April 14, 2016

The Reg S-K Reboot Begins!!!

No!!! No!!! No!!!

I don’t want the SEC to modernize Regulation S-K! That means I’ll have to update 1500 pages of our “Handbooks“! At least the SEC is not touching Item 402 – at least not yet.

Anyways, the SEC voted yesterday to issue this 341-page concept release on a big slice of Regulation S-K – the Item 100-300 series. 341 pages! (No, I didn’t read it last night – I was enjoying JJ Grey!) I’ll be posting the related memos as they arrive in our “Regulation S-K” Practice Area (and our “Disclosure Effectiveness” Practice Area).

Here’s an excerpt of this blog by Cooley’s Cydney Posner with notes from the open Commission meeting (also see this WSJ article):

Although the concept release has not yet been posted nor have any of the Commissioners’ remarks, the presentations and discussion at the meeting indicated that the release will address three basic topics: framework, line items and presentation and delivery.

Framework. The staff observed that, although there are some prescriptive and structured elements, the current requirements are largely principles-based, with disclosure determined on the basis of “materiality” as defined in TSC Industries, Inc. v. Northway, Inc., specifically, whether there is a substantial likelihood that a reasonable investor would consider the information important in decision-making and whether a reasonable investor would view the information to significantly alter the “total mix” of information available. However, Chair White also recognized the importance of not burying material information in an avalanche of trivia. Considering the costs and benefits, including the expressed interests of shareholders in receiving more information and the expressed interests of companies in efficiencies, how should the disclosure requirements be structured? Should some level of investor sophistication be assumed? As Commissioner Stein suggested, should the system be re-imagined? for example, she questioned why the release did not address concepts as basic as the form-based system.

Line items. The discussion indicated that the release addresses six items: core company disclosure, company performance (primarily financial), risk, securities, industry guides and exhibits. The release also considers whether the categories for scaled disclosure are appropriate and whether recent topics of interest and shareholder engagement should be added to the requirements, for example, stock buybacks and sustainability. In addition, the release hints at the prospect of semi-annual, instead of quarterly, reporting.

Presentation and delivery. Here, the release will consider various approaches to presenting and accessing the disclosure and ways to reduce repetition, including cross-references, incorporation by reference, hyperlinks, company websites and standardization versus flexibility. Stein expressed the concern that, in considering whether the quantity of information is excessive, the SEC needs to balance that with concerns about the quality of information. In addition, she observed that a re-imagined delivery system should take into account that different generations may prefer to have their information delivered in different ways, for example, a younger audience may prefer to receive information through tweets.

Technical question: So why is this a “concept release” – but the S-X counterpart was just a “request for comment”? Maybe to satisfy the FAST Act’s requirement for an S-K study? No idea. Here’s the opening statements from the various Commissioners about the concept release…

Deferred Prosecution Agreements: DC Circuit Limits District Court Review

Here’s a summary of this Cleary Gottlieb memo (see more memos in our “White Collar Crime” Practice Area):

In a case with significant implications for the power of district judges to review the terms of deferred prosecution agreements (“DPAs”) between the Department of Justice (“DOJ”) and corporations to resolve criminal investigations, on April 5, 2016, the United States Court of Appeals for the District of Columbia Circuit took the extraordinary step of granting a writ of mandamus and vacated a lower court decision that had the practical effect of rejecting a DPA between the DOJ and an aerospace services company, Fokker Services, B.V. The case has significant implications in light of a judiciary that has been increasingly questioning the terms (and in some instances, the wisdom) of the DOJ’s decisions to enter into DPAs.

Anti-Bribery Study: 600 CCOs Weigh In

I couldn’t resist blogging about this new Hogan Lovells’ study on anti-bribery & corruption because I just love the microsite that the firm created to house the thing. The microsite not only houses the study, but it has a self-assessment compliance quiz & more. The study is based on interviews with 604 chief compliance officers (CCOs) and equivalent roles in more than 600 of the world’s largest organizations in Europe, U.S. and Asia. The study’s findings include:

– Commercial priorities push anti-bribery and corruption down the agenda
– 57% of chief compliance officers say sales culture is a major threat
– 28% of companies fail to tailor global anti-bribery programs to local markets
– 53% of companies train half their staff or less in anti-corruption
– Significant business operations “hidden” from chief compliance officers

I think this will be a trend going forward where firms work harder on their marketing to showcase the hard work that they’ve done…

Broc Romanek