Category: Corporate Governance
Impact of government shutdown on SEC operations
The SEC has finally posted a notice about its operating status in the event of a government shutdown. If there is a shutdown “after January 19, the SEC will remain open for a limited number of days, fully staffed and focused on the agency’s mission.
Get used to it— “lap dog” may now be a favored adjective in shareholder proposals
From here on out, I guess you can count on seeing your directors described as “lap dogs” in some shareholder proposals or, more accurately, nascent or possible lap dogs. (That helps, doesn’t it?) That’s because, in three separate shareholder proposals submitted to The Boeing Company by three beneficial owners (all working through John Chevedden), the SEC refused to allow the company to exclude portions of the supporting statements that suggested that some of the company’s directors might be “lap dogs.”
When theories collide: what happens when the shareholder preeminence theory meets the stakeholder theory?
Laurence Fink, the Chair and CEO of BlackRock, has issued his annual letter to public companies, entitled A Sense of Purpose. As in prior years, Fink advocates enhanced shareholder engagement and a focus on long-term strategy development. (See this PubCo post and this PubCo post.) What’s new this year is that he is also advocating that companies recognize their responsibilities to stakeholders beyond just shareholders—to employees, customers and communities. Holy smokes, Milton Friedman, what happened to maximizing shareholder value as the only valid responsibility of corporations?
Does inclusion of executive compensation metrics related to corporate social responsibility lead to long-term value creation?
In this recent academic study, Social Responsibility Criteria in Executive Compensation: Effectiveness and Implications for Firm Outcomes, the authors examined the impact of the integration of elements of corporate social responsibility, such as environmental and social performance, into executive compensation performance criteria. In the decision-making process, executives tend to gravitate toward the achievement of short-term goals and to respond more readily to more prominent direct stakeholders, such as customers and shareholders. But CSR metrics typically have a long-term pay-off and involve less direct stakeholders, such as the environment and the local community. The question is: is the inclusion of CSR performance metrics in executive comp programs effective to motivate executives to achieve those longer-term CSR goals, engage with CSR stakeholders and enhance long-term value creation?
SEC nominees off “hold” and awaiting Senate confirmation
As has been widely reported, there are currently two nominees to fill the two empty slots at the SEC—from the Democratic side, Robert Jackson, a professor at Columbia Law School, and from the Republican side, Hester Peirce, a fellow at George Mason University. However, Senator Tammy Baldwin had put a “hold” on the nominees back in November, as reported in the WSJ, until they provided “their views on whether regulators should rein in activist investors, stock buybacks and executive pay.” Now that they have both responded to her questions, Baldwin has lifted her hold on the nominees, according to Law360, “clearing a hurdle for confirmation.” Their responses, although not exactly surprising, provide some insight into their views on these key issues.
Assessing impact of major tax law change, if enacted, on financial statements on a timely basis would present huge challenge
The potential passage of the new tax bill is giving some finance departments conniptions, according to Bloomberg BNA, and they’re hoping that the SEC will address the problem. The SEC? Yes. While companies are happy to see the tax breaks, some companies, especially large multinational companies, are anxious about whether they will be able to accurately determine the impact of the tax changes on their financial statements in time to file their annual and quarterly reports with the SEC. The obvious concern is that, if the SEC doesn’t extend the filing deadline, companies could risk making material misstatements.
What’s on the Agenda—the SEC’s Regulatory Flexibility Agenda, that is?
SEC Chair Jay Clayton has repeatedly made a point of his intent to take the Regulatory Flexibility Act Agenda ”seriously,” streamlining it to show what the SEC actually expected to take up in the subsequent period. (See this PubCo post and this PubCo post.) The agenda has just been released, and it certainly appears that Clayton has been true to his word: several items that had taken up long-term residency on numerous prior agendas seem to be absent from this one.
Cybersecurity risk disclosure remains at relatively low levels, but for how long?
Even though, in the wake of recent events, cybersecurity is a very hot topic, only 38% of U.S. public companies cite cybersecurity as a risk factor in their annual and quarterly SEC filings, according to a recent study from Intelligize. The study showed that, while only 426 public companies cited cybersecurity as a risk in 2012, that number grew to 1,662 in 2016. However, so far in 2017, the number has been relatively flat at 1,680. But the question remains, how long will that continue?
Boilerplate CAMs in auditor’s reports? That would be a bummer, man
In what were surely unprepared remarks to the American Institute of CPAs conference on SEC and PCAOB developments, as reported by Bloomberg BNA, SEC Chair Jay “the Dude” Clayton commented on the impact he expects the new form of auditor’s report could have on his mood: “‘If it results in quality, I’ll be happy….And if it results in boilerplate, I’ll be really bummed out.’”
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