Category: Securities
Vexed over Brexit disclosure
The WSJ is reporting that, in a speech to the FEI Current Financial Reporting Issues Conference in New York, SEC Chair Jay Clayton advised the audience that the SEC is “sharpening its focus on corporate disclosures about the risks associated with the U.K.’s exit from the European Union….‘My personal view is that the potential impact of Brexit has been understated….I would expect companies to be looking at this closely and sharing their views with the investment community.’” To be sure, in terms of potential disruption, some practitioners have likened the havoc that Brexit could create to the chaos anticipated from the Y2K bug! But even if that analogy turns out to be a bit too apocalyptic, as we approach 10-K season, companies should consider how Brexit could affect their businesses and whether that impact merits disclosure.
SASB issues sustainability accounting standards for 77 industries
Way back in 2016, the SEC issued a Concept Release requesting comment on an enormous variety of potential changes to Reg S-K, including sustainability. (See this PubCo post.) As reported by BNA, then-Director of Corp Fin, Keith Higgins, advised that the highest proportion of comments received on the Reg S-K Concept Release related to better environmental and social responsibility disclosure. He observed that, of the 360 “unique” comment letters (i.e., non-form letters) received, about 80% “were looking for improved sustainability disclosure.” The problem, he recognized, was that those types of sustainability disclosures were not necessarily amenable to one-size-fits-all rulemaking. According to Higgins, “[c]limate change tops the list of issues….” However, he acknowledged, the issues involved in sustainability “cut across 79 different industries and aren’t suited to a constant set of rules….‘Everyone recognizes that one-size-fits-all disclosure is likely not to be so effective in the sustainability area—others recognize the enormity of that task.’” (See this PubCo post.) Now, independent standard-setting organization SASB, the Sustainability Accounting Standards Board, seems to have come to the rescue, announcing that it has published a series of sustainability accounting standards specifically tailored for 77 industries. According to the SASB Chair, the publication of these standards represents an “important milestone” because they provide “codified, market-based standards for measuring, managing, and reporting on sustainability factors that drive value and affect financial performance.” Will the SEC now take up the challenge of sustainability disclosure?
NYSE proposes change to conform to new SEC definition of smaller reporting company
The NYSE has proposed a change to Section 303A.00 of the Listed Company Manual related to the exemption from the compensation committee requirements applicable to smaller reporting companies. (See this Cooley Alert.) The amendment is intended to conform the Section to the new SEC rules related to SRCs.
Corp Fin updates CDIs related to smaller reporting companies
Corp Fin has posted some updates to its CDIs relating to the new rule amendments regarding smaller reporting companies. (See this Cooley Alert and the SEC’s Amendments to the Smaller Reporting Company Definition — Compliance Guide.) In connection with the new updates, Corp Fin has also withdrawn a number of CDIs (presumably, at least in part, because they were no longer appropriate in view of the changes to the rules). Below are summaries:
NYSE proposes to amend shareholder approval requirements
No, it’s not Groundhog Day. (In fact, it’s election day. Go vote!) But this proposal from the NYSE to amend Sections 312.03 and 312.04 of the Listed Company Manual sounds remarkably similar to the one that the SEC has just approved for Nasdaq—modifications to the price requirements for purposes of determining whether shareholder approval is required for certain issuances. (See this PubCo post.) Just like the new Nasdaq rule, the NYSE proposal would
change the definition of market value for purposes of the shareholder approval rule and
eliminate the requirement for shareholder approval of issuances at a price less than book value but greater than market value.
EY offers new analysis of cybersecurity disclosures
In this report, EY discusses an analysis it conducted of voluntary cybersecurity-related disclosures in the 10-Ks and proxy statements of Fortune 100 companies (79 companies that had filed as of September 1, 2018). The analysis notes that, not only are regulators focused on cybersecurity risk management and disclosure, but investors consider cybersecurity risk management as critical to the board’s risk oversight responsibilities and boards are increasingly engaged on the topic. The analysis found a wide variation in the depth and nature of the disclosures.
Do we still need to post XBRL data files on our website?
Now that it’s time for 10-Q filings, questions have been raised about the timing of some of the Inline XBRL-related changes. (See this Cooley Alert and this PubCo post.)
SEC amends disclosure rules for mining companies
The SEC has adopted new rule amendments to modernize disclosures by mining companies.
Glass Lewis posts 2019 proxy and shareholder initiative guidelines
Proxy advisor Glass Lewis has posted its 2019 Proxy Guidelines and 2019 Guidelines Regarding Shareholder Initiatives. One of the more striking points is that GL indicates that it may, albeit in limited circumstances, recommend against the members of the nominating/governance committee simply for successfully requesting no-action relief from the SEC to exclude (and presumably excluding) a shareholder proposal, where GL views the exclusion to have been detrimental to shareholders. GL’s new guidance includes the following updates:
CII petitions NYSE and Nasdaq regarding multi-class share structures
The Council of Institutional Investors has announced that it has filed petitions with the NYSE and Nasdaq requesting that each exchange amend its listing standards to address the issue of multi-class capital structures (i.e., share structures that have unequal voting rights for different classes of common stock). As requested by the petition, the amendment would require that, going forward, companies seeking to list with multi-class share structures include provisions in their governing documents that would sunset the unequal voting at seven years following an IPO and return the structure to “one-share, one-vote” structures, “subject to extension by additional terms of no more than seven years each, by vote of a majority of outstanding shares of each share class, voting separately, on a one-share, one-vote basis.” According to CII, unequal voting rights impair the ability of shareholders “to hold executives and directors accountable.” But companies contend that these measures are being adopted for a valid reason: to protect the company from unwanted interventions by hedge-fund activists with short-term goals and perspectives. Accordingly, the debate has centered around whether these measures are a legitimate effort to protect companies from the pressures of short-termism exerted by hedge-fund activists and others or are a mechanism that causes shareholders to cede power without providing accountability. Of course, the answer depends on where you sit.
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