Category: Securities
Commissioner Roisman talks cybersecurity
On Friday, in remarks before the L.A. County Bar Association, SEC Commissioner Elad Roisman addressed some of the challenges associated with cybersecurity and cyber breaches and similar events. In his presentation, Roisman considers cybersecurity in a variety of contexts, such as the exchanges, investment advisers and broker-dealers, but his discussion of cybersecurity in the context of public companies is of most interest here. Although the SEC has imposed some principles-based requirements and issued guidance about cybersecurity disclosure, Roisman believes that there is more in the way of guidance and even rulemaking that the SEC should consider “to ensure that companies understand [the SEC’s] expectations and investors get the benefit of increased disclosure and protections by companies.”
Upcoming corporate governance forum and new resource for public companies
A new conference and a new public company resource!
SEC Acting Chief Accountant urges scrutiny of auditor independence in current environment
This week, Acting Chief Accountant Paul Munter issued a statement regarding the importance of auditor independence—a concept that is “foundational to the credibility of the financial statements.” The responsibility to monitor independence is a shared one: “[w]hile sourcing a high quality independent auditor is a key responsibility of the audit committee, compliance with auditor independence rules is a shared responsibility of the issuer, its audit committee, and the auditor.” That has long been the case. But what is happening in the current setting to prompt this statement? It is the recent trend toward the use of “new and innovative transactions” to access the public markets, such as SPACs, together with the continued expansion by audit firms of business relationships with non-audit clients. That is, gatekeepers must be especially vigilant to prevent an audit firm from unwittingly losing its independence in the event of a transaction by an audit client with a non-audit client, a risk that is enhanced as audit firms engage in consulting relationships with more non-audit clients. This environment, Munter cautions, requires audit committees to be especially attentive in considering “the sufficiency of the auditor’s and the issuer’s monitoring processes, including those that address corporate changes or other events that potentially affect auditor independence.” And it requires audit firms to consider “the impact of business relationships and non-audit services on existing and prospective audit relationships.” It is important for companies to keep in mind that violations of the auditor independence rules can have serious consequences not only for the audit firm, but also for the audit client. For example, an independence violation may cause the auditor to withdraw the firm’s audit report, requiring the audit client to have a re-audit by another audit firm. As a result, in most cases, inquiry into the topic of auditor independence should certainly be a recurring menu item on the audit committee’s plate.
NAM sues SEC over decision not to enforce proxy advisory firm rules
For years, many companies and business lobbies, such as the National Association of Manufacturers, repeatedly raised concerns about proxy advisory firms’ concentrated power and significant influence over corporate elections and other matters put to shareholder votes, leading to questions about whether these firms should be subject to more regulation and accountability. (See, e.g., this PubCo post, this PubCo post and this PubCo post.) In July 2020, the SEC adopted, by a vote of three to one, new amendments to the proxy rules regarding proxy advisory firms. At the time of adoption of the new rules, then-SEC Chair Jay Clayton observed that the final rules were the product of a 10-year effort—commencing with the SEC’s 2010 Concept Release on the U.S. Proxy System—which led to “robust discussion” from all market participants. Commissioner Allison Herren Lee, who dissented, objected to the rule changes as “unwarranted, unwanted, and unworkable.” When new SEC Chair Gary Gensler was confirmed, he asked the SEC staff to take another look at the rule amendments, and Corp Fin stated that, during the reconsideration period, it would not recommend enforcement action. Now, as reported on thecorporatecounsel.net blog, NAM has just announced that it has filed suit in federal court against the SEC for failure to enforce its final rules on proxy advisory firms.
Gensler’s fireside chat
In a virtual “fireside chat”—is that an oxymoron?—hosted by NYU law, SEC Chair Gary Gensler was interviewed by former SEC Commissioner and current NYU professor Robert Jackson. Much of the discussion involved topics that Gensler has already addressed in the past, such as gamification and digital engagement practices (see e.g., this PubCo post and this PubCo post). Gensler was also quite reluctant to “get ahead of the rest of the SEC” on some issues and purposefully avoided discussion of actions by specific companies, such as Glass-Lewis’s recent announcement that it would offer equity plan advisory services—will that present a conflict?—and BlackRock’s recent decision to pass-through certain voting rights to institutional clients (see this PubCo post). However, he did offer some updates on various projects at the SEC.
Investors urge governments to act on climate, including risk disclosure
A group of 587 institutional investors managing over $46 trillion in assets have signed a new statement calling on governments to undertake five priority actions to accelerate climate investment before COP26, the 26th United Nations Climate Conference in Glasgow in November. The statement, the 2021 Global Investor Statement to Governments on the Climate Crisis, was coordinated by The Investor Agenda, a group founded by Asia Investor Group on Climate Change, CDP, Ceres, Investor Group on Climate Change, Institutional Investors Group on Climate Change, Principles for Responsible Investment and UNEP Finance Initiative. According to the Agenda, the statement comes after “a month which brought more catastrophic weather events around the world, and the alarming predictions of the Intergovernmental Panel on Climate Change that without immediate, rapid and large-scale emissions reductions, limiting global warming to 1.5 degrees Celsius will be beyond reach. The risks this brings to the portfolios of asset managers and owners are enormous.” The statement urges governments to address the “gaps—in climate ambition, policy action and risk disclosure—[that] need to be addressed with urgency.”
SEC revisits 2015 Dodd-Frank clawback proposal—opens public comment period
It’s time to dig back into your mental archives for 2015. That’s when the SEC, by a vote of three to two, initially proposed rules to implement Section 954 of Dodd-Frank, the clawback provision. But the proposal was relegated to the SEC’s long-term agenda and never heard from again. Until, that is, the topic found a spot on the SEC’s short-term agenda this spring (see this PubCo post) with a target date for a re-proposal of April 2022. The SEC had scheduled an open meeting for Wednesday to consider re-opening the comment period, but instead cancelled the meeting and, on Thursday, simply posted a notice. Here is the original 2015 Proposing Release and here is the new fact sheet. SEC Chair Gary Gensler said that, with re-opening of the comment period, he believed “we have an opportunity to strengthen the transparency and quality of corporate financial statements as well as the accountability of corporate executives to their investors.” The questions posed by the SEC in the notice (discussed below) give us some insight into where the SEC may be headed with the proposal. It’s worth noting that one possible change suggested by the questions is a potential expansion of the concept of “restatement” to include not only “reissuance” restatements (which involve a material error and an 8-K), but also “revision” restatements (or some version thereof). The public comment period will remain open for 30 days following publication of the release in the Federal Register.
SEC adopts final rules to modernize filing fee disclosure and payment methods
Yesterday afternoon, the SEC announced that it had—unanimously—adopted amendments, largely as originally proposed in 2019, to modernize filing fee disclosure and payment methods. How long has it been since the SEC adopted anything unanimously? Apparently it took a far-from-spellbinding 432-page adopting release about filing fee disclosure and Automated Clearing House payments to finally achieve that level of comity. Here is the brief fact sheet. The amendments revise almost everything—“most fee-bearing forms, schedules, statements, and related rules”—to require each fee table and accompanying explanatory notes (which will now be moved to a separate exhibit) to include “all required information for fee calculation in a structured format.” That means more XBRL. The amendments also add new options for fee payment using ACH and debit and credit cards, retain the current option for payment by wire transfer, but eliminate fee payment with paper checks and money orders. Most of the amendments will become effective on January 31, 2022 with extensive transition periods to allow filers time to comply with the Inline XBRL structuring requirements. The amendments related to ACH and debit and credit cards will become effective on May 31, 2022.
SEC Commissioners speak
At yesterday’s “SEC Speaks” conference from PLI, SEC Chair Gary Gensler and Commissioners Allison Herren Lee, Elad Roisman and Caroline Crenshaw all delivered remarks on different topics. Gensler discussed the use of predictive digital analytics in finance, Lee examined the explosive growth of the private markets and proposed to address the lack of transparency by revising how we define “holders of record” under Section 12(g), Roisman focused on the SEC’s past efforts to facilitate capital formation by reviewing and streamlining existing regulation, and Crenshaw discussed crypto and the need for a meaningful exchange of ideas between innovators and regulators.
You must be logged in to post a comment.