October 5, 2009

A Reprieve from the Guv’ner! No Proxy Access for ’10 Proxy Season

I got many excited emails from members on Friday noting this Bloomberg article, confirming a rumor I had been hearing all week: the SEC is taking more time to consider the comment letters it has received. This WSJ article notes that the SEC’s new goal is to consider access rulemaking is January or February.

According to this NY Times article, Senator Schumer issued a statement expressing disappointment – so there still is considerable pressure on the SEC to do something on access and this rulemaking is far from dead in the water. The Commission still seems to have a 3-2 vote in favor of access when they do consider final rules.

My guess is that in addition to analyzing the comment letters, the SEC may be waiting for Congress to pass a bill that gives the SEC clearer authority to conduct this rulemaking – in anticipation of a likely lawsuit – and that the SEC still needs to figure out how to handle the mechanics of proposed Rule 14a-11 since there are numerous open issues on how access would work in practice. Much work remains on getting a handle on the “proxy plumbing” and the SEC continues down that path, holding a two-day roundtable on securities lending last week.

This Simpson Thacher memo notes a speech from Commission Elise Walter on Friday, noting that she would give “careful consideration” to an opt-out” provision, but that she was less receptive to directors having an “unfettered choice” to have this discretion.

Simpson’s memo notes that there is no indication about whether the SEC may still act before the upcoming proxy season on its Rule 14a-8(i)(8) proposal to end the practice of allowing companies to exclude shareholder proposals relating to director elections. My guess is that the SEC will not act on this proposal separate from the 14a-11 proposal for fear of enraging those in favor of a-11 since that might look like that is all the SEC is willing to do in the access area.

And as long as I’m guessing, I also think the January/February timeframe may be too soon for the SEC to act – there are a lot of open issues and the pressure of an upcoming proxy season no longer bears down on this rulemaking. But that is just conjecture on my part…

6th Time’s a Charm? SEC Further Delays Auditor Attestation Requirement for Smaller Companies

On Friday, the SEC issued a press release announcing that it’s giving smaller companies (ie. nonaccelerated filers) an additional six-month deferral to produce the long-awaited auditor attestations under Section 404(b) of Sarbanes-Oxley. So this latest extension pushes back the deadline from years ending after December 15, 2009 to years ending after June 15, 2010. (Remember that smaller companies have already been required to include a Section 404(a) management’s report on internal control in their annual reports.)

It’s worth noting that Sarbanes-Oxley – adopted back in ’02 – still hasn’t been fully implemented even though we’re up to our eyeballs in a new sea of regulatory reform. So is this 6th delay in the smaller company deadline “final”? In other words, will smaller companies finally be facing the gun?

SEC Releases Internal Controls Cost-Benefit Study

To answer the question posted above, I believe the answer is “yes, it’s final.” That’s because the SEC stated rationale for the delay was that it wanted to give smaller companies and their auditors more than three months to digest the results of the Section 404 cost-benefit study its Office of Economic Analysis released on Friday.

The cost-benefit study was conducted to determine whether the ’07 reforms (i.e., management guidance issued by the SEC and PCAOB Auditing Standard No. 5) really did lower costs by producing more cost-effective internal controls evaluations and audits. The study reveals that these ’07 reforms did indeed fit the bill and that costs are lower. And to answer the question quite clearly, the SEC’s press release notes:

“Since there will be no further Commission extensions, it is important for all public companies and their auditors to act with deliberate speed to move toward full Section 404 compliance,” said SEC Chairman Mary L. Schapiro.

– Broc Romanek