October 26, 2022

The Compliance Crunch: Is Your Budget Ready?

I have been out speaking about all of the new SEC rules that have been adopted, are being adopted and that remain to be considered, and one thing is clear – we will all have a lot of extra work to do in the coming months and years. One persistent concern that I hear from others is that companies are struggling to prepare for the largely unknown costs associated with all of these new rules in their budgets for 2023 and beyond. Further, the increased compliance burdens are coming at a time when many companies are seeking to tighten their belts in light of rising costs and the prospect of recession.

With these concerns in mind, I compiled the following list of things to consider as you enter the budgeting process:

1. Educating Your Company. Now is a critical time to educate the Board of Directors, management and others within the company about the increased compliance burden from new SEC rules. Developing buy-in from the top and from others in the organization will be crucial to ensuring an allocation of appropriate resources to the compliance function. I believe that this should include education about proposed rules, even though we do not ultimately know how the final rules will come out. In addition, keep everyone updated as new requirements become effective so they can be aware of when it may be necessary to reallocate or add resources to the compliance function.

2. Leveraging Internal Resources. Assess the resources that you already have access to internally in order to determine whether you could use these resources when new rules come into effect. For example, many companies have found that their internal audit and/or finance function can be helpful when formulating or improving controls regarding climate change reporting in anticipation of SEC rules requiring mandatory reporting of climate change matters. It is helpful to develop an inventory of available internal resources and how those resources can be useful to the compliance function, and then develop relationships with the individuals in those functions so they will be ready to assist when the time comes.

3. Evaluating Outside Advisors. Some new SEC requirements will require the use of outside advisors, while, in other cases, outside advisors may be useful to the compliance process. For example, many companies are finding out now that they will need to engage valuation firms to value equity awards for the purposes of complying with the SEC’s new Pay versus Performance rules. You may have an existing relationship with a valuation firm, or you may need to establish a relationship with a valuation firm for this purpose – in either case, it is critical to have a dialogue with them now, given the increased demand for their services as a result of the rule. In another example, the SEC’s proposed climate change disclosure rules contemplate the use of a third party for attestation of GHG emissions metrics, so it is important to understand now what such services will cost and to begin mapping out the process for engaging such advisors. Further, some companies may find it more efficient to utilize outside advisors for developing their compliance approach, particularly for something as big as the SEC’s climate change rules, so the potential cost of such outside resources should be factored into the planning process now.

4. Keeping up to Speed. Now more than ever, it is important to keep up to speed on what the SEC is doing and planning for the future. Our resources – including this website and all of the other CCRcorp websites and publications – are a great option for you to consider as you try to find the most cost-effective way to stay abreast of the developments and obtain actionable advice from the experts. I encourage you to reach out to or call 1-800-737-1271 to discuss your options.

– Dave Lynn