Today, the SEC staff issued a revised Statement regarding the extension, for an indeterminate period, of temporary relief related to authentication document retention requirements under Rule 302(b) of Reg S-T in light of light of public health and safety concerns regarding COVID-19. This staff Statement is temporary and remains in effect until the staff provides public notice that it no longer will be in effect; that notice will be published at least two weeks before the announced termination date. Nothing new there. But what is new is that the Statement indicates that the staff will not recommend enforcement action if filers take advantage of the new electronic signature rules even before the effective date of those rules.
If Matt Levine has a mantra in his “Money Stuff” column on Bloomberg, it’s this: everything is securities fraud. “You know the basic idea,” he often says in his most acerbic voice,
“A company does something bad, or something bad happens to it. Its stock price goes down, because of the bad thing. Shareholders sue: Doing the bad thing and not immediately telling shareholders about it, the shareholders say, is securities fraud. Even if the company does immediately tell shareholders about the bad thing, which is not particularly common, the shareholders might sue, claiming that the company failed to disclose the conditions and vulnerabilities that allowed the bad thing to happen. And so contributing to global warming is securities fraud, and sexual harassment by executives is securities fraud, and customer data breaches are securities fraud, and mistreating killer whales is securities fraud, and whatever else you’ve got. Securities fraud is a universal regulatory regime; anything bad that is done by or happens to a public company is also securities fraud, and it is often easier to punish the bad thing as securities fraud than it is to regulate it directly.” (Money Stuff, 6/26/19)
In this rulemaking petition filed by the U.S. Chamber Institute for Legal Reform and the Center for Capital Markets Competitiveness of the U.S. Chamber of Commerce, petitioners ask the SEC to take on one aspect of this type of securities litigation—event-driven securities litigation arising out of the COVID-19 pandemic. Will the SEC take action?
ISS has provided some early guidance regarding how it will view pandemic-related changes to executive compensation as part of its pay-for-performance qualitative evaluation. According to ISS, the guidance was informed by direct discussions with investors as well as the results of its annual policy survey. The guidance is summarized below.
Don’t forget to vote!
NYSE again extends temporary waiver of shareholder approval requirements for certain equity issuances
In early April, the SEC approved and declared immediately effective an NYSE rule change to waive, through June 30, 2020 and subject to compliance with conditions, application of certain of the shareholder approval requirements in Section 312.03 of the NYSE Listed Company Manual. That waiver was extended through September 30. Now, the SEC has proposed to extend the waiver through December 31, 2020, and the SEC has declared the proposal immediately effective.
Yesterday, Corp Fin posted two new CDIs, the first relating to SPAC (special purpose acquisition companies) eligibility to use Form S-3 and the second relating to whether COVID-19 benefits should be considered perks.
In this new study, Equilar and the Rock Center for Corporate Governance at Stanford examine how COVID-19 has affected CEO compensation. Are boards focused more on making sure that CEOs have the right incentives to continue their jobs under trying circumstances? After all, in the case of the pandemic, the trying circumstances are not of their own making. Or are boards more inclined to focus on showing the public and other stakeholders, especially employees, that CEOs are “sharing the pain”? CEO pay attracts a lot of attention in ordinary times, but in times of severe economic distress when corporate performance and stock prices plummet and companies engage in substantial layoffs, furloughs and pay cuts for employees—who likewise are not responsible for the economic crisis—CEO pay can attract intense scrutiny. In those circumstances, paying the same or greater levels of CEO comp can seem unfair to the employees and invite shareholder and public criticism. How have boards addressed this issue?
With the SEC presumably about to adopt enhanced disclosure requirements for human capital next week (see this PubCo post), this new report from the World Economic Forum in Davos, prepared in collaboration with consultant Willis Towers Watson, offers a timely new framework for valuing human capital. While the COVID-19 pandemic has increased our focus on the value of the workforce as an asset, this shift in perspective is not entirely new: SEC Chair Jay Clayton has long recognized that, while, historically, companies’ most valuable assets were plant, property and equipment, and human capital was primarily a cost, now, human capital often represents “an essential resource and driver of performance for many companies. This is a shift from human capital being viewed, at least from an income statement perspective, as a cost.” But he also recognized that developing a metric around this issue was not so easy. (See this PubCo post.) The pandemic, however, serves as a springboard: the new WEF report contends that, as “companies look to reset for the new world of work that emerges from the pandemic, they would benefit from an approach that values talent as a key asset that contributes to an organization’s sustained value creation. This calls for the development of a new human capital accounting framework, which would enable a company’s board and management to track how their investment in people is augmenting the firm’s human capital, and support the delivery of better outcomes for the business, the workforce and the wider community.” The report seeks to offer that framework. Whether it actually catches on is another question.
In a recent survey of over 70 nominating/governance committee chairs of S&P 500 and Fortune 500 companies, consultant SpencerStuart asked respondents about how their boards responded to COVID-19 and the nature of any long-term governance changes they anticipated post-pandemic. Somewhat surprisingly, given the issues COVID-19 has created or highlighted for companies, committee chairs do not appear to be in any kind of rush to institute changes—in fact, quite the opposite seems to be the prevailing perspective. Is it just too soon to be thinking about structural or other adjustments to the board? Or, does “stay at home” also mean “stay the course”?
Temporary secure file transfer process for electronic submission of supplemental materials and Rule 83 CTRs
In light of ongoing health and safety concerns arising out of the COVID-19 pandemic, Corp Fin has issued a statement regarding implementation of a new temporary secure file transfer process for the electronic submission of supplemental materials under Rule 418 and Rule 12b-4 and of information subject to Rule 83 confidential treatment requests.
In December 2019, as part of its strategy of enhancing transparency and accessibility through proactive stakeholder engagement, the PCAOB conducted conversations with almost 400 audit committee chairs, focused on audit committee perspectives on topics such as audit quality assessment and improvement and auditor communications, and reported on those conversations. (See this PubCo post.) As noted by PCAOB Chair William Duhnke in this PCAOB webinar for audit committees, the PCAOB prioritized this engagement, viewing informed and engaged audit committees as “force multipliers.” In addition, he noted, the PCAOB had heard criticism early in the process that the PCAOB did not play well with others and was not receptive to feedback—the conversations also represented an effort to address that problem. The PCAOB has continued this same outreach to audit committee chairs during 2020, focused this time on the unprecedented challenges created by COVID-19 and its effect on the chairs’ oversight of financial reporting and the audit. The responses regarding the impact of the pandemic varied widely, depending on the industry and company. The chairs identified a number of new or increased risks, including cybersecurity, employee safety and mental health, going concern, accounting estimates, impairments, international operations and accounting implications of the CARES Act. The PCAOB’s recent report summarizes two of the common themes the PCAOB regularly heard from audit committee chairs across industries and highlights some of the helpful questions and considerations that the chairs identified.