Over the course of this year, I have been taking a walk down memory lane and looking back on 15 years of contributing to CCRcorp publications and programs. Today that journey is done, as I celebrate my 15-year anniversary this month. It has been quite a ride, and I look forward to many more years of sharing my knowledge and experience with you through these fine publications and programs.
I was very fortunate to have spent 13 of the past 15 years traveling around the country with my favorite conference companion, Marty Dunn. During that time, Marty and I were fixtures at the annual “Proxy Disclosure & Executive Compensation” Conferences, serving on substantive panels and doing our comedy routine. We had a great run!
To honor my favorite conference companion, I want to share with you this tribute to Marty that was shown at our 2020 “Proxy Disclosure & Executive Compensation” Conferences. It is a compilation of Marty in his element at the Conferences over the years, entertaining the audience and sharing his deep knowledge of the securities laws. I think my favorite clip from this tribute is Marty’s “PEP Talk” from one of the Conferences several years ago, which was a very personal reflection on trying to remember to celebrate the good things in life. Marty’s remarks serve as a great reminder to us all that life goes by way too fast, and once in a while we should take a moment to enjoy it and celebrate the good times. Today, I celebrate all of the good times that I had with Marty.
While my favorite conference companion is no longer with me at the conferences, I feel like Marty is still there in spirit. I often find myself thinking “what would Marty say?” when speaking at a conference, because he always seemed to find the right approach to deliver the content in an entertaining way. While it will never be the same without him, the best I can do is to continue to honor his legacy at all of our Conferences to come.
As this Cadwalader blog notes, this week the Senate Banking Committee unanimously approved the nominations of Jaime Lizárraga and Mark Uyeda for the open seats on the Securities and Exchange Commission. Approval by the Committee means that these nominees will now advance to the Senate for a confirmation vote, which has not yet been scheduled. The bipartisan support for the two candidates in the Senate Banking Committee bodes well for the upcoming confirmation vote.
SEC Chair Gary Gensler generated a lot of headlines with a speech that he gave at the Piper Sandler Global Exchange Conference on Wednesday. Gensler outlined the SEC’s work in six areas of the equity markets: (i) minimum pricing increment; (ii) national best bid and offer; (iii) disclosure of order execution quality; (iv) best execution; (v) order-by-order competition; and (vi) payment for order flow, exchange rebates, and related access fees.
One of the most controversial topics Gensler discussed was order-by-order competition, and on this issue Gensler noted that he has asked the Staff to make recommendations for the Commission’s consideration around how to enhance order-by-order competition, which could be through open and transparent auctions or other means, unless investors get midpoint or better prices. Changes in this area could compel brokers to route retail investors’ orders to buy or sell stocks into auctions, rather than to “wholesalers” as is often done today.
While it seems that the SEC is always looking at market structure regulations, the meme stock debacle from last year and other significant developments have once again put the spotlight on the market structure issues that Gensler highlighted in his speech.
Yesterday, the SEC announced that it is reopening the comment period again on the Dodd-Frank Act mandated compensation recovery rulemaking – an unusual second reopening after the SEC reopened the comment period on that rulemaking just last October. The proposed rules, which would direct the exchanges to adopt listing standards mandating the adoption of compensation recovery policies by listed companies, were originally proposed by the Commission in 2015.
The announcement and reopening release were accompanied by a memorandum prepared by DERA Staff. Specifically, the DERA memo discusses the increase in voluntary adoption of compensation recovery policies by issuers; provides estimates of the number of additional restatements that would trigger a compensation recovery analysis if the rules were included all required restatements made to correct an error in previously issued financial statements; and discusses some potential implications for the costs and benefits of the proposed rules.
One of the big issues raised by the last reopening was the possibility of including “little r” restatements as a trigger for clawing back compensation. In the memo, DERA estimates that that “little r” restatements may account for roughly three times as many restatements as “Big R” restatements in 2021, after excluding restatements by SPACs. The memo notes that the potential inclusion of “little r” restatements may increase both the benefits and the costs associated with the proposed rules.
The reopened comment period will run for 30 days following publication of the reopening release in the Federal Register.
Paul Munter, the SEC’s Acting Chief Accountant, issued a statement yesterday that focused on auditor independence. In the statement, Munter explains the auditor independence requirements in Rule 2-01 of Regulation S-X, discusses OCA’s approach to consultations on auditor independence issues, highlights some recurring issues and addresses the importance of auditors maintaining an ethical culture with respect to auditor independence.
The Statement offers some valuable insight into auditor independence issues. It is very important for companies and their counsel to understand the issues and the process, because companies have a lot at stake when an auditor independence issues arises. The nightmare scenario arising from an auditor independence issue is that a company may ultimately have to dismiss the auditor or the auditor must resign, and then the company will have to go out and engage a new auditor to re-audit the company’s financial statements. Munter notes that OCA engages in a dialogue with auditors, registrants and audit committees on auditor independence issues.
The recurring issues highlighted in the Statement include taking an inappropriate “checklist” approach to auditor independence, the proliferation of non-audit services and business relationships and the use of increasingly complex business arrangements and practice structures by accounting firms.
Over the past two months, some Senate Republicans have been circulating a discussion draft of the JOBS Act 4.0, which collects several legislative proposals geared toward facilitating capital formation. The discussion draft follows a request made in February 2021 by U.S. Senate Banking Committee Ranking Member Pat Toomey (R-PA) for legislative proposals to increase economic growth and job creation by facilitating capital formation. That request gathered 35 submissions with more than 150 legislative proposals from a wide variety of bipartisan organizations and stakeholders. The comment period on the discussion draft of JOBS Act 4.0 ended last Friday.
Title I of the draft legislation includes provisions that would encourage companies to be public, including modifying the emerging growth company definition to extend the benefits afforded to EGCs, repealing the conflict minerals, mine safety, resource extraction, and pay ratio disclosure requirements from the Dodd-Frank Act, permitting companies to choose semiannual rather than quarterly reporting, regulating advice from proxy advisory firms, adjusting the Rule 14a-8 submission thresholds and encouraging the creation of venture exchanges. Title II includes various legislative initiatives to improve the market for private capital, Title III addresses retail investor access to investment opportunities and Title IV includes provisions for improving regulatory oversight by the SEC.
It is hard to say whether this legislation will advance in Congress in some form, particularly given that many of the contemplated provisions are not likely to gain much support from Democrats. Even if the legislation does not make it far, it is at least encouraging to see that capital formation and the burdens on public companies are still topics that are being considered in Congress.
Last week, the UK government announced that it will “revamp the UK’s corporate reporting and audit regime through a new regulator, greater accountability for big business and by addressing the dominance of the Big Four audit firms.” Similar to the circumstances that led to the Sarbanes-Oxley Act in the United States 20 years ago this summer, the UK government is reacting to a series of recent corporate meltdowns. The announcement notes:
The Financial Reporting Council (FRC) will be replaced by a new, stronger regulator – the Audit, Reporting and Governance Authority (ARGA) – with tougher enforcement powers and funded by a levy on industry. Work on this has already begun, with the Business Secretary today acting to enable the regulator to ban failing auditors from reviewing large companies’ accounts.
For the first time, the largest private companies – not just those listed on the stock exchange – will come under the scope of the regulator, reflecting the impact they have on the wider economy.
Further, the UK government notes that in an effort “to curtail the unhealthy dominance of the ‘Big Four’ audit firms, FTSE350 companies will be required to conduct part of their audit with a challenger firm.” ARGA will also be given the the power to force big audit firms keep their audit and non-audit functions operationally separate.
A recent WSJ article notes that a growing number of shareholders are voting against the ratification of auditors at annual meetings. While the ratification of auditors is nonbinding, pushback against a company’s auditors can put companies in a difficult place when considering the engagement post-meeting. The article notes that “about 3.8% of investors voted against the ratification of S&P 500 companies’ auditors this year through May 19, almost triple the proportion of a decade earlier, according to research firm Audit Analytics, and up from 3.1% last year.”
While the numbers are pretty small and we have not seen any situations where there was majority support against the ratification of the auditors, any pushback above the 1% level could be seen as potentially problematic. The usual topics of audit quality and non-audit services seem to top the list of investor concerns.
Our Conferences always deliver expert guidance in a fast-moving, engaging format – plus invaluable course materials in the form of speaker “talking points” – so that you and your directors aren’t caught flat-footed by new expectations. You can also revisit all of the practical guidance with the on-demand archive that will be available until July 2023 at no extra cost.
I am pleased to announce that I will be interviewing Renee Jones, Director of the Division of Corporation Finance, who will discuss all of the initiatives that Corp Fin is working on that will affect your disclosures. As you will see from the agendas for the Conferences, we have an outstanding speaker lineup that also includes BlackRock’s Michelle Edkins, Wachtell’s Leo Strine and Sabastian Niles, WilmerHale’s Meredith Cross, Sidley’s Sonia Barros, Hogan Lovells’ Alan Dye and Martha Steinman, Gibson Dunn’s Beth Ising and Ron Mueller, and many more.
Early Bird Rate – Act by June 10th: Your directors are looking at you to stay ahead of the curve on new SEC disclosure rules, shifting stakeholder expectations, and heightened risks. To help you address these changes – and avoid costly pitfalls – we’re offering a special Early Bird Rate to attend these critical conferences (both of the Conferences are bundled together with a single price). Register by the end of this Friday, June 10th to save $320 on a single user registration, and over $500 on our single office location and firm-wide registrations.
On October 11, we will be launching our “1st Annual Practical ESG Conference.” I am really looking forward to this event, given how ESG is top of mind for boards of directors, management, in-house counsel and outside advisors. With ESG matters now integral to everything that we do today, you definitely do not want to miss this conference!
Our agenda covers employment law landmines, ESG litigation & investigations, DEI trends, carbon accounting risks, and other critical ESG topics. The registration fee for this Conference can be bundled together with the Proxy Disclosure & Executive Compensation Conferences for an additional discount – and is also subject to an Early Bird Rate that expires this Friday, June 10th.
Sign up online, email sales@ccrcorp.com, or call 1-800-737-1271 to ensure you’re able to face these rapidly evolving issues with confidence.