Month: July 2019

FASB tentatively decides on new staggered approach to effective dates for major standards

As anticipated in this PubCo post, at its July 17 meeting, the FASB Board signaled its intent to adopt a new “two-bucket” approach that would stagger the effective dates for new major accounting standards.  Under the new approach, the effective dates of major new standards would be delayed for entities in “Bucket Two”—smaller reporting companies, private companies, employee benefit plans and not-for-profit organizations— for at least two years after the effective dates for entities in “Bucket One”—other SEC filers. The determination of whether an entity is an SRC will be based on the entity’s most recent assessment in accordance with SEC regulations. (See this PubCo post and this Cooley Alert.)

Are executives making rational choices about investments in ESG?

In this new paper from the Rock Center for Corporate Governance at Stanford, “Stakeholders and Shareholders: Are Executives Really ‘Penny Wise and Pound Foolish’ About ESG?,” the authors examined survey data from CEOs and CFOs of companies in the S&P 1500 to understand the extent to which the respondents believed that, in business planning and long-term strategy development, they took into account and attributed importance to the needs of non-investor stakeholders, such as employees, unions, customers, suppliers, local communities, government and regulatory agencies and the public at large.

SEC staff encourages attention to LIBOR transition

You may recall that, at the end of last year, SEC Chair Jay Clayton and Corp Fin Chief Accountant Kyle Moffatt were warning at various conferences about some of the risks the SEC was monitoring, among them the LIBOR phase-out, which is expected to occur in 2021. LIBOR, the London Interbank Offered Rate, is calculated based on estimates submitted by banks of their own borrowing costs. In 2012, the revelation of LIBOR rigging scandals made clear that the benchmark was susceptible to manipulation, and British regulators decided to phase it out.  In one speech, Clayton reported that, according to the Fed, “in the cash and derivatives markets, there are approximately $200 trillion in notional transactions referencing U.S. Dollar LIBOR and… more than $35 trillion will not mature by the end of 2021.”  Clayton indicated that an alternative reference rate, the Secured Overnight Financing Rate, or “SOFR,” has been proposed by the Alternative Reference Rates Committee; nevertheless, there remain significant uncertainties surrounding the transition. (See this PubCo post.) And those uncertainties surrounding LIBOR and SOFR may be leading companies and others to delay addressing the issue until everything is finally settled.  Perhaps with that in mind, on Friday evening, the SEC staff published a Statement that “encourages market participants to proactively manage their transition away from LIBOR.” And, in the press release announcing the publication, Clayton drew “particular attention to the staff’s observation: ‘For many market participants, waiting until all open questions have been answered to begin this important work likely could prove to be too late to accomplish the challenging task required.’”

PCAOB offers help for audit committees about CAMs

The PCAOB has just released a new resource for audit committees about critical audit matters, designed to “inform audit committees as they engage with their auditors on the new CAM requirements.” The new auditing standard for the auditor’s report (AS 3101), which requires CAM disclosure, will be effective for audits of large accelerated filers for fiscal years ending on or after June 30, 2019.  For audits of all other companies to which they apply (e.g., not EGCs), CAM requirements will be effective for fiscal years ending on or after December 15, 2020. The resource document provides information about CAM basics, as well as PCAOB staff guidance through responses to FAQs and, importantly, questions audit committees could consider asking their auditors. At the same time, the PCAOB also issued a new resource about CAMs for investors.

Delaware Supreme Court allows Caremark duty of loyalty claims against directors to survive dismissal motion

In Marchand v. Barnhill  (June 18, 2019), soon-to-be-retired Chief Justice Strine, writing for the Delaware Supreme Court, started out his analysis with the recognition that “Caremark claims are difficult to plead and ultimately to prove out,” and constitute “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.”  That’s a rather high bar. What does it take to plead a Caremark case that can survive a motion to dismiss? Marchand provides an illustration—and a warning that directors should be proactive in conducting risk oversight and could face liability if they fail to “make a good faith effort to implement an oversight system and then monitor it.”

California Secretary of State publishes “report” about SB 826, California’s new board gender diversity mandate—UPDATED

This post updates an earlier post  on this topic to reflect information from a  conversation with a knowledgeable representative of the California Secretary of State’s office.  He was able to provide some insight about their process and clarify why some apparent inconsistencies were not really inconsistent.

As reported on thecorporatecounsel.net blog, the California Secretary of State has published on its website two spreadsheets, dated July 1, 2019, which apparently together constitute its mandated “report” under SB 826, California’s new board gender diversity mandate.  The first spreadsheet identifies 537 companies that the Secretary’s office views as subject to SB 826. The next spreadsheet identifies 184 companies that were apparently in compliance with the board gender diversity mandate as of that date.  According to the “methodology,” this data was based on information available for the review period from January 1 to June 30, 2019 in California and SEC filings, as well as information from the NYSE, Nasdaq and miscellaneous other online resources.   An updated report will be published on March 1, 2020.

California Secretary of State publishes “report” about SB 826, California’s new board gender diversity mandate

As reported on thecorporatecounsel.net blog, the California Secretary of State has published on its website two spreadsheets, dated July 1, 2019, which apparently together constitute its mandated “report” under SB 826, California’s new board gender diversity mandate.  The first spreadsheet identifies 537 companies that the Secretary’s office views as subject to SB 826. The next spreadsheet identifies 184 companies that were apparently in compliance as of that date.  According to the “methodology,” this data was based on information available for the period from January 1 to June 30, 2019 in California and SEC filings, as well as information from the NYSE, Nasdaq and miscellaneous other online resources.   An updated report will be published on March 1, 2020.  My own extremely brief spotcheck, however, revealed that these lists are not exactly, um, accurate. (But see this update.)