Category: Securities
Clayton Q&A and ESG at the SEC’s Investor Advisory Committee meeting
At last week’s meeting of the SEC’s Investor Advisory Committee, the Committee members held a Q&A session with SEC Chair Jay Clayton, followed by a discussion of environmental, social and governance disclosure, where the main question appeared to be whether to recommend that ESG disclosure be required through regulation, continued as voluntary disclosure but under a particular framework advocated by the SEC or continued only to the extent of private ordering as is currently the case.
Among the points addressed in the Q&A was a potential government shutdown. Clayton said that the SEC was planning for a possible shutdown, and that, as in previous shutdowns, he expected the SEC would be able to continue its operations for a number of days post-shutdown.
CAQ discusses lessons learned from “dry runs” on critical audit matters and related questions for audit committees
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.” Because the selection of and disclosure regarding CAMs will certainly present a challenge for both auditors and audit committees, auditors have been taking steps to prepare for the coming change, including conducting “dry runs” to get a better handle on how the new CAM disclosures will look and how the process will affect financial reporting. To provide some lessons learned from these early dry runs and enhance the understanding of audit committees, auditors and other participants in the process, the Center for Audit Quality has published Critical Audit Matters: Lessons Learned, Questions to Consider, and an Illustrative Example.
As issues of corporate social responsibility continue to gain ground, will the issue of gun safety become more prominent this proxy season?
A lot has been written about institutional investors’ turn toward issues of corporate social responsibility. One CSR topic that has received a lot of attention in the last few years has been firearms safety. In this post, published last week on The Harvard Law School Forum on Corporate Governance and Financial Regulation, a coalition of investors, including CalPERS, CalSTRS, Rockefeller Asset management and State Street Global Advisors, has developed The Responsible Civilian Firearms Industry Principles, intended to encourage companies involved in the manufacture, distribution, sale and enforcement of regulation of the firearms industry to take action in support of the responsible use of firearms. According to the post, in asserting its “role as investors,” the group identifies “expectations for the firearms industry that will reduce risks and improve the safety of civil society at large. Further, we commit to monitoring progress by companies over time and engaging with them regularly on this issue, especially in support of enterprises that champion adoption of responsible practices….We call on companies within the civilian firearms industry to publicly demonstrate and publish their compliance with each of these principles, failing which, we will consider using all tools available to us as investors to mitigate these risks.”
SEC accounting fellows address evaluation of internal control over financial reporting
A number of members of the SEC accounting staff addressed the 2018 AICPA Conference on Current SEC and PCAOB Developments. Some of the remarks provided helpful guidance for evaluating internal control over financial reporting.
Clayton reviews 2019 regulatory priorities and risks the SEC is monitoring
In a speech given yesterday at Columbia University, SEC Chair Jay Clayton reviewed the SEC’s regulatory achievements over the past year, metaphorically slapping the SEC and the staff on the back for a job well done in accomplishing 88% of the items identified on the SEC’s near-term agenda for fiscal 2018. Of particular interest, however, was his discussion of the some of the priority items on the 2019 agenda. In closing, Clayton hammered again at three risk areas that the SEC is currently monitoring—yes, those three. Clearly, the signal is that companies should consider these risks.
SEC and EDGAR closed on Wednesday in observance of national day of mourning
The SEC has posted this announcement regarding the closure of the SEC and the EDGAR system on Wednesday, December 5, 2018, in observance of a national day of mourning for former President George H.W. Bush.
No-action letters provide more insight into “ordinary business” exclusion under Rule 14a-8(i)(7)
On the heels of the release of SLB 14J, Corp Fin has posted a couple of new no-action letters that shed some more light on the “ordinary business” exclusion of Rule 14a-8(i)(7). As you may recall, in SLB 14J, the staff addressed the nature of the board analysis the staff would find most “helpful” in evaluating a no-action request to exclude a shareholder proposal under Rule 14a-8(i)(7), as well as “micromanagement” as a basis for exclusion under that same Rule. Most impressive is that, in the response letters, the staff actually includes a sentence or two that provides some insight into the staff’s reasoning. If you recall, a request for more clarity from the staff was one of the comments raised at the SEC’s proxy roundtable, and the staff appears to have heard. (See this PubCo post.) Both of the letters were submitted in connection with proposals to Walgreens Boots Alliance.
ISS posts 2019 policy updates
Yesterday, ISS announced updates to its policies for next year. Like Glass Lewis a month ago, ISS is also—shall we say “unfriendly”— to boards of companies that submit to shareholders a charter or bylaw ratification proposal while excluding, as permitted under SEC rules and staff no-action positions, a conflicting shareholder proposal. Below are some of the highlights of the ISS updates:
What happened at the SEC’s proxy process roundtable?
At last week’s proxy process roundtable, three panels, each moderated by SEC staff, addressed three topics:
proxy voting mechanics and technology—how can the accuracy, transparency and efficiency of the proxy voting and solicitation system be improved?
shareholder proposals—exploring effective shareholder engagement, experience with the shareholder proposal process, and related rules and SEC guidance
proxy advisory firms—can the role of proxy advisors and their relationship to companies and institutional investors be improved?
The first panel, on proxy plumbing, was characterized by the panelist who began the discussion as “the most boring, least partisan and, honestly, the most important” of the three topics. (But it was surprisingly not boring.) The last panel, on proxy advisory firms, was characterized by Commissioner Roisman as the “most anticipated,” but the expected fireworks were notably absent—except, perhaps, for the novel take on the subject offered by former Senator Phil Gramm. Here are the Commissioners’ opening statements: Chair Clayton, Stein and Roisman
Corp Fin Chief Accountant echoes theme of need for Brexit, LIBOR and cybersecurity disclosure
Officials at the SEC all seem to be singing the same tune these days, emphasizing the need to amp up company disclosures regarding Brexit, the LIBOR phase-out and cybersecurity. As reported by the WSJ, Corp Fin Chief Accountant Kyle Moffatt, speaking at the FEI Current Financial Reporting Issues Conference, echoed the earlier informal guidance provided by SEC Chair Jay Clayton, Corp Fin Director William Hinman and Deputy Director Shelley Parratt that the SEC will be looking for enhanced disclosure on these topics where material. (See this PubCo post.) Given the onslaught of admonitions, companies would be well advised to pay attention.
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