So the rumor was true. Yesterday, the SEC announced that Enforcement Director Rob Khuzami would be leaving the agency after a 4 year tenure. No word as to his next employer – but I imagine it will be lucrative as Enforcement Directors typically earn the most once they depart the agency (which is why Bill McLucas’ 8-year stint was always a surprise). Rumored replacements are named in this DealBook piece. Rob’s departure means that 3 Division Directors and the General Counsel have all announced departures since Chair Mary Schapiro announced her exit. Wow…
Will the SEC Propose Rules on Corporate Political Spending by April?
Ning Chiu of Davis Polk asks the question that I received from so many of you after Prof. Lucian Bebchuk blogged yesterday that the SEC would propose rules in the political spending area by this April (you may recall that Lucian’s co-sponsored rulemaking petition in this area has drawn over 320,000 comments!). Lucian’s prediction was based on some language in the Office of Management and Budget’s Unified Agenda. As Ning blogged, the OMB Unified Agenda includes a list of potential SEC rulemakings with fairly extensive and ambitious timetables.
I think the key term here is “ambitious.” All kinds of whacky and aspirational stuff makes it into the Reg Flex agenda, which then winds up as part of the OMB Unified Agenda (in this blog, Keith Bishop explains what the OMB Unified Agenda is). So it’s hard to read the tea leaves on this one – although the massive turnover among the SEC’s senior staff and the 2-2 split among political parties in the Commission itself makes this bet one where you should seek long odds when it comes to an April timetable for an actual proposal. Then again, this topic is white hot right now…
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:
– Delaware Holds Insured’s Payment of Defense Costs Doesn’t Trigger Excess Insurer’s Obligations
– Should You Really Sit on Other Boards When You’re a Startup Founder?
– Delaware Court Addresses Caremark, Race to the Courthouse
– Survey: Boards on Auditor Rotation, Proxy Advisory Firms & More
– A Comprehensive Survey of ESG Studies
The SEC’s status continues to take a hit in the “Best Places to Work” rankings, a survey that evaluates job satisfaction among federal agency employees – hovering at #19 this year out of 22 (note the agency was 5th in ’07) and being named the 4th worse place to work among mid-size agencies. Here are the ’12 rankings; here’s a Washington Post article. The SEC ranked near the bottom in many categories including 18th for leadership; 17th in pay and dead last in performance-based rewards and achievement. The best it did was 13th in the work/life balance category…
GAO Report: Dodd-Frank Cost-Benefit Analysis Finds Some Agencies Not Consistently Following OMB Guidance
A few weeks ago, the GAO issued this report on the cost-benefit analysis conducted by those federal agencies charged with implementing Dodd-Frank. The OMB has cost-benefit guidance but the SEC and some of the other independent agencies are not required to follow OMB’s guidance – although they attempt to follow it in principle. As noted in this Compliance Week blog, the GAO’s review of 54 Dodd-Frank related rules found that some regulators did not consistently follow key elements of the OMB guidance and did not evaluate their chosen approach compared to the benefits and costs of alternatives.
Webcasts: “Dissecting the Quarterly Earnings Process”
Recently, there have been a large number of earning release snafus – some highly publicized, some not. And then we have these findings from the recent NIRI 2012 Guidance Survey:
– 88% of respondents provide some form of guidance (either financial, non-financial or both), compared to 90% in 2010 and 93% in 2009
– 76% report providing financial guidance compared to 81% in 2010 and 85% in 2009
– 44% provide non-financial (broad market) guidance in 2012, a decrease from 48% reported in 2010 and 55% reported in 2009
– For those that do not provide guidance, the majority (60%) have never done so
Tune in tomorrow for the webcast – “Dissecting the Quarterly Earnings Process” – to hear Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster, Ron Mueller of Gibson Dunn, Ginny Fogg of Norfolk Southern, Robert Lindsey of Dell and Eileen McCarthy of Jet Blue talk about the latest developments in managing the quarterly earnings process.
Sock it to me baby! That’s something old. Something new is the SEC hiring a former CFTC Staffer for its own senior staff. That happened yesterday as Geoffrey Aronow was tapped to become the SEC’s new General Counsel. Geoffrey comes from Bingham McCutchen but he had served as the CFTC’s head of Enforcement in the late ’90s. As far as I can remember, Geoffrey is the first senior SEC Staffer with a CFTC background. Maybe a merger of the SEC and CFTC is not far behind…
John Polise used to work at the CFTC and is now an Associate Director in OCIE. But he wasn’t originally hired at the SEC as senior staff.
Will the SEC’s New GC Earn More Than the SEC Chair? Not Likely But Other Staffers Do!
For 2013 – beginning the first applicable pay period beginning after March 27th – the SEC Chair, an Executive Schedule Level III position, will be paid $166,100, and the other Commissioners (an Executive Schedule Level IV position) will be paid $156,300 – and the GC job is an Executive Schedule position that makes less than the Chair. But some mid-level Staffers who have been around a long time make more than $200k (eg. long-tenured SK-17 Staffers) …
The SEC has a special pay schedule comparable to the Federal banking regulators – the S-K pay scale; not the GS scale that most federal employees get paid under. Plus Staffers receive pay plus a locality percentage based on their office location.
Webcast: “The Litigation Explosion in Executive Compensation”
There has been so much going on with the wave of “Say-on-Pay Litigation 2.0” (although the lawsuits are more than just say-on-pay related) that I have been tempted to blog about it daily (see this Mark Borges’ blog and this D&O Diary Blog – as well as this list of cases posted by Faruqi & Faruqi and our own list & memos in CompensationStandards.com’s “Executive Compensation Litigation Portal“).
But I have held off blogging because I knew you could tune in tomorrow for the CompensationStandards.com webcast – “The Litigation Explosion in Executive Compensation” – to hear Orrick Herrington’s Rick Gallagher, Simpson Thacher’s Joe McLaughlin and Paul Hastings’ Mark Poerio discuss what is involved in the rash of new executive compensation-related lawsuits, as well as how to handle them. Please print off these “Course Materials” in advance.
Last year, I blogged about how Delaware was getting greedy when it came to escheatment. As noted in this memo, in an effort to stem the backlash from Fortune 500 companies incorporated in Delaware, the state is attempting to save face by adopting a sweeping new Voluntary Disclosure program. This new program potentially differs substantially from the approach of the contingent fee contract auditors that Delaware has long relied on for audit enforcement of its unclaimed property laws. For companies that meet the new Voluntary Disclosure requirements and enroll by June 30th, Delaware will reduce the liability reachback period by 15 years, from 1981 to 1996, and waive all interest and penalties.
However, it remains to be seen whether this new VDA program is in fact a legitimate path for fully and finally resolving outstanding unclaimed property obligations, or instead a mechanism by which Delaware secures information to be used in a future audit – a criticism that has often been levied at Delaware’s precursor VDA process.
IFRS Foundation Staff’s Analysis of SEC Staff Final Report on IFRS
Last month, the IFRS Foundation Staff released analysis of the SEC Staff’s July 2012 final report on incorporating IFRSs into the U.S. financial reporting system. The analysis concludes that “[w]hile the size of the US economy relative to other jurisdictions presents significant challenges in transition that are unique to the US, the experience of other countries suggests that many of the challenges can be overcome with the appropriate political will to make a commitment to the mission of a single set of global standards.” Here is the IASB’s press release.
Transcript: “How the SEC Really Works”
We have posted the transcript for the recent webcast: “How the SEC Really Works.”
Maybe this has been happening for a while but this bulletin from the SEC’s Office of Investor Education & Advocacy caught my eye because it provides year-end investment considerations. It dishes out advice similar to the type you get from your broker – asset allocation, rebalancing and tax considerations (even mentioning the fiscal cliff). Is this the type of thing that a federal agency should be doing? And as long as the SEC is going over the basics of conventional wisdom, shouldn’t it mention to “buy low and sell high”?
CII Petitions SEC for Rule 10b5-1 Guidance
Last week, the Council of Institutional Investors submitted this rulemaking petition to the SEC to tighten rules on 10b5-1 plans (here’s a Cooley news brief that describes the petition). Personally, I think we need to see more evidence of abuse beyond the recent WSJ article that piggybacked on this academic study. Anyways. learn more about what you can do to protect yourself know if the wake of all this interest during our upcoming webcast: “Rule 10b5-1 Plans Under Attack: The Latest Practices.”
Renew Now for ’13: Grace Period Ends Late Today!
As all memberships expired on December 31st, please renew now if you haven’t yet renewed your membership for TheCorporateCounsel.net for ’13. The grace period for this site will end on Monday night – and you will need to renew to access these upcoming programs:
Recently, Broadridge sent this letter to companies explaining a big change going forward over how voting choices will be displayed. Here is an excerpt from the letter:
Broadridge, transfer agents and other service providers in the proxy distribution industry were recently informed of a new interpretive position being taken by the staff of the SEC that will affect the 2013 proxy season. Under that position, Broadridge and other service providers can no longer present shareholders with a “Vote with the Board’s Recommendations” button when soliciting proxies or voting instructions online, over the telephone, or through Broadridge’s unique mobile voting platform, unless they are also presented with a “Vote Against the Board’s Recommendations” button.
Over the course of the last several months, Broadridge has engaged in an extensive dialogue with the Broadridge Independent Steering Committee, as well as with the SEC, to better understand the SEC’s new interpretive position and to explore ways that it could accommodate the SEC’s new position in light of its potentially negative impact on retail voting. Due primarily to technical complications presented by director election proposals and the Dodd-Frank required say on pay frequency vote, the presentation of a “Vote Against the Board’s Recommendations” option was not currently feasible. Accordingly, after careful consideration, we have developed a new structure to implement this new interpretation to ProxyVote.com, our online voting platform, Mobile ProxyVote, our mobile voting platform and to IVR, our telephone voting platform. Under this new structure, ProxyVote, Mobile ProxyVote.com and IVR will be revised as follows:
ProxyVote.com – The “Vote with the Board’s Recommendations” button has been removed and ProxyVote.com has been revised to more closely track the presentation of voting options on proxies and voting instruction forms (VIFs). Specifically, as is currently the case with respect to proxies and voting instruction forms, shareholders are presented with the option of voting on each item individually and are informed of the Board’s voting recommendations with respect to each of the items for which their votes or voting instructions are being solicited. Shareholders are encouraged to vote individually and are informed that if they select the “Submit” button without selecting any items individually, their proxies and voting instructions will be cast in accordance with the recommendations of the board of directors.
Mobile ProxyVote – The “Vote with the Board’s Recommendations” button has been removed and shareholders are presented with the option of voting on each item individually. Shareholders also are informed of the fact that their votes or voting instructions will be cast in accordance with the recommendations of the board of directors as a consequence of their not voting on each item individually. Shareholders are presented with a link to another page where they can see the recommendations of the board on an item-by-item basis and vote in accordance with such recommendations by selecting the “Submit” button without voting on each item individually.
IVR – Telephone voting will be revised to encourage shareholders to vote individually but will allow shareholders to submit votes or voting instructions without voting individually. Shareholders will need to affirmatively elect not to vote individually. If they do so, they are informed that their votes and voting instructions will, as a consequence, be cast in accordance with the recommendations of the Board of Directors.
This change in position is important as it has the potential to swing more votes than nearly any disclosure in the proxy statement would…
Please take a moment to participate in our “Quick Survey on Internal Audit” and “Quick Survey on Shareholder Engagement.”
How Corp Fin’s “Voting Button” Position Could Impact the Upcoming Crowdfunding Rulemaking
Perhaps how the SEC tackles crowdfunding will be a sign of whether its regulatory approach is evolving more broadly when it comes to regulating the online display of disclosures since crowdfunding naturally lends itself to the Web, social media and the Internet in general. An evolution is not evident in its proposed rulemaking under Section 201 of the JOBS Act (here’s a recent NY Times article about a delay in that rulemaking) – but it still could happen over the next few years since crowdfunders are likely to innovate online in ways that traditional investment banks haven’t…
Cybersecurity Act Dies for Second Time
In my opinion, one of the biggest risks to companies – and our country for that matter – is cybersecurity. Disclosure along these lines has improved since the SEC’s interpretive guidance a year ago, but I do think more needs to be done. But I wasn’t surprised that “The Cybersecurity Act of 2012” failed for the second time in the Senate despite calls from the Administration to pass a bill. It will probably take a major catastrophe to pass something. It is unclear whether the President will issue an Executive Order to create a voluntary set of security standards for major infrastructures, etc. Meanwhile, Fortune 500 companies still need to respond to Senate Rockefeller’s letter.
Don’t get me started on my pet peeve of the way Edgar displays form types using lingo that only a securities lawyer could understand. At least the newest form type somewhat reflects what it’s about – this SEC announcement identifies a new EDGAR form type called “IRANNOTICE” for the notices that companies will be filing if they make a disclosure called for by the Iran Threat Reduction and Syria Human Rights Act (which amends Section 13 of the Exchange Act to add new subsection (r)). This separate notice will be separate from the ’34 Act filing which includes the disclosure elicited by this new law – and the notice will be part of a company’s filing stream on Edgar. More on this notice in this Blank Rome blog.
The SEC’s 2012 Fiscal Report: Insights Into the SEC
Been meaning to blog about the SEC’s recently released ’12 fiscal report and then Davis Polk’s Ning Chiu beat me to it with this blog:
The SEC released its 151-page financial report for its fiscal year ended September 2012. The report discusses all of the different areas that the SEC is responsible for, but the governance community is likely most interested in the following in terms of historical and anticipated activities, and some of the more intriguing factual details:
– Enforcement is the headline item noted in the report. The SEC brought 734 enforcement actions, the second highest number filed in a single year (735 were filed in 2011). The report credits innovations, including priority focus on cultivating in-depth expertise in financial markets and products, flatter management structures, better use of technology and enhanced ability for using tips. 21 months is the average amount of time between opening an inquiry and commencing an enforcement action.
– Corporation Finance’s Disclosure Operations focused on several key elements of pre-IPO disclosures, including the use of non-GAAP measures and disclosure of dual-class structures, non-financial metrics used by the company, stock valuations and shareholder rights. It takes an average of 25 days to issue initial comments on a filing.
– The new SEC website increased daily hits by almost 300%, to 39 million a day. 48% of public companies were reviewed in 2012.
– Nearly 4,000 people work at the SEC, and the SEC has adopted a “pay for performance” approach for its non-bargaining unit employees.
2013 initiatives cited include the Commission’s intention to:
– “Propose and adopt” rules to implement the four executive compensation-related provisions of the Dodd-Frank Act, including clawback policy, pay and performance disclosure, pay ratios and employee and director hedging.
– Develop recommendations for an interpretive release addressing issues raised in the “Proxy Plumbing” concept release.
– Prepare a concept release to seek comments on modernizing 13(d) and 13(g) reporting.
Our January Eminders is Posted!
We have posted the January issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
I’ve had the flu so I’ve been doing a bit of reading, including David Halberstam’s excellent book “The Fifties.” Reading about McCarthyism is always so shocking – yet it feels like the same type of unsubstantiated witch hunts could easily take place today. For example, I was surprised to find out – as noted in this Huffington Post piece – that the FBI was tracking the Occupy movement even before it got off the ground. That’s where our tax dollars are going? So I guess it’s not too far-fetched to ask if the FBI is checking on shareholder proponents too? Love to see the dossier on Evelyn Y. Davis…
EU Commission Proposes ’13 Action Plan for Company Law and Corporate Governance
In mid-December, as noted in this memo, the European Commission published an Action Plan with initiatives it intends to undertake in 2013 in the fields of EU company law and corporate governance. These initiatives are primarily inspired by the responses to the Commission’s 2011 Green Paper on the EU corporate governance framework and an on-line consultation on the future of European company law. They are aimed at enhancing transparency, engaging shareholders and simplifying cross-border operations of EU companies. The Commission further plans to codify a number of major EU company law directives.
Subodh Mishra of ISS’s Governance Exchange notes:
The action plan comes in response to a 2010 “green paper” on corporate governance that in turn stemmed from concerns over governance failing evidenced during the recent financial crisis. The plan effectively details initiatives regulators will take to “modernize” corporate governance with a focus on enhancing corporate transparency and empowering investors to be better stewards.
Key plans to implement E.U.-level changes include:
– A proposal in 2013 to “strengthen” corporate disclosure requirements with regard to board diversity policies and risk management through amendment of the E.U. directive on accounting;
– Improving the visibility of shareholdings in listed companies whereby beneficial owners could be identified would be addressed in 2013 through securities legislation;
– Improving the quality of corporate governance reports and in particular the quality of explanations which should be provided by listed companies that depart from the corporate governance code provisions could be addressed through a non-legislative initiative in 2013; and
– Disclosure of voting and engagement policies as well as voting records by institutional investors, improving transparency on remuneration policies and individual remuneration of directors, granting shareholders the right to vote on the remuneration policy, and improving shareholder control over related-party transactions could be addressed in 2013 through the shareholder rights’ directive.
Reaction to proposed initiates has largely been muted as interested parties wait on further details. The proposals, moreover, are largely in line with best practice guidance in the U.K. while elements of the action plan – such as mandatory say-on-pay voting – are prevalent in other European capital markets.
Mailed: November-December Issue of “The Corporate Executive”
We have mailed the November-December Issue of The Corporate Executive and it includes pieces on:
– Defining “Pay” in “Pay-for-Performance:” The Rise of Alternative Pay Measures for 2013
– Update: Proposed Regs Under Section 162(m)
– Rev. Rul. Clarifies Treatment of Dividends Under Section 162(m)
– Deferred Tax Accounting for Companies in the Red
Act Now: Get this issue for free when you try a 2013 No-Risk Trial today.
Comic book aficionados love the “what if” scenarios. For example, what if Conan battled Thor? Anyways, as noted in this Financial Times article, ValueAct Capital, an activist hedge fund, disclosed last month a 5% stake in MSCI, which owns ISS. What do you think the potential consequences could be if they increased their holdings to a controlling position? Is this different than Glass Lewis being owned by the Ontario Teachers’ Pension Plan?
Another Day, Another Judge Challenges a SEC Enforcement Settlement
The courts continue to pose one of the biggest threats to the SEC’s ability to do its job. As noted in this DealBook piece, Judge Richard Leon of the Federal District Court in DC has held up a FCPA settlement for nearly two years because of his demands for greater disclosure.
Escheatment: SEC Approves New Rules Regarding Lost Holders of Securities
As noted in this “Dodd-Frank Blog” by Ethan Mark of Leonard Street, the SEC has adopted rules applying the same type of escheatment procedures to brokers as it does to transfer agents.
Last Friday, the SEC shed Paul Beswick’s “Acting” status as he was tapped to become Chief Accountant. Paul was named Acting Chief Accountant when Jim Kroeker left the position in the summer.
