Category: Securities
SEC proposes amendments to financial disclosures in M&A
This morning, once again without an open meeting—whatever happened to government in the sunshine?—the SEC voted to propose amendments intended to improve the disclosure requirements for financial statements relating to acquisitions and dispositions of businesses. According to the press release, the proposed changes are designed to “improve for investors the financial information about acquired and disposed businesses; facilitate more timely access to capital; and reduce the complexity and cost to prepare the disclosure.” The proposal will be open for public comment for 60 days.
Cooley Alert: SEC Adopts Final Rules to Modernize and Simplify Regulation S-K
Most of the SEC’s new disclosure simplification rules will become effective tomorrow. With that in mind, check out this Cooley Alert: SEC Adopts Final Rules to Modernize and Simplify Regulation S-K.
CAMs may be coming, but in the EU, KAMs have already arrived
As you may recall, auditors of large accelerated filers will be required to report on CAMs—critical audit matters—in their auditor’s reports for fiscal years ending on or after June 30, 2019 and in auditor’s reports for all other companies (except EGCs) to which the requirements apply for fiscal years ending on or after December 15, 2020. (See this PubCo post.) As SEC Commissioner Kara Stein observed in her statement on approval of the new rule, the new “standard marks the first significant change to the auditor’s report in more than 70 years.” In Europe, a similar concept has been in operation since 2016: “key audit matters.” What has been the experience so far?
A nugget about conflict minerals reporting
This from consultant Elm Sustainability: Elm advises that companies working on their conflict minerals reporting should not be surprised to see a decline in the number of their audited smelters and refiners:
Commissioner Jackson takes on non-GAAP comp targets
An op-ed co-authored by SEC Commissioner Robert Jackson (who is reportedly planning to leave the SEC this fall, although he’s eligible to stay until the end of 2020) and MIT senior lecturer (and former president of Fidelity) Robert Pozen lambasts the use of non-GAAP targets in determining executive pay, absent more transparent disclosure. The pair argue that, although historically, performance targets were based on GAAP, in recent years, there has been a shift to using non-GAAP pay targets, sometimes involving significant adjustments that can “be used to justify outsize compensation for disappointing results.” What’s the bottom line? Where comp committees base comp on a different scorecard than GAAP, they argue, the committee should have to explain their decision by reconciling to GAAP in the CD&A. Will the SEC take heed?
The “greatest judicial power grab since Marbury v. Madison”? SCOTUS considers Kisor v. Wilkie
As noted in this PubCo post, SCOTUS recently heard oral argument in Kisor v. Wilkie, a case involving the interpretation of a regulation issued by the Department of Veteran’s Affairs. In Kisor, a Vietnam vet, suffering from service-related PTSD, sought retroactive disability benefits from the VA. Interpreting the meaning of the term “relevant” as used in one of its own regs, the VA denied his claim for retroactive benefits. Why is this case important to public companies? Because the question presented to the Court was whether to continue the decades-long deference of courts to the reasonable interpretations by agencies (such as the SEC) of their own ambiguous regulations, often referred to as Auer deference (or Seminole Rock deference, referring to Auer’s antecedent). The decision, expected by this summer, could narrowly restrict, or even completely undo, that deference.
The case represents yet another example of concentrated efforts to dismantle or severely limit the administrative state—or the “deep state,” depending on your point of view. As explained in the opening of the amicus brief of the Cato Institute, quoting Chief Justice Roberts in dissent, “[o]verturning Auer would be a modest but important check on the ‘the danger posed by the growing power of the administrative state.’ City of Arlington, Tex. v. F.C.C.” What’s more, in his cert. petition, Kisor argued that “‘[r]evisiting Auer deference [would be] an appropriate place to begin’ a more complete ‘reconsideration’ of ‘existing doctrines of agency deference,’ including under Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc.” (quoted from the amicus brief of a group of Professors of Administrative Law and Federal Regulation in support of neither party).
Guidance under the gun
Once again, guidance is under the gun. In this recent speech, SEC Commissioner Hester Peirce expressed her concern for SEC staff guidance and interpretation that she seems to view as sometimes runaway or out-of-control and, sometimes, too much under the radar. A few days later, the Acting Director of the Office of Management and Budget joined in, distributing a memo designed to limit rules and guidance that federal agencies issue, particularly outside of the notice-and-comment process. But potentially the most significant impact could result from an important case that SCOTUS is now considering (to be discussed in a separate post), which could undo the historic deference that courts have generally given to agency interpretations of their own regulations, often referred to as Auer deference. In this highly politicized environment, what will be the impact on staff guidance?
Corp Fin devises new short-form process for extensions of confidential treatment orders
No sooner had Corp Fin advised us that there was no easy way to do an extension for a confidential treatment order then, lo and behold, they create one. Today, Corp Fin posted a new streamlined procedure for confidential treatment extensions.
CII defends quarterly reporting
In December 2018, the SEC posted a “request for comment soliciting input on the nature, content, and timing of earnings releases and quarterly reports made by reporting companies.” According to the press release, the request for comment solicits “public input on how the Commission can reduce burdens on reporting companies associated with quarterly reporting while maintaining, and in some cases enhancing, disclosure effectiveness and investor protections. In addition, the Commission is seeking comment on how the existing periodic reporting system, earnings releases, and earnings guidance, alone or in combination with other factors, may foster an overly short-term focus by managers and other market participants.” (See this PubCo post.) At the end of March, the influential Council of Institutional Investors submitted its comments in response to the SEC request.
What is the SEC’s current end game on proxy advisory firms—guidance or regulation?
The newest SEC Commissioner, Elad Roisman, who has reportedly gotten the nod to head up the SEC’s efforts regarding proxy advisory firms, told the U.S. Chamber of Commerce in late March that he expects the SEC to issue new guidance, sometime after proxy season this year, regarding the use by institutional investors of proxy advisory firm recommendations, as reported in The Deal. And, according to the WSJ, Roisman has “also questioned whether it was appropriate for the SEC to exempt proxy advisers from some regulations on investment advice, including whether they can both advise a company and make recommendations to its shareholders at the same time.” However, as discussed in this PubCo post, the question of whether proxy advisory firms, such as ISS and Glass Lewis, have undue influence over the voting process and should be reined in has long been something of a political donnybrook. With the issue of proxy advisory firm regulation so politically freighted, will the SEC limit the scope of its effort to guidance to institutional investors or, more controversially, go further and impose regulation on proxy advisors, as many companies have advocated?
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