All posts by Cydney Posner

Comp Committees take note: stock buybacks as a mechanism for manipulation

You’ve surely seen all the press about companies spending much of their savings from the 2017 Tax Cuts and Jobs Act on stock buybacks. See, for example, this article.   And this article reports on a JP Morgan prediction for this year of over $800 billion in stock buybacks.  According to this article in CFO.com, S&P 500 firms repurchased $166.3 billion worth of shares just during the first quarter of 2018, up 18.7% from a year ago. A common rationale for conducting a stock buyback is that the shares are undervalued—thus signaling optimism about the company’s future. In addition, buybacks are often viewed as a useful way to provide shareholders with a cash distribution or to offset dilution.   However, in some cases, the author of this study contends, the real motivation may be more opportunistic—managing EPS and increasing executive compensation, regardless of the operational success of the company, where EPS is a performance measure.  Comp committees: take note.

Are rumors of the demise of the public company greatly exaggerated?

As you’ve surely read and heard, there’s been a tremendous amount of hand wringing, particularly at the agency and congressional levels, about the steep decline in the number of public companies and IPOs.   For example, in congressional testimony in 2017, SEC Chair Jay Clayton expressed concern regarding the decline in the number of public companies, contending that it is Mr. and Ms. 401(k) who bear the cost of this trend because they now have “fewer opportunities…to invest directly in high quality companies.” (See this PubCo post.)  The topic has also been taken up by various House committees, SEC advisory committees and SEC forums, as well as by securities and industry organizations. (See this PubCo post, this PubCo post and this PubCo post.)  However, in this article, a Cambridge professor cries “nonsense”: the primary dangers to public company status, such as buyouts by private equity and a recent bias against conducting IPOs, do not pose “an existential threat to the American public company.”  While there are certainly fewer public companies than in decades past, “the public company remains as crucial a feature of the American economy as it has ever been.”

SEC enforcement action for materially misleading projections in the face of red flags and other actions

In case anyone needed a reminder from the SEC, this case against Sonus Networks, its CFO and VP of Sales may well serve as one: per the SEC’s Associate Director of Enforcement, a company needs to have a “reasonable basis” if it makes public projections or estimates about future financial results:  “The investing community expects that when companies choose to provide public financial projections, there is a reasonable basis underpinning those projections….When a company ignores red flags or takes steps to make public financial projections inaccurate we will take appropriate action.”

Corp Fin issues new compliance guide for smaller reporting companies

Corp Fin has just posted A Small Entity Compliance Guide for Issuers that summarizes the recent amendments to the definition of “smaller reporting company” and related amendments.  (See this PubCo post and this Cooley Alert.) The Guide also provides some clarification regarding timing and transition to the new definition.

Cooley Alert: SEC Expands Eligibility for Smaller Reporting Company Status

And here for your weekend reading pleasure is another Cooley Alert: SEC Expands Eligibility for Smaller Reporting Company Status.  Very relaxing!  

Is XBRL already obsolete?

You’ve got to just love the irony: the SEC’s amendments mandating the use of Inline XBRL aren’t even effective yet, and experts at an accounting conference have declared XBRL “nearly useless as an investment tool,” and “all but unnecessary.”

Is it time to regulate proxy advisory firms?

The idea of regulating proxy advisory firms has been in the ether for quite some time, but it’s an idea that never quite comes to fruition. However, there seems to be a lot of chatter about this topic now, raising the question: is now the time? According to this paper, The Big Thumb on the Scale: An Overview of the Proxy Advisory Industry, from Stanford’s Rock Center for Corporate Governance, while proxy advisory firms influence institutional voting decisions and corporate governance choices to a material extent, it “is not clear that the recommendations of these firms are correct and generally lead to better outcomes for companies and their shareholders.” In that light, the paper suggests that some type of regulation of proxy advisory firms might be warranted to increase their transparency and improve the reliability of their recommendations.