LIBOR phase-out: FASB to the rescue (sort of)
You may recall that, for a while now, the SEC has been actively warning about risks associated with the LIBOR phase-out, which is expected to occur in 2021. LIBOR, the London Interbank Offered Rate, is a widely used reference rate calculated based on estimates submitted by banks of their own borrowing costs. In 2012, the revelation of LIBOR rigging scandals made clear that the benchmark was susceptible to manipulation, and British regulators decided to phase it out. SEC Chair Jay Clayton has advised that, according to the Fed, “in the cash and derivatives markets, there are approximately $200 trillion in notional transactions referencing U.S. Dollar LIBOR and… more than $35 trillion will not mature by the end of 2021.” In July, the SEC staff published a Statement that “encourages market participants to proactively manage their transition away from LIBOR.” (See this PubCo post.) However, the substantial uncertainties and challenges associated with implementing the transition have led to delays and triggered a high level of anxiety among companies faced with addressing the issue. (See this PubCo post.) As reported in Bloomberg BNA, to ease the strain of the transition, FASB has jumped in with some proposed temporary financial reporting relief.
ISS releases 2019 Global Policy Survey
ISS recently released the results of its 2019 Global Policy Survey. In this year’s integrated survey, the topics included board gender diversity, overboarding, sunsetting of multi-class capital structures, combined chair and CEO roles and climate change risk. The respondents included 128 investors (including 88 asset managers, 24 asset owners, four advisors and 12 other investors), and 268 non-investors (including 227 corporate issuers, 19 advisors, six corporate directors and 16 other non-investors). Highlights of the survey are summarized below.
SEC’s OCA updates auditor independence FAQs
The SEC’s Office of Chief Accountant has updated its FAQs regarding auditor independence. The new and revised questions relate to the general standard for independence, prohibited non-audit services, partner rotation, definitions and miscellaneous other independence issues. It is important to keep in mind that violations of the auditor independence rules can have serious consequences not only for the audit firm, but also for the audit client. For example, an independence violation may cause the auditor to withdraw its audit report, requiring the audit client to have a re-audit by another audit firm. As a result, in most cases, inquiry into the topic of auditor independence should be another menu item on the audit committee’s plate.
Want to know what the SEC Chair does all day?
Now you can find out. Apparently, a lot of people have been interested in what SEC Chair Jay Clayton has been up to because, according to the SEC, requests for his calendars for June and July were among the “frequently requested FOIA documents.”
EY discusses voluntary audit committee disclosures
By now, we all know that, sooner or later, audit reports for most public companies will be required to disclose critical audit matters, which are intended to make the audit report more informative for investors. (See this PubCo post.) But, as this article from the EY Center for Board Matters reports, over the last several years, companies and their audit committees have gone a long way toward increasing the amount of audit-related information they provide to investors voluntarily. To carry out its assessment, EY reviewed audit-related disclosures in the proxy statements of Fortune 100 companies over the period from 2012 to 2019. While year to year, the changes appear largely incremental, the change over the entire period is considerable.
Corp Fin changes approach to responding to no-action requests to exclude shareholder proposals
As foreshadowed by Corp Fin Director Bill Hinman at an event in July put on by the U.S. Chamber of Commerce (see this PubCo post), Corp Fin has announced that it is revisiting its approach to responding to no-action requests to exclude shareholder proposals. In essence, the staff may respond to some requests orally, instead of in writing and, in some cases, may decline to state a view altogether, leaving the company to make its own determination. How will companies respond?
SEC’s Investor Advisory Committee adopts “proxy plumbing” recommendations
Yesterday morning, at a telephonic meeting of the SEC’s Investor Advisory Committee, the Committee voted to adopt revised recommendations addressing “proxy plumbing”—the panoply of problems associated with the infrastructure supporting the proxy voting system. (See this PubCo post.) The recommendations were originally presented at a meeting of the Committee in late July, but the Committee elected to study the proposal further and offer revisions before voting. The changes are fairly nuanced, now also including some minority views. For the most part, the recommendations would not “reinvent” the proxy voting system, instead targeting improvements that are considered essentially “low-hanging fruit.” However, there appeared to be a consensus that eventually more would need to be done. The recommendations were adopted by a majority of the Committee with two dissents. Will the SEC pay attention?
Deloitte looks at first round of CAMs
AS 3101, the new auditing standard for the auditor’s report that requires disclosure of critical audit matters, is effective for audits of large accelerated filers for fiscal years ending on or after June 30, 2019. And that means that audit reports communicating the first round of CAMs have now been filed for the pioneers—large accelerated filers with fiscal years ended June 30, 2019. In this Deloitte Heads Up, the audit firm takes a look at all 52 of them. Deloitte reports that an average of 1.8 CAMs were disclosed per audit report, and the most commonly disclosed CAMs related to goodwill and intangible assets. Other companies may want to listen up because CAM requirements will be upon them soon—for companies other than large accelerated filers (excluding EGCs), CAMs will be required for fiscal years ending on or after December 15, 2020.
A new shareholder proposal regarding firearms—is it just the beginning?
In a post last month, I noted that, notwithstanding the growth in the number of shareholder proposals related to corporate social responsibility, for the 2019 proxy season (unlike 2018), we did not find any shareholder proposals that were submitted for shareholder votes directly addressing gun safety (although some did indirectly). I wondered out loud whether, in light of current events and the renewed national debate on gun safety—not to mention the gridlock leaving government incapable of doing anything—investors, customers, employees and other stakeholders might turn to companies to “do something.” Would they begin to apply more pressure to companies involved with firearms, including retailers and banks, to reexamine their relationships with the gun industry? It turns out that at least one of them has. Will others follow?
It’s been eons since the SEC last did this—brought a Reg FD enforcement action, that is
Reg FD prohibits selective disclosure of material, nonpublic information by public companies (or by its senior officials or specified other employees) to securities market professionals and shareholders reasonably likely to trade on the information. If a public company does make a disclosure of that kind, the company is required under Reg FD to disclose the information to the public. Information is considered “material” if there is “a substantial likelihood that a reasonable investor would consider the information important in making an investment decision or if the information would significantly alter the total mix of available information.” And that’s where the thorny part comes in. Judgments about materiality of disclosures are often complicated and muddy and frequently made in real time.
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