In her final speech as SEC Chair, White identifies current trends assailing SEC independence

by Cydney Posner

Mary Jo White took the occasion of her final speech as SEC Chair, presented to the Economic Club of New York, to discuss how to maintain the role of the SEC as an effective financial regulator and how the SEC can “continue as a strong independent agency in the current environment.”  What is she getting at? White is concerned that the SEC’s independence from the executive and legislative branches is currently in jeopardy and that, without independence, the SEC’s ability to use its expertise to achieve its mission could be compromised. Continue reading

Leave a comment

Filed under Corporate Governance, Securities

SEC charges company with violations of the rules related to non-GAAP financial measures

by Cydney Posner

The Corp Fin staff have been dropping hints for quite a while about potential enforcement actions in connection with abuses of non-GAAP financial measures (see, e.g., this PubCo post), and an interesting one has now materialized.  In an Order released today, the SEC announced settled charges against MDC Partners, Inc., a publicly traded marketing firm, for failure to comply with the rules related to non-GAAP financial measures.  In addition, the company was charged with failure to disclose millions in perks awarded to its former CEO. Continue reading

Leave a comment

Filed under Corporate Governance, Executive Compensation, Litigation, Securities

KPMG surveys audit committee concerns

by Cydney Posner

What are audit committee members’ greatest concerns? Audit committee members participating in KPMG’s 2017 Global Audit Committee Pulse Survey identified risk management as the biggest challenge for audit committees in 2017, with 42% of those surveyed characterizing their existing risk management programs as requiring “substantial work,” and a “similar percentage” indicating that it is “increasingly difficult to oversee those major risks.” However, only 51% indicated that they have the time to oversee major risks effectively and only 46% say they have the expertise.  Moreover, 39 % say it is increasingly difficult to find the necessary time and 43% say the same with regard to the necessary expertise. Also high on the list of challenges were legal/regulatory compliance, cybersecurity risk, the control environment in the extended organization and tone at the top. Continue reading

Leave a comment

Filed under Accounting and Auditing, Corporate Governance

It didn’t take long — House passes bills to “regulate” the regulators

by Cydney Posner

Welcome to the future! On Wednesday, the House Republicans (with five Democratic votes) passed H.R. 5, the Regulatory Accountability Act of 2017, a bill that would change the way federal agencies issue regulations and guidance. This bill would require agencies to, as part of their rulemaking processes, expand the factual determinations required, provide advance notice with regard to certain important rule proposals and follow specified procedures for issuing important guidance, among other processes. Included as part of the same bill is the Separation of Powers Restoration Act, which provides for de novo judicial review of agency actions.  And last week, the House passed H.R. 26, Regulations from the Executive in Need of Scrutiny Act of 2017 (the “REINS” Act, another achievement in the fine art of acronyming), which provides that major rules of the executive branch will have no force or effect without a joint resolution of Congress. Another bill, H.R. 78, the SEC Regulatory Accountability Act, has also just been introduced in the House.  This bill would also enhance the requirements for cost-benefit analyses of rules proposed by the SEC and provide for post-adoption impact assessment and periodic review of existing regulations adopted by the SEC. Get the picture?  I feel confident in predicting that these won’t be the last bills of this type introduced in this Congress.  However, while Republicans control the Senate, their majority is not filibuster-proof, so it’s possible that none of these bills will become law in their current form — or at all. Continue reading

Leave a comment

Filed under Securities

Is there a fix for short-termism?

by Cydney Posner

Much has been written about the problems associated with the prevalence of short-term thinking in corporate America.  As noted in a post from The Harvard Law School Forum on Corporate Governance and Financial Regulation, a recent academic study revealed that “three quarters of senior American corporate officials would not make an investment that would benefit a company over the long run if it would derail even one quarterly earnings report.”  (See this PubCo post and this article in The Atlantic.)  Apparently, they weren’t kidding. Data compiled by S&P and Bloomberg shows that companies in the S&P 500 spent 95% of their earnings on repurchases and dividends in 2014, including spending $553 billion on stock buybacks (which can drive increases in EPS), leaving little for alternative uses of capital, such as long-term strategic investment in productive assets, including investment in R&D. (See this PubCo post.) As observed by Professor John Coffee in this post, “[p]resumably, it is self-evident that if an economy cuts back drastically on its investment in ‘R&D,’ it will experience less innovation and technological advances in the future…. That should be a cause for concern.” (See this PubCo post.)

The question is: is there a fix for this scourge? The American Prosperity Project, sponsored by the Aspen Institute, has some ideas. Continue reading

Leave a comment

Filed under Corporate Governance, Corporate law, Executive Compensation, Securities

Likely interim SEC Chair spells out his priorities

by Cydney Posner

According to this article in the WSJ,  SEC Commissioner Michael Piwowar, who will probably become acting Chair when current Chair Mary Jo White steps down this month, has agreed with fellow Commissioner Kara Stein about various rulemakings that they might pursue in the interim until nominee Jay Clayton is confirmed as Chair. Apparently, they don’t include rules required by Dodd-Frank. Continue reading

Leave a comment

Filed under Corporate Governance, Executive Compensation, Securities

Why does management seek to exclude shareholder proposals?

by Cydney Posner

In this recent preliminary working paper, Why Do Managers Fight Shareholder Proposals? Evidence from No‐Action Letter Decisions, academics at the USC Marshall School of Business attempt to determine why corporate management seeks to exclude shareholder proposals: are corporate managers acting as “responsible managers” who view shareholder proposals as “value‐destroying — either misguided or intended to benefit the narrow interests of proponents” —  or as a “self‐interested managers” who oppose shareholder proposals “to preserve corporate practices that provide them with private benefits”?  Apparently, the results of prior studies have supported both views. Although proponents of shareholder proposals may insist otherwise, the results of this study led the authors to conclude that, in using the no‐action letter process to try to exclude shareholder proposals, managers act “based on a genuine concern that shareholder proposals harm firm value, and… not merely [to provide] a convenient rationalization in order to preserve managerial private benefits.” Continue reading

Leave a comment

Filed under Corporate Governance, Securities