August 24, 2017

Regulatory Reform: Reg A+ for All?

Last month, the House Financial Services Committee unanimously approved the “Improving Access to Capital Act” (H.R. 2864). The bill would eliminate the current provisions of Regulation A that prohibit its use by companies that are already subject to Exchange Act reporting requirements. This Duane Morris blog provides some background:

In implementing rules under the Jumpstart Our Business Startups (JOBS) Act in 2015, the SEC retained the historical restriction that only non-reporting companies could utilize Reg A. There was really no particular reason this could not have been changed.

Now that practitioners have witnessed the closing of well over 30 Reg A+ deals, three of which are now successfully trading on national exchanges, it would seem logical to expand the availability of Reg A+ to reporting companies. They would have a history of full disclosure, and could clearly benefit from utilizing a faster and cheaper option to raise money from the public.

The blog notes that the ability to use Reg A+ could prove particularly useful to reporting companies that don’t qualify to use Form S-3 for primary offerings.

Audit Committees: Proxy Disclosure Trends

In recent years, investors and other constituencies have called for greater disclosure in proxy statements about key audit committee activities – including more detail about decisions to retain independent auditors, auditor independence assessments, & risk oversight. This Deloitte study reviewed audit committee disclosures in 2017 proxy statements filed by the S&P 100.

Disclosures beyond those required by Item 407 of S-K have been trending upward in recent years, and the study says that trend continued – at a somewhat slower pace – in 2017. The most common areas of voluntary disclosure include the committee’s role & responsibilities, risk oversight, topics discussed by the audit committee, and oversight of financial reporting & the internal audit function.

This excerpt reviews the findings on audit committee disclosure of risk oversight:

The role of the board and its committees in overseeing risk continues to be a hot topic. 99% of the S&P 100 companies disclosed the role of the audit committee in overseeing risk. The level of responsibility assigned to the audit committee, however, differed from company to company.

Companies disclosed that the audit committee was responsible for overseeing risks associated with traditional areas such as financial reporting, internal controls, and compliance, and some noted that the audit committee’s role in risk oversight extended beyond these areas. 30% of the S&P 100 companies (versus 27% 2016) disclosed the audit committee’s role in overseeing cybersecurity risk.

Topics that drew the fewest disclosures among the S&P 100 included issues encountered during the audit, as well as matters relating to the committee’s role in determining auditor compensation. Also see this recent blog about a EY report on audit committee disclosures…

Board Diversity: The Pressure is Ratcheting Up

Over on our “Proxy Season Blog,” Liz recently noted State Street’s decision to vote against directors at approximately 400 companies that didn’t satisfy it with their efforts to improve board gender diversity – and we’ve previously blogged about BlackRock’s efforts to prod companies to make progress on the diversity front.

Now this Weil Gotshal blog says that it isn’t just institutional investors that are turning up the heat. As this excerpt points out, here come the politicians:

While these institutional investors are ratcheting up the pressure on public companies, certain members of the US Congress have been pushing the SEC for greater board diversity disclosure. In March, Representative Carolyn Maloney (D-NY) reintroduced her Gender Diversity in Corporate Leadership Act (H.R. 1611), modeled on policies in Canada and Australia, which would instruct the SEC to recommend strategies for increasing women’s representation on corporate boards, and require companies to report their gender diversity policies as well as the proportion of women on their board and in senior executive leadership.

In addition, 29 congressional Democrats have written a letter to SEC Chair Jay Clayton urging the SEC to require more disclosure about board diversity.

John Jenkins