House Financial Services Committee Marksup Bills on 10b5-1 Plans, Board Gender Diversity, Multi-Class Companies and IPO Underwriting Fees

Several of the bills marked up recently by the House Financial Services Committee, with all but the last one agreed to by voice vote, impact public companies and IPOs, including:

  • Promoting Transparent Standards for Corporate Insiders Act.  Introduced in July 2018 by Representative Maxine Waters, the SEC would study whether Rule 10b5-1 should be amended to consider changes to restrict practices for plan adoption under the rule, many of which are already being implemented by companies.

Under the bill, the SEC should consider limiting the adoption of plans during times when insiders are permitted to buy or sell securities; limiting the adoption of multiple, overlapping plans; establishing mandatory delays between plan adoption and the first trade; and limiting how often participants can modify or cancel plans.  Continue Reading

Cyber Breach Center Post: Two Recent Cases Highlight the Insider Trading Risks Associated with Cyber Breaches

The recent convictions of two traders for using hacked press releases and the settlement of SEC insider trading charges against a former Equifax manager highlight the significant insider trading risks companies face when dealing with a cyber event. Potential considerations for companies as they consider these risks highlight the intersection between cybersecurity and corporate governance. The full blog post is available at our Cyber Breach Center, here.

To subscribe to our Cyber Breach Center, click here. Continue Reading

Quarterly EPS Guidance Targeted, and Quadrophobia Allegedly Investigated

A recent WSJ Op-Ed from Jamie Dimon and Warren Buffet, together with the Business Roundtable, encouraged all public companies to move away from providing quarterly EPS guidance.  The Council of Institutional Investors (CII), cited as “the leading voice for strong shareholder rights,” is quoted to represent investors in support of the premise.

Reports indicate that only about a third of the S&P 500 continues to provide quarterly guidance, or one in five public companies generally.  That data is largely consistent with a 2016 survey by NIRI, which shows that 67% of the companies that responded choose to provide annual guidance and another 20% provide guidance that spans more than one year.  Continue Reading

Two Recent Climate Change Disclosure Initiatives Affecting Banks and Greenhouse Gas Emitting Companies

Sixteen banks from four continents commit to furthering the Financial Stability Board’s Task Force on Climate-Related Financial Disclosure push for improved climate risk disclosure.  In addition, Climate Action 100+ invigorates its push on 161 large companies with either high greenhouse gas emissions or the potential to impact clean energy to improve their climate change disclosures and governance.  More details as follows:

16 Banks From Four Continents Commit to TCFD Pilot Project

Sixteen banks (Australia and New Zealand Banking Group (ANZ), Barclays, Banco Bilbao Vizcaya Argentaria (BBVA), BNP Paribas, Bradesco, Citi, DNB, Itaú Unibanco, National Australia Bank, Rabobank, Royal Bank of Canada, Santander, Société Générale, Standard Chartered, TD Bank Group and UBS) have joined a United Nations Environment Programme – Finance Initiative pilot project to help banks disclose their climate related financial risks in line with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (“TCFD”). Continue Reading

SEC Issues Sanctions for Inadequate Perk Disclosure

On July 2, 2018, the SEC issued an order criticizing an issuer’s disclosure of executive perquisites and requiring the issuer to take measures to ensure that its future disclosures comply with SEC standards. The SEC staff alleged that, over the course of 2013 to 2016, annual proxy statements issued by The Dow Chemical Company omitted disclosure of about $3 million worth of perquisites, including the use of the company aircraft and other expenses, which, according to the staff, should have been disclosed as “other compensation” to its named executive officers in the Compensation Discussion & Analysis (CD&A).

In a surprisingly strong response, the company was ordered by the SEC to retain an independent consultant for a period of one year to review the company’s policies, procedures, controls and training relating to the characterization and disclosure of expense reimbursements and other payments as perks, and to adopt recommendations made by the consultant to ensure compliance with the SEC’s rules governing perk disclosure. Continue Reading

Top Ten Human Capital Topics of Interest to Investors

Management of human capital is an increasing area of focus for investors as part of their ESG assessments. But what exactly falls under the “human capital” rubric, as the term seems at once both familiar and obscure, remains largely unsettled.

After some fairly unscientific research, including reading what various institutional investors and the standard setters that promote corporate disclosures say about the types of information they want companies to provide, the SEC rulemaking petition by the Human Capital Management Coalition, which we previously discussed here, and the analysis undertaken by the entities known as ESG “raters” who evaluate not only company statements but also third-party data, set forth below (in no particular order) is a list of ten items that appear to broadly fall within “human capital” discussions. Continue Reading

Another Equifax Employee Accused of Insider Trading

On July 29, Equifax determined that it had been subject to an IT breach that included sensitive information. A crisis team was formed to determine the scope of the intrusion and begin a notification and remediation plan. Many of the employees who were working on this project were not told the company’s systems had been attacked, rather, they believed they were working for an unnamed potential client that had experienced a large data breach.

This was the case for a software product development manager working at a unit of the company which sold personal security and identity theft defense products and services to clients. Continue Reading

Comptroller’s Office Details Results of Its Boardroom Accountability Project 2.0 on Board Diversity

Eighty percent of the companies targeted by the New York City Comptroller responded, according to a press release announcing the results of its Boardroom Accountability Project 2.0.

The Comptroller’s office wrote to 151 companies back in September, focusing on greater board diversity and transparency.  They asked companies to disclose a board skills matrix that would include not only the typical information in such matrices about qualifications and experience but also the directors’ gender, race and ethnicity.

Representatives of the Comptroller’s office ended up engaging with management at a little more than half of the companies that they approached, or 85 companies.  Continue Reading

SEC Commissioner Jackson Calls for Restrictions on Stock Buybacks

In a recent speech, Commissioner Jackson called for corporate stock buyback rule reform.  Citing research conducted by his staff on 385 buybacks over the last 15 months, he expressed concern that some executives are using buybacks to “cash out” their stock compensation during the stock price pop that often follows a company’s buyback announcement.  He criticized this trading as evidence that executives “are spending more time on short-term stock trading than long-term value creation.”  He also noted that when executives use buybacks to “cash out” stock compensation it breaks the link between executive pay and long-term corporate performance.

Commissioner Jackson argued that the SEC’s rules should be revised to, at a minimum, deny the Rule 10b-18 safe harbor “to companies that choose to allow executives to cash out during a buyback.”  He also called for an open comment period to generally reexamine stock buyback rules, including considering requiring more frequent disclosure of company share repurchase amounts. Continue Reading

Beware the Universal Proxy Card

One of the most high-profile proxy contests to use a universal proxy card ended on Tuesday, with some last-minute drama thrown in.

The board of SandRidge was engaged in a proxy contest with Icahn Capital.  In May, it announced that it had expanded its board to seven members in order to include two Icahn nominees on its ballot.  Icahn had refused to settle with the company after it offered to appoint those nominees to the board.

The company’s white proxy card contained five company nominees and two Icahn nominees.  Icahn’s gold proxy card included only five of his nominees.  The company stated that both ISS and Glass Lewis supported Icahn having minority, but not controlling, representation on the board, by recommending in favor of four of the company’s nominees and three Icahn nominees. Continue Reading