December 21, 2020

China-Based Companies: New Law Puts SEC Rulemaking On Hold

Last week, Liz blogged about the passage of the Holding Foreign Companies Accountable Act, which amends the Sarbanes-Oxley Act to prohibit listing on US exchanges of foreign companies for which the PCAOB has been unable to inspect audit work papers. On Friday, President Trump took time from his busy schedule – which he swears does not include declaring martial law – to sign the legislation.

Shortly thereafter, SEC Chair Jay Clayton issued his own statement on the legislation – which this excerpt suggests has thrown a bit of a monkey-wrench into the SEC’s own rulemaking initiatives regarding China-based companies:

Prior to enactment of the Act, SEC staff were finalizing recommendations for proposed rules regarding enhanced listing standards for U.S. securities exchanges and auditor qualifications for the Commission’s consideration. Because of the substantial overlap between the staff’s proposal and the Act, I have directed the staff to consider providing a single consolidated proposal for the Commission’s consideration on issues related to the PCAOB’s access to audit work papers, exchange listing standards, and trading prohibitions.

The statement says that Chair Clayton has also asked the staff to consider additional issues relating to the Act’s implementation, including how its disclosure requirements can be implemented expeditiously and how any potential uncertainties can be addressed. He also acknowledged that this “pragmatic step” means that a rulemaking proposal  won’t happen during his tenure.

Innovation: In-House Departments Leave Law Firms In the Dust? 

This recent Thompson Hine survey on innovation in the legal profession says that in-house legal departments are way ahead of law firms when it comes to innovative approaches to legal services.  This excerpt explains:

In-house legal departments continue to face extraordinary pressures — pressures that could be eased through law firm innovation. Budgets — already taking a hit before COVID-19 — are tighter than ever in the wake of the pandemic, and companies are looking for efficiencies at every turn.

But more than two-thirds of our survey respondents said their primary outside firms had made no progress in innovation over the past year. As a result, 91% of in-house law departments have taken innovation into their own hands. The changes in-house legal departments are making on their own show their priorities.

Nearly two-thirds of our buyers cited improved project management as a key change in their legal departments. Almost half have streamlined outside counsel panels, while more than 40% have implemented self-service tools and restructured departments and/or processes. Clearly, efficiency is the order of the day, particularly when you compare the numbers with those in our first survey. Sixty-three percent of in-house law departments had improved project management in 2019 vs. 8% in 2017; 41% had restructured departments or processes vs. 8% in 2017; and 33% had outsourced to alternative legal services providers in 2019 vs. 3% in 2017.

The survey suggests that law firms’ reluctance to innovate may be causing them to miss out on new business opportunities – 53% of in-house respondents would consider hiring a new law firm because it is innovative.

Cheat Sheet: 2020 Capital Markets Rulemaking

If you’re like me, you’re probably having a little trouble keeping up with the avalanche of rulemaking from the SEC over the past several months. If you find yourself in that position, you may want to hang on to a copy of Skadden’s 2020 Capital Markets Regulatory Review.  This 13-page document provides a brief overview of some of the key capital markets and corporate governance reforms that have taken effect in 2020 or are poised to take effect in 2021.

John Jenkins