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. As reported by the WSJ, Moffatt indicated that “to the extent that the phaseout of Libor is material to a company,…we would definitely expect a company to disclose that fact and describe the implications of the phaseout, including any associated risks, to investors.’” (See this PubCo post.) But, in making that assessment and any related disclosure, what should companies consider?
Much has been written about the problems associated with the prevalence of short-term thinking in corporate America. As noted in a post from The Harvard Law School Forum on Corporate Governance and Financial Regulation, an academic study revealed that “three quarters of senior American corporate officials would not make an investment that would benefit a company over the long run if it would derail even one quarterly earnings report.” (See this PubCo post and this article in The Atlantic.) Apparently, that was no joke. As reported in Forbes, for the first six months of 2018, companies in the S&P 500 spent $367 billion on stock buybacks—which can drive increases in quarterly EPS without increasing the underlying long-term economic value of the company—while capex totaled only $317 billion. ls there a way to engineer a course correction?
You might want to take a look at this interesting column from Bloomberg’s Matt Levine, talking about some recent developments in the IPO market. Apparently, a second company is contemplating conducting an IPO through a direct listing, a listing process run outside of the conventional underwritten offering in which the company files with the SEC to allow certain of its outstanding shares to be sold directly into the market, without the traditional help from the underwriters in marketing the deal. Although the company does not raise any funds itself, it becomes a public company and provides a market in which shares may sold by selling shareholders at prevailing market prices. The process may be particularly appealing to companies that are very well known and well funded, but want to trade publicly, since the costs of going public are generally lower and the process can be somewhat quicker than a traditional IPO.
If you’re looking for some entertaining reading, look no further! It’s the Cooley Alert version of The Big Short: SEC Adopts Final Hedging Disclosure Rules. Why wait for the movie adaptation when you can read the Alert now?
n case you were questioning whether the SEC continues (assuming it reopens at some point) to address the inappropriate use of non-GAAP financial measures with the same level of gravity as in prior years, you might take note of this recent (cusp of SEC shutdown) enforcement action against ADT. In the proceeding, the SEC sought a cease-and-desist order, alleging that the company violated the non-GAAP disclosure requirements. Interestingly, however, the allegations did not involve any of the more thorny issues regarding individually tailored recognition measures that the SEC sometimes considers misleading, but rather the more prosaic “equal or greater prominence” requirements.
Happy holidays and happy new year everyone!
Here’s the latest from the SEC:
In the event of a federal government shutdown, the SEC will follow the agency’s plan, which contemplates focusing on “market integrity and investor protection.” Starting Thursday, December 27, the SEC “will have only an extremely limited number of staff members available to respond to emergency situations involving market integrity and investor protection, including law enforcement. In addition, certain Commission systems, including EDGAR, will be operating. Additional information is available from the Division of Corporation Finance and the Division of Investment Management.” Corp Fin has provided some FAQs (summarized below) that may be helpful for those in the registration process or contemplating offerings.
On Tuesday, the SEC finally dredged up the 2015 proposal to implement section 955 of Dodd-Frank regarding hedging disclosure in proxy statements and, without an open meeting, voted—yes finally—to adopt it. Section 955 mandated disclosure about the ability of a company’s employees or directors to hedge or offset any decrease in the market value of equity securities granted as compensation to, or held directly or indirectly by, an employee or director. According to the legislative history, the purpose was to “allow shareholders to know if executives are allowed to purchase financial instruments to effectively avoid compensation restrictions that they hold stock long-term, so that they will receive their compensation even in the case that their firm does not perform.” The final rules were adopted “along the lines proposed,” but with some modifications.