Under Dodd-Frank, the GAO is required to assess annually the effectiveness of the SEC’s conflict minerals rules in promoting peace and security and to report on the rate of sexual violence in the DRC and adjoining countries. The GAO has released its annual study on conflict mineral disclosures filed with the SEC in 2017. The report is based on a random sample of 100 Forms SD, interviews with company representatives and other stakeholders.
Right after celebrating its second birthday, proposal to change the definition of “smaller reporting company” is adopted (updated)
[This post has been updated to reflect the adopting release, which has now been posted here, as well as posted statements from the Commissioners.] The pressure has been coming from all directions—the Congress, the Treasury—indeed, there’s been nary an advisory committee that hasn’t weighed in on this topic: time for the SEC to change the definition of “smaller reporting company.” After all, the proposal has just celebrated its second birthday—has it aged like a fine wine or is it moldy and stinky like an old piece of cheese? The verdict: moldy cheese that made no one happy, but they all ate it anyway.
What are auditors and audit committees doing to get ready for the impending disclosure of CAMs in audit reports ? You remember that, under AS 3101, the new auditing standard for the auditor’s report, auditors will be required (in 2019 for large accelerated filers and phased in for others) to include a discussion of “critical audit matters,” that is, “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.” (See this PubCo post.) 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. The selection of and disclosure regarding CAMs will certainly present a challenge for both audit committees and auditors. This article from Compliance Week reports that, beyond that challenge, the prospect of CAM disclosure should precipitate a reassessment by audit committees and companies of related corporate disclosure to ensure that companies stay ahead of the curve.
In remarks Monday before the Center for American Progress, SEC Commissioner Robert Jackson discussed his recent research on corporate stock buybacks, in the light of the substantial increase in buybacks following the 2017 Tax Cuts and Jobs Act. His focus: to call on the SEC to update its buyback rules “to limit executives from using stock buybacks to cash out from America’s companies.” If executives are so convinced that “buybacks are best for the company, its workers, and its community,” Jackson suggested, “they should put their money where their mouth is.”
Besides shock and awe, did pay-ratio disclosure have any immediate practical consequences? Well, for one, if a company did business in Portland, Oregon, the answer could well be “yes.” You might remember that, at the end of 2016, the Portland City Council, piggybacking on the pay-ratio data that most public companies were required to begin disclosing this year, adopted a measure adding a 10% surcharge to the city’s existing business tax for each company that exceeded a 100-to-1 pay ratio and a 25% surcharge if the pay ratio exceeded 250 to 1. (See this PubCo post.) According to comp consultant Equilar, the median pay ratio for the Russell 3000 was 70:1 (see this PubCo post). So what were the consequences of the Portland surtax—in Portland and beyond?
In this analysis, compensation consultant Pay Governance looks at the factors affecting pay-ratio results and, in light of the feverish media coverage that insists on comparing ratios among companies, offers advice on dealing with that onslaught of comparisons. In their analysis, the authors conclude that pay-ratio results are more affected by median employee pay than by CEO pay. And, because median employee pay can be highly variable depending on the company’s industry, geographic location, international operations and business model, pay-ratio comparisons among companies are “fraught with technical and structural issues,” and “potentially problematic,” especially between the companies with the highest and lowest pay ratios. Of course, it was never the SEC’s intent that pay-ratio data be used for comparative purposes across companies; as the SEC made plain in the adopting release, “the final pay ratio rule should be designed to allow shareholders to better understand and assess a particular registrant’s compensation practices and pay ratio disclosures rather than to facilitate a comparison of this information from one registrant to another.” That caution notwithstanding, the issue continues to confront boards and comp committees, and the authors suggest ways that boards can navigate these shoals.
As discussed in this article from the WSJ, the UK government is conducting a review of the reasons underlying the low proportion of women in top executive positions at companies in the FTSE 350 index. According to the article, the goal is to have women occupy at least one-third of board seats by 2020. However, in 2017, 24.5% of the boards seats at FTSE 350 companies were occupied by women compared with 23% in 2016 and 9.5% in 2011. But the most astonishing aspect are the atavistic quotes from a range of FTSE 350 Chairs and CEOs explaining the dearth of women in top positions.