As noted in this Washington Post article, the Center for Plain Languages gave the SEC a grade of “D” when it comes to evaluating how well it communicates with the public. Things could be worse – the Treasury Department a received a “F.” Here’s the report card from the Center, which graded 20 federal agencies.
These grades were based on the “Plain Writing Act of 2010” – there is a bill called the “Plain Regulations Act of 2013,” which would require that all new and substantially revised federal regulations be written in plain language. I’m all in for that idea!
SEC to Propose Reg A+ Tomorrow!
Yesterday, the SEC surprised me with this Sunshine Act notice stating that Regulation A+ will be proposed at an open Commission meeting tomorrow. Another JOBS Act rulemaking proposal tucked in before the end of the year!
Here are the comments received by the SEC on Title IV of the JOBS Act (including Section 3(b) of the ’33 Act). MoFo’s Anna Pinedo blogs about a second comment letter from NASAA on Reg A+ that was filed just last week (here’s the 1st comment letter)…
Meanwhile, the Supreme Court has picked up a securities law case for next term – this one relating to ERISA stock drops. Read Kevin LaCroix’s blog for more…
More on “The Mentor Blog”
I 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:
– Survey: Board Activities
– Bylaw Amendment Could Deter Dissident Directors
– The Return of the Mini-Tender Offer?
– SCOTUS Oral Arguments: Whether SOX Protects Private Company Employees From Retaliation
– Study: Firms that “Cast” Earnings Calls Underperform
As I blogged last month, SEC Chair White delivered a speech on disclosure reform recently. There really is some interesting commentary from a variety of investors in this Fortune article about whether there is a “disclosure overload” in SEC filings. Most of them say “no”…
Meanwhile, SEC Commissioner Gallagher has weighed in with his thoughts on disclosure reform, as noted in this Davis Polk blog…
Speaking of “what’s material?,” the U.S. Supreme Court has set oral argument for March 5th in Halliburton v. Erica P. John Fund (No. 13-317), the case that may upset the Basic v. Levinson (fraud-on-the-market) applecart…
Survey: Board-Shareholder Engagement
This recent investor survey by PwC presents some interesting findings, including that 45% of investors prefer engaging directly with directors (see pg. 11). In comparison, here are the key findings from this recent NIRI survey:
– Majority of survey respondents (60%) state that their companies do not permit board members to engage directly with shareholders (defined as in-person or via telephone).
– Within companies that do allow direct communication, 65% state that any board member may speak directly, while 35% state that only certain board members may speak directly to shareholders.
– Within companies that do allow direct communication, 57% indicate that a member of management is not required to be present during these discussions.
– In general, as market cap increases, so does the likelihood that only certain board members may speak with shareholders and that management’s presence is required.
– Companies are only slightly more likely (43%) to facilitate indirect communication between boards and shareholders (defined as e-mail responses to questions via a third-party, such as the IR department or corporate secretary’s office), than direct communication (40%).
– The most likely venues for direct interactions between board members and shareholders are annual meetings (49%), through the proxy voting arms of institutional shareholders (11%), during non-deal roadshows/one-on-one meetings (9%), and at analyst days (8%).
– For those that reported board-shareholder contact within the last two years, the average number of direct communications over this period was nearly five.
– On average, one out of every five of these communications within the last two years was a result of activist or shareholder proxy proposal activities.
Considering the popularity of apps, I have been surprised that few companies have apps for their investors. Now there is a simple solution that might make these omnipresent. In this podcast, Jeff Corbin of theIRapp explains how “theIRapp” works, including:
– What is the difference from an investor’s perspective of an IR app and IR web page?
– How much work is it for a company to keep an IR app updated with content?
– How much does your IR app cost?
I thought that I should clarify my blog from last week – when Nasdaq filed the compensation committee independence proposed rule changes on November 26th, they were immediately effective. Two days ago, the SEC published the notice of filing and immediate effectiveness of the proposed rule change.
As noted in Section III of the notice (pp. 9-10), the rule change has a 30-day operative delay from the date of filing. That period will expire before companies are required to comply with Nasdaq’s compensation committee composition rules since the transition period for compliance is unchanged. Specifically, companies must comply by the earlier of: (i) their first annual meeting after January 15, 2014, or (ii) October 31, 2014.
In addition, at any time within 60 days of the filing of the proposed rule change, the SEC summarily may temporarily suspend such rule change if it appears to the SEC that such action is: (i) necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Exchange Act. I have no expectation that they would take such action. I have posted memos on the Nasdaq’s changes in CompensationStandards.com’s “Compensation Committee” Practice Area.
Corp Fin’s Focus on Segment Reporting
This WSJ article notes (as highlighted in this Cooley news brief) covers the recent AICPA’s conference and notes how Corp Fin’s Associate Chief Accountant Ryan Milne said that the Division was focusing on segment reporting. [The SEC Staff’s first few speeches from the conference are posted. More likely to come.]
According to the article, segment reporting was “the third most common area discussed in SEC comment letters in the first three quarters of this year, following tax and goodwill accounting issues, according to Audit Analytics. In its regular review process, the agency addressed segment reporting issues in some 435 letters to 184 companies this year through Sept. 30, according to the firm.” An SEC representative stated that the SEC expects to “continue to focus on this area.”
By the way, the comment period for the PCAOB’s proposal on the audit report has closed – here are the comments that the PCAOB received…
SEC Task Force Probes Use of Non-GAAP Metrics
And this WSJ article notes (as highlighted in this Cooley news brief) that the SEC’s Enforcement Division – using its 12-member “Financial Reporting and Audit Task Force” created in July – is scrutinizing companies’ use of non-GAAP performance measures.
Earlier this year, I blogged how the SEC’s Reg Flex Agenda is aspirational and not really a good roadmap for upcoming rulemakings. Apparently, some folks didn’t get the memo and continue to make the Reg Flex Agenda a newsworthy item after being completely ignored for decades. So I wasn’t surprised that we never saw a political contribution disclosure proposal from the SEC this year after the hubbub starting in January that it was coming soon. Nor am I surprised that the topic was left out of the latest Reg Flex Agenda (and here’s the “long-term” action items) posted by the SEC last week.
Here’s some examples of folks thinking that the Reg Flex Agenda actually does amount to something: this Washington Post article on that omission – and here’s a blog about it from Prof. Lucian Bebchuk. And the NY Times Editorial Board has even weighed in.
I disagree. I believe that the omission has as much meaning as it’s inclusion in the last Reg Flex Agenda. Which is nada. At least the Washington Post partially recognized this fact, with this sentence buried in its recent article: “The agency is not precluded from acting on a matter, even if it’s not on the formal agenda.” But why even bother to write an article about the Reg Flex Agenda in the first place…
Study: A 12-Year Comparison of Going Concerns
In a recent study, Audit Analytics looked back over 12 years of going concerns and, among other things, found:
– Fiscal year end 2012 is estimated to receive 2,517 going concerns, a decrease of 127 from the year prior, but this decrease is smaller than the 228 companies that ended up filing terminations with the SEC after disclosing a going concern in 2011.
– It is estimated that 17.5% of auditor opinions filed for fiscal year end 2012 will contain a qualification regarding the company’s ability to continue as a going concern. During the 13 years under review, the highest percentage, 21.1%, occurred in 2008 and the lowest, 14.1%, occurred in 2000. The last 6 years represent the worst 6 percentages under review.
– New going concerns (filed for this year, but not the prior year) is estimated to be 543, which is low compare to most years, but 35 more companies than experienced the year prior.
– Fiscal year 2012 saw the fewest number of companies that improved well enough to shed its going concern status. A multi-year analysis of the going concerns allows for an identification of companies that filed a going concern one year but not the following year. This cessation can occur for one of two reasons: (1) the company files a subsequent clean audit opinion (subsequent improvement) or (2) the company fails to file audit opinions altogether (subsequent disappearance). A review of companies that experienced a subsequent improvement reveals that only 140 companies that filed a going concern in 2011 were able to file a clean audit opinion in 2012. This figure represents the lowest for any year analyzed, since 2000.
This Reuters article noting that 40% of audit committee members have social ties to CEOs at the same company is alarming. It’s based on this upcoming study.
A Record $2.46 Billion Post-Verdict Judgment In a Securities Lawsuit!
Kevin LaCroix blogs about Northern District of Illinois Judge Guzman entering a post-verdict judgment in the long-running Household International securities class action lawsuit consisting of principal damages of $1,476,490,844.21 and prejudgment interest of $986,408,772, for a total judgment amount of $2,462,899,616.21, along with post-judgment interest and taxable costs. Wow…
I’ve heard that there is some confusion as to when you need to send a CTR to the SEC’s FOIA office. You don’t need to do so for a Rule 24b-2 or 406 confidential treatment request – those CTRs should be only sent to the SEC’s Office of the Secretary (& don’t direct it to the attention of any individual or other office at the Commission). Only this address and the return address should appear on the envelope conveying a Rule 24b-2 or 406 confidential treatment request:
Office of the Secretary
Room 10915
Mail Stop 1090
Securities & Exchange Commission
100 F. Street NE
Washington, DC 20549-1090
In comparison, a FOIA letter must be sent for confidential treatment requests under Rule 83. As noted on page 40 of my “Confidential Treatment Requests Handbook,” Rule 83 requires three different submissions (ie. letter to Corp Fin Staffer reviewing your filing; comment letter response filed via Edgar and the letter to the SEC’s FOIA office)…
How is Morale at the SEC? A 2013 Job Satisfaction Survey
Two years ago, I blogged about the results of a biannual government-wide “Federal Human Capital Survey” as it pertained to the SEC. Now, a new government-wide survey is out – and here is the SEC’s 2013 Federal Employee Viewpoint Survey. Overall, the SEC did not fare well compared to the other 36 federal agencies included in the survey – coming in 35th on Job Satisfaction; 33rd on Talent Management; 33rd on Results-Oriented Performance Culture and 26th on Leadership & Knowledge Management.
Transcript: “Audit Committees in Action – The Latest Developments”
We have posted the transcript from our recent webcast: “Audit Committees in Action: The Latest Developments.”
I received many emails from members last week when the news came out that the SEC would likely adopt the Volcker rules by seriatim (as noted in this WSJ article, this indeed will happen today). Members wondered why the SEC wasn’t required to hold an open Commission meeting to vote upon such important rules. Note that all five federal agencies responsible for implementing the Volcker rule requirements of Dodd-Frank will act on their rulemakings today (all 5 agencies approved; the SEC voted 3-2 to adopt the rule).
As noted in my webcast last year about how the SEC really works, the SEC makes great use of the seriatim process – roughly about 600x per year. These basically are written consents in lieu of a meeting. In literal terms, they are pieces of paper circulated for signature to all the Commissioners. Under the Sunshine Act, the Commissioners can’t get in a room and sign together – unless they do so silently – that’s why the orders are circulated in series (“seriatim” is a Latin adverb, meaning serially or in series). As long as the Commissioners aren’t getting together to act, the Sunshine Act doesn’t apply and the SEC isn’t required to hold an open Commission meeting. Open Commission meetings are held at the SEC Chair’s discretion.
Thus, it is conceivable that the SEC could take various actions for years without an holding an open Commission meeting. But it doesn’t do so because of the interest in holding the meetings, both within the SEC and outside. In the case of the Volcker rule, the SEC is coordinating with four other agencies – and my guess is that it was too complicated to attempt to coordinate action among such a large group by holding simultaneous open meetings (eg. some of the Commissioners could be unavailable to attend an open meeting today). Thanks to Hunton & Williams’ Scott Kimpel for his wisdom!
At the Fed, the Governors just reply to emails to vote and don’t even have the fancy cover pages that the SEC’s seriatim memos do. The Washington Post has posted the text of the Volcker rules.
Corp Fin’s New Head of Small Business Policy: Sebastian Gomez-Abero
I have updated our popular “Corp Fin Organization Chart” to show that Sebastian Gomez-Abero has been tapped as Corp Fin’s new Chief of Small Business Policy. Sebastian moves over from the Office of Chief Counsel. He was in the Office of Financial Services II before that…
Twitter’s IPO: Corp Fin’s Comments Are Uploaded
Now which title do you like better? Mine above about how Corp Fin has uploaded its comment letters and Twitter’s responses – or this one from the WSJ: “Unpacking Twitter’s Secret IPO Memos With the SEC“? I know, I know. The WSJ headline is sexier. Here is the correspondence related to Twitter’s IPO (which is released by the SEC; not the company as erroneously stated in the WSJ piece)…
Recently, I learned that Bill Godward – whose name used to grace the Cooley brand – still goes into the office at age 100! In this podcast, Mr. Godward describes his incredible career – harkening back to an era where it was rare for a company to have any in-house counsel:
– What did you do before you joined Cooley?
– How big were firms back then?
– What types of law did you practice back then? How did dealmaking differ?
– What other differences in the way that lawyers practiced can you tell us about?
PCAOB’s New Report: Implementation of Engagement Quality Review Standard
On Friday, the PCAOB issued this report that provides information about auditors’ implementation of Auditing Standard No. 7, Engagement Quality Review. The findings include:
– While methodologies generally were consistent with the requirements of Auditing Standard No. 7, they did not always result in an appropriately executed engagement quality review.
– In a number of engagements in which the PCAOB Inspection staff identified audit deficiencies, the staff concluded that the audit deficiency should have been identified by the engagement quality reviewer.
– Observations from the Board’s 2012 inspections indicated that audit deficiencies and the related deficiencies in engagement quality reviews continued to be high.
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 Salvo on SEC Penalties
– Corp Fin Staff Doesn’t Like “Likes”
– SEC Explains Denial of Whistleblower Award
– SEC Sheds Light on Its Pursuit of “Streamlined” Investigations
– Will SEC’s Whistleblower Awards Lead to More Whistleblowers (& Civil Lawsuits)?
Recently, I got into a discussion with someone about short slate nominees and whether dissidents ever put up female nominees. I asked around and didn’t find anyone that keeps those statistics – but anecdotally heard that it’s fairly rare. Clinton Group has been pretty aggressive nominating directors over the past few years and several have been women – they put three women on Wet Seal’s board last year and they just nominated two for ValueVision Media’s board last month.
Mailed: Special Supplement to November-December 2013 Issue of “The Corporate Counsel”
We just mailed a Special Supplement to the November-December 2013 issue of The Corporate Counsel that we put together recently (the regular issue itself is forthcoming). It updates the “Say-on-Pay Solicitation Playbook” that I wrote a few years back for the July-August 2010 issue of The Corporate Counsel. This time around, we tackle adopting shareholder engagement policies and forming shareholder engagement committees, etc.
Act Now: Get this issue rushed to when you try a 2014 No-Risk Trial to The Corporate Counsel.
Should You Be Talking the Youth Out of Law School?
My greatest accomplishment? I know of at least three people that I have talked out of law school. And they all thank me every time they see me. Here’s news about how things continue to get worse for our profession:
Yesterday, Corp Fin updated its “Securities Act Rules Compliance and Disclosure Interpretations” to provide 14 new interpretations clarifying the application of the “bad actor” disqualifications from Rule 506 offerings. In this blog, Blank Rome’s Yelena Barychev provides a summary – and in this blog, Leonard Street’s David Jenson provides some analysis – and here’s Keith Bishop’s take.
Don’t forget to join our new “Reg D email listserv,” that has an easy-to-use online “subscribe/unsubscribe” functionality. These FAQs clarify how to use our listservs – but there are four easy steps:
1. Input your email address
2. Input your name
3. Choose the listservs you want to join
4. Click “Subscribe” button
You can unsubscribe at any time by following the first three steps above – and then click the “Unsubscribe” button as your 4th step. Here are instructions on how to email your listserv once you join a group.
PCAOB Reproposes “Disclosure of Engagement Partner” Standards
Yesterday, the PCAOB reproposed amendments to its auditing standards that would provide disclosure about the engagement partner and certain other participants in the audit, including seeking input on what types of disclosure would be useful, the potential costs, etc.
Here’s the comment letters received on the original proposal. And there is coverage of the discussion among the PCAOB’s Board Members during yesterday’s deliberations in FEI’s blog.
SEC Chair White Speaks on Benefits of Shareholder Engagement
As noted in this Reuters article, SEC Chair White recently delivered this speech addressing shareholder engagement and shareholder activism. At the same event, SEC Commissioner Gallagher gave this speech on proxy advisors, a precursor to today’s proxy advisors roundtable…
To facilitate conversations and help answer your questions, I’m excited to announce that we have launched a number of new email listservs that have an easy-to-use online “subscribe/unsubscribe” functionality. We built this tool in-house and I believe it’s superior to what others do for their listservs.These FAQs clarify how to use our listservs – but there are four easy steps:
1. Input your email address
2. Input your name
3. Choose the listservs you want to join
4. Click “Subscribe” button
You can unsubscribe at any time by following the first three steps above – and then click the “Unsubscribe” button as your 4th step. Here are instructions on how to email your listserv once you join a group.
The first four listserv groups I have created are: Reg D; Controlled Companies; Treasury Support; and Cool Technology. Email me if there are other topics that you think deserve their own listserv…
After my blog got pushed out yesterday morning, I tweaked it to note that the form of certification that I linked to was merely just a preview of what Nasdaq will require. Nasdaq expects to release the final form in early January, which will be changed somewhat from the preview to accommodate the proposals that the Nasdaq filed last week, etc.
Also note that listed companies will not file a paper certification with Nasdaq – but rather will certify electronically through Nasdaq’s “Listing Center” website, similar to the process companies (and applicants) use to submit listing applications and forms such as this one…
Fixing the Securities Laws: Removing Obstacles to Recognizing LGBT Partnerships
In the SEC’s rules & forms, by only referring to spouses – which is defined to mean only married couples – the securities laws disqualifies couples in civil unions or domestic partnerships in 15 states across the country. Learn more in this article on TechCrunch entitled “Remove Restrictions on Gay Investors.”
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:
– Your Guide to Purchases by Directors in an IPO
– Sixth Circuit Upholds “Big Boy” Agreement to Bar Fraud Claim
– Expanded Role for Corp Fin in Monitoring Violations of Iran Sanctions?
– Dodd-Frank: Anti-Retaliation Provisions Don’t Protect Overseas Whistleblower
– DTC’s White Paper Proposes Changes to Reverse Trading Chills
