According to this Washington Post article yesterday, the SEC’s Commissioners have disagreed with its Enforcement Staff to settle the CSK Auto clawback case because the penalty amount was too low. It’s relatively rare that the Commission disagrees with its Enforcement Staff – but certainly not unheard of – but it is rare that a closed Commission meeting outcome like this is made public.
The SEC’s Enforcement Process: How Does a Commissioner Dissent?
There are various steps in the SEC’s Enforcement process that requires blessing by the SEC’s Commissioners. That approval either takes place behind closed doors at a closed Commission meeting or ad seriatim. Last week, the Washington Post ran this article about Commissioner Aguilar dissenting in a settlement – the article notes that only two dissents in an enforcement action have been posted since ’04.
A public dissent by a Commissioner certainly is unusual, but it’s not unprecedented as noted in the article. Because this settlement was in the form of an administrative proceeding, there was an opportunity for Commissioner Aguilar to have a public airing. Otherwise (i.e., with a federal court action), there’s no public outlet to note a Commissioner’s dissent – it is merely recorded by the SEC’s Secretary in the minutes of the closed Commission meeting. But sometimes the press does get leaked information somehow – you may recall the news reports last year that the 2 Republican Commissioners dissented from the SEC-Goldman Sachs settlement involving the ABACUS CDO…
Next Tuesday: SEC to Adopt Institutional Investment Manager Vote Reporting Rules and More
As noted in ISS’s Blog, the SEC will hold an open Commission meeting on Tuesday to adopt rules requiring institutional investment managers to disclose their voting records; rules replacing credit rating references with alternative criteria and rules establishing a large trader reporting system. The SEC will also consider re-proposing rules relating to shelf-eligibility for asset-backed securities.
In this podcast, Dave Lynn and Marty Dunn engage in a lively discussion of the latest developments in securities laws, corporate governance, and pop culture. Topics include:
– Dealing with securities analysts
– The latest SEC trends in SEC comments on Exchange Act filings
– Favorite beach activities
The GAO’s Report on the SEC’s Revolving Door
Last week, the GAO issued this report about the SEC’s revolving door entitled “Existing Post-Employment Controls Could Be Further Strengthened.” This report was mandated by Congress in Section 968 of Dodd-Frank. As I’ve blogged recently, revolving doors at federal agencies have been in the news, particularly since it’s a pet peeve of Senator Grassley.
A couple of interesting facts from the report: 2127 staffers left the SEC between 2006-2010 – and there are 3729 staffers right now – so that’s a startling percentage of departures (but maybe that is normal for most organizations – I have no idea since it’s not my area of expertise). Of the 2127 departing staffers though, only 37% were attorneys or accountants (or other types of examiners); the rest were non-examination employees (egs. IT personnel, secretaries) – that was surprising to me too because I assumed most of the turnover was due to staffers leaving for more lucrative jobs in law and accounting firms. During this period, the average tenure of a staffer before departure increased to 13.5 from 8.3 years, mainly due to the recession.
Executive Compensation Disclosure During the ’11 Proxy Season: A Large Step Forward
On CompensationStandards.com, we have posted the Summer 2011 issue of our Compensation Standards newsletter that contains practical guidance (and numerous specific examples) in the aftermath of a hectic proxy season. The Summer issue covers:
– The Evolving Role of the Executive Summary
– Coordinating the Executive Summary and the Say-on-Pay Supporting Statement
– The Newest Disclosure Tool – The Proxy Statement Summary
– The Second Round of Compensation-Related Risk Disclosure
– A Preview of the Coming Consultant Disclosure
– What to Expect in 2012
Act Now: This issue is available to all those with a CompensationStandards.com membership – which is “half-price for the rest of the year” with this no-risk trial. Members should print it out now so they can read Mark Borges’ guidance today…
As noted in Jim Hamilton’s blog, President Obama issued an Executive Order two weeks ago asking the SEC, CFTC and other independent agencies to follow the cost-saving, burden-reducing principles when proposing and adopting regulations as outlined in an earlier Executive Order issued in January that was addressed to other federal agencies (at that time, other agencies were encouraged to follow this order – but none of the independent agencies have submitted an action plan, so hence this new non-binding Order to push them). This new Executive Order also asks the independent agencies to analyze existing regulations to identify any that are outdated or too burdensome. The agencies have 120 days to report their findings to the Office of Management and Budget.
The SEC & the “Plain Writing Act of 2010”
A few days ago, I had just sat down to draft a blog about the Plain Writing Act of 2010 when Dominic Jones thankfully beat me to the punch with this “Coming soon: SEC advice you can (maybe) understand.” I say “thankfully” because I had never heard of the Act nor have I seen anyone else write about it (other than this piece by Lois Yurow) even though implementation is due in a few months, i.e. October 13th. Here’s the SEC’s report on implementing the Act – and here’s the SEC’s Plain Writing Initiative.
Dominic writes that investors are unlikely to benefit from simpler prose in disclosure documents under the Act and I agree that is important. But I would even take that a step further and simplify how documents on Edgar are presented, long a pet peeve of mine. How can ordinary investors understand what a “DEFA14A” means? Or even a “Form 10-K” for that matter? The SEC’s forms and schedules should have labels that more clearly identify what they are…
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:
– Is Going Public Going Out of Style?
– Corporate Political Spending Post-Citizens United
– A 12-Step Program to Truly Good Corporate Governance
– Study: “Bridging Board Gaps”
– Fifth Call Objectives, and Incremental Alternatives
As noted in this NY Times’ article on Saturday, the House Appropriations Committee cut the SEC’s fiscal 2012 budget request by $222.5 million, to $1.19 billion (the same as this year’s), even though the SEC’s responsibilities were vastly expanded by Dodd-Frank. As I’ve blogged about numerous times before, the SEC needs to be self-funded because Congress is all too willing to play politics with this independent agency.
As noted in the article, cutting the SEC’s budget doesn’t help Congress in its battle to cut the federal deficit. In fact, this move hurts that effort because the SEC is funded out of fees it collects – and Section 991 of Dodd-Frank limits the fees that the SEC can collect by now tying the amount it is able to collect to its budget. Congress really shot itself in the foot when it included that provision in Dodd-Frank, but Wall Street and the corporate world have good lobbyists. Here’s an excerpt from the NYT article:
By way of comparison, in 2009 Citigroup and JPMorgan Chase, two institutions the S.E.C. regulates, spent $4.6 billion each — four times the SEC’s entire annual budget – on information technology alone. Under the House’s proposed budget, the S.E.C.’s resources for technology would be cut by $10 million and a $50 million reserve fund earmarked for technology would be eliminated.
The Re-Introduction of the Shareholder Protection Act
Last week, several prominent members of the U.S. Senate and House of Representatives re-introduced the Shareholder Protection Act for debate. As noted in the Harvard Corporate Governance Blog, the bill – which originally passed the House last year – would establish corporate governance rules for deciding when corporate resources may be spent on politics. Although it appears that the bill is unlikely to be adopted during this Congress, its reintroduction might mean that it will continue to surface until a time comes when it has substantial support.
Meanwhile, as part of the efforts to reduce the federal deficit, Sen. Levin and Sen. Brown have introduced legislation – the “Ending Excessive Corporate Deductions for Stock Options Act” (S. 1375) – to end a corporate tax break allowing corporations to deduct stock option expenses on their tax returns in amounts greater than the expenses shown on their books
Proxy Season Results of Mobile Phone Voting
In this podcast, Joe Vicari describes how Broadridge facilitated voting by mobile devices during the proxy season (following up on this podcast), including:
– How many shareholders voted by mobile phone?
– Was this more than expected?
– Are you aware of any companies that made special efforts to notify their shareholders that they could vote by mobile phone?
– What do you recommend that companies do next year to boost their mobile phone voting rates?
Last month, Premiere Global Services became the 40th company to file a Form 8-K reflecting a failure to get majority support for it’s say-on-pay agenda item (47%). A list of the Form 8-Ks of these companies is in CompensationStandards.com’s “Say-on-Pay” Practice Area (bearing in mind that totals for three of these companies are somewhat in dispute). 40 failures is less than 2% of all companies that had say-on-pay on their ballot this season.
So what does this all mean? On the one hand, the relatively low percentage of companies failing has led commentators to label say-on-pay as insignificant as a force for needed change, such as this blog by Bob Monks and this one from Paul Hodgson. On the other hand, many corporate advisors are holding up this season’s results as evidence that more change in pay practices is not necessary.
My take is that it’s too early to tell what it means (including what level of “against” votes is a red flag that some pay practices are problematic – clearly, there are levels below a majority that should give boards pause). I believe this year was a test year as many institutional investors weren’t prepared for the massive undertaking that a true look at pay packages for their portfolio companies entails. In addition, we didn’t see much in the way of grass roots movements – surprising in this social media age. The potential for potent and inexpensive campaigning online against a company’s say-on-pay vote will continue to loom. Five years from now – particularly when say-on-pay then applies to the numerous small companies that have a temporary bye right now – we’ll have a better sense of what say-on-pay really means.
To be honest, 40 failures is many more than I expected. That should be clear from the poll I posted on this blog back in January asking y’all to guess how many failures there would be. In hindsight, the choices I offered in the poll revealed how low I thought the numbers would be. I offered choices of 0 failures (which garnered 1% of votes); 1-2 failures (1%); 3-4 failures (3%); 5-10 failures (18%); and More than 10 failures (75%). I should have broadened the choices – and I will next year.
I’m still mystified that most directors appeared to be unsupportive of say-of-pay before Dodd-Frank mandated it. So many of them are now resting easy, having shareholders bless their pay packages with flying colors. As I blogged a few years back, these boards now have a likely shield from liability and from reputational attack. I could always understand why board advisors didn’t like say-on-pay – it’s a lot more work with no additional resources during an already busy proxy season – but I never understood why directors would be against it. But maybe they saw those say-on-pay lawsuits coming…
CEOs: When Too Many Luxury Homes Becomes a Hassle
If you follow me on Twitter, you know I fell off my chair reading this recent article in “Chief Executive” magazine that essentially provides guidance for CEOs buying that 3rd or 4th luxury home. The CEO featured in the article is the head of a private family-owned company but it’s still quite a brazen piece of journalism.
For those that argue that all the corporate jet trips to these far-flung homes are somehow for business purposes, there is no hint of that in the piece. In fact, the CEO in the article complains that his second biggest problem is that he works too much to get to these extra residences (although the article notes he gets to Martha’s Vineyard every weekend in the summer). His biggest problem? “He owns too many homes, likening his passion for collecting top-tier getaways to the way other people collect paintings.”
The Latest Compensation Disclosures: A Proxy Season Post-Mortem
We have posted the transcript for our recent CompensationStandards.com webcast: “The Latest Compensation Disclosures: A Proxy Season Post-Mortem.”
A few months ago, I blogged a “Farewell to Bowne” and posted a poll about “your favorite financial printer moment.” In response to the poll, 69% responded that free food was their favorite (no surprise!); 41% said tedious arguments over commas and periods; 19% said brushing up on proofing; 5% said good facetime with partners and 10% said sleeping in the bathroom.
In addition, I received many emails with specific memories, some of which are repeated below – please keep them coming and I will only blog them if you give me permission:
– My favorite memory is an experience done a hundred times melded into one memory: the clearing of the blue line, just before printing the final prospectus (you know, when nobody is left at the printer other than a couple of lawyers and accountants with sometimes a guest appearance by the junior analyst from the investment bank to make sure their name is spelled correctly on the cover of the 424). Ah, peace.
– My favorite story involves the hubris of a first-year associate from a large, very prestigious firm that shall go unnamed, in the early-ish days of constant cell phone use. This was about a decade ago, in mid-2000 or so, and it was dinnertime after the deal ended and I was having a brief meal before heading home, and he was having a few beers with a colleague before heading out, and we overheard him calling the front desk on his cellphone from the lunchroom and attempting to order a car, and totally confounding the front desk since he wasn’t walking a few doors down to ask for the car or calling on the printer’s phone, but using his cell phone. And he was a little tipsy. In the end, it devolved down to a “do you know who I am” moment on his part, after which he stated very loudly “I am a ____ associate”, as if it was time for whoever was on the other line at the front desk to bow down to him and call that car – fast. That was an iconic moment, a classic “I don’t want to be that entitled person” story.
– I spent many long hours at Bowne of Dallas, which had nice cushy chairs, a huge projection TV and free Pac Man and Ms Pac Man game tables (now that gives you the timeframe). Good BBQ for meals, too.
– I sure have a lot of good memories of lawyers, accountants and bankers working nights shoulder-to-shoulder at the printers in the ’70’s and 80’s. In Cleveland, our printer was originally known as The Judson Brooks Company, which was later acquired by Bowne. We all knew some of the owners and most of the staff like family. They had a couple of cots separated by curtains in the back where you could catch a few hours’ shut-eye before leaving for the dawn flight to DC with the SEC filing package. We did the red-lining on the plane. Many the nights I called my wife to let her know I would be working late and spending the night at “The Judson Hilton.”
– Going to the printer was one on the best things about being a securities lawyer. Unlike everyone else in the world, financial printers loved lawyers and would do most anything to make them happy. I love you.
More on “An Emerging Hot Topic? Whether to Disclose Voting Result Percentages”
Last year, I blogged about grumblings that the SEC’s adoption of the requirement of a Form 8-K to be filed to disclose voting results didn’t go far enough because it only requires the disclosure of somewhat meaningless raw voting data and not the percentages themselves. In that blog, I weighed in that perhaps the SEC’s omission was wise because there was so much confusion about how to count percentages.
Since then I have blogged about the troubles some companies (and their advisors) have had with figuring out how to determine whether an agenda item has passed. This obviously is not good and it’s only a matter of time before some of these close votes wind up in court. Care must be taken to complying with the complexity of laws involved. Now that the votes are more important than ever, it’s probably time for the SEC to tweak the Item 5.07 requirements and require a percentage, as this should help force companies into being more careful with their count. It is doable – see how IBM has done just that again this year in their Form 8-K…
Deals: The Latest Delaware Developments
We have posted the transcript for the recent DealLawyers.com webcast: “Deals: The Latest Delaware Developments.”
We are excited to announce that Marty Dunn has just come aboard as Editor of our print newsletter, The Corporate Counsel. Marty joins our esteemed team of Editors: David Lynn, Alan Dye and Mike Gettelman. As many of you know, Marty spent 20 years at the SEC, most recently as Deputy Director and former Acting Director of the Division of Corporation Finance; Marty is now a partner at O’Melveny & Myers. We are looking forward to Marty bringing a new dimension to each issue of The Corporate Counsel with his unique insider’s perspective and his ability to apply practical guidance to situations that you grapple with every day.
Marty worked on the May-June issue of The Corporate Counsel that was just mailed. This issue analyzes these topics:
– Reaching Out for Say-on-Pay Approval: Additional Soliciting Material this Proxy Season
– Reporting Shareholder Meeting Voting Results – Form 10-Q/K Reporting
– Phrasing Management’s Say-on-Pay Proposal on the Proxy Card
– Shareholder’s Withdrawal of 14a-8 Proposal After Proxy Statement is Mailed – Impacts?
– Beware of HSR Filing Requirements That Can Apply to Equity Compensation of Executives
– More on Choice of Forum – Shareholder Approval
– Former Director Disclosure in the 10-K?
– Eliminating a Form 11-K Obligation
– Legislative Action on Exchange Act Registration Thresholds
– More Legislative Action – Regulation A+?
Act Now: Get the “Rest of 2011 for Free” when you try a ’12 No-Risk Trial now.
ISS’s 2011-2012 Policy Survey
Perhaps a little earlier than in prior years, ISS recently released its 2011-2012 Policy Survey. Responses and comments are due by August 3rd. Although it’s only a survey, the questions, responses and comments serve as the basis for ISS’s policy formulation process. As noted by an anonymous inhouse member yesterday on our “Proxy Season Blog, ” some companies are looking at this survey closely – and it’s likely that more will be submitting comments compared to prior years due to say-on-pay and a greater interest in providing input these days…
Webcast: “Key Disclosure Policies: The Dangers of Standing Pat”
Tune in tomorrow for the webcast – “Key Disclosure Policies: The Dangers of Standing Pat” – to hear Stacey Gear of Primerica, Isobel Jones of Del Monte Foods, Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster, Jane Whitt Sellers of McGuireWoods and Bill Tolbert of Jenner & Block provide practical guidance about revisiting your corporate disclosure policies as well as your disclosure training program for officers, employees and directors.
Last week, the 7th company that failed to garner majority support for their say-on-pay was sued – Cincinnati Bell in a federal district court in Ohio (here’s the complaint). For reasons I’m not sure of myself, I count this as the 8th say-on-pay related lawsuit even though this one didn’t involved a failed SOP. We continue to post pleadings from these cases in CompensationStandards.com’s “Say-on-Pay” Practice Area.
SEC Filings: What is the Difference Between a “Schedule” and a “Form”?
As noted in this article, Warren Buffett recently filed his latest Form 13F to disclose his latest portfolio holdings and the Form notes that some information has been omitted since its confidential. This 1998 form letter from the SEC gives some indication of the standards required for 13F filers to receive confidential treatment.
I know these Form 13F filings are closely followed by some investors, particularly those filed by Warren’s Berkshire Hathaway. But for me, it raised this esoteric securities law question in my mind: Why does the SEC call some of its forms a “Form” and others a “Schedule”?
It seems odd that investment managers are required to file a “Form 13-F” and not a “Schedule 13-F” – particularly since Schedules 13D and13G are required to be filed by shareholders once they cross a certain percentage of ownership in a company. All of these filings are made by shareholders to report holdings – why don’t their filings have the same “label”?
I don’t know the answer. At first, I thought that the difference would be based on the language used in the statute that creates the obligation. That could be the distinction, but I’m not sure. Looking at Section 13(f)(1) of the ’34 Act, the SEC has been delegated to create a Form 13-F filing obligation under this language: “…shall file reports with the Commission in such form…” In comparison, Section 13(d)(1) and Section 13(g)(1) creates the filing obligation of a “statement.”
So although there is no mention of “Form” or “Schedule” in the statute, a distinction may exist because the statute requires that a “report” be filed under 13(f) – and that a “statement” be filed under 13(d) and (g). If someone out there knows if this is a distinction that matters, please fill me in. I struck out with my research (even Louie Loss) and asking old-time’ish colleagues. Maybe the difference comes down to some sort of authority or Administrative Procedures Act king of thing? Dunno.
From the perspective of the SEC’s rulemaking process, I understand that the main difference between a Form and a Schedule is that a Schedule is usually codified as part of the Code of Federal Regulations – whereas with a Form, only the description is codified as part of the CFR (as the Form is maintained separately and doesn’t appear in the CFR). That’s a nice tidbit but it still doesn’t explain how we got here in the first place. Not that this difference matters one iota in real life but it seems like good food for thought for securities law purists…
Webcast: “Understanding the Private Company Trading Markets”
Tune in tomorrow for the webcast – “Understanding the Private Company Trading Markets” – to hear Annemarie Tierney of SecondMarket, Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster, Sharon Hendricks of Gunderson Dettmer and Kim Kovacs of OptionEase discuss the current environment for secondary sales in private companies like Facebook, and what policies and record-keeping procedures companies considering these programs should adopt to ensure compliance with the securities laws.
One of the most interest things going on (besides the liquidity aspect of all this and the related impact on equity compensation) is the emergence of new businesses building on top of the secondary trading markets. For example, there are equity research firms who are commencing research on private companies – and data companies who are mining through Delaware filings to reverse engineer private companies’ cap structures. This is a fundamental shift in the world in which private companies operate, including their expectations of confidentiality. There are also endless technical issues beyond the obvious ones, including how these new markets affect the various definitions of “public trading market” used under tax and securities laws (280G, 409A, Reg S) and how this can impact private company valuations. Tune in to learn more…
On Friday, Corp Fin issued 8 new Compliance & Disclosure Interpretations (and withdrew one), as well as issued this statement that provides a framework about how WKSIs can seek waivers of ineligible issuer status (three new no-action letters were recently decided under this framework). The new CDIs are:
In her “100 F Street Blog,” Vanessa Schoenthaler briefly describes these new CDIs. And in the May-June issue of The Corporate Counsel that was mailed last week, some of these new positions are analyzed more fully – get the “Rest of 2011 for Free” when you try a ’12 No-Risk Trial now.
Kudos to FINRA for Strengthening Revolving Door Rules
From Suzanne Rothwell: Recently, FINRA submitted a rule filing to the SEC that amends its Code of Procedure to prohibit a former officer of FINRA for a period of one year after termination of FINRA employment from appearing on behalf of a client before any FINRA hearing related forum or testifying as an expert witness in a FINRA forum.
FINRA asked that the filing be treated as immediately effective and, therefore, the new requirements are already effective although not yet published by the SEC. This is continued progress in enhancing the ethical standards for attorneys serving as officers of FINRA and helps to avoid any untoward appearance of wrongdoing or undue influence by a former attorney officer. FINRA points out in its rule filing that the ABA’s Model Rules of Professional Conduct includes provisions that would prevent a lawyer who has represented FINRA in an case from subsequently representing the respondent in the case.
Webcast: “Top IP Pitfalls in Deals: How to Avoid Them”
Tune in tomorrow for the DealLawyers.com webcast – “Top IP Pitfalls in Deals: How to Avoid Them” – to hear Karen Butcher of Morgan Lewis, Jose Estevez of Skadden Arps and Ryan Schneider of Troutman Sanders to hear the latest regarding how to spot and resolve intellectual property issues when doing a deal.
For those not enamoured with social media, you probably are sick of hearing the phrase. But it’s something that really is here to stay – President Obama’s Twitter Town Meeting this week should seal the deal if there were any doubters about Twitter’s staying power – and it will continue to dramatically upend how we share information. Developments are happening so fast that I could devote this daily blog solely to the topic – but I will limit myself to occasional bouts of social medianess instead. Here are a handful of interesting blogs that you should check out:
Following up on the videos that I recently posted in this blog, here’s the Minneapolis chapter of the Society of Corporate Secretaries doing some “jive talking” after I did a panel regarding the proxy season followed by a standalone presentation on social media (thanks to Marty Rosenbaum for blogging about my appearance). These Minneapolis folks can really boogie:
And here is a video from the Society’s Annual Conference held in Colorado a few weeks ago during the plenary session:
And I would be remiss if I didn’t share this picture of me with my good friend Neal Smith of CSC in his snazzy jacket during the Conference’s opening reception:
