Corp Fin further refines Rule 14a-8(i)(9) exclusion

In past few years, after Corp Fin issued Staff Legal Bulletin 14H redefining the meaning of “direct conflict” under the Rule 14a-8(i)(9) exclusion for “conflicting proposals,” the staff has continued to fill in the outline of what works and what doesn’t work under the new interpretation of the exclusion. In American Airlines Group (avail. April 2, 2018), the staff concluded that the approach taken by the company was coloring outside the lines and denied no-action relief.

Corp Fin posts two new CDIs regarding non-GAAP financial measures in the M&A context

Corp Fin has posted two new CDIs regarding the use of non-GAAP financial measures in connection with business combinations, summarized below:

Study: What makes a good board chair?

In this article from the Harvard Business Review, “How to Be a Good Board Chair,” the author, an academic and consultant, discusses good practices for the board chair’s role based on a survey of 200 board chairs from 31 countries, 80 interviews with chairs and 60 interviews with board members, shareholders and CEOs.  According to the author, international differences notwithstanding, he “found a remarkable degree of agreement about what makes a good chair.”

Human capital management moves to the forefront as an investor concern

For 2018, BlackRock has identified human capital management as one of its engagement priorities, echoing the exhortation from BlackRock CEO Laurence Fink in his 2018 annual letter to public companies: with governments seeming to fall short, it is up to the private sector to “respond to broader societal challenges”; companies must look to benefit their broader communities and all of their stakeholders, including employees, and that involves investment in efforts to create a diverse workforce, to develop retraining programs for employees in an increasingly automated world and to help prepare workers for retirement. (See this PubCo post.)  With that mission in mind, in this post on The Harvard Law School Forum on Corporate Governance and Financial Regulation, Michelle Edkins, Managing Director and Global Head of Investment Stewardship at BlackRock, discusses Blackrock’s approach to engagement with companies on the topic of HCM. While, as an investor concern, HCM may not have the high profile  of board diversity, climate change or executive comp, it may well be on its way.

Public companies expected to be required to disclose government subsidies

This article in Bloomberg BNA reports that FASB is expected to issue new rules this year that will require public companies to disclose the amount of their government subsidies. Government support would include, for example, cash and non-cash economic incentives such as grants to assist in buying a building, land grants, low-interest loans, interest expense subsidies, tax abatements providing relief from property tax, sales and use tax or payroll tax, and other legally enforceable government incentives.  It remains to be seen whether—and how—the public might react to this information. 

CAQ issues new roadmap for audit committees on non-GAAP measures

The Center for Audit Quality has issued a new guide for audit committees related to non-GAAP financial measures. Based on information gained from a series of roundtables held in 2017,  Non-GAAP Measures: A Roadmap for Audit Committees identifies common themes and key considerations for audit committees, including leading practices to help assess whether a company’s non-GAAP measures present “high-quality non-GAAP measures.”  And what exactly is a “high-quality non-GAAP measure”? According to the CAQ, a non-GAAP measure is high-quality if it provides a “balanced representation of the company’s performance.” 

Report on international disclosure of “key audit matters”

This study conducted by the Association of Chartered Certified Accountants reports on the results of a year of international reporting of “key audit matters,” the International Auditing and Assurance Standards Board’s analog to “critical audit matters” in the U.S.  The study looked at 560 audit reports across 11 countries.  These types of studies may provide some useful insights for companies in the U.S.: disclosure of “critical audit matters” will be required as part of the auditor’s report in the U.S. for audits of fiscal years ending on or after June 30, 2019 (for large accelerated filers) and December 15, 2020 (for all other companies to which the requirements apply). According to the study, financial reporting improved following the adoption of KAMs in 2016. Not only did the disclosures themselves provide better information, but the study saw improvements in governance, audit quality and corporate reporting.