Category: Securities
New SLB 14J on shareholder proposals revisits the economic relevance and ordinary business exclusions
Corp Fin has just released a new staff legal bulletin on shareholder proposals—we’re up to 14J—that once again examines the exclusions under Rules 14a-8(i)(5), the “economic relevance” exception, and 14a-8(i)(7), the “ordinary business” exception. Notably, these rules were also the subject of SLB 14I. More specifically, the new SLB provides guidance with regard to the following:
the nature of the board analysis the staff would find most “helpful” in evaluating a no-action request to exclude a shareholder proposal,
“micromanagement” as a basis for exclusion under Rule 14a-8(i)(7) and
the application of Rule 14a-8(i)(7) to exclude proposals related to senior executive and/or director compensation matters.
Corp Fin staff issues new CDIs regarding cross-border exemptions
The staff of Corp Fin have posted a revised set of CDIs interpreting the cross-border exemptions. The new CDIs replace the 17-year old interpretations that were contained in Section II of the July 2001 Interim Supplement to the antediluvian Telephone Interpretations Manual. (You may even have a copy in a three-hole binder somewhere.) Some of the CDIs reflect only technical revisions, some are substantive and some are entirely new interps.
Semiannual reporting, we hardly knew ye—version 2.0—and other agenda items
No sooner had SEC Chair Jay Clayton, in informal comments at a public event, called a halt to speculation that large public companies would be seeing semiannual reporting any time soon (see this PubCo post), then out comes the Fall 2018 Unified Agenda of Regulatory and Deregulatory Actions, which identifies “Earnings Releases/Quarterly Reports” as a pre-rule stage, substantive, non-significant (really?) agenda item for the SEC. The abstract indicates that Corp Fin “is considering recommending that the Commission seek public comment on ways to ease companies’ compliance burdens while maintaining appropriate levels of disclosure and investor protection.” Legal authority: “not yet determined.” Ok, does Clayton take it all back or does it still mean that, notwithstanding this agenda item, the likelihood of anything materializing as a result is—other than, as Clayton had intimated, perhaps for smaller companies—still pretty slim?
SEC provides equal treatment for victims of Hurricane Michael
The SEC today provided relief for companies and persons directly or indirectly affected by Hurricane Michael and its aftermath. Here is the Order and the related press release (as well as interim final temporary rules related to Reg Crowdfunding and Reg A). The relief is essentially the same as that provided to victims of Hurricane Florence.
SEC issues Section 21(a) investigative report regarding the implications of cyberscams for internal controls
Today, the SEC issued an investigative report under Section 21(a) that advises public companies subject to the internal accounting controls requirements of Exchange Act Section 13(b)(2)(B) of the need to consider cyber threats when implementing internal accounting controls. The report investigated whether a number of defrauded public companies “may have violated the federal securities laws by failing to have a sufficient system of internal accounting controls.” Although the SEC decided not to take any enforcement action against the nine companies investigated, the SEC determined to issue the report “to make issuers and other market participants aware that these cyber-related threats of spoofed or manipulated electronic communications exist and should be considered when devising and maintaining a system of internal accounting controls as required by the federal securities laws. Having sufficient internal accounting controls plays an important role in an issuer’s risk management approach to external cyber-related threats, and, ultimately, in the protection of investors.”
The battle over proxy advisory firms continues
As discussed in this PubCo post and this PubCo post, the role of proxy advisory firms has once again risen to the forefront as a sizzling corporate governance topic, just in time for the SEC Proxy Roundtable on November 15. In advance of the event, interested parties are marshalling their arguments and beginning to present their cases.
Semiannual reporting, we hardly knew ye.
Semiannual reporting, we hardly knew ye.
You remember, of course, that in August, the president, on his way out of town for the weekend, threw out to reporters the idea of eliminating quarterly reporting and moving instead to semiannual reporting. (See this PubCo post.) The argument was that the change would not only save time and money, but would also help to deter “short-termism,” as companies would not need to manage their businesses to meet quarterly analyst expectations at the expense of longer term thinking.
Does hedge-fund activism really increase shareholder value?
The public debate about hedge-fund activism has long been informed by academic literature that found increases in shareholder value and operating performance after activist interventions. But do hedge-fund activists actually do any long-term good for the companies that they target? Long-Term Economic Consequences of Hedge Fund Activist Interventions, from the Rock Center for Corporate Governance, examines just that question. The answer? Not so much. But not so much harm either.
Trends in SOX 404 reporting on ICFR
You probably recall that, under SOX 404(b), all public reporting companies, other than non-accelerated filers and EGCs, are required to obtain an auditor attestation regarding the effectiveness of their internal control over financial reporting. SOX 404(a) requires all public reporting companies, including non-accelerated filers, to provide an assessment of ICFR by management. An analysis by Audit Analytics of SOX 404 reporting on ICFR over 14 years showed that the number of adverse auditor attestations—auditor attestations indicating ineffective ICFR— followed different trend lines than management-only assessments.
SEC staff comment letters regarding non-GAAP financial measures
You might recall that, in 2016 and early 2017, the SEC made a big push—through a series of staff oral admonitions and written guidance, as well as an enforcement action—to require issuers to be more transparent and more consistent in the use of non-GAAP financial measures and to avoid altogether non-GAAP measures that were misleading. For example, companies were advised that they needed to present GAAP measures with equal or greater prominence relative to the non-GAAP measures. (See, e.g., this PubCo post.) By early 2017, the SEC staff were apparently sufficiently satisfied (see this PubCo post) with the responses to their campaign that the pendulum swung back, and the relentless finger-wagging by the staff about non-GAAP financial measures appeared to have tailed off. (See this PubCo post.) But, according to this analysis from Audit Analytics, it wasn’t until this year that the SEC staff’s comments regarding non-GAAP financial measures actually began to decline.