because it believes the departing director has divulged confidential information as noted in this WSJ article. The company and Ackman have now reached an agreement for him to sell his stake in the company…
The newest board portal vendor with about two years of experience under its belt – Pervasent – has a “flat rate for unlimited users” pricing model that may shake up the industry. In this podcast, Stuart Williams of Pervasent explains how his company’s board portals work, including:
– How is your “Board Papers” different than other board portals?
– What is your pricing?
– How can others within a company use your board portal technology?
Poll: Should Directors Ever Go Public With Disagreements (When They Don’t Quit)?
It is rare that a disagreement with fellow board members is made public, although it does happen when the director resigns as a Form 8-K is required in that situation. Here is an anonymous poll on the topic of director disagreements when the director doesn’t resign:
As noted in this WSJ article, the National Association of Manufacturers, Chamber of Commerce and Business Roundtable have filed a notice of intent to appeal the recent DC District Court ruling that upheld the conflict mineral rules promulgated by the SEC. Initial documents related to the appeal are due on September 12th.
Yesterday, Dr. Mike Piwowar was sworn in as an SEC Commissioner by the SEC’s Los Angeles Regional Office Director.
The GAO’s Report on Conflict Minerals
As noted in this Cooley news brief, the GAO recently published this report on the effectiveness of the SEC’s rules on conflict minerals as required by Section 1502 of Dodd-Frank.
The Importance of Realism in Startups
Even if you have no interest in start-ups or venture capital, this 12-minute video with Mark Suster is worth watching as he describes how he learned from his failures…
Many have long been complaining that the SEC’s rules have caused the length of disclosure documents to become untenable, a sentiment probably best reflected in this speech by SEC Commissioner Gallagher in which he said “proxy statements now resemble law school text books.”
While I agree that the continued layering of more rules has partially been to blame for the ballooning of proxy statements, I feel some of the blame should be shared by those that draft the documents. Too many continue to view the proxy as a compliance document rather than as a way to really reach shareholders and tell a story. In other words, to make the documents “usable.”
In my latest “Take Two Video” about usability for disclosures, I provide specific examples of companies that have reduced their proxy lengths dramatically – while at the same time telling a story and making the disclosure usable, with an end result of significantly improving their say-on-pay results:
Can the SEC’s Rules Use Spring Cleaning? Yes, But…
I do believe the SEC’s rules could use some work (as all rules inevitably need), including rewriting them in plain English – and fixing some broken aspects, such as this problem identified by a member:
I think the rules do make things complicated. The same grant may have to be explained several different times in different ways, so the rules do add to the complexity. I think it’s a function of those tables myself and the strict rules about what goes in what table. If they would just allow people a chart with their different programs and what was awarded under each type of comp, without the need to come to a “total” and without going through all the historical stuff of what’s outstanding etc., that would simplify it a lot. The requirement to explain why they paid you what they did, that definitely complicates things.
I remember doing this the very first year when I went in-house and I realized that I had to repeat the same thing over and over because (a) different tables require the reporting of the same grant and an explanation and (b) people are paid what they are for one or two main reasons (how the business did mostly) – but you have to make it sound as if each component had a separate criteria, so that always required a repeat of the evaluation by type of pay, rather than an explanation of how the performance drive the totality of the pay.
But a rewrite of the rules is a huge undertaking. One that likely would have to be done in waves over many years. Perhaps a decade…
Are Annual Reports Destined for the Dustbin?
I love this blog entitled “Is the Annual Report a Thing of the Past?” by Sharon Merrill’s Maureen Wolff that talks about the use of video and more. Here is Maureen’s central point:
This is probably the best the way to view the report’s value: How does it fit in with all of the other communications that we’re conducting?
Yesterday, the PCAOB proposed a new auditing standard designed to enhance the content of the auditor’s report. Here’s the PCAOB’s proposal, press release, fact sheet and Board Member statements. Gibson Dunn’s Mike Scanlon & Amy Goodman write in this blog:
Today, the PCAOB proposed for public comment two audit standards that, if adopted, would significantly change the audit report model, and dramatically expand the auditor’s responsibilities in reporting on management’s disclosures outside the financial statements. PCAOB Chairman Doty remarked that the proposed standards – running to almost 300 pages – mark a “watershed moment” for auditing in the United States.
The first proposal – The Auditor’s Report on an Audit of Financial Statements – moves well beyond the traditional audit report and would require the following additional statements:
– Disclosure of “critical audit matters” encountered by the auditor during the course of the audit. Critical audit matters are defined in the proposal as those matters that involved the most difficult, subjective, and complex auditor judgments; posed the most difficulty to the auditor in obtaining audit evidence; or posed the most difficulty to the auditor in forming an opinion regarding the financial statements. The proposal states that critical audit matters will be determined based on the facts and circumstances of each audit and it is anticipated that in most audits the auditor would identify critical audit matters. In those limited circumstances where the auditor concludes there are no critical audit matters, the auditor would have to document this conclusion in its workpapers.
– Disclosure of the standards that require the auditor to maintain its independence from the issuer, and identification of the year in which the auditor began its tenure with the company.
– Disclosure of the auditor’s responsibilities for evaluation of information in annual reports filed with the SEC beyond that contained in the financial statements and audit report, and a statement about the results of the auditor’s evaluation. This aspect of the first proposal bootstraps in what is likely to be one of the key flashpoints from the second proposal, discussed below.
The second proposal – The Auditor’s Responsibilities Regarding Other Information in Certain Documents Containing Audited Financial Statements and the Related Auditor’s Report – would take the auditor and issuer into unchartered territory, requiring the auditor to report on “other information” included in annual reports filed with the SEC under the Securities Exchange Act of 1934. The proposal observes that the PCAOB’s current standards require the auditor to “read and consider” information contained in certain filings, but there is no current reporting obligation related to these requirements. The proposal sets out to extend the auditor’s responsibilities for reporting by noting that the other information would include, among other items, the selected financial information, MD&A, exhibits and other information incorporated by reference into the filing.
The proposal then includes specific procedures the auditor would have to apply in evaluating the other information based on relevant audit evidence obtained and conclusions reached during the audit. Once these procedures are applied, the auditor would have to evaluate whether any of the other information contains a material misstatement of fact, or a material inconsistency, with the amounts or information, or the manner of presentation, in the audited financial statements. As noted above, the audit report then has to include a statement as to whether the auditor identified a material inconsistency or a material misstatement of fact in the other information.
The PCAOB’s proposals raise issues that could have significant impacts on the conduct of audits and disclosures required in issuer filings – including, among others, impacts on the auditor-Audit Committee-management relationship, disclosures of matters that are otherwise resolved through the audit process (e.g., significant deficiency v. material weakness determinations, internal investigations, etc.), timing for filings and completion of the audit, and costs. Indeed, PCAOB Members Ferguson, Franzel, and Hanson – although supporting issuance of the proposals – raised numerous questions and concerns regarding various aspects of the proposals. One Board Member also noted that the proposals are likely to lead to roundtables, and even to re-proposals before the adoption of any final standards.
– What is the IAASB?
– How would the new exposure draft dramatically impact the audit report?
– How long might the audit report be if the proposal is adopted?
– What is the process for consideration of this proposal, including the possible timeline?
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:
– Another Day, Another JOBS Act Hearing
– What CEOs Really Think of Their Boards
– Accredited Crowdfunding, Internet Advertising and General Solicitation
– Learning Through Animation: Fraud Assessment Videos
– Second Take on Amgen: Defense Arguments Largely Intact, Even in Overruled Circuits
– You Might Be Surprised By Who Counts (And Who Doesn’t) In California
Last Friday, Kara Stein was sworn in as SEC Commissioner – Mike Piwowar will be sworn in this week. Perhaps due to this, the process of selecting a SEC Commissioner has been in the news lately. Last week, Floyd Norris devoted his NY Times column to the process, comparing recent appointees to some made a few decades ago. Floyd is critical and believes the current process is too political, reflected in the title of his column, “Independent Agencies, Sometimes in Name Only.” Here’s an excerpt:
Of course, members of Congress always had influence, and presidents have sought advice and engaged in horse trading. But Harvey Pitt, who worked on the S.E.C. staff from 1968 to 1978, rising to general counsel, said things had changed by the time he returned as chairman in 2001. By then, he said, presidents were expected to nominate the people chosen by the opposition party’s senior senators, unless there was something clearly wrong with the person.
Mr. Pitt said he thought that began on a more formal basis after the Republicans took control of Congress in 1994, when Bill Clinton was president. Mr. Pitt, who was appointed chairman by President George W. Bush, said that his recommendations and approval were sought by the White House for prospective Republican commissioners, but that while he met with Democratic choices before they were nominated, he did not feel he — or the White House — had much leeway in choosing whether to appoint them.
Now, there is some evidence that the president generally gets to choose the chairmen of independent commissions, but the other majority members are picked on Capitol Hill.
And in this Q&A with departing SEC Commissioner Elisse Walter – published in the Washington Post on Friday – Elisse answers the question of “What did it take to land the position of SEC commissioner?” by answering:
I started thinking about the job in the mid- to late ’80s. I wanted to be one of the ultimate decision makers. I never thought it was a realistic possibility. But in the early 2000s, I thought I should try to do this. I called everyone I knew, either because they occupied the position or because they knew something about how Capitol Hill works. The recommendations for commissioner slots mostly originate from Capitol Hill, and the president does the nominating. But I didn’t get the job.
Then there is the follow-up question of “Six years later, when you were working at FINRA, you finally got nominated as an SEC commissioner. How did that happen?” with an answer of:
Sen. Jack Reed called [FINRA’s then-chief executive] Mary Schapiro. A Democratic seat on the commission had opened up and he asked Mary for a recommendation. She gave him my name. You need a rabbi to get you through the process. When the right people are willing to sign on and support you, it just happens. I remember early on in my tenure, a group of business-school students asked me: “How do you become a commissioner?” I think the answer is serendipity. There isn’t a career path.
More on the “Revolving Door”
Recently, the Washington Post ran this lengthy article exploring Promontory Financial Group, the consulting firm where former SEC Chair Mary Schapiro landed. The piece takes potshots at Promontory because of the numerous former regulators that work there. I’m still adamant that the so-called revolving door is not what it seems – and that most regulators are true to their mission when they work within the government.
In what other industry are people not supposed to never leave their jobs? Once you work for the government, you’re stuck for life?
Tom Kim, who recently departed as Corp Fin’s Chief Counsel, has joined Sidley Austin in its DC office…
The InVU Platform
In this podcast, Agnies Watson of Computershare discusses a new platform – InVU – for corporate secretaries and IROs, including:
– Why did you launch InVU?
– What can it do that other platforms can’t?
– Any surprises since you launched?
As noted in this Latham & Watkins blog, SEC Chair White has written a letter to a House Subcommittee to not only indicate how many Staff hours went into the new Reg D proposals, but also to clarify this:
You also expressed concern that the issuance of the July 10th rule proposal may have created uncertainty among some issuers and market participants as to whether the new Rule 506(c) exemption, which permits general solicitation, can be used once it becomes effective. The Commission approved the adoption of Rule 506(c) on July 10, 2013, and the rule will be effective on September 23, 2013. Once effective, issuers will be able to rely on the Rule 506(c) exemption for securities offerings as long as they comply with the conditions of that exemption.
Issuers are not required to comply with any aspect of the Commission’s July 10th rule proposal until such time as the Commission may approve a final rule and such rule becomes effective. Should the Commission ultimately decide to adopt final rules, I expect these rules would consider the need for transitional guidance for ongoing offerings that commenced before the effective date of any final rules, as it did when it adopted the Rule 506(c) exemption.
I doubt that Corp Fin will issue a CDI addressing this topic since we now have this letter from the SEC Chair. It’s interesting to obtain guidance in this format – as it’s not a formal Commission document nor informal Staff guidance…
SASB Issues Sustainability Disclosure Standards for the Health Care Sector
Many are concerned about the SASB’s disclosure standards for their industry and have been writing in comments. As noted in this Cooley news brief, the SASB has issued sustainability disclosure standards for the health care industry…
– Why did you write this book?
– What are some of the major points made?
– What do you think might be controversial?
– Any surprises in the process of writing it?
Composition of Indices: SEC Issues Section 21(a) Report
Last week, the SEC issued this new Section 21(a) Report on composition of indices. Here’s my blog explaining what a Section 21(a) report is…
A while back, I blogged about my world’s largest list of Flintstones characters not knowing that Seth McFarlane of “The Family Guy” fame would be rumored to be bringing back the series to TV (only to have that idea likely squashed). Exciting, particularly since the Flintstones just celebrated 50 years (see this video)!
Anyways, my Flintstones crowdsourcing poll proved quite popular with over 6800 votes – with Fred eeking out Barney for most popular and Wilma and Betty tying for third. Baby Puss and Troy tied for last among the 30 characters included in the poll. I find it interesting that the four main characters wound up at the top. I would have guessed that some of the more minor ones would have won (eg. Dino).
A member sent in this Bruce Springstone video – and one of my favorite DC art shows is one where artists use marshmellow Peeps to create dioramas. That year’s show included the Peepstones!
Expanding the Conflict Mineral Rules Even More? Oh No!
As noted in this Cooley alert, the Bloomberg editorial board – in this editorial – questions why the tungsten that fuels the decades-old war in Colombia is not covered under Dodd-Frank’s conflict minerals provision and advocates that the provision be extended to cover conflict minerals wherever they are used to fund conflict and human-rights abuses. Given that I receive complaints nearly daily from members about how ridiculous this provision is – particularly weighing the costs versus the benefits – I imagine that the Bloomberg news division doesn’t talk too often with the Bloomberg law side of the business…
As noted in this press release, the PCAOB will hold a meeting next Tuesday to propose amendments to the auditor’s reporting model, including new responsibilities for “other information in an annual report.” See FEI’s Financial Reporting Blog for more.
Between two decades of public speaking – and hosting hundreds of webcasts and panels – I consider myself something of a connoisseur when it comes to what makes a speaker good. In fact, I am in the process now of intimately working with the 50-plus panels for our week of executive pay conferences. In this video about the “Do’s & Don’ts of Speaking,” I give some nutshell wisdom:
Should In-House Counsel Talk to the Media (& How)?
In this podcast, Bob Lamm provides his views on whether in-house lawyers should talk to the media – and if so, how to be prepared, including:
– Should you talk to the media, and why?
– What are the prerequisites for talking to the media (in general and within your organization)?
– Can you prepare for a media interview, and how?
– Are there differences between different types of media (i.e., print media vs. “live” media such as TV, radio or webcast)?
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:
– Big Banks Beat Back “Break ‘Em Up” Shareholder Proposals
– Take Care When Using Finders
– Going Concern Opinions Rare After Top Execs Unload Stock
– Webinar & PowerPoint Presentation Cited As Improper Reg D Solicitation
– Study: U.S. Board Diversity Edges Up
– More on “RIP? Social Media Use for Corporate Disclosures”
– Study: Blue Sky Exemptions for Private Resales
