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28
Oct

The New CEO – Meet the Right People

One of the first things that any new CEO needs to do is set up interviews with other key members of the management team.  While the CEO should already be familiar with the job descriptions for department heads and the organization and operational activities of each department the CEO should meet with the top of manager of each functional and business unit to begin to form his or her own independent opinion of the skills and talents of those persons and the manner in which they oversee and manage their units.  Among other things, the CEO should ask the other managers about any specific issues or problems they are confronting within the organization and in relations with external parties.  For example, the senior manager of the sales group may feel that the customer service department is not providing adequate support for certain important accounts.  If that is the case the CEO may need to intervene and attempt to smooth relations between the two units and assist them in develop a process to work together in a way that suits both of their goals and objectives and improves the customer’s experience with the company from the time the first contact is made by sales through the entire post-sale service and support period.  In the accounting area the discussion should cover important accounting and tax issues facing the company as well as the content and strength of accounting-related policies and procedures including internal controls and audit procedures.  With regard to external relations, the CEO may find that the manufacturing unit needs to reconfigure its supplier network in order to control the costs of procuring raw materials and ensure that components are available on a timely basis to fulfill sales orders.  In that situation the CEO will need to work with the senior management of the procurement and manufacturing units to develop and implement an appropriate vendor relations strategy.  The initial goal of these discussions is to determine how the CEO, through his or her oversight of the parent unit resources, can immediately assist and support the functional and business units.  In addition, however, the CEO should collect feedback on issues or problems that are likely to arise in the future so that they can be factored into the long-term business planning process.

As the CEO conducts the meetings with the department heads he or she should focus on certain core topics and on learning more about how the company, through its managers, actually operates.  For example, the CEO needs to go beyond documents that he or she may have received from the company to independently learn about the company’s business, including policies and practices regarding revenue recognition; the elements of revenue and expense for each product line, especially gross margins; any relevant accounting or tax issues that are likely to have an impact on the company or the industry segments in which the company competes; the content and strength of the company’s technology portfolio; and the position of the company vis-à-vis competitors in each of the company’s market segments.  When discussing issues such as revenue recognition the CEO should ask about customary practice in the industry and determine whether company practices are consistent with those used by competitors.  It is also useful for the CEO to learn as much as possible about the details of how the company’s products are developed, manufactured, distributed, sold and supported.  This usually means actual observation of the manufacturing process and attendance at sales presentations.  The CEO should also watch how employees go about their day-to-day activities and, most importantly, how their managers interact with them in communicating directions and information regarding the company and the specific tasks and duties that are being assigned to the employees.  If possible, the CEO should meet with small groups of employees from several departments to hear first-hand how they feel about the company, their managers and the challenges they are facing on a daily basis.

24
Oct

SEC Guidelines on Lifting General Solicitation Prohibitions for Rule 506 Offerings

Rule 506 (17 C.F.R. § 230.506) of Regulation D has long
been available for use by issuers looking to raise potentially unlimited
amounts of capital through securities offerings without having to register the
offering under the federal Securities Act of 1933 provided that the investment
group in any such offering is limited to “accredited” investors and no more
than 35 non-accredited investors who meet certain sophistication and experience
standards.  One of the limitations that had
been imposed on the use of Rule 506 had been that issuers could not engage in “general
solicitation” or “general advertising” when looking for investors.  However, on July 10, 2013, the Securities and
Exchange Commission (“SEC”) announced that it had adopted, pursuant to the
celebrated Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”),
amendments to Rule 506 that included a new Rule 506(c) that provides that the
prohibition against general solicitation and advertising will no longer apply
to offerings of securities made pursuant to Rule 506(c) provided that all purchasers
of securities sold in any offering under Rule 506(c) are accredited investors
and certain other conditions are satisfied including the requirement that the
issuer take reasonable steps to verify that purchasers of securities sold in
such offering are accredited investors. 
See SEC Release No. 33-9415; No. 34-69959; No. IA-3624;
File No. S7-07-12.

Commentators have
noted that the easing of the general solicitation and general advertising
prohibitions for Rule 506 may well be the most important change in the JOBS
Act, at least over the near-term. Rule 506 already has no cap on the amount of
capital that can be raised and is available to both public and private
companies without the need to comply with specific disclosure requirements for
offers and sales solely to accredited investors (although issuers must still
comply with the anti-fraud rules included in the federal securities laws).
Accordingly, it is not surprising that Rule 506 is already a popular method for
raising capital; however, one of the problems had been that the prohibitions on
general solicitation often made issuers reluctant to try and reach out beyond
accredited investors that already had a pre-existing relationship with them to
generate interest in a Rule 506 offering.  It is anticipated that the changes in the JOBS
Act will increase the pool of capital available through Rule 506 by allowing
issuers to expand their search efforts, using both traditional and social media
outlets, without fear that they might run afoul of solicitation and advertising
limitations.  For example, issuers may
now discuss their business activities at investment conferences without
worrying about whether or not they are violating the general solicitation
ban.  However, it is expected that
certain issuers may still be reluctant to engage in explicit advertising
activities due to concerns that they may appear to be desperate and the additional
recordkeeping and verification requirements.

Significantly the SEC
did not choose to specifically regulate the form and content of advertising
that issuers may use under Rule 506(c), although general anti-fraud
prohibitions would certainly apply. 
Issuers planning to advertise unregistered securities must notify the
SEC by checking a box on Form D; however, the primary purpose of this requirement
is to assist the SEC in checking to make sure that such issuers are taking the
additional steps necessary to ensure that actual purchasers do indeed satisfy
the standards for accredited investor status.

For further
discussion of Regulation D and an extensive set of checklists, client
communications and forms for use in securities offerings see my Westlaw Next publication Business Transactions Solutions, Securities Law
Compliance (§§ 98:1 et seq.). 
Changes have been made to several forms to take into account the
amendments to Rule 506 described above. 
For example, the Securities Law Compliance Questionnaire (see Master
Form at § 98:123), which attorneys can use to assess the
existing compliance activities of their clients in the securities law area,
highlights the need to collect and review documentary information from
investors to verify “accredited investor” status and similar changes have been
made in the form of Investor Questionnaire that should be completed and signed
by investors (see Specialty Form at § 98:149). 
The template for a client letter relating to a proposed limited
offering (see
Specialty Form at § 98:155) has been updated to include more information
regarding the amendments to Regulation D and new Rule 506(c).

21
Oct

Introduction to Finance in Developing Countries

Financing is a universally essential element for
establishing a new business, launching a new product or service, or expanding
an existing business through internal growth or acquisition, and it is likely
that entrepreneurs and managers will, regardless of the size of their
businesses, need to venture into the world of finance several times over the
life cycle of the enterprise.  This
report introduces some of the special challenges that arise with respect to
seeking financing in developing countries.

14
Oct

Societal Culture and Product Development

It has often been suggested that societal culture
is a fundamental determinant of product innovation and this report describes
the work of researchers that have explored how differences in societal culture
may influence the way in which firms approach their new product development
activities and how they view long-term planning for selection, development and
commercialization of new products and technologies.  

14
Oct

SCOUS Clarification of “Supervisor” Definition Does Not Reduce Compliance Program Requirements

Among other things, Title VII of the Civil Rights Act of 1964 [42 U.S.C.A. §§ 2000e et seq.] prohibits harassment of an employee
based on the employee’s race, color, religion, sex, or national origin and
imposes various obligations on employers to protect their employees against
various forms of harassment by non-employees (i.e., supervisors).  One
of the key, if not most important, factors in determining an employer’s liability
for workplace harassment is the status of the employee accused of engaging in
harassment and case law has drawn a sharp line between co-workers and
supervisors.  Specifically, if the harassing
employee is the victim’s co-worker, the employer is liable only if it was
negligent in controlling working conditions. 
However, different rules apply when the harasser falls within the
judicially accepted definition of a “supervisor” and in that situation the
standard will be determined based on whether or not a “tangible employment
action”—defined by the US Supreme Court as “a significant change in employment
status, such as hiring, firing, failing to promote, reassignment with
significantly different responsibilities, or a decision causing a significant
change in benefits”[Burlington Industries, Inc. v. Ellerth, 524 U.S. 742, 761,
118 S.Ct. 2257, 141 L.Ed.2d 633 (1998)
]—is involved.  If the supervisor’s harassment culminates in
a tangible employment action the employer is strictly liable.  But if no tangible employment action is
taken, the employer may escape liability by establishing, as an affirmative
defense, that (1) the employer exercised reasonable care to prevent and correct
any harassing behavior and (2) that the plaintiff unreasonably failed to take
advantage of the preventive or corrective opportunities that the employer
provided. [See Faragher v. City of Boca Raton, 524 U.S. 775, 807, 118 S.Ct.
2275, 141 L.Ed.2d 662 (1998)
; Burlington Industries, Inc. v. Ellerth, 524 U.S. 742, 765,
118 S.Ct. 2257, 141 L.Ed.2d 633 (1998)
]

The
federal Equal Employment Opportunity Commission (“EEOC”), when prosecuting
harassment cases under Title VII, long relied on the meaning of “supervisor” in
general usage and in other legal contexts, thus leading to an expanded view of
employees that might be considered to be supervisors.  However, in a recent decision handed down on
June 24, 2013 the Supreme Court mandated a narrower approach by holding that an
employee is a “supervisor” for purposes of vicarious liability under Title VII
only if he or she is empowered by the employer to take tangible employment
actions against the victim. [Vance v. Ball State
University et al. _ U.S. _ (June 24, 2013)]  The Court explained that its decision
regarding the definition of supervisor took into account the fact that many
modern organizations have abandoned a hierarchical management structure in
favor of giving employees overlapping authority with respect to work
assignments and that its concept of a supervisor could be readily applied and
that, in fact, an alleged harasser’s supervisor status could often be capable
of being discerned before (or soon after) litigation commences and would likely
be resolved as a matter of law before trial. 
As to the concerns of the EEOC that employers might attempt to insulate
themselves from liability for workplace harassment by empowering only a handful
of individuals to take tangible employment actions, the Court noted that
employees would not be unprotected against harassment by co-workers who possess
some authority to assign daily tasks and that in such cases a victim could
still prevail by showing that the employer was negligent in permitting the
harassment to occur and that the jury should be instructed that the nature and
degree of authority wielded by the harasser is an important factor in
determining negligence.

The actual impact of the Court’s ruling remains to be seen and no
employer can afford to be in a situation where a credible claim can be made
that it was negligent with respect to its efforts to ensure that its workplace
remains free of harassment.  Prudent
employees have already taken the following steps in developing their
anti-harassment programs: adoption of a
written sexual harassment policy and implementation of programs to ensure that
the policy is effectively communicated to all supervisors and employees; design and
implementation of a complaint procedure to encourage reporting and full and
discrete investigation of discrimination or harassment claims; posting of
information posters and preparation and dissemination of information sheets and
pamphlets on identifying, reporting and preventing sexual harassment; and offering both
supervisors and employees training and educational programs focusing on
prevention of sexual harassment and other forms of discrimination.

For further discussion of Title VII and other elements of Title
VII compliance programs see my Westlaw Next publication Business Transactions Solutions, Employment Law Compliance (§§ 100:1 et seq.).