One of the surprises of the 2018 proxy season was the use of Notices of Exempt Solicitation by shareholders that almost certainly did not meet the $5 million holding threshold that would require filing under Exchange Act Rule 14a-6(g).  Rule 14a-6(g) requires a person who owns more than $5 million of the company’s securities and engages in a solicitation without seeking to collect, or act as, a proxy to file solicitation materials with the SEC. Continue Reading SEC Staff Releases Two New C&DIs on the Use of Notices of Exempt Solicitation

DOJ has expanded its efforts to give more concrete guidance to companies facing FCPA risk to M&A transactions and the question of successor liability.  In a speech on July 25, 2018, at the American Conference Institute’s 9th Global Forum on Anti-Corruption Compliance in High Risk Markets, Deputy Assistant Attorney General Matthew S. Miner highlighted DOJ’s views on successor liability for FCPA violations by acquired companies.[1]  Miner sought to clarify DOJ’s policy regarding the voluntary disclosure of misconduct by successor companies and to highlight the benefits of such disclosure as spelled out in the joint DOJ and SEC FCPA Resource Guide (the “Resource Guide”).[2]  In general, as with other recent pronouncements and actions by DOJ, such as the FCPA Corporate Enforcement Policy,[3] Miner’s speech seemed intended to highlight ways in which firms can gain cooperation credit (up to and including a declination) in FCPA investigations. Continue Reading DOJ Remarks Provide Guidance on Addressing FCPA Risk in M&A Transactions

During the course of the last month, the Securities and Exchange Commission (“SEC”) brought two enforcement actions related to inadequate disclosure of perquisites.  In early July, the SEC issued an order finding that, from 2011 through 2015, an issuer failed to follow the SEC’s perquisite disclosure standard,[1] which resulted in a failure to disclose approximately $3 million in named executive officer perquisites.[2]   In addition to the imposition of a $1.75 million civil penalty, the SEC order mandated that the issuer retain an independent consultant (at its own expense) for a period of one year to conduct a review of its policies, procedures, controls and training related to the evaluation of whether payments and expense reimbursements should be disclosed as perquisites, and to adopt and implement all recommendations made by such consultant. Continue Reading Recent SEC Enforcement Actions on Inadequate Perquisite Disclosure

A recent report in the Wall Street Journal, drawing on a source “familiar with the matter”, indicates that the Securities and Exchange Commission’s Division of Enforcement has launched a probe into whether certain issuers may have improperly rounded up their earnings per share to the next higher cent in quarterly reports. While the SEC has neither confirmed the report nor otherwise disclosed the existence of any such investigation, the Journal reports that the SEC has sent inquiries to at least 10 companies requesting information about such accounting adjustments that could have inflated reported earnings. The targeted companies have not yet been identified. Whether the reported inquiries amount to a broad-based sweep of issuer accounting practices remains to be seen. However, such an investigation would be consistent with SEC Chairman Jay Clayton’s announced enforcement priorities, which include a focus on public-company accounting practices and the protection of retail investors.

Please click here to read the full alert memorandum.

When the staff (the “Staff”) of the Division of Corporation Finance of the Securities and Exchange Commission (“SEC”) released Staff Legal Bulletin No. 14I (“SLB 14I”) last fall, it seemed that the Staff was potentially signaling that it would be taking a more issuer-friendly approach in its review of no-action letter requests (“NALs”). In particular, the language in SLB 14I regarding the role of the board of directors suggested that the Staff may defer to the board’s determination of whether a shareholder proposal focuses on a significant policy issue, in the case of the “ordinary business” exception (Rule 14a-8(i)(7)), and whether the shareholder proposal is significantly related to the issuer’s business, in the case of the “economic relevance” exception (Rule 14a-8(i)(5)), as long as the NALs provided a sufficiently detailed discussion of the board’s analysis and the “specific processes employed by the board to ensure that its conclusions are well-informed and well-reasoned.” For example, SLB 14I stated that these types of “determinations often raise difficult judgment calls that the Division believes are in the first instance matters that the board of directors is generally in a better position to determine.” One could read that language to mean that including a well-developed board analysis could significantly influence the outcome for a NAL based on the “ordinary business” exception and/or the “economic relevance” exception. Continue Reading Making Sense of the SEC’s 2018 NALs on Shareholder Proposals for the Proxy Statement

On May 21, 2018, The Conference Board and Cleary Gottlieb Steen & Hamilton LLP hosted a panel discussion on the work of the Sustainability Accounting Standards Board (SASB). Participants in the panel discussion included Alan Beller, Senior Counsel at Cleary Gottlieb, Tom Riesenberg, Director of Legal Policy and Outreach at SASB and Stephanie Tang, Director of Legal, Corporate Securities at Stitch Fix.

Moderator Doug Chia, executive director of The Conference Board, and the panelists outlined the history and mission of SASB, including the development and implementation of industry-specific standards for sustainability reporting. They discussed the robust processes by which these standards were developed, and how they have been received by both companies and investors. The session also focused on the standard of materiality and the issues of liability in the context of the SEC’s reporting requirements. Additionally, the panelists discussed the board of directors role and the governance considerations undertaken by management and the board of directors in the context of sustainability reporting.

A replay of the webcast is available (please note that your browser may require you to run an Adobe plugin to access this content).

On May 11, 2018, the SEC’s Division of Corporation Finance released new Compliance and Disclosure Interpretations (“C&DIs”) regarding the interpretations of the proxy rules and Schedules 14A and 14C.  These replace the telephone interpretations contained in the Proxy Rules and Schedule 14A Manual of Publicly Available Telephone Interpretations and the March 1999 Supplement to the Manual of Publicly Available Telephone Interpretations (collectively, the “Telephone Interpretations”).  The C&DIs are available here.

Certain C&DIs reflect minor substantive or technical changes from the telephone interpretations.  The SEC has indicated that questions 124.01, 124.07, 126.02, 151.01, 161.03 and 163.01 reflect substantive changes from the answers provided in the Telephone Interpretations.  Additionally C&DIs 126.04, 126.05, 158.01 and 158.03 reflect technical revisions.  The remaining C&DIs have only non-substantive changes from the versions in the Telephone Interpretations.

For a comparison of the telephone interpretations against the new C&DIs in which substantive or technical changes were noted, please see here.

On April 24, 2018, Altaba, formerly known as Yahoo, entered into a settlement with the Securities and Exchange Commission (the “SEC”), pursuant to which Altaba agreed to pay $35 million to resolve allegations that Yahoo violated federal securities laws in connection with the disclosure of the 2014 data breach of its user database.  The case represents the first time a public company has been charged by the SEC for failing to adequately disclose a cyber breach, an area that is expected to face continued heightened scrutiny as enforcement authorities and the public are increasingly focused on the actions taken by companies in response to such incidents.  Altaba’s settlement with the SEC, coming on the heels of its agreement to pay $80 million to civil class action plaintiffs alleging similar disclosure violations, underscores the increasing potential legal exposure for companies based on failing to properly disclose cybersecurity risks and incidents.

Please click here to read the full alert memorandum.

2017 began with a heightened level of uncertainty as the beginning of the year brought significant change in the legal environment, including a change in administration that promised to significantly alter the tenor of regulation. While certain changes did occur in 2017, in many respects, 2018 is setting itself up as the year to watch for continuing developments in areas that are likely to fundamentally transform how companies operate and interact with an increasingly larger number of vocal stakeholders. The trends discussed in each of the sections of this memorandum will increasingly be a focus of boards of directors and companies in the United States and across the globe, particularly as boards consider how best to assess and assist in mitigating associated risks. The role that the board and its oversight plays in guiding companies in these times will be critical and a strong understanding of the issues and challenges facing boards and companies over the next year and beyond will assist boards in addressing the issues and complexities that will undoubtedly arise in 2018.

We invite you to review these topics by clicking on the links below.

For a PDF of the full memorandum, please click here.

Selected Issues for Boards of Directors 2018 (Home Page)

Developments in Best Practices in the Boardroom

Significant Regulation and Reform Under the Trump Administration

Activism in 2018

Cybersecurity and Data Privacy Updates

The New DOJ FCPA Corporate Enforcement Policy Highlights the Continued Importance of Anti-Corruption Compliance

Evolution or Revolution for Companies with Multi-Class Share Structures

Corporate Governance in the Context of Brexit and Political Uncertainty in the United Kingdom and Europe

 

On November 1 2017, the Securities and Exchange Commission (“SEC”) released guidance (Staff Legal Bulletin No. 14I (“SLB 14I”)) clarifying the scope and application of the ordinary business and economic relevance grounds for excluding a shareholder proposal under Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) from a company’s proxy statement.[1]  On November 20, Apple Inc. became the first corporation to attempt to use this guidance in a request for no-action relief from the staff of the SEC’s Division of Corporation Finance (the “Staff”), in response to governance activist Jing Zhou’s proposal that Apple create a board committee focused on human rights (the “Proposal”).  On December 21, 2017, the Staff responded, denying Apple’s request to exclude the Proposal from its proxy materials.

Continue Reading Apple’s Unsuccessful Test of the SEC’s Recent Guidance on Shareholder Proposals