Securities Regulation and Corporate Governance


OM&A Staff Publishes Updated Guidance on Tender Offers

On Friday, November 18, 2016, the Staff in the Office of Mergers & Acquisitions (“OM&A”) in the Division of Corporation Finance (the “Staff”) at the Securities and Exchange Commission released several new Compliance and Disclosure Interpretations (“C&DIs”) addressing:

  • the level of disclosure deemed appropriate for compensation arrangements with financial advisors retained in connection with responding to registered tender offers subject to Regulation 14D; and
  • certain timing and structural matters related to “abbreviated” debt tender offers (i.e., tender offers for non-convertible debt securities that can remain open for as little as five business days pursuant to a no-action letter issued in early 2015 available here) subject only to Regulation 14E.

With respect to a financial advisor’s employment and compensation arrangements, the Staff reminds those companies subject to a tender offer for which a Schedule 14D-9 must be filed that Item 5 of Schedule 14D-9 and Item 1009(a) of Regulation M-A require a “summary of all material terms” of employment or other arrangements for compensation payable to persons “directly or indirectly” engaged to make solicitations or recommendations in connection with a tender offer.  The Staff notes that even though an advisor may disclaim making a recommendation to or solicitation of security holders, if the issuer’s board or independent committee retained the advisor to advise with respect to a tender offer and the analysis is discussed in the issuer's Schedule 14D-9, then that is sufficient to bring the advisor’s engagement within the scope of the disclosure requirement.

In addition, consistent with past Staff comments on the topic, the C&DIs remind issuers that boilerplate disclosures on compensatory arrangements are inappropriate.  Specifically, the Staff objects to generic disclosures indicating that an advisor will receive “customary compensation.”  Instead, the Staff observed that while the disclosure of such arrangements will depend on the facts and circumstances, it should be sufficiently detailed to allow a security holder to make an ...Read More

First-Come, First-Served: Enrollment Opens for Glass Lewis 2017 Issuer Data Report Program

On November 17, Glass Lewis announced that it has opened enrollment for its 2017 Issuer Data Report (IDR) program.  The IDR program enables public companies to access (for free!) a data-only version of the Glass Lewis Proxy Paper report prior to Glass Lewis completing its analysis and recommendations relating to public company annual shareholders meetings.  Glass Lewis does not provide drafts of its voting recommendations report to issuers it reviews, so the IDR is the only way for issuers to confirm the accuracy of the data before Glass Lewis’ voting recommendations are distributed to its clients.  Moreover, unlike Institutional Shareholder Services (ISS), Glass Lewis does not provide each issuer with complimentary access to the final voting recommendations for its annual shareholders meeting.

IDRs feature key data points used in Glass Lewis’ corporate governance analysis, such as information on directors, auditors and their fees, summary compensation data and equity plans, among others.  The IDR is not a preview of the final Glass Lewis analysis as no voting recommendations are included.

Each participating public company receives its IDR approximately three weeks prior to its annual shareholders meeting and generally has 48 hours to review the IDR for accuracy and provide corrections, including supporting public documents, to Glass Lewis. 

Participation is limited to a specified number of companies, and enrollment is on a first-come, first-served basis.  Enrollment closes on January 6, 2017, or as soon as the annual limit is reached. 

To learn more about the IDR program and sign up to receive a copy of the 2017 IDR for your company, go to

Shareholder Nominates First Proxy Access Nominee
In what appears to be the first use of a company’s proxy access bylaw, GAMCO Asset Management filed today a Schedule 13D/A (available here ) and a Schedule 14N (available here ) announcing that it has used the proxy access bylaw at National Fuel Gas (NFG) to nominate a director candidate for election at NFG’s 2017 Annual Meeting.  According to the 13D/A, GAMCO and its affiliates beneficially own in the aggregate approximately 7.81% of NFG’s Common Stock and yesterday delivered a letter to NFG nominating Lance A. Bakrow to the Board of Directors.  NFG described itself in its most recent Form 10-K as “a diversified energy company engaged principally in the production, gathering, transportation, distribution and marketing of natural gas.”  According to the Schedule 13D/A, Mr. Bakrow is the “co-founder and a director of Greenwich Energy Solutions, a private company that provides independent energy solutions in the northeastern United States.”

NFG’s Proxy Access Bylaw

NFG amended its Bylaws to adopt proxy access in March 2016.  The Bylaws provide that a shareholder, or a group of up to 20 shareholders, owning 3% or more of the Company’s outstanding Common Stock continuously for at least three years may nominate and include in the company’s proxy materials directors constituting up to 20% of the board, provided that the shareholders(s) and the nominee(s) satisfy the bylaw requirements.   NFG’s proxy access bylaw is available here

GAMCO’s Activism at NFG

Based on past Schedule 13Ds, GAMCO and its affiliates have beneficially owned in the aggregate at least 5% of NFG’s outstanding shares since 2010 and have been advocating for several years that NFG consider a spin-off of certain of its operations.  This included GAMCO submitting for consideration at NFG’s 2015 Annual Meeting a Rule 14a-8 shareholder proposal asking that “the Board of Directors and management, act expeditiously consistent with effective tax considerations, to engage an investment banking firm to effectuate a spin-off of the Company’s utility segment, which represents the operations of National Fuel Gas Distribution Corporation, into a separate publicly traded C-corporation.”  That shareho...Read More
New SEC Staff C&DI Permits Website Posting of Annual Reports in Lieu of Filing Hard Copies with SEC

A new Compliance and Disclosure Interpretation (C&DI) affords companies relief from the requirement to file seven hard copies of the annual report to shareholders with the Securities and Exchange Commission (SEC).  Under the C&DI, which was issued yesterday, companies may now satisfy this requirement by posting the annual report on their corporate websites, as long as it remains available on the site for one year.  The C&DI is available here and excerpted below. 

The C&DI will be welcome news to companies doing “glossy” annual reports as well as those that do a “10-K wrap.”  The “10-K wrap” has become increasingly common in recent years and combines the Form 10-K with a “wrap-around” section that often contains highlights about the company and includes certain additional information required in the annual report but not in the Form 10-K under SEC rules.  Until now, the annual report to shareholders has remained one of the few documents still filed in hard copy with the SEC, in part because it does not easily lend itself to filing on EDGAR due to graphics and similar features that are commonly included in the report. 

Companies should update their annual meeting checklists accordingly.  For NYSE companies, it is important to keep in mind one situation where paper copies of annual meeting materials are still required: three copies of the proxy materials (including the proxy card) must be filed with the NYSE no later than the date on which the materials are released to shareholders.  It is our understanding that the NYSE does not expect hard copies of the annual report to shareholders.  NASDAQ companies are not subject to a similar requirement, as NASDAQ permits companies to satisfy its rules by filing the Form 10-K and proxy materials on EDGAR. 

Proxy Rules and Schedule 14A (Regarding Submission of Annual Reports to SEC under Rules 14a-3(c) and 14c-3(b))

Last Update: November, 2016 

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ISS Data Verification Period Open Until November 11 for New ISS QualityScore

ISS Data Verification Period Open Until November 11 for New ISS QualityScore

Today proxy advisory firm Institutional Shareholder Services Inc. (“ISS”) opened the data verification period for its corporate governance rating system, which was formerly known as QuickScore.  ISS also announced that it has revised and rebranded the rating system, which will now be referred to as QualityScore.  QualityScore is the successor to ISS’s QuickScore, which in turn succeeded ISS’s Governance Risk Indicators (“GRId”) and Corporate Governance Quotient (“CGQ”) benchmarking tools. 

The data verification period will remain open through 8 pm EST on November 11, and updated QualityScore scores will be released when QualityScore launches on November 21.  The updated Quality Score technical document is available here.

Companies Should Verify ISS’s Data by November 11

During the data verification period, we encourage companies to access ISS’s data verification site on Governance Analytics to verify ISS’s raw data that will be included in the company’s QualityScore scores.  Companies that do not already have a login for ISS’s Governance Analytics platform may request one via the email address provided here.  Any updates or corrections should be submitted to ISS by November 11.

New QualityScore Factors

For U.S. companies, QualityScore adds fifteen new ...Read More

SEC Corp Fin Staff Releases Guidance on CEO Pay Ratio Disclosure

On October 18, the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) released five Compliance and Disclosure Interpretations (“C&DIs”) addressing new Item 402(u) of Regulation S-K regarding CEO pay ratio disclosure.

C&DIs 128C.01 through 128C.05 address five topics: (1) the identification of a “consistently applied compensation measure” to identify the median employee; (2) the use of hourly or annual rates of pay as a “consistently applied compensation measure;” (3) the time period(s) that may be used in applying a “consistently applied compensation measure;” (4) the treatment of furloughed employees; and (5) the circumstances under which a worker’s compensation will be deemed determined by an unaffiliated third party.  In summary, the takeaways from the Staff’s new C&DIs are as follows: 

  • Under the final pay ratio rule, companies are permitted to choose annual total compensation or any other compensation measure that is consistently applied to all employees to identify the median employee.  C&DI 128C.01 elaborates beyond what is in the adopting release on what measures can qualify as “consistently applied compensation measures.”  Specifically, under the Staff’s interpretation, a “consistently applied compensation measure” should "reasonably reflect[] the annual compensation of employees.”  The appropriateness of any measure as a “consistently applied compensation measure” will depend on the company’s particular facts and circumstances.  For example, total cash compensation could be an appropriate “consistently applied compensation measure” unless a company also distributed annual equity awards widely among employees, and Social Security taxes withheld would likely not be an appropriate “consistently applied compensation measure” unless all employees earned less than the Social Security wage base. 
  • Use of an hourly or annual pay rate alone is not an appropriate “consistently applied compensation measure” because use of rates without regard to whether an employee worked the entire year and/or full time will have the effect of a full-time adjustment, which is not permitted under Item 402(u). 
  • As set forth in the final pay ratio rule, to calculate the required pay ratio, a company must first select a date, which must be within three months o...Read More
SEC Eliminates Need for Affirmative “Tandy” Representations from Issuers

On October 5, 2016, the Staff in the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “SEC”) announced that it will no longer require companies to make so-called Tandy representations in their filing review correspondence. 

Tandy representations are affirmative acknowledgments that a company will not use comments issued or actions taken during an SEC filing review process as a defense in any subsequent Enforcement action.  Originally, the Staff required Tandy representations on a case-by-case basis whenever an Enforcement action was pending.  In 2004, however, the Staff began requiring Tandy representations from all companies under review as part of a policy change to publicly release all of the Staff’s filing review correspondence and to avoid inadvertently disclosing to the public those companies that were under investigation by Enforcement.

The Staff has made clear that this revised policy does not substantively change the relationship between the filing review process and any subsequent Enforcement action. Companies remain responsible for the content of their disclosures.  Actions taken or comments issued by the Staff will not serve as a defense. 

Going forward, instead of requiring companies to include Tandy representations in their response letters, the Staff will now include standardized language in their outgoing comment letters reminding companies that they remain responsible for the content of their disclosures, notwithstanding any action by the Staff.  This approach will have the same effect as a request for an affirmative Tandy representation, but will eliminate the need for the inclusion of unnecessary boilerplate in companies’ reply correspondence with the Staff. 

The Staff’s new policy is effective immediately.  Thus, even if a company has recently received a Tandy comment, there is no need to include Tandy representations in response letters going forward. The Staff’s announcement can be found here.

Special thanks to Matt Haskell for the summary.

Recent SEC Comment Letters Addressing Non-GAAP Financial Disclosures

Since the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) released updated guidance addressing the use of non-GAAP financial measures on May 17, 2016, the Staff has made public over 200 comment letters sent to companies relating to non-GAAP disclosures.  The below chart summarizes the major topics addressed in those comment letters and the frequency with which each topic appears. 

The Staff’s comment letters relate to non-GAAP disclosures contained in earnings releases, Exchange Act reports, registration statements, proxy statements and even investor presentation slide decks that were never furnished to or filed with the Commission.  A majority of the comment letters address multiple non-GAAP disclosure issues.  Because the comments are not limited to a single topic and because non-GAAP disclosures often implicate multiple overlapping topics, this chart is best understood as a general guide to the topics the Staff finds important, rather than as a precise tabulation of all topics covered during the relevant period. 

The Staff is just now beginning to upload comment letters addressing filings made after the May 2016 guidance was published.  As such, in the coming weeks and months we expect to see many more comments addressing the Staff’s new interpretations.

Special thanks to Mike Titera and Matt Haskell for compiling the summary below.




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ISS Releases Survey for 2017 Policy Updates

Institutional Shareholder Services (“ISS”) today launched its annual global policy survey.  Each year, ISS solicits comments in connection with the review of its proxy voting policies.  At the end of this process, in November 2016, ISS will announce its updated proxy voting policies applicable to 2017 shareholders’ meetings. ISS will publish the results from the policy survey and use them to inform its voting policy review. 

The survey includes questions on several governance and compensation matters relevant to U.S. companies, as follows:      

  • Pay-for-performance analysis.  ISS applies a quantitative screen as the first step in evaluating say-on-pay proposals.  Currently, this screen is based on TSR (total shareholder return), relative to a peer group over a three-year period, and on an absolute basis over a five-year period.  The survey asks whether ISS should incorporate additional financial metrics into the quantitative screen as a better way of assessing the alignment between pay and performance, and what metrics to include, such as measures tied to revenue, earnings, return (such as return on assets or return on equity), cash flow, economic profit or other benchmarks.


  • Board refreshment.  The survey asks about factors involving director tenure that may be viewed as raising concerns about a board’s refreshment and nominating process, including the absence of new directors who were appointed in recent years, “lengthy” tenure (which the survey describes as average tenure of more than ten or 15 years, a “high proportion” of directors with long tenure (which the survey describes as three-quarters of the board with service of ten years or more).  ISS has previously solicited comment on whether it should revise its voting policies on director elections to take into account director tenure, but has not yet done so.


  • “Overboarding” of executive chairs.  The survey asks whether executive chairs—that is, separate chairs who are not independent, but are not the company CEO—should be subject to the same limit on outside board service as public company CEOs or the higher limit applicable to other directors.  Under current ISS policies, public company CEOs (and other executives) are subject to a lower limit than other directors: two outside boards in addition to their own.  Other directors are subject to a total...Read More
Schedule 13G “Passive” Investor Status – When Being A Little Active Is Still Passive!
On Thursday, July 14, 2016, the Staff in the Division of Corporation Finance posted a new C&DI on Section 13(d) that provides stockholders (and issuers) with some helpful insights, and perhaps greater clarity, on when significant stockholders can engage in a dialogue with management and still remain on Schedule 13G.  As many practitioners know, Schedule 13G (the “short form” for reporting beneficial ownership of equity positions of 5% or more) often requires an affirmative certification from the reporting person(s) that the securities were not acquired, and are not held, with the purpose or effect of changing or influencing control of the issuer.   This is commonly referred to as the “passive” investor certification which is set forth at the end of Schedule 13G, directly above the signature line. 


In short, to report beneficial ownership on Schedule 13G the reporting person(s) must be “passive” (i.e., not active) with respect to any intent or attempt to exercise control over the issuer.  The only exception to this passive investor certification is for security holders who are either “grandfathered” or have acquired their securities gradually (i.e., those that acquired securities before the class of equity was registered with the SEC or have accumulated their stake slowly over time – less than 2% in any twelve-month period).  See Rule 13d-1(d) and Section 13(d)(6)(B) of the Exchange Act.  Of course, the certification (when required in order to report on 13G) begs the question of whether certain activities, such as submitting a 14a-8 shareholder proposal to management, lobbying for improved corporate governance measures or even pushing for increased share buybacks or dividends would (by itself) trigger a 13G amendment obligation and thus cause the reporting person(s) to have to report their ownership on Schedule 13D (the longer, more onerous, disclosure form and reporting regime) going forward.  

The new guidance posted on Thursday makes clear that certain limited activities, such as engaging management or the board in discussions regarding specified corporate governance topics including removal of a staggered board, majority voting standards for the election of directors, and/or elimination of poison pill rights plans, alone, would not cause the loss of 13G eligibility, so long as the purpose of the discussions is to improve corporate governance generally.  In a similar vein, discussions regarding executive compensation or matters of social or public inter...Read More

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