Institutional investors and proxy advisory firms continue to develop and refine their policies regarding board diversity. While gender diversity on public company boards has been in focus for some time now, institutional investors and proxy advisory firms are also increasingly focusing on racial and ethnic diversity as part of their evolving approach to board diversity.

This post is a summary of published board diversity policies of certain institutional investors and proxy advisory firms into a singular resource for ease of reference. Below the initial breakdown, certain policies concerning board diversity shareholder proposals are described. 

Continue Reading A Summary of Certain Proxy Advisory Firm and Institutional Investor Board Diversity Policies

Fittingly, the Securities and Exchange Commission (SEC) came into March like a lion. In addition to numerous SEC enforcement actions being filed this month, there were important developments with respect to the SEC’s enforcement and examination programs.  This notice briefly describes three of these SEC developments.

March 3:  SEC Division of Examinations Releases 2021 Examination Priorities

The SEC’s Division of Examinations (formerly the Division of Compliance and Examinations) released its 2021 Examination Priorities.  The Division publishes examination priorities annually to provide insights into its current approach to conducting examinations of registered broker-dealers and investment advisers and to highlight the areas it believes present potential risks to investors and market integrity.

Some of the key SEC examination priorities identified in the release are:

  • Compliance with Regulation Best Interest and whether registered investment advisers have fulfilled their fiduciary duties of care and loyalty.
  • Whether firm business continuity and disaster recovery plans are accounting for the growing risks associated with climate change.
  • Adequacy of the compliance programs of registered investment advisers.
  • Compliance with anti-money laundering requirements.
  • Firm exposure to LIBOR and firm preparations for the discontinuation of LIBOR.

Continue Reading SEC Roars Into March With Significant Enforcement Developments

There has been significant discussion lately about the need to restrict or improve the disclosure of trades made by corporate executives under 10b5-1 plans. In late 2019, I co-authored a series for Corporate Counsel discussing why public companies should consider updating their insider trading policies and training (see below with links to the article series).  In part three of the series, I discussed the regulatory focus on 10b5-1 plans, the stock trading plans that corporate executives routinely rely on to trade company stock.

Despite the legitimacy and legality of 10b5-1 plans, they have come under scrutiny by the media, academics and government officials for being subject to manipulation by corporate insiders.  My article summarized two pieces of legislation that had been introduced in Congress seeking to require the Securities and Exchange Commission (SEC) to formally review the regulations governing 10b5-1 plans and determine whether additional trading restrictions were warranted.

Executive Trades Under 10b5-1 Plans Scrutinized

While these bills have stalled in Congress, government officials have continued to scrutinize executive trades made under 10b5-1 plans and call for additional restrictions on the scope and use of these plans.  Two seniors SEC officials recently took the time to express concerns about 10b5-1 plans shortly before leaving their posts.  In a speech on November 19, 2020, outgoing SEC Chairman Jay Clayton expressed concern about situations where trading occurs (or does not occur) around times that 10b5-1 plans are implemented, amended or terminated.

Continue Reading Insider Trading Policies and Training: Time for Another Refresher?

I was quoted in an article published by The Wall Street Journal examining how companies are reporting the financial impact of COVID-19 in disclosures. Regulating bodies have warned they will be closely monitoring disclosures this year to ensure companies are not misleading investors about the true positive and negative financial effects of the pandemic.

According to data provided in the article, only one in 10 of the companies that reported an adjusted figure for EBITDA during the three quarters through December 2020 also disclosed adjusted EBITDA because of COVID-19.

I point out in the article that “it isn’t surprising so few companies are doing coronavirus adjustments just because it’s so difficult to quantify some of these items.”

The full article, “Companies Put the Best Face on Covid-19’s Financial Impact,” was published by The Wall Street Journal on February 23 and is available online (subscription required).

Growing in popularity, special purpose acquisition companies (SPACs) continue to pique investor interest as an attractive mechanism through which a private company can raise growth capital and become a publicly traded entity. In 2020, the number of SPAC IPOs quadrupled from 2019 and 2021 is currently outpacing 2020 activity.

Please join Bass, Berry & Sims and Perella Weinberg Partners on March 4 at 11 a.m. Central for a complimentary webinar exploring the ins and outs of the SPAC and de-SPAC process. Bass, Berry & Sims attorney Jay Knight will lead a discussion with panelists Scott Ellyson, CEO at EQ Health Acquisition Corp. and Nikhil Menon, Managing Director at Perella Weinberg Partners, as they share their first-hand experience with this type of transaction. Speakers will cover the following topics:

  • Overview of the SPAC market structure and trends.
  • Advantages and disadvantages compared to a traditional IPO.
  • Factors involved in the SPAC lifecycle.
  • Potential PIPE considerations.
  • De-SPAC transaction considerations.

Who Should Attend?

  • Private company executives and directors considering capital raising and IPO alternatives.
  • Private equity fund managers and portfolio company executives considering whether to become a SPAC sponsor and/or engage in a de-SPAC transaction as an exit strategy.
  • In-house counsel at the above institutions.
  • M&A advisors.
  • Other interested professionals and advisors.

Continue Reading WEBINAR: Raising Capital through a SPAC Combination: Nuts and Bolts of the “De-SPAC”

Bass, Berry & Sims attorneys Kevin Douglas, Eric Knox and Sehrish Siddiqui were co-presenters alongside Stephanie Bignon, Assistant General Counsel, Delta Air Lines and Priya Galante, Vice President, Assistant General Counsel & Assistant Secretary, AutoZone at the Society for Corporate Governance’s Southeastern Chapter webinar earlier this month.

This program, titled, “Preparing for the Upcoming Proxy Season: Public Company Reporting & Disclosure Considerations,” provides companies with practical guidance on key securities laws developments impacting public companies, including recent SEC regulatory developments, evolving areas of investor focus, and COVID-19 trends.

Panelists cover the following topics:

  • MD&A and Recent Amendments to Items 301, 302 and 303 of S-K
  • Regulation S-K Modernization Amendments and Human Capital Disclosures
  • Risk Factor Disclosure
  • ESG in 2021 and Beyond
  • ISS, Glass Lewis and Institutional Investor Policy Developments (including director diversity disclosure considerations)
  • Non-GAAP Disclosure Considerations (including with respect to COVID-19 considerations)
  • Key Performance Indicators

About the Bass, Berry & Sims Corporate & Securities Practice

Public and private companies of all sizes across a variety of industries turn to Bass, Berry & Sims for counsel on a wide range of corporate matters, including mergers, acquisitions and dispositions; capital markets transactions; executive compensation issues; corporate governance; and shareholder activism. We serve as primary corporate and securities counsel to more than 35 public companies and have counseled on 150 deals ranging in size from $20 million to more than $15 billion over the past two years. Click here to learn more about the Corporate & Securities Practice at Bass, Berry & Sims.

Since the Bass, Berry & Sims Corporate & Securities Practice hosted its 2nd Annual Corporate & Securities Counsel Public Company Forum in December 2020, the Biden Administration has proposed a new Securities and Exchange Commission (SEC) Chairman. Below is an update from our 2021 Financial Reporting & Disclosure Considerations panel discussion, in which Bass, Berry & Sims member Scott Holley reviews some potential areas of focus for the SEC under the new administration.

On January 18, then-President-elect Biden announced that he intended to nominate Gary Gensler to serve as chair of the SEC. Gensler, a former Goldman Sachs executive, served as the chairman of the Commodity Futures Trading Commission during a portion of the Obama administration. Under Gensler’s leadership, it is expected that the SEC’s efforts will include an increased focus on enforcement efforts as well as disclosures relating to climate change risk and diversity and inclusion efforts of boards of directors. Gensler’s recent service as a professor at MIT, where he taught courses on blockchain technology, digital currencies and financial technology, could also shape his agenda at the SEC.

Continue Reading Public Company Forum Update: Reg. S-X Investment Test & SEC Focus under New Administration

In one of her first official actions as Acting Chair of the Securities and Exchange Commission (SEC or Commission), Allison Herren Lee reversed a major policy implemented by recently departed SEC Chairman Jay Clayton involving the SEC enforcement settlement process.  This decision could significantly impact the SEC settlement process by causing uncertainty for settling entities as to the business consequences of a settlement.  In a rare rebuke, two fellow SEC Commissioners promptly issued a statement decrying the Acting Chair’s decision.

Collateral Consequences of SEC Settlements

The federal securities laws contain provisions that impose restrictions on entities found to have violated certain statutes or regulations or that become subject to certain court-imposed injunctions or administrative orders.  These restrictions, commonly referred to as “collateral consequences,” range from prohibiting a settling entity (and possibly its affiliates) from taking advantage of certain exemptions under the federal securities laws to disqualifying an entity from engaging in specific business activities.  SEC settlements regularly trigger collateral consequences against settling SEC-regulated entities, like broker-dealers, hedge funds, investment advisers, and public companies.  For example, a public company issuer that settles with the SEC could be automatically disqualified from being considered a Well-Known Seasoned Issuer under Rule 405 of Regulation C.  Alternatively, a settlement could prohibit a settling investment adviser from providing advisory services to an investment company or from receiving cash fees for solicitations.

Given the serious collateral consequences an SEC settlement can trigger, and the fact that such consequences often are unrelated to the misconduct at issue in the corresponding SEC settlement, the SEC is authorized to grant disqualification waivers.  The SEC routinely grants waivers to prevent disproportionate and unintended consequences resulting from a settlement.

Continue Reading SEC Commissioners Square Off Over Enforcement Settlement Process

Following the Securities and Exchange Commission’s (SEC) issuance of interpretive guidance regarding the disclosure of key performance indicators and metrics (KPIs) early last year, we’ve been tracking SEC comments in this area as the SEC fully incorporates the guidance into its disclosure review program. We’ve highlighted a few of the comment letters previously, but several recently issued comment letters caught our attention.

Spotting a KPI

Under the SEC’s KPI guidance, a KPI is one of the key variables through which management evaluates a company’s performance or status, disclosure of which would be material to investors. The SEC guidance states as follows:

“Some companies also disclose non-financial and financial metrics when describing the performance or the status of their business. Those metrics can vary significantly from company to company and industry to industry, depending on various facts and circumstances. For example, some of these metrics relate to external or macro-economic matters, some are company or industry specific, and some are a combination of external and internal information. Some companies voluntarily disclose specialized, company-specific sales metrics, such as same store sales or revenue per subscriber. Some companies also voluntarily disclose environmental metrics, including metrics regarding the observed effect of prior events on their operations.”

The guidance reminds companies that when including metrics in their disclosure companies should consider existing MD&A requirements as well as the extent to which an existing regulatory framework applies, such as GAAP or, for non-GAAP financial measures, Regulation G or Item 10 of Regulation S-K.  Although the SEC guidance instructs companies to consider whether other regulatory disclosure frameworks apply, in practice the lines between a KPI metric and a non-GAAP financial measure can be blurred in some cases.  And because of the SEC Staff’s laser focus on non-GAAP financial measure disclosures the past several years, it is easy to see how some companies may choose to err on the side of categorizing a metric as a non-GAAP financial measure when the metric falls in this blurred area.

Continue Reading Are You Sure That Metric is a Non-GAAP Financial Measure? SEC’s Focus on Key Performance Indicators Continues

Following up on our prior blog post regarding 2020 first quarter COVID-19 adjustments in connection with the presentation of non-GAAP financial measures, we surveyed 102 S&P 500 companies who presented Adjusted EBITDA in their earnings release filed from October 1, 2020, to December 31, 2020.

We focused on Adjusted EBITDA in this survey (recognizing that such measure is utilized more frequently in some industries than others) because such measure is commonly utilized by public companies to measure their operational performance and frequently includes adjustments for items that are believed not to reflect the ongoing operational performance of the company.  While we limited our survey to S&P 500 companies that presented Adjusted EBITDA, we believe that the survey results have relevance for companies that present other types of non-GAAP performance measures that are adjusted for special items or items outside of the ordinary course of business.

Survey Results

Of the surveyed companies, 16 companies, or approximately 16%, included an adjustment in their calculation of Adjusted EBITDA related in some form to the COVID-19 pandemic, and 84% did not. The companies that included a COVID-19 adjustment in their Adjusted EBITDA calculation span across various industries, including, but not limited to, oil & gas, real estate, telecom services, lodging/hotel, and medical/scientific instruments. Continue Reading Adjusting for COVID-19 in Non-GAAP Financial Measures: A Survey of 2020 Fourth Quarter Disclosure Practices