On Sunday, the Washington Post ran this front-page, lengthy article about the extent to which members of Congress trade in stocks of companies that lobby them. It is a meandering piece that explains how the new Stock Act fails to prohibit trading that can easily be perceived as giving an advantage to Congress (and fails to prohibit trading to the extent that laws reining in senior members of federal agencies do). To me, that is the central point – perception is everything. And that is reflected by the fact that nearly 2000 people have commented on the article – most of them raking Congress over the coals.
The bizarre thing is that the WaPo article gets into the details of a number of specific trades – but most of the dertails seem to clear the profiled Congress-folk of any wrongdoing (this blog agrees there were no smoking guns found). On the other hand, there are excerpts such as this that would sound like classic insider trading to the layperson:
“[a]t least 34 members of Congress recast their portfolios following phone calls or meetings with high-ranking Treasury Department and Federal Reserve officials during the economic crisis.”
The bottom line is that Congress should take the perception point to heart and either require all members of Congress to use blind trusts to trade – or at least impose upon themselves the same stringent laws that they apply to federal agencies…
SEC Posts Internal Memo on Conducting Economic Analysis for Rulemaking
Last week, the SEC posted its internal memo about how it will conduct economic analysis when it is involved with rulemaking in the wake of last year’s loss in the proxy access lawsuit in the District of Columbia Circuit court.
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:
– Anarchy Comes to an Annual Shareholders Meeting in Pittsburgh – And Executive Compensation is One of the Reasons!
– Loeb Tries to Win a Yahoo Proxy Battle, One Blog Post at a Time
– Six Companies to Provide More Auditor Information
– Questions that Shareholder Might Ask During Annual Meetings
– Exclusive Forum Proposal Survives No-Action Challenge
– AFL-CIO Releases Updated Proxy Voting Guidelines
Deal Cube Tournament: Round Two; 5th Match
As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:
I’ve added 5 more companies to CompensationStandards.com’s failed say-on-pay list for 2012. We are now at 54 companies in ’12 that have failed to garner major support. Hat tip to Karla Bos of ING Funds for keeping me updated.
For this year’s pre-season poll predicting how many say-on-pay failures there would be, the results were as follows: Less than 10 failures – 5%; 11-20 failures – 13%; 21-30 failures – 24%; 31-40 failures – 20%; 41-50 failures – 17%; 50-99 failures – 24% and more than 100 failures – 24%. So once again, perhaps I predicted too few failures myself in designing the poll. But a hardy 24% predicted correctly…
The Latest on CEO/Director Background Diligence
Recently, I’ve blogged several times about the Yahoo resume saga. In this podcast, Keith Meyer of CTPartners provides some insight into conducting diligence into management and director backgrounds, including:
– How much vetting of a CEO candidate’s background should be conducted?
– What if the CEO candidate is an internal one? Is diligence still necessary?
– Should director candidates be vetted? Does it depend if they already sit on prominent boards?
– Who should conduct the diligence?
– Who should receive the results of diligence?
Transcript: “Looking Out for #1: How to Manage Your Career”
We have posted the transcript from our recent webcast: “Looking Out for #1: How to Manage Your Career.”
Deal Cube Tournament: Round Two; 4th Match
As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:
Yes, Congress passed a comprehensive reform of the IPO process just a few months ago (JOBS Act). Yes, Congress did so without holding a single hearing. Yes, Congress is now complaining the IPO process is broken and needs reform. You can’t make this stuff up folks. One member asked: “If Congress reforms the IPO process 3x per year. How many years will it take for them to get it right?”
See this letter from the head of the House Financial Services Committee Darrell Issa (R-Ca.) – although Democrats are agreeing with this notion too. And here’s a WSJ article – and Prof. Bainbridge blog about it.
The Latest D&O Insurance Developments
In this podcast, Tom Bentz of Holland & Knight explains the latest in D&O insurance, including:
– What are the latest developments in D&O insurance?
– What role does the recent explosion in M&A litigation play in D&O insurance?
– What are some of the most common mistakes companies make regarding their D&O insurance?
– What should directors do now to make sure that they have broad coverage?
Deal Cube Tournament: Round Two; 3rd Match
As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:
Yesterday, the SEC finally adopted rules that direct the stock exchanges to adopt listing standards for compensation committees and compensation advisers under Section 952 of Dodd-Frank (Section 952 added Section 10C to the ’34 Act). The Commission adopted the rules by seriatim.
The stock exchanges have 90 days from when the SEC’s rules are published in the Federal Register to propose listing standards (and they have one year to finalize them). As noted in Mark Borges’ blog, if the exchanges and the SEC move quickly, it’s possible that the listing standards could be in place in time for the 2013 proxy season. In any event, there will be at least one new disclosure requirement in place for the 2013 proxy season – the adopting release provides that companies must comply with the disclosure changes in Item 407 of Regulation S-K in any proxy statement for a regular annual meeting occurring on or after January 1, 2013. This Item 407 change requires disclosure of an assessment of whether any work performed by a compensation consultant raises any conflict of interest (and if so, to disclose the nature of the conflict and how it was addressed).
As Mike Melbinger’s blog notes, the SEC’s rules confirm that Section 10C does not require compensation committees to retain – or obtain advice – only from independent advisers. A listed issuer’s compensation committee may receive advice from non-independent counsel, such as in-house counsel or outside counsel retained by management, or from a non-independent compensation consultant or other adviser, including those engaged by management.
Tune in next Thursday, June 28th, for the webcast – “Proxy Season Post-Mortem: The Latest Compensation Disclosures” – to hear Mark Borges, Dave Lynn and Ron Mueller analyze what was (and what was not) disclosed this proxy season as well as discuss these new rules.
UK One Step Closer to Binding Say-on-Pay: On to Parliament
Yesterday, the UK took another step closer to mandating binding say-on-pay when Business Secretary Vince Cable presented a bill to Parliament mandating binding say-on-pay for consideration. Here is a page with information on the “Enterprise and Regulatory Reform Bill.”
As I understand it, it looks very likely that the bill will pass and perhaps be law by October of 2013. There would actually be three types of say-on-pay votes:
– Review of past compensation – non-binding and annual
– Prospective review on compensation policy – binding and would happen every three years so long as the company’s pay policy hadn’t changed; if it had changed, would happen annually
– Share plans – binding
The biggest debate is over the annual advisory vote – which is backward looking – and supermajority vote thresholds. This Manifest blog captures some of the debate. I’ll be blogging more on this as I figure it out.
What will happen now is that amendments to the Enterprise Bill are introduced in the House of Commons for debate. It then goes to committee and then to the upper chamber, the House of Lords, which then has their debate and committee and then if all is well, it is passed into law (unlike Congress, no riders or changes can be snuck in – only the bill that has been debated can pass). The Financial Reporting Council – which is a separate body and which looks after the UK Governance Code – will then do its own consultation regarding amendments to the UK Governance Code to ensure that the Law, as it applies to UK incorporated companies, will apply to listed companies. Thanks to Sarah Wilson of Manifest for helping to explain the UK process!
SEC Chief Accountant Kroeker Headed Back to Private Sector
Yesterday, the SEC announced that that Chief Accountant Jim Kroeker will leave the SEC in July to enter the private sector. No word on where he is headed…some conjecture in FEI’s Financial Reporting Blog.
Deal Cube Tournament: Round Two; 2nd Match
As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:
From this Cooley alert by Chad Mills: As a follow-up to Cydney Posner’s article from a few years back, please note that calendar-year public companies were required to adopt a new accounting standard on comprehensive income (ASU 2011-05, as amended by ASU 2011-12) in their 2012 first quarter Form 10-Q with retrospective application. As described below (and see also Corp Fin’s financial reporting manual (FRM) at Topic 13), if a company is filing a Form S-3 and had filed interim financial statements for a period that includes the date of adoption of a new accounting standard requiring retrospective application, Item 11(b)(ii) of Form S-3 normally requires the company to recast its prior period annual financial statements that are incorporated by reference to reflect the retrospective application (if material).
However, similar to the accommodation noted in Cydney’s article, in lieu of recasting the prior period annual financial statements, a company may (and assuming the company’s auditors agree) instead include a selected financial data table either included in or incorporated by reference in the Form S-3 containing certain information. Accordingly, if your clients are filing or post-effectively amending Forms S-3 this year, please take note of this and make sure to discuss with the client and its auditors. Note that in the case of a takedown from an already effective shelf S-3, a prospectus supplement is not subject to the Item 11(b)(ii) updating requirements; rather, companies would instead apply the “fundamental change” guidance in S-K 512(a) discussed in FRM Section 13110.2.
Below are a couple of recent S-3s with the selected financial data table reflecting the above:
For more background info, see this KPMG article at Part 3.
Study: A 11-Year Comparison of Restatements
In a recent study, Audit Analytics looked back over 11 years of restatements and, among other things, found that during the last three years, the quantity of total restatements appears to have leveled off, and the severity remained generally low, but hidden within the macro view of the data is the fact that restatements increased from companies trading on the NYSE and OTC.
Benchmarking Merger Agreements
In this DealLawyers.com podcast, Paul Koenig of Shareholder Representative Services explains how his company’s novel initiative SRS MAX™ that allows for M&A analysis of merger agreements, including:
– What is the problem that the SRS MAX product is solving?
– How does it work and what do the users of the product receive?
– Do you charge for this, and if so, how much?
Deal Cube Tournament: Round Two; First Match
Round Two begins! This will determine the Sweet 16. As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:
One of those things I swore I blogged about – but slipped through the cracks. Corp Fin recently changed its policy on IPO price ranges, now allowing a $2 price range for offerings up to $10 per share, and 20% if the price is over $10. Previously, the range was limited to a $2 spread. (I note Facebook’s price range was $34 to $38.) The intent is to better reflect the inherent difficulty in pricing IPOs. Learn more in this memo posted in our “IPOs” Practice Area.
Check out this Cooley alert entitled “How Can ‘Oversubscribed’ be a Sign of IPO Weakness?”
62-Pages About This Season’s Disclosures: Spring Issue of Compensation Standards Newsletter
For CompensationStandards.com members, we have posted our Spring 2012 issue of Compensation Standards print newsletter – thanks to Mark Borges! – that is a 62-page recap of how proxy disclosure went this past proxy season. Tune in next Thursday, June 28th to catch our CompensationStandards.com webcast featuring Mark, Dave Lynn and Ron Mueller entitled: “Proxy Season Post-Mortem: The Latest Compensation Disclosures.”
Transcript: “Nasdaq Speaks ’12: Latest Developments and Interpretations”
We have posted the transcript from our recent webcast: “Nasdaq Speaks ’12: Latest Developments and Interpretations.”
One member asked: “How can you tell if a EGC bothered with Corp Fin’s confidential submission process or just publicly filed its Form S-1 right away?” You can tell from the exhibit list. When a company that went through the confidential submission process makes its first filing, it has to file the confidential draft (or drafts) as Exhibit 99 to the registration statement. So for LegalZoom, they filed an “Exhibit 99.1 Confidential Draft #1” and no others – so it appears they stayed confidential for only one round of comments.
Using Rule 135 to Announce a Confidential Submission
Rule 135 says that a very limited press release announcing a proposed public offering won’t be deemed an offer for Section 5 purposes. Way back at the end of April, SolarCity became the first company to announce in a Rule 135 notice that it is making a confidential submission at the time of its private submission to Corp Fin (FleetMatics also announced one). This is something that companies are not required to do – and that I believe no other company has done since…
Dave notes one interesting unintended consequence he has heard from bankers is that having companies go through confidential submission means their visibility into the “pipeline” is all screwed up – so they don’t have as good a feel for what is out there in the market going public, which could ultimately impact marketing and valuation.
Transcript: “LLCs: Understanding Capital Account and Allocation Concepts for M&A”
We have posted the transcript for our recent DealLawyers.com webcast: “LLCs: Understanding Capital Account and Allocation Concepts for M&A.”
As noted in this Latham & Watkin’s memo, the SEC’s Enforcement Division declined to prosecute a former AXA Rosenberg executive based on his assistance under the SEC Cooperation Standards Program, which gives important guidance and definition to the promise of the program.
More on “Chaos in the SEC’s Inspector General’s Office: ‘He Said, They Said'”
Recently, I blogged about the madness in the SEC’s Inspector General’s office as a number of allegations are being investigated about a number of the Staffers there. Bear in mind that it’s a small office with a handful of people working in it. The latest drama is laid out in this detailed Reuter’s article.
Our New “Shareholder Communications with Directors Disclosure Handbook”
Did you see this NY Times column about Yahoo? Amazing that boardroom conversations get leaked to the press, particularly when the situation is in litigation. Not good governance to blab about your bad governance. Remember the H-P fiasco!
Anyways, as I blogged a few weeks ago, it seemed like a no-brainer to me that companies would conduct a background check on a director candidate (and CEO recruit) – even though they are not necessarily universal practices. Marty Rosenbaum weighed in with his own thoughts in a blog entitled “Responding to the Yahoo Resume Debacle.”
In response, I received a wide range of responses – I guess reflecting the diversity of practice in this area. As I learned, there are numerous state laws on acquisition – and use – of credit information, as well as arrest and conviction information. Apparently, states are really clamping down on employers’ use of all of this information for hiring purposes in view of the purported potential disparate impact on applicants. For example, see this Cooley alert about new California requirements for background check disclosures. And see these EEOC FAQs providing updated guidance about the ability of employers to check arrest and conviction records – as analyzed in this Locke Lord memo.
On the other hand, I had some members argue that the federal sentencing guidelines practically require criminal background checks for “substantial authority personnel.” I’m told that a key problem remains over what you can do with the background information if it indicates that the person engaged in “illegal activities or other conduct” that is arguably “inconsistent with” a compliance program. To be on the safe side under the sentencing guidelines, I imagine you’d tend to not hire someone who was in the grey zone. Some members asserted that the sentencing guidelines safe harbor provision protects an employer who hires someone in order to comply with employment laws.
So I’m still not sure what the right answer is on background checks and definitely would like to get more feedback on that. In Yahoo’s case though, the resume lie would have been uncovered with a simple Google search. This would have revealed discrepancies by comparing what Yahoo disclosed as the CEO’s background compared to what other companies – on whose board the Yahoo CEO sat – were disclosing; or what the Yahoo’s CEO’s former school was saying about him in alumni announcements. As I noted in our new “D&O Questionnaire Handbook,” this kind of basic diligence should be conducted every year when reviewing responses to the questionnaires. It’s too easy to pass up – and can certainly spare you and your company some big headaches…
As noted in his “Cady Bar the Door” blog, David Smyth explains the SEC and DOJ sort of issued their first FCPA declination opinions, noting that the agencies have decided not to pursue a particular matter. Not only are these useful to the parties involved, they can provide a useful window into the factual scenarios that do not rise to the level of a FCPA prosecution.
This Cooley alert describes a recent New Yorker article regarding economics of the FCPA.
Deal Cube Tournament: Round One; 16th Match
Last match of the first round (I decided to go with 64 cubes per tourney because 32 matches in a single round is too many) – there will be a break before 2nd Round begins. As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:
Last week, FINRA submitted a rule change that significantly increases the Corporate Financing Department filing fee – with an implementation date of July 2nd! The new filing fee will be $500, plus .015% (up from .01%) of the proposed maximum aggregate offering price of all securities included on the offering document, up to a maximum of $225,500 (up from $75,500). However, any shelf offering by a WKSI registered on an automatically effective S-3 or F-3 registration statement will be subject to the full $225,500 fee, regardless of the size of the offering. The FINRA rule change was filed as one that is immediately effective upon filing with the SEC. Thanks to Suzanne Rothwell for this news!
In other news, see this blog from “The Mentor Blog” for other proposed FINRA Rule 5110 changes…
Shareholder Proposals: KBR Wins Over Chevedden in Fifth Circuit Appeal
A few months ago, I blogged that John Chevedden appealed his loss in a lawsuit over the eligibility to submit shareholder proposals. A few days ago, the appeal was decided when the Fifth Circuit’s decision affirmed the District Court’s judgment granting summary judgment in favor of KBR and also affirming the District Court’s denials of Chevedden’s various motions.
Webcast: “How to Cope with the M&A Litigation Explosion”
Tune in tomorrow for the DealLawyers.com webcast – “How to Cope with the M&A Litigation Explosion” – to hear Wilson Sonsini’s Doug Clark, Wachtell Lipton’s David Katz and NERA’s Marcia Kramer Mayer to not only learn of the causes of the M&A litigation maelstrom, but how you can best cope with its consequences – to changes in deal structures to developments in how deals are negotiated. Please print these course materials in advance.
Deal Cube Tournament: Round One; 15th Match
As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:
