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Key themes emerge from SEC Investor Roundtable

On June 30, 2020, Jay Clayton, SEC chair, and Bill Hinman, Director of Corporation Finance, hosted an investor roundtable seeking input from investors on how to improve disclosures during this period of COVID-19.  The participants included Gary Cohn, Former Director of the National Economic Council; Glenn Hutchins, Chairman of North Island; Tracy Maitland, President and CIO of Advent Capital; and Barbara Novick, Vice Chairman and Co-Founder of BlackRock.

The discussion was wide-ranging, but several themes emerged:

  • While swift government action from the Federal Reserve and the CARES Act appears to have helped stabilize the economy and markets, investors expressed concern that the macro-economic picture remains very uncertain, particularly as certain government programs expire.
  • Investors want to see greater transparency as to how the company expects to perform in the near term, including with respect to such matters as cash flow, working capital and covenant compliance as well as key assumptions. For example, is the company’s ability to restore production dependent on schools reopening so that parents can return to work?  Or does the company’s supply chain depend on European travel being restored?
  • Glenn Hutchins noted that fewer than 10% of the S&P 500 have maintained earnings guidance. As a result, investors seek greater insight into the range of potential outcomes and the ability of companies to manage through different scenarios as well as a greater understanding if companies have “tools for adaptability” and an ability to adjust to changes in an uncertain environment. He cited the joint statement

A Detailed Analysis of the SEC’s Amendments to Financial Statement Requirements for Business Acquisitions and Dispositions

As we previously posted, the SEC recently adopted a number of amendments to the financial disclosure requirements for business acquisitions and dispositions by U.S. public companies including to (i) revise the requirements for financial statements and pro forma financial information for acquired businesses, (ii) revise the tests used to determine significance of acquisitions and dispositions giving rise to required financials, and (iii) permit certain expense omissions in those financial statements.

We have now prepared a client alert providing a more detailed analysis of the amendments, including descriptions of a number of changes incorporated in the final rule that differ from the SEC’s initial rule proposal.

The SEC stated in its adopting release that the amendments are intended to reduce the complexity of financial disclosure requirements for business acquisitions and dispositions, facilitate more timely access to capital, and reduce the complexity and costs to registrants to prepare the required disclosure.  As we note in our client alert, the result is that, as a practical matter, there will likely be fewer “significance” determinations and thus fewer historical and pro forma financial statement disclosures about acquired businesses.  And although the amendments are intended to streamline and simplify various aspects of the rules and filing requirements, these provisions of Regulation S-X remain highly complex. Registrants are advised to take great care in analyzing them in connection with the consummation of corporate transactions.

U.S. companies weigh pros and cons of paying quarterly dividends during COVID-19 pandemic

As COVID-19 moves across the U.S. decimating revenue sources, companies in severely impacted industries, including hospitality, retail and travel, among others, rushed to announce that quarterly dividend payments would be deferred, delayed, suspended or revoked, as the case may be.  Many simultaneously announced drawdowns on credit facilities, employee furloughs or layoffs and salary reductions, presumably as justification for the dividend change.

Companies with strong cash reserves, on the other hand, so far generally appear to be moving forward with regular dividend payments.  Their decision to continue to pay dividends as they are able despite the pandemic helps project stability in the U.S. securities markets and arguably strengthens investor relations, especially among retirees who depend on dividend income.

As economic fallout from the pandemic continues and the ripple effect of stay-at-home orders begins to impact nearly all businesses in some manner, companies may want to include disclosure forewarning that the board of directors continually monitors market conditions and will continually evaluate the company’s quarterly cash dividend program, balancing it with the company’s capital and financial strength needs.

In recent ISS Guidance regarding COVID-19 issues, ISS stated that this year it will support broad discretion for boards that change customary dividend practices and consider whether boards disclose plans to use any preserved cash from dividend reductions to support and protect their business and workforce.

Glass Lewis also recently recognized the need for flexibility during the pandemic, noting the reality of

US – COVID-19: Delaware Governor modifies emergency declaration to address virtual meeting matters

The Delaware Governor modified the state’s existing emergency declaration on April 6, 2020 to, among other things, allow stockholder meetings currently noticed for a physical meeting to pivot to virtual meetings to the extent permitted by law during the state of emergency, as well provide a method of adjournment of a meeting noticed for a physical location to a virtual meeting in case of public health threats and restrictions on personal travel.

The  declaration provides that if, because of COVID-19 pandemic public health threats, the board of directors wishes to change from a physical meeting location to a meeting conducted solely by remote communication, it may notify stockholders of the change solely by filing a document with the SEC and issuing a press release, which is then promptly posted on the corporation’s website. This addresses any potential uncertainty under the Delaware statute as to valid means of giving notice to stockholders.

In addition, if it is impracticable to convene a currently noticed stockholder meeting at the physical location because of COVID-19 public health threats, the corporation may adjourn the meeting to another date or time, to be held by remote communication, by providing notice of the date, time and means of remote communication by filing a document with the SEC and issuing a press release, which is then promptly posted on the corporation’s website. This addresses any potential uncertainty under the Delaware statute, which doesn’t address the method of adjournment under these circumstances.

While the guidance above is welcome

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