acc presentation (november 2015)
TRANSCRIPT
ACC SF Bay Area
Corporate and Securities Committee
Firing Up for the 2016 Reporting Season:
Key financial and reporting developments you should know
November 2, 2015 (Palo Alto)November 30, 2015 (San Francisco)
presented byJason Ainsworth – Partner, DeloitteStephen Ballas – Deputy General Counsel, CBRELouis Lehot – Partner, DLA PiperErin Rinn –Senior Associate Corporate Counsel, vmWareYanira Wong – Associate General Counsel, DocuSign
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Agenda
Panelists
Top 10 SEC comments from 2015 that we should anticipate in 2016
Hot Topic: Cybersecurity disclosures
Top 10 Next Best Trends in Disclosures
Lessons learned from the 2015 proxy season
Best practices in fair disclosures
What’s all this about social media?
Getting ready for next season…
Frequently asked questions…
Panelists thoughts and audience questions
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Panelists
VMware Inc.
Senior Associate Corporate Counsel, Securities and M&A
Erin RinnStephen Ballas Louis Lehot
DLA Piper
Partner
CBRE
Deputy General Counsel
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Panelists, continued
Yanira Wong
DocuSign
Associate General Counsel
866 219-4318
Jason Ainsworth
Deloitte & Touche LLP
Partner
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Top 10 SEC Comments from 2015
1. MD&A
Results of operations
Liquidity
Business overview
Critical accounting policies and estimates
Contractual obligations
1. Fair value measurements
2. Revenue recognition
3. Non-GAAP financial measures
4. Signatures, exhibits and agreements
5. Income taxes – offshore cash
6. Segment reporting
7. Intangible assets and goodwill
8. Acquisitions and business combinations
9. Executive compensation and CD&A
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Hot Topic: Cybersecurity disclosures
1. Risk factors
2. MD&A
3. Description of Business
4. Legal proceedings
5. Financial statements
6. Disclosure controls and procedures
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Hypo #1: Sony’s (Previous) Security Breach
Sony’s 2014 cyberattack was preceded by another cybersecurity breach in April 2011 when hackers took down Sony’s online PlayStation Network for several weeks. Despite a reported cost of $171 million, the company never filed a disclosure form with the SEC about the incident, nor significantly updated its regular SEC cyber risk assessments.
Did Sony violate disclosure requirements by not disclosing the hack or updating its cyber risk assessments with the SEC?
What are the practical issues of disclosing vulnerabilities?
1. Predecessor accounting.
2. Focus on metrics – relationship between performance metrics and results
3. Share-based compensation
4. Non-GAAP financial measures
5. Recent developments
6. Unresolved comments
7. Review beyond prospectus – dah – the Internet
8. MD&A – trends, uncertainties and forward-looking information
9. Omnicare
10. Disclosure effectiveness
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Top 10 Trends in Disclosures
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Lessons learned from 2015 Proxy Season
1. Proxy access is here to stay
88 proposals voted on year to date in 2015, up from 18 in all of 2014
NYC Comptroller’s Office submitted 75 proxy access proposals
52 proposals won, almost 60%, up from 5, or 27.8% in 2014
Proxy access proposals passed by wide margins at each of eBay (May), Netflix (June) and EA (August), all of the technology companies on the target list of the NY Comptroller’s Office
1. Granting shareholders the power to nominate directors – Boardroom Accountability Project
2. Political spending or lobbying
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Proxy Access Statistics
• Many directors who saw their owners provide majority support to shareholder proposals (over their boards' opposition) have decided to switch rather than fight.
• McDonald's (3 percent/3 years/20 percent of board seats/20 shareholder aggregation limit)
• Chevron (3/3/20/20)
• Occidental Petroleum (3/3/20/20)
• Conoco Phillips (3/3/20/20)
• American Electric Power (3/3/greater of two seats or 20 percent of board/20)
• TCF Financial (3/3/25/20)
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Best practices in fair disclosure
1. Issue a press release and distribute through regular channels
2. Provide adequate notice of public events and instructions on how to access
3. Provide information in open manner
Issuers can provide MNPI to analysts as long as analysts expressly agree to maintain confidentiality until information is public
Issuer can comment on analysts model privately without trigger Reg FD if it does not communicate MNPI
1. What’s all this about social media, FB posts, tweets and live blogging
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Social media…how to do it…
1. Social media outlets can be used to announce key information
2. In compliance with Reg FD
3. On the condition that investors have been alerted about
4. Which social media will be used to disseminate the information
5. Reed Hastings, Netflix and Facebook…
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Elon Musk tweeted about a “major new Tesla product line” in March and the shares of Tesla shot up over a $1 billion.
Does Elon Musk’s tweet count as proper disclosure to the public under the SEC’s Social Media guidance?
Hypo #2 - Elon Musk’s $1 Billion Tweet
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CEO Pay Ratio Disclosure Rule
The SEC adopted the new rule on August 5, 2015
Companies required to report the pay ratio disclosure for their first fiscal year beginning on or after January 1, 2017. Companies will have to disclose:
Their CEO’s total annual compensation - as reported in the Summary Compensation Table
The median total annual compensation of all of their employees (other than the CEO) - subject to limited exceptions, the final rules define “employee” to include all worldwide full-time, part-time, seasonal, and temporary employees employed by the company or any of its consolidated subsidiaries
A ratio comparing the two values - the pay ratio must be expressed either (i) as a ratio in which the annual total compensation of the median employee is equal to one (e.g., 100 to 1 or 100:1), or (ii) narratively in terms of the multiple that the CEO’s total annual compensation bears to the annual total compensation of the median employee
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SEC Proposes Pay vs. Performance Rule
1. The proposed rule is one of the last Dodd-Frank Act rulemaking responsibilities of the SEC and would require companies provide in any proxy or information statement more information about CEO’s and their performance
2. Companies must compare “executive compensation actually paid” to the “total shareholder return” of the company and its peers, as well as a discussion of the relationship between these amounts.
3. The proposed rule would not apply to emerging growth companies, foreign private issuers, or registered investment companies.
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U.K. Modern Slavery Act Guidance
Transparency Provisions of the U.K. Modern Slavery Act became effective on October 29, 2015
Transitional Period: The first organizations required to produce a statement will be those whose fiscal year ends on or after March 31, 2016.
Applicability: Commercial organizations that carry on a business or part of a business in the United Kingdom, supply goods or services and have annual total turnover of at least £36 million
Requirements: Applicable organizations will be required to prepare a slavery and human trafficking statement that indicates the steps that the organization has taken during the year to ensure that slavery and human trafficking are not taking place in any of its supply chains and in any part of its own business.
Subsidiaries: Having a U.K. subsidiary does not subject a parent entity to the transparency provisions.
Foreign Entities: If a foreign parent is carrying on a business or part of a business in the U.K., it will be required to produce a statement.
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Getting ready for next season…
1. Map out the calendar for 2016…
2. In function of your market cap at 6/30/2015
3. Category of filer
4. D&O Questionnaires
5. Ensure independent directors meet in executive session at least once
6. Circulate self-evaluation questionnaires
7. Dust off the charters and guidelines
8. Is the insider trading policy working
9. Preparing for shareholder proposals
10.Preparing for the unexpected…crisis communications planning
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Question #1
What was the pay ratio of a CEO to an average worker in 2014?
A) 13 timesB) 33 timesC) 323 timesD) 373 times
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Question #2
Does Regulation FD prohibit directors from speaking privately with a shareholder or groups of shareholders?
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Question #3
How soon must large accelerated filers ($700MM or more) file their 10-Ks?
A) 30 daysB) 45 daysC) 60 daysD) 75 days
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A) One YearB) Two YearsC) Three YearsD) Five Years
Based on the Scaled Financial Disclosure of the JOBS Act, how many years of audited financial statements must Emerging Growth Companies provide to go public?
Question #4
Panelists’ Thoughts and Audience Questions
Thank you for attending!