New SEC Pay Ratio Disclosure Guidance

As everyone knows by now, the SEC amended Item 402 of Regulation S-K, as required by the Dodd-Frank Act, to state that all companies required to provide executive compensation disclosure under Item 402(c) of Regulation S-K must also provide new executive compensation disclosure regarding: the median of annual total compensation of all employees, the annual total compensation of the CEO, and the ratio of those two amounts. Companies must provide the pay ratio disclosure for their first fiscal year beginning on or after January 1, 2017. There had been a chance, albeit dwindling, that the new rules might somehow be repealed or delayed before the 2018 proxy season. Recent statements by the SEC staff, followed by last week’s barrage of staff guidance on pay ratio disclosure, now make it clear that the rules will go into effect as written. The new guidance. A September 21 interpretive release “… reflects the feedback the SEC has received and encourages companies to use the flexibility incorporated in our prior rulemaking to reduce costs of compliance,” according to SEC Chairman Jay Clayton. As summarized in the accompanying press release, the guidance: States the SEC’s views on the use of reasonable estimates, assumptions and methodologies, and statistical sampling permitted by the rule; Clarifies that a company may use appropriate existing internal records, such as tax or payroll records, in determinations about the inclusion of non-U.S. employees and in identifying the median employee; and Provides guidance as to when a company may use widely recognized tests to determine whether its workers are employees for purposes of the rule. Of particular note is the staff’s articulation...

Join Us at the Fall 2017 GRC Forum, featuring NC Attorney General Josh Stein

You recently received an email invitation to our upcoming Governance, Risk & Compliance Forum. The GRC Forum is a half-day, interactive event devoted specifically to the issues faced by risk and compliance personnel at companies in all industries and at all stages of GRC development. The Fall 2017 session will be held on Thursday, September 28 at the Duke Mansion in Charlotte. We’ll start with coffee and breakfast at 8:15 a.m. The three presentations will run from 9:00 a.m. until noon. There is no charge for attending, and attendees are expected to be approved for compliance certification and continuing legal education credit. Topics to be covered. The GRC Forum and related GRC Blog generally address topics related to assessing, enhancing and maintaining an enterprise-wide governance, risk and compliance function. Specific topics to be discussed at this upcoming Fall 2017 session will include: Session I:  Update on the current state of corporate social responsibility, including CSR reporting and corporate America’s response to the Trump administration’s withdrawal from the Paris climate accord. Session II:  A discussion of cybersecurity breach response policies and plans, including background on current data privacy and security laws in the U.S., the EU’s new comprehensive data protection law and the EU Network Infrastructure Security Directive, critical components of a comprehensive plan, and practical tips on how to create, draft, train on and implement a plan. Session III:  Remarks by North Carolina Attorney General Josh Stein on compliance and public protection, followed by Q&A. Who should attend? GRC touches a variety of professionals, including: compliance officers risk management officers boards of directors legal departments CFOs, internal auditors and...

The SEC Approves More Amendments to NYSE’s Notice Requirements

Back in September 2015, the New York Stock Exchange amended the NYSE Listed Company Manual to: expand the pre-market hours during which NYSE-listed companies must provide prior notice of material news, expand the circumstances under which NYSE may halt trading, and provide guidance related to the release of material news after the close of trading. Then last week NYSE did it again, this time to require listed companies to give NYSE’s Market Watch team at least 10 minutes prior notice before making any public announcement, including announcements made outside of normal trading hours (9:30 a.m. to 4:00 p.m. Eastern time), regarding: any dividend or stock distribution required by NYSE Listed Company Manual Section 204.12, and the fixing of a dividend or stock distribution record date. As a practical matter, this means that companies must now give NYSE notice of a dividend or stock distribution 10 minutes before the announcement, rather than simultaneously with the announcement, as before. The SEC deems this important because, among other things, the record date determines (a) when the stock will trade ex-dividend and (b) the requirements regarding brokers’ cutoff dates for determining full and fractional shares. Requiring notice 10 minutes before such announcements regardless of the time of day (rather than just during normal trading hours) allows NYSE to address any concerns with the content of the announcement and reduce the possibility of investor confusion if the disseminated information is inaccurate or misleading. The SEC noted in a footnote (perhaps hoping that NYSE’s staff wouldn’t notice) that NYSE Market Watch will be available “at all times” (day or night) to review the announcement and will...

Insider Trading: Five Reminders From the SEC Division of Enforcement

A recent litigation release from the SEC Division of Enforcement, though seemingly unremarkable, highlights five basic principles that sometimes slip off a company’s insider trading compliance radar. The SEC’s complaints. According to the SEC’s complaints against two former employees and the spouse of a former employee of Ariad Pharmaceuticals, Inc., which develops and markets drugs to treat cancer: The husband of an Ariad employee traded Ariad stock before company announcements about the safety profile and FDA approval status of Ariad’s only FDA-approved drug and after his wife learned of material non-public information related to Ariad’s dealings with the FDA. The husband also advised a friend to trade Ariad stock on the basis of non-public information learned from his wife, enabling the friend to obtain profits of $4,188.00. Ariad’s former Senior Director of Pharmacovigilance and Risk Management sold Ariad stock after she had attended meetings with the FDA and had learned of a forthcoming FDA decision to require Ariad to include a safety warning on its product label, thereby avoiding $9,420.00 in losses. Ariad’s former Associate Director of Pharmacovigilance and Risk Management alerted certain of her relatives one day before Ariad publicly announced a pause in all clinical trials for its FDA-approved drug. By selling in advance of Ariad’s announcement, her relatives avoided $2,888.10 in losses. The SEC’s complaints charged each defendant with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and sought various injunctions, disgorgements with interest, and civil penalties. The five reminders. First: The SEC remains vigilant against insider trading of all shapes and sizes. For example, consider that: Ariad was relatively...

Sustainability Reporting After the Paris Climate Accord

It’s fair to say that President Trump’s June 1 announcement that the U.S. will withdraw from the Paris climate accord has been widely reported. It’s also fair to say that the announcement triggered a host of passionate reactions, positive and negative, around the world. Within corporate America, a number of high-profile corporations (for example, Apple, Disney, Facebook, General Electric, Google, Salesforce, Tesla and Twitter) pledged to continue their efforts to cut greenhouse gas emissions and adhere to the spirit of the accord. This leads one to wonder whether withdrawal from the Paris climate accord might, per the law of unintended consequences, actually increase investor emphasis on corporate social responsibility (CSR) and the number of companies that voluntarily report their sustainability initiatives. It’s an intriguing possibility. Momentum for sustainability reporting has been building for years. In fact, the vast majority of S&P 500 companies now publish some type of sustainability or CSR report, and disclosures have begun to appear in SEC filings, particularly proxy statements. Mid-size and smaller companies, lacking the resources of their larger brethren, have been slower to do so, though some have begun and others are giving it serious consideration. Increased pressure from institutional investors, employees and other stakeholders, now coupled with widespread concern over withdrawal from the accord, could tip the reporting balance, especially for companies in sustainability-sensitive industries or companies that otherwise want to send a certain message. One challenge for all companies is to make sense out of the CSR reporting landscape. First of all, the terminology itself—sustainability, CSR, environmental, social and governance (ESG), and triple bottom line, to name a few—is confusingly ambiguous...

Introducing a Fresh Perspective on Governance, Risk and Compliance

With the fifth anniversary of Doug’s Note fast approaching (and more than 250 posts and 250,000 reads in the rearview mirror), it seemed like a good time to consider where to go from here. Where, as it turns out, was to create a companion blog devoted to governance, risk and compliance, which are among the hottest issues in corporate America these days. Parker Poe’s GRC Blog reflects the joint contributions of our GRC team, co-led by Jane Lewis-Raymond, former chief compliance officer and general counsel of a large public company, and by me. Together, we provide more than 50 years of experience counseling public and private companies of all shapes and sizes on compliance program design, risk assessment, enterprise risk management, crisis management, remediation and training. Essential to the blog’s success are the contributions of our larger GRC team, which consists of attorneys whose practices focus on such key areas of corporate compliance as: Anti-Bribery & Anti-Corruption Antitrust & Consumer Protection Criminal & Regulatory White Collar Compliance Crisis Management Cybersecurity & Data Privacy Employment Environmental Government Contracting & False Claims Act Compliance Immigration SEC Reporting & Compliance Tax Trade Compliance Our GRC Blog includes insights on such matters as creating a compliance culture, ensuring compliance with the Federal Sentencing Guidelines and the DOJ’s program evaluation guidance, the interplay of compliance professionals, executive management and boards of directors, balancing GRC goals against the realities of budget and personnel constraints, and a whole lot more. Recent posts include, for example: Take-aways from the recent global ransomware attack (click here), The board of directors’ role in compliance programs (click here) , Where...