We’ve posted the transcript for our recent webcast for members, “Audit Committees in Action: The Latest Developments.”
Deloitte’s Consuelo Hitchcock, Maynard Cooper & Gale’s Bob Dow, Tapestry Networks’ Eric Shor and Ernst & Young’s Josh Jones discussed the ever-expanding areas of oversight responsibility for the audit committee, accounting and auditing topics on the SEC’s radar and auditor independence. Here is a nugget from Josh Jones about the role of audit committees in ESG oversight and documentation:
If you’re the audit committee, you’ll need to think about, “How have we thought about some more of these ESG risks?” You’ll also need to consider how the company has thought through its own particular strategy and how that’s working its way into the financial reporting process, including all of these kinds of required kind of disclosure elements in the filing. Consider how the company’s controls are perhaps expanding beyond the normal financial reporting department to really capture those elements when thinking about things like impairment decisions.
It’s casting a wider net and adding more variables to some of those controls and decisions than we have in the past. And in some cases, those impacts may not be imminent and may not be easily discernible. But at the same time, at least asking the question, “How has the company thought about those in connection with the financial statements relative to public disclosures and elements of their public sustainability reports?” It’s all things that audit committees would be well versed to making sure they’re connecting all those dots as it relates to meeting their regulatory obligations.
If you are not a member of TheCorporateCounsel.net, email sales@ccrcorp.com to sign up today and get access to the full transcript.
Yesterday, Commissioner Allison Herren Lee announced that she had notified President Biden that she intends to step down from the Commission once her successor has been confirmed. Lee’s term as a Commissioner expires in June. As SEC Chair Gary Gensler pointed out in a statement, Commissioner Lee first joined the SEC’s Division of Enforcement in the Denver Regional Office in 2005, and served as Counselor to former Commissioner Kara Stein and Senior Counsel in the Complex Financial Instruments Unit. Commissioner Lee served as Acting Chair in early 2021, taking an unusually active role in jumpstarting the SEC’s efforts on climate change.
Earlier this month, Commissioner Lee spoke at the PLI program Corporate Governance – A Master Class 2022 and took on the topic of over-zealous representation of clients by corporate lawyers. In particular, she called for the SEC to take steps to address situations where bad legal advice can inflict harm on investors. Commissioner Lee noted:
The “bad advice” I refer to arises from a type of “can-do” approach to lawyering that is ill-suited to lawyers in a gatekeeping role. It is born from a desire to give management the answer that it wants. Or, as a Delaware court recently stated, it stems from a “contrived effort to generate the client’s desired result when real-world facts would not support it.”
Commissioner Lee went on to note that bad advice can extend to disclosure decisions that public companies make, and that principles-based rules adopted by the SEC result in lawyers being more involved. She also noted how the involvement of lawyers can make it difficult to charge individuals for disclosure violations in Enforcement cases.
Commissioner Lee argued in her speech that the existing framework for professional conduct is not adequate to address these issues, and she suggests that the SEC use its authority under Section 307 of the Sarbanes-Oxley Act, which directs the SEC to adopt “minimum standards of professional conduct for attorneys appearing and practicing before the Commission in any way in the representation of issuers.”
In January, I blogged about the NYSE’s new listing standard related to rights, which was adopted. Earlier this month, the NYSE filed a proposal with the SEC to adopt fees for listed rights.
The NYSE proposes to apply the same fee schedule to listed rights as it currently applies to warrants under Section 902.03 of the Listed Company Manual. In connection with the listing of a class of warrants, Section 902.03 provides for a fee of $0.004 per warrant. Section 902.03 provides that listed warrants are subject to annual fees at a rate of $0.0017 per warrant, subject to a minimum annual fee of $5,000 per series of warrants, with special provisions for SPACs and foreign issuers.
Yesterday on PracticalESG.com, we announced that we are holding a 3-part virtual workshop this Spring — an event that will deliver much-needed practical guidance on how to use data to drive DEI decisions and to measure impact. Not only do we have a fantastic lineup of content and speakers, this event is FREE to attend!
You can sign up for each of the 3 sessions, or whichever ones fit your schedule. After the live event, the sessions will also be available on-demand to members of PracticalESG.com. Here’s more detail about the series (each session will run from 2:00 – 3:30pm Eastern):
April 13 – “Collecting Diversity, Equity & Inclusion Data”: What to Measure & Why”: DEI work that is not data-driven likely won’t be made an organizational priority, have clear direction, or have an adequate process for measuring progress. Learn what data points to measure to provide business-relevant insights on diversity, equity and inclusion. Register here to secure your spot for session 1.
May 4 – “Understanding & Using Equity Audits & Civil Rights Audits”: Companies are facing growing calls from shareholders and other stakeholders to conduct equity & civil rights audits. As Emily blogged last week on the Proxy Season Blog, a high-profile shareholder proposal on this topic recently garnered majority approval, which may be a bellwether of things to come. Now is the time to understand and prepare for an audit, so that your board and your company are equipped to respond to this emerging trend. Register here to secure your spot for session 2.
May 25 – “Using Diversity, Equity & Inclusion Data: Goal-Setting & Reporting”: You have the data, how do you use it? This session will explore practical ways to use DEI data to set goals and report on progress. You will leave this session with steps you can take right away to set more targeted goals and report out on what your leaders need to know to buy-into and champion the DEI strategy. Register here to secure your spot for session 3.
The workshop guests include notable figures in the DEI space such as Deesha Dyer, Founder & CEO of Hook & Faster, Laura Murphy, thought leader for Civil Rights Audits, and Sheri Crosby Wheeler, the VP of D&I at Fossil Group, among many others. Each event will be moderated by Ruth Umoh, current Editor of Fortune and former Editor of Forbes, CNBC Reporter, and Producer for Rolling Stone Magazine.
Join other professionals from across industries and receive valuable guidance on tough DEI issues in these fast-paced 90-minute sessions, which each include a 1-1 fireside chat and a 30-minute panel. End each workshop by expanding your network during the optional 10-minute speed-friending event that allows you to quickly meet like-minded peers who are also championing DEI in their organizations. From valuable guidance to the opportunity to grow your network, this workshop series has you covered. Use the knowledge to move your organization to the next level in developing and moving the needle on your DEI goals. RSVP now to take part in this valuable series! This is an event you don’t want to miss.
We have entered a period of highly volatile markets, and it certainly appears that more volatility is in store given recent economic shocks, the war in Ukraine and economic sanctions that could affect the solvency of Russia. Yesterday, the Staff of the SEC’s Division of Trading and Markets issued a statement that “urges broker-dealers and other market participants to remain vigilant to market and counterparty risks that may surface during periods of heightened volatility and global uncertainties.”
In particular, the Staff noted that broker-dealers should be mindful of the following:
Broker-dealers should collect margin from counterparties to the fullest extent possible in accordance with any applicable regulatory and contractual requirements.
Concentrated positions of prime brokerage counterparties pose particular concerns. Staff urges broker-dealers to seek sufficient information to determine counterparties’ aggregate positions in any markets that may experience liquidity concerns and work with the counterparties to mitigate risk.
Staff urges broker-dealers to stress test positions with the proper severity in light of current events and potential market movements, and act to manage the risk of the positions, particularly those that are concentrated, appropriately.
Staff urges broker-dealers to monitor risk management limits, calibrated to the financial resources of the broker-dealer, closely intraday and escalate any breaches promptly to senior management.
Last week, the Council of Institutional Investors announced that it had approved revisions to CII’s recommended Corporate Governance Policies on shareowner meetings and poison pills.
The updated policy on shareowner meetings expresses a preference for in-person meetings but gives companies flexibility to choose the format that best reflects their shareowner base and current circumstances. The policy also encourages companies to disclose the circumstances under which virtual-only meetings would be held. It also recommends giving shareholders who are participating electronically rights and opportunities comparable to those participating in person. The revised policy on poison pills asks companies to hold a shareowner vote on a poison pill no later than a year after the pill’s adoption by the board. It also asks companies to refrain from adopting pills that contain certain provisions, such as extremely low triggers.
A few weeks ago, I blogged about the general disclosure considerations for public companies arising from the war in Ukraine, including considerations for companies that have recently completed their earnings cycles and annual report filings. Now, Deloitte has published an in-depth discussion of the key accounting and financial reporting challenges that companies are facing from the Russia-Ukraine war, including those related to SEC reporting and disclosures, forecasting, supply-chain disruptions, recoverability and impairment of assets, loss of control, the ability to exercise significant influence, cessation of operations, foreign currency matters, subsequent events, and going-concern considerations. Deloitte’s alert notes:
It is important that entities aggregate and consider their direct and indirect exposures to the impacts of the war and consider the financial accounting and reporting implications, which could be numerous, particularly those with material subsidiaries, operations, investments, contractual arrangements, or joint ventures in Ukraine and Russia.
Entities with significant suppliers, vendors, or customers in Ukraine or Russia, as well as organizations that lend to or borrow from entities in those countries, also may experience accounting challenges. Even entities that do not have direct exposure to Ukraine or Russia are likely to be affected by the overall economic uncertainty and negative impacts on the global economy and major financial markets arising from the war.
The alert highlights a wide range of impacts that are worth considering when preparing a company’s financial statements and related disclosures, including interruptions or stoppage of production in affected areas and neighboring countries; damage or loss of inventories and other assets; closure of roads and facilities in affected areas; supply-chain and travel disruptions in Eastern Europe; volatility in commodity prices and currencies; disruption in banking systems and capital markets; reductions in sales and earnings of business in affected areas; increased costs and expenditures; and cyberattacks.
The war in Ukraine has prompted the United States and other Western nations to impose unprecedented sanctions on Russia, Belarus and certain of their financial institutions, companies and individuals. The breadth of these sanctions is like nothing we have seen in our lifetimes, and the impact of these sanctions can be far-reaching given the integration of Russia into the global economy prior to the invasion of Ukraine.
I recently spoke with my colleague John Smith on MoFo’s Above Board podcast to better understand the sanctions landscape and to find out what issues companies and board of directors should be focused on when trying to understand how sanctions could impact their operations. Prior to joining MoFo as co-head of the firm’s National Security practice, John was the Director of the U.S. Treasury Department’s Office of Foreign Assets Control, often referred to as OFAC, which administers and enforces economic and trade sanctions based on U.S foreign policy and national security goals.
As noted in the podcast, the extraordinary sanctions should prompt companies and boards to assess their legal exposure to Russia and Belarus, as well as their reputational exposure arising from ongoing business with the sanctioned regimes, entities or individuals. Banking sanctions could have significant implications for ongoing and future financial transactions beginning this week, as some Russian banks are banned from participation in the SWIFT network, which is the backbone of the global payment network. Companies also need to be particularly cognizant of individuals or entities who are subject to “blocking” sanctions, which make those parties off-limits for any transactions, as well as “correspondent account” sanctions (which impact the ability of banks subject to sanctions to conduct transactions with U.S. banks) and debt and equity restrictions (which limit investment in and financing of sanctioned entities).
Last week, President Biden signed an Executive Order titled “Executive Order on Ensuring Responsible Development of Digital Assets.” The Executive Order outlines a whole-of-government approach to ensure responsible innovation in digital assets. As this Cleary alert notes:
The Order emphasizes the link between federal action and national security – both in terms of ensuring appropriate regulation and in staking out a U.S. leadership role in developing digital asset technology. Notably, in an area where some federal agencies have been criticized for moving slowly or failing to coordinate with each other, the Order mandates interagency cooperation on a series of reports, with most to be finished during 2022. The Order sets the stage for an active and potentially transformative year for U.S. regulation of digital assets.
The Order also sets out six principal policy objectives:
(i) protect U.S. consumers, investors, and businesses by ensuring safeguards are in place for digital asset exchanges and trading platforms to protect sensitive financial data and maintain privacy;
(ii) protect U.S. and global financial stability and mitigate systemic risk by ensuring compliance with regulatory and supervisory standards that govern traditional market infrastructures and financial firms, while adopting a regulatory evolution necessitated by the new and unique uses and functions of digital assets;
(iii) mitigate the illicit finance and national security risks posed by the illicit use of digital assets by ensuring appropriate controls and accountability to promote high standards for transparency, privacy, and security;
(iv) promote U.S. leadership in technology and economic competitiveness, including through the responsible development of payment innovations and digital assets;
(v) promote equitable access to safe and affordable financial services by promoting responsible innovation that expands equitable access to financial services, particularly for Americans who are underserved by the traditional banking system, including by making cross-border transfers cheaper, faster, and safer; and
(vi) support technological advances and ensure responsible development and use of digital assets in a manner that includes privacy and security in their architecture, integrates features and controls that defend against illicit exploitation, and reduces negative climate impacts and environmental pollution.
