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


March 16, 2020

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 our minds as we continue to closely monitor the COVID-19 outbreak. Our thoughts are with all those presently impacted by the coronavirus and the health professionals working to care for them.

At this time, all 12 Gunster offices across Florida are open for business. As the COVID-19 situation evolves we will closely monitor guidance from the Centers for Disease Control and Prevention and local health officials around the country. Decisions about our business operations will be based upon their recommendations.

In the event the outbreak should result in any office closures in any of our locations, we are prepared to provide you with uninterrupted service remotely and to be responsive to your legal and business needs. Should this happen, we will inform you as quickly as possible. Again, at the present time, we are open for business. 

We wish everyone well as we collectively navigate this global health challenge. Rest assured that as circumstances continue to develop, one thing will remain the same: We will make our decisions with the well-being of our team members, clients and communities as our highest priority.

Please contact us with any questions or concerns.

Be well,

H. William ‘Bill’ Perry
Managing Shareholder

George S. LeMieux
Chairman, Board of Directors

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 nothing like the original proposal.

Still, I am intrigued by one item in the 2021 budget proposed by the White House – specifically, the effective elimination of the Public Company Accounting Oversight Board by merging it into the SEC.

I’ve never been a huge fan of the PCAOB.  For starters, the legislation that created it – the Sarbanes-Oxley Act – gave it a peculiar charter that limited its influence and its ability to change things that presumably needed changing.  Perhaps as a consequence, the PCAOB has often struck me as an agency whose mission was developing solutions to nonexistent (or at least obscure) problems and whose members and staff were excessively sensitive to any sort of pushback, starting with overt hostility if anyone referred to the then-new PCAOB as “P-COB.”

Some examples:

  • Some years ago I attended a program for audit committee chairs. (I was there to discuss effective disclosure.)  Part of the program involved some PCAOB members and staff discussing quantitative metrics by which audit committees could assess the quality of the audits of their companies.  When the assembled chairs said this was unnecessary or worse, the PCAOB folks became rather defensive, stating, among other things, that they were not really developing quantitative tests of audit quality (despite the fact that the metrics seemed to me to be doing precisely that) and that if there was opposition to the approach they would drop the matter.  (FYI – government agencies are not known to drop matters after several years of study and several millions of dollars of expenditures.)
  • When the PCAOB overhauled the “standard” audit report a few years later, a number of commentators (myself among them) suggested that the overhaul proposal would eliminate the “pass-fail” approach of the standard audit report and would make it harder for investors to understand what audits do – and, more important, what they do not do. Again, pushback and not a little hostility.

And the PCAOB has not been without a number of self-made challenges, including the leak of confidential information, the failed crusade for mandatory auditor rotation, severe criticism of the process by which the PCAOB conducts and deals with the results of auditor inspections, and so on.

I don’t for a moment dispute the ability and integrity of the PCAOB members and staff; like their counterparts at the SEC, they take their responsibilities seriously and work hard.  However, in the absence of a clear mission and a better mandate, it’s not clear to me that the PCAOB has accomplished much that wouldn’t have been accomplished anyway – perhaps through the oversight of the SEC rather than the creation of a new and sort-of independent agency.

So, while I think it is highly doubtful that this aspect of the budget proposal will move forward – after all, merging the PCAOB into the SEC would require changes to SOX that seem very unlikely  – I am intrigued by this not-so-modest proposal.

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:


  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”)

I don’t look at my RSS feed or my Twitter account until I’m finished with my day’s work, so it wasn’t until last night that I read Broc Romanek’s blog post announcing his retirement from  He’s already received a number of gracious and, I am sure, sincere paeans, including from my friend and mentee (or so he says) Doug Chia, and I won’t attempt to expand upon them.  Moreover, Broc is far too young and energetic to be the subject of what appear to be eulogies.  (To paraphrase something an elderly friend frequently says, he’s not dead yet!)

However, I will say that Broc is simply the best.  He’s incisively smart, hysterically funny, candid, passionate, inspiring, and one of the nicest people I’ve ever met.  And he is the fastest draw in the west, managing to scoop every other news source about SEC and governance matters.  I’ve also had the privilege – and great pleasure – of speaking at Broc’s annual conferences and participating in his webinars for the last few years, and in contrast to the scripted and sometimes over-planned presentations at so many other programs, speaking on panels (and listening to others) at a Broc program is just plain fun – unrehearsed, spontaneous, a bit crazy, yet always informative, in large part because they are so engaging.

I’ve had a great career, with lots of high points, but as far as I’m concerned, becoming an FOB (friend of Broc) is one of my professional pinnacles.

I know that Broc will move on to something else, and regardless of what it turns out to be, I know it and he will continue to be terrific.  Hopefully he’ll take us along for the ride.  For now, I can only wish him all he deserves.

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 to contain the mandated disclosures.

Of course, quite a few companies have been disclosing their hedging policies for years, including disclosures in the CD&A required under Item 402 of Regulation S-K.  However, the new rule is more detailed and contains some quirky provisions that should be considered in preparing the proxy statement language.

Here are a few high spots.

What Is “Hedging?”

The rule does not define the term “hedging.”  Instead, it refers to “the ability of employees (including officers) or directors…, or any of their designees, to purchase financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds), or otherwise engage in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value of registrant equity securities.”  I know that sounds circular, but the SEC doesn’t usually adopt rules that define terms by saying “you know what we mean.”

One particular pitfall may be the rule’s reference to exchange funds.  Unlike forward contracts, equity swaps, and so on, the use of an exchange fund may not intuitively seem like a hedging device.  And a company may well decide to exclude exchange funds from its hedging policy.  However, if that’s the case, the company will need to disclose that exclusion.

Practices and Policies 

The rule requires disclosure of a company’s “practices or policies … regarding the ability of employees (including officers) or directors, or any of their designees” to engage in hedging transactions (see the prior section).  The practices or policies need not be in writing.  Note that companies are not required to have hedging practices or policies.  However, a company that has no such policies or practices has to say so, which means that few if any companies will have no such policies or practices.  (Sound familiar?  Companies are not required to have an audit committee financial expert, but I’ve never encountered any company that doesn’t.)

While the rule doesn’t discuss what qualifies as a “practice,” some companies prohibit hedging indirectly, by requiring directors and officers to clear every transaction and declining to approve any transactions believed to constitute “hedging.”

Who’s Covered?

The rule refers to policies applicable to directors, officers, and employees, “or any of their designees.”  In my experience, companies generally avoid making hedging and some other policies applicable to all employees (much less their designees), for the simple reason that it’s practically impossible to monitor compliance with, much less to enforce, such a broad-based policy.  Given my view that having a policy you don’t or can’t enforce is worse than having no policy at all, I’d like to think that companies will be OK with limiting their policies (or practices) to officers and directors and, as required, describing that limitation in their proxy statements, but time will tell.

What’s Covered?

Disclosure is required with respect to equity securities of the company, any of its parents or subsidiaries, and any subsidiary of any parent.  Disclosure is also required regardless of whether the securities are held directly or indirectly and whether they were part of the individual’s compensation or otherwise.


As with any SEC rule, the devil is in the details, so you should read the rule carefully to better understand how it applies to your company’s unique facts and circumstances.

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