Perhaps not as good a battle as “What If Conan Met Thor?” – but it has to be up there. Recently, two different articles brought two extremes to my attention. First, this blog by the “Activist Investor” stated a belief that CEOs shouldn’t serve on the board at all, much less serve as the board chair. Then, this Laurel Hill article analyzed a WSJ article entitled “The Hottest Corporate Fad: Pay CEOs to Find Successors.” In essence, the boards in these cases arguably are paying the CEO to do its job. Shoot me an email with your opinion on either (or both) of these topics. I will keep them to myself – but I’m curious what others think…
Study: A 13-Year Comparison of Restatements
In a recent study, Audit Analytics looked back over 13 years of restatements and, among other things, found:
– In the last four years, the quantity of restatements has leveled off and severity has remained low, but restatements have increased from accelerated filers for the third straight year.
– During 2010, 157 accelerated filers disclosed restatements, followed by 210 in 2011; 282 in 2012 and 290 in 2013.
– During 2013, Revision Restatements (restatements revealed in a periodic report without a prior 8-K, Item 4.02 disclosure that past financials can no longer be relied upon) represented about 68.8% of the restatements disclosed by 10-K filers. This percentage represents the highest percentage calculated since the disclosure requirement came into effect August 2004.
– During 2013, the average income adjustment per restatement by publicly traded companies (on Amex, NASDAQ, or NYSE) was about 3.2 million dollars, the lowest during the last seven years reviewed.
– During 2013, about 52.8% (235 out of 445) of the restatements disclosed by publicly traded companies (on Amex, NASDAQ, or NYSE) had no impact on earnings, the highest during the last seven years reviewed.
– The average number of days restated (the restatement period) was 548 days during 2013, the sixth year in a row with a period above but near 500 days.
Tune in tomorrow for the webcast – “Underwriter’s Counsel: Latest Developments” – during which White & Case’s Colin Diamond, Cravath’s LizAnn Eisen and Davis Polk’s Joe Hall will explore the latest developments that impact underwriter’s counsel, including negotiating the underwriting agreement, obtaining a comfort letter and making filings with FINRA.
As reported in this WSJ article, nearly 1,300 companies filed Forms SD to report on conflict minerals by the June 2 deadline. The result? Inconclusive. While a number of companies acknowledged their suppliers may have sourced minerals from the DRC or adjoining countries, a “majority of companies whose filings were reviewed by The Wall Street Journal… said they haven’t figured out if their products, ranging from electronics to jewelry, are in the clear. Only a handful were confident their supplies were free of conflict metals….” Companies contended that the sources were difficult to trace, that they did not receive questionnaires from suppliers or received incomplete, inaccurate or unreliable responses or that “the complexity of their manufacturing processes made it impossible to give a definitive answer.”
A conflict minerals consultant observed that the “‘credibility and the certainty of the data, through the supply chain, doesn’t really exist completely. Because it is the first time anybody has ever done this, there is a question about the quality of the data.'” The article notes that the “SEC estimated conflict-mineral reports would cost companies up to $4 billion in the first year, and drop to between $200 million and $600 million in later years. Companies were projected to take about 480 hours, on average, to complete a report, compared with about 2,000 hours for a corporate annual report.” It will be interesting to see what the real numbers were.
Proposed Regulation A+: Comment Letter from 20 Members of Congress Opposing Pre-Emption
A few days ago, 20 members of Congress submitted this comment letter opposing pre-emption in the context of proposed Regulation A+. For some time, NASAA has been making the argument that the pre-emption aspects of proposed Regulation A+ are inconsistent with legislative intent. In addition, SEC Commissioner Stein is opposed to pre-emption – and Commissioner Aguilar has said that he has asked the SEC’s General Counsel to provide guidance on whether pre-emption was permitted. Here are all the comments so far on this proposal. Thanks to David Pankey of McGuireWoods for the heads up!
Meanwhile, here are the comments on the SEC’s crowdfunding proposal – including this one recently filed by the ABA’s Business Law Section…
Opposing Climate Change: Environmental Groups Warn Directors and Executives of Possible Personal Liability
Greenpeace International, WWF International and the Center for International Environmental Law sent letters to executives and directors of 32 major oil, gas and energy companies, warning them that they may ultimately face personal liability related to climate change issues.
According to the NGOs, the targeted companies are “working to defeat action on climate change and clean energy by funding climate denial and disseminating false or misleading information on climate risks.” Beyond this general yet inflammatory allegation, there are no specific examples or references cited other than a list of news stories and other publications about corporate influence and “lobbying” activities. The group claims that these companies face increasing risks of climate-related litigation arising from insufficient disclosures or as a result of major corporate losses, expenses or penalties. Derivative suits may follow with allegations of officers and directors’ mismanagement and ultimately create an evolving standard of fiduciary duty in the context of climate change. As a result, they warn that D&O insurers may not provide coverage for these kinds of lawsuits. The letter was also sent to 45 D&O insurers.
Responses to a list of questions, which will be made publicly available, are requested in four weeks. The questions include whether officers and directors believe that they would be indemnified under the company’s D&O policy if accused of having “misled” consumers and investors or engaged in “disinformation” or campaigns to “obstruct, suppress or discredit” scientific information.
We have posted the survey results regarding how companies are preparing now for the SEC’s upcoming pay disparity rulemaking (compare to the same poll from two years ago), repeated below:
1. At our company, the board:
– Does not consider internal pay equity when setting the CEO’s compensation – 64%
– Does consider internal pay equity as a factor by comparing the CEO’s pay to all employees – 8%
– Does consider internal pay equity as a factor by comparing the CEO’s pay to other senior executives – 36%
– Does consider internal pay equity as a factor by comparing the CEO’s pay to a formula different than the two noted above – 3%
2. Ahead of the SEC’s mandated pay disparity disclosure rulemaking under Dodd-Frank, our company:
– Has not yet considered how we would comply with the rules – 74%
– Has begun considering the impact by assessing whether we could comply with the precise prescriptions in Dodd-Frank but we have not yet tested statistical sampling – 29%
– Has begun considering the impact by assessing whether we could comply with the precise prescriptions in Dodd-Frank including assessing whether we could use statistical sampling – 12%
3. As one of the companies that have assessed the impact of the SEC’s mandated pay disparity disclosure rulemaking, our company:
– Believes we could comply with the precise prescriptions in Dodd-Frank without too great a burden – 78%
– Believes we could comply with the precise prescriptions in Dodd-Frank but it would be too burdensome unless statistical sampling is allowed – 3%
– Believes we could comply with the precise prescriptions in Dodd-Frank but it would be burdensome even if statistical sampling is allowed – 25%
– Believes we wouldn’t be able to ever comply with the precise prescriptions in Dodd-Frank – 0%
4. In your own opinion, do you think that statistical sampling would have too high a potential for manipulation or material error:
– Yes – 84%
– No – 5%
– I don’t have an opinion – 19%
Over on CompensationStandards.com, I have blogged about a California bill – California Senate Bill 1372 – that would tie the state’s tax code to a pay ratio formula as a way to tackle income inequality. Last week, the bill was narrowly voted down in the California Senate, 19-17. See this LA times article; AP article – and Towers Watson note.
SEC’s Reg Flex Agenda: Four Horsemen Rulemakings Comings & Goings
A few months ago, I blogged about some remarks from Corp Fin Director Keith Higgins that included a status update on the Four Horsemen rulemakings from Dodd-Frank. Last Friday, the SEC issued its semi-annual Reg Flex Agenda indicating that the pay ratio rules would be adopted by October – and that the three other rulemakings would be proposed by that same month. Does this really mean anything? No, not really – as Reg Flex Agendas tend to be “aspirational” as I’ve blogged about a few times recently.
That doesn’t mean that I don’t believe those actions will be accomplished by that date. In fact, SEC Chair White has continued to express a desire to get all the Dodd-Frank rulemakings behind her – so I would be surprised if we didn’t see final pay ratio rules sooner, as well as proposals on at least some of the other three before then too. But you never know, particularly as the five Commissioners seem to be more polarized than ever…
A potential wild card here is that the House Financial Services Committee recently passed 9 capital formation bills – some with strong bipartisan support and some that would require the SEC to adopt new rules within a short timeframe (eg. 180 days). A new spate of required rulemakings could hinder any plans to act on some or all of the Four Horsemen…
Just in time for the SEC’s 80th birthday (tomorrow is 80 years since the ’34 Act was signed into law), comes this news from Paul Weiss (we will be posting memos in our “SEC Enforcement” Practice Area):
Yesterday, the United States Court of Appeals for the Second Circuit issued a significant decision in SEC v. Citigroup Global Markets Inc., in which it concluded that the district court’s refusal to approve a consent judgment between the SEC and Citigroup was an abuse of discretion. On November 28, 2011, the district court rejected this consent judgment, in which Citigroup neither admitted nor denied the allegations, because of a lack of “cold, hard, solid facts, established by admissions or by trials.” The Second Circuit’s decision effectively rejects the proposition that district courts may substantively review regulatory consent judgments, and consequently endorses the ability of the SEC and other regulatory agencies to enter into “no admit, no deny” settlements.
This decision should undermine the increasing trend in the district courts to second-guess the remedies agreed to by regulators and defendants, and the concomitant media and political pressure to do so. The Second Circuit’s decision sharply delineates the respective roles of regulatory agencies and the courts, emphasizing that the SEC is charged with exercising discretionary judgment as to whether a settlement is in the public interest, and that courts are to defer to that assessment.
Also see this blog by David Smyth entitled “Judge Rakoff Reversed by Second Circuit on SEC-Citi case, Still Sort of Wins”…
SEC Enforcement: A Focus on Lawyers?
A recent speech by SEC Chair White – and one by Commissioner Kara Stein – has lawyers listening. That’s because they discussed the role of individuals in matters that lead to enforcement actions, including the novel idea of using Section 20(b) of the Exchange Act – with Commissioner Stein particularly focusing on lawyers. Here are a few articles on this:
Also see this Morgan Lewis blog about “Enforcement Case Shows SEC’s Increased Focus on Internal Controls”…
Another Rule 506 Bad Actor Waiver for Credit Suisse
As a follow-up to my blog noting a number of bad actor waivers, Corp Fin granted a second bad actor waiver to Credit Suisse a few weeks ago. This latest one is a bit different from the others since it is an “Order of the Commission” and it is specifically designed to give relief to certain current funds, third party issuers and portfolio companies affiliated with Credit Suisse (here’s the request). Rule 506(d)(2) provides that the disqualification “shall not apply . . . upon a showing of good cause and without prejudice to any other action by the Commission, if the Commission determines that it is not necessary under the circumstances that an exemption be denied.”
Admittedly I’m biased because I produced the conference – but trust me, “The Women’s 100 Conference” that took place on Monday was different than any other conference I have attended. There was a buzz before the first panel even started as many showed up early and immediately started networking. The panels were more interactive with the audience than you typically see. People were not afraid to speak up – and they were encouraged to do so. And the proof in the pudding is that it was hard to find anyone in the audience checking their phones. Wow!
So I pat myself on the back for one of my goals: reform the way that conferences are held. I can’t tell you how many panels I have sat through and didn’t take a single note. And I like to take copious notes. Here’s my “Do’s & Don’ts of Public Speaking.”
Note the purpose of this blog isn’t to market the “2nd Annual” for next year. My biggest problem is that I believe most of the 100 want to come back and I already have a waiting list – and this type of event works best with a limited number of participants…
Meredith Cross: Winner of the Linda Quinn Lifetime Achievement Award!
A different format – heavy on networking – was one reason for the event’s success. But the biggest reason was the speakers. Terrific women. I could listen to them all day.
And one of the key speakers was the winner of the Linda Quinn Lifetime Achievement Award: Meredith Cross. After former SEC Chair Elisse Walter gave a heartwarming introduction to Meredith, with a heavy dose about who Linda was – Meredith proceeded to bring us to tears with stories drawn from her career including her own fond memories about Linda. Meredith has been kind enough to share her remarks.
I’m particularly grateful for the kind words that Meredith shared about me. Certainly unexpected. And I also appreciate the many private notes I received from attendees afterwards. But I was most honored to receive this note from my wife who attended and is not in our field: “It was fantastic to witness the very women in a position to make an impact in your field do so utilizing creative strategies, brilliant analysis, unique insight and decades of experience. Not only that, they do it thoughtfully with kindness and humor. I moved quickly past intimidated to impressed and inspired. I was absolutely proud of you, but also vicariously proud of them. #genderpride.”
Sights & Sounds: “The Women’s 100 Conference ’14″
Here’s a 1-minute video that gives a little bit of the event’s flavor:
In the context of ESG shareholder proposals, this article notes that companies are becoming more sensitive to sustainable investment concerns. And Kevin LaCroix recently blogged about how environmental problems can lead to directors being named in lawsuits (and the D&O insurance implications).
Last month, the United Nations Global Compact opened a comment period for the 1000 publicly traded companies that have signed the “Global Compact” to comment upon this “Investor Listing Standards Proposal” (overall, there are 7k signatories to the Compact – but many are jurisdictions, schools, etc. and not public companies). Numerous investors from all around the world spent last year submitting their sustainability desires to the World Federation of Exchanges during a consultation period – and that feedback from investors is in this proposal (in other words, the areas where investors agreed upon the most made it into the proposal now being considered). That was a big challenge.
So now is the time for the corporate world to weigh in on what they’d like the stock exchanges to require when it comes to ESG reporting. The UNGC is going to compile company responses into one master document – and then submit a proposal to the 62 stock exchanges – through the WFE (there is now a sustainability working group of 17 exchanges – a sign of the sincerity that they intend to do something soon). This is expected to come out in the fall. Company feedback during this process is important (and a company doesn’t have to be a signatory to weigh in) – so act by the comment deadline of June 27th (learn more about how to do that in this feedback form).
California’s DOCQNET: A New Filing Framework
In an era when the SEC has EDGAR as a possible item for change (as part of the disclosure reform project), it is fitting that California has actually done that. As noted in Keith Bishop’s blog, California’s Department of Business Oversight is rolling out a new online system called “DOCQNET” (Document Quality Network) effective June 18th…
Transcript: “Appraisal Rights: A Changing World”
We have posted the transcript for the recent DealLawyers.com webcast: “Appraisal Rights: A Changing World.”
With the Form SD filing deadline upon us today, there has been a flurry of last-minute questions about conflict minerals in our “Q&A Forum” – and Dave has been busy answering them. Meanwhile, here is analysis from Lawrence Heim of Elm Consulting about the Top 15 Form SDs that he has seen through the middle of Friday morning.
Meanwhile, Stinson Leonard Street’s Steve Quinlivan blogs: “The SEC has filed documentation with the District of Columbia Court of Appeals seeking an en banc rehearing of the conflict minerals decision. The original decision found that one piece of the disclosure required by the rule—the requirement that issuers report to the Securities and Exchange Commission and state on their website “that any of their products have not been found to be ‘DRC conflict free’”—compelled speech in violation of the First Amendment. The SEC is seeking a rehearing because the same court granted en banc rehearing in American Meat Institute v. United States Department of Agriculture, to consider whether rational basis review can apply to compelled disclosures even if they serve interests other than preventing deception.”
Study: 36% Haven’t Started to Update Internal Controls for New COSO Guidance
As laid out in this FEI blog, quite a few companies are lagging in updating their internal controls for the latest COSO guidance, as documented in this Protiviti study…
Our June Eminders is Posted!
We have posted the June issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
With over 140 Form SDs now on file (and even two amendments), we continue to get a trickle of conflict minerals-related queries in our “Q&A Forum.” Here is one that Dave Lynn answered yesterday:
Question: “We have heard from our printer that we can’t file our Conflict Minerals Report as an exhibit to our Form SD as Exhibit 1.01 because Exhibit 1.01 is reserved XBRL filings. The printer suggests that we file the CMR as Exhibit 1.02. Have others experienced this problem?”
Dave: “Yes, this issue has just come up this week as companies try to file their first Form SD. It seems that most are following the printer’s advice and submitting the Conflict Minerals Report as Exhibit 1.02 to the Form SD.”
Personally, I wonder if anyone will ever read these things and care besides the compliance folks who draft them. My guess is only us, unless there is a scandal in years from now where the company or auditors falsify the report…
Cybersecurity: Securities Class Actions are Coming
Yesterday, the NY Times reported that ISS recommended against most of Target’s board “directly linking what it said was a lack of adequate oversight by the board to the extensive breach of customer data late last year.”
Meanwhile, this interesting blog by Doug Greene of Lane & Powell will scare you. It should. And the time to be thinking about cybersecurity liability due to deficient disclosures is now. Here’s an excerpt from the blog:
In this post, I’d like to focus on cybersecurity disclosure and the inevitable advent of securities class actions following cybersecurity breaches. In all but one instance (Heartland Payment Systems), cybersecurity breaches, even the largest, have not caused a stock drop big enough to trigger a securities class action. But there appears to be a growing consensus that stock drops are inevitable when the market better understands cybersecurity threats, the cost of breaches, and the impact of threats and breaches on companies’ business models. When the market is better able to analyze these matters, there will be stock drops. When there are stock drops, the plaintiffs’ bar will be there.
And when plaintiffs’ lawyers arrive, what will they find? They will find companies grappling with cybersecurity disclosure. Understandably, most of the discussion about cybersecurity disclosure focuses on the SEC’s October 13, 2011 “CF Disclosure Guidance: Topic No. 2” (“Guidance”) and the notorious failure of companies to disclose much about cybersecurity, which has resulted in a call for further SEC action by Senator Rockefeller and follow-up by the SEC, including an SEC Cybersecurity Roundtable on March 24, 2014. But, as the SEC noted in the Guidance, and Chair White reiterated in October 2013, the Guidance does not define companies’ disclosure obligations. Instead, disclosure is governed by the general duty not to mislead, along with more specific disclosure obligations that apply to specific types of required disclosures.
Indeed, plaintiffs’ lawyers will not even need to mention the Guidance to challenge statements allegedly made false or misleading by cybersecurity problems. Various types of statements – from statements about the company’s business operations (which could be imperiled by inadequate cybersecurity), to statements about the company’s financial metrics (which could be rendered false or misleading by lower revenues and higher costs associated with cybersecurity problems), to internal controls and related CEO and CFO certifications, to risk factors themselves (which could warn against risks that have already materialized) – could be subject to challenge in the wake of a cybersecurity breach.
Plaintiffs will allege that the challenged statements were misleading because they omitted facts about cybersecurity (whether or not subject to disclosure under the Guidance). In some cases, this allegation will require little more than coupling a statement with the omitted facts. In cybersecurity cases, plaintiffs will have greater ability to learn the omitted facts than in other cases, as a result of breach notification requirements, privacy litigation, and government scrutiny, to name a few avenues. The law, of course, requires more than simply coupling the statement and omitted facts; plaintiffs must explain in detail why the challenged statement was misleading, not just incomplete, and companies can defend the statement in the context of all of their disclosures. But in cybersecurity cases, plaintiffs will have more to work with than in many other types of cases.
Pleading scienter likely will be easier for plaintiffs as well. With increased emphasis on cybersecurity oversight at the senior officer (and board) level, a CEO or CFO will have difficulty (factually and in terms of good governance) suggesting that she or he didn’t know, at some level, about the omitted facts that made the challenged statements misleading. That doesn’t mean that companies won’t be able to contest scienter. Knowledge of omitted facts isn’t the test for scienter; the test is intent to mislead purchasers of securities. However, this important distinction is often overlooked in practice. Companies will also be able to argue that they didn’t disclose certain cybersecurity matters because, as the Guidance contemplates, some cybersecurity disclosures can compromise cybersecurity. This is a proper argument for a motion to dismiss, as an innocent inference under Tellabs, but it may feel too “factual” for some judges to credit at the motion to dismiss stage.
Understanding the NIST Cybersecurity Framework
In this podcast, Revelle Gwyn of Bradley Arant Boult Cummings addresses cybersecurity in the context of the recently issued NIST Framework – and the implications of the Framework for all companies, including:
– Can you explain the NIST Framework and how it is intended to be used?
– Why is it important for companies outside critical infrastructure industries to be aware of the Framework, and how its use and content evolves?
– Has there been discussion of cost containment or incentives to defray companies’ costs of implementing and adhering to the Framework?
Recently, I blogged about how the Delaware Supreme Court decided that fee-shifting bylaws were permissible in ATP Tour v. Deutscher Tennis Bund (see these memos posted in the “Securities Litigation” Practice Area). Now Francis Pileggi of Eckert Seamans blogs this news:
A proposed new addition and amendments to the Delaware General Corporation Law would limit the impact of a recent Delaware Supreme Court decision in ATP Tours, Inc. v. Deutscher Tennis Bund,(No. 534, 2013, May 8, 2014), highlighted on these pages, regarding the ability of a corporation to provide in its bylaws for a stockholder to pay the legal fees of a suit against the corporation when the stockholder loses that suit. The intent of the new statute would be to restrict the ability of a corporation to include such a provision in its bylaws.
The public policy reasoning behind the proposed statute is that such a provision would chill the willingness of a stockholder to file claims in order to enforce the fiduciary duties of directors, especially a stockholder who might have only a modest holding of stock. Though I’m sure there are those who might see such a provision as a cure for what some regard as an excess number of stockholder suits, “throwing the baby out with the bathwater” would discourage inappropriately the function of meritorious stockholder suits as the only means to hold fiduciaries accountable for not fulfilling their fiduciary duties.
The proposed legislation is expected to be presented to the Delaware General Assembly for passage prior to the end of the current legislative session on June 30, with a proposed effective date of August 1, 2014.
Exclusive Forum Bylaws: Chart of Companies That Have Adopted Them
You must see this Sullivan & Cromwell memo that not only analyzes four non-Delaware cases in the wake of Boilermakers that have enforced exclusive forum bylaws in favor of the Delaware courts, but provides sample language (pg. 10) and provides a nifty chart of some of the companies that have adopted them (pgs. 13-28)…
Meanwhile, Keith Bishop of Allen Matkins
blogs
about how a Delaware court rules that Nevada law governs – but applies Delaware law.
SEC Approves Significant Amendments to FINRA Rules 5110 & 5121
As noted in this Latham & Watkins memo, the SEC recently approved FINRA’s amendments to Rules 5110 (the Corporate Financing Rule) and 5121 (the Conflict of Interest Rule) that should facilitate participating in public offerings by:
– Excluding from the Corporate Financing Rule’s definition of “participation or participating in a public offering” a FINRA member that acts exclusively as an “independent financial adviser”
– Excluding from the current lock-up restrictions of the Corporate Financing Rule certain securities acquired by a participating member (as defined in Rule 5110) as a result of an issuer reorganization or conversion to prevent dilution
– Limiting the Corporate Financing Rule’s affiliation disclosure requirements to apply only to relationships with “participating” members (rather than any FINRA members)
– Narrowing the scope of the definition of “control” in the Conflict of Interest Rule
– Expanding the circumstances under which participating members may receive termination fees and rights of first refusal
– Exempting from the Corporate Financing Rule’s filing requirements certain ETFs
May-June Issue: Deal Lawyers Print Newsletter
This May-June Issue of the Deal Lawyers print newsletter includes:
– Prospective Bidders: Will the Pershing Square/Valeant Accumulation of Allergan Lead to Regulatory Reform?
– Proposed Amendments to the Delaware General Corporation Law: Section 251(h) Mergers & More
– The Evolving Face of Deal Litigation
– Rural Metro: Potential Practice Implications Going Forward
– New Urgency for Corporate Inversion Transactions
On June 5th, the 80th anniversary of the creation of the SEC will be celebrated with an ice cream social following the 15th Annual program hosted by the SEC Historical Society. The program is about “Corporate Governance in the New Century” and will be held from noon to 1:30 pm (and will also be webcast for those that can’t attend live). To attend live in person at the SEC’s DC HQ, RSVPs are due by this Friday, May 30th to n.green@sechistorical.org.
Given the grander – but also expensive – celebrations of SEC milestones in the past (loved the 60th anniversary celebration at the National Building Museum; skipped the 75th at the same location due to a high price tag of $250), I’m both grateful and curious that the SEC’s 80th will be celebrated with an ice cream social. Sign of the times, perhaps both in terms of budget and the SEC’s stature? For the 100th, maybe it’s gonna be a slow clap…
Will the SEC Breathe Life Into The Defunct Resource Extraction Rules?
Here’s news from this blog by Davis Polk’s Ning Chiu:
While the battle over the SEC’s conflict minerals reporting rules have been the subject of much attention, less focus has fallen on the SEC’s defunct resource extraction rules. Since those rules were struck down in July 2013 as we previously discussed, the SEC has made no attempt, at least known publicly, to promulgate revised rulemaking in compliance with the Dodd-Frank statutory mandate.
While that may appear to be an ideal situation in some sense for companies, recently, Exxon Mobil and Royal Dutch Shell sent a letter to Chair White urging the SEC to provide some indication of the “probable direction” of SEC rulemaking.
As the letter explains, the companies are facing similar requirements under EU Accounting & Transparency Directives, which must be implemented by legislation adopted individually in each EU Member State by June 2015. The Directives would compel companies in the extraction industry to disclose payments totaling more than €100,000 that they have made to governments on a per-country and per-project basis, which resembles the requirements under Section 1504 of the Dodd-Frank Act that companies engaged in the commercial development of oil, natural gas or other minerals disclose the type and total amount of payments made, if over $100,000, to a foreign government or the U.S. federal government for each project and each government in order to further the commercial development of oil, natural gas or minerals.
The U.K. has publicly committed to be the first to implement the Directives, and has already issued draft legislation for public comment with the goal of adopting by October 2014. The two companies believe that if the SEC were willing to consider proposing new rules before this timeframe, the U.K. government could take the SEC approach into account in its own initiatives or defer implementation until 2015. Since the U.K. will be the first EU Member State to implement the Directives, it would set a precedent for other member states. The companies note that this would be important for purposes of “equivalency” between the EU and U.S. reporting requirements, which they deem critical in order to avoid an outcome under which multinational companies are required to file multiple reports in different jurisdictions providing essentially the same information but in different forms. They suggest that “an ideal solution” may be that compliance with reporting rules in one country would suffice for other countries. The letter urges the SEC to work toward publishing proposed rules in 2014.
Disclosure Reform: Separate Financials for Acquired Companies, Investees & Guarantors
Here’s some good info in this blog by Morgan Lewis’ Linda Griggs & Sean Donahue about the SEC’s review of the rules requiring separate financial statements or separate financial information under certain circumstances for acquired companies, investees, and guarantors as part of its disclosure reform project. In addition, as noted in FEI blog and Morgan Lewis blog, Chair White recently gave a speech indicating that the audit committee report was being evaluated for change…
For simplicity’s sake, I will continue to call Corp Fin’s project “disclosure reform” – rather than the new moniker assigned to it: “disclosure effectiveness.” It’s just much easier to say…
