January 8, 2010
Y2K: It Was Real, Honest…
The passing into a new decade last week – combined with the announcement of the pending retirement of Senator Dodd – reminded me that it is a good time to address the Year 2000 scare in the securities law context, particularly for those youngsters who may not remember much of it. Back in ’97 and ’98, I was heavily involved with the SEC’s Y2K efforts – both internally within the agency as well as pressuring companies to provide better disclosure.
In a nutshell, Senators Dodd and Bennett (as well as many others) pressured the SEC into being very proactive in pressuring companies to step up their Y2K efforts. As time was running short, their idea was to use disclosure requirements to gauge where companies stood with respect to being prepared. As a result, Corp Fin issued a controversial interpretive release in mid-1998, using Item 303 of Regulation S-K – ie. MD&A – as a tool to elicit disclosure about Y2K preparedness (note that yours truly is one of the contacts on the release).
This release was controversial because it used the “known uncertainties” component of Item 303 to make this strong statement: “We expect that for the vast majority of companies, Year 2000 issues are likely to be material.” The SEC expected companies to disclose their state of readiness, preparedness costs, risk and contingency plans – even if some of those companies didn’t believe any of this was material to them.
Many commentators thought this was a stretch for MD&A, and it probably was. But you have to understand that many companies were in the dark about the extent of their own Y2K issues. During 1998, I averaged 2-3 speaking gigs per month on the topic and it helped me learn how to handle a hostile audience. There were two types of hostile audiences: senior managers who didn’t want to make this type of disclosure and IT folks who thought the SEC didn’t go far enough (although many thanked the SEC for forcing their senior managers to finally pay attention to this important issue and give them the resources to combat it).
I still firmly believe that if the SEC had not taken this extraordinary step to force companies to more closely consider their Y2K risks, it would have been pure bedlam at the turn of the century. Of course, since not much transpired at when the clock struck midnight, the success of all those Y2K efforts is overshadowed by all the “hype” that now makes Y2K a laughing matter. But trust me, it was real – just like it is right now for 30 million Germans whose debit cards stopped working because they can’t handle the digits “2010”…
And yes, I still owe Joe Babits a lunch because the world did not end ten years ago…
Speaking of Comment Letter Fatigue…
As we all have been engaged in writing oodles of comment letters this decade, it’s natural that some would experience comment letter fatigue (a topic I touched upon recently in the e-proxy context). Apparently, this commentator has more fatigue than most…
The Fed’s Guidance on Incentive Compensation
In this CompensationStandards.com podcast, Eleanor Bloxham discusses the Federal Reserve’s proposed guidance on sound incentive compensation policies, including:
– What are the Fed Reserve’s new guidelines?
– What is your own experience in implementing guidance from the Fed?
– What do you recommend that financial institutions do in response to the Fed’s guidelines?
We recently posted the latest annual update of Alan Kailer’s chapter regarding preparation of the executive compensation tables on CompensationStandards.com.
– Broc Romanek