Monthly Archives: February 2020

White-Collar and Regulatory Enforcement: What Mattered in 2019 and What to Expect in 2020

John F. Savarese, Wayne Carlin and David B. Anders are partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Savarese. Mr. Carlin, Mr. Anders, Ralph Levene and Jonathan Moses.


The main takeaway from white-collar and regulatory enforcement activity in 2019, which we believe will remain true through 2020, is that both the DOJ and SEC have become more transparent about the requirements for receiving corporate cooperation credit. Last year’s experience shows that the government’s pronouncements about the credit it will extend to exemplary companies are not mere window-dressing, but are instead backed up with significant reductions in fine and penalty amounts, as well as outright declinations in cases where a company satisfies the government’s stated expectations concerning self-detection, self-reporting, cooperation and remediation.

Cases brought against individual corporate officers also continued apace in 2019, in keeping with the government’s oft-stated commitment to ensuring that individual wrongdoers, and not just their corporate employers, are held responsible. Indeed, last month, Assistant Attorney General Benczkowski stressed that “[s]o far this year, the Fraud Section has brought charges against more than 440 individuals, which is an all-time high that will only increase through the close of the year.” One consequence of this trend, as we discuss below, is that because individuals frequently take cases to trial, unlike corporations which almost always settle, the government has suffered some high-profile losses. We expect this trend to continue in 2020.


CEO Letter to Board Members Concerning 2020 Proxy Voting Agenda

Cyrus Taraporevala is President and CEO of State Street Global Advisors. This post is based on his recent letter to SSgA board members.

As one of the world’s largest investment managers, each year State Street Global Advisors engages in dialogue with companies about a variety of issues critical to long-term performance—from business strategy to independent board leadership to sustainability. This year we will continue our active engagement with boards on sustainability, but also use our proxy vote to press companies that are falling behind and failing to engage.

ESG: No Longer an Option for Long-Term Strategy

Three years ago, we first called on boards to consider sustainability across the environmental, social and governance (ESG) spectrum. Having already engaged with companies on a number of governance matters for many years, we see that shareholder value is increasingly being driven by issues such as climate change, labor practices, and consumer product safety. We believe that addressing material ESG issues is good business practice and essential to a company’s long-term financial performance—a matter of value, not values.


Supreme Court Is Asked to Weaken the SEC’s Ability to “Make Things Right”: Amici Curiae Brief

This post is based on an Amici Curiae Brief to the U.S. Supreme Court. Daniel Chiplock is a partner at Lieff Cabraser Heimann & Bernstein, LLP, and assisted in drafting the brief by former SEC Commissioners and staff. Tyler Gellasch is the Executive Director of Healthy Markets Association and Andy Green is the Managing Director for Economic Policy of the Center for American Progress. Gellasch and Green joined the brief as former SEC officials.

This March, the Supreme Court is set to hear oral argument on whether the SEC may continue seeking “disgorgement”—or the giving-up of all ill-gotten gains—in civil enforcement proceedings brought in federal court. The SEC has long taken the view that wrongdoers should not be permitted to reap the benefits from their misconduct. And while stark political differences have emerged over the SEC’s imposition of corporate penalties in recent years, the SEC’s ability to seek disgorgement has generally gone unquestioned.

Not anymore.

In Liu v. SEC, the Petitioners before the Supreme Court are arguing that the SEC does not actually have the power to seek disgorgement at all in civil enforcement proceedings. At the district court, the Petitioners were found to have operated a fraudulent enterprise that bilked foreign investors out of tens of millions of dollars. The district court ordered that they “disgorge” the entirety of the proceeds they had obtained, even though they claimed to have used some of the proceeds to cover legitimate business and operational expenses.


2020 Compensation Committee Handbook

Kristin Davis and Michael Bergmann are counsel at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden memorandum by Ms. Davis, Mr. Bergmann, Regina Olshan, Erica Schohn, Joseph Penko, and Joseph Yaffe. Related research from the Program on Corporate Governance includes Executive Compensation as an Agency Problem by Lucian Bebchuk and Jesse Fried; Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried.


The duties imposed on compensation committees of publicly traded companies have evolved and grown over time. This sixth edition of the Compensation Committee Handbook from the lawyers of the Executive Compensation and Benefits group at Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates is intended to help compensation committee members understand and comply with the duties imposed upon them. We have also undertaken to describe in some detail the concepts underlying a variety of areas within the bailiwick of compensation committees (for instance, the types of equity awards that are commonly granted and their respective tax treatment) and to provide our perspective on some of the many decisions that compensation committees must make (for instance, the pros and cons of hiring a compensation consultant and the factors that go into that hiring decision).

In short, we hope that this Handbook will help compensation committee members understand their responsibilities and how best to discharge them.

We deliberately wrote this Handbook in a non-technical manner. We intend it to be something to read, not something to parse—more of a “how to” guide than a reference source for arcane rules. With that said, some of the chapters deal with technical rules, and at some length, where we think it is essential for compensation committee members to appreciate them.

Precisely because so many of the applicable rules are technical and complex and because the circumstances addressed by compensation committees are often nuanced to begin with, it is important to recognize that this Handbook has limitations, in part again due to our non-technical approach to writing it. As such, compensation committee members should not expect this Handbook to be an exhaustive compliance manual.

Indeed, in some places, this Handbook may even raise questions, not answer them. We hope so, because that means we achieved what we set out to do—to help compensation committee members think in a fresh way about what they are charged with doing and why.


Speech by Commissioner Elad Roisman on Myths and Realities: Modernizing the Proxy Rules

Elad L. Roisman is a Commissioner at the U.S. Securities and Exchange Commission. The following post is based on Commissioner Roisman’s recent speech. The views expressed in this post are those of Mr. Roisman and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

I. Introduction

Thank you, Dean [Steven] Payne and David [Blass] for the kind introduction and for the concise summary of the recent SEC proposals to update the rules governing the solicitation of proxies and submission of shareholder proposals. Thank you also to the Catholic University Columbus School of Law for hosting me and, in particular, to the students, who have come to hear me speak. Before I dive in, I want to make clear that my remarks are my own and do not represent those of the Securities and Exchange Commission (“SEC”) or its other commissioners.

Giving further context to the summary you just heard, some of the rules we have been discussing date back to 1954. You can imagine how much has changed in our markets since these particular rules were last amended: including shifts in how public company shares are held and voted and changes in who relies on the SEC’s exemptions to the proxy solicitation rules. From my perspective, the SEC’s proposals to modernize these rules were not only necessary, but long overdue. Yet the reaction from the loudest voices came swiftly and furiously. Even before the Commission voted on these proposals, the agency was accused of serving as a shill for corporate interests, suppressing shareholder votes, and sheltering CEOs of big corporations from accountability. [1]


SEC’s Office of Compliance Inspection: Examination Priorities for 2020

Jessica Forbes and Stacey Song are partners and Joanna D. Rosenberg is an associate at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on their Fried Frank memorandum.

On January 7, 2020, the Office of Compliance Inspections and Examinations (“OCIE”) of the Securities and Exchange Commission (“SEC”) published its examination priorities for 2020 (the “2020 Priorities”). [1] OCIE’s examination priorities are released annually and are designed to preview key areas where OCIE intends to focus its limited resources. The 2020 Priorities address the following eight themes: (1) retail investors, including seniors and those saving for retirement; (2) focus areas involving registered investment advisers and investment companies; (3) information security; (4) financial technology and innovation, including digital assets and electronic investment advice; (5) focus areas involving broker-dealers and municipal advisors; (6) anti-money laundering (“AML”) programs for broker-dealers and investment companies; (7) registered entities responsible for critical market infrastructure, including clearing agencies, transfer agents, and national securities exchanges; and (8) the Financial Industry Regulatory Authority (“FINRA”) and the Municipal Securities Rulemaking Board (“MSRB”). The 2020 Priorities are largely the same as the examination priorities in 2019. [2] The primary difference between the 2020 Priorities and the 2019 examination priorities is the focus on the package of rulemakings and interpretations adopted in June 2019, including the Interpretation Regarding Standard of Conduct for Investment Advisers, the Form CRS Relationship Summary and Regulation Best Interest. [3]


Statement by Chairman Jay Clayton on Proposed Amendments to Modernize and Enhance Financial Disclosures

Jay Clayton is Chairman of the U.S. Securities and Exchange Commission. This post is based on Chairman Clayton’s recent speech. The views expressed in this post are those of Mr. Clayton and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Disclosure Effectiveness Initiative—Financial Disclosures and Performance Metrics

Today, the Commission proposed amendments to eliminate duplicative disclosure, and modernize and enhance Management’s Discussion and Analysis (MD&A) disclosures. The Commission also provided guidance on the use of key performance indicators and metrics in MD&A. The Commission’s work reflects the unparalleled experience of the SEC staff as it relates to the presentation, discussion and analysis of financial statements and other financial disclosures and metrics. The proposal, if adopted, would substantively benefit investors and our capital markets more generally.

The proposal and the guidance continue the Commission’s evaluation of disclosure requirements mandated by Section 108 of the Jumpstart Our Business Startups (JOBS) Act. [1] The Commission’s work has been focused on modernizing, simplifying and enhancing disclosures that investors receive consistent with congressional directives in the bipartisan JOBS Act and Fixing America’s Surface Transportation (FAST) Act. Under this initiative, the Commission has been comprehensively reviewing the disclosure requirements in Regulation S-K and Regulation S-X and updating them to facilitate timely disclosure of material information by issuers, as well as investors’ ability to access and analyze that information. These efforts have improved issuer disclosures of material information, allowing investors to make better capital allocation decisions while reducing compliance burdens and costs.


Statement by Commissioner Lee on “Modernizing” Regulation S-K: Ignoring the Elephant in the Room

Allison Herren Lee is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on her recent public statement. The views expressed in the post are those of Commissioner Lee, and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today’s proposal is most notable for what it does not do: make any attempt to address investors’ need for standardized disclosure on climate change risk. The Commission last addressed climate change disclosure in 2010. [1] In that guidance we identified four existing items in Regulation S-K that may require disclosure related to climate change: description of business, legal proceedings, risk factors, and management’s discussion and analysis of financial condition and results of operations, or MD&A. We have now proposed to “modernize” every one of these four items without mentioning climate change or even asking a single question about its relevance to these disclosures. [2]

Much has changed in the last decade with respect to what we know about climate change and the financial risks it creates for global markets. The science is largely undisputed and the effects increasingly visible and dire; [3] the looming economic threat to markets worldwide is more and more apparent; [4] investors have increased their demands on companies and regulators for consistent, reliable, and comparable disclosures, [5] and more companies understand these risks and have responded; [6] voluntary reporting standards have proliferated; [7] major legislation has been introduced, [8] and regulators around the globe are taking action. [9]


Statement by Commissioner Peirce on Proposed Amendments to Modernize and Enhance Financial Disclosures

Hester M. Peirce is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on her recent public statement. The views expressed in this post are those of Ms. Peirce and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

I am delighted to support the proposed amendments and companion guidance released today. The proposal is the latest in a string of efforts by the Commission to simplify and update disclosure requirements in a way that reduces costs ultimately borne by shareholders while preserving important investor protections. Thank you to the staff of the Divisions of Corporation Finance and Economic and Risk Analysis and to the Office of General Counsel for their efforts on the rulemaking.

The MD&A disclosure requirements are rooted in a simple and straightforward purpose: to provide a narrative explanation of a company’s financial statements that allows investors to view the registrant from management’s perspective. This principles-based disclosure framework provides management with the flexibility to tailor effectively its disclosure to provide the information about its specific financial condition that is material to an investment decision. Such flexibility is possible because of the concept of materiality, which is the longstanding touchstone of our disclosure regime.


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