The Investor Responsibility Research Center (IRRC) Institute and Institutional Shareholders Services (ISS) recently issued a joint study titled “Board Refreshment Trends at S&P 1500 Firms,” which analyzes demographic trends from 2008 through 2016 for corporate boards of companies in the S&P 1500 Composite Index (“S&P 1500 Companies”). Highlights of the study include the following:

  • Board Tenure. Director tenure is steadily rising.  Average and median director tenure were 8.7 years and 7 years, respectively.
    • Gender Tenure Gap. However, a notable gender tenure gap persists. Average tenure for female directors in 2016 was 6.4 years, compared to 9.2 years for male directors.
  • Age of Directors. As of 2016, the average age of directors was 62.5 years old, which was the highest level during the study period.
    • Widening of Gender Age Gap. Like tenure, the study found a notable age gap regarding gender. The average age of male directors was 63.1 years old, while the average age of female directors was 59.8 years old.
    • Age Distribution. The number of “older” directors (i.e., those in their seventies and eighties) was the only age group to increase from 2008 through 2016 in headcount; as of 2016, this group occupied 20.4% of all board seats.
  • Renewal and Retention Rates.
    • Increase in New Directors. The rate of “new” directors nearly doubled from 2008 to 2016—in 2016, almost one out of every 10 directors had no prior board experience.
    • Changes to Board Composition. For the first time since 2008, more than 50% of S&P 1500 Companies added at least one new director to their boards in 2015. From 2012 to 2016, the prevalence of “zero change” boards steadily decreased.
    • Demographics of New Directors. From 2008 to 2016, women and persons aged 50 to 59 years old made up the majority of the incoming class of “new” directors.
  • Ethnicity and Race.
    • Slow, Steady, Increases in Gender Diversity. Gains in gender diversity were gradual among S&P 1500 Companies, as the number of female board members increased from 11.9% (in 2008) to 17.8% (in 2016). In 2008, 33% of all boards were all male—however, this number dropped to 13.8% in 2016.
    • Low Minority Representation. As of 2016, minority directors filled slightly more than 10% of all board seats. While S&P 1500 Companies with larger capitalizations typically had at least one minority director, S&P 1500 Companies with smaller capitalizations typically had no minority representation.

A copy of the study is available at: https://irrcinstitute.org/wp-content/uploads/2017/01/IRRCI-Board-Refreshment-Trends-FINAL.pdf.

Because they can….  This was the conclusion of the discussion at the SEC Advisory Committee on Small and Emerging Companies earlier in the week (see our prior post regarding the meeting).  The Committee discussed statistics relating to the number of companies that are undertaking IPOs, the number of venture-backed companies receiving substantial private investments, trends relating to acquisitions of venture-backed companies (presumably instead of IPOs), and the various factors contributing to this noticeable trend.  The Committee hosted various speakers, including a representative of E&Y.  The E&Y presentation contains interesting market data and may be accessed here:  https://www.sec.gov/info/smallbus/acsec/giovannetti-presentation-acsec-021517.pdf.

Bloomberg BNA announced the recently updated SEC Reporting Issues for Foreign Private Issuers (Portfolio 5507) authored by Morrison & Foerster partners Anna T. Pinedo and James R. Tanenbaum.

This portfolio serves as a practical resource for both practitioners and foreign private issuers.  This new edition explains in detail various SEC proposed and finalized rules and regulations issued in 2016. It analyzes how those regulations would affect foreign private issuers–including the updated SEC staff guidance on how foreign private issuers should disclose the use of non-GAAP financial measures.

The SEC’s Investor Advisory Committee will hold a public meeting on March 9, 2017, from 9:00 a.m. to 11:55 a.m. The meeting’s agenda includes a discussion regarding SEC investor research initiatives, the FINRA 2016 Financial Capability Study and academic research on financial literacy; and a discussion regarding unequal voting rights of common stock. The meeting will be held at the SEC’s headquarters and will also be webcast live on the SEC’s website.

During 2016, there were relatively few companies that completed initial public offerings (“IPOs”). Some commentators attribute the dearth of IPOs in 2016 to volatility arising from, among other things, Brexit and the U.S. Presidential election. Others point to the continuing trend of successful companies remaining private longer and continuing to benefit from attractive valuations in private financing rounds without facing the burdens associated with becoming Securities and Exchange Commission (“SEC”)-reporting companies.

In this year’s survey, we consider the characteristics of the emerging growth companies (“EGCs”) that completed IPOs and the corporate governance, compensation and other practices adopted by them. Specifically, we examined the filings of (i) the approximately 680 EGCs (on an aggregated basis) that completed their IPOs in the period from January 1, 2013, through December 31, 2016, and (ii) the 100 EGCs (on a standalone basis) that completed their IPOs during the year ended December 31, 2016. The survey focuses on EGCs that have availed themselves of the provisions of Title I of the Jumpstart Our Business Startups Act (“JOBS Act”). This year is anticipated to be a more active year for IPOs. Our objective is to provide data that will be useful to you in assessing whether your company’s current or proposed corporate governance practices are consistent with EGC market practice.

Read the 2017 review.

In a recent paper, authors Sergey Chernenko, Josh Lerner, and Yao Zeng consider investments by mutual funds (“cross over funds”) in 99 unicorn companies. Given the rise in recent years of investments by cross over funds in private companies, the authors compare the investments made by these funds compared to those made by venture capital funds. There have been numerous studies examining the role of venture capital funds in governance of private companies and the contribution of venture funds to promoting certain governance practices and information reporting. Not surprisingly, the authors find that more often than not cross over funds structure their investments as straight convertible preferred stock, rather than participating preferred stock. Cross over funds are more focused on cash flow rights, require stronger redemption rights, and generally are not interested in board representation or other roles in the companies. As a result, mutual funds tend not to monitor the governance of the unicorns in which they invest and function more as passive investors, without providing the type of oversight considered characteristic for venture investors. Although late-stage private placement activity declined in 2016, the trend toward companies remaining private longer remains important. As a result, understanding the roles of late-stage investors in unicorns can provide important insights. See the full paper here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2897254

On February 28, 2017, the SEC’s Division of Economic and Risk Analysis (DERA) and New York University’s Salomon Center for the Study of Financial Institutions will host a dialogue on Securities Crowdfunding in the U.S.  The event, held at the SEC’s headquarters, will include a discussion on the economic rationale and legal framework for securities crowdfunding; a discussion on investor protection and capital formation in securities crowdfunding; and a presentation on the empirical evidence and data on securities crowdfunding.

Welcome remarks will start at 9:15 am.  The event is open to the public and will also be webcast on the SEC’s website.

Thursday, March 9, 2017
12:30 p.m. – 2:00 p.m. EST

As the Trump Administration takes charge in 2017, the only thing that seems inevitable is that the regulatory and enforcement outlook will change. Initial indications point to a desire to relax or repeal certain regulations that may be regarded as burdensome to public companies. Also, proposed legislation would relax certain corporate governance and compensation-related measures that formed part of the Dodd-Frank Act. Proposed legislation also would address the types of cost-benefit analysis that would be required to support proposed regulation.

Don’t miss this chance to learn SEC regulations’ status and how they will likely change from experts who have been directly involved in rule-making and implementation of U.S. securities laws.

Topics to be discussed include:

  • Rules that were proposed but not adopted by the SEC as part of the Dodd-Frank Act rule-making mandate;
  • What to expect as far as corporate governance and executive compensation requirements;
  • Final rules adopted pursuant to the Dodd-Frank Act mandate relating to extractive minerals and specialized disclosures;
  • Future of the Disclosure Effectiveness initiative;
  • Likely status of the rules proposed by the SEC and not yet adopted;
  • Proposed changes affecting investment companies and their likely status; and
  • Anticipated enforcement areas of focus.

Speakers:

  • Andrew J. “Buddy” Donohue
    Former Chief of Staff, Director of Enforcement, and Director of Investment Management, SEC
  • Roberta Karmel
    Centennial Professor of Law, Brooklyn Law School,
    former SEC Commissioner
  • Troy Paredes
    Paredes Strategies LLC, former SEC Commissioner
  • Anna Pinedo
    Partner, Morrison & Foerster LLP
  • Linda Chatman Thomsen
    Partner, Davis Polk & Wardwell LLP
    former Director of Enforcement, SEC

For more information, or to register, please click here.

Please contact cmg-events@mofo.com for a promotional code for discounted $99 tuition.

The SEC’s Advisory Committee on Small and Emerging Companies announced its agenda for its upcoming February 15 meeting.  The committee will discuss:

  • Secondary market liquidity for Regulation A Tier 2 and non-exchange listed companies;
  • Broker-Dealer status of “finders”;
  • Why more companies are staying private; and
  • Finalizing board diversity recommendation.

The meeting is open to the public and will start at 9:30 a.m.  The meeting will be webcast on the SEC’s website.

At the 35th Annual Federal Securities Institute, a representative of the Securities and Exchange Commission shared some market data.

From its effective date in June 2015 through December 2016, there were 171 Regulation A offerings filed. Of these, 76 were Tier 1 offerings and 95 were Tier 2 offerings. The aggregate proceeds sought to be raised in the filed deals was approximately $3 billion. There were 97 offerings qualified. Thus far, $238 million has been reported sold, though more complete data will be available when issuers file their reports in a few months.

From its May 2016 effective date, 163 companies have filed to undertake crowdfunded offerings. The average minimum raise sought is $100,000 and the average maximum raise is $647,000. The average time period has been between four and six months. 28 deals have been completed raising approximately $8.1 milllion. 24 issuers failed to meet the minimum amount sought and withdrew their offerings.