In Case You Missed It – Interesting Items for Corporate Counsel – May 2017

Jay Clayton was sworn in as the SEC Chair
Jay Clayton was sworn in as the SEC Chair
  1. The SEC has been relatively quiet since November because it has been without a chair or a full board. At least one of those issues was resolved last week when Jay Clayton was sworn in as the SEC Chair. See here. Nine Democrats and one Independent Senator joined 51 Republicans to approve the nomination. That puts Clayton roughly in the middle of the pack for Senate confirmation votes for Trump nominees, with Devos (Education, 51-50), Mulvaney (OMB, 51-49), Sessions (AG, 52-47), Price (Health, 52-46) and Pruitt (EPA, 52-46) on one side of the spectrum and Shulkin (Veterans, 100-0), Mattis (Defense, 98-1), Haley (UN, 96-4) and Chao (Transportation, 93-6) on the other. On the heels of Clayton’s confirmation, the SEC announced, here, that Bill Hinman will be the head of the SEC’s Division of Corporation Finance. Hinman, a former partner at Simpson Thacher in the Bay Area, like Clayton, has transactional rather than litigation experience.  
  2. To ensure we land in the new SEC Chair’s good graces, a summary of SEC comments on non-GAAP disclosures since the SEC’s May 2016 guidance (in which the SEC told you it was going to get tougher on these disclosures), published by his erstwhile law firm, is here. The big seven failings, from over 500 comments analyzed, are, in order:
    • Prominence of GAAP measures;
    • Explanation of usefulness of non-GAAP measures;
    • Misleading adjustments;
    • Presentation of income tax effects;
    • Revenue recognition;
    • Misleading titles; and
    • Per share liquidity measures.  
  3. The annual IPO study published by Proskauer Rose, available here, noted, in addition to discernible trends, an anemic IPO year in 2016.  
  4. In proxy statement news:
    • Recall that you must disclose your board’s determination of how frequently to hold say-on-pay votes in light of the shareholder vote on say-on-pay frequency . We think a good practice is to just get the board determination done immediately after the shareholder vote, particularly if your shareholders’ vote followed the board’s recommendation, which usually is for an annual say-on-pay. If you didn’t do this, you must amend the 8-K that announced voting results to add this disclosure. Failing to make the disclosure could foil your ability to use Form S-3 for a year. (Check out Item 5.07(d), here.)  
    • According to Reuters, here, Institutional Shareholder Services has grown less kind to endorsing shareholder-activist proxy proposals.  
    • An analysis of shareholder request no-action letters, up in 2017 compared to last year, is here.  
  5. In last month’s ICYMI, we cited case law on the serial comma, to the delight of grammar nerds everywhere. To further emphasize the importance of commas generally, we note this sign at a recent event we attended. (There were surprisingly many takers for these.)  
  6. Under the heading “things to be afraid of” or “finally, justice,” depending on your worldview:
    • It’s not just disgruntled employees that will rat you out to the SEC. A story of two analysts who reported fishy numbers to the SEC, and who may get a $2.5 million whistleblower pay day for it (in addition to whatever they may have made by shorting the stock), is here.  
    • An analysis of the “clawback” of Wells Fargo’s executive compensation in the wake of its fake customer account scandal, is here. A particularly interesting point – the scandal did not result in a restatement and therefore would not have required a clawback under the Sarbanes-Oxley Act or the Dodd-Frank Act. Wells Fargo’s clawback policy is broader. A not particularly interesting point – huge financial incentives may encourage risky or even illegal behavior. (As a reminder, the clawback rules proposed by the SEC in July 2015, here, are still just that, “proposed.”)  
    • Although little has been done on the rule-making front, and despite fears that the Trump Administration wouldn’t enforce anything against anyone, SEC enforcement action through the end of March 2017 remained strong. See here.  
  7. Last month we described the SEC guidance that it won’t seek enforcement action against companies that don’t comply with the source and chain of custody due diligence requirements in Item 1.01(c) of Form SD. Pushback from NGOs, that urge companies to ignore the SEC guidance, is reported here. Meanwhile, the annual GAO report on conflict minerals reporting (here) says that progress on confirming the sources of conflict minerals has in any case been slow. Whatever the form of your conflict minerals report, it’s due on May 31.  
  8. Finally, for a bit of fun reading (at least if you have a warped sense of what is fun), an annual report for the U.S. Government, as reported on Form 10-K, is here. Risk factors and everything.

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