Two news items from the front lines:
First, you may recall my mentioning that the Council of Institutional Investors was considering adopting a new policy that would limit newly public companies' ability to include "shareholder-unfriendly" provisions in their organizational documents (see "Caveat Issuer", posted on February 13). I just came back from Washington, DC, where I attended the Council's Spring Meeting, and the new policy appears to have been adopted as proposed. While the text of the new policy was not made available at the meeting, and has yet to be posted on the Council's website, it appears to provide that while some of these provisions can be in place when a company goes public, others -- such as plurality voting for directors in uncontested elections -- should be absent from the get-go.
By the way, my hotel room had a lovely view of the Jefferson Memorial, and the cherry blossoms were about to pop.
In other news, the SEC has announced, by way of a Sunshine Act Notice, that at an open meeting to be held on March 30 it “will consider whether to issue a concept release seeking comment on modernizing certain business and financial disclosure requirements in Regulation S-K”. Looks like the disclosure effectiveness program may be moving forward. Watch this space for details.
According to SEC Chair White, regulators are looking – and not happily – at companies’ increasing use of customized financial disclosures. In fact, her recent remarks suggest that additional regulation is not being ruled out to curb the use of such “bespoke” data.
For some of us it may seem like only yesterday – though it was actually in 2003 – that the SEC adopted Regulation G to address the then-growing concern that companies were developing odd ways of communicating financial information to make their numbers look better. In general, Reg G says that companies
- cannot make non-GAAP disclosures more prominent than GAAP disclosures;
- need to explain why they use non-GAAP disclosures; and
- must provide a reconciliation showing how each non-GAAP measure derives from the GAAP financial statements.
So far, so good. However, some companies give little more than lip service to these requirements. For example, it’s not unusual to see Item 2 addressed by a statement along the lines of “investors who follow the company use this measure to assess its performance.” And, more recently, companies seem to be developing more peculiar ways of showing performance, such as excluding the effects of some taxes but not others. This creativity may not be as arch as excluding recurring items or turning losses into gains, but it still makes regulators uneasy.
We are pleased to provide a posting from our colleagues, William K. Hill, a shareholder in Gunster’s Business Litigation practice group, and Joshua A. Levine, an associate in that practice group. On January 22, 2016, as part of the Delaware Court of Chancery’s decision concerning the stockholder class action challenging Zillow’s acquisition of Trulia, see… Continue Reading