In the best of times, the Form 8-K is pretty straightforward. The SEC guidelines are clear about material events that require interim disclosure. Then came the pandemic of 2020, and with it a whole new world that wasn’t so clear cut.
Heading into 2021, it’s time to assess your 8-K management practices and where your processes could use an upgrade. For many companies, responsibility for interim disclosure management and 8-K filing likely falls to the General Counsel.
Busy GCs with increasing responsibilities and finite resources are looking for more effective solutions, efficient processes, and lower costs to manage sensitive, deadline-driven 8-K filings. To achieve these goals, corporate GCs are forging closer working relationships with their SEC reporting teams and using the same cloud-based, financial reporting platforms.
At Overstock.com Inc. (Nasdaq: OSTK), the online retailer and financial technology innovator, the General Counsel’s office takes a hands-on role in disclosure management. Their processes have evolved over several years as their business needs change, particularly with Overstock’s 2014 investment in Medici Ventures and tZERO, innovators in digital currency and cryptocurrency technology.
“As a business gets more technical, you have a greater obligation to disclose its potential impact on financial reporting,” says Glen Nickle, Vice President, Legal and General Counsel. “To manage this, we had to interject ourselves into the information flow at the subsidiary level to make sure our disclosures aligned.”
Enter Allison Fletcher, Deputy General Counsel, who joined the Overstock team in 2016. She is the driving force behind Overstock’s 8-K disclosure management process. In close collaboration with the SEC reporting team, she also contributes to the company’s 10-Qs and 10-Ks, in areas including risk factors, forward-looking statements, legal proceedings, and exhibits.
“Our processes facilitate working relationships and collaboration across departments,” she says. “Legal has created consistent, reliable processes to produce quick turnaround for sensitive, deadline-driven disclosure.”
Allison and Glen shared a few highlights from their journey through disclosure management:
1. Keep it simple: the 8-K Trigger Checklist
Sometimes successful process management is more about good management than technology. Allison’s tool of choice for interim disclosure management is the humble checklist. To be clear, these are not simple to-do lists. Allison’s checklists are organizational tools that drive the disclosure process.
The most innovative process she manages is the 8-K Trigger Checklist, where she maintains an ongoing list of potential disclosures and guidance about how to identify material events that could trigger a disclosure. Each month Allison circulates the 8-K Trigger Checklist to the General Counsel, CFO, Controller, and each of the GCs in the Medici Ventures and tZERO subsidiaries. It’s their responsibility to monitor their businesses for 8-K triggers and to bring potential triggers to the attention of the legal team so they can be appropriately reported.
Importantly, the 8-K Trigger Checklist holds them accountable for following through and parlays nicely into the company’s disclosure controls and procedures. Each of the five officers is required to sign the document to confirm they are in compliance with the SEC’s 8-K disclosure guidelines and Overstock’s internal policies.
Allison insists her checklists aren’t an exercise in checking boxes. Last year, Overstock.com Inc. issued a digital dividend, completed a stock offering, and changed the annual meeting venue because of the pandemic. “The 8-K Trigger process stimulates everyone to think about disclosure,” she says. “It’s been really effective.”
Allison prepares and submits Form 8-K filings herself using the same cloud-based reporting platform used by Overstock’s SEC reporting team. She also applies the XBRL tags. “There is something satisfying about owning and executing the process from start to finish,” she says.
2. Forge a close working relationship with the SEC reporting team
Through the production of the quarterly filings, annual filings, and proxy statements, Allison has forged a close, working relationship with the SEC reporting team. “Working on a connected-data platform makes SEC reporting much more efficient for everyone on the team,” she says.
Allison keeps her thumb on the pulse of potential risk factors through a network of leaders in the businesses. She continues to use a checklist, which she says is, “. . . organic and evolves to reflect the present circumstances.”
Allison and the SEC reporting team maintain an ongoing record of the status of risk factors and related disclosures. She attends a regular meeting with leaders in the business to get more detail about the risk factors she’s been following. Importantly, she uses these meetings to get a sense of the context and insight that comes from people who have a direct tie to the business.
By the time she attends the formal risk factor meeting, Allison has a good grasp of what to present to the committee, and importantly, what not to present.
3. Leverage your cloud-based reporting platform
Until COVID-19 sent people home to work from their kitchen tables, Overstock’s cloud-based financial reporting platform was limited to Allison and a handful of users on the SEC reporting team. Working from home meant changing policy to accept eSignatures and allowing more people access to the connected reporting system, especially the corporate officers who are required to review, comment and certify SEC filing documents.
They found that collaborating through the centralized reporting platform was quite effective for working through disclosure approvals and review certifications. “We don’t pass around paper drafts anymore, and that alone improved our efficiency,” says Allison.
All in all, the success of the Overstock.com disclosure management process is a combination of good process management, adaptability to changing circumstances, teamwork with other departments, and leveraging its cloud-based financial reporting system.