Who would have thunk that the process by which companies Edgarize and file their documents with the SEC would make headline news? But here’s what the mass media ran on Friday:
Some of these articles are better than others – and there were others written that were not worth linking to. Personally, I don’t think bringing the process in-house will necessarily reduce the risk of human error. In that case, you are taking the process away from someone who files documents with the SEC all day long on a daily basis – and giving it to someone who might be doing it just a few times per quarter. That is safer? I think the upshot of this incident is that it’s amazing this type of error doesn’t happen more often. Note it happens several times per year, just never this highly publicized.
Financial printers haven’t gotten this much press since the release of the “The Financial Printer Diaries” (a new installment coming soon).
Can a Financial Printer Be Liable for Filing Your Document Early?
It is not clear how much liability R. R. Donnelley might bear for any losses Google incurred because of the early release of the report. Some have suggested that it will not be much because the earnings reported were accurate. But James Plumb, a longtime filing agent in Massachusetts, said he knew of at least one case in which an agent had to pay for its error, though it was two decades ago. “Could you get sued? Sure,” he said. “The way I look at it, yes, if I make a mistake, I’m responsible.”
My personal take is that your filing agent isn’t liable if it accidentally jumps the gun and files your document before you wished. Particularly if the agent was smart enough to say so in it’s contract when it was hired…
Transcript: “Evolution of M&A Executive Pay Arrangements”
We have posted the transcript for the recent DealLawyers.com webcast: “Evolution of M&A Executive Pay Arrangements.”
Not surprising given the lawsuit filed by the Chamber of Commerce and others a few weeks ago against the SEC’s resource extraction rules, a lawsuit was filed on Friday by the Chamber and the National Association of Manufacturers over the conflict minerals rules in the US Court of Appeals for the DC Circuit. As noted in this WSJ blog (and Bloomberg article), the petition for review is bare-boned and poses no arguments as its basis for challenge. We have posted the petition for review in our “Conflict Minerals” Practice Area.
In this Compliance Week blog, the next steps are listed as “the first batch of documents, including procedural motions, if any, and a “statement of issues to be raised” are due by Nov. 21, 2012. Dispositive Motions, if any, are to be filed by Dec. 6.” Here is the court’s Scheduling Order.
Is SEC Chair Schapiro a “Short-Timer”?
This Bloomberg article entitled “Schapiro’s SEC Reign Nears End With Rescue Mission Unfinished” provides a critique of the Chair’s tenure and notes that she is likely to depart after next month’s election. In this Reuters article, the Chair denies she is planning to leave before her term ends in mid-2014.
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:
– Canadian Court Rules on Voting By Phone Case
– Open Investor Letter to ALEC and Heartland Member Companies
– Human Rights Activism: Big Win at a Mutual Fund
– Canada Considers Regulation of Proxy Advisors
– Recent Proxy Access Proposals by Chevedden and Steiner Survive SEC Challenge
Please be aware that fraudulent solicitation letters are being sent to California businesses stating that such businesses are required to provide completed documentation – which looks very similar to state-required statements of information/annual reports – and submit an annual fee to a third party processor rather than directly to the Secretary of State office. I have not yet heard whether it has been happening in other states, but I wouldn’t be surprised if that were the case.
Board Portal Limits
During last week’s “Secrets of the Corporate Secretary Department” webcast, there was some interesting discussion regarding board portals – including their limits. In this podcast, Steve Shapiro of Pircher, Nichols & Meeks also describes the advantages – and limits – of board portals, including:
– What are the potential limitations of board portals that you see?
– Is there any way to compensate for those limitations?
– What advice would you offer for in-house governance professionals whose company has – or plans to use – a board portal?
Nasdaq Proposes Changes to Disclosure of Non-Compliance with Listing Standards
Recently, Nasdaq proposed to modify certain disclosure requirements surrounding a company’s non-compliance with the listing rules. Here’s a Blank Rome blog about its implications called “Has Your Company Received a Delisting Notice? Announce It Properly or Nasdaq May Announce It For You.”
I have posted the transcript for the popular webcast on the SEC’s conflict mineral rules. I believe Corp Fin continues to collect questions ahead of providing some interpretive guidance in this area. Here is a postscript note I added to the transcript about a common question on Form S-3 ineligibility:
Note that the question of whether a late Form SD will impact adversely a registrant’s eligibility to file a new Form S-3 or update an effective Form S-3 for purposes of Section 10(a)(3) remains unresolved.
The Form S-3 eligibility requirements provide that a registrant must be both current and timely. Specifically, Form S-3 is available only to a registrant that (i) has filed all material required to be filed pursuant to Exchange Act Sections 13, 14 or 15(d) for a period of at least twelve calendar months immediately before the filing of the Form S-3; and (ii) timely filed all reports required to be filed during the twelve calendar months and any portion of a month immediately preceding the filing of the Form S-3. For purposes of Form S-3, the SEC staff historically has interpreted these “reports” and “materials” to include only Sections 13(a) and 15(d) reports and Sections 14(a) and 14(c) materials. See Securities Act Forms C&DI 115.04.
Because the new Form SD is prescribed by Exchange Act Sections 13(p) and 13(r) and the rules promulgated thereunder, it is arguable that a late Form SD should not impair Form S-3 eligibility (and, thus, also not make the registrant an “ineligible issuer” under Securities Act Rule 405 or cause the public information requirement under Securities Act Rule 144(c) not to be satisfied). The SEC Staff has been asked for its views on this question, but to date the Staff has not weighed in with definitive guidance. Hopefully this topic will be in addressed in any Staff guidance issued on the new Form SD filing rules.
Note this Cooley news brief about the pressure these rules are placing on smelters and refiners.
JOBS Act: FINRA Adopts Changes Research Analyst Rules
Last week, the SEC published a FINRA rulemaking that changes Rule 2711 and incorporates NYSE Rule 472 to conform to the JOBS Act so that EGCs can raise capital with reduced restrictions related to communication between EGCs and research analysts at investment banks and eliminate the research quiet period after an EGC’s IPO or secondary offering.
As noted in this White & Case memo, the rule amendments are effective immediately with retroactive effect to April 5, 2012 (with an exception to retroactive implementation for the termination of the restriction on publishing research for 10 days after a secondary offering by an EGC and on publishing research during the 15 days following the termination of a lock-up agreement related to an EGC; this is not retroactive since it’s not JOBS Act-related). We have posted memos in our “Analyst Research” Practice Area – and here is a MarketWatch article noting how these rules may bring back dot.com conflicts…
The PCAOB’s Roundtable on Auditor Independence & Rotation
Yesterday, the PCAOB posted statements from the speakers ahead of its auditor independence and rotation roundtable that was held yesterday.
Rightfully so, all of the attention over the Rule 10C-1 rulemaking has been on the NYSE Euronext and Nasdaq National Market proposals. In all of the excitement, I forgot to note the five other proposals from these exchanges, several of which were released just last week (these are posted in CompensationStandards.com’s “Compensation Committee” Practice Area):
SEC’s Study: Ability of SEC to Enforce ‘ 34 Act Registration Thresholds
As required under Section 504 of the JOBS Act, the SEC has sent its Special Study to Congress on its ability to enforce Exchange Act Rule 12g5-1 and Subsection (b)(3). Check out Prof. Larry Hamermesh’s reaction to the study, particularly to footnote 70.
We just mailed the Lynn, Borges & Romanek’s “2013 Executive Compensation Disclosure Treatise & Reporting Guide” to those that ordered a hard copy. The thing is huge at 1200-plus pages – on the verge on needing to be two volumes.
How to Order a Hard-Copy: Remember that a hard copy of the 2013 Treatise is not part of a CompensationStandards.com membership so it must be purchased separately – however, CompensationStandards.com members can obtain a 40% discount by trying a no-risk trial now.
And note there an additional 40% off when you purchase this Treatise in combination with the just finished Romanek’s “Proxy Season Disclosure Treatise & Reporting Guide.”
Yesterday, ISS posted its draft 2013 Policy Updates, with a comment deadline of Halloween. That’s just two weeks – so no time to procrastinate. Mike Melbinger has posted a chart of the significant proposed changes in his blog. And Ning Chiu has summarized them in her blog – and here is a Gibson Dunn memo…
By the way, ISS now has FAQs about how its research department works…
Corp Fin Issues a New “Shareholder Proposals” Staff Legal Bulletin
As it often has in recent years about this time of the year, Corp Fin issued a Staff Legal Bulletin relating to shareholder proposals yesterday. Some new Rule 14a-8 guidance just before companies start preparing no-action requests.This year’s installment – Staff Legal Bulletin No. 14G – covers these topics: ownership verification; informing proponents of failure to prove ownership and use of website references in proposals and supporting statements. Here are memos from Gibson Dunn and O’Melveny & Myers on the guidance.
Transcript: “M&A Deal Protections: The Latest Developments and Techniques”
We have posted the transcript from our recent DealLawyers.com webcast: “M&A Deal Protections: The Latest Developments and Techniques.”
Tune in tomorrow for the webcast – “Secrets of the Corporate Secretary Department” – to hear the current Chair of the Society of Corporate Secretaries – and three former Chairs – as they debunk myths on how to run the corporate secretary department as well as provide oodles of practice pointers. The panel includes Lydia Beebe of Chevron; Ken Wagner of Peabody Energy; Carol Ward of Mondelez International (formerly Kraft Foods); and Susan Wolf, formerly of Schering-Plough.
Among the topics of this program are:
– How to leverage outside resources & technology
– Best ways to feed and care for the board
– How to best manage a budget
– Ways to streamline the board materials process
– Ways to optimize director orientation & education
– How best to involve directors in shareholder engagement
– Being a governance subject matter expert and resource
– Logistics, contingency plans and last minute changes for board meetings
Nuggets in Responses to Corp Fin Comment Letters: Iran & Syria Travel Plans
Recently, Michelle Leder of footnoted.com (who recently bought back her site from Morningstar) tweeted about the interesting stats on travel to Iran and Syria booked via Expedia in this response to a Corp Fin comment letter. The comments came from Corp Fin’s Office of Global Security Risk. You never know what you’ll find in responses to comment letters…
Catch-Up Now: “Say-on-Pay Workshop Conference”
The video archive of last weeks’ pair of Conferences – the “7th Annual Proxy Disclosure Conference” & “Say-on-Pay Workshop: 9th Annual Executive Compensation Conference” – are posted. Hopefully, you’ve talked to some of the many that attended this event and heard how much practical guidance was imparted (people come from all over the world; I sat at lunch one day with someone that came all the way from Israel). Our panels really delivered this year – and it’s not too late to watch them as you can still register and watch the panels now or when you are gearing up to draft your proxy materials.
Our Week of Conferences: Sights
It was New Orleans, so there were numerous thrills outside the Conference, starting with a Sunday NFL night game next door in the beautifully lit Super Dome – those Saints fans sure know how to get dressed up. The next day, the city temporarily lost it’s drinking water:
The Conference wouldn’t feel right without the annual race of pigs from AON Hewitt/Radford (see this video from a few years back):
As a button maker myself, I was excited to see these magnets from Kenexa that had hilarious statements on them:
Spanking brand new. Posted in our “D&O Questionnaires” Practice Area, this comprehensive “D&O Questionnaire Handbook” provides a heap of practical guidance about how to navigate this tricky task. This one is a real gem – 76 pages of practical guidance…
In the wake of the Facebook debacle, the chorus to challenge multi-class voting structures – seen as a poor governance practice – continues as CII has announced a campaign to urge the NYSE and Nasdaq to make new companies that have two or more classes of common stock with unequal voting rights ineligible for listing. This press release contains links to the letters sent to the NYSE and Nasdaq by CII…
Webcast: “Evolution of M&A Executive Pay Arrangements”
Tune in tomorrow for the DealLawyers.com webcast – “Evolution of M&A Executive Pay Arrangements” – to hear Sullivan & Cromwell’s Matt Friestedt, Wachtell Lipton’s Jeremy Goldstein and Simpson Thacher’s Andrea Wahlquist cover the latest in executive compensation arrangements in deals.
As I return from our week of executive pay conferences, Scott Kimpel of Hunton & Williams gives us this news:
A collection of industry groups has sued the SEC in federal district court to block implementation of the resource extraction disclosure rules promulgated in late August under Section 1504 of Dodd-Frank. The plaintiff trade groups raise a number of claims, including a faulty cost-benefit analysis and deficiencies under the Administrative Procedures Act, the Securities Exchange Act and the 1st Amendment. The act of filing suit does not immediately stay the rules. In recent challenges to SEC rules, the Commission has generally stayed the controversial rules on a voluntary basis after negotiation with plaintiffs’ counsel. Should the Commission refuse to do so here, the plaintiffs could then petition the court for that relief.
The action concerning Section 1504 begs the question as to what may happen to its companion statute, Section 1502, concerning conflict minerals. The two rulemakings employed similar arguments concerning Congressional intent and the scope of Congress’s mandate; a putative plaintiff may choose to raise some of the criticisms leveled in the 1504 complaint against the Section 1502 release as well. It remains to be seen if any groups will in fact come forward with a challenge.
To be clear, the apparent objective of this challenge is not necessarily to make the prospect of rulemaking go away forever. Unless the plaintiffs are successful in setting aside the entire statute as violative of the Constitution – or absent an amendment of Dodd-Frank – the Commission will have to go back to the drawing board if the rules are eventually struck down (which is far from certain) after all appeals are exhausted. This suit presents a different scenario than the SEC’s rules on mutual fund governance, equity-indexed annuities and proxy access–each of which was struck down, but none of which was compelled by statute, which gave the Commission discretion not to re-propose.
Starting Monday: Draft Registration Statements Required to Be Submitted Using EDGAR
Yesterday, Corp Fin announced that draft registration statements are required to be filed via Edgar starting this Monday, October 15th. This applies to both emerging growth companies under the JOBS Act and foreign private issuers. Here are related blogs leading up to this development…
President’s “Iran Sanctions” Executive Order Impact Foreign Subsidiaries and Require SEC Disclosure
On Tuesday, President Obama issued an Executive Order implementing certain sanctions set forth in the “Iran Threat Reduction and Syria Human Rights Act of 2012”, which was signed into law in August. The Act expands the reach of the U.S. sanctions law against Iran by expanding the types of activities subject to sanctions and extending the prohibitions to foreign entities owned or controlled by U.S. persons. The Act also creates a new obligation for SEC reporting companies to disclose in their filings whether they or their affiliates knowingly engaged in Iran-related activities as noted in these memos posted in our “National Security” Practice Area.
As noted in this article, this study made the rounds a few months back and caused a stir. Here is the abstract from the study:
We provide new insights into earnings quality from a survey of 169 CFOs of public companies and in-depth interviews of 12 CFOs and two standard setters. Our key findings include (i) high-quality earnings are sustainable and are backed by actual cash flows; they also reflect consistent reporting choices over time and avoid long-term estimates; (ii) about 50% of earnings quality is driven by innate factors; (iii) about 20% of firms manage earnings to misrepresent economic performance, and for such firms 10% of EPS is typically managed; (iv) CFOs believe that earnings manipulation is hard to unravel from the outside but suggest a number of red flags to identify managed earnings; and (v) CFOs disagree with the direction the FASB is headed on a number of issues including the sheer number of promulgated rules, the top-down approach to rule making, the curtailed reporting discretion, the de-emphasis of the matching principle, and the over-emphasis on fair value accounting.
Talk About Overboarded!?!
I don’t know much about hedge funds and their boards, but this NY Times article was stunning as it revealed that quite a few directors serve on as many as 25 boards – and one dude sits on 262 hedge fund boards, per this chart.
Law Firms: Your Deal Data is Being Hacked!
This Bloomberg article entitled “China-Based Hackers Target Law Firms to Get Secret Deal Data” scared the daylights out of me. Check it out!
