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BNY Mellon Issues 2015 Report on Global Trends in Investor Relations

Posted in Investor Relations

On February 9, 2016, BNY Mellon released its 2015 Global Trends in Investor Relations: A Survey Analysis of IR Practices Worldwide.  The report summarizes survey responses of 550 companies from 54 different countries to identify current trends in the global investor relations (IR) space.  The report indicates that IR departments globally are intensifying their efforts with research analysts and building the visibility of their management teams with investors.  Some of the highlights of the report are as follows:

Non-deal roadshows: The majority of companies continue to depend on brokers to organize non-deal road shows (NDRs).  However, the number of companies that do not use brokers for NDRs has increased from 5% in 2012 to 10% in 2015.  The principal factor cited in selecting a broker for NDRs is the quality of investor targeting provided by the broker.  84% of companies name sell-side/broker-run road shows as the top source of introductions to investment professionals, but this is a decrease from 87% in 2010.  One of the reasons for this decline is the increase in one-on-one investor meetings.  The average number of road show days has decreased from 25.1 days in 2013 to 18.6 days in 2015, while the total number of one-on-one meetings outside the issuer’s home market increased 12.6% from 250.6 meetings to 282.3 meetings.

Director participation in investor meetings: Investor meetings with participation by board members more than doubled between 2013 and 2015, from 24% to 49%, respectively. This trend was led by companies in Developed Asia, with 81% of companies reporting such meetings, followed by Eastern Europe with 59% and Western Europe with 55%.  North American companies had the lowest rate of board/investor interaction at 26%.  Of the companies that reported meetings between directors and investors, 54% stated that such meetings were standard practice for the company and were generally the result of investor request.  However, only 24% of companies reported having a written policy regarding interaction between directors and investors.  21% of companies stated that they believed directors should have no direct contact with investors.

Social media usage: The use of social media for IR purposes continues to increase, although at a slower pace in recent years.  In 2010, only 9% of companies reported using social media for IR purposes, which increased to 28% in 2013 and 30% in 2015.  Of the 70% of companies that reported not using social media for IR purposes, approximately half indicated that they may use social media in the future. The most common social media platforms used are Twitter/StockTwits (16%), Facebook (11%) and mobile phone/tablet IR apps (11%).

When analyzing the companies utilizing social media, the survey found that twice as many mega cap companies (54%) use social media in IR compared to microcap companies (26%).  The four industry sectors reporting the highest usage of social media are Technology (39%), Financial (39%), Telecommunications (38%) and Healthcare (38%). Of the companies that reported not using social media for IR purposes, the majority cited a lack of investor demand (61%), as well as limited resources (35%), inability to control the message (29%) and lack of management support (28%).

Written disclosures/social media policies: The prevalence of written disclosure policies has increased steadily over the past five years.  In 2015, more than 80% of companies reported having formal written disclosure policies, compared to 62% in 2010.  The number of companies with social media policies also has increased from 49% in 2015 compared to 42% in 2012. Other types of written policies in place that were examined in the survey include crisis communication policies, which decreased from 54% to 52% between 2013 and 2015; data breach communication policies, which decreased from 48% to 44% between 2013 and 2015; analyst and broker interaction policies, which decreased from 39% to 37% between 2013 and 2015; and policies on employee interaction with expert networks, which increased from 27% to 29% between 2013 and 2015.

The full report is available at http://www.adrbnymellon.com/files/PB44206.pdf.

A Conversation with Chair White

Posted in Accredited Investor Standard, Disclosure Requirements, Late Stage Investments, Private Placements, Rule 506, SEC News

Chair White spoke at the Annual Securities Regulation Institute in San Diego last week and participated in a Q&A session.  We have highlighted below commentary on topics of interest to our readers.

  • Disclosure effectiveness:  Chair White noted that this initiative is one of the Commission’s important priorities.  She noted the requests for comment that had been issued in late 2015 regarding certain Regulation S-X requirements, and indicated that the next milestone is likely to be a concept release on S-K.  Chair White also mentioned technical amendments that are intended to eliminate repetition or overlap in disclosures related to financial statements.  Chair White also noted that the Staff intends to review Industry Guide 3 for banks and other financial institutions, and Guide 7 on mining.
  • Rule 506(c):  Chair White commented on Rule 506 offerings.  She noted that there are some open investigations related to these types of offerings, including one relating to the reasonable efforts that issuers have to make to determine that sales are made only to accredited investors.  She noted that use of the new exemption remains limited—“[f]rom 2013, when 506(c) became effective, through 2015, you had about $2.8 trillion sized market for 506(b) and about a $71 billion market for 506(c).”
  • Accredited investor definition:  Chair White reiterated that the Commission seeks comment on the recently published report regarding the definition and noted that, in her opinion, the rule needs to be revised.
  • Late stage private placements, and private secondary markets:  Chair White noted that the Commission and various of the advisory committees are paying close attention to market developments, and are focused on secondary liquidity for investors in private placements.  Commenting on late-stage private placements, Chair White noted, “the kind of the late stage private investments, pre-IPO that have gotten so much attention in the press, that’s something we look at closely there. One take away just at a high level is you’ve got pretty sophisticated institutional investors who ought to know the right questions to ask and have the leverage to be able to get the information that they need. They ought to have the resources to be able to do the due diligence they need to do, the leverage to basically negotiate favorable terms.”

The full transcript is available here:  https://www.sec.gov/news/speech/securities-regulation-institute-keynote-white.html.

Getting the Measure of EGC Corporate Governance Practices: A survey and related resources

Posted in Emerging Growth Companies, IPO On-Ramp, Venture Capital

Our 2016 survey, Getting the Measure of EGC Corporate Governance Practices, provides an overview of the choices made by EGCs that undertook initial public offerings during 2014 and 2015 insofar as capital structure, exchange listing, governance policies and procedures, board composition, compensation, and various other matters. A number of charts and resources accompany this year’s survey.

Read the 2016 review.

House Passes Encouraging Employee Ownership Act

Posted in Capital Formation, Pending Legislation

On February 3, 2016, the House passed H.R. 1675, the Encouraging Employee Ownership Act of 2015.  The bill directs the SEC to revise regulations to require an issuer to furnish investors with additional specified disclosures regarding compensatory benefit plans if the aggregate sales price or amount of securities sold during any consecutive 12-month period exceeds $10 million (currently $5 million), indexed for inflation every five years.  The bill has received strong opposition from the Executive Branch, claiming, in an official statement, that the bill would pose risks to investors, is overly broad, would allow financial institutions to avoid appropriate oversight, in addition to calling it duplicative of existing administrative authorities.

Earlier this week, the House passed H.R. 3784, the SEC Small Business Advocate Act, and H.R. 2187, the Fair Investment Opportunities for Professional Experts Act.  As of February 2, 2016, the two bills were received in the Senate and referred to the Committee on Banking, Housing, and Urban Affairs.

For the status of these and other bills relating to capital formation, click here.

House Passes SEC Small Business Advocate Act and Fair Investment Opportunities for Professional Experts Act

Posted in Accredited Investor Standard, Capital Formation, Pending Legislation, SEC News

On February 1, 2016, the House passed H.R. 3784, the SEC Small Business Advocate Act, and H.R. 2187, the Fair Investment Opportunities for Professional Experts Act.

H.R. 3784 proposes to amend the Securities Exchange Act of 1934 to establish the Office of the Advocate for Small Business Capital Formation within the SEC.   The responsibilities of the office would include assisting small businesses and their investors in resolving significant problems with the SEC and other SROs and identifying areas where small businesses and their investors would benefit from changes in SEC and other SRO regulation and work to propose these changes to the SEC and Congress.  H.R. 3784 also would establish the Small Business Capital Formation Advisory Committee.  The committee would provide the SEC with advice on SEC rules, regulations, and policies relating to (i) capital raising by emerging, privately held small businesses and publicly traded companies with less than $250 million in public market capitalization through securities offerings, (i) trading in the securities of such businesses and companies, and (3) public reporting and corporate governance requirements of such businesses and companies.

H.R. 2187 proposes to amend the definition of “accredited investor” under Section 2(a)(15) of the Securities Act of 1933 (the “Securities Act”) to include certain natural persons, regardless of whether they meet the income and net worth requirements under Rule 501(a) under the Securities Act.   These natural persons would include (i) any natural person who is currently licensed or registered as a broker or investment adviser by the SEC, FINRA or a state securities regulator and (ii) any natural person the SEC determines by regulation to have demonstrable  education or job experience to qualify such person as having professional knowledge of a subject related to a particular investment, and whose education or job experience is verified by FINRA.

We will monitor these bills and related legislation on this blog.

NASAA Requests Comments on Proposed Rule and Notice Form for Tier 2 Regulation A Offerings

Posted in Regulation A+

On January 27, 2016, the Corporation Finance Section of the North American Securities Administrators Association (NASAA) requested comments on a proposed model rule and uniform notice filing form aimed at simplifying the state notification requirements for Regulation A Tier 2 offerings.  One of the most significant concerns regarding the proposed amendments to Regulation A was the requirement to comply with state securities laws.  At the time the amendments to Regulation A were proposed, there was no coordinated review process by the states for Regulation A offerings.  The final rules amending Regulation A, adopted on March 25, 2015, provide that Tier 1 offerings (for smaller offerings up to $20 million in any 12-month period) will remain subject to state securities law requirements, but Tier 2 offerings (for offerings up to $50 million) will not be subject to state review if the securities are sold to “qualified purchasers” or listed on a national securities exchange.  Although the final rules define the term “qualified purchaser” in a Regulation A offering to include all offerees and purchasers in a Tier 2 offering, states continue to have authority to require filing of offering materials and enforce anti-fraud provisions in connection with a Tier 2 offering.

The NASAA’s proposed rule would require Regulation A Tier 2 issuers to file basic information about the issuer and the offering on a short notice form and pay a filing fee that can be used for filings in multiple jurisdictions.  A consent to service of process also is included in the notice form so that a separate Form U-2 filing for consent to service of process for each applicable jurisdiction is not necessary.  Issuers also can incorporate by reference into the notice form those documents filed on the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.  Issuers would be required to submit the notice form at least 21 calendar days prior to the initial sale and the notice form would be effective for 12 months from the date of filing.  Issuers can amend or renew the notice form for an additional 12-month period if the same offering is continued.

The proposed rule and notice form are available at http://nasaa.cdn.s3.amazonaws.com/wp-content/uploads/2016/01/Reg-A-Tier-2-Public-Comment-FINAL1.pdf.

SEC Approves FINRA’s Funding Portal Rules

Posted in Crowdfunding, FINRA

The SEC approved FINRA’s Funding Portal rules for entities that intend to function as funding portals in crowdfunded offerings made pursuant to Regulation Crowdfunding.   We had previously posted a link to the rule text.  Today, FINRA issued Regulatory Notice 16-06, which provides an overview of the new Funding Portal Rules.  The Regulatory Notice can be accessed here: http://www.lexissecuritiesmosaic.com/gateway/finra/regulatory-notices/Regulatory-Notice-16-06.pdf.

JOBS Act Quick Start – A Brief Overview of the JOBS Act, 2016 Update

Posted in IPO On-Ramp, JOBS Act News, Private Placements, Public Companies, Venture Capital

JOBS Act Quick Start provides a comprehensive overview of the provisions of the JOBS Act, including the changes brought about in market practice as a result of the IPO on ramp provisions. This 2016 update, which we invite you to read, describes the recent FAST Act improvements, the final rules relating to Regulation A, and the final rules implementing Regulation Crowdfunding.

To download your copy, click here. To request a hard copy, please e-mail tstarer@mofo.com.

GAO Publishes Report on Gender Diversity of Corporate Boards

Posted in SEC News

On December 3, 2015, the United States Government Accountability Office (GAO) published its report analyzing the history of gender diversity of U.S. corporate boards and provided recommendations for improving female board representation.  The report indicates that, following current trends, it could take 10 years for women to comprise 30% of board positions and more than 40 years for representation of women to be equal to men.  In 2014, when the data was collected for the report, women comprised approximately half of the U.S. workforce, but only held approximately 16% of board seats of S&P 1500 companies, which represented an 8% increase from 1997.  The report identifies three key factors that help to explain why female representation on boards has only grown incrementally in recent years.  First, rather than prioritizing diversity, boards tend to rely on personal networks to identify potential new candidates for election.  Second, boards often choose candidates from a “traditional pipeline,” which includes former members of boards or those with CEO experience.  To increase female candidacies for board positions, the report suggests that boards expand searches beyond the traditional pipeline, and perhaps set voluntary targets for diversity.  Third, the report cites the relatively small number of vacant board seats that are open each year (only approximately 4% of board positions are filled by new directors each year).

In order to further improve female board representation, the report recommends that the Securities and Exchange Commission (the “SEC”) amend its current regulations regarding disclosure of diversity statistics on corporate boards.  Currently, the SEC only requires companies to disclose in filed proxy statements provided to investors any policy that the company employs with regard to board diversity and an assessment of the effectiveness of the policy.  However, the SEC allows companies to define diversity in ways they deem appropriate.  Therefore, many companies provide information about their directors’ knowledge, skill and experience rather than gender, race and ethnic background.  Many of the various stakeholders interviewed for the report support a recent investor petition to the SEC, which requests that these disclosure requirements be made more specific and requiring companies to provide investors information on the gender and racial diversity of board members.  Most of the interviewees agreed that these changes could increase pressure on companies to diversify their boards, potentially leading to better decision making that more accurately reflects a company’s employee and customer base.

A copy of the report is available at http://www.gao.gov/assets/680/674008.pdf.

FINRA Amends Proposed Funding Portal Rules

Posted in Crowdfunding, FINRA, Private Placements, SEC News

On January 21st, FINRA an amendment (see text here:  http://www.finra.org/sites/default/files/rule_filing_file/SR-FINRA-2015-040-ammendment-1.pdf) to its proposed rule changes relating to the registration, supervision and oversight of crowdfunding funding portals.  The Securities and Exchange Commission published a notice and order on January 22nd seeking comment on FINRA’s proposed rule changes on an accelerated basis.  In the notice and order, FINRA’s responses to public comments are explained (see response to comments: http://www.finra.org/sites/default/files/rule_filing_file/SR-FINRA-2015-040-response-to-comments.pdf).  The amendment generally is limited to technical changes to various rules.  FINRA also clarifies that it will not require member firms that engage in crowdfunding to make filings pursuant to Rule 5123, which requires certain filings in connection with private placement transactions.