Some of you may remember Christopher Cox, who served as SEC Chair from 2005 to early 2009, when he was succeeded by Mary Schapiro.  His name doesn’t come up often, perhaps because his legacy was a weakened Commission tarnished by, among other things, the financial crisis and the Madoff scandal.

While Chairman Cox may not have been responsible for either of those debacles, he did leave another unpleasant legacy – XBRL.  He was among the biggest cheerleaders for XBRL, claiming that it would enable investors to compare companies within and across industries and would perform various other miracles.  Suffice it to say it hasn’t done that.  Aside from the fact that it’s time-consuming, it has failed to provide the benefits of comparability.  As a client recently said,

“[E]ven if two companies use the same taxonomy/tagging for Cost of Sales, they probably are not consistent in the underlying details that go into Cost of Sales.  One company might classify certain components as G&A instead.  There are many other examples.  Consistency is very important for one company’s reporting from period to period, however comparisons of competitors’ financials will always be approximations at best.”

Continue Reading RIP XBRL?

The young ones among you may not be familiar with Harvey Pitt, but he is an incredibly smart man and a gifted attorney who chaired the SEC some years back.  He made some political gaffes in that role, but that doesn’t diminish his understanding of the securities laws and how disclosure works.

A few weeks ago, he was quoted in The Wall Street Journal on the subject of disclosure (“Harvey Pitt Envisions a New Form of Corporate Disclosure”).  Specifically, he points out that “[d]isclosure is supposed to be for the purpose of informing…but…it’s become for the purpose of providing a defense”.  He also says “…when you have proxy statements that run hundreds of pages…it’s impossible to expect any normal individual to put in the time to read all of those pages”.  As I said, he’s an incredibly smart man.

So what is his solution?  He suggests a “summary disclosure document the way disclosure used to be” – say five or six pages – and that more detailed information be available by hyperlink for the investors who want to dig deep.  At the same time, companies could track how many people actually make that deep dive and make judgments as to eliminating information that no one seems interested in.

Continue Reading On the subject of effective disclosure…

waldryano
waldryano

I don’t know when Congress decided that every piece of legislation had to have a nifty acronym, but the House Financial Services Committee recently passed (on a partisan basis) what old-fashioned TV ads might have called the new, improved version of the “Financial CHOICE Act”.  The word “choice” is in solid caps because it stands for “Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs”.

Whether and for whom it creates hope, opportunity or something else entirely may depend upon your perspective, but whatever else can be said of the Act, it is long (though at 589 pages, it is slightly more than half as long as Dodd-Frank), and it addresses a very broad swath of issues.  Here’s what it has to say about some key issues in disclosure, governance and capital formation, along with some commentary. Continue Reading The Financial CHOICE Act – everything you’ve ever wanted, and more?

In the hopefully unlikely event you were wondertraffic-lights-2147790_640ing if the compromise on government funding changed things vis-à-vis possible SEC rulemaking on political contributions disclosure, rest easy (or not, as the case may be).

The bar on such rulemaking that has been in place since the last appropriations bill (and, if memory serves me correctly, one or more previous appropriations bills) remains in place. However, the appropriations bill does not prohibit the SEC from addressing any of the remaining mandates under Dodd-Frank; the CHOICE Act that’s rumbling around Congress would prohibit work on those items.

Continue Reading Breaking news!!!! Nothing has changed!!!

Cornell University Library
Cornell University Library

New York Surrogate Gideon Tucker (1826-1899) is credited with originating the maxim that “no man’s life, liberty or property are safe while the legislature is in session.”  Were Surrogate Tucker around today, he might have added boards of directors to those who should be wary of legislative action.

There are numerous weird bills rumbling around the hallowed halls of Washington these days, but one of the bills that is making me unhappy is the Cybersecurity Disclosure Act of 2017.  The good news is that the bill is very short.

The bad news is threefold. Continue Reading Beware when the legislature is in session

U.S. National Archives
U.S. National Archives

If you have ever had to search for an exhibit originally filed with the SEC years ago, you know it can take forever, particularly when the exhibit consists of an original document that has been amended several times, each amendment having been separately filed.

You will soon have to search no more, because the SEC is about to make it easier for you.  On March 1, the SEC adopted a final rule requiring public companies to include a hyperlink to each exhibit listed in the exhibit index to all filings subject to Item 601 of SEC Regulation S-K.  The rule will take effect on September 1 for most companies.  (“Smaller reporting companies” and companies that are neither “large accelerated filers” nor “accelerated filers” and that submit filings in ASCII get a one-year reprieve.)

Continue Reading The missing (hyper) link

Internet Archive Book Images
Internet Archive Book Images

As noted in a recent post, the future of SEC regulation – and perhaps even of the SEC itself – is uncertain in the wake of Donald Trump’s election.  However, the SEC Staff, a smart, decent and hardworking group, continues to stick to its knitting despite the turmoil.

The most recent example of the Staff’s diligence is a “Report on Modernization and Simplification of Regulation S-K – As Required by Section 72003 of the Fixing America’s Surface Transportation Act”.  The Report was issued on Thanksgiving Eve, and it’s no turkey.  Don’t be put off by the incredibly long title or by the fact that SEC regulations have nothing to do with Surface Transportation.  The Report provides a good summary of some actions impacting Reg S-K that have been taken to date, and the Staff’s recommendations for actions down the road (assuming there is a road).

Here are some of the highlights of things that may be on the come: Continue Reading SEC Staff’s Thanksgiving Gift: No Turkey

It remains to be seen whether the new administration will actually drain the swamp or do away with political correctness, but one hope that some of us have – regardless of our views on the election – is that the SEC may finally get around to some issues that have been on the back burner for years.

One such issue is a long-overdue overhaul of the rules surrounding shareholder proposals, including the submission and resubmission thresholds for proposals under SEC Rule 14a-8.  Many organizations, including the Society for Corporate Governance, have repeatedly urged the SEC to update these rules, which have been in place for many years.  However, the SEC has been reluctant to plunge into the area due to the likely political firestorm that would result.

Now, another organization has jumped in.  At the end of October, the Business Roundtable published “Modernizing the Shareholder Proposal Process”, a rational and well thought-out series of suggestions for bringing shareholder proposals into the 21st Century.

Continue Reading A modest proposal about more modest proposals

3102056181_031bf572a9_zIn the wake of the election of Donald Trump as the next President, there has been a lot of speculation about the effect of a Trump administration on securities law and corporate governance.  Looking into a crystal ball is always risky, but here are some observations.

Conflict Minerals:  It’s too soon to tell whether Dodd-Frank will be repealed in its entirety, if it will die the death of 1,000 cuts, or if it will stay pretty much as is.  What I will say is that few will cry if the conflict minerals provisions are eliminated (and I will not be among those few).  Complying with the conflict minerals rules is time-consuming  (and therefore costly), and it’s questionable whether many people care.  Perhaps of equal or greater importance is that there is some evidence that the conflict minerals requirements are actually hurting the people they were supposed to help.

Pay Ratio: More of the same here.  There is some support for pay ratio disclosure among labor pension funds, but that’s about it.  Companies don’t like it (duh…), and mainstream investors have no use for it.  Given how the Democrats seem to have fared in the industrial states, it’s not clear that they would fall on their collective sword to save this one. Continue Reading The SEC’s brave new (Trump) world

6650058825_a23c5c0d35_qIn the midst of the chaos of the presidential election, vicious attacks from Senator Warren, and goodness knows what else, the SEC continues to crank out requests for comment, rules and interpretations.

It’s the latter category that has attracted our attention lately, as the Staff has focused on some technical matters that securities counsel have been pondering for a while.

401(k) plans with a self-directed “brokerage window”

First, in September, the SEC published updated Compliance and Disclosure Interpretations, including one on 401(k) plans that feature a so-called “brokerage window”.  It’s been generally assumed that if a plan does not include an employer stock fund in which employee funds can be invested, Securities Act registration is not required.  This CDI says “maybe not” – if the plan (a) permits employer and employee contributions to be invested through a self-directed “brokerage window”, and (b) the plan does not prohibit investments in employer stock through the window, registration may be required.

Continue Reading The SEC Keeps On Keeping On