What happened at the Corp Fin roundtable on short-termism?
Corp Fin has recently focused on the issue of corporate reporting and short-termism. At the end of last year, the SEC posted a “request for comment soliciting input on the nature, content, and timing of earnings releases and quarterly reports made by reporting companies.” (See this PubCo post.) Following up, Corp Fin then organized a roundtable, held last week, to discuss the issues surrounding short-termism. The roundtable consisted of two panels: the first explored “the causes and impact of a short-term focus on our capital markets,” with the goal of identifying potential market practices and regulatory changes that could promote long-term thinking and investment. In part, this panel developed into a debate about whether short-termism was actually creating a problem for the economy at all. In that regard, several of these panelists were quick to cite the oft-cited academic study revealing that “three quarters of senior American corporate officials would not make an investment that would benefit a company over the long run if it would derail even one quarterly earnings report.” (See this PubCo post and this article in The Atlantic.) Could the reason be a misalignment of incentives? The second panel was centered on the periodic reporting system and potential regulatory changes that might encourage a longer-term focus in that system. Does the current periodic reporting system, along with the practice of issuing quarterly earnings releases and, in some cases, quarterly earnings guidance contribute to or encourage an overly short-term focus by managers and other market participants? On this panel, the headline topic notwithstanding, the discussion barely touched on short-termism; rather, the focus was almost entirely on regulatory burden. At the end of the day, is the SEC seriously considering making changes to periodic reporting?
FASB tentatively decides on new staggered approach to effective dates for major standards
As anticipated in this PubCo post, at its July 17 meeting, the FASB Board signaled its intent to adopt a new “two-bucket” approach that would stagger the effective dates for new major accounting standards. Under the new approach, the effective dates of major new standards would be delayed for entities in “Bucket Two”—smaller reporting companies, private companies, employee benefit plans and not-for-profit organizations— for at least two years after the effective dates for entities in “Bucket One”—other SEC filers. The determination of whether an entity is an SRC will be based on the entity’s most recent assessment in accordance with SEC regulations. (See this PubCo post and this Cooley Alert.)
Are executives making rational choices about investments in ESG?
In this new paper from the Rock Center for Corporate Governance at Stanford, “Stakeholders and Shareholders: Are Executives Really ‘Penny Wise and Pound Foolish’ About ESG?,” the authors examined survey data from CEOs and CFOs of companies in the S&P 1500 to understand the extent to which the respondents believed that, in business planning and long-term strategy development, they took into account and attributed importance to the needs of non-investor stakeholders, such as employees, unions, customers, suppliers, local communities, government and regulatory agencies and the public at large.
SEC staff encourages attention to LIBOR transition
You may recall that, at the end of last year, SEC Chair Jay Clayton and Corp Fin Chief Accountant Kyle Moffatt were warning at various conferences about some of the risks the SEC was monitoring, among them the LIBOR phase-out, which is expected to occur in 2021. LIBOR, the London Interbank Offered Rate, is 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. In one speech, Clayton reported 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.” Clayton indicated that an alternative reference rate, the Secured Overnight Financing Rate, or “SOFR,” has been proposed by the Alternative Reference Rates Committee; nevertheless, there remain significant uncertainties surrounding the transition. (See this PubCo post.) And those uncertainties surrounding LIBOR and SOFR may be leading companies and others to delay addressing the issue until everything is finally settled. Perhaps with that in mind, on Friday evening, the SEC staff published a Statement that “encourages market participants to proactively manage their transition away from LIBOR.” And, in the press release announcing the publication, Clayton drew “particular attention to the staff’s observation: ‘For many market participants, waiting until all open questions have been answered to begin this important work likely could prove to be too late to accomplish the challenging task required.’”
PCAOB offers help for audit committees about CAMs
The PCAOB has just released a new resource for audit committees about critical audit matters, designed to “inform audit committees as they engage with their auditors on the new CAM requirements.” The new auditing standard for the auditor’s report (AS 3101), which requires CAM disclosure, will be effective for audits of large accelerated filers for fiscal years ending on or after June 30, 2019. For audits of all other companies to which they apply (e.g., not EGCs), CAM requirements will be effective for fiscal years ending on or after December 15, 2020. The resource document provides information about CAM basics, as well as PCAOB staff guidance through responses to FAQs and, importantly, questions audit committees could consider asking their auditors. At the same time, the PCAOB also issued a new resource about CAMs for investors.
California Secretary of State publishes “report” about SB 826, California’s new board gender diversity mandate—UPDATED
This post updates an earlier post on this topic to reflect information from a conversation with a knowledgeable representative of the California Secretary of State’s office. He was able to provide some insight about their process and clarify why some apparent inconsistencies were not really inconsistent.
As reported on thecorporatecounsel.net blog, the California Secretary of State has published on its website two spreadsheets, dated July 1, 2019, which apparently together constitute its mandated “report” under SB 826, California’s new board gender diversity mandate. The first spreadsheet identifies 537 companies that the Secretary’s office views as subject to SB 826. The next spreadsheet identifies 184 companies that were apparently in compliance with the board gender diversity mandate as of that date. According to the “methodology,” this data was based on information available for the review period from January 1 to June 30, 2019 in California and SEC filings, as well as information from the NYSE, Nasdaq and miscellaneous other online resources. An updated report will be published on March 1, 2020.
California Secretary of State publishes “report” about SB 826, California’s new board gender diversity mandate
As reported on thecorporatecounsel.net blog, the California Secretary of State has published on its website two spreadsheets, dated July 1, 2019, which apparently together constitute its mandated “report” under SB 826, California’s new board gender diversity mandate. The first spreadsheet identifies 537 companies that the Secretary’s office views as subject to SB 826. The next spreadsheet identifies 184 companies that were apparently in compliance as of that date. According to the “methodology,” this data was based on information available for the period from January 1 to June 30, 2019 in California and SEC filings, as well as information from the NYSE, Nasdaq and miscellaneous other online resources. An updated report will be published on March 1, 2020. My own extremely brief spotcheck, however, revealed that these lists are not exactly, um, accurate. (But see this update.)
SEC approves Nasdaq proposal to improve liquidity
The SEC has approved, on an accelerated basis, the recent Nasdaq proposal (as amended by new amendment no. 3) to revise its initial listing standards to improve liquidity in the market. (See this PubCo post.) Prior to the amendments, under the initial listing rules, to list its equity on any Nasdaq tier, a company was required to have a minimum number of publicly held shares, calculated to include restricted securities. Nasdaq proposed, among other things, to revise the initial listing criteria to exclude “restricted securities” from the calculations of a company’s publicly held shares, market value of publicly held shares and round lot holders, given that restricted securities are not freely transferable and are generally illiquid. To that end, the Nasdaq proposal added new definitions for “restricted securities,” “unrestricted publicly held shares” and “unrestricted securities.” As a result of these changes, only securities that are “freely transferable will be included in the calculation of publicly held shares to determine whether a company satisfies the Exchange’s initial listing criteria under these rules.” No changes were proposed to the continued listing requirements. To allow companies adequate time to complete in-process transactions based on the existing rules, the changes will become effective 30 days after approval (July 5) by the SEC (August 4).
Rulemaking petition seeks to rein in stock buybacks
Almost 20 organizations, including the AFL-CIO and Public Citizen, have filed a rulemaking petition with SEC “to revise Rule 10b-18 to curb manipulative practices by firms and encourage corporations to fairly compensate American workers.” In essence, the petition seeks to repeal Rule 10b-18 and requests that the SEC “undertake a rulemaking to develop a more comprehensive framework for regulating stock repurchase programs that would deter manipulation and protect American workers.” In light of the almost—dare I say it—“bipartisan” interest in reviewing the practice of stock buybacks, will the SEC decide that it’s worth taking a look?
You must be logged in to post a comment.