TheCorporateCounsel.net

Prof. Sarah Haan of Washington & Lee Law School recently posted a draft article online that’s eye opening, to say the least. In short, her thesis is that a trend that scholars have overlooked – the explosive growth in the percentage of stock owned by women during the early decades of the 20th century – played a major role in the development of the modern paradigm for public company corporate governance. Here’s an excerpt from the article’s abstract:

Corporate law scholarship has never before acknowledged that the early decades of the twentieth century, a transformational era in corporate law and theory, coincided with a major change in the gender of the stockholder class. Scholars have not considered the possibility that the sex of common stockholders, which was being tracked internally at companies, disclosed in annual reports, and publicly reported in the financial press, might have influenced business leaders’ views about corporate organization and governance.

This Article considers the implications of this history for some of the most important ideas in corporate law theory, including the “separation of ownership and control,” shareholder “passivity,” stakeholderism, and board representation. It argues that early twentieth-century gender politics helped shape foundational ideas of corporate governance theory, especially ideas concerning the role of shareholders. Outlining a research agenda where history intersects with corporate law’s most vital present-day problems, the Article lays out the evidence and invites the corporate law discipline to begin a conversation about gender, power, and the evolution of corporate law.

Some of the language in the abstract may make the article sound a little wonky, but in reality, it’s accessible and engaging. It sounds cliché to call a work “groundbreaking,” but I can’t come up with a better word to describe this one. I’m sure they’ll be plenty of back & forth among governance scholars on the merits of Prof. Haan’s arguments, but my take is that she may have put her finger on something that’s been hiding in plain sight for a long time.

Revenue Recognition: E-Commerce Disclosures a Sleeper Issue?

Many companies have seen their e-commerce sales explode as a result of the pandemic and, not surprisingly, many have also called this growth out in earnings releases & other disclosures.  This Bass Berry blog says that the new requirement to disclose “disaggregated revenues” under ASC 606 may be a “sleeper issue” for some of these companies. Here’s an excerpt:

Under ASC 606-10-50-5, a public company must “disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.” Additionally, per the implementation guidance in ASC 606-10-55-90, when selecting the type of category (or categories) to use to disaggregate revenue, an entity should consider how the information about the entity’s revenue has been presented for other purposes, including the following:

– Disclosures presented outside of the financial statements such as MD&A, earnings releases and investor presentations.
– Information regularly reviewed by our Chief Operating Decision Maker (CODM).
– Any other information similar to the information identified in (1) and (2) that is used by the company or users of the financial statements to evaluate the company’s financial performance or make resource allocation decisions. (emphasis added)

In determining the categories to include, ASC 606-10-55-91 says that an entity should consider the following examples:

– The type of good or service (e.g., major product lines).
– Geographical region (e.g., country or region).
– Market or type of customer (e.g., government or non-government customers).
– Type of contract (e.g., fixed-price or time-and-materials).
– Contract duration (e.g., short- or long-term).
– Timing of transfer of goods or services (e.g., point-in-time or over time).
– Sales channels (e.g., direct to customers or through intermediaries).

The blog acknowledges that the company’s accounting staff and its outside auditor will make the final analysis on this issue, but suggests that the continued focus on e-commerce in public company disclosures might prompt more companies to conclude that they should disaggregate revenues by sales channels, including e-commerce sales. It also cautions that disaggregate revenue disclosure continues to be an area of interest for the Staff, and cites a recent comment letter exchange as an example of some of the issues that might be raised.

Blockchain & Beyond: FinHub Gets an Upgrade

In 2018, the SEC announced the establishment of “FinHub” within Corp Fin. Since then, FinHub has served as a resource for public engagement on blockchain & other FinTech-related issues and initiatives. Yesterday, the SEC announced that FinHub was being upgraded to an independent office. This excerpt from the SEC’s press release explains the decision:

Designating FinHub as a stand-alone office strengthens the SEC’s ability to continue fostering innovation in emerging technologies in our markets consistent with investor protection. The office will continue to lead the agency’s work to identify and analyze emerging financial technologies affecting the future of the securities industry, and engage with market participants, as technologies develop.

FinHub’s existing Director, Valerie Szczepanik will continue to serve in that capacity, and will “coordinate the analysis of emerging financial innovations and technologies across the SEC’s divisions and offices and with global regulators and will advise the Commission and SEC staff as they develop and implement policies this area.”

– John Jenkins