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I’ve been known to make some weird connections in this blog, so if you’re wondering what’s with the title of this posting, read on.

Some years ago, my wife and I took a fabulous trip to Egypt.  One of the many fascinating things and people we learned about was Hatshepsut, a Pharaoh who ruled Egypt from 1479 to 1458 BC, or thereabouts.  She’s been called Queen Hatshepsut, but technically that’s not correct, because she was literally a Pharaoh – a title that our guides told us was an exclusively male title for which there was no female equivalent.

Hatshepsut is believed to have been a very successful leader, opening trade routes and creating a boom in the construction of many grand temples and so on – something one of our guides referred to as an “edifice complex.”  However, after her death, her son, Pharaoh Tutmosis III, and possibly his son (to say nothing of the patriarchy) sought to eradicate her existence.  Her name was removed from records and many of her statues and images were defaced or destroyed.

But enough ancient history. …
Continue Reading Why Is the SEC Like Pharaoh Tutmosis III?

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Lest you think that the summer is a quiet time for those of us in the wacky world of securities and corporate governance, think again.  Here’s some of what’s going on:

Legislation

On July 30, the House Financial Services Committee passed 11 bills and sent them to the full House. One of the bills would authorize the SEC to revise the reporting period for 13F disclosures from quarterly to monthly, change the time period to submit such reports, and expand the list of items to be disclosed to include certain derivatives.  The issuer and investment communities support these moves, and House passage seems likely, but the Senate is another matter altogether.

Another bill would impact family offices in a number of ways, including limiting the use of the family office exemption from registration as an investment adviser with the SEC to offices with $750 million or less in assets under management; requiring family offices with more than $750 million of assets under management to register with the SEC as “exempt reporting advisers”; and preventing persons who are barred or subject to final orders for conduct constituting fraud, manipulation, or deceit from being associated with a family office.
Continue Reading Summer Doldrums? Not So Much!

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In the last several days, the SEC has engaged in a skirmish, and possibly an opening battle, against SPACs.  A recap follows.

The first shot was fired on March 31, when the Staff of the SEC’s Division of Corporation Finance and the Office of Chief Accountant issued separate public statements about a number of risks and challenges associated with taking private companies public via “deSPAC” transactions.

The CorpFin statement covered a lot of territory, pointing out the following pitfalls, among others, facing companies that go public via a deSPAC.  These pitfalls reflect that such companies are subject to rules governing shell companies that do not apply to companies going public through conventional IPOs.

  • Financial statements for the target must be filed with an 8-K report within four business days of the completion of the business combination.  The usual 71-day extension for such financial statements is not available.
  • The combined company will not be eligible to incorporate Exchange Act reports or proxy or information statements until three years after the completion of the business combination.
  • The combined company will not be eligible to use Form S-8 for the registration of securities issuable under compensation and benefit plans until at least 60 calendar days after the combined company has filed current Form 10 information. (This information is customarily included in a “Super 8-K” filed within four business days after closing of the deSPAC transaction.)
  • For three years following the completion of the deSPAC transaction, the company will be unable to use some streamlined procedures for offerings and other filings, such as using a free-writing prospectus.

The statement also reminds companies that public issuers are required to maintain accurate books and records as well as internal control on financial reporting – both areas that have been the basis for enforcement actions by the SEC.
Continue Reading Caveat Everybody — The SEC Takes Aim at SPACs

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I have long been a champion of shareholder engagement.  Since as far back as the 1980s, I have believed that companies and investors alike greatly benefit from engagement; I even advocated for engagement by individual directors – a view that generated some strong adverse commentary from those in the corporate community who disagreed with me.  It’s therefore extremely gratifying to me that what was a rare and often disparaged occurrence has become the norm.  Even prestigious law firms that referred to director-investor meetings as “corporate governance run amok” now embrace the practice.

I also admit that, despite my disagreement with the principles behind say on pay votes, such votes have had the very positive unintended consequence of making engagement commonplace.  In fact, there is so much engagement going on that some investors can’t find the time to meet with the companies they own.

So far, so good.

However, I believe that things may be going too far.  I refer, specifically, to the new movement to have a “say on climate” vote at every public company’s annual meeting (or, as the corporate community increasingly refers to it, the annual general meeting, or AGM – as opposed to an annual “specific” meeting, I suppose).  The vote would be similar to the say on pay vote – advisory, non-binding, and so on.  I have not yet heard anything about a second advisory vote to determine how often a say on climate vote would need to be taken, but I would not be surprised to learn that it’s under consideration somewhere.
Continue Reading Say what???

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My apologies to those of you who thought I would expound on the corporate governance implications of Madonna’s early oeuvre; but I want to write about materiality, and I’m a sucker for a catchy title.

Those of us who spend our waking (and many sleeping) hours thinking about disclosure know that materiality is the linchpin of disclosure; if something is material, you at least have to consider disclosing it – though of course, probability and other factors can impact that decision.  We also know that there are any number of judicial interpretations of what is and is not material.  However, it seems to me that we are approaching a tipping point in how materiality may impact disclosures.

Take, for example, the position of SEC Commissioner Elad Roisman, who has stated, in effect, that there is no need for SEC rules explicitly requiring disclosures concerning climate change and other ESG matters, because existing rules already require disclosure of anything that is material to a company.  (For example, see his keynote address to the 2020 National Conference of the Society for Corporate Governance.)  I have been a member of the Society for many years, and I have heard many of my fellow members express similar views.  However, if that is the case, taking that view to its logical extreme, why have any specific disclosure requirements at all?  Why not just say “tell us what’s material”?
Continue Reading Living in a material world

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In 1729, the great satirist, Jonathan Swift, penned an essay called “A Modest Proposal.”  The essay suggested that rather than allowing poor, starving children to be a burden on society, they should be fattened up and eaten.

How does this relate to corporate governance, you ask?  Well, here goes.  Anyone who has ever had children or spent any time around children knows that at some point most rug rats become incessant and indefatigable interrogators, their favorite question being “why?”  “Why do I have to eat vegetables?” [Because they’re good for you.] “Why?” [Because if you don’t eat vegetables you won’t grow to be big and strong] “Why?” [Because vegetables have vitamins and minerals that you need] “Why?”  And so on.  These wee tads are never satisfied with any answers, regardless of their logic or compelling authority; thus, responses like “Because I’m your father and I make the rules” go unheeded.  The “whys” just keep on coming, ad nauseam (literally).
Continue Reading A Modest Proposal II: Don’t eat children; put them on boards instead!

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First, Broc Romanek

I don’t often write about the people I’ve come across in the course of my absurdly long career, but there are some exceptions.  One exception was a December 2019 post in which I noted that Broc Romanek had retired from thecorporatecounsel.net.  At the time, I predicted (probably because I hoped it would be true) that we hadn’t heard the last of him.  I am thrilled to report that my prediction has come true, as Broc has recently launched ZippyPoint.com, his latest and no doubt greatest achievement.

Why “ZippyPoint”?  Well, why not?  It’s punchy and catchy.  The fact that the name has nothing whatsoever to do with securities law or corporate governance makes it all the more endearing (though the website is all about securities law and corporate governance).  It’s also typical of Broc’s great and weird sense of humor.
Continue Reading Ups and Downs

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I never thought I’d find myself quoting Her Majesty, Elizabeth II (even though we do share the same birthday), but 2020 was truly an annus horribilis.  However, now that it is behind us, if only barely, it is once again time for my annual post on my 10 favorite books of the year gone by.  For those of you who have not read my past “top tens,” these are books that I read during the past year rather than books that were published during the year, although some of the latter are included.  For those of you who have read my past top tens, I’m adding a couple of special features – two honorable mentions and one book that is incontestably the worst book I read in 2020 (and for many previous years as well).

So here goes.

Non-Fiction

Even though I read quite a few more works of fiction than non-fiction in 2020, and even though it was the kind of year that could drive anyone away from reality, more of my favorite books of the year were non-fiction, so it was much harder to narrow down the choices.  They included:

A Promised Land, by Barack Obama: One of the finest memoirs I’ve ever read, President Obama’s memoir is fascinating, straightforward, and clearly written by him; it’s a printed version of his voice.  I got through its 700 pages in just a few days and can’t wait to read the second volume.  Outstanding.

When Time Stopped, by Arianna Neumann: I’ve probably read hundreds of both fiction and non-fiction books about the Holocaust, but this is among the finest; a beautifully written, engrossing, and sympathetic memoir of a woman’s quest to find out more about her father and his family in wartime Czechoslovakia and Germany and postwar Venezuela and the US.
Continue Reading The Best of Books in the Worst of Times

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In case you missed it, there was a rather provocative article in a recent issue of The Wall Street Journal entitled “How to Give Shareholders a Say in Corporate Social Responsibility” (subscription required).  It was written by a professor and an executive fellow at London Business School and suggests that “if companies are going to pursue goals beyond profits, investors should be allowed to weigh in.”  Specifically, it proposes “to give investors a ‘say on purpose’ vote, similar to the two-part ‘say on pay’ votes that investors have in Europe.”  The article goes on:

“Here is how it would work. A company issues a statement… stating its purpose beyond profits…. [I]t would clarify the… trade-offs the company might make between investors and stakeholders (say, it will sacrifice profits to reduce carbon emissions) or between different stakeholders (it will decarbonize even though doing so will lead to layoffs). Every three years, investors would have a ‘policy vote’ on this statement, to convey whether they buy into it and the trade-offs it implies. An investor would vote against it if he or she disagrees with the priorities, or if it is so vague it gives little guidance on what the company stands for.”

Now I grant you that say on pay votes have generally benefited both companies and investors by encouraging and facilitating engagement between the two.  I also grant you that among the topics investors and companies might discuss is how companies should address their “purpose.”  But voting on it?  I beg to differ.
Continue Reading Say on What???

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It’s no secret that the smaller a company’s market cap, the less likely it is to be concerned with governance “nice-to-haves,” such as independent board leadership, annual elections of directors, and board diversity.  Over the years, I’ve heard time and time again, “next year is the year when all these things will begin to trickle down to the smaller-cap companies.”  After a while, these assurances began to sound like the old line about quitting smoking – “I can quit whenever I want – after all, I’ve done it many times.”

Perhaps the great governance trickle-down has begun.  On December 1, 2020, Nasdaq announced that it had filed with the SEC a proposed change in its listing standards that “would require all companies listed on Nasdaq’s U.S. exchange to publicly disclose consistent, transparent diversity statistics regarding their board of directors [and] to have, or explain why they do not have, at least two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ+.”  An “underrepresented minority” is “an individual who self-identifies in one or more of the following groups: Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander or Two or More Races or Ethnicities.” If adopted, the proposal would be implemented based on a company’s listing tier and would eventually apply to the roughly 3,000 companies listed on Nasdaq.
Continue Reading Has the great governance trickle-down begun? Nasdaq pushes for board diversity