If you haven’t heard of crowdfunding, you probably don’t do venture capital work. As noted in Wikipedia, “crowd funding (sometimes called crowd financing or crowd sourced capital) describes the collective cooperation, attention and trust by people who network and pool their money and other resources together, usually via the Internet, to support efforts initiated by other people or organizations. Crowdfunding occurs for any variety of purposes, from disaster relief to citizen journalism to artists seeking support from fans, to political campaigns, to funding a startup company or small business.”
Recently, the SBE Council sent this letter to Corp Fin to encourage the SEC to adopt a new “small offering safe harbor/regulation modification” to facilitate crowdfunding. [Pet peeve for me – when someone refers to the SEC as the “Security and Exchange Commission”.]
Finally, this article lists these nine crowding sites:
– What is the Sustainable Investments Institute (Si2)?
– Why did Si2 and As You Sow jointly prepare this new shareholder proposal report?
– What were the report’s major findings?
More on our “Proxy Season Blog”
With the proxy season in full swing, we are posting 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:
– Second Circuit Rules on MD&A Trend Disclosure Requirements
– 2011 Proxy Season Field Guide
– An Early Look at Social Issues Proposals
– More on “A Proxy Is Not A Vote and Why It Matters”
– Governance Proposals Face Various Challenges
In his “IR Web Report,” Dominic Jones reports about how “some in the industry expect the SEC will be forced to modify some of the more onerous detailed tagging requirements and extend the limited liability treatment of filings. However, some relief may also come as new technologies and service providers emerge. The Committee on Corporate Reporting of Financial Executives International (FEI) has written to SEC chair Mary Shapiro expressing concern that the XBRL filing requirements have led to delays in companies releasing reports to investors and compromised the accuracy of company filings.” Time is running short for the 8000 companies that will begin filing XBRL documents with the SEC in July.
Although not entirely clear, it appears that the SEC Staff recently updated its “Staff Interpretations and FAQs Related to Interactive Data Disclosure.” It’s not clear because “last modified” dates have not been affixed to each FAQ (like the Staff’s other CDIs have) and there is a note at bottom of this FAQs page that says it was last modified in December. However, the FAQs were recently reorganized and I do believe B.13 is new – and E.19 and 20 probably are too since they do not have a “formally” tag like the others…
How Law Firms Can Provide XBRL Services
In this podcast, Raul Varela of Rivet Software provides some insight how law firms can be involved in providing XBRL services, including:
– Can law firms provide XBRL services to their clients, just like some provide EDGARization services?
– What kind of options do law firms have to incorporate XBRL into their current service offering?
– What factors should a law firm consider to determine which type of XBRL service is best for them to offer?
The Burden of XBRL Costs on Smaller Companies
As the deadline for mandatory XBRL draws nearer, I am hearing from some smaller companies about how the costs charged by XBRL providers are higher than they expected. David Feldman blogs that those costs can be as high as $4000-8000 per year (which can be 50% of the operating costs for a shell company). Send me your anecdotal stories as I’d like to hear more from folks (I’ll keep them confidential as always unless you give me permission to attribute).
Poll: XBRL Filing Cost Estimates
Please take a moment to participate in this anonymous poll regarding your experience with XBRL filing costs/cost estimates so far:
Yesterday, the SEC’s Office of Chief Accountant and Corp Fin jointly issued Staff Accounting Bulletin No. 114, which revises or rescinds portions of the interpretive guidance included in the codification of the SAB Series. The update is intended to make the relevant interpretive guidance consistent with authoritative accounting guidance issued as part of FASB’s Accounting Standards Codification. The principal changes involve revision or removal of accounting guidance references and other conforming changes to ensure consistency of referencing throughout the SAB Series.
A List of Annual Meeting Dates & Locations: European-Style
Yesterday, I received this list of annual meeting dates and locations for companies located in Europe from an association for investors over there known as “VIP” (Vereinigung Institutionelle Privatanleger). It’s pretty nifty and got me wondering whether such a list exists for US companies that is publicly available? Shoot me an email if you know of one…
SEC’s Proposal: Incentive-Based Compensation for Large Broker-Dealers and Investment Advisors
Last week, the SEC proposed rule regarding incentive compensation for large brokers and investment advisors. Here’s the SEC’s press release – and here’s the proposing release in draft form (since other regulators need to sign off on this, the SEC posted it in draft form, which I believe is a “first”). Here’s Mike Melbinger’s blog on the proposal and we are posting memos in CompensationStandards.com’s “Bonus” Practice Area.
On Friday, Corp Fin issued nine new Compliance and Disclosure Interpretations on a variety of topics – including one on CD&A, two related to Rule 144, two on free writing prospectuses, two on director disclosures and two others – as follows:
In his “Proxy Disclosure Blog,” Mark Borges gives us the latest say-when-on-pay stats: with 365 companies filing their proxies, 49.8% triennial; 4.6% biennial; 40.2% annual; and 5.4% no recommendation.
A 23-Page Proxy Statement? Amazon Proves It Can Be Done
With Form 10-Ks and proxy statements now flowing into the SEC at full throttle, it’s worth pointing out how Amazon has its 2010 proxy statement boiled down to a mere 23 pages – just two pages longer than its ’09 proxy (the company hasn’t filed its ’11 proxy yet). I haven’t read it so I can’t comment on quality (nor would I comment), but it’s an amazing feat in an age of bloated filings. Hat tip to Luke Frutkin of Frost Brown Todd for pointing it out!
Webcast: “3rd Annual Public Company M&A Nuggets”
Tune in tomorrow for the DealLawyers.com webcast – “3rd Annual Public Company M&A Nuggets” – to hear Jim Griffin of Fulbright & Jaworski, Keith Flaum of Dewey & LeBeouf, Hal Leibowitz of WilmerHale and Claudia Simon of Paul Hastings engage in a lightning round of practical advice, covering all the hot M&A issues you are grappling with today, including the latest on tricky deal provisions and the ultimate list of “do’s” and “don’ts” during deal negotiations.
With a government shutdown averted – at least for two weeks – SEC Staffers still have plenty to be concerned about. One of the Dodd-Frank studies – required by Section 967 of the Act – is being prepared by an independent consultant, the Boston Consulting Group. Expected to be published soon, the study’s stated purpose is to “examine the internal operations, structure, funding, and the need for comprehensive reform of the SEC, as well as the SEC’s relationship with and the reliance on self-regulatory organizations and other entities relevant to the regulation of securities and the protection of securities investors that are under the SEC’s oversight.”
Given that this study was commissioned at a time when it was expected that the SEC would receive more funds and would be in full hiring mode – and now the opposite is true – it will be interesting to see how the study handles this dramatic change in the current Congressional-regulatory environment.
And speaking of an underfunded SEC, you should read this editorial by former SEC Commissioner Bevis Longstreth entitled “Congress and the SEC’s Starvation Diet.” Here is an excerpt:
A horse forced to carry too heavy a load collapses. So too an agency. Far better, in such circumstances, for the public not to be misled, not to be lulled into complacency by reliance on the Government, but rather to be informed that the Government should not be counted on as a source of protection — in short, to be told that one must fend for one’s self.
Study: A Disconnect in Growing Shareholder Engagement
Last week, the IRRC Institute issued a study entitled “The State of Engagement Between US Corporations and Shareholders” that was conducted by ISS and shows that engagement is increasing. As Jim McRitchie notes, the study reveals there is a bit of disconnect for shareholder engagement practices so far. And that engagement is either a priority or a non-event for investors – asset owners and asset managers were most likely to report either that they had engaged with more than ten companies in the previous year or that they had not engaged at all.
Based on what I am hearing on the street, that certainly seems to be the case as many are trying new avenues of engagement for the first time due to say-on-pay with mixed results. I’m sure we will be seeing more of these studies after the proxy season is over, reporting many of the same things…
As noted in this Wachtell Lipton memo by George Conway, a federal district judge in New York last week threw out most of a securities class action jury verdict that plaintiffs’ lawyers had estimated was worth $9.3 billion. The jury’s verdict was rendered 13 months ago – before National Australia was decided, and thus under now-overturned law – upheld claims that were predominantly “foreign-cubed” (asserted by foreign investors against a foreign issuer for losses on a foreign exchange) and “foreign-squared” (asserted by American investors against a foreign issuer for losses on a foreign exchange). In categorically dismissing all the claims of those investors, the decision in In re Vivendi Universal, S.A. Securities Litigation, according to Vivendi and its counsel, eliminated at least 80%, and perhaps up to 90%, of the liability that the verdict could have produced.
As George notes in his memo, this case marks the culmination of a series of district court decisions that have consistently rejected attempts by the securities class-action plaintiffs’ bar to find loopholes in National Australia. Both of the main theories that have been advanced by plaintiffs’ lawyers to evade the Supreme Court’s decision have been repudiated by the courts, now repeatedly and sometimes scathingly.
Why Would Corp Fin Ever Deny a Registration Statement Withdrawal?
Last week, BlogMosaic ran this blog about how the SEC recently denied the withdrawal of a registration statement. It’s a rare occurrence and might lead you to wonder why Corp Fin would do such a thing. I believe it happens when the SEC suspects foul play and by denying the withdrawal, it helps them maintain jurisdiction over a potential action.
More on our “Proxy Season Blog”
With the proxy season in full swing, we are posting 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:
– Updated: Links to Fortune 100 Investor Web Pages
– Proxy Impact Offers New Advisory Services
– Goodbye Proxy Governance! And Then There Were Two…
– A Final Review of 2010 ESG Shareholder Proposals
– Top 10 Questions for Audit Committees
Over the past two days, the SEC’s beleaguered Enforcement Division has brought separate earth-shattering cases that go straight to the boardroom. On Monday, the SEC charged three of Point Blank Solutions’ former outside directors (and audit committee members) for their complicity in a massive accounting fraud. Then yesterday, the SEC charged a former McKinsey head of using his position as director for Goldman Sachs and Procter & Gamble for being a tipper in the Galleon insider trading scandal. Here’s an interesting excerpt from this NY Times article:
The case against Mr. Gupta has an unusual procedural twist. Under the Dodd-Frank Act, the S.E.C. can seek a full range of penalties against people not employed by a financial services firm through a relatively streamlined proceeding before an S.E.C. administrative law judge. Historically, if the agency sought penalties against a public company director like Mr. Gupta, it had to sue in federal court, where the defendant has full discovery rights of the SEC’s case, including all of its witnesses.
And here is a sidenote – a quote from Preet Bharara, US Attorney for the Southern District of New York, that I shortened and tweeted last week: “Unfortunately from what I can see, from my vantage point as US Attorney, illegal insider trading is rampant” (this quote was lifted from this insider trading memo by Morrison & Foerster).
Webcast: “Conduct of the Annual Meeting”
Tune in tomorrow for the webcast – “Conduct of the Annual Meeting” – to hear Bret DiMarco of Coherent, Peggy Foran of Prudential, Carl Hagberg, an independent inspector of elections and Editor of The Shareholder Service Optimizer, Kathleen Salmas of Northrup Grumman and John Seethoff of Microsoft discuss all of the thorny annual meeting issues, such as what to do if you need to adjourn the annual meeting, how to handle common and troublesome tabulation issues and how to handle meeting attendees that act inappropriately. Carl has contributed this fantastic set of practical articles on annual meetings as course materials.
Conducting Meaningful Board Evaluations
In this podcast, Denise Kuprionis of Governance Solutions Group explains how to best handle board evaluations, including:
– What are the key elements of a board evaluation?
– What role should the corporate secretary/chief governance officer play in this review process?
– What are the metrics? How should the board measure itself?
– What’s the “so what” after the evaluation is complete?
With Friday’s deadline for a government shutdown looming, it seems fair to start wondering how our community will function without the agency. Will EDGAR be operational? Will registration statements be declared effective so that deals can go forward? Will no-action requests related to shareholder proposals be processed?
I don’t know the answers to these questions – but I imagine most of the news wouldn’t be good. This article notes that the SEC is engaged in contingency planning – and this note to SEC union employees indicates that relatively few SEC Staffers are deemed “essential” (100-250) and would remain on the job. I presume Corp Fin will provide us with news about the impact of the shutdown if it does indeed occur. As this article notes, the House votes today on a temporary funding measure – but that may merely put off the shutdown for two weeks.
Interestingly enough, there is no precedent for the SEC here – at least not in the modern era – as the SEC somehow found funding to keep open back in 1995 when the government was last shut down. And I end with this note from a member:
Am I the only one who has noticed that the deadlines for the government shut-down and the NFL lock-out are both on March 4? I would think that political and sports pundits alike would revel in such a congruence of the stars. But maybe I just follow less informed pundits.
A New Shareholder Proposal Database: ProxyMonitor.org
One question I get asked often enough is where can one find a database that tracks shareholder proposals and their stats. Sites like this have existed but they tend to disappear within a year or two. Now there is a new one. In this podcast, Jim Copland of the Manhattan Institute’s Center for Legal Policy provides some insight into ProxyMonitor.org, a new shareholder proposal database, including:
– What is ProxyMonitor.org?
– How long did it take to create?
– Who do you envision using it?
Our March Eminders is Posted!
We have posted the March issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
I just got this one from a member: A few weeks ago, Corp Fin issued two interesting no-action responses to Goldman Sachs regarding the evaluation of risk. Through them, I think the Corp Fin Staff is trying to define the contours of the risk assessment guidance provided in Staff Legal Bulletin 14E back in ’09. As you’ll recall, the Staff indicated in that SLB that it will evaluate whether a proposal is excludable under 14a-8(i)(7) by focusing on the type of risk that the proposal seeks to address (i.e., climate change risk is not excludable but proposals relating to ordinary business risk are).
Interestingly, the first Goldman letter seems to turns this concept on its head. In that letter, the Staff concluded that Goldman could not exclude a proposal requesting:
“that the board prepare a report disclosing the business risk related to developments in the political, legislative, regulatory, and scientific landscape regarding climate change.”
That did not sound like ordinary business risk to the Staff. In denying exclusion, the Staff noted that:
“We are unable to concur in your view that Goldman Sachs may exclude the proposal under rule 14a-8(i)(7). In arriving at this position, we note that the proposal focuses on the significant policy issue of climate change. Accordingly, we do not believe that Goldman Sachs may omit the proposal from its proxy materials in reliance on rule 14a-8(i)(7).”
In contrast, the following day, the Staff addressed a proposal in the second Goldman letter that:
“the board report to shareholders the risk management structure, staffing and reporting lines of the institution and how it is integrated into their business model and across all the operations of the company’s business lines.”
Given the role that risk played in the collapse of so many Wall Street firms – and the issues that Goldman has had to address with the SEC – I think some might have expected the Staff to take the position that this proposal raises significant policy issues. But not so as the Staff allowed the exclusion, noting that:
“There appears to be some basis for your view that Goldman Sachs may exclude the proposal under rule 14a-8(i)(7), as relating to Goldman Sachs’ ordinary business operations. We note that the proposal relates to the manner in which Goldman Sachs manages risk.We further note that the proposal addresses matters beyond the board’s role in the oversight of Goldman Sachs’ management of risk.”
It will be interesting to see how these tough judgment calls continue to play out…
Warren Buffett’s Annual Letter to Shareholders
We now have the always fascinating annual shareholders’ letter from Warren Buffett. Here are reactions to the letter from WSJ’s Deal Journal and Kevin LaCroix’s analysis – and here is a Bloomberg article with notable excerpts from the letter…
In his “Proxy Disclosure Blog,” Mark Borges gives us the latest say-when-on-pay stats: with 291 companies filing their proxies, 55% triennial; 5% biennial; 35% annual; and 5% no recommendation. Mark notes that last week was the first in which annual exceeded triennial recommendations during a single week – and that out of the 104 companies that have reported voting results, 9 have had 30% or greater “against” votes for their SOP.
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:
– Some Seek SEC Guidance on Disclosing CEO Illness
– ICAS Report: Auditors Should Sign Off on Directors’ Decision-Making Process
– Canada’s Regulator Report on Corporate Governance Disclosure: Not Good News
– SEC Proposes Rules on Private Fund Reporting
– In Watershed Decision, Federal Court Dismisses Class Action Against Failed Bank D&Os
As noted on Responsible-Investor.com, Australia’s government recently adopted legislation strengthening its say-on-pay requirements. One change was the adoption of a “two strikes” test, meaning that shareholders would have the opportunity to remove directors if the company’s remuneration report had received a ‘no’ vote of 25% or more at two consecutive annual general meetings. Another change is the prohibition of directors, executives and their “closely related parties” from voting on executive pay.
Also notable is that Novartis – a large Swiss company – garnered a 40% “against” vote on its first say-on-pay vote on Tuesday, as mentioned in this article.
The Debate Over Whether to Ignore Say-When-on-Pay Results So Far
So I would bear these developments in mind as companies weigh how much engagement they should be doing with shareholders. I was a little surprised at the reactions that Mark Borges and I have received to our advice that – given the voting results so far – companies may reconsider recommending a triennial vote for say-when-on-pay (egs. Marty Rosenbaum and Amy Muecke; compare Dominic Jones who asks whether boards are using triennial recommendation as a diversion).
I know many boards have pondered long and hard and decided that triennial is in the best interests of shareholders – but if shareholders are clearly saying it’s not in their best interests, that surely must count for something? I say “pick your battles” in an effort to start off with a less confrontational engagement in this new “say-on-pay” world. With a statistically relevant number of results in, it’s becoming pretty clear that shareholders want an annual SOP even if the company has stable management and sound pay practices. For shareholders, those factors appear relevant as to how they vote on say-on-pay – but not relevant for say-when-on-pay.
Like I said in my original blog on this topic, the fact that so many companies are ignoring the clear will of shareholders over this minor topic (“minor” in comparison to SOP itself) will likely further galvanize shareholders to more closely scrutinize pay practices. As I hear from shareholders, they feel like companies are deciding what is in the “best interests of shareholders” without taking into account what shareholders have clearly said is in their best interests. Looking at this situation from their perspective, I can see why they might get upset.
Here is something from Paul Schulman of MacKenzie Partners that was just on CompensationStandards.com’s “The Advisors’ Blog“: Glass Lewis recently concluded a client-only presentation regarding updates to their policies for 2011 and what they see as trends for the upcoming year. As you probably know, Glass Lewis will not speak to you about your proxy, taking the approach that “if you have something you want us to consider, put it in a public filing.” They recently purchased the smaller advisory firm Proxy Governance and depending on the makeup of your shareholder base, you should be aware of their policies and likely vote recommendation if you’re facing a potentially close vote.
Courtesy of Glass Lewis, here is a summary of their presentation (the full presentation is not publicly available). Some of the points you might pay attention to:
1. What will drive their decision to vote Against Say on Pay votes?
-Misalignment of pay with performance (P4P grade of D or F)
-Insufficient disclosure
-Poorly formulated peer group(s)
-Guaranteed bonuses & high fixed pay
-Poorly-designed incentive plans with excessive payouts and unchallenging goals
-Too much reliance on time-vesting equity awards
-Egregious contractual commitments (tax gross-ups, golden parachutes, death benefits)
-Internal pay inequity
-Excessive discretion afforded the board in granting awards and adjusting metrics
2. When will they go beyond say on pay and vote against comp committee members?
-Behavioral issues: For example, option repricing without shareholder approval, or the granting of excessive and unjustified golden handshakes or golden parachutes
-Sustained Poor Pay-for-Performance: Judged by a history of “D”s and “F”s in the GL model
3. What were the major U.S. Policy updates?
Most were relatively minor and won’t apply to a broad spectrum of companies. Some of the more noteworthy were:
-Classified Boards: If we maintain concerns with affiliates or insiders who are not up for election, we will consider recommending voting against such directors at their next election if the concerning issue is not resolved.
-Excessive Audit Committee Memberships: We may exempt certain audit committee members from our standard threshold (i.e. serving on more than 3 public company audit committees) if, upon further analysis of relevant factors, we can reasonably determine that the audit committee member is likely not hindered by multiple audit committee commitments.
-Board Interlocks: We will also evaluate multiple board interlocks among non-insiders (i.e. multiple directors serving on the same boards at other companies) for evidence of a pattern of poor oversight.
-Stock Option Repricings: We recommend to vote against all members of the compensation committee when the company completed a “self tender offer” without shareholder approval within the past two years.
More on our “Proxy Season Blog”
With the proxy season in full swing, we are posting 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:
– Director Qualifications: SEC Comments and Example Disclosures
– CalPERS Responds (Slowly) To Records Request for Rule 14a-8 Letters
– An Early Look at 2011 Governance Shareholder Proposals
– The “Fifth Analyst Call” Request
– Latest on Environmental Disclosure in SEC Filings
