In Case You Missed It - Interesting Items for Corporate Counsel - September 2015

Stoel Rives LLP


  1. As foreshadowed by the recent publication of supplemental analysis on the effect of its proposed rules, the SEC adopted final pay ratio rules, here. The first covered reporting period starts in the first full fiscal year beginning on or after January 1, 2017, which means a calendar year company would include disclosure in its proxy statement in 2018. So calm down; you’ve got some breathing room. Among the items that make this fairly dumb rule less painful: (a) the final rule retains the proposed flexible approach that allows sampling and assumptions to select the median employee; and (b) the rule adds that the selected median employee can be used as the benchmark for three years, which, considering the cost of running the analysis to find the median employee, probably results in fantastic job security for that guy.

    Commentary abounds, and more will follow. Some resources are here, here, here, here, and here. Suggestions that, even though time-consuming and expensive, this rule will be a bust are here and here.
  2. D.C. Courts have recently battered the SEC for rulemaking relating to resource extraction.
    • The D.C. District Court ordered the SEC, here, to file an expedited schedule within 30 days for final rulemaking to require oil, gas and mining companies to disclose payments to foreign governments or the federal government. The original rules, held to be defective because the SEC did not consider its discretion to allow non-public disclosure only to the SEC and because it acted arbitrarily and capriciously in not considering an exemption for countries where publication of such information is illegal, were remanded to the SEC to be fixed in July 2013 and have sat there since.
    • The D.C. District Court’s slap follows the D.C. Circuit Court’s smack, here, when it affirmed that requiring a company to state that its products are not “conflict free” violates free speech rights. The ruling casts further uncertainty on when a third-party audit of a conflict minerals report might be required, since that requirement is premised on some of the same language the Court struck down. (See Corporation Finance Director Higgins’ statements, here, that “Pending further action, an [independent private sector audit] will not be required unless a company voluntarily elects to describe a product as ‘DRC conflict free’ in its Conflict Minerals Report.”) Possibly, more SEC guidance will be forthcoming.
  3. In other conflict minerals news, the Government Accountability Office released a report on 2014 conflict minerals disclosures, here, noting that almost nobody could actually figure out where their conflict minerals came from. In some ways, the report merely echoes what activists have been decrying—“these reports aren’t very useful.” Yep.
  4. The SEC issued new Compliance and Disclosure Interpretations (256.23 to 256.33), here, about Rule 506(c) exemptions under Regulation D. Recall that Rule 506(c) is a “big deal” in securities law, and probably the most significant change implemented by the JOBS Act. On the same day, the SEC released a no action letter, here, agreeing with Citizen VC, Inc. that the procedures it described in its request letter would create a substantive, pre-existing relationship that would allow it to send materials to its new best friends without violating general solicitation or advertisement rules (and thus it could make offerings under Rule 506(b) without the modest additional hoops required by Rule 506(c)).
  5. In other JOBS Act related news, Montana and Massachusetts filed their initial brief, here, arguing that the SEC’s “Tier 2” Regulation A+ rules impermissibly preempt state law and that its rulemaking was not based on a permissible construction of the Securities Act of 1933, was not the result of reasonable decision making, and was arbitrary and capricious because it did not adequately analyze the effect on the public interest and investor protection.
  6. The SEC has moved, here, to consider whether to disapprove proposed NYSE rules to exempt early-stage companies from having to obtain shareholder approval before issuing shares to related parties and their affiliates, provided the audit committee or similar independent committee approves the issuances. Per the SEC, it's not saying it will stop this, but why on earth should it allow it? Less interesting, perhaps, is the NYSE’s immediately effective rule, here, to expand the requirements for advance notice of material news announcements.
  7. The Council of Institutional Investors published “Proxy Access: Best Practices,” here, and noted that nobody, but nobody, is following all of its declared best practices. A summary of the report is here. An analysis of proxy access bylaw “trends” from the recent proxy season is here.
  8. The SEC issued an interpretation under Dodd-Frank whistleblower provisions, here, that whistleblowers qualify for the anti-retaliation provisions in Dodd-Frank even if they report only internally and not to the SEC. Perhaps in anticipation of other federal circuit courts’ consideration of the issue, the interpretation responds to the decision in Asadi v. GE Energy (USA), L.L.C., here, in which the Fifth Circuit held that the plaintiff was not a whistleblower under the Dodd-Frank Act because he failed to report to the SEC.
  9. The summer months saw the 13th anniversary of the Sarbanes Oxley Act and the fifth anniversary of the Dodd-Frank Act, both designed to cure ills done the world by evil corporations. A few items to commemorate the occasions:
    • Rulemaking progress under Dodd-Frank is summarized by SEC Chair White here (“The Commission has taken action to address virtually all of the mandatory rulemaking provisions”) and by Davis Polk here (“Of the 390 total rulemaking requirements, 247 (63.3%) have been met with finalized rules….”).
    • Provititi’s 2015 SOX compliance report is here. Among other things, it suggests compliance costs associated with internal controls are rising. (Happy anniversary!)
    (We note that, although we were hoping for some sort of special invitation, the SEC’s gala celebration of the 75th anniversary of the Investment Company Act and the Investment Advisers Act is open to the public on a first-come basis. See here. Still, the lack of a personal invite stings, and that’s why we’re not mentioning anything in particular about the alleged historic import of those acts.)
  10. 44 U.S. Senate Democrats signed a letter, here, in support of a petition to require public disclosure of campaign donations. There is no Congressional requirement for rulemaking (the petition came from the Committee on Disclosure of Public Spending), but it does add fuel, perhaps, to a hot disclosure topic.
  11. We were reminded what a remarkably helpful document the SEC’s Financial Reporting Manual is when the SEC posted updates to it last month (here) to add guidance on catching up on delinquent 1934 Act filing obligations.
  12. Finally, the U.S. Court of Appeals for the D.C. Circuit reminds us, here, that to be “meaningful,” cautionary language in securities filings should be, well, meaningful: avoid boilerplate, describe specific risks, don’t misstate historic facts and update statements as things change. Commentary on the ruling is here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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