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.
Heat’s on for climate change disclosure rules
A new rulemaking petition advocating that the SEC mandate environmental, social and governance disclosure under a standardized comprehensive framework has just been submitted by two academics and multiple institutional investors, representing over $5 trillion in assets. Not only is ESG disclosure material and relevant to understanding long-term risks, the petition contends, but the variety of approaches currently employed highlight the need for a more coherent standard that will provide clarity, completeness and comparability. In the past, concerns have been raised about whether uniform disclosure rules could really be effective for ESG. Can those concerns be overcome?
Why do auditors so rarely find fraud?
Are we just reading the wrong newspapers and reports or does it seem that auditors—although they spend hours and hours performing audits—rarely identify instances of fraud? Most companies rely on their auditors to uncover irregularities and breathe a sigh of relief when the audit comes up “clean.” Is that reliance misplaced? Probably so, according to this article from CFO.com. “Audits almost never find fraud,” the author writes; the data shows that “external audits find it 4% of the time, and internal 15%.” Instead, the author suggests, to detect fraud, management should look in a different direction.
California mandates quotas for board gender diversity—will it fuel a movement?
As discussed in this PubCo post from February, a California bill, SB 826, addressing the issue of board gender diversity, has been making its way through the California legislature. On Sunday, Governor Jerry Brown signed that bill into law. Interestingly, one factor apparently influential in his decision to sign the bill was the recent hearing in Washington. As you may have heard, the legislation requires, as Brown phrases it, a “representative number” of women on boards of public companies, including foreign corporations with principal executive offices located in California. Will other states now follow suit? Will corporations incorporated in other states observe its provisions or challenge the application of this California law?
SEC approves amendments to Nasdaq Rule 5635(d), shareholder approval of certain private issuances
In January, as discussed in this PubCo post, Nasdaq proposed to modify the listing requirements in Rule 5635(d) to
(i) change the definition of market value for purposes of the shareholder approval rule and
(ii) eliminate the requirement for shareholder approval of issuances at a price less than book value but greater than market value.
In August, Nasdaq filed Amendment No. 1, which clarified certain terms. The SEC has just approved the proposed rule change, as amended, on an accelerated basis.
Staff provides a bit of relief regarding compliance with Disclosure Update and Simplification
You may have noticed that there’s still no effective date for the new Disclosure Update and Simplification, which was adopted in August. (See this Cooley Alert.) The new amendments are scheduled to become effective 30 days after publication in the Federal Register, but at this point, the release has not been published. The reason for the delay is anyone’s guess. In the meantime, however, questions have arisen about when filers may be expected to comply with certain financial statement requirements in the new amendments for purposes of upcoming Forms 10-Q.
Were reports of the demise of universal proxy premature?
The possibility of the imposition of mandatory universal proxy has long been with us. The SEC apparently considered requiring universal proxies back in 1992 and, in 2014, the Council of Institutional Investors filed a rulemaking petition asking the SEC to reform the proxy rules to facilitate the use of universal proxies in proxy contests. Then, in 2016, the SEC proposed amendments to the proxy rules that would have mandated the use of universal proxy cards in contested elections. And there it sat. With the change of administrations in the White House, followed by the change of administrations at the SEC, the proposal for universal proxy fell off the SEC’s near-term agenda and was relegated to the long-term agenda. Moreover, disfavored by House Republicans, universal proxy would have been prohibited by various bills, including the Financial Choice Act of 2017 (which passed the House but not the Senate). (See this PubCo post.) Then, in July of this year, “several people familiar with the matter” advised Reuters that SEC Chair Jay Clayton “has in fact shelved the proposal.” (See this PubCo post.) The possibility of mandatory universal proxy had been transfigured into more of a spectral presence.
Reminder: interim financial statements must be “reviewed”
Here’s a reminder from the SEC: interim financial statements included in Forms 10-Q are required to be “reviewed” by outside auditors. On Friday, in a first enforcement proceeding of its kind, the SEC announced charges against five companies that had filed their 10-Qs with their quarterly financial statements prior to review by their independent external auditors.
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