After the SEC’s Section 21(a) report on Netflix, the NYSE sent a reminder to listed companies about its process for handling material news. To me, it reads as a reminder of the NYSE process – not as a wet blanket as it could be interpreted. In the excerpt from the reminder below, the NYSE says “Regulation FD-compliant manner” – so if it’s good enough for the SEC, then it’s good enough for the NYSE. It’s just that companies have to provide advance notice to the NYSE for certain material events. So it should not change the considerations for using social media much. What do you think? The relevant excerpt from the NYSE’s reminder is below:
The Securities & Exchange Commission issued guidance last week on the acceptability of utilizing social media outlets like Facebook and Twitter to comply with Regulation Fair Disclosure. Given the SEC’s new guidance, companies may be considering the merits of utilizing these outlets for disclosure purposes. Please be aware that the NYSE has certain disclosure rules that companies must follow and we thought it might be helpful to review these rules with you so that you can consider them as you evaluate the SEC’s new guidance. Additionally, as the 2013 proxy season is now underway, companies are reminded that NYSE rules require listed companies to provide the NYSE with at least 10 days advance notice of all record dates.
NYSE’s Timely Disclosure Rule:
Under Section 202.06 of the NYSE Listed Company Manual, companies can comply with the NYSE’s timely disclosure rule by issuing a press release or by means of any Regulation FD compliant method (or combination of methods). When news will be released during market hours (leading up to the opening and between 9:30 am – 5:00 pm EST), companies are reminded that the NYSE requires that ten minutes advance notice be provided to the NYSE’s Corporate Actions & Market Watch team prior to the dissemination of any news that is deemed to be of a material nature or that might impact trading in the company’s securities, or at the time the company becomes aware of a material event having occurred.
Companies must provide the NYSE with the means by which the company intends to disseminate the news and the NYSE must have the ability to view the news to ensure it has been fully disseminated. This advance call provides the NYSE with an opportunity to consider whether a temporary trading halt in the company’s securities should be put in place. A halt in trading allows investors to evaluate the official company news in its entirety and adjust their trading positions as they see fit.
Further to this rule:
– The NYSE expects that a company representative will be available to discuss the details of the news and answer any potential questions the NYSE may have.
– While not intended to be an exhaustive list, examples of news the NYSE would consider to be potentially material include: earnings, mergers/acquisitions, securities offerings and pricings related to these offerings (see below for more information), major product launches or new patent approvals, dividend announcements, etc.
– In instances of unusual market activity or rumor-driven activity, a company is expected to contact the NYSE and promptly release to the public any news or information which might reasonably be affecting the market in its securities. Where there is no knowledge of material news, a company may be contacted by the NYSE and asked to issue a press release promptly so that the activity/rumor can be addressed for the overall market.
– While foreign private issuers are not required to comply with Regulation FD, they must still comply with the NYSE’s timely disclosure rule. Given that foreign-based issuers are operating in different time zones, it is especially important that the NYSE be provided with contact details for company representative(s) that can be reached during the NYSE’s market hours and who have the authority to speak on a company’s behalf. This contact information is critical in case a situation were to arise where the NYSE became concerned about the trading in your company’s securities and a company representative was not immediately available; the NYSE may be forced to halt trading in your company’s securities until information can be received by the NYSE to support the resumption of trading.
NYSE Proposes to Eliminate Separate Voting Standard
Here is a Davis Polk blog from Ning Chiu, Mutya Harsch and Gillian Moldowan [Broc’s note – since this blog went up, the NYSE’s proposal has been taken down amid vague circumstances – perhaps the SEC didn’t approve of it; overall, not a transparent process]:
Companies seeking approval of equity compensation plans as required under NYSE rules have often struggled to understand, and describe in proxy statements, the application of the NYSE voting standard alongside the state law provisions, for determining approval of the plan. The NYSE has now proposed to eliminate its own separate voting standard.
Where the NYSE makes shareholder approval a prerequisite to the listing of any additional or new securities, Section 312.07 mandates that the proposal obtain a minimum vote of a majority of votes cast, provided that the total vote cast on the proposal represents over 50% in interest of all securities entitled to vote on the proposal. This provision can be baffling, for example, if the treatment of abstentions under applicable state law differs from how abstentions are calculated under the NYSE voting standard. In some states, a “votes cast” standard would not include abstentions. In addition, the 50% requirement layers another level of complexity with respect to broker non-votes, which would be applied toward state law quorum obligations.
The NYSE proposal to remove its own voting requirement, which will also affect other NYSE-required votes, including issuances of over 20% or more of a listed company’s outstanding common stock or voting power, recognizes that it is unnecessary and confusing to mandate two separate voting standards to any proposal subject to the NYSE rules, while applying only the state law requirement for all the other proposals. Nasdaq does not have a similar requirement.
The NYSE has requested that the SEC approve the proposed rule change on an accelerated basis so that, in the case of companies holding shareholder votes on proposals currently subject to Section 312.07, such proposals would be subject only to the requirements of state law.
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:
– Unbundling Lessons Learned from the Apple Case
– Apple: Judge Dismisses Say-on-Pay Injunction Request
– A European Report on Proxy Advisors
– Climate Risks at Banks: Corp Fin Doesn’t Allow Shareholder Proposal Exclusion
– Calls for Proxy Access Whither
In what can be a new trend, an investor group, the Investor Network on Climate Risk – led by Ceres – has issued a consultation paper in an effort to place sustainability disclosure requirements into listing standards on a global basis. Companies are welcome to submit comments during the consultation period, which ends May 1st. The INCR webpage hosts the Consultation Paper, the supporting Appendices and a Comment Template. After receiving comments, a subset of the INCR investors will sort through the comments and figure out where investors have the greatest agreement. The group has already started engaging with stock exchanges – including those that already have a sustainability standard – in an effort to install a uniform standard at all of them.
Here’s an excerpt from a blog by Davis Polk’s Ning Chiu on this:
INCR includes notable investors such as BlackRock and others traditionally associated with being active on corporate social issues, including Boston Common Asset Management and the AFL-CIO. The group is concerned that the ability to factor sustainability issues into investment decisions is difficult due to what they perceive as inconsistent and insufficient corporate reporting. In addition, INCR members have heard from companies that have been reluctant to report on sustainability that they are not certain what specific information investors need and how it will be used. INCR members have been in discussions with NASDAQ OMX and several other stock exchanges, and the paper is in response to those exchanges urging INCR to develop more clarity and consensus on “a unified sustainability disclosure listing standard that could be adopted by all stock exchanges.”
The three segments of a listing requirement being proposed for listed issuers globally include:
– Materiality assessment in annual financial filings where management is expected to discuss its approach to determining the company’s material environmental, social and governance (ESG) issues, with key components that include: (a) how the company determined its material ESG issues; (b) who was involved in that determination; (c) which ESG issues were determined to be material and why, including a discussion of risks and opportunities related to each issue and the connection to financial performance and business strategy; and finally (d) a periodic review of the assessment and reporting on the frequency of scheduled reviews.
– A Global Reporting Initiative (GRI) content index, with every company providing a hyperlink in its annual financial filings to such an index, which will inform investors about the availability and location of a company’s ESG data.
– Corporate ESG disclosure about the following categories of issues, using a “comply or explain” approach: climate change; diversity; employee relations; environmental impact; government relations; human rights; product impact; and safety and supply chain.
The consultation paper notes that about 3,400 companies published a sustainability report as of 2011, and few companies discuss material ESG information in their financial filings. Bloomberg published corporate ESG data for over 5,000 companies in 2011, with more than 120 ESG indicators on display.
The paper contains a number of questions seeking feedback. The initial comment, or consultation, period ends on May 1, 2013. INCR intends to host meetings to discuss the comments with other investors, and Nasdaq has committed to engage in discussions with other stock exchanges as well as the International Organization of Securities Commissions (IOSCO).
Social Media: Netflix Begins Using Facebook as Channel & Infrax Announces Channel Use
Last week, I blogged about Netflix filing a Form 8-K to list five social media channels by which it may disseminate company information. I mused that the company might have done this as CYA – but I was wrong. As noted in this WSJ article, CEO Reed Hastings disclosed Thursday on his personal Facebook page that Netflix’s customers had streamed more than four billion hours of video over the past three months – a post similar to the kind that got him in trouble with the SEC before the Section 21(a) report.
Meanwhile, Infrax filed this Form 8-K to list two social media channels of its own. As Dominic Jones tweeted: “There’s something not quite right about a company with 1 tweet and 16 followers using Twitter for Reg FD.” I am maintaining a list of 8-Ks filed by companies who announce they may disseminate information via social media in our “Social Media” Practice Area. And don’t forget our upcoming webcast: “Social Media: Parsing the Hypos.”
With another tragedy hanging over us, I have decided to break with tradition and not blog about community news. Rather, I want to focus on the positive. One of my favorite movies of all-time. Based on a true story, “The Sapphires” has it all. Set in 1968, four musically talented Australian Aboriginal women overcome the odds and get picked to entertain the troops in Vietnam. Like the new Jackie Robinson movie, overcoming racial prejudice makes for a powerful movie. [Did you know that light-skinned Aboriginal children were stolen from their parents and institutionalized or taught “white ways”? Known as the “Stolen Generation.”]
But that is just the backdrop. The real power of this movie is the relationships between the four women – and with their flawed Irish manager. The war setting then adds another dimension. And finally, the singing. I’m not one to see a movie for the music, but the women in this movie are unbelievable – and they sing the best of ’60s soul music. Their version of “Sugar Pie, Honey Bunch” is the best. Jessica Mauboy is a modern day Diana Ross.
My wife and I left the movie both wondering the same thing. Should we go back in and watch it a second time in a row? I haven’t had that feeling since I was a kid. It’s in limited release and hopefully playing near you. Here is group of clips showing the songs they sing:
This new study about sell-side equity research analysts entitled “Inside the ‘Black Box’ of Sell-Side Financial Analysts” by Profs. Brown, Call, Clement & Sharp may surprise you – or it may not given all that is wrong with this world. The findings are disturbing, including:
– Analyst compensation – 44% of the analysts surveyed indicate that their success at generating underwriting business or trading commissions is very important to their compensation (see page 43).
– Private communication with management – Analysts rated private phone calls with management as the most useful form of direct contact with management of the companies they follow. Further, the analysts specifically responded that private communication with management is very useful for determining their earnings forecasts and stock recommendations. In interviews, analysts said their private phone calls with management provide color and granularity and that management is more candid on private calls than public calls. Analysts said they get to check their model assumptions on private calls, and that management goes into details on private calls that they aren’t willing to discuss on public calls (see discussion from pages 23-25). Thus, the analysts appear to be receiving private information (from these calls) that benefits them directly in terms of their performance.
Meanwhile, in this survey of hedge fund professionals – commissioned by Labaton Sucharow, HedgeWorld and the Hedge Fund Association – 46% said they believe that their competitors engage in illegal activity, 35% have personally felt pressure to break the rules, and 30% have witnessed misconduct in the workplace. When asked if they would blow the whistle or report the misconduct, 87% of respondents said they would report wrongdoing given the protections and incentives such as those offered by the SEC Whistleblower Program.
The Debate Over Audits Signed by Audit Partners
Last week, the SEC brought an enforcement action against a former KPMG partner for insider trading seems to have renewed calls to have individual audit partners identified as part of audit reports. This garden variety case has brought a flurry of interest by the media into a 2011 PCAOB proposal that would require to disclose the names of audit partners on financials, rather than just the firm name. The idea is that this requirement would allow investors and companies to know who is responsible for audit work – particularly useful if a specific individual gets into trouble like this. As noted in this WSJ blog, the PCAOB is expected to act on this proposal in the next few months – but is facing opposition from auditors who are concerned about increased liability for audit partners.
Meanwhile, this WSJ blog notes that Hallador Energy already publishes the names and ages of its lead and concurring audit partners for its financials. And this article discusses a new Cornerstone study showing that accounting class-action lawsuit filings declined sharply last year after a spike in 2011 – but settlement amounts in such cases have grown since 2011.
SEC Announces EDGAR Update for XBRL 2013 US GAAP Taxonomy
As noted in this memo, the SEC recently announced that, if approved by the Commission, the EDGAR system would begin accepting submissions with XBRL exhibits based on the 2013 US GAAP taxonomy on April 29th (and no longer accept submissions with XBRL exhibits based on the 2011 GAAP taxonomy).
By the way, this news of third parties funding the plaintiff’s bar is scary given the recent uptick in M&A litigation, etc. Gheesh…
Senator Rockefeller Asks SEC to Step Up Cybersecurity Disclosures
As noted in this article from “The Hill,” Senator Rockefeller has continued his campaign to elicit more cybersecurity disclosures by calling on the new SEC Chair to do something on her first day in office…
Will the New SEC Chair Tackle “Neither Admit Nor Deny” Debate?
This Bloomberg article entitled “‘Neither Admit nor Deny’ Lives on at SEC, Even for Felons” starts off with this paragraph:
The Securities and Exchange Commission made a big fuss last year when it changed the settlement language it uses for defendants convicted of crimes in parallel proceedings. The New York Times called this “a fundamental policy shift.” Looking back, it turns out the changes were purely cosmetic.
Given Mary Jo White’s background, I imagine this controversy is one that she will tackle soon enough – this memo talks about her “bold vision” for Enforcement…
Meanwhile, this Reuters article notes that another federal district court judge has questioned a proposed securities fraud settlement – but unlike the other cases, this one involves a private shareholder lawsuit, not a SEC enforcement action. And this ProPublica blog discusses the opinion that started this trend, Judge Rakoff’s refusal to approve the SEC’s proposed settlement of its lawsuit against Citigroup…
Given all the excitement over the SEC’s Section 21(a) report regarding Netflix and social media, I have calendared this May 8th webcast – “Social Media: Parsing the Hypos” – during which two legal pros (Dave Lynn & Davis Polk’s Joe Hall) and two IR pros (Q4’s Darrell Heaps & IR Web Report’s Dominic Jones) will parse a group of hypotheticals to determine what is feasible – and what is not – under the SEC’s Regulation FD framework. The panel will also cover what are effective IR strategies to leverage social media and more. I have already drummed up a set of hypos for the panel to consider – but I would like to crowdsource and get your ideas. Shoot me an email with your own hypos.
Meanwhile, Netflix became the first company yesterday to file a Form 8-K listing the five social media channels by which it may disseminate company information – a theme of the SEC’s recent Section 21(a) report. In addition, the company posted this note on their IR web page listing the channels. Whether the company really intends to use all five channels for corporate announcements (or is just covering its “behind” in case newsworthy info is accidentally revealed on them) – and whether that is a good idea – are topics for our upcoming webcast. Hat tip to Dominic for noticing this development!
I continue to post oodles of memos on the SEC’s new report in our “Social Media” Practice Area. And don’t forget my extensive checklist on how to make the business case for investor & analyst engagement via social media. There are 16 factors in my checklist to consider for starters and much more.
And if you are finally ready to give Twitter a try, I have written this “How to” Handbook that is easy-to-understand, providing each step about how to sign up for Twitter, the basics of Twitter etiquette and more. It was written with the person scared to try Twitter in mind…
Poll: Are Companies Adopting Board Approval Policies for the End-User Exception of the Derivative Rules?
Cravath’s John White noted in this blog excerpt: “Companies that anticipate relying on the end-user exception should develop and implement board approval policies so that they are in place before the need to rely on the exception arises. Similarly, companies may also wish to consider making the annual filing described below in advance of the need to rely on the exception to expedite the documentation of their first swap transaction under the end-user exception.” I have posted this “Quick Survey on End-User Exception for Swaps to see if companies are indeed taking these actions – with the looming deadline recently delayed (this WSJ article notes that few companies have acted – ISDA estimates that about 80% of companies that have traded swaps in the past haven’t completed the new registration process).
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:
– A Record Year for Corporate Criminal Fines
– Study: Excessive Optimism in Earnings Releases Can Backfire
– NY State Comptroller Sues Over Political Spending Disclosure
– US-China Audit Spat May Spill Over
– The 2012 US Technology/Silicon Valley Board Index
Great practical guidance on a challenging topic. In this podcast, Alan Rudnick of Masters-Rudnick provides some insight into how general counsels should handle director conflicts of interest, including:
– If conflict arises on the board, what role does the general counsel or corporate secretary have?
– What if the conflict involves the CEO?
– Does that put the general counsel/secretary in an awkward position?
– What if it does appear that the GC/secretary could lose his job?
– If there is major conflict among directors – or between CEO and directors – what can the GC/secretary do?
– What are techniques that the GC/secretary can suggest if asked for advice?
– What advice do you have for the GC/secretary?
You should also read Alan’s checklist on this topic. If you want to contribute a short checklist to this site, just let me know…
IPOs & the JOBS Act: One Year Later
After reviewing 184 IPOs by emerging growth companies from the past year (completed or in registration), Latham & Watkins put together this “IPO Playbook” on the 1st anniversary of the JOBS Act last week, including finding:
– Title I has changed the IPO process. Over 90 percent of EGCs that publicly filed their first registration statement after April 5, 2012 elected at least one accommodation offered by the JOBS Act.
– EGCs are found across many industries, with technology companies representing the largest group of EGC IPO issuers. After technology, the top five industries were energy, healthcare, financial services, real estate and pharmaceuticals.
– Confidential submission is particularly popular. Approximately 65 percent of EGCs that publicly filed their first registration statement after April 5, 2012 submitted at least one draft registration statement for review by the SEC prior to public filing.
– Disclosure about EGC status has become standard. EGCs include standard disclosure in their IPO registration statements about their EGC status and the IPO on-ramp accommodations they are using.
– Testing-the-waters practices are still evolving. The decision of whether, when and how to test the waters with potential institutional investors to gauge their interest in a contemplated offering is made by issuers and their underwriters on a case-by-case basis.
– Foreign private issuers are taking advantage of Title I. They comprised almost 10 percent of US IPOs completed by EGCs since April 5, 2012.
– The pipeline for EGC IPOs remains robust. There are currently 65 EGCs in registration that have publicly filed a registration statement.
Yesterday, the Senate confirmed Mary Jo White as the next SEC Chair by unanimous consent, with no roll-call vote. Meanwhile, this WSJ article and BusinessWeek article note that former SEC Chair Mary Schapiro has found full-time work as a consultant for Promontory in Washington, serving as a managing director leading the firm’s governance and markets practice.
Here are rumors from DealBook about who will be the next Enforcement Director (ie. Andrew Ceresney). I haven’t heard any rumors about who might serve as the next Corp Fin Director…
The Revolving Door Debate Continues
When SEC Chair White went before the Senate Banking Committee, she was asked “revolving door” questions as noted in this blog. This is a topic that I have blogged about quite a few times as I think the concerns are overblown; here is my latest. This debate will continue as reflected in these recent articles:
When Mary Schapiro announced she was stepping down, I ran a blog poll asking you to guess the next SEC Chair. These were the findings:
– Ann Yerger – 32%
– Huckleberry Finn – 27%
– Robert Khuzami – 12%
– Elisse Walter – 10%
– Nell Minow – 9%
– Sallie Krawcheck – 8%
– Richard Ketchum – 5%
– Mary John Miller – 5%
– William Brodsky – 3%
– Damon Silvers – 1%
Webcast: “D&O Insurance Today”
Tune in tomorrow for the webcast – “D&O Insurance Today” – to hear Tom Bentz of Holland & Knight, Peter Critchell of AIG Property Casualty, Heather Fox of ARC Excess & Surplus and Thomas McCormack of AIG Property Casualty discuss the issues of the day for D&O insurance including practice tips about what coverage you should seek – and how to negotiate with insurers. Here’s the Course Materials that you should print out in advance…
Last week, the GAO issued this report about the value of political intelligence and the cottage industry that it has spawned, providing “inside baseball” about the potential effects of legislative and executive branch actions. The report discusses the GAO’s findings – but makes no recommendations. This Legal Times article notes that Sen. Grassley and Rep. Slaughter will introduce a bill requiring political intelligence disclosure.
Meanwhile, this Washington Post article explores the gridlock cause by different philosophies held by the two new leaders of the House Financial Services Committee, Chair Jeb Hensarling and Ranking Member Maxine Waters.
SEC Files Initial Brief in Conflict Minerals Case
As noted in this blog, the SEC has filed its initial brief in the Chambers lawsuit against the conflict minerals rules.
Corp Fin Updates Financial Reporting Manual (Again)
Last Thursday, Corp Fin indicated that it has updated its Financial Reporting Manual for issues related to age of financial statements in foreign private issuer IPOs, Regulation S-X requirements for foreign private issuers, financial statement requirements for foreign incorporated acquirees or investees that do not qualify as a foreign business, and other changes.
PCAOB Proposes Reorganization of Auditing Standards
A few weeks ago, the PCAOB proposed a reorganized framework for existing auditing standards – categorized by topics. Currently, existing standards consist of “AS Standards” (new or amended standards adopted by the PCAOB) or “AU Sections” (interim auditing standards from the AICPA that the PCAOB adopted in ’03). Comments are due by the end of May.
Peggy Foran and her team at Prudential have filed the company’s proxy statement including another letter to shareholders from the board.
Shareholder Proposals: Goldman Sachs for President!
Over on our “Proxy Season Blog,” I have been blogging about recent shareholder proposal trends & developments (a topic to be covered in our upcoming proxy season post-mortem webcast). Meanwhile, Bloomberg reports that a shareholder proposal asking Goldman Sachs to run for office – rather than fund political contributions – has been permitted to be excluded by Corp Fin. You read that right – the proposal said Goldman itself should explore running for office, not an employee of Goldman. The proposal was ironic, piggybacking on the Citizens United decision in which the Supreme Court found that corporations have similar political rights to individuals. Thanks to Lois Yurow for pointing this out!
Risks of Inspectors of Election Being Sued
All of the players involved in an annual meeting can be sued, including the proxy solicitor (eg. see this SNL article). In this podcast, Carl Hagberg provides his thoughts about the risks of inspectors being sued, including:
– How do these lawsuits arise?
– What can companies do to protect themselves in the event of a lawsuit?
