Category: Corporate Governance
SEC Chair Jay Clayton discusses principles guiding his tenure at the SEC
In his first public speech as SEC Chair, Jay Clayton outlined for the Economic Club of New York eight principles that he aims to guide his tenure as Chair. In discussing these principles and some ways in which he plans to put them into practice, Clayton seemed to stress the need to focus more intently on the various costs of regulatory compliance—in dollars, in time, in effort, in complexity and in economic impact. In particular, Clayton drew attention to a reduction in the number of public companies in recent years—a “roughly 50% decline in the total number of U.S.-listed public companies over the last two decades”—attributing the decline at least in part to the expansion of disclosure requirements, in some cases beyond materiality. To address this issue, he asserted, the SEC “should review its rules retrospectively” from the perspective of the cumulative effect of required disclosure, not just each incremental slice. Finally, he noted that the SEC “has several initiatives underway to improve the disclosure available to investors, “ including implementation of recommendations contained in the SEC staff’s Report on Modernization and Simplification of Regulation S-K (see this PubCo post). According to Clayton, the staff “is making good progress on preparing rulemaking proposals based on this report….”
Will pay-ratio disclosure benefit investors?
One of the arguments that has often been used to oppose the Dodd-Frank pay-ratio provision is that the rule does not really provide information that benefits investors; instead, the argument goes, the real animus for the rule is a political effort to focus attention on inequality. Now, an analysis of governance ratings from Bank of America Merrill Lynch, reported in the WSJ, suggests that pay-ratio information just could provide some warning signs that investors may find valuable.
Form what? CAQ offers help for audit committees in understanding and using Form AP
Remember Form AP? That’s the form that the PCAOB is now requiring audit firms to use to name individual audit engagement partners. The form will also disclose the names and Firm IDs, locations and extent of participation of any other accounting firms, outside of the principal auditor, that participated in the audit, if their work constituted 5% or more of the total audit hours. (See this PubCo post.) Should companies care? Yes, says the Center for Audit Quality: the disclosures made in Form AP can help audit committee members in satisfying their responsibilities to oversee the engagement audit firm as well as other audit participants.
What’s up with the declining number of IPOs?
At a meeting on Thursday of the SEC’s Investor Advisory Committee, a panel discussed the declining number of IPOs, a topic that seems to be top of mind for many in the securities arena. Of course, there’s a reason for that; according to a panelist from EY, there were about 8,000 public companies in 1996, but only about 4,000 now. What happened?
Does the health of the economy depend on getting the role of shareholders right?
Are shareholders really the “owners” of corporations? Even though shareholders have no responsibilities to the corporations they “own”? Should corporations be managed for the sole purpose of maximizing shareholder value? Are shareholders even unanimous in that objective? Is shareholder centricity really the right model for good governance of corporations? What changes in corporate governance have been fueled by the shareholder primacy model? Do those changes make sense? What has been the adverse fallout from the current fastidious devotion to shareholder preeminence? These are just some of the issues addressed in this terrific piece by two Harvard Business School professors, Joseph L. Bower and Lynn S. Paine, in the Harvard Business Review. In their view, the “health of the economic system depends on getting the role of shareholders right.” Highly recommend.
Will dual-class structures torpedo the business judgment rule?
While there has certainly been a lot of debate about the merits and demerits of dual-class stock, one interesting angle was raised by Charles Elson, director of the University of Delaware’s John L. Weinberg Center for Corporate Governance Delaware Law. In an interview reported in Bloomberg BNA, Elson predicts that expanded use of dual-class corporate structures will lead the Delaware courts to reconsider the business judgment rule. For companies with no- or low-vote classes of shares, is the business judgment rule in jeopardy?
House passes Financial Choice Act of 2017. What now?
by Cydney Posner The Financial Choice Act of 2017 has been passed by the House (almost surreptitiously, given the unwavering focus on the Senate hearing today). According to the WSJ, the House vote was 233 to 186. The bill, sponsored by Jeb Hensarling, Chair of the House Financial Services Committee, […]
Pay for performance — more style than substance?
Comp Committees appear to have gotten the message when it comes to executive pay for performance. As discussed in this article in the WSJ, executive compensation “is increasingly linked to performance,” but investors are now asking whether the bar for performance targets is set too low to be effective. Are companies just paying lip service to the concept?
The CAMs are coming: PCAOB adopts new standard to enhance audit reports
by Cydney Posner Yesterday, as anticipated, the PCAOB adopted, subject to SEC approval, a new auditing standard for the auditor’s report that, while retaining the usual pass/fail opinion, will require auditors to include a discussion of “critical audit matters,” that is, “matters communicated or required to be communicated to the […]
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