Monthly Archives: November 2019

Form 20-F for Fiscal Year 2019: What Foreign Private Issuers Should Keep in Mind

Brian Breheny Julie Gao, and Adrian Deitz are partners at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden memorandum Mr. Breheny, Ms. Gao, Mr. Deitz, James A. McDonald and Pranav L. Trivedi.

There have been significant recent developments in U.S. Securities and Exchange Commission (SEC) regulation of foreign private issuers, (FPIs) including changes that impact the annual report on Form 20-F for fiscal year 2019. Below we discuss some of the recent highlights, as well as recent rulemaking activity by the SEC, the New York Stock Exchange (NYSE) and the Nasdaq Stock Market (Nasdaq) that is relevant to FPIs.

Critical Audit Matters (CAMs)

The requirements for auditors to disclose CAMs in the auditor’s report, based on Public Company Accounting Oversight Board’s (PCAOB) new standard, AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, will take effect for audits of fiscal years ending on or after (i) June 30, 2019, for large accelerated filers; and (ii) December 15, 2020 for other issuers. Audit reports of “emerging growth companies” are not required to include CAM disclosures.


The SEC’s Evolving Views Regarding Proxy Advisors

Frank M. Placenti is partner at Squire Patton Boggs LLP. This post is based on a Squire Patton Boggs memorandum by Mr. Placenti and Sarah Wolf Ruest.

Executive Summary

On August 21, 2019, the U.S. Securities and Exchange Commission (the “SEC”) issued new guidance regarding the role of proxy advisors in the proxy voting process. This guidance is expected to play an important role in the upcoming 2020 proxy season, as the Commission further defines the voting obligations of registered investment advisors and seeks to promote greater accountability on the part of the proxy advisory firms.

This guidance was followed by an announcement on November 5, 2019 of proposed rules governing proxy advisors and their investment advisor clients. These proposed rules were, in the words of the SEC, intended to “improve [the] accuracy and transparency of proxy voting advice.” If adopted, the proposed rules would represent a complete sea change in the manner in which proxy advisors interact with both issuers and investment advisors.


CEO and Executive Compensation Practices: 2019 Edition

Matteo Tonello is Managing Director at The Conference Board, Inc. This post relates to CEO and Executive Compensation Practices: 2019 Edition, an annual benchmarking report authored by Dr. Tonello with Paul Hodgson of ESGauge and James Reda of Gallagher. Related research from the Program on Corporate Governance includes the book Pay without Performance: The Unfulfilled Promise of Executive Compensation, by Lucian Bebchuk and Jesse Fried, Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here); and The CEO Pay Slice by Lucian Bebchuk, Martijn Cremers and Urs Peyer (discussed on the Forum here).

The Conference Board recently released CEO and Executive Compensation Practices: 2019 Edition, which documents trends and developments on senior management compensation at companies issuing equity securities registered with the US Securities and Exchange Commission (SEC) and, as of May 2019, included in the Russell 3000 Index.

The report has been designed to reflect the changing landscape of executive compensation and its disclosure. In addition to benchmarks on individual elements of compensation packages, the report provides details on shareholder advisory votes on executive compensation (say-on-pay) and outlines the major practices on board oversight of compensation design. Moreover, the study reviews the evolving features of short-term and long-term incentive plans (STIs and LTIs) and performance metrics in a sub-sample of mid-market companies included in the Russell 3000 index. This year, a new section of the study reviews data from the first year of pay ratio disclosure, which became mandatory for many U.S. public companies in 2019.


The Roundtable’s Stakeholderism Rhetoric is Empty, Thankfully

Jesse Fried is the Dane Professor of Law at Harvard Law School. This post was authored by Professor Fried.

This summer, the Business Roundtable released an updated “Statement on the Purpose of the Corporation” that disavows the Roundtable’s longstanding endorsement of shareholder primacy—the notion that corporations should principally serve shareholders.

The Statement changes precisely nothing. But that’s a good thing. Firms and the broader economy would suffer if CEOs could unilaterally disempower shareholders.

The Statement was signed by 181 CEOs, including Apple’s Tim Cook and JPMorgan’s Jamie Dimon, who committed “to lead their companies for the benefit of all stakeholders—customers, employees, suppliers, communities, and shareholders.” The CEOs appeared to be demoting their own shareholders, forcing them to compete with various other stakeholders for managers’ affections.


Delaware Dismissal of Excessive Director Pay Case

Edward B. Micheletti and Regina Olshan are partners and Michael R. Bergmann is counsel at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden memorandum by Mr. Micheletti, Ms. Olshan, Mr. Bergmann, Joseph M. Penko, Erica Schohn, and Joseph M. Yaffe. This post is part of the Delaware law series; links to other posts in the series are available here.

On October 30, 2019, the Delaware Court of Chancery struck a major blow against the plaintiffs’ bar’s efforts to lower the statutory hurdle to maintaining stockholder derivative claims. A stockholder of Ultragenyx Pharmaceutical Inc. claimed that the company’s board of directors had awarded its non-employee directors excessive pay. Under applicable Delaware law, a stockholder asserting such a claim has two mutually exclusive options: make a pre-suit demand on the board or plead with particularity the reason it would have been futile to do so. A stockholder who makes a pre-suit demand may not later claim demand futility, but instead must make the more difficult claim that the board wrongfully refused the demand, which is essentially a business judgment analysis. The Chancery Court previously has noted that pleading demand futility is a steep road, but that making a pre-suit demand is “steeper yet.”


Weekly Roundup: November 15–21, 2019

More from:

This roundup contains a collection of the posts published on the Forum during the week of November 15–21, 2019.

Recent Cyber Attacks Target Asset Management Firms

Overboarding by Public Company Directors: 2019 Update

How and Why Human Capital Disclosures are Evolving

JV Directors Duty of Loyalty

Fall of the Ivory Tower: Controlled Companies and Shareholder Activism

PCAOB Corporate Governance

Board Pay Under the Microscope

Women in the Boardroom: A Global Perspective

Getting Tired of Your Friends: The Dynamics of Venture Capital Relationships

2019 U.S. Spencer Stuart Board Index

Retail Shareholder Participation in the Proxy Process: Monitoring, Engagement, and Voting

FinTech, BigTech, and the Future of Banks

Risk Management and the Board of Directors

Letter by SEC Commissioner Robert J. Jackson, Jr. to Congresswoman Maloney

Supreme Court Review of SEC’s Authority to Seek Disgorgement

Regulation by Selective Enforcement: The SEC and Initial Coin Offerings

James J. Park is Professor of Law and Howard H. Park is a JD Candidate at the UCLA School of Law. This post is based on their recent paper, forthcoming in the Washington Journal of Law and Policy.

Critics of the SEC have claimed that at times it has engaged in “Regulation by Enforcement,” where it makes law through enforcement actions rather than by developing and passing clear rules. This argument has periodically surfaced with respect to some of the most important issues addressed by the SEC over the decades—insider trading, questionable foreign payments by public companies, and securities fraud.

The SEC has recently been faced with a new challenge, the sudden explosion of initial coin offerings (ICOs), which have raised billions of dollars through the sale of digital tokens. Over the last several years, promoters have routinely distributed investments to investors through ICOs without filing the registration statements typically required for the sale of securities to the public. Blockchain technology facilitated the ability of entrepreneurs to easily sell tokens to numerous investors, who receive a secure digital record of their purchase.


Supreme Court Review of SEC’s Authority to Seek Disgorgement

Greg Andres, Robert Cohen, and Paul Nathanson are partners at Davis Polk & Wardwell LLP. This post is based on a Davis Polk memorandum by Mr. Andres, Mr. Cohen, Mr. Nathanson, Martine BeamonAnnette L. Nazareth, and Stefani Johnson Myrick.

On Friday, November 1, 2019, the Supreme Court granted certiorari in Liu v. Securities and Exchange Commission, [1] a case that challenges the SEC’s long-held position that it has authority to seek disgorgement for securities laws violations as a form of equitable relief. This view has come under fire since Kokesh v. Securities and Exchange Commission, in which the Supreme Court held that disgorgement constituted a “forfeiture” or “penalty,” rather than a remedial tool, and was therefore subject to a five- year statute of limitations. As we noted previously, several justices observed during oral argument in Kokesh that the SEC did not have express statutory authority to seek disgorgement in district court actions, and the Kokesh opinion affirmatively stated that the Court was reserving judgment on the question of whether the SEC had the authority to seek disgorgement at all. These statements signaled an invitation for a challenge to the SEC’s disgorgement authority. With the grant of certiorari in Liu, the Court appears ready to address the issue directly. Any decision that further restricts the SEC’s ability to obtain disgorgement could have major ramifications for the SEC’s enforcement efforts. READ MORE »

Letter by SEC Commissioner Robert J. Jackson, Jr. to Congresswoman Maloney

Robert J. Jackson, Jr. is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on his letter to Congresswoman Carolyn B. Maloney, Chair of the U.S. House Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, available here. The views expressed in the post are those of Commissioner Jackson and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff. Related research from the Program on Corporate Governance includes Corporate Political Speech: Who Decides? by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); and The Untenable Case for Keeping Investors in the Dark by Lucian Bebchuk, Robert J. Jackson Jr., James David Nelson, and Roberto Tallarita (discussed on the Forum here).

November 18, 2019
The Honorable Carolyn B. Maloney
Chair, Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets United States House of Representatives
2308 Rayburn House Office Building Washington, D.C. 20515-3212


Dear Chair Maloney:

Thank you for your July 15 letter regarding my research on the need for transparency in corporate political spending—and your leadership in urging the SEC to ensure that our rules protect American families who invest in public companies that spend investor money on politics. I very much appreciate the opportunity to share further details on this work.

I first raised these concerns while serving as co-chair of a bipartisan group of scholars who petitioned the SEC to require disclosure of how public companies spend investor money on politics. [1] More than 1.2 million Americans have written to the SEC to support that petition, and a bipartisan group of SEC officials has called our proposal a “slam dunk.” [2] But Congress has used the appropriations process to block the Commission from requiring disclosure in this area.


Risk Management and the Board of Directors

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz; and Daniel A. Neff and Andrew R. Brownstein are partners at Wachtell, Lipton, Rosen & Katz. This post is based on portions of a Wachtell memorandum by Messrs. Lipton, Neff, Brownstein, Steven A. Rosenblum, John F. Savarese, and Adam O. Emmerich. The complete publication is available here.



The risk oversight function of the board of directors has never been more critical and challenging than it is today. Rapidly advancing technologies, new business models, dealmaking and interconnected supply chains continue to add to the complexity of corporate operations and the business risks inherent in those operations. The evolving political environment further exacerbates the risks that corporations face. Corporate behavior has been blamed for accelerating environmental degradation and aggravating disparities in income and wealth. In addition, safety scandals and product failures have affected public confidence in the ability of corporations to manage business risk and have given rise to skepticism as to whether companies are sufficiently prioritizing consumer and product safety. Environmental, social, governance and sustainability-related issues have become mainstream business topics, encompassing a wide range of issues including business model resilience, employee wages, healthcare, training and retraining, income inequality, supply chain labor standards and corporate culture, as well as climate change. The reputational damage to companies, boards and management teams that fail to properly manage risk is substantial.


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