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Robert B. Lamm

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Bob Lamm chairs Gunster’s Securities and Corporate Governance Practice Group.  He has held senior legal positions at several major companies – most recently Pfizer, where he was assistant general counsel and assistant secretary; has served as Chair of the Securities Law Committee and in other leadership positions with the Society for Corporate Governance; and is a Fellow of The Conference Board ESG Center.  Bob writes and speaks extensively on securities law and governance matters and has received several honors, including a Lifetime Achievement Award in Corporate Governance from Corporate Secretary magazine.

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Photo by Ryan Smith
Photo by Ryan Smith

On July 14, the SEC Staff published a new Compliance and Disclosure Interpretation clarifying when an investor who may not be entirely passive may nonetheless remain eligible to file a beneficial ownership report on Schedule 13G rather than Schedule 13D.  Anyone who has tried to dance on the head of that pin will be relieved, particularly given the far greater disclosure burdens associated with the latter filing.

All other things being equal, the rules specify that a shareholder may file on the less burdensome Schedule 13G only if it acquired or is holding the subject equity securities with neither the purpose nor effect of changing or influencing control of the issuer.  However, the rules are not clear as to whether some actions (or an intent to engage in those actions) may make the 13G unavailable.Continue Reading To 13G or not to 13G

The United Kingdom has a new Prime Minister.  Her name is Theresa May, and she’s a member of the

Photo by Scott P
Photo by Scott P

Conservative Party.  Remember that, because what you are about to read will probably lead you to think otherwise.

In a speech made a couple of days before Ms. May became Prime Minister, she said that she would pursue the following actions if she were to become Prime Minister:
Continue Reading What happens in England

Photo by brennahRO
Photo by brennahRO

In recent years, the SEC – frequently due to Congressional mandates – has reduced the amount of disclosure that smaller public companies must provide.  Most recently, on June 27, the SEC proposed yet another rule that would reduce disclosure burdens by enabling more companies to qualify as “smaller reporting companies,” or “SRCs.”

The proposal would expand the definition of SRCs to cover registrants with less than $250 million in public float and registrants with zero public float if their revenues were below $100 million in the previous year.

If your company is not currently an SRC and you are wondering what relief you might get if you were, the proposing release lays it out in an easy-to-read table:
Continue Reading Smaller gets bigger

4532941987_9004c36616_mIn a June 27 speech to the International Corporate Governance Network, SEC Chair Mary Jo White engaged in a bit of full disclosure herself:

“I can report today that the staff is preparing a recommendation to the Commission to propose amending the rule to require companies to include in their proxy statements more meaningful board diversity disclosures on their board members and nominees where that information is voluntarily self-reported by directors.”

As noted in her remarks, the SEC adopted the current disclosure requirements on board diversity in 2009.  However, the requirements were added to other board-related disclosure requirements at the last minute, when it was reported that Commissioner Aguilar refused to support the other requirements unless diversity disclosure was also mandated.  As a result, the diversity requirements were never subjected to public comment, did not define “diversity,” and seemed to require disclosure only if the company had a diversity “policy”.   When companies failed to provide the disclosure because they had no policy, the SEC clarified that if diversity was a factor in director selection then, in fact, the company would be deemed to have a policy, thus requiring disclosure.Continue Reading Coming soon to an SEC filing near you: board diversity (but not sustainability…for now)

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© Michael Sutton-Long

In recent weeks, the SEC has given public companies some new menu items, including the following:

  • On June 1, the SEC adopted an “interim final rule” that permits companies to include a summary of business and financial information in Annual Reports on Form 10-K.  The rule implements a provision of the Fixing America’s Surface Transportation Act, or FAST Act, in keeping with the new trend to give statutes names that someone thinks make nifty acronyms. (Of course, the connection between this rule and surface transportation remains a mystery.)
  • On June 13, the SEC issued an order permitting companies to file financial statement data in a format known as “Inline XBRL” rather than filing such data in exhibits to a filing.

Here is a quick review of these new menu items.

The new, improved 10-K summary – The rule permitting a 10-K summary is interesting in several respects.  First, companies have long been able to provide summaries; in other words, there doesn’t seem to have been any reason for the “new” rule.  Second, as noted, it permits but does not require the use of summaries; thus, companies that have not provided summaries in the past and don’t want to now don’t have to.
Continue Reading The SEC’s summer menu

It’s almost exactly one year to the day since I took Senator Elizabeth Warren to task for what I believed was an unwarranted and particularly vicious attack on the SEC – or, rather, Chair White’s tenure at the SEC.  Apparently, Senator Warren decided to celebrate the anniversary with another attack on the SEC and Chair White at a Senate Banking Committee hearing.  (You can watch the entire unpleasantness here, including Senator Warren’s refusal to allow Chair White to answer any of her questions before launching another attack.)

This time, the attack was directed to the SEC’s “effective disclosure” project – something that many companies and investors support – claiming that by pursuing this project the SEC is putting companies’ interests ahead of investor protection and demanding that Chair White provide evidence to justify that investors are suffering from information overload.  Her comments to Chair White included the following: “Your job is too look out for investors, but you have put the interests of the Chamber of Commerce and their big business members at the top of your priority list.”

Really?  Perhaps Ms. Warren should ask some investors to testify.  She might learn that many investors do not read disclosure documents, particularly proxy statements (which will soon contain the pay ratio disclosures that she once said should be the SEC’s highest priority), because they are too long and investors just don’t have the time.  She might also learn that many investors applaud the SEC’s initiative, because it is designed to enhance some disclosures rather than just eliminate them. 
Continue Reading Senator Warren strikes again

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©killaee

Over the years, the PCAOB has developed a reputation for pursuing zombie proposals – proposals that appear to be dead due to widespread opposition and even congressional action.  Remember mandatory auditor rotation?  It practically took a stake through the heart to kill that one off, and I’m informed that even after it was presumed to be long gone some PCAOB spokespersons were telling European regulators that it might yet be adopted.

Well, here we go again.  The latest zombie proposal (OK, reproposal) would modify the standard audit report in a number of respects, the most significant of which would be to require disclosure of “critical audit matters”.  The headline of the PCAOB’s announcement of the reproposal says that it would “enhance” the auditor’s report; not clarify, just “enhance”.   And, as is customary whenever the PCAOB proposes to change the fundamental nature of the audit report, the proposal starts out by sayng that’s not the intention at all: “The reproposal would retain the pass/fail model of the existing auditor’s report,” it says.  It seems to me to lead to the opposite result – the introduction of critical audit matter (“CAM”) disclosure could easily lead to qualitative audit reports; one CAM would be viewed as a “high pass”, two would be ranked as a medium pass, and so on, possibly even resulting in numerical “grades” based upon the number of CAMs in the audit report.  And let’s not fool ourselves into thinking that any audit firm would ever issue a clean – i.e., CAM-free – opinion.  I just can’t envision that happening, ever.Continue Reading Another zombie from the PCAOB

bob-upticks-feature

Until recently, I’ve firmly believed that the SEC’s use of the bully pulpit can be effective in getting companies to act – or refrain from acting – in a certain way.  Speeches by Commissioners and members of the SEC Staff usually have an impact on corporate behavior.  However, the use of non-GAAP financial information – or, more correctly, the improper use of such information – seems to persist despite jawboning, rulemaking and other attempts to stifle the practice.

Concerns about the (mis)use of non-GAAP information are not new.  In fact, abuses in the late 1990s and early 2000s led the SEC to adopt Regulation G in 2003.  It’s hard to believe that Reg G has been around for 13+ years, but at the same time it seems as though people have been ignoring it ever since it was adopted.  Over the last few months, members of the SEC and its Staff have devoted a surprising amount of time to jawboning about the misuse of non-GAAP information; for example, the SEC’s Chief Accountant discussed these concerns in March 2016; the Deputy Chief Accountant spoke about the problem in early May 2016; and SEC Chair White raised the subject in a speech in December 2015.  And yet, the problem seems to persist.Continue Reading Mind the GAAP

On April 13, the SEC authorized the issuance of a major concept release. Concept releases are trial balloons that the SEC publishes to elicit input on possible rulemaking, including whether rulemaking is needed and what form it should take if it happens. The April 13 concept release is entitled “Business and Financial Disclosure Required by Regulation S-K”. Given that Regulation S-K spells out many of the disclosure requirements applicable to all sorts of Exchange Act filings, it’s bound to be significant.

The concept release is a very large trial balloon indeed – it runs to nearly 350 pages – and I have yet to crack it open. However, I do intend to read it. And I urge you to do the same, as it’s likely to impact disclosure requirements for the next generation.

Some preliminary thoughts about the concept release, based upon press reports and the opening statements made by the Commissioners during the meeting at which the release was approved for publication:
Continue Reading Another SEC concept release

One of the hottest topics in governance today is director refreshment. (No, that doesn’t refer to what your board members have for lunch.)  Boards comprised of long-serving directors do, in fact, tend to be “pale, male and stale” – i.e., comprised of old white men. Self-perpetuating boards are less likely to be diverse, and there is increasing evidence that companies with diverse boards tend to perform better (the evidence demonstrates correlation rather than causation, but it’s still evidence). There is also a plausible argument that self-perpetuating boards are less likely to challenge long-standing assumptions and practices, leading to board (and corporate) stagnation.

Perhaps it’s a poorly kept secret, but companies and boards have been concerned about this for years if not decades. Even boards that don’t engage in much introspection are often aware that some directors do not contribute much. As a result, companies and boards have tried all sorts of devices to force board refreshment – term limits and/or age limits having been the most common. Unfortunately, these devices have not worked very well, perhaps because they may be inherently ineffective, and no doubt also because companies often move the goalposts – age limits are waived (because keeping director X is deemed to be “in the best interests of the company”, whatever that means) or creep upward, term limits force good directors to retire, etc. And so, corporate America continues to search for the right approach. Some companies have adopted extremely long term limits (15 years), and others have said that average tenure may not exceed X years, but it’s too soon to tell whether these or other newer approaches will succeed.Continue Reading Governance by the numbers