No sooner had SEC Chair Jay Clayton, in informal comments at a public event, called a halt to speculation that large public companies would be seeing semiannual reporting any time soon (see this PubCo post), then out comes the Fall 2018 Unified Agenda of Regulatory and Deregulatory Actions, which identifies “Earnings Releases/Quarterly Reports” as a pre-rule stage, substantive, non-significant (really?) agenda item for the SEC. The abstract indicates that Corp Fin “is considering recommending that the Commission seek public comment on ways to ease companies’ compliance burdens while maintaining appropriate levels of disclosure and investor protection.” Legal authority: “not yet determined.” Ok, does Clayton take it all back or does it still mean that, notwithstanding this agenda item, the likelihood of anything materializing as a result is—other than, as Clayton had intimated, perhaps for smaller companies—still pretty slim?
You remember, of course, that in August, the president, on his way out of town for the weekend, threw out as chum to reporters the idea of eliminating quarterly reporting and moving instead to semiannual reporting. (See this PubCo post.and this PubCo post.) The argument was that the change would not only save time and money, but would also help to deter “short-termism,” as companies would not need to manage their businesses to meet quarterly analyst expectations at the expense of longer term thinking. A lot of folks chimed in—both pro and con. But no one disagreed that a change from quarterly to semiannual reporting would entail a significant overhaul of the current system, which has been in place for over fifty years.
In response to the president’s comment at the time, SEC Chair Jay Clayton had promptly issued a statement indicating that long-term investing was a key consideration for many market participants and that “Corp Fin continues to study public company reporting requirements, including the frequency of reporting. As always, the SEC welcomes input from companies, investors, and other market participants as our staff considers these important matters.” Whether that statement was intended to signal an opening was not entirely clear.
Then, Bloomberg BNA reported that, at an October 11 event hosted by the Bipartisan Policy Center in Washington, Clayton put the kibosh on speculation about the topic (except, perhaps, for a remote chance for smaller companies):
“‘I don’t think quarterly reporting is going to change for our top names anytime soon,’ Clayton said. ‘It was good of the president to raise it,’ he said, adding that it could make sense to ease the requirements for smaller companies…. ‘The president did touch on a nerve—which is ‘Are people running their companies too much for the short term in response to pressures?’’ Clayton said in a brief interview after the event. ‘We’ve been hearing that for a while.’…While Clayton lauded Trump and others for raising the issue, he said that other factors like activist investing are also behind companies becoming more focused on the short term. ‘I would not say the driving factor is quarterly reporting,’ he said.”
Now we have the SEC’s Fall 2018 Agenda of Regulatory and Deregulatory Actions, which implicitly includes the possibility of a concept release that would seek comment on substituting semiannual reporting in lieu of quarterly reporting. According to Reuters, an SEC spokeswoman observed that the agenda item wasn’t necessarily triggered by the presidential comment, but rather “[t]his subject is something the staff has been considering, even before the President tweeted about it.” As for public comment, you can bet there will be a lot of it.
What else is on the Fall agenda (items likely to occur in the next 12 months)? A concept release on harmonization of exempt offerings is on the agenda as another early-stage item. There are also expected rule proposals related to:
- amendments to Reg S-X (Rule 3-05) that affect the disclosure of financial information of acquired businesses;
- amendments to modernize business, financial and management disclosure requirements in Reg S-K (see this PubCo post) ;
- disclosure of payments by resource extraction issuers (note, however, that prior rules were disapproved by Congress under the Congressional Review Act and, as a result, the SEC had only until February 14 of this year to issue new rules implementing this provision of Dodd-Frank, a deadline it obviously did not meet) (see this PubCo post);
- amendments to extend the JOBS Act’s testing-of-the-waters provision to non-EGCs (see this PubCo post); and
- amendments to the “accelerated filer” definition in Rule 12b-2 that would have the effect of reducing the number of companies subject to the SOX 404(b) auditor attestation requirement (See this PubCo post).
In the final rule stages are these agenda items:
- amendments requiring disclosure of hedging by employees, officers and directors (see this PubCo post);
- amendments that would implement recommendations made in the staff’s 2016 Report on Modernization and Simplification of Regulation S-K, a report to Congress required by Section 72003 of the FAST Act (see this PubCo post); and
- amendments to the existing whistleblower rules to provide additional procedural flexibility and to clarify various issues that have arisen based on the SEC’s experiences implementing the program (see this PubCo post).
Disclosure Update and Simplification, while still on the agenda, has been adopted in final form and becomes effective November 5 (see this Cooley Alert).
What’s not on the near-term agenda? Well, some of the remaining Dodd-Frank rulemakings have been relegated again to the long-term agenda:
- amendments to listing standards requiring policies for recovery of erroneously awarded compensation, i.e., implementing the Dodd-Frank clawback provisions (see this PubCo post);
- amendments implementing the Dodd-Frank pay-for-performance provisions, which require issuers to disclose information that shows the relationship between executive compensation actually paid and the issuer’s financial performance (see this PubCo post);
- conflict minerals rules (which you may recall were struck down by the district court to the extent that the rule required companies to state that any of their products “have not been found to be ‘DRC conflict free’” (see this PubCo post); and
- proposal to implement Dodd-Frank short-sale reform.
Among other items on the very long long-term agenda:
- proposal to mandate universal proxy (see this PubCo post and this PubCo post);
- proposal to amend the proxy rules to require additional disclosure about the diversity of board members and nominees (see e.g., this PubCo post);
- proxy process amendments, likely to result from the upcoming proxy process roundtable (see this PubCo post);
- proposal to amend Rule 701 and Form S-8 arising out of the recent concept release (see this PubCo post);
- proposal to expand the definition of accredited investor under Reg D (see this PubCo post); and
- amendments to Item 407 of Reg S-K arising out of the concept release regarding audit committee disclosure requirements (see this PubCo post).