As noted in this PubCo post, SCOTUS recently heard oral argument in Kisor v. Wilkie, a case involving the interpretation of a regulation issued by the Department of Veteran’s Affairs. In Kisor, a Vietnam vet, suffering from service-related PTSD, sought retroactive disability benefits from the VA. Interpreting the meaning of the term “relevant” as used in one of its own regs, the VA denied his claim for retroactive benefits. Why is this case important to public companies? Because the question presented to the Court was whether to continue the decades-long deference of courts to the reasonable interpretations by agencies (such as the SEC) of their own ambiguous regulations, often referred to as Auer deference (or Seminole Rock deference, referring to Auer’s antecedent). The decision, expected by this summer, could narrowly restrict, or even completely undo, that deference.
The case represents yet another example of concentrated efforts to dismantle or severely limit the administrative state—or the “deep state,” depending on your point of view. As explained in the opening of the amicus brief of the Cato Institute, quoting Chief Justice Roberts in dissent, “[o]verturning Auer would be a modest but important check on the ‘the danger posed by the growing power of the administrative state.’ City of Arlington, Tex. v. F.C.C.” What’s more, in his cert. petition, Kisor argued that “‘[r]evisiting Auer deference [would be] an appropriate place to begin’ a more complete ‘reconsideration’ of ‘existing doctrines of agency deference,’ including under Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc.” (quoted from the amicus brief of a group of Professors of Administrative Law and Federal Regulation in support of neither party).
Once again, guidance is under the gun. In this recent speech, SEC Commissioner Hester Peirce expressed her concern for SEC staff guidance and interpretation that she seems to view as sometimes runaway or out-of-control and, sometimes, too much under the radar. A few days later, the Acting Director of the Office of Management and Budget joined in, distributing a memo designed to limit rules and guidance that federal agencies issue, particularly outside of the notice-and-comment process. But potentially the most significant impact could result from an important case that SCOTUS is now considering (to be discussed in a separate post), which could undo the historic deference that courts have generally given to agency interpretations of their own regulations, often referred to as Auer deference. In this highly politicized environment, what will be the impact on staff guidance?
No sooner had Corp Fin advised us that there was no easy way to do an extension for a confidential treatment order then, lo and behold, they create one. Today, Corp Fin posted a new streamlined procedure for confidential treatment extensions.
Coming soon to a financial statement near you: CAMs! Late this summer, in audit reports for large accelerated filers with June 30 fiscal year ends, auditors will begin to disclose “critical audit matters.” Under the new auditing standard for the auditor’s report (AS 3101), CAMs are defined as “matters communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involved especially challenging, subjective, or complex auditor judgment.” Essentially, the concept is intended to capture the matters that kept the auditor up at night, so long as they meet the standard’s criteria. Compliance will be required for audits of large accelerated filers for fiscal years ending on or after June 30, 2019, and for audits of all other companies to which the requirement apply (not EGCs) for fiscal years ending on or after December 15, 2020. With that in mind, the PCAOB has released three new documents offering guidance on CAM implementation: The Basics; A Deeper Dive on the Determination of CAMs; and Staff Observations from Review of Audit Methodologies. (See also thecorporatecounsel.net blog and this article in ComplianceWeek.)
In December 2018, the SEC posted a “request for comment soliciting input on the nature, content, and timing of earnings releases and quarterly reports made by reporting companies.” According to the press release, the request for comment solicits “public input on how the Commission can reduce burdens on reporting companies associated with quarterly reporting while maintaining, and in some cases enhancing, disclosure effectiveness and investor protections. In addition, the Commission is seeking comment on how the existing periodic reporting system, earnings releases, and earnings guidance, alone or in combination with other factors, may foster an overly short-term focus by managers and other market participants.” (See this PubCo post.) At the end of March, the influential Council of Institutional Investors submitted its comments in response to the SEC request.
The newest SEC Commissioner, Elad Roisman, who has reportedly gotten the nod to head up the SEC’s efforts regarding proxy advisory firms, told the U.S. Chamber of Commerce in late March that he expects the SEC to issue new guidance, sometime after proxy season this year, regarding the use by institutional investors of proxy advisory firm recommendations, as reported in The Deal. And, according to the WSJ, Roisman has “also questioned whether it was appropriate for the SEC to exempt proxy advisers from some regulations on investment advice, including whether they can both advise a company and make recommendations to its shareholders at the same time.” However, as discussed in this PubCo post, the question of whether proxy advisory firms, such as ISS and Glass Lewis, have undue influence over the voting process and should be reined in has long been something of a political donnybrook. With the issue of proxy advisory firm regulation so politically freighted, will the SEC limit the scope of its effort to guidance to institutional investors or, more controversially, go further and impose regulation on proxy advisors, as many companies have advocated?
As discussed in this article in Bloomberg Businessweek, a new analysis conducted by Bloomberg explores the potential impact of California’s new board gender diversity mandate, SB 826. And what does it show? The impact on the composition of boards could be substantial—perhaps even a “sea change.”