In adopting the final amendments to the share repurchase disclosure requirements, the SEC did not let the fact that foreign private issuers do not file quarterly reports stand in the way of quarterly reporting of daily share repurchase data. In a distinct departure from the historical approach to Exchange Act reporting by foreign private issuers, the SEC adopted new Form F-SR, which will require the disclosure of repurchase information within 45 days after the end of a foreign private issuer’s fiscal quarter. The move prompted Commissioner Mark Uyeda to note in his statement:
However, in the future, these amendments may be remembered as the beginning of the end for the Commission’s approach to foreign private issuers (“FPIs”). For more than 55 years, the Commission has allowed FPIs to satisfy their Exchange Act reporting requirements by (1) filing an annual report with information comparable to disclosure provided by domestic companies and (2) furnishing a Form 6-K for any material information disclosed by the FPI under its home country laws, reported pursuant to stock exchange requirements, or provided to its shareholders. Today’s amendments will require FPIs to make quarterly filings to report share repurchases regardless of their home country’s disclosure requirements. This change fundamentally upends the Commission’s long-standing and bipartisan approach of largely deferring to the disclosures made by FPIs pursuant to their home country reporting requirements. Given the significance of this shift in regulatory philosophy, the Commission should have undertaken a separate rulemaking on the issue, instead of including this change as part of a rulemaking focused on share repurchase disclosure.
Foreign private issuers that file on the foreign private issuer forms (e.g., Form 20-F) will be required to comply with the new disclosure and tagging requirements in new Form F-SR beginning with the Form F-SR that covers the first full fiscal quarter that begins on or after April 1, 2024. The Form 20-F narrative disclosure that relates to the Form F-SR filings, which is required by Item 16E of Form 20-F, and the related tagging requirements will be required starting in the first Form 20-F filed after their first Form F-SR has been filed.
We have assembled a great panel to discuss the new share repurchase disclosure rules on our webcast – “Managing the New Buyback Disclosure Rules.” I will be joined at 2:00 pm eastern time on Wednesday, May 24 by Era Anagnosti, Partner, DLA Piper LLP, Robert Evans, Partner, Locke Lord LLP and Allison Handy, Partner, Perkins Coie LLP to address the issues arising under the new disclosure requirements and their implications for public companies.
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Managing through a crisis is a part of life for public company boards and management, so it is now more important than ever to consider the approaches that companies are taking to their crisis management efforts. In the 2023 Global Crisis Management Benchmarking Report, Morrison Foerster and Ethisphere surveyed senior executives in ethics, legal, compliance, public relations, communications, and risk functions in early 2023 about a wide range of crisis management topics. Key takeaways highlighted in the report include:
– The crisis landscape is evolving. In our survey, respondents identified cyber breaches, workplace violence or harassment, and environmental damage as the three most common risks likely to cause a crisis. Alongside these risks, organizations also identified emerging geopolitical issues, including regulatory responses pertaining to Russia and China.
– Crisis management planning and processes should be a collaborative effort. The survey reaffirmed a key pillar to crisis response: the way companies respond to crises is vital, and the effectiveness of response depends on creating and implementing proper crisis management processes and procedures. Crisis response should incorporate a cross-functional group of professionals who can support corporate leadership, including functions such as operations and technology, legal, human resources, media relations, risk and compliance, finance, and investor relations. Organizations should also have a bench of outside experts, from law firms to crisis communications firms, who can help them see around corners.
– Crisis response drills are an effective way to prepare an organization for a crisis. Seventy-nine percent of survey respondents indicate they conduct crisis response drills on key risks areas, with 95% stating that they conduct drills annually or more frequently. These drills often include senior executives, and sometimes board members, in addition to middle managers.
– Organizations are becoming more proactive in how they respond to crises. Survey respondents cite multiple changes they have made to their crisis management response since the start of the pandemic, including the increased use of technology (64%), preparedness (48%), involvement from leadership (48%), and the frequency with which they conduct drills (20%).
Not surprisingly, companies identified cybersecurity incidents as the top crisis risk facing companies today (60%), with macroeconomic conditions and health and safety risks tied second (28%).
One encouraging trend to note from the report is that the confidence in the ability of organizations to manage a crisis has significantly improved. In 2018, 39% of respondents stated that they were very confident in their organization’s ability to manage a potential crisis, while in 2023, that number increased to 64%.
With cybersecurity topping the list of crisis management concerns, there is no time like the present to assess your level or preparedness for a cybersecurity incident. To get started, be sure to check out our “Cybersecurity/Privacy Rights/Security Breaches/Data Governance” Practice Area here on TheCorporateCounsel.net. You can find some very helpful resources there, such as our “Cybersecurity – Incident Response Planning” checklist and our “Risk Management – Cybersecurity” checklist, as well as the latest coverage of cybersecurity and data protection matters.
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We have entered that part of the economic cycle where every morning brings news of a significant corporate layoff. In the latest issue of The Corporate Counsel, we address the steps that you can take to get your disclosure controls in shape for reporting on material layoffs under Item 2.05 of Form 8-K.
As we note in the article, Item 2.05 of Form 8-K is not just limited to reporting layoff scenarios, but rather contemplates a wider range of events that are often referred to by companies as restructurings or write-offs that trigger the accounting for related costs under applicable GAAP. Timing is a particularly sensitive topic in the context of layoff announcements, as companies seek to carefully choregraph the notice to affected employees and to the markets. One particular concern is that the commitment to a course of action involving a plan of termination could start the Form 8-K deadline clock ticking before the company has an opportunity to communicate with employees. The SEC Staff addressed this concern in Exchange Act Form 8-K CDIs Question 109.02, which provides that if, in connection with an exit activity, the company is terminating employees as part of a plan to exit an activity that is covered by ASC 420, then the company is not required to disclose the commitment to the plan on Form 8-K until it has informed affected employees.
The article notes the steps that you can take now to prepare for a layoff disclosure, including:
– Coordinate with your accounting and financial reporting colleagues to understand the range of potential triggering events contemplated by ASC 420 and the process for committing to a course of action.
– Discuss and document the analysis for determining whether material charges will be incurred under GAAP based on the various
potential triggering events.
– Determine who within the organization will be providing the cost estimates that must be disclosed and how quickly those estimates can be provided.
– Coordinate with those in the organization who will be communicating with affected employees.
– Coordinate with the broader disclosure group so that the overall communications plan regarding the layoffs can be aligned within the timeframe contemplated for the Form 8-K filing.
My relationship with LIBOR goes way back. In one of my finance jobs before I became a lawyer, I was tasked with retrieving the LIBOR rate from the Bloomberg terminal each day as soon as it was published. At that time, LIBOR was set by the British Bankers’ Association, a group that I envisioned being right out of the movie Mary Poppins, with black suits and Bowler hats. I recall that the rate would be published each day at around 11:00 am London time, and there was an urgent need to accurately capture the U.S. dollar LIBOR rate and reflect it in the various instruments that were priced based on LIBOR. In the days before the Internet, the Bloomberg terminal was the only place to get the LIBOR rate in real time, and we only had one extremely expensive Bloomberg terminal in the financial institution. While it no doubt seemed like a menial task at the time, I recall feeling an enormous sense of responsibility given that I needed to retrieve the rate as soon as it was published and communicate it accurately to the finance team.
It seems that the LIBOR transition has been going on forever, but now the transition is rapidly concluding, as issuers, financial institutions and others announce the imminent migration from LIBOR to, in many cases, the Secured Overnight Financing Rate (SOFR). The transition has taken so long that many may not even recall why we moved away from LIBOR – as this article notes, beginning in 2012, an investigation revealed that several large banks were colluding to manipulate LIBOR for a profit going back to 2003. Now, two decades after the scandal reportedly began, LIBOR is finally going the way of the dinosaur.
Yesterday, the SEC’s Office of Investor Education and Advocacy released a new Investor Bulletin focused on the LIBOR transition. The bulletin notes:
In recent years, however, U.S.-dollar LIBOR is being phased out in response to concerns that the benchmark was being manipulated. The publication for one-week and two-month U.S.-dollar LIBOR ceased at the end of 2021. The remaining tenors of U.S.-dollar LIBOR are scheduled to cease publication after June 30, 2023.
The end of LIBOR has precipitated the need for an alternative benchmark rate. In March 2022, Congress enacted the Adjustable Interest Rate (LIBOR) Act. This Act provides a process and protections for transitioning to an alternative rate in contracts with terms that do not provide for a clear transition. The Federal Reserve Board adopted a final rule in December 2022 implementing the LIBOR Act and specified benchmarks based on the Secured Overnight Financing Rate (SOFR) as the replacement rates.
The bulletin goes on to note the various securities, financial instruments or financial products that have exposure to LIBOR and how they will be affected by the transition to a new rate.
Yesterday, the Supreme Court announced that it would hear an appeal in the case of Loper Bright Enterprises v. Raimondo, which involves a direct challenge to the Chevron doctrine. This case will be considered by the Court in the next term. The outcome of the case could have a significant impact on SEC rulemaking efforts.
As I discussed in the blog last year, in 1984 the Supreme Court decided Chevron v. Natural Resources Defense Council, which created the doctrine that courts normally must defer to a government agency’s reasonable interpretation of a law that it administers when that law’s language is ambiguous. The SEC has argued that Chevron deference should be accorded to its actions over the years, often to the agency’s advantage.
The Chevron doctrine has been viewed as vulnerable since the Supreme Court’s decision last year in in West Virginia v. Environmental Protection Agency, in which the Court considered the “major questions doctrine,” a presumption that when an administrative agency asserts authority over questions of great economic and political significance, it may act only if Congress has clearly authorized it to do so.
In Loper Bright Enterprises v. Raimondo, the relevant question that the Supreme Court agreed to hear is “[w]hether the Court should overrule Chevron or at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency.”
The case involves a herring fishing company named Loper Bright Enterprises, which is appealing a ruling that left in effect a National Marine Fisheries Service regulation based on the Chevron doctrine. That regulation requires herring fishing boats to allow a federal observer aboard to oversee operations and to compensate them for their time. Loper Bright Enterprises argues that the regulation significantly impacts its business and that the agency did not have the authority to impose the regulation.
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On Friday, the SEC announced that it is reopening the comment period for the proposed amendments to the beneficial ownership reporting rules that were originally proposed in February 2022. These proposed amendments would modernize the filing deadlines for initial and amended beneficial ownership reports filed on Schedules 13D and 13G and make other changes to the applicable rules. The SEC is now reopening the comment period to allow interested persons an opportunity to comment on the additional analysis and data contained in a staff memorandum that was added to the public comment file on April 28, 2023. The reopening release does not contain any proposed revisions to the proposed amendments. The referenced memorandum from the Division of Economic Risk and Analysis (DERA) states:
In particular, this memorandum provides additional background and baseline data on Schedule 13D and 13G filings in Section 1 below, followed by supplemental analyses on two specific points pertaining to Schedule 13D filings. First, in Section 2, this memorandum further investigates potential effects on activism that may result from the proposed change to the initial Schedule 13D filing deadline. Second, in Section 3, this memorandum provides additional analysis of potential harms to certain selling shareholders under the existing filing deadline. Both Sections 2 and 3 include a discussion of relevant academic research as well as new quantitative analysis.
The new comment deadline for the reopened proposal is 30 days after publication of the reopening release in the Federal Register or June 27, 2023, whichever is later.
The reopening of the comment period for the beneficial ownership reporting rules is similar to what the SEC did with respect to the share repurchase disclosure rulemaking, when back in December 2022 the SEC reopened the comment period to post a memorandum from DERA analyzing the impact of the enactment of the Inflation Reduction Act of 2022. The SEC also reopened the comment period for the clawback rules (for a second time) back in June 2022 to allow for comments on a memorandum from DERA.
The practice of reopening comment periods to consider additional economic analysis appears to be relatively novel concept. In the past, DERA’s role has been focused on providing the required economic analysis for proposing and adopting releases for a rulemaking, but it now appears that, in at least some rulemakings, DERA is continuing its research and analysis to inform the rulemaking effort in real time, and the Commission appears to be compelled to provide that research to the public in case it might change the public’s mind about various aspects of the rule proposal.
Another reason for reopening the comment period is when the Commission determines that it may be appropriate to significantly alter the proposed rules, but there does not appear to be sufficient latitude based on the original proposal and the comments submitted to make such changes without soliciting additional comment under the Administrative Procedure Act. If the Commission were to adopt a final rule that strays too far from what is proposed or suggested through the comment process, then that opens the agency up to a legal challenge that its actions were “arbitrary and capricious” in adopting the final rule. We recently saw this sort of reopening situation in the clawback proposal, where the SEC used a reopening release to propose, among other changes, the use of little “r” restatements as a triggering event under the required clawback policies. A similar situation played out with the pay versus performance disclosure requirements, when, in January 2022, the SEC reopened the comment period to revisit the calculation of compensation actually paid and propose additional performance measure disclosures. The Commission ended up adopting the final rules largely as they were described in the reopening release.
Could we see the Commission reopen the comment period for its other open rulemaking projects, such as climate change disclosure and cybersecurity? Anything is possible at this point.
