Photo of Robert B. Lamm

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 Senior Fellow of The Conference Board Center for Corporate Governance.  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.

Some of our clients and friends may have seen this, but I hope followers of this blog will agree that it bears repeating.  Please stay healthy and safe.

Bob Lamm

Gunster

March 16, 2020

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A timely message from Gunster

Dear Gunster Clients and Friends,

We realize this is a difficult and unprecedented time. Our clients, colleagues and communities are foremost in

The SEC is re-examining one of the most important disclosures companies provide – Management’s Discussion and Analysis, or MD&A.  I’ve read lots of MD&As in my time, and to be completely candid, many of them – or at least too many of them – are poor.

There are lots of ways in which MD&As are poor, but my principal complaints are as follows:

  1. They don’t provide the “A” in MD&A – the analysis. Sales are up?  Great!  Why were they up?  Well, that’s anyone’s guess.  “Increased market acceptance of our product.”  Also great, but does “greater acceptance” mean that more units sold?  That customers were willing to pay more for each unit, so the company raised the price?  That the company expanded the markets in which the product is sold?  Beats me.
  2. Instead of discussing the “why’s,” companies do a cut and paste of key line items in their financial statements, sometimes with a “Percentage Change” column, indicating how much each line in, say, the P&L changed from period to period. In other words, they’re doing what any reader can do, which is precisely what prior SEC glosses on MD&A disclosure have said not to do.  And then they copy and paste sections of the notes to financial statements about how revenue is determined.  Again, no “why.”

I could rattle off a list of other weaknesses of many MD&As, but let’s move on.


Continue Reading Analyze This!

Image by Susan Cipriano from Pixabay

I don’t know very much about the federal budget process, but I do know that any budget proposed by the White House – regardless of its occupant – isn’t worth spending time on, and that by the time the budget is passed, it often looks

Image by Mystic Art Design from Pixabay

Once again, it’s time for me to depart from my nerdy governance life and list my 10 favorite books of the year gone by.  For those of you who are new to these annual posts, my top 10 list reflects what I read last year, rather than what was published during the year.

The only significant departure from prior years is that in a couple of instances I’ve combined two books by the same author.  So here goes:

Non-Fiction

  1. Say Nothing by Patrick Radden Keefe. This is probably the best work of what is now called “narrative non-fiction” that I’ve read in many a moon.  It tells the story of “The Troubles” in Northern Ireland but goes well beyond that.  It is gripping and sad and brilliantly executed.
  1. Why Be Happy When You Could Be Normal? By Jeannette Winterson. As long as we’re talking in superlatives, this is one of the best memoirs I’ve read in a long time – and I’ve read some very good ones.  Winterson had a miserable childhood that could ruin anyone, but she has risen above her beginnings with grace and humor.  This is one of the few books that is undoubtedly better as an audiobook, as Ms. Winterson is the narrator, and her Manchester accent is perfect.   (If you were driving near me on I-95 and saw me laughing out loud, reading the book will help you understand that I had good reason.)


Continue Reading My Year of Reading

About a year ago, I was speaking with the governance committee of a prospective client.  One of the committee members asked me what the “best practice” was in a particular area.  I said that I hate the term “best practice,” because one size never fits all, there is almost always a range of perfectly fine practices, and that a company needs to think about how a particular practice would work (or not) given its industry, its history, and its culture, among the many things that make a company unique.  Afterwards, I wondered if my candor would result in not getting the work, but evidently the committee agreed, and the rest is history.

At the time, I’d forgotten about a 2015 blog post I’d written on so-called best practices.  In fact, I continued to forget about it until I recently read a fantastic paper published by the Rock Center for Corporate Governance at Stanford.  Loosey-Goosey Governance discusses four misunderstood governance terms: good governance, board oversight, pay for performance, and sustainability.  Along the way it demonstrates how wrong “conventional” wisdom can be – and is – regarding what companies should and should not do in the governance realm.  Some examples:

  • Independent chairmen: There are those in the institutional investor community, the media, and elsewhere who seem to believe that having an independent chairman (or woman) of the board is the sine qua non of corporate governance.  I’ve long disagreed with this notion (see my earlier blog post), and Loosey-Goosey agrees with my view.  In fact, it points out “that research shows no consistent benefit from requiring an independent chair.”
  • Staggered boards: Similarly, the conventional wisdom holds that staggered boards are the next best thing to satanic. Loosey-Goosey sticks a pin in this balloon by noting that “research shows quite plainly that the impact of a staggered board is not uniformly positive or negative.”
  • Dual-class shares: I am not a fan of dual-class shares, particularly when they prevent boards of directors from having any meaningful role in governance. (As my good friend Adam Epstein has noted, it’s hard to understand why anyone would join a board of a corporation that doesn’t permit him/her to govern.)  However, here again, Loosey-Goosey points out that “[w]hile…research…on dual-class share structures tends to be negative, it is not universally so,” and that a dual-class structure can provide benefits.


Continue Reading “Loosey-Goosey Governance” (or, why I STILL hate “best practices”)

Image by Ron Porter from Pixabay

Although Dodd-Frank was enacted in 2010, the rule needed to implement one of its provisions – the requirement to disclose hedging policies – only recently took effect.  In fact, for calendar-year companies, 2020 will be the first year in which the proxy statement will have

Image by succo from Pixabay

A few years ago, a wonderfully outspoken member of the institutional investor community congratulated me on a corporate governance award I’d received.  She apologized for not being able to make it to the awards ceremony, referring to it – very aptly, IMHO – as the “nerd prom.”

Well, we’ve progressed from the nerd prom to a nerd war – specifically, the nasty fight over the August 19 Statement on the Purpose of the Corporation, signed by 181 CEO members of The Business Roundtable.  The Statement suggested that the shareholder-centric model of the modern American corporation needs to be changed and that “we share a fundamental commitment to all of our stakeholders.”  The stakeholders listed in the Statement were customers, employees, suppliers, and the communities in which the companies operate; however, other stakeholders were referred or alluded to, such as the environment.  And the final bullet point in the list stated that the signers were committed to:

“Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.”


Continue Reading The war of the nerds

Image by engin akyurt from Pixabay

In case you think that SEC Regulation FD is old news, think again.  A recent enforcement action makes it clear that Reg FD is alive and well.  (And, I might add, living in Boca Raton, Florida.)

Specifically, in an August 20 announcement, the  SEC announced that it had charged a Boca Raton-based pharmaceutical company with FD violations “based on its sharing of material, nonpublic information with sell-side research analysts without disclosing the same information to the public.”  The more detailed allegations include the following:

  • In June 2017, the company privately advised analysts of a “very positive and productive” meeting with the FDA about approval of a new drug. The next day – before any public announcement – the company’s stock closed up nearly 20% on heavy volume.
  • One month later, the company issued an early morning press release that it had submitted additional information to the FDA but “did not yet have a clear path” regarding its new drug application. The stock declined 16% in pre-market trading following the issuance of the release.  However, after issuing the press release but before the opening of the market, the company provided analysts with previously undisclosed information about the June FDA meeting.   The analysts published research notes with these details, and the stock rebounded, to close “only” 6.6% down for the day.


Continue Reading FD Lives!

In recent years, the SEC has made a number of incremental changes to make disclosures more effective – not only more meaningful and user-friendly for investors, but also helpful to those of us who prepare disclosures for our companies and clients.

The drive to make disclosures more effective seems to have kicked into a higher gear with the August 8 issuance of a proposal that may result in the most significant changes in the disclosure rules in more than 30 years.  The proposal would modify some key provisions of Regulation S-K, and in doing so would move considerably closer to a principles-based approach to disclosure.   Some details follow.
Continue Reading Disclosure effectiveness goes into high gear