A recently released CFA Institute study reveals significant investor concerns about current standard-setter initiatives (see FASB’s Private Company Council and Simplication Initiative) to create differential or reduced financial reporting requirements for nonpublic companies; extend certain alternative private company reporting requirements to public companies; and simplify certain public company reporting requirements. The proposed changes are purportedly driven by a desire to reduce companies’ compliance costs which, although certainly a laudable objective, presumably shouldn’t be pursued single-mindedly at the expense of impeding investors’ understanding and utility of companies’ financial performance and prospects.
The CFA Institute’s 2014 member survey found that:
– 82% of respondents believe differential standards will decrease comparability – so, create comparability challenges for those investing across public and private companies
– 73% believe differential standards will increase complexity rather than reduce it (by, e.g., prompting investors to seek alternate ways to obtain information including accessing management on a one-on-one basis; substantially raising the burdens and costs associated with going public or acquiring a private company)
– 65% believe differential standards will result in the loss of information useful to their financial analyses (e.g., reduced disaggregation of information; substituting presentation of items on the face of the financial statements by disclosure)
The report also notes that FASB is currently considering whether to extend certain private company accounting alternatives to public companies – a move favored by only 6% of CFA Institute members.
See CFA Institute’s Mohini Singh’s blog summarizing the study. For additional information, you may contact Mohini at Mohini.Singh@cfainstitute.org.
Identifying Opportunities for Nonprofit and For-Profit Boards to Learn From Each Other
In this Columbia Law School blog, Stanford Graduate School of Business Nicholas Donatiello, David Larcker and Brian Tayan discuss their recently published paper, “What Can For-Profit and Nonprofit Boards Learn from Each Other About Improving Governance?“. The thought-worthy paper focuses on lessons that for-profit and nonprofit directors can learn from each other to improve their respective governance (based in part on this recent nonprofit governance survey) including:
Lessons for Nonprofits:
– Formal governance processes
– Focus on fiduciary obligations
– Expertise and stability
Lessons for Corporate Boards:
– Balanced power with CEO
– CEO compensation
– Gender balance
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Vanguard Discloses Engagement/Voting Specifics
– FCPA Compliance: Third Party Diligence Framework
– Study: Investor Holding Periods Have Not Shrunk
– Germany Moves on Board Gender Diversity
– Should Directors Take a “Gap” Year?
[Hi. It’s Randi blogging again this week so, to be clear, the views I express are my own and don’t necessarily reflect those of Broc or anyone else…]
In the brief time since the SEC published the proposed Pay vs. Performance rule, there’s been a fair amount of criticism aimed at the proposal’s use of TSR as the sole “approved” metric by which investors will gauge the correlation between executive pay and corporate performance. In a perfect example of what one of my very seasoned and wise former board members during my GC days would likely characterize as the tail wagging the dog, investors’ desire for comparability across companies is trumping the proposal’s use of performance metrics that actually make sense given each company’s unique facts and circumstances and that drive behavior consistent with a long-term view.
In case you’ve just joined the fray, here’s just a sampling of recent, relevant critiques:
– LA Times columnist Michael Hiltzik shared his passionate critique of the rule proposal, noting (among other things) TSR’s imperfect correlation with corporate performance and its short-termism focus, i.e., tendency to drive executive behaviors that will boost TSR, but harm the company over the long-term. Hiltzik also criticizes the rule’s focus on “shareholder value” to the exclusion of everything else – a focus that ultimately distorts corporate behavior to the detriment of the broader economy.
– Based on its recently reported analysis of the link between various LTI measures and corporate performance, FEI concluded that TSR was the worst performance measure to drive positive corporate performance:
TSR, particularly on a relative basis, is a poor LTI measure. For the majority of companies granting performance-based grants, relative TSR is a commonly used performance measure. However, using TSR as a measure has a negative influence on company performance, except in the case where it has been used as a performance measure for each of the past five years. Moreover, TSR, particularly when measured against a group of companies (including a stock index), does not motivate executives, and is similar to a stock option in its nature (another form of lottery ticket), as it does not provide the line of sight necessary for oversight.
– The IRRC Institute submitted this comment letter to the SEC accompanied by recently published research on pay and performance alignment, which found a disconnect between TSR and performance:
“[T]he focus on share price appreciation through total shareholder return (TSR) obscures more than it reveals with share price as a capital markets performance metric. Factors which impact TSR such as fund flows, central bank policies, macroeconomics, geo-political risks and regulatory changes are all beyond the control of executive management.
– In this Fortune commentary, Eleanor Bloxham describes the proposal’s use of TSR as encouraging pay incentives that “fuel crisis”:
The American Bar Association and the Center on Executive Compensation, among others, have opposed the SEC’s prescriptive approach to this rule. In choosing total shareholder return (a measure of a company’s stock market price and dividends), the SEC admits that pay disclosure may have nothing to do with the actual way in which a corporate board makes compensation decisions. The problem is that this kind of measure may now have an influence on such decisions. Boards should not reward executives based on stock performance or dividends paid. They should reward executives based on the operational measures the executives in that company should be focusing on and can control. As a basis for incentives, a company’s stock price promotes undesirable CEO behavior, the kind that can lead to volatile swings in the economy. Those incentives helped fuel both the financial crisis and the stock market rout following the misdeeds of Enron and WorldCom’s top executives. Similarly, increasing dividends is not always wise, because they can strip a firm of the assets needed to make valuable long-term investments and the liquidity required to weather rocky times. The SEC should have required that companies report on the financial performance measures they currently use to determine compensation. Then, investors could sort out which companies actually understand performance measurement and which ones are clueless.
– In this recent article, Semler Brossy identifies TSR as a “flawed” incentive measure, noting:
Relative TSR rewards volatility more than steady performance. As they say, every dog has its day, and this is certainly true with relative TSR. We measured TSR for hundreds of companies over the recent 20 years and found that even long-term, bottom-quartile TSR performers can reach top-quartile heights in a given three-year measurement period — generally by ‘bouncing’ from a low share price. Further, relative TSR does little by way of focusing executives’ attention or driving behavior. Executives respond positively to incentive measures that reflect their day-to-day responsibilities. Rewards based on relative TSR are an affirmation of company success but do little to set the path to performance at the outset of a measurement period.
– Last but not least (for now), Steve Quinlivan shared these observations about the disconnect between TSR and executive pay:
What aberrations may exist? First, there may be no link at all between executive pay and TSR. This isn’t necessarily a governance faux pas. Executive pay may well have increased because of improved financial metrics the compensation committee chose wisely to reward while the stock price declined because of general market conditions beyond the executives’ control. Sure, the SEC invites the company to explain the reasons and to submit alternative measures of performance, but that will be hard to do without making it look like an apology. Perhaps this will engender a trend to tie incentives to TSR to make the discussion easy and that may not universally by the best thing for companies to do.
SEC Enforcement: Ongoing Choice of Forum Debate
This recent WSJ op-ed addresses the fact that the SEC’s Enforcement Staff’s recently issued guidance to forum selection in contested actions generally was not well-received by those who had criticized the apparent lack of objective criteria driving determinations about whether an action would be brought in federal district court or in an administrative proceeding before an ALJ. The authors, former director of the SEC’s Division of Enforcement and former SEC chief litigation counsel, suggest the SEC take these steps to “reclaim the high ground”:
– Develop meaningful, objective criteria for exercising its discretion to bring matters in-house that is the product of input from interested parties, including the defense bar
– Modernize the rules of procedure governing its in-house proceedings
– Avoid finding, on appeal, additional violations and imposing additional penalties beyond those assessed by the ALJs, who are independent government employees
See this recent blog discussing an ALJ’s denial of an accused’s request for more information about the Commission’s forum selection process, and memos about Enforcement’s recent guidance, which are posted in our “SEC Enforcement” Practice Area.
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Investors & Directors: Understanding & Bridging the Gaps
– Bolstering Compliance Programs: Compliance & Ethics Liaisons
– Old COSO Internal Controls Framework: “Qualified Pass” for 2014
– FCPA: SEC’s Director of Enforcement Talks Compliance Programs
– Overlapping Audit & Compensation Committee Memberships: Pros & Cons
The SEC is now moving fast on the last of its Dodd-Frank rulemakings! Yesterday, as noted in this press release, it released additional analysis from its “DERA” (former nickname of “RiskFin”) Division related to its pay ratio proposal. Comments on this new analysis are due by July 6th (coincidentally, the same deadline as the P4P proposal). As I blogged yesterday, the SEC has become more cautious during its rulemaking process since a 2011 court decision struck down part of the SEC’s proxy access rule after finding the economic analysis was incomplete – so the practice of releasing additional economic analysis for public comment is becoming fairly common.
In addition to reading this review of the SEC’s new analysis (& this MarketWatch piece), check out my example that helps illustrate the SEC’s new findings:
– If the standard deviation of compensation (meaning the variability among positions) is 55%, and the exclusion of non-US, part time and seasonal jobs results in the elimination of 20% of the workforce from the calculation, the ratio would decrease by 15%
– Thus, a ratio of 300:1 would become 255:1
– If the standard deviation is only 25% – and the exclusion removes 20% of the workforce from the calculation – the impact is only 6.5%, thus the 300:1 ratio might drop to 281:1
Today is the last day left at the reduced rate. The SEC’s new pay-for-performance & hedging proposals – not to mention the coming clawback proposal and final pay ratio rules – are causing a stir – and you should prepare now. These rules will be among many topics that Corp Fin Director Keith Higgins & other experts will be talking to at our popular Conferences — “Tackling Your 2016 Compensation Disclosures” — to be held October 27-28th in San Diego and via Live Nationwide Video Webcast on TheCorporateCounsel.net. Act by the end of today, Friday, June 5th for the phased-in rate to get more than 20% off.
The full agendas for the Conferences are posted — and include the following panels:
– Keith Higgins Speaks: The Latest from the SEC
– The SEC’s Pay-for-Performance Proposal: What to Do Now
– Creating Effective Clawbacks (& Disclosures)
– Pledging & Hedging Disclosures
– Pay Ratio: What Now
– Proxy Access: Tackling the Challenges
– Disclosure Effectiveness: What Investors Really Want to See
– Peer Group Disclosures: The In-House Perspective
– The Executive Summary
– The Art of Communication
– Dave & Marty: Smashmouth
– Dealing with the Complexities of Perks
– The Big Kahuna: Your Burning Questions Answered
– The SEC All-Stars: The Bleeding Edge
– The Investors Speak
– Navigating ISS & Glass Lewis
– Hot Topics: 50 Practical Nuggets in 75 Minutes
You might recall that Dodd-Frank requires that the SEC to review the “accredited investor” definition for natural persons beginning in 2014 and every four years thereafter. As part of its review process, the SEC has received a significant number of recommendations from comment letters and from two SEC advisory committees. While the vast majority of commenters recommended not changing the current definition, others recommended raising the financial thresholds cited in the definition or adjusting them for inflation. Still others offer alternate recommendations, including adding a new category for financial sophistication or allowing a percentage of income or net worth to be used in qualifying private placements. This memo does a great job of summarizing all this activity…
Also check out this Cooley summary of the latest meeting of SEC’s Advisory Committee on Small & Emerging Companies, focusing on the SEC’s disclosure effectiveness project. And see this “Crazy Quilt Chart of Regulation” graphic from SEC Commissioner Gallagher..
This is a challenging – and complex – question. A fair answer truly can’t be given unless you happen to work right now at the SEC at the highest levels. But I still can give my 10 cents without the benefit of true inside baseball. I’ll go out on a limb with an answer of “not really ‘destroying,’ but things aren’t good – and not necessarily for the reasons expressed by many today.” Here’s what I mean by that:
1. The Commissioners Certainly Are More Rebellious – SEC Commissioner unity is a thing of the past. Over the past decade or so, each succeeding slate of Commissioners have publicly fought more and more. As I’ve blogged before, back when I worked for a Commissioner in the late ’90s, Chair Arthur Levitt rarely would take a matter to a vote unless he knew he had a 5-0 vote in his pocket. And he certainly wouldn’t have tolerated public displays of contention. There occasionally were heated debates behind the scenes – but I don’t recall any of that spilling out into the open. Chair White – just like Chair Schapiro before her – doesn’t have that luxury. Oral & written dissents are a regular occurrence; not a rarity.
2. Rebellion Isn’t Necessarily a Bad Thing – My observations about Commissioner dissent above don’t mean that I think that’s a bad thing. I’m just noting a trend. Since it only takes three Commissioner votes to approve something, the fact that there are two dissenting votes – or even that a Commissioner is vocal in expressing displeasure – shouldn’t impact the agency’s daily operations. Of course, divisive dissent does have an impact on Staff morale – and certainly on how the public views the agency. But in terms of rulemaking & pursuing Enforcement cases, etc., that alone should be a small speedbump given the limited power that Commissioners have by themselves (learn more about that from the transcript of our webcast: “How the SEC Really Works”). You certainly don’t want Commissioners acting as rubber stamps.
3. Congress Is The Primary Partisan Problem – Partisan politics has seeped from Capitol Hill down into all the federal agencies – and the SEC is no exception. It used to be that a Congressional Committee Chair might only occasionally ask something of an agency head. Now it’s all the members of a Congressional Committee seeking an audience, with a greater frequency. During Chair Schapiro’s term, I blogged several times about the abuse – asking SEC officials to constantly testify in hearings. It’s hard to get real work done when you are constantly preparing to testify – or to respond to lengthy written requests from Congress. These shenanigans continue. Very little of this is driven by a desire to protect investors or benefit our markets. Most of it is purely for “show” – or an attempt to disrupt how the agency functions.
4. Rulemaking Will Always Be Hard Going Forward – Today’s WSJ article entitled “SEC Bickering Stalls Mary Jo White’s Agenda” provides us with some nice statistics for this point. It notes how Chair White has brought a record 755 enforcement actions in the latest fiscal year – but only finalized 7 rules in ’14 (compared to an average of 17 per year over the past decade). In my opinion, the largest factor for this rulemaking dearth is how hard it is to get a rule over the line since the DC Circuit’s 2011 proxy access decision in the Business Roundtable/Chamber lawsuit. Trust me, rulemaking was hard before that – now the requisite enhanced economic analysis & other new mandated processes increases the difficulty by an untold magnitude.
And things are bound to get worse before they get better. Congress continues to explore ways to meddle in affairs for which they have limited expertise. The latest is the “Regulation Sensibility Through Oversight Restoration Resolution of 2015,” which establishes a joint select committee charged with reviewing how agencies adopt rules – including holding hearings on how to reduce regulatory overreach. The SEC could only get 7 rules adopted last year – is that overreach? The circus plays on…
“Bad Actor” Waivers: Now for Forward-Looking Statements
A few days ago, SEC Commissioner Piwowar gave a speech supporting waivers relating to a company’s’ ability to rely on the PLSRA statutory safe harbor for forward-looking statements. Here’s a related blog by Steve Quinlivan:
The Securities Act (Section 27A(b)) and the Exchange Act (Section 21E(b)) exclude reliance on the safe harbor for forward-looking statements if, among other things, the statement is made with respect to an issuer that has, within the past three years, been convicted of any felony or misdemeanor described in paragraphs (i) through (iv) of Section 15(b)(4)(B) of the Securities Exchange Act of 1934. The Securities Act and the Exchange Act each provide the disqualifications may be waived “to the extent otherwise specifically provided by rule, regulation, or order of the Commission.” The SEC granted this waiver to Barclays PLC to continue be able to continue to rely on the safe harbor for forward looking statements as a result of a guilty plea for a violation of the Sherman Antitrust Act.
Meanwhile, another day, another waiver dissent from a SEC Commissioner…
IPO Analyst Research: FINRA Issues 7 FAQs on Conflicts
Many market participants were left in a quandary following FINRA enforcement actions in connection with member firm research analyst “participation” in meetings with prospective issuers. Recently, FINRA published a handful of Frequently Asked Questions relating to its research rules.
The FAQs outline three stages of an IPO a pre-IPO period, a solicitation period, and a post-mandate period. Each such stage is described in the FAQs and FINRA also describes the attendant risks associated with a research analyst’s activities during these various stages. Of course, during the pre-IPO stage, the attendant risks are attenuated and FINRA believe that these attenuated risks can be addressed adequately through properly designed policies and procedures. However, FINRA cautions that member firms ought to be sensitive to any communications that would suggest the issuer already had determined to proceed with an IPO. The guidance also provides FINRA’s view regarding when the “solicitation period” would be deemed to begin, although this would seem, in real life, to be a highly fact-specific matter. In the post-mandate period, again, the risks are attenuated, in FINRA’s view, and may be effectively addressed by member firms through their policies and procedures. The guidance is particularly strident with respect to valuation analyses. For example, the FAQs note that a member firm that is competing for an IPO role must repudiate any communication that would seemingly indicate that a valuation reflects the analyst’s views and expressly note that the firm cannot make any representations about the analyst’s views on valuation.
The big news comes from this WSJ article, which says that the SEC will “soon” propose the clawback rules required by Section 954 of Dodd-Frank. If it happens as rumored, this surely is Exhibit A that the SEC’s Reg Flex Agenda is meaningless (as I hammer home down below) – because the SEC’s new Reg Flex Agenda had an April ’16 date for this activity. Here’s my quote in the WSJ piece:
Broc Romanek, a former SEC attorney who edits the websites CompensationStandards.com and TheCorporateCounsel.net, said the SEC should make sure it implements the new clawback requirements in a way that makes practical sense for companies and allows them discretion in determining whether it is economically efficient for them claw back pay, given legal, administrative or other expenses that may be involved. “It would not be ideal if a company is forced to spend more resources clawing back than [what] they would get in return,” he said.
The critical issue is whether the proposed clawback rules will be principles-based or prescriptive (remember how the recent P4P rule proposal was proscriptive, which was surprising to some). “Principles-based” means “just disclose what you have that you treat as a clawback.” And there are lots of tough questions about how a financial misstatement impacts compensation that may be indirectly – but not directly – based on financial performance, such as stock options (ie. how much is the stock price influenced by a restatement, as compared to performance criteria that is tied to EPS which is much more directly influenced). Remember this blog from last year: “Clawbacks & The New Revenue Recognition Rules: On a Collision Course?”
Whether the proposal is prescriptive or principles-based will in turn impact how much the rules drive a certain type of conduct – the more prescriptive, the more the SEC is making a judgment call and companies will have to come in line with what the SEC determines to be encompassed. And remember as to timing, the SEC’s rulemaking will just be the first step – because SEC will be proposing rules that the stock exchanges then have to adopt standards to implement…
Yesterday, Senator Elizabeth Warren wrote this 13-page letter to SEC Chair White expressing her unhappiness with the pace of the SEC’s rulemaking. Warren isn’t happy – and even used the Reg Flex Agenda as one reason why she feels that White hasn’t been truthful with her (see my blog below about how that is meaningless). Pretty wild stuff.
Though the SEC has recently reported it now expects to complete the rule by next spring, Ms. Warren said that deadline—revealed in a list of agency projects published by an arm of the White House—appears to contradict what Ms. White said in a face-to-face meeting last month with Ms. Warren. In that meeting, the SEC chairman predicted the SEC would complete the rule “by fall,” Ms. Warren wrote. “I am perplexed as to why you told me personally that the rule would be completed by the fall of 2015 when it appears that you were or should have been aware of additional delays,” Ms. Warren wrote.
The SEC’s New Reg Flex Agenda is Out (But It’s Meaningless!)
I continue to see so many people citing the SEC’s Regulatory Flexible Agenda as an indication for when the agency will propose and adopt rules. Don’t believe that – it’s not true! As I’ve blogged about before, all kinds of whacky and aspirational stuff makes it into the Reg Flex Agenda, which then winds up as part of the OMB Unified Agenda (in this blog, Keith Bishop explains what the OMB Unified Agenda is). And then the timelines for proposing & adopting rules are rarely accurate.
The internal process at the SEC (and other agencies) is complicated – maybe one day I’ll explain it in detail (eg. pet projects get thrown in that have zero chance of moving; timelines thrown in simply to fill out the form). But trust me, it has NEVER been a reliable source for when things might move at the SEC. But go ahead and keep citing it if it makes you happy – even though it will likely prove you wrong in the end (as it does over and over). I find it funny how the Reg Flex Agenda is now a newsworthy item after being completely ignored for decades.
Wrapping up a project that I feverishly commenced two years ago, we are happy to say the inaugural 2015 Edition of Romanek’s “The In-House Essentials Treatise” is done being printed. Here’s the 79 pages of our “Detailed Table of Contents” listing the topics so you can get a sense of the Treatise’s practical nature. You will want to order now so you can receive it as soon as possible.
With over 1400 pages, this tome is the definition of being practical. You can return it any time within the first year and get a full refund if you don’t find it of value.
Compliance Program Improvement: DOJ Gives Cooperation Credit for 1st Time
A few weeks ago, the DOJ made good on a promise made last fall to give credit to companies that improve their compliance programs when a Barclays plea deal included a provision along those lines. Here’s an excerpt from this memo:
For the first time, the antitrust division of the U.S. Department of Justice (DOJ) has awarded a company sentencing credit for implementing an effective compliance program after the start of an investigation. Getting credit for compliance efforts should not be as hard as space travel, but up until last week, a company’s chances for getting any credit (short of being the winner-takes-all leniency applicant) were no better than landing on the moon. Barclays PLC, along with four other investment banks, entered into a plea agreement with the DOJ on May 20, 2015, for its participation in the alleged FOREX cartel conspiracy to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market.
The sentencing credit is apparent from a single line in the plea agreement: “The parties further agree that Recommended Sentence is sufficient, but not greater than necessary to comply with the purposes set forth in 18 U.S.C. §§ 3553(a), 3572(a), in considering, among other factors, the substantial improvements to the defendant’s compliance and remediation program to prevent recurrence of the charged offense.”1 The four other major banks that entered into plea deals did not have this same provision, and it appears that they did not receive credit for their compliance programs.
Shareholder Engagement: ESG Style
In this 68-page guide, BlackRock & Ceres have teamed up to provide guidance for institutional investors on how to engage on sustainability issues. The guide includes tactics & case studies as 30 institutional investors describe their priorities and strategies they use to engage with companies across different asset classes, both internationally and domestically, on ESG matters. Here’s more from this Davis Polk blog…
Meanwhile, as reported in the Society of Corporate Secretaries’ Alert, based on data from Proxy Insight (see pages 8-9), CalSTRS is one of the least likely of the public pension funds to support the election or re-election of directors – supporting management nominees just 36.7% of the time. CalSTRS is also almost twice as aggressive as the next pension fund on the list identified as least likely to vote for management’s slate – the Illinois State Board of Investment – coming in at 67.4% support.
Sights & Sounds: “The Women’s 100 Conference” in DC
I’ll be blogging more about yesterday’s magical event in the near future. But I can’t resist posting this pic of the two men shepperding the event – my newly graduated high school son & me:
Parsing through the dozens of memos about the SEC’s recent KBR action, law firms seem to vary about what you should be doing now with your agreements. The positions fall into one of these three camps: (a) KBR settlement language is sufficient; (b) KBR settlement language is overly broad; or (c) not sure at all what is sufficient. The SEC’s Enforcement Division seems to still be looking at – and asking – for agreements to review – but I believe that will settle down soon enough. I’ve just calendared a September webcast that includes the SEC’s Chief of the Whistleblower Office Sean McKessy to help us sort through these choices (and more).
Meanwhile, here’s an excerpt from this WSJ article entitled “Whistleblowers Find SEC Rewards Slow and Scarce”:
The SEC program pays out based on sanctions that have been collected, rather than the amounts imposed by a judge that are up to the agency to recover. That can leave whistleblowers with nothing to show for their efforts if the money has vanished in the fraud or if the perpetrator has fled beyond U.S. jurisdiction. So far, more than 10,000 tips have been submitted to the SEC whistleblower program, about 300 people have applied for awards and 17 payouts have been made, according to SEC data. An SEC spokeswoman declined to say how much money has been collected for any of the 658 enforcement actions the agency’s website lists as being potentially eligible for awards. She also declined to say how many, if any, of the pending award claims relate to cases in which no bounty is available, even if the claim is approved.
Montana Joins Massachusetts in Regulation A+ Challenge
As I added late to last week’s blog, Montana has joined Massachusetts in suing the SEC over Regulation A+. Here’s the Montana scheduling order – the Montana & Massachusetts cases have been consolidated by the US Court of Appeals for DC…
Even though contingent fee audits in the escheatment area have been around for some years now, companies continue to be shocked when they find themselves subject to one. Tune in tomorrow for the webcast – “Escheatment Soup to Nuts: Handling Unclaimed Property Audits & More” – to hear Reed Smith’s Diane Green-Kelly, Keane’s Valerie Jundt and Exelon’s Scott Peters cover everything you need to know about escheatment, from the basics to handling the growing number of unclaimed property audits.
Cleary Gottlieb just created this chart with the status of the SEC’s Dodd-Frank rulemakings fyi
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!
As the PCAOB continues to toy with the long-floated idea of “expanded” audit reports – which means that auditors would be required to include some narrative in their boilerplate – I thought it would be helpful to provide an example of what that might look like. Since 2012, companies in the UK have been required to provide this type of expanded audit report. And last year’s audit report (see page 130) for Rolls Royce has been held up as one of the best since the company & its auditor – KPMG – go further than what the UK’s Financial Reporting Council’s rules require. Here’s an excerpt from this CFA Institute Blog:
In short, the auditor reports the greatest risk of material misstatement and how it responded to those risks. KPMG could have stopped there to be in compliance with the new standard, but that wasn’t good enough for Rolls Royce. With the investor user in mind, KPMG in cooperation with management took it a step further and included the findings. Aside from the communicative value of this information to investors, extending the auditor’s report to include the findings demonstrates a willingness on the part of the auditor and management to work together toward meaningful communication to investors — a major departure from past practice.
In addition, check out this explanation from KPMG about what they did – and this article about the UK requirements…
PCAOB Seeks Comment on Specialists Use
Yesterday, the PCAOB issued this Staff Consultation Paper – “The Auditor’s Use of Specialists” – that seeks input on potential changes to standards for the auditor’s use of the work of specialists, specifically the objectivity and oversight of specialists and the use of their work in audits.
BE-10 Reports: Deadline Flexibility & How to File
Here’s a question posted yesterday on our “Q&A Forum” (#8437): “Tomorrow, May 29, 2015 is the due date. Does anyone know if the BE-10 reports must be in the hands of the BEA by tomorrow or is it sufficient if it is postmarked with tomorrow’s date? Also, any reason we can’t Fed Ex the survey? The instructions however state to send the reports filed by mail “through the U.S. Postal Service.”
Here’s an answer that I received from Gibson Dunn’s David Wolber: “I haven’t heard officially from BEA on the due date aspect – and haven’t seen much explicit guidance – but I note the BE-10 Instructions say: ‘A fully completed and certified BE-10 report comprising Form BE-10A, and Form(s) BE-10B, BE-10C, or BE-10D is due to BEA no later than May 29, 2015 for U.S. Reporters required to file fewer than 50 forms, and June 30, 2015 for U.S. Reporters required to file 50 or more forms.’ This would tend to imply the report must be in there hands by sometime on Friday.
However, note that the BEA recently extended the deadline for all ‘new filers’ to June 30th. A new filer is ‘a U.S. company or person that is required to file on the BE-10 survey but has never filed any BEA survey of U.S. direct investment abroad, including the BE-10, BE-11 and BE-577 surveys.’ This is probably good news for quite a number of folks. Also, it appears that 30- and 60-day extensions are being readily granted.
Regarding method of delivery, BEA guidance in the BE-10 Instructions and in FAQs on the website contemplates a range of acceptable methods including mail, hand delivery and fax. Although I haven’t seen anything official from BEA on this, overnight would seem to be a safe choice, and I suspect that, as long BEA gets the report at the end of the day, they shouldn’t care too much if it arrived via USPS or some other carrier such as FedEx.”
If you haven’t heard about this, brace yourself. Some sophisticated scammers have been successful learning the style of how your CEO and other senior executives write their emails – and then are capable of sending emails from their email addresses. For example, a scammer will write an email that looks like it comes from your CEO to your controller asking for a wire transfer to be made to an offshore account. And the controller naturally will do it. This will be among the topics covered in our upcoming webcast: “Cybersecurity: Governance Steps You Need to Take Now.”
A large number of U.S. businesses have recently been the target of a very sophisticated email scam that is designed to convince company employees who are responsible for executing financial transactions to wire funds to overseas accounts that are controlled by the perpetrators of the scam. The FBI’s Internet Crime Complaint Center (“IC3”) refers to these kinds of frauds in their various forms as Business Email Compromise (“BEC”) scams, which are usually aimed at companies that regularly wire money outside of the United States. In recent months, there have been over 2,000 reported incidents of these scams, resulting in hundreds of millions of dollars in losses.
Political Contributions Disclosure: Three Former SEC Commissioners Support It
Yesterday, three former SEC Commissioners – Bevis Longstreth, William Donaldson & Arthur Levitt – sent this letter to the SEC supporting the push for political contributions disclosure rulemaking (remember how the SEC was recently sued for not rulemaking in this area). These former Commissioners are the latest in a number of folks that continue to weigh in on the 2011 rulemaking petition, including this letter from 70 foundations and this letter from a group of State Treasurers.
Transcript: “The NYSE Speaks ’15: Latest Developments and Interpretations”
We have posted the transcript for our recent webcast: “The NYSE Speaks ’15: Latest Developments and Interpretations.”
Barbara Blackford’s 2500-Mile Ride!
I’ve blogged before about the inspirational Barbara Blackford. She recently stopped in DC, about 1500 miles through her ride up the East Coast. Check out her blog – and Facebook page, as well as this explanation of “Cycling for Good” and how you can donate…
Last Friday, in this “Petition for Review,” the Massachusetts Secretary has sued the SEC in the US Appeals Court for the District of Columbia asking the court to vacate the portion of the SEC’s new Regulation A+ rules that preempt state law – and issue a permanent injunction prohibiting it from going into effect on June 19th. The petition is just two paragraphs! Here’s the scheduling order. According to this article, Montana has filed a similar lawsuit.
During the rulemaking process, NASAA – the association of state securities regulators – repeatedly argued that the preemption aspects of Regulation A+ were inconsistent with legislative intent…
I just calendared a new webcast to track developing market practices in the wake of the new Regulation A+ rules…
The SEC’s Waiver Controversy Extends to Other Federal Agencies
This Reuters article notes how Senator Elizabeth Warren has called for hearings on the Department of Labor’s waiver practices in the wake of the SEC’s waiver controversy…
This Bloomberg article criticizes the pace of the SEC’s rulemaking – and notes how politics at the Commissioner level have contributed to that…
Hooli Board: A Lack of Gender Diversity
I’m a devoted fan of the HBO comedy called “Silicon Valley.” Pulled from the last episode, I thought this 7-second clip featuring the fictional tech giant’s CEO was hilarious as it shows him addressing his board with the opening: “Gentlemen of the Hooli board…and lady…” That says it all about the continuing problem of gender & racial disparity on boards:
