SEC requests comment on non-financial/non-business items in Reg S-K

by Cydney Posner

The SEC has posted a request for comment on some of the Reg S-K disclosure requirements that were not specifically covered in the Reg S-K Concept Release, issued earlier this year (see this PubCo post), which assessed the Reg S-K business and financial disclosure requirements.  This release requests comment on the Reg S-K items related to management (Items 401), executive compensation (Item 402), certain security holders (Item 403), related-person transactions, (Item 404), short-swing trading filing delinquencies (Item 405), adoption of a code of ethics (Item 406) and corporate governance matters (Item 407). The Reg S-K Concept Release was 341 pages.  This one is a lot shorter. In fact, it’s only eight pages.  If you regularly read SEC releases, you know that’s barely enough space for the file number and the address of the public reference room.  Continue reading

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Filed under Corporate Governance, Executive Compensation

New study examines benefits of enhanced audit report in the UK

by Cydney Posner

In light of the closing of the comment period for the PCAOB reproposal of an expanded audit report standard (see this PubCo post and this PubCo post), including a requirement to disclose critical audit matters, it may be useful to examine the experience of another country that has already implemented a similar concept in its audit reporting standard. This academic study, Tell Me More: A Content Analysis of Expanded Auditor Reporting in the United Kingdom, examined whether the expanded audit report requirement in the UK was even helpful in improving communication value.  Continue reading

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Comments on PCAOB reproposal of expanded audit report reflect predictable split

by Cydney Posner

As discussed in this PubCo post, in May of this year, after five years of outreach, the PCAOB once again attempted to make the auditor’s report more relevant and informative to investors by reproposing the auditor reporting standard, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion. While the reproposal would retain the standard pass/fail model, it would also provide for the inclusion of critical audit matters (CAMs) in the auditor’s report, as well as new elements related to auditor independence and auditor tenure. Comment letters to the PCAOB regarding its reproposal of the standard have reflected a predictable split.  As discussed in this Bloomberg BNA article, investors generally have approved of the proposed changes, while auditors have continued to express concern that, even under the reproposal, they — not management — remain a primary source for the new disclosures regarding CAMs. Continue reading

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Individual shareholder proposals—why do they do it?

by Cydney Posner

This recent paper from the Rock Center for Corporate Governance at Stanford University, “Gadflies at the Gate: Why Do Individual Investors Sponsor Shareholder Resolutions?” attempts to answer a question I’ve been wondering about for quite a while: why do individual investors invest their time and energy pursuing shareholder proposals? Given how prolific some of these shareholders are—reportedly, the group associated with John Chevedden and James McRitchie accounted for approximately 70% of all proposals sponsored by individuals among Fortune 250 companies in 2014—these investments must be substantial. Since, in most cases, there’s not really any financial incentive involved, what drives them to do it? Continue reading

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Some successful approaches to increasing board gender diversity

by Cydney Posner

A lot has been written about the benefits of gender diversity on boards. As discussed in Bloomberg, while “[e]quality is a worthy goal on its own terms, of course….for the corporate world, the better rationale for gender diversity is financial…. Companies with at least one female director had better returns for six straight years.” According to this Bloomberg Quicktake, a Credit Suisse study showed that companies with at least one woman board member saw an average return on equity of 14.1% from 2005 to 2015; all-male boards’ average returns were only 11.2%. (See this PubCo post.) Nevertheless, in the U.S., there is no getting around the continuing underrepresentation of women on boards. Bloomberg reports that  women make up less than 20% of directors of S&P 500 companies, and growth in female representation has actually slowed. (See this PubCo post.) This article in the WSJ suggests some companies are trying new approaches in an effort to reverse that slide. Continue reading

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SEC Whistleblower Office charges that prospective waiver of whistleblower award in severance agreements violated securities laws

by Cydney Posner

In a new whistleblower protection case, the SEC’s Office of the Whistleblower settled charges against BlueLinx Holdings, Inc. that the company’s severance agreements violated the securities laws. The agreements included confidentiality restrictions without exclusions for whistleblower reporting and required terminating employees to waive possible whistleblower awards or risk losing their severance and other post-employment benefits.  Rule 21F-17 prohibits any action to impede an individual from communicating directly with the SEC staff “about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.” Continue reading

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Consultants report on conflict minerals due diligence and disclosure for 2015. But has it made a difference for the DRC?

by Cydney Posner

Two consulting firms, Assent Compliance and Source Intelligence, have published their studies on conflict minerals (tin, tantalum, tungsten and gold) reporting for 2015, the third year of required SEC reporting.  For 2015, there were slightly over 1,200 filers, representing a decrease of about 50 filers from the prior year (reflecting business combinations, going-privates and other activity, offset in part by new filers). Both studies conclude that, while the level of transparency has increased, after three years of due diligence and reporting, the vast majority of reporting companies are still unable to determine the origin of the conflict minerals that were necessary to the functionality or production of their products, let alone whether they contributed to financing armed groups in the DRC or contiguous countries. Continue reading

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Filed under Corporate Governance, Securities