November 17, 2020

SEC Chairman Jay Clayton Departing Agency at Year-End

Yesterday, the SEC announced that Chairman Jay Clayton intends to conclude his tenure at the end of the year, slightly ahead of his June 2021 term expiration date. As noted in the SEC’s press release, Chairman Clayton led the agency through a period of historically productive rulemaking – during his tenure, the agency advanced more than 65 final rules, many of which modernized rules that hadn’t been updated in decades.

Last summer, things got interesting when news spread of President Trump’s intention to nominate Chairman Clayton as the United States Attorney for the Southern District of New York, which hasn’t come to pass. Even with the commotion from that announcement, Chairman Clayton continued to move forward with notable rulemaking — including rules enhancing the Commission’s whistleblower program, modernizing Regulation S-K and the shareholder proposal process. In addition to all the rulemaking, the SEC’s press release highlights impacts from enforcement actions, which since 2017 have resulted in the SEC obtaining more than $14 billion in financial remedies.

With the incoming administration, there’s been a fair amount of speculation about who will lead the Commission. In the past, the most senior Commissioner of the current President’s party has served as interim Chair until a new Chair is confirmed. If that tradition is followed this time around, Commissioner Hester Peirce would be interim Chair following Jay’s departure and continue in that role for a while after President-elect Biden’s inauguration. This Bloomberg piece names several contenders for a Biden appointment, including former head of the CFTC, Gary Gensler, former U.S. Attorney for the Southern District of New York, Preet Bharara, and Michael Barr, who is a former aide to ex-Treasury Secretary Timothy Geithner.

Comment Letter Trends: Top 10 Topics in Reviews

Deloitte recently issued a 218-page roadmap on comment letter trends that includes developments on financial reporting topics through November 6, 2020. In terms of insights about comments related to the Covid-19 pandemic, the report says that early trends indicate that MD&A and risk factor trends have been main focus areas. Good news included in the report is that over the last five years, there’s been a notable decline in the number of reviews with comment letters and the number of comment letters issued. For those beginning to prepare for year-end reporting, it’s helpful to be aware of the leading areas for comment and the report lists these as the “top 10”:

1. MD&A – comments increased on results of operations, highlighting the Staff’s continuing focus on greater transparency and specificity in disclosures about operating results. Comments on Covid-19 have focused on the pandemic’s impact on future operating results and future financial condition, known trends or uncertainties related to COVID-19 that will have a material favorable or unfavorable impact on income from continuing operations, and discussions of current liquidity and availability of financial resources

2. Non-GAAP measures – the report lists several areas of continued focus, including whether there is undue prominence of non-GAAP measures, enhancing disclosure related to the purpose and use of the measures, identification and clear labeling and reconciliation requirements

3. Revenue recognition – largest volume of comments focused on disclosure of significant judgments used in applying the standard

4. Segment reporting – identification and aggregation of operating segments, changes in reporting segments, considerations for entities with a single reportable segment and entity-wide disclosures about products or services

5. Signatures, exhibits and agreements – form and content of certifications, and material contracts, including requests for them to be filed as exhibits

6. ICFR – among others, evaluation of severity of control deficiencies, including those related to immaterial misstatements and disclosures of material changes in ICFR, including the impact and remediation of material weaknesses

7. Fair value – valuation techniques and inputs used, use of third-party pricing services and fair value estimates related to revenue recognition, goodwill impairment and share-based payments

8. Contingencies – focus on specificity of disclosures and amounts accrued, estimates for reasonably possible losses and disclosures related to loss contingencies and whether they have been updated over time as circumstances change

9. Intangible assets and goodwill – goodwill impairment disclosures, including early-warning disclosures and the specific circumstances that led to the charge in the period of impairment rather than general market factors, asset groupings for impairment testing and whether or why an interim impairment test was performed and the results of the test

10. Inventory and cost of sales – accounting policy disclosures regarding inventory valuation, including adjustments related to excess and obsolete inventories

Transcript: “Virtual Annual Meetings: What To Do Now”

We’ve posted the transcript for our recent webcast: “Virtual Annual Meetings: What To Do Now” – it covered these topics:

– Baseline Best Practices for Virtual Shareholder Meetings

– Getting Remote Technology in Order

– How to Ensure Your Platform Allows for Shareholder Entry & Participation

– Virtual “Rules of Conduct”

– Voting & Tabulation Issues

– Contingency Planning

Broadridge is gearing up for next year’s annual meeting season and just yesterday announced the first phase of its enhanced virtual shareholder meeting platform – a press release says the enhanced platform will enable Broadridge to validate beneficial shareholders who log on to other virtual meeting platforms. For more information to help with planning for upcoming virtual annual meetings, check out our “Virtual Annual Meetings” Practice Area – there you’ll find the latest memos and sample transcripts, rules of conduct and video replays from several 2020 meetings.

Also, take advantage of this special offer available to our members from Carl Hagberg who doles out lots of practical advice in his quarterly newsletters: If you sign up now for a 2021 subscription to The Shareholder Service Optimizer, you’ll get two 2020 quarterly issues added to your subscription for free. You can use this link and mention that you’re a member of in the “order notes” box on the subscription page.

With a subscription, you get access to, which has the complete text of 13 years of back issues, a searchable index of important articles, and a list of “Pre-Vetted Service Suppliers to Publicly-Traded Companies” – with introductory articles to describe the kinds or services rendered, the current competitive environment and the most important things to consider in selecting a service provider. The subscription also comes with “Some free consulting on any shareholder relations or shareholder servicing matter to ever cross your desk.”

– Lynn Jokela