Our “Audit Fees” Handbook notes that shareholders tend to question auditor independence if a company’s proxy statement indicates that fees paid for non-audit services are more than 20-30% of the total fees received by the independent auditor. According to this scoop from WSJ reporter Dave Michaels, the SEC is also looking into that:
Regulators are carrying out a sweeping investigation of conflicts of interest at the nation’s largest accounting firms, asking whether consulting and other nonaudit services they sell undermine their ability to conduct independent reviews of public companies’ financials, according to people familiar with the matter.
The Securities and Exchange Commission probe highlights the agency’s new focus on financial-market gatekeepers such as accountants, bankers and lawyers. These firms help companies raise capital and communicate with shareholders, but also have duties under federal investor-protection laws. Auditors are a shareholder’s first line of defense against sloppy or dodgy accounting.
This write-up from Francine McKenna provides even more context and notes that it’s somewhat surprising that the SEC’s Miami office appears to be leading this inquiry. But, the investigation certainly aligns with recent statements out of Washington from the SEC’s Acting Chief Accountant.
What does this mean for companies? Well, this is definitely not a new issue. But the extra attention may mean that audit committees need to start exercising even more scrutiny over fees for non-audit services. It’s never a great look for a company to have to defend the independence of its auditor.
Tune in to CompensationStandards.com at 2pm Eastern tomorrow for the webcast – “The Top Compensation Consultants Speak” – to hear Blair Jones of Semler Brossy, Ira Kay of Pay Governance and Jan Koors of Pearl Meyer discuss the latest areas of focus for compensation committees, especially given today’s environment & their expanding ESG-related responsibilities. You’ll also get a preview of how 2022 proxy season is shaping up!
If you attend the live version of this 60-minute program, CLE credit will be available. You just need to fill out this form to submit your state and license number and complete the prompts during the program.
Members of CompensationStandards.com are able to attend this critical webcast at no charge. The webcast cost for non-members is $595. If you’re not yet a member, subscribe now by emailing sales@ccrcorp.com – or call us at 800.737.1271.
The proposed amendments to the Commission’s rules would require that public companies include extensive quantitative and qualitative information about climate change in their annual reports and registration statements. The earliest that these disclosures would be required if adopted is in 2024 for the largest public companies. The rule proposals are wide ranging and would require that companies add new sections to their annual reports and registration statements that would provide details about climate change matters that are today often disclosed in separate communications outside of the SEC reporting system.
Most significantly, the SEC would require specific disclosure of a public company’s direct GHG emissions (Scope 1) and indirect GHG emissions (Scope 2), as well as indirect emissions form upstream and downstream activities (Scope 3), but in the case of Scope 3 emissions only if material or if the company has set a goal that includes Scope 3 emissions. Disclosures about Scope 3 emissions would be subject to a safe harbor for liability under the federal securities laws and would not be required from smaller reporting companies. For disclosures concerning Scope 1 and Scope 2 emission, companies would be required to file an attestation report covering the disclosures and to provide certain related information about the service provider that prepared the attestation report, which need not be an independent auditor but must meet certain requirements. If these requirements were adopted, public companies would have to rapidly develop processes and procedures that will support the public disclosure of this information in SEC filings.
Among other provisions, the proposed rules would require specific information about climate-related goals or targets that have been set by public companies, including the scope of such goals or targets, data demonstrating progress in meeting such targets, the plans for meeting the goals or targets and information about the use of carbon offsets or renewable energy certificates. Such disclosures, to the extent they are forward-looking, would be protected from certain liability provisions by the safe harbor for forward-looking statements in the Private Securities Litigation Reform Act.
While the Commission did not select one set of standards regarding climate change as the basis for these proposed disclosure requirements, it did model the proposed climate-related disclosure framework in part on the TCFD’s recommendations and also draws upon the GHG Protocol. In this way, certain of the proposed disclosure requirements will be familiar to those public companies that are already providing information under these pre-existing standards.
The breadth and complexity of the Commission’s proposal is certain to draw a significant amount of comment from interested parties, and there will certainly be threats of potential litigation if the rules are adopted in a manner similar to the proposals. As a result, it could prove challenging for the SEC to bring these proposals to final adoption and to implement them in the time frames that have been proposed.
Check out Lawrence’s blog today on PracticalESG.com for more details about the proposal. He’ll be following up with more analysis in blogs over the coming week and beyond. We’ll also be posting memos in our “ESG” Practice Area on this site.
For a great discussion of practical points that you’ll need to understand, join us at 1pm ET on April 12th for our webcast – “Parsing the SEC’s New Climate Disclosure Proposal.” This program will bring together perspectives from high-level former Corp Fin Staffers – Sidley’s Sonia Barros and MoFo’s Dave Lynn – along with Travelers’ Chief Sustainability Officer & Group General Counsel Yafit Cohn and NuStar Energy’s Executive Director of Sustainability & ESG Mike Dillinger, and PracticalESG.com Editor Lawrence Heim. This webcast is free for members of TheCorporateCounsel.net and PracticalESG.com. If you aren’t already a member, email sales@ccrcorp.com.
While big institutional investors push the SEC for climate disclosure rules that would make it easier to compare corporate info, the grassroots effort among smaller shareholder proponents also shows no signs of stopping. Climate proposals are proliferating in both number & type, according to the 112-page “Proxy Preview” issued last week by As You Sow, Si2 and Proxy Impact. Here’s an excerpt (also see the resources in our “Proxy Season” and “Shareholder Proposals” Practice Areas):
Climate change has jumped to the top of the proxy season agenda this year and is the biggest single topic. Climate-related concerns undergird a growing number of proposals that seek consistency between corporate policy and political influence, too. Resolutions about environmental management also implicitly address the climate, but so do new human rights resolutions about environmental justice. In all, there are 145 proposals about the environment, up substantially from 91 last year.
The report also shares these stats:
– The number of proposals specifically on climate change has nearly doubled to 110, up from 79 last year.
– A striking change is the near-total focus on greenhouse gas (GHG) emissions targets, with most proposals asking for a transition to net-zero status by 2050. Only eight ask about deforestation and water. Sixty-eight of the 101 resolutions about carbon asset risk address emissions (up from 29 at
this point last year).
– Proponents are starting from a position of strength established last year when average support for climate proposals topped 50 percent for the first time.
– New proposals are targeting use of carbon offsets, accounting & reporting controls for emissions, cryptocurrency carbon footprint, financing of fossil fuels, and social inequities relating to a “just transition”
– After gradually diminishing from a high of nearly 50 proposals 10 years ago, the number of environmental management proposals has risen again, to 35, with more likely. These include proposals about plastics, repairing products to reduce waste, chemical footprints, agricultural practices, and mining.
These trends don’t just create headaches for management and securities lawyers – they’re affecting director support. That’s one reason why creating, maintaining & disclosing a viable net-zero transition plan is becoming so important.
Join us tomorrow at 2pm ET for the webcast – “Shareholder Insights: 2022 Priorities” – to hear from Council of Institutional Investors’ Glenn Davis, Dimensional Fund Advisors’ Kristin Drake, Sustainable Governance Partners’ Rob Main, and Federated Hermes – International’s Tim Youmans. We’ll be discussing key priorities, voting policy adjustments and how to maximize engagement opportunities during the heart of the proxy season.
If you attend the live version of this 60-minute program, CLE credit will be available. You just need to fill out this form to submit your state and license number and complete the prompts during the program.
Members of TheCorporateCounsel.net are able to attend this critical webcast at no charge. The webcast cost for non-members is $595. If you’re not yet a member, subscribe now by emailing sales@ccrcorp.com – or call us at 800.737.1271.
This morning, the Commission will consider a climate disclosure proposal that could significantly change controls & reporting practices. The flurry of recent proposals – including on Rule 10b5-1 plans, buybacks and cyber disclosure – suggests that the floodgates are opening for Chair Gary Gensler’s regulatory agenda. And it comes on the heels of a very active conclusion to the term of prior SEC Chair Jay Clayton. The Commission has now bestowed us with 20+ rule changes and proposals over the past two years! Are you keeping up?
Maybe it’s middle-age or lack of sleep (thanks, kids), but I for one am having a hard time remembering what has recently changed – and what might be changing in the near future. In response to member requests, we’ve created this “cheat sheet” to track selected rulemaking and show where on our site you can find practical guidance on each topic. You can find the cheat sheet via the blue nav bar at the top of the home page.
We are always open to suggestions on new ways to help our members look good. Email us any time to share what would make your work life easier.
To someone who doesn’t spend their days advising on securities law compliance, the procedural ins & outs of the Commission’s rulemaking might seem about as interesting as watching paint dry. But around here, we get pretty jazzed about the nuances, and it’s not just because Schoolhouse Rock was one of the most impactful shows of my childhood.
Dave, Alan, and many of our speakers and members have spent big parts of their career on the Staff, where they have had a hand in creating and interpreting rules and regulations. Many of our members also actively participate in the rulemaking process through comments and meetings. We share details that a lot of folks gloss over because our community is so involved and because the backstory can be important to understanding why a rule turned out the way it did and how the SEC wants it to be applied. We’ve written about:
A lot goes in to the rulemaking process, with the goal of creating disclosure rules that are both workable for companies and informative to investors, to support the SEC’s 3-part mission. For a great “101” of how the SEC rulemaking process works, check out this 2-minute video from Persefoni’s Kristina Wyatt.
As we head into proxy season, make sure to stay in-the-know on the latest developments by subscribing to our “Proxy Season Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply entering their email address on the left side of that blog. Here are some of the latest entries:
– Vote No Campaigns: Getting More Sophisticated?
– T. Rowe Completes Spin-Off That Could Affect Smaller Co Voting & Engagements
– Big Decline in 14a-8 No-Action Requests: New Normal?
– Sustainable Packaging Proposal Achieves Record-Breaking 94.2% Support
– What to Do Now to Get Your Retail Vote
– 2022 Proxy Season: Be On Alert for Eroding Director Election Support
If you’re not already a member and able to access our daily updates, sign up today by emailing sales@ccrcorp.com – or call 1-800-737-1271. This blog and our many other proxy season resources will equip you with practical guidance on disclosure, shareholder resolutions & voting trends, so that you’re not caught off-guard during the busiest time of year.
We’re seeing a tremendously positive reception to our new membership site, PracticalESG.com. Thank you to everyone who’s signed up so far!
In the first couple of weeks of being live, we’ve continued to build out our organized content library with practical checklists and analysis – and we’ve held the following webcasts for members:
Don’t miss out! Only one week remains in our offer for 25% off the regular subscription pricing. You can sign up online – or email sales@ccrcorp.com today or call 1-800-737-1271 – to take advantage of this one-time promo event and get tools to make your ESG efforts easier & more successful.
Yesterday, the SEC gave notice of an open meeting next Wednesday, March 9th. There’s one item on the agenda:
The Commission will consider whether to propose amendments regarding cybersecurity risk management, strategy, governance, and incident disclosure.
This meeting isn’t too much of a surprise. It comes on the heels of last month’s cybersecurity proposal for registered investment advisers and investment companies – and at a time when cyber threat levels have reached new heights. Lawmakers have been urging SEC Chair Gary Gensler to follow through on his plan to propose rules. John blogged a couple months ago about what the new disclosure rules might include.
