Commissioner Roisman defends proxy proposals
The SEC’s recent proxy proposals—both the proposal related to proxy advisory firms (see this PubCo post) and the proposal related to Rule 14a-8 shareholder proposals (see this PubCo post)—have been hit hard by the critics. Even the SEC’s own Investor Advisory Committee piled on, ultimately recommending that the SEC consider a do-over. (See this PubCo post.) To the defense comes SEC Commissioner Elad Roisman, who has been honchoing these proposals at the SEC.
SEC issues public statement on impact of coronavirus on financial reporting and audit quality
In a public statement issued today, SEC Chair Jay Clayton, Corp Fin Director Bill Hinman, SEC Chief Accountant Sagar Teotia and PCAOB Chairman William D. Duhnke III provided guidance regarding the impact of the coronavirus on financial reporting and audit quality, as well as the potential availability of regulatory relief. The statement arose out of the recent continuing dialogue between these officials and the senior leaders of the largest U.S. audit firms regarding difficulties in connection with conducting audits in emerging markets.
SSGA offers roadmap for board oversight of ESG; may vote against directors of ESG “laggards”
It’s not just BlackRock’s CEO that has words for companies. Cyrus Taraporevala, the CEO of State Street Global Advisers, another large asset manager, has recently sent his own letter to company boards cautioning that SSGA’s engagement on sustainability this year will also include the possibility of a proxy vote against directors “to press companies that are falling behind and failing to engage.” While directors can play a vital role in catalyzing action on ESG matters, SSGA recognizes that, in many ways, our understanding of ESG is still in its early stages, making board oversight of ESG something of a challenge. To help demystify sustainability for directors, SSGA has developed a framework intended to provide a roadmap for boards—where to begin—in conducting oversight of sustainability as a strategic and operational issue.
SEC approves Nasdaq changes to definition of “family member”
The SEC has granted accelerated approval of Nasdaq’s amended proposal, originally filed in May 2019, to modify the definition of a “family member” for purposes of determining director independence under Listing Rule 5605(a)(2). As part of the new definition, Nasdaq excludes stepchildren from the definition of “family member,” but will ultimately leave to the board the determination of whether stepchildren who do not live at home with the director nevertheless have a relationship with the director that could interfere with the director’s exercise of independent judgment. Calling Dr. Phil….
Will other states follow California in adopting board gender diversity mandates?
Remember California’s SB 826, the board gender diversity mandate? That law requires each public company with principal executive offices located in California, no matter where they are incorporated, to have a minimum of one woman on its board of directors by the close of 2019. That minimum increases to two by December 31, 2021, if the corporation has five directors, and to three women directors if the corporation has six or more directors. (See this PubCo post.) Has it made a difference? According to reporting from the WSJ, the answer is a big yes. Given the success of the new law in making progress toward its goals, the question then is—are other states now following California’s playbook? Well, kinda, sorta….
Task Force recommends insider trading legislation
As reported on Columbia Law School’s Blog on Corporations and the Capital Markets, the Bharara Task Force on Insider Trading, chaired by former U.S. Attorney for the SDNY, Preet Bharara, and comprising former U.S. Attorneys and staff, academics and judges, has now issued its report and recommendations. The objective of the Task Force was to address the problem that insider trading law “has suffered—and continues to suffer—from uncertainty and ambiguity to a degree not seen in other areas of law, with elements of the offense defined by—and at times, evolving with—court opinions applying particular fact patterns.” Why is that? Because insider trading law is not defined by statute and has instead “developed through a series of fact-specific court decisions applying the general anti-fraud provisions of our securities laws across a broadening set of conduct.” The result has been a lack of clarity that “has left market participants without sufficient guidance” on how to avoid, or defend against, insider trading, made it more difficult for prosecutors to establish their cases and given the public “reason to question the fairness and integrity of our securities markets.”
Nasdaq to propose new tier for thinly traded securities
It’s well recognized that the equity markets work pretty well for companies that trade in high volumes, but companies with low trading volumes? Not so much. Thinly traded securities often face liquidity challenges, including wider spreads, higher transaction costs, fewer market makers and potential difficulties for investors that seek to unwind their positions. These issues can discourage small- and medium-sized enterprises from accessing the public markets, a problem that the SEC has been anxious to address. To find potential solutions for these problems, in October 2019, the SEC solicited proposals for changes in equity market structure designed to improve the secondary trading markets for thinly traded securities. Nasdaq has just announced that it has submitted to the SEC an application for exemptive relief that would facilitate its proposal “to establish a tier nestled [sounds very cozy!] within the U.S. public equity markets that is better tailored and far more hospitable to thinly-traded securities than is the all-purpose, undifferentiated market environment in which they suffer today.”
SEC debate on climate disclosure regulation gets heated
On Thursday, January 30, the SEC proposed amendments designed to simplify and modernize MD&A and the other financial disclosure requirements of Reg S-K. (See this PubCo post.) Although the SEC did not hold an open meeting to consider the proposal, several of the Commissioners issued statements that addressed, for the most part, not what was in the proposal, but rather, what wasn’t—standardized disclosure requirements related to climate change. These statements allow us a peek into an apparently heated debate among the Commissioners on the issue of climate disclosure.
SEC issues guidance on disclosure of key performance indicators
On Thursday, in addition to voting to issue a new rule proposal regarding changes to MD&A and other financial disclosure requirements (see this PubCo post), the SEC also issued new companion guidance on the disclosure of key performance indicators and other metrics in MD&A. There has been an increase in investor interest in disclosure of KPIs and similar metrics, as part of MD&A and especially outside of MD&A, for example, in connection with sustainability reporting. (See this PubCo post.) Although the SEC’s guidance applies specifically in the context of MD&A, companies may want to take the guidance into account in other contexts as well.
SEC proposes changes to MD&A and other financial disclosure requirements
On Thursday, once again without holding an open meeting, the SEC voted, with a dissent from Commissioner Allison Lee, to propose to simplify and modernize MD&A and the other financial disclosure requirements of Reg S-K. As summed up in the press release, the proposed amendments are intended to “eliminate duplicative disclosures and modernize and enhance Management’s Discussion and Analysis disclosures for the benefit of investors, while simplifying compliance efforts for companies.” The proposal is part of the SEC’s Disclosure Effectiveness Initiative and follows on the 2013 S-K Study, the Report on Review of Disclosure Requirements in Regulation S-K, required by Section 108 of the JOBS Act, and the 341-page 2016 concept release, which sought comment on modernizing certain business and financial disclosure requirements in Reg S-K (see this PubCo post). The proposal also took into account the staff’s experience with Reg S-K as part of Corp Fin’s disclosure review program. Once again, the proposal employs a more principles-based approach, describing the objectives of MD&A with the goal of eliciting more thoughtful, less rote analysis. Some of the proposed changes are fairly dramatic—such as eliminating selected financial data (Item 301), supplementary financial data (Item 302), and that pesky table of contractual obligations, or adding a requirement to disclose critical accounting estimates—while some just address moving parts and conforming changes. Whether the proposal, if adopted, actually leads to more nuanced, analytical disclosure remains to be seen. The proposal will be open for comment for 60 days.
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