According to this recent study from IRRC & the Sustainability Investment Institute (Si2), sustainability reporting has come a long way, but only a few companies have taken the next step and started to issue “integrated reports.” Integrated reporting is intended to provide “a holistic look at material information that goes beyond corporate financial disclosures and gives investors insight on a company’s risk and value creation potential.”
Here are some of the study’s highlights (also see this Davis Polk blog):
– 78% of S&P 500 companies issue a sustainability report.
– 40% of S&P 500 companies include voluntary sustainability discussions in annual financial reports or other regulatory filings. This is a key signal that an increasing number of companies believe sustainability issues are financially material. The reporting, however, varies widely.
– Among companies that issue sustainability reports, 95% offer quantified, annually comparable environmental performance metrics; two-thirds set quantified and time-bound environmental goals. Some 86% offer social performance metrics, but only 40% set quantified social goals.
– Only 14 S&P 500 companies issue what Si2 considers to be fully integrated reports, though this is a 100 percent increase from five years ago.
So which companies are providing integrated reports? According to the study, they include GE, Intel, Pfizer, Allstate, Medtronic, Eli Lilly, Southwest Airlnes, AEP, Ingersoll Rand, Praxair, Entergy, Clorox, NiSource & Dentsply Sirona. While the concept has been slow to catch on, it has been endorsed by the Principles for Responsible Investment (PRI),whose signatories have $82 trillion in assets under management.
ESG: Unifying Non-Financial Reporting Standards
One of the reasons that companies may be slow to adopt integrated reporting is that there are a whole bunch of competing reporting standards. So it’s welcome news that a group of the standard-setters – including the Sustainability Accounting Standards Board (SASB), the Climate Disclosure Standards Board (CDSB), FASB (as an observer) and the Global Reporting Initiative (GRI) – has announced a project to unify their sustainability & integrated reporting frameworks. The FAQs elaborate:
Participants will work together to refine overlapping metrics with the same intent. Where their objectives do not require differences, we will look to achieve and maintain the highest possible alignment. Such alignment is subject to the due process considerations of each organization’s governance procedures.
The initial output, expected in Q3 2019, will be a publication available on www.corporatereportingdalogue.com – the document will show the linkages of the TCFD Recommendations with the respective reporting frameworks and the linkages between the frameworks. This work will include identifying how non-financial metrics relate to financial outcomes, explain how the TCFD recommendations should be integrated in mainstream reports and outline preparations for a next phase during which the framework providers will align their metrics where possible across all their reporting frameworks.
The new project is being led by the IIRC’s Corporate Reporting Dialogue. Note that the IIRC, which is leading this effort, is different than the IRRC, which co-issued the sustainability report discussed in today’s first blog. I want to be clear about that, first because the IRRC is dissolving at the end of this year (into the Weinberg Center), but also in case the two organizations have some sort of a “People’s Front of Judea” / “Judean People’s Front” thing going on.
ESG: Coming Soon to a Debt Deal Near You?
According to this “Institutional Investor” article, European institutions have a strong appetite for ESG debt investments – and that appetite may drive more product to market over the next several years. Here’s an excerpt:
Environmental, social, and governance investing is taking root in the debt markets, where demand for ESG offerings is outstripping supply, according to consulting firm Cerulli Associates. The inclusion of ESG factors in fixed income is becoming more widespread, but opportunities for socially responsible investing remain scarce, Cerulli said in a statement Monday on its European research. The firm expects strong demand from institutional investors in Europe will drive the creation of ESG offerings in fixed income over the next five years.
The SEC’s recent Cyber 21(a) Report highlighted cybersecurity internal control shortcomings at 9 different companies. This Audit Analytics blog looks at which companies have disclosed a “material weakness” following a data breach. This excerpt says that not many have:
The investigative report stopped short of recommending any enforcement action and did not name the companies that were investigated. Moreover, the report does not provide sufficient details to determine the identity of the companies. Although we are unable to identify the companies, we were curious whether we can find similar cases. Using Audit Analytics’ cyber breaches dataset, we looked at recent examples & disclosures of companies that fell victims to the attacks described in the report.
In total, we looked at nine companies that disclosed incidents of similar breaches. Six of these companies disclosed the breaches in filings furnished with the SEC, though only one made the disclosure in a current report (8-K). Of the six companies that disclosed their cyber breaches in SEC filings, just three disclosed that the breach rose to the level of a material weakness in the companies’ internal controls.
The blog also reviews the disclosures made by companies that determined a material weakness existed following a data breach.
Audit Committee Disclosures: More, More, More
The amount of information available to investors about audit committee oversight of the independent auditor continues to increase. That’s the conclusion of the 5th annual “Audit Committee Transparency Barometer,” jointly issued by the Center for Audit Quality & Audit Analytics. This excerpt from the CAQ’s blog lays out the highlights:
– 40% of S&P 500 companies disclose considerations in appointing the audit firm (up from 13% in 2014), compared to 27% of mid-cap companies (up from 10% in 2014) and 19% of small-cap companies (up from 8% in 2014).
– 46% of S&P 500 companies disclose criteria considered when evaluating the audit firm (up from 8% in 2014), compared to 36% of mid-cap companies (up from 7% in 2014) and 32% of small-cap companies (up from 15% in 2014).
– 26% of S&P 500 companies disclose that the evaluation of the external auditor is at least an annual event (up from 4% in 2014), compared to 17% of mid-cap companies (up from 3% in 2014) and 12% of small-cap companies (up from 4% in 2014).
The CAQ & Audit Analytics also provide disclosure examples to illustrate how audit committees are enhancing information for investors & other constituencies. Check out this recent blog from Cydney Posner for more details on the Transparency Barometer’s finding as well as commentary on how SEC & PCAOB actions (particularly the new audit report standard) may drive more audit committee disclosure.
Latest Stats: S&P 500 Political Spending Disclosure
The latest “CPA-Zicklin Index” reviews disclosure policies & practices on political spending by the S&P 500. Here’s a summary of its findings on election-related spending disclosure:
– 294 S&P 500 companies disclosed some or all of their election-related spending, or prohibited such spending in 2018, compared with 295 for 2017.
– When these numbers are broken down further, 231 companies disclosed some or all election-related spending in 2018, compared to 236 such companies in 2017. Turnover in the S&P 500 influenced this fluctuation significantly.
– In 2018, 176 companies prohibit at least one category of corporate election-related spending, a sizable increase from 158 companies in 2017, 143 companies in 2016 and 125 companies in 2015.
This WSJ article has more details on the survey’s findings regarding corporate political spending & disclosure.
The Commission’s Divisions of Corporation Finance, Investment Management, and Trading & Markets (the “Divisions”) encourage technological innovations that benefit investors and our capital markets, and we have been consulting with market participants regarding issues presented by new technologies. We wish to emphasize, however, that market participants must still adhere to our well-established and well-functioning federal securities law framework when dealing with technological innovations, regardless of whether the securities are issued in certificated form or using new technologies, such as blockchain.
The Commission’s recent enforcement actions involving AirFox, Paragon, Crypto Asset Management, TokenLot, and EtherDelta’s founder, discussed further below, illustrate the importance of complying with these requirements.
The Statement walks through each of these enforcement proceedings – which involve ICOs, digital asset investment vehicles & secondary market trading platforms – in some detail, but its message can be summarized briefly: “We don’t want to crush innovation, but the securities laws apply to a lot of what you’re doing. If you don’t comply with those laws, we’ve got a problem – and so do you.”
A “Dutch Uncle” is firm but benevolent – and despite the Statement’s firm tone, Corp Fin showed a little benevolence toward wayward ICO issuers. The 2 ICO settlements referenced in the Statement addressed failures to register offerings under the Securities Act – and the Statement notes that the settlement terms lay out a path to compliance, “even where issuers have conducted an illegal unregistered offering of digital asset securities.”
But the path to compliance isn’t easy – and includes registering the securities under the Exchange Act. This Steve Quinlivan blog blog points out that registration presents some unique challenges for coin issuers:
The second step is to register the coins on Form 10 under the Exchange Act. A daunting task maybe, given little is known how to register coins. You will probably need audited financial statements and all that stuff. Then there are those pesky 34 Act reporting obligations which will follow such as 10-Ks, 10-Qs and 8-Ks. I wonder how Section 16 applies and who has to report.
The better answer for ICO issuers is to get it right the first time, and not have to jump through all sorts of hoops to fix a screw-up. And there’s some indication that many are trying to do that – at the ABA’s Fall meeting, Corp Fin Director Bill Hinman remarked that roughly a half-dozen ICO S-1s & a dozen Reg A filings are currently being reviewed by Corp Fin on a confidential basis.
Meanwhile, SEC Enforcement’s Cyber Unit recently bagged a couple of celebrities. Boxer Floyd Mayweather & music impresario DJ Khaled recently settled SEC enforcement proceedings alleging that they unlawfully touted ICOs on social media without disclosing that that they were being paid.
Crypto: The SEC Takes an “L” in Token Injunction Bid
As the Digital Asset Statement suggests, the SEC has taken a strong position that token offerings generally involve securities in the form of an “investment contract.” As Liz recently blogged, at least one federal court has been sufficiently persuaded of the merits of that position to deny a defendant’s motion to dismiss criminal charges premised on tokens’ status as securities.
But you can’t win ’em all – and the SEC found that out last week when a federal court in California refused to grant a preliminary injunction against a company engaged in a token deal. This excerpt from a recent Fenwick & West memo says that when it came to the status of the token in this case as a security, the court wasn’t buying what the SEC was selling:
On Tuesday, November 27, Judge Gonzalo Curiel of the Southern District of California issued the first opinion rebuffing the SEC under the Howey test. In denying the SEC’s motion for a preliminary injunction — after initially granting a temporary restraining order — the court held that the commission had not provided enough information to deem Blockvest’s token a security.
The decision on this motion is just part of the lawsuit’s opening act, & the memo points out that it is based mainly on the parties’ differing factual accounts of what information the limited number of token purchasers relied upon. But it does suggest that courts aren’t necessarily going to roll over for the SEC’s Howey arguments in each new case.
Crypto: NASAA Tries Cartoons to Stop the Scams
Despite efforts to educate investors about the variety of crypto-scams, a lot of people are still getting ripped-off. This Keith Bishop blog says that NASAA has taken a new tack to educate investors about cryptocurrency investment risks – a series of cartoons:
For those still in the dark about cryptocurrency, the North American Securities Administrators Association (aka NASAA) has released an animated video on the subject. According to NASAA, the video “focuses on concerns individuals should consider before investing in any crypto-related offering, including the three “U’s” (untraceable, uninsured, unregulated), volatility and liquidity risks, and the very real potential for fraud.” This video is actually a sequel to the debut video “Get in the Know about ICOs”.
These aren’t exactly “Rick & Morty” or “BoJack Horseman” when it comes to entertainment value, but check them out – you might learn something.
Here is President Trump’s executive order declaring tomorrow a “national day of mourning” for former President George H.W. Bush, which means that the SEC will be closed. Here’s the SEC’s statement that Edgar is closed. So any filings otherwise required to be made tomorrow will be due instead on Thursday (December 6th) – as the SEC will treat tomorrow as a federal holiday for 8-K purposes, etc. (i.e. not a business day).
Skadden reports that Corp Fin’s Office of Mergers & Acquisitions has confirmed that for purposes of the tender offer rules, tomorrow won’t count as a “business day” (under Exchange Act Rule 14d-1) if such date (i) constitutes the launch date of a 20-business-day offer, or (ii) is the 20th business day of a 20-business-day offer. In each case, an extension of at least one business day would be required. However, Corp Fin will apply an exception for ongoing offers and not require an extension.
In addition, the open Commission meeting to discuss possible changes to quarterly reporting has been cancelled. No word on rescheduling yet. . .
Note the precedent: the SEC issued this press release several days in advance of the national day of mourning held for President Ford in 2007.
D&O: Are You Covered for All Possible #MeToo Claims?
Concerns about sexual harassment have exploded over the past year, and misconduct by corporate officials has proven to be a fertile source of employment law claims, shareholder derivative suits, & securities class actions. This Pepper Hamilton memo reviews the elements of each of these claims, and discusses the coverage issues that companies need to focus on. Here’s an excerpt on D&O coverage:
The prospect of personal liability in the wake of allegations of sexual harassment or failure to monitor workplace conduct, coupled with unassured corporate indemnification and advancement, makes D&O liability insurance an important risk transfer tool that can, at times, become the last line of defense for an individual director or officer.
D&O coverage arising out of the #MeToo movement comes in many forms. For example, some, but not all, public company D&O policies include limited EPL coverage for directors and officers. It is imperative that directors and officers are aware of whether their companies’ D&O policies include EPL coverage. If such coverage is present, it’s vital that directors and officers understand their reporting obligations.
The memo says that questions that companies should ask about #MeToo D&O coverage include:
– What triggers coverage under the D&O policy and what are the reporting obligations?
– What exclusions from the coverage may apply, and can those be narrowed?
– How broad is the coverage for investigations?
– Are the policy limits sufficient?
Mandatory Arbitration: “Thumbs Down” in Delaware?
Until recently, most of the debate over bylaw provisions compelling shareholders to arbitrate securities claims has focused on whether the SEC will remove its existing prohibition on them. But now, some scholars are saying that even if the SEC signs off, Delaware is unlikely to do the same.
According to the authors of this recent white paper, the problem is that Delaware’s relevant statutory provisions – Sections 102 & 109(b) of the DGCL – aren’t broad enough to authorize bylaw provisions establishing an exclusive forum for securities claims. Here’s an excerpt:
a bylaw purporting to regulate the litigation of claims under Rule 10b-5 “would not deal with the rights and powers of the plaintiff as a stockholder,” and would therefore not be within even the broad scope of Section 109(b). As the Delaware Court of Chancery has observed, “[a] Rule 10b-5 claim under the federal securities laws is a personal claim akin to a tort claim for fraud. The right to bring a Rule 10b-5 claim is not a property right associated with shares, nor can it be invoked by those who simply hold shares of stock.”
Accordingly, regulation of the venue for (or other aspects of) a claim under Rule 10b-5 is beyond the subject matter scope of the charters and bylaws of Delaware corporations.
Also check out Alison Frankel’s blog for a discussion of several Delaware cases that may test this position in the context of a bylaw requiring plaintiffs to litigate federal claims in federal court.
In a recent speech, Deputy AG Rod Rosenstein announced changes to the DOJ’s policy regarding individual accountability & cooperation credit in corporate investigations. The intro from this Morgan Lewis memo summarizes the revised policy (we’re posting memos in our “White Collar” Practice Area):
US Deputy Attorney General Rod J. Rosenstein recently announced that in every corporate investigation, the US Department of Justice will make it a top priority to pursue individuals responsible for corporate wrongdoing. This revised policy also modifies the expectations for corporate targets seeking cooperation credit in criminal and civil investigations. Cooperation credit for corporate targets of criminal investigations remains “all or nothing,” while cooperation credit will be available in degrees for corporate targets in civil investigations.
While cooperation credit is “all or none” in criminal investigations, the revised policy takes a less demanding view of what “all or none” means. The memo says that under the policy laid out in the Yates Memo, cooperation credit would not be given unless the company provided all relevant information about any individuals involved, regardless of culpability. In contrast, the new policy requires companies to undertake a good faith effort to identify “every individual who was substantially involved in or responsible for the criminal conduct.”
In civil investigations, all relevant information about any senior officials involved in the misconduct must be provided if the company wants any credit – and it must meet the same standard applicable to criminal investigations if it wants maximum credit. But if the company’s investigative efforts fall short, it can still receive some credit for cooperation if its actions “meaningfully assist the government’s civil investigation.”
Brexit: Speak-Up or Watch Out?
According to this recent WSJ article, SEC Chair Jay Clayton isn’t thrilled about the level of disclosure he’s seeing about the potential impact of Brexit:
The SEC is sharpening its focus on corporate disclosures about the risks associated with the U.K.’s exit from the European Union, Chairman Jay Clayton told company controllers and accountants during a conference on Monday. “My personal view is that the potential impact of Brexit has been understated,” Mr. Clayton said, speaking at the Current Financial Reporting Issues Conference, hosted by professional organization Financial Executives International in New York. “I would expect companies to be looking at this closely and sharing their views with the investment community,” Mr. Clayton added.
This recent blog from Cydney Posner flags a Brexit issue that could cause problems for some companies:
For some companies, one of the most significant issues will be whether they will need to relocate to EU-based banks financial arrangements, such as syndicated loans, swaps and other derivatives, that are currently located at banks in London. That could be a costly, time-consuming and paper-intensive process. As reported in this WSJ article, “regulations that currently cover the City of London, the heart of the U.K.’s and Europe’s financial industry, may stop applying as early as March 2019. That could make it necessary to relocate thousands of financial products used by corporates to an EU-based financial entity.”
Cydney notes that determining whether this is a live issue will depend on the final terms of a Brexit deal (or non-deal). At this point, it’s still anybody’s guess as to what those terms will be.
Our December Eminders is Posted!
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Yesterday, the SEC posted this Sunshine Act notice of an open Commission meeting next Wednesday – December 5th – to consider a “request for comment” on the nature & content of quarterly reports and earnings releases. As we’ve blogged several times, the request is bound to seek comment on the reduction (and even elimination) of quarterly reporting – as tweeted by President Trump. Here’s an excerpt from this WSJ article that John is quoted in:
One question the SEC may ask in its release, up for a vote next Wednesday, is whether quarterly guidance about expected earnings from companies unnecessarily drives expectations for investors, and whether that guidance could be pared back. Earnings guidance is voluntary and isn’t required by the government. Among possible changes, the SEC could also reduce the number of disclosures required in quarterly reports, which some companies view as excessive in an age when company information is readily available to the public.
“Do we really need the ’thou shalts’ from the SEC in an age when we have so much more information at our fingertips?” said John Jenkins, partner at Calfee, Halter & Griswold LLP and an editor of TheCorporateCounsel.net.
Federal securities rules have required quarterly reporting since 1970, when the SEC required it as part of a formalization of stock-exchange practices that preceded the agency’s creation in 1934. The SEC’s planned meeting isn’t the start of a formal rule-making process and is intended to solicit feedback on how the quarterly reporting system is functioning and what improvements could be made, a step that could in the future lead to regulatory changes.
Upcoming Webcast: “Shareholder Proposals – Corp Fin Speaks”
I just calendared a webcast – “Shareholder Proposals: Corp Fin Speaks” – with Corp Fin’s Matt McNair, who has headed the Division’s “Shareholder Proposal Task Force” for the past five years. Tune in to learn the experiences with implementing Staff Legal Bulletin 14I from this past proxy season – and learn the intricacies of new SLB 14J. Also see this blog by Cydney Posner about some no-action positions taken on “ordinary business” since SLB 14J came out last month…
Edgar: SEC Seeks Feedback
Recently, I blogged about how the SEC has started to post notices of Edgar outages – and that you’re encouraged to contact “Edgar Filer Support” to report a problem. Now, the SEC has posted an Edgar questionnaire, hoping to get feedback concerning the user-filing experience…
Blockchain & Audits
Recently, PCAOB Board Member Kathleen Hamm gave this speech about the intersection of blockchain & auditing…
We’re in a strange business when it comes to insider trading. Over the years, I’ve had interesting – and sometimes humorous – brushes with it. Here are a few thoughts:
1. We Often Don’t Have As Much MNPI As Folks Think – Even if you’re a deal lawyer, you often won’t have material nonpublic information except in those narrow windows when a deal is being first negotiated. When I was young, I was with a friend at a reggae bar and he told some local that he worked for the SEC. This happened in San Diego (which isn’t relevant but felt I should share). The guy then proceeded to harass my friend, begging for some “inside information.” We quickly left. When you work in Corp Fin, you very rarely gain access to MNPI. Be wary of any stories that begin “we were at a reggae bar.”
2. Don’t Accept MNPI – You might have friends in this field that might be wearing their ‘ethics hat’ crooked. I once had an acquaintance – who was in-house – who unsolicited offered some MNPI. Out of the blue. I politely declined. There are many SEC enforcement actions against lawyers in our field who trade on MNPI. Tippee liability still exists.
3. The SEC Knows Who’s Trading Your Stock – When I first went in-house, I got a call from SEC Enforcement because my new employer had just announced a deal and there was suspicious trading right before the announcement. The call was just to confirm that the folks doing the suspect trading had no connection with our company (they didn’t).
It always amazes me that folks engaging in trading on MNPI don’t think they’ll get caught – but yet a quick glance at their phone records reveals a call with the original tipper, followed by a big trade – a trade far greater in size than they’ve ever made before. Circumstances that just can’t be explained away. Dummies. How do you explain why you’re texting using a Nigerian dialect to discuss a certain trade?
4. Maybe Insider Trading Shouldn’t Be Illegal? – Then again, I’ll admit that it just doesn’t feel right that insider trading is illegal (the ‘victimless crime’ angle). We are conditioned to know it’s illegal because of our occupation – but for those not in our community, all they know is that obtaining inside information is the only way to get ahead. A hot tip about a job opportunity. Buying a house that hasn’t come on the market yet. Goes on & on. Only in our field is insider trading something that isn’t tolerated. Insider trading in stocks isn’t illegal in some countries fyi.
Do All Pro Athletes Engage in Insider Trading?
With the SEC’s recent announcement that a former CEO tipped off a former pro baseball player – Doug DeCinces – it reminded me of the numerous other sports figures that have been caught by the SEC for insider trading over the years. Just a few months ago, a NFL player got nabbed. And there are many more instances.
So I ask the question – do pro athletes have more of a propensity to be involved in insider trading than our average citizen? Or is it that the SEC just likes to bring these high-profile cases as a deterrent? My guess is that it’s both. On the one hand, sports figures might have more people trying to kiss their behinds and nothing says “I really want you to like me” like the sharing of some material nonpublic information. And the SEC has never hid the fact that a high-profile case always trumps a low-profile one as they are juggling scarce resources.
I would be remiss not to mention that Doug Decinces is a former Rochester Red Wing. This is my way of kissing John’s behind since he hails from that god-forsaken cold place…
Poll: Your Views on Insider Trading?
Please participate in this anonymous poll about your feelings about trading on material nonpublic information:
Hats off to Corp Fin for overhauling the “look” – meaning the layout & organization – of the landing page for its “Compliance & Disclosure Interpretations.” The new layout makes it more logical for newbies doing research.
But I have heard complaints that this new layout makes it difficult to determine what are the latest CDI changes. Here’s one of these complaints: “I get notified by text that they’ve issued new C&DIs, but the link just drops you in that landing page. I used to do a word search on the date, but that no longer works.”
Meanwhile, Corp Fin continues its project of overhauling the CDIs, doing so in waves (so far, the CDIs related to smaller-reporting companies, cross-border deals & the last of the telephone interps have been changed). Corp Fin is seeking input on the project – so if you see CDIs that you think need tweaking, let them know…
“Hidden” Right Wing Groups Called Out
We’ve blogged before about the “Main Street Investors Coalition” – a right-wing group with a big budget who entered our space this year. Some in the mass media have caught onto their strategy, like this LA Times article. This article also notes the activities of the American Council for Capital Formation (aka “ACCF) and the American Association of Senior Citizens, both of whom also are right-wing groups who issued “studies” ahead of the SEC’s recent “proxy process roundtable” about proxy advisors.
Not only is the mass media catching on, so are other folks. For example, see this article about Morningstar being upset about the “hidden” nature of these groups. And here is a note that I received from a member:
This strategy seems really dumb to me. Why do they put these astroturf organizations out front on this issue? Funny thing is, like a lot of people who work with public companies, I think proxy advisors could use some oversight, but this is so transparently manipulative & deceptive that it sours me on the whole effort.
Ain’t that the truth. And then you wind up with this type of article that ties large CEO pay packages to the whole effort and things really start to feel squishy. Companies need to remember: when you bash proxy advisors, you are also bashing their clients – your institutional investors – since they are the ones paying the proxy advisors. And many institutional investors are pretty vocal that they vote independently & thoughtfully. That’s literally the title of this note from Investment Company Institute. My hunch is that the SEC hasn’t been fooled by all this propaganda either…
Silicon Valley’s New “Stock Exchange” Stalled at the SEC
Silicon Valley’s plan to build a better stock exchange for the nation’s hottest startups hit a snag earlier this year when a member of the Securities and Exchange Commission opposed it, people familiar with the matter said. The Long-Term Stock Exchange—a proposed new market backed by venture capitalist Marc Andreessen, LinkedIn co-founder Reid Hoffman and other tech luminaries—was criticized by SEC Commissioner Robert Jackson Jr. He questioned whether the exchange’s model could entrench the power of founders and early investors in startup companies while hurting other shareholders, the people said.
The agency’s approval is needed to approve major changes to how exchanges work, and any member of the SEC can slow the process by calling for a full commission vote. Mr. Jackson’s move, which hasn’t been previously reported, overrode a decision by SEC staff to approve LTSE’s rules for listing companies, the people said.
The exchange that joined with LTSE to advance its listing rules, IEX Group, withdrew its proposal in August, after Mr. Jackson voiced his concerns but before the full commission could vote on it. LTSE had struck a partnership with IEX so it could launch its business more quickly and because it doesn’t yet have a license to run a stock exchange. An IEX spokesman said the firm withdrew the plan to give institutional investors more time to study LTSE’s tailored rules. “While we have decided to end our work together, IEX continues to support LTSE’s mission and focus on long-termism in the market,” spokesman Gerald Lam said.
Last week, as noted in this Steve Quinlivan blog, ISS released five “preliminary” compensation FAQs, which includes a one-year deferral of its controversial policy over excessive director pay. There are no changes to the quantitative pay-for-performance screens nor changes to the passing scores for Equity Plan Scorecard (EPSC) evaluations of stock plan proposals (but there are new EPSC ‘overriding’ factors and a change to the change-in-control vesting factor). “Final” FAQs are expected in a few weeks…
Hats off to my pal – Bass Berry’s Jay Knight – for having his family featured on the season finale of “Property Brothers”! Jealous! Read Jay’s blog about it…
How Often Does the SEC Chair Have Meetings?
I despise meetings. Probably the best part of my current job is that I have very few meetings. By “few,” I mean none. Lucky me! Many of the other jobs that I’ve had were full of meetings. Particularly working in-house. That had multiple meetings every single day. Ugh.
Anyway, how many meetings do you think the SEC Chair has each day? The answer is a lot. The weird thing is that the SEC publishes a regular list of these meetings. Apparently, that’s been going on for some time. No idea why – but the URL for the list has “FOIA” in it. So I imagine that someone made a request. Given my distaste for meetings, I would say that it looks like a tough job…
Tomorrow’s Webcast: “How Boards Should Handle Politics as a Governance Risk”
Tune in tomorrow for the webcast – “How Boards Should Handle Politics as a Governance Risk” – to hear CalPERS’ James Andrus, Downey Brand’s Bruce Dravis, Politicom Law’s Erin Lama and Richard Levick discuss the increasing risks caused by the entanglement of business & politics and how boards oversee the different dimensions of political speech.
One of the top priorities for SEC Chair Jay Clayton – and Corp Fin Director Bill Hinman – has been the easing of the burdens of being a public company, with the ultimate goal of convincing more companies to go public. This theme has been mentioned many times over the past few years – including raising the threshold for the definition of “smaller reporting company” earlier this year.
So it’s no surprise that the SEC published a larger list than usual to be reviewed last week as part of the SEC’s annual exercise – as required under the Regulatory Flexibility Act – to review how the agency’s rules are faring for smaller reporting companies. This year’s list boasts 43 rules (compare that to 2004; only 7 rules). Like in prior years, the rules listed for review aren’t limited to rules that affect small companies. Notably, the list doesn’t include the elimination of quarterly reports entirely for smaller companies – which I do think will eventually be proposed based upon comments made by Bill at the ABA meeting a few weeks ago.
Although some of the listed rules don’t apply to public operating companies (ie. apply to mutual funds, etc. instead), some do apply to our community including:
1. Executive pay & related-party disclosures (this is the “biggie” on pages 5-6; rethinking the 2006 rule amendments)
2. Shareholder proposals regarding director nominations by shareholders
3. XBRL
4. E-delivery
5. E-proxy (aka “notice & access”)
6. E-forums
7. Proxy disclosure enhancements (ie. board leadership, comp consultants, board oversight of risk)
8. E-filing of Form D
9. S-3 eligibility
Although this list is open for public comment, the annual list typically results in only an average of one comment per year, as noted in this statement by then-Commissioner Piwowar in ’16…
– Total Tax Liability: Only 44% indicate a strong understanding of their organization’s total tax liability and how it impacts the company’s tax strategy.
– Non-GAAP Measures & KPIs: More than three-quarters (76%) of corporate board directors say they do not believe additional guidance from regulators on non-GAAP and other KPIs in their financial statements is necessary. However, when asked if auditor involvement would promote higher investor confidence in non-GAAP measures, a majority (54%) of public company directors say that it would.
– Diversity & Service Limits: When asked if their board was addressing the issue of board diversity, more than 8-in-10 (81%) directors said yes, an increase from 2017, when only 66 % of respondents said the same. Nearly one-fifth (19%) of directors believe their board has room to grow on this measure.
– Sustainability Reporting: While sustainability disclosures were a priority for public company board members in last year’s survey, data indicates the focus on sustainability has perhaps temporarily been put on the back-burner. 74% of public company board directors surveyed do not believe that disclosures regarding sustainability matters are important to understanding a company’s business and helping investors make informed investment and voting decisions.
– Tax Law: 61% of directors note a favorable impact from the Tax Cuts &Jobs Act of 2017, while 39% say this law change had no impact at all on their business.
