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The SEC has indicated that it is fast-tracking President Trump’s “suggestion” that quarterly reporting be eliminated.  While it is unclear how the elimination of quarterly reporting will be implemented, one thing seems clear: unless the SEC increases the number of items that trigger an 8-K filing (or something close to that), there will likely be large gaps between filings.  Phrased otherwise, there may be lengthy periods during which material nonpublic information will remain nonpublic.  Since investors, like nature, abhor a vacuum, this strikes me as problematic. 

We’ve been told that getting rid of quarterly reports is no big deal and that, among other things, the U.K. eliminated quarterly reporting a while ago and the world has not come to an end.  That’s true, but it overlooks a critical distinction between the different approaches to disclosure that exist in the U.S. and the U.K.  Specifically, public companies in the U.S. are not subject to a general affirmative duty to disclose material information; the opposite is the case across the pond. To clarify, U.S. companies are only required to disclose material information in limited circumstances, such as when there is a specific form requirement (for example, entering into a definitive material agreement, which needs to be disclosed under Item 1.01 of Form 8-K) or when the company or its insiders are trading in the company’s shares.  And even when disclosure is mandated, the timing of disclosure is often left to the company’s discretion.

When I’ve advised companies of this approach, I’ve received many a puzzled stare from clients’ officers and board members.  Some have even asked “well, why do we disclose all the stuff we disclose?”  The answer to that question can be counterintuitive or downright confusing, but as a general matter that’s the law.

Thanks to my friend across the pond, Guy Jubb – a wise and good expert in corporate governance (and, incidentally, whose speech and diction are as impressive as or better than Richard Burton’s at his peak), I’ve been thinking about the U.K approach.  Specifically, the U.K Market Abuse Regulation imposes a general duty on issuers whose financial instruments are admitted to a regulated market (e.g., the London Stock Exchange) to publicly disclose as soon as possible any inside information which directly concerns the issuer.  Inside information is defined as information of a precise nature that has not been made public, directly relates to an issuer or financial instrument, and would likely have a significant effect on the price of the instrument if made public.  Moreover, publication of price-sensitive information is required “without delay.”  In other words, if you’ve got an important piece of price-sensitive information, you need to get it out there soonest, even if there is not a specific form requirement.

It seems to me that if there are to be long gaps between mandated disclosures, we need to switch to a process similar to that of the U.K.  It may not be perfect, but otherwise we will have failed to “mind the gap,” to the detriment of investors, issuers, and quite possibly the capital markets themselves.

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Once again it is time for our annual departure from all things SEC- and governance-ish so that I can let you know about my favorite reads of the year gone by.

In case you’re wondering about the title of this post, it reflects my view that book critics who tell us what they think were the 10 best books of the year gone by are arrogant and wrong – or, at a minimum, greatly out of touch with the reading public.  For example, none of the five works of fiction cited by the New York Times as the best of 2025 scored more than 55% of five-star ratings on Amazon.  (Of course, Amazon ratings are far from the be- and end-all, but let’s not even go there.)  The five works of non-fiction cited by the Gray Lady fared better against Amazon’s ratings, but some of them were highly esoteric (for example, with no slight intended, a 400-page biography of Paul Gauguin), which suggests that a much smaller group of non-fiction readers may have a disproportionate influence.

Anyway, the more I thought about it, the more I began to find the word “best” offensive or worse. 

As always, my favorite books are those I read during the year gone by, regardless of when they were published.  With that, here goes….

Fiction

Reports indicate that fewer people are reading books and, in particular, that men are reading fewer books and less fiction – especially historical fiction – than women.  Well, I’ve always loved historical fiction, and I doubt that will change.  That said, in 2025 I read a lot more non-fiction than fiction.  You can see the details further on.  For now, here are my favorite works of fiction for 2025.

  • Isola, by Allegra Goodman: This work of historical fiction is based on a very bizarre but true story of a 16th Century orphaned French heiress whose guardian abandons her on a small island.  It is beautifully written, and the story is incredible and gripping.
  • The Ogre’s Daughter, by Catherine Bardon: Another work of historical fiction, this one about the daughter of Rafael Trujillo, the dictator who ran the Dominican Republic with an iron fist for many years.  A fascinating character study and, again, beautifully written.
  • Florenzer, by Phil Melanson: Yes, more historical fiction.  This is about young (and gay) Leonardo da Vinci as an apprentice as he discovers his gift and who (and what) he is in 15th Century Italy.  The atmospherics of Renaissance Italy, the characters, and the story  are all well done.
  • There Are Rivers in the Sky and The Island of Missing Trees, by Elif Shafak:  Ms. Shafak is a prolific author whose books take us to far-away lands and times. (I previously selected her book, The Architect’s Apprentice, as one of my favorites.)  I’m not a fan of magical realism, but Ms. Shafak has an admirable talent for combining elements of that craft with history, great characterizations, and gripping tales.  There Are Rivers… is not perfect; the book veers off in some weird directions towards the end, but otherwise paints a great tale of Turkish history.  Missing Trees tells the sad tale of Greek and Turkish antagonisms in Cyprus.  Great novels both.

Non-Fiction

As noted, I read a lot more non-fiction in 2025.  So much so that it was difficult to narrow down my favorites to five.  So I didn’t (see “Honorable and Dishonorable Mentions” below).

  • The Wolves of K Street, by Brody and Luke Mullins.  This is a great history of lobbying in Washington.  It’s gripping and depressing, and very well done.
  • Henry V, by Dan Jones.  Jones, a highly regarded British historian who writes both fiction and non-fiction works about his nation, wrote this book with the goal of increasing the reputation of Henry V.  One of the most interesting aspects of the book is that it is written in the present tense.  Some have called this a gimmick, but for me it gave the book an immediacy that one rarely finds in history books.
  • Original Sin, by Jake Tapper and Alex Thompson.  I know – this is one of “those” books – a potboiler about the mental decline of Joe Biden, its cover-up, and, to a lesser extent, the impact of both on the 2024 presidential election.  Potboiler or not, I found the book well done and depressingly interesting.
  • Careless People, by Sarah Wynn-Williams.  A fascinating and upsetting expose about Facebook.  If, like me, you are not a fan of Facebook, you’ll relish it.
  • The Gods of New York, by Jonathan Mahler.  I generally feel about books the way one is supposed to feel about one’s children – no favorites.  But this book was far and away my favorite of 2025.  It’s a history of the Big Apple in the late 1980s, and features all the characters that everyone in NY knew about at the time.  I first moved from NY to Florida in 1991, so the years covered by this book were my last in NY until 2002 and were consequently very near and dear to me. I literally couldn’t put this one down.  Perhaps a more accessible comment is that it is the non-fiction version of Bonfire of the Vanities.  ‘Nuff said?

Honorable and Dishonorable Mentions

First, Joyride, by Susan Orlean.  Ms. Orlean is a fantastic writer of oddball non-fiction; among other things, she wrote The Orchid Thief, one of the great books about weird things in Florida.  Joyride is a memoir; despite Ms. Orlean’s wry sense of humor, the book comes across as very sincere, and a dividend is that it provides great insights into how a writer approaches her craft.  Joyride was also my favorite audiobook of the year.

Next, A Flower Traveled in My Blood.  This is a profoundly sad but well written book about the grandmothers – the abuelas – who confronted the junta in Argentina by searching for the grandchildren left behind when their parents (the abuelas’ children) were disappeared by the junta.

Finally, Mother Mary Comes to Me, by Arundhati Roy.  A remarkable memoir by the Indian writer and activist about her mother.  It’s a tale of two very strong and equally difficult women.  Also a good audiobook.

My dishonorable mention is, sadly, 1929, by Andrew Ross Sorkin.  Sorkin’s book about the financial crisis, Too Big to Fail, was brilliant; I remember taking it along on a one-day trip to San Francisco because I couldn’t bear to put it down, despite the fact that it weighed a ton.  Unfortunately, 1929 focuses on some of the prominent people involved in the crash rather than on the crash itself, the circumstances that led to it, and its impact on a generation.  By focusing on trees rather than the forest, Sorkin disappoints.

Happy reading!

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I’m not referring to the kind of proposal at the right; rather, I’m referring to shareholder proposals – one of the topics of a recent Executive Order signed by our fearless leader. (Yes, that is a reference to Rocky and Bullwinkle).

I’ve already commented on the possible impact of the Executive Order on proxy advisory firms, including my concern that it might result in draconian action against such firms.  When it comes to shareholder proposals, however, I believe that draconian action may be in order. 

Here goes.

I am a fervent advocate of shareholder engagement.  In my experience, serious, meaningful engagement gives shareholders and companies a wonderful opportunity to learn from each other, to see the folks on the other side as human beings, and to establish relationships, even when engagement doesn’t yield the results desired by either side.  The problem is that shareholder proposals rarely yield any of these benefits. Instead, they often result in a predictable ritual of procedural and/or substantive objections to proposals, the submission of no-action requests to an overburdened SEC staff, resulting in responses that are as cryptic as the pronouncements of the Oracle at Delphi, canned opposition statements that companies put in their proxy statements, and shareholder votes that are inconclusive.  Moreover, they usually generate legal fees for services that really don’t add value to anyone (other than the attorneys, of course).  (As an attorney, I staunchly support legal fees, but I’d much prefer to collect them for doing constructive work, like raising capital needed to grow a client’s business, than for dealing with the nuances of Rule 14a-8.)

At the same time, I believe that some investors ought to be able to solicit the views of other shareholders on matters of importance to their companies. 

So where does this lead?  Again, here goes:

  • When I say “some” investors, I refer to investors with a meaningful stake in the company.  The current eligibility thresholds for shareholder proposals are absurdly low and almost encourage proposals by unserious people who want nothing other than to have their names appear in the proxy statement. 
  • The current resubmission thresholds need to be substantially increased.  It’s not all that unusual for a company to have to include the same proposal in its proxy statement for several years running, even though the proposal has never generated anything close to a majority vote. 
  • The SEC should get out of the business of mediating disputes between companies and shareholders as to what is or is not a legitimate subject for a proposal.  I believe that increasing the eligibility and resubmission criteria would help a lot in this respect, in part by reducing the number of proposals to consider.  Another thing that might help a great deal would be to tighten up the exclusions under Rule 14a-8 so that they don’t leave a lot of wiggle room for debate.  Some examples might be excluding proposals that relate to social or political matters.  (I know I’m going to be criticized for that example, but there are other ways of achieving social or political goals at corporations.)

I’ll stop there in the interest of brevity.  However, as I was drafting this post, I did some checking and realized that I’d covered the same territory nine years ago.  That leads me to make one more suggestion: companies and shareholders alike need to behave like adults and drop the melodrama – sometimes approaching hysteria – surrounding shareholder proposals.  For example, the last time the SEC proposed increases in eligibility and resubmission thresholds, many in the investor community acted as though the increases would lead to the end of the world as we know it; that’s just not the case.  For their part, companies need to stop screeching about how disruptive and costly shareholder proposals are.  I’ll admit that they can be frustrating and wasteful, but In many cases no more than some things companies happily endorse and pay for. 

A very dear friend of mine who held a senior position in an investor organization once said to me that if companies and investors talked to each other more, instead of talking across each other or screaming at each other, they’d find that they agree on far more things than they think they disagree on.  Let’s give it a try.

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The good news is that the administration is reported to be working on an executive order to restrict proxy advisory firms.  The bad news is that the administration is reported to be working on an executive order to restrict proxy advisory firms. 

If the preceding paragraph seems contradictory, read on.

I am no fan of proxy advisory firms.  In my many years in-house, I dealt with ISS and, to a lesser extent, Glass Lewis far too much for my liking.  In many instances, I found their analyses and recommendations to be ill-conceived or worse, and getting them to correct even manifest errors often took far too much effort.  Even when I understood where they were coming from, their reports were often badly written and/or gratuitously snide.   In other words, in my view, the proxy advisory firms definitely need to be reined in and regulated.

So why do I oppose the anticipated government actions?  Here are some reasons:

  • Executive orders are not models of subtlety or nuance, and given the complexities of the proxy process (more on that below), they are likely to have any number of unintended consequences.  (Can you say “ready- fire-aim”?)
  • One such consequence may be the demise of the proxy advisory business.  Some may view that as a good thing, but one reason that the proxy advisory business continues to exist is that there is a market for it; many investors need it.  Simply stated, investors do not have the time to review proxy statements at all, much less review them carefully.  (For example, I once asked one of my company’s major investors how much time it spent reviewing our proxy statement.  The response was more or less as follows: “You are one of our major investments, so we devote more time to you than most companies – around 15 minutes.”)  When investors, even those that take voting obligations very seriously (though not all do), have to review hundreds of proxy statements in a very short time period, it’s no wonder that they want to lean on a third party, at least to some extent.  So if the proxy advisory industry is put down, it seems possible if not probable that some institutions won’t vote at all.  And if that happens, the difficulty that some companies experience getting a quorum for their meetings may increase geometrically or worse.  Or they may resort to just voting no, or voting by bot; the latter is already happening, and it’s not a pretty sight.
  • As noted above, a draconian approach to dealing with proxy advisors will not address the complexities and challenges that are built into our proxy system.  The time pressures also noted above are only part of the problem.  In my experience, very few proxy statements are easy to read; they are often incredibly dense (and sometimes written that way on purpose), and even those that are user-friendly can be inordinately complex.  Trying to determine how to vote on say-on-pay when a company takes 20 pages of fine print to explain its compensation program isn’t easy.  So it’s not surprising that proxy advisors come up with silly solutions. 

While the SEC hasn’t been very successful in regulating proxy advisory firms in the past – perhaps because of a pro-investor bias from time to time – I still believe that it has the expertise necessary to address this challenge.  SEC Chair Atkins has said that he is determined to engage in regulatory reform; why not make this one of the areas to be reformed?  At the same time, all industry players need to engage in serious thinking about how to address the proxy process. Companies need to understand that their owners need something like the proxy advisory industry to help, especially during the “silly season.”  Investors need to understand the frustrations that companies face when dealing with proxy advisors.  And the advisors themselves need to admit that they are, in fact, very influential and that they need to be far more transparent, candid about how they develop their recommendations, and more responsive to criticism.  Simply saying, as ISS has said since forever, that “we are only following our client’s views,” is not helpful.

As our Executive Orderer-in-Chief often says, “We’ll see what happens.”  But if it were up to me, I’d be careful what I wish for.

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A few months ago, I wrote a post addressing the use of artificial intelligence in the boardroom.  While the focus of the post was using AI (or not) to draft minutes, I also asked (with apologies for quoting myself), “whether a robot equipped with AI can serve as a director.”  At the time, I thought the question was highly speculative if not absurd, so you can imagine my surprise when I came across this article, in which a CEO is quoted as saying that she’s open to the possibility of having a bot on her board.

As the author of the article writes, “[o]f course, the idea of having an AI board member opens up a host of thorny ethical issues. What would happen if the AI recommended a strategy that goes south? Or relies on biased data to make a decision?”  I agree, but it also would raise fundamental questions about corporate governance.  For example:

  • One of the cornerstones of governance is that directors can be personally liable for certain misconduct.  That rarely happens, but experience suggests that the risk of having to shell out big bucks for not minding the store is something directors think about.  Could a bot be subjected to personal liability?  How?
  • Would a bot comprehend – fully or at all – what “fiduciary duty” means, or be able to evaluate the complexities involved in determining the best interests of the corporation?  I’m sure that someday – maybe even very soon – they answer to both questions may be “yes,” but are we there yet?
  • Could a bot understand the distinction between the board’s ultimate role – that of oversight – versus managing (or micromanaging)? 
  • How would having a bot on the board impact that prized commodity, collegiality?  Could a bot take “no” for answer?  What would a board discussion be like if the bot insists that it is right despite contrary views from other directors?

And so on.

More basic technological concerns also come to mind.  We have all heard, and many of us have actually experienced, that AI makes mistakes – sometimes big ones.  I also assume that bots can be hacked; aside from enabling outsiders to listen in on board matters or get access to confidential or even privileged information, could a bot be reprogrammed to make decisions that harm the company to the benefit of an outside party?

The article appropriately (if humorously) notes that “given that the average director of an S&P 500 company made $336,352 in total compensation last year…, adding a bot to a board may be a better deal than you think.”  I’m not sure what the going price of a bot and the cost of maintaining it may be, and you can call me a luddite, but at least for now I’ll take human directors.

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The new, improved SEC was just beginning to show its stuff when the federal government shut down on October 1.  In the weeks before the shutdown, the SEC had, among other things, approved ExxonMobil’s innovative program enabling retail investors to provide standing voting instructions (see our E-Alert on the subject) and dropped its opposition to mandatory arbitration provisions in the charters of IPO companies.  SEC Chair Atkins commented on the unfortunate “kitchen sink” approach to risk factors disclosure.  And the SEC’s latest RegFlex agenda contained some hints of additional disclosure reforms to come.  But the item that seemed to have generated the biggest buzz was the possible elimination of the 10-Q quarterly report.

Soon after President Trump suggested that public companies should report semiannually rather than quarterly, SEC Chair Atkins stated that the suggestion would be fast-tracked, possibly resulting in a rule proposal by late 2025 or early 2026.  Unless the shutdown ends a lot sooner than seems likely, that timetable may be doomed.  However, there’s little reason to believe that the proposal will go away. 

On its face, transitioning from quarterly to semiannual reporting may not seem like a big deal.  After all, quarterly reporting has only been the norm in the U.S. since the 1970s, and semiannual reporting has been in place in the U.K., among other places, for a while.  But the switch is not as simple as it may seem.  Let’s consider the benefits and risks of going to semiannual reporting, some possible alternatives, and some related concerns.

Why Switch to Semiannual Reporting?

The easy answer is that eliminating quarterly reporting will reduce costs and other burdens, particularly for smaller companies with more limited resources.  However, the size of the reductions is hard to predict and will depend upon the outcome of the SEC process and companies’ practices if the requirement goes away.  It’s been noted that some companies may opt to provide detailed quarterly reports, if not full-blown 10-Qs, to keep investors satisfied (if not happy); others may continue to issue quarterly earnings releases, conduct conference calls, or take other actions to keep investors informed.  And while smaller companies would benefit from the reduced costs and burdens, some of these companies may be sufficiently desperate to attract interest that they may feel they have no choice but to continue to engage in some type(s) of quarterly disclosure.  In any event, any of these approaches will involve costs, including those arising from consultation with auditors and counsel.  So lower costs may result, but how much lower is an open question.

In suggesting the elimination of quarterly reports, President Trump predicted that dropping quarterly reporting will reduce so-called “short-termism,” but that seems speculative, at best.  Among other things, changing the short term from three to six months doesn’t seem like that big a deal in a world where five years is considered very long-term.  The President also said that switching to a semiannual reporting schedule would enable management to focus more on the business.  I suppose, but my experience suggests that the benefits will be marginal.

What Are the Downsides?

This is easy – dropping quarterly reports will reduce transparency.  Investors hunger for information, and eliminating quarterly reporting will reduce the amount of information that’s out there.  That’s why some companies are likely to continue to put out quarterly information, even if not as robust or as detailed as now appears in 10-Qs. 

Some pundits have predicted that reduced disclosure will lead to increased volatility and thereby make U.S. markets less attractive.  Based on what I’ve read, that doesn’t seem to have happened in the U.K.  Moreover, it’s hard to know whether the impact on transparency will be significant or minor – again, depending upon what the SEC does and whether and to what extent companies seek to satisfy investors’ demands for quarterly information beyond the minimum legal requirements.

One article suggested that the elimination of quarterly reports will cause some companies to postpone or try to hide adverse developments.  Perhaps true, but I suspect that those companies are already engaging in such behaviors, though I suppose that reduced reporting may make it easier for them to get away with it.

What Are the Alternatives?

This is where it may get very interesting.  SEC Chair Atkins has indicated that he’s not a fan of a “one-size-fits-all” approach; for example, he noted that many companies provide monthly reports to management, and “so maybe a company might find that monthly reporting…might lead to a lower cost of capital…”.  I doubt that, but his comment suggests that the SEC may permit companies to pick from a smorgasbord of disclosure alternatives, possibly depending upon their size and other factors. 

One approach could be to replace the three 10-Qs with one report covering the first six months.  But would that semiannual report be similar to a 10-Q or would it be some sort of “mini” 10-K?  (If that’s what emerges, companies may end up preferring 10-Qs.)  Other alternatives could be to retain the quarterly reporting requirement but to skinny down the 10-Q.  Another suggestion is to treat quarterly earnings releases as sufficient.  For many companies, the quarterly earnings release is pretty comprehensive, frequently including  some explanation of the factors behind the results, thus arguably qualifying as a “mini-MD&A”.  The Society for Corporate Governance commented favorably on this approach when the SEC proposed relief from quarterly reporting in 2018 (you can find its comment letter here).  Notably, the Society was opposed to treating such releases as “filed” (vs. “furnished”), but it remains to be seen whether the Atkins Commission will be stuck on the point. 

Some commentators have already suggested that the elimination of quarterly reporting would be accompanied by the addition of various triggers for 8-K reporting. 

The upshot of all this may be that advocates of semiannual reporting may end up wishing that they’d been more careful what they wished for.

Other Complications

Which brings us to the many collateral impacts that may flow from eliminating quarterly reporting.  These range from the mildly annoying, such as how 13D and 13G filers would determine their percentage ownership in the absence of 10-Qs to how Reg FD would apply in a semiannual reporting world. 

While Reg FD wasn’t as novel as some people seemed to think, the SEC interpreted it in ways that were counterintuitive or sometimes just plain silly.  For example, if a company provided guidance in its first quarter earnings call, merely confirming such guidance at some uncertain point during the second quarter (e.g., “we’re sticking with our guidance”) could be viewed as a violation of FD.  Agonizing over questions like this could offset the benefits of eliminating 10-Qs.  Another problem with FD is that the SEC has frequently used it to second-guess whether a factoid was material, notwithstanding the company’s reasoned determination that it was not. 

Finally, companies and investors alike should be concerned that 10-Q relief today could be reversed tomorrow.  It’s no secret that, particularly in recent years, the SEC has reversed rules and policies following a change of administration.  For example, rules and policies relating to shareholder proposals adopted under the leadership of Gary Gensler were almost immediately reversed when President Trump took office in January 2025.  If the “Atkins Commission” eliminates quarterly reporting, who’s to say that a future Commission won’t reinstate it?  Aside from staffing implications, these reversals can greatly affect disclosure controls and procedures, which were the basis for several major actions brought by the Enforcement Division during the Biden administration.  Ongoing regulatory whipsawing doesn’t seem like a good thing for business.

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Intellectually and otherwise, it will be interesting to see what path the SEC takes on this matter.  For now, all we can do is “watch this space” and cross our fingers.

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In corporate governance, as in so many other areas, artificial intelligence is all the rage.  If you read just about anything relating to corporate boards, you’re almost certain to learn that boards are scratching their collective heads to figure out where and how their companies can use AI, how they can best govern the use of AI, and all sorts of related topics.  However, while boards may be talking about AI – and possibly even doing something about it – it appears that few, if any, people are talking about the possible use of AI in the boardroom itself. 

Maybe this is understandable; after all, boards are rightly concerned about risks and are not known as hotbeds of innovation.  However, it’s still surprising that the last major technological innovation impacting boardrooms was the introduction of board portals, which have been around for roughly 20 years.

I suspect that AI will eventually work its way into the boardroom; I can imagine that in a few years AI may routinely enable directors to tweak assumptions underlying management forecasts, check financial statements for compliance with GAAP and SEC rules, and so on.  That will pose a variety of legal and policy questions, such as whether directors can avoid responsibility for bad decisions by claiming reliance upon AI and whether a robot equipped with AI can serve as a director. 

For the time being, however, I’d like to focus on a narrower question that is beginning to be asked in the nerdy community of corporate secretaries: Can (and should) AI be relied upon to draft board and committee minutes?  Some clients have actually asked me similar questions in the hope that they may be able to lighten their workloads by laying off the tedious task of drafting minutes onto the AI programs with which their phones, tablets, and laptops are now equipped. 

Continue Reading A ROBOT IN THE BOARDROOM? Using AI to Draft Minutes
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There has been no lack of news since the President was re-inaugurated in January.  However, until very recently, little of the news seemed to be coming from the SEC.  Perhaps that is because the new SEC Chair, Paul Atkins, was not sworn in until April 21 (happy birthday to me) or for some other reason, but in any case things now seem to be moving a bit.

One area of movement is cryptocurrency.  In contrast to Gary Gensler, who seems to have believed that crypto was evil incarnate, Chair Atkins is reputed to think that it’s not so bad, or maybe even that it’s fine.  Although I can’t write about SEC initiatives without mentioning crypto, I don’t understand it, and I suspect that many other people don’t either (including many who claim to get it), so I’ll leave it to Chair Atkins and others to figure it out.

But I do understand two areas where the SEC has started to move, and those are the areas I’d like to comment on.

Executive Compensation

First and foremost is executive compensation disclosure.   The SEC held an executive compensation roundtable on June 26, and the buzz is that Chair Atkins and his Republican colleagues aren’t very happy with the existing disclosure regime, likening it to a Frankenstein monster (an apt analogy, IMO).  I have mixed feelings on the subject; on the one hand, executive compensation is where the governance rubber meets the road, and consequently should be the subject of good disclosure.  On the other hand, I’ve drafted and/or read many proxy statements over the years, and it’s a gross understatement to say that most compensation disclosure is impenetrable and unhelpful.  The situation has not been helped by SEC interpretations and comments that have caused the Compensation Discussion and Analysis to become bloated and uninformative, sometimes focusing on trivial matters at the expense of more important ones.  (And yet…. One of my pet peeves is that many companies continue to get away with reporting that time-vested equity grants are “performance-based,” when the only “performance” is that the recipient is still breathing; however, the SEC doesn’t seem to think this is a problem.)

It’s way too early to make predictions, but the areas of focus at the roundtable included both the “Pay versus Performance” and CEO Pay Ratio disclosures.  The SEC more or less ignored the congressional mandate for PVP disclosures for a while, but when the Gensler regime took it up, it did so with a vengeance, and the rules it conjured up went far beyond what anyone thought they should be.  CEO pay ratio disclosures appeared to be little more than a very complicated shame game.  And, with some exceptions, actual investors (as opposed to the SEC’s imaginary ones) don’t seem to have paid much attention to either set of disclosures.

I haven’t digested all of the reports of the roundtable discussions, but so far I haven’t seen anything suggesting that CD&A reform was discussed. Hopefully it will be, because I just don’t understand why a 30-page (or longer) CD&A is necessary or tolerated. 

The road ahead may be bumpy.  Some of the disclosures that we love to hate were mandated by legislation, and it may be difficult for the new, reform-minded SEC to cut back on the excesses perpetrated by previous commissions.  Also, there will always be some investors who will claim that they need to have such-and-such information to properly evaluate the appropriateness of executive pay at a given company. That said, let’s hope that the SEC effects some improvements.

Scaled Disclosure

While it hasn’t gotten as much publicity as executive compensation, the SEC has also been thinking about fixing its questionable approach to scaled disclosure.  For one thing, the dollar thresholds for determining whether a company is a “Smaller Reporting Company” are woefully out of date.  And many of us have long questioned why the sole metric that determines SRC status is public float.

I went back to the 2007 proposing release and was disappointed to see that the SEC’s rationale was pretty lame, for lack of a better word.  Specifically, public float was selected as the basis for determining SRC status

“… because we… have several rules using the $75 million public float metric to distinguish smaller companies. In addition to the use of this public float metric in the definition of accelerated filer, the $75 million public float requirement is used to determine expanded eligibility in Form S–3 and Form F–3.  Further, issuers are required to provide their public float on the cover page of their Exchange Act annual reports.”

If this sounds similar to the parental “because I said so,” it gets worse when the release “explains” (using the term very loosely) why a revenue test was not considered:

“Our proposed definition of ‘‘smaller reporting company’’ does not include a revenue test for most companies. While our current definition of ‘small business issuer’ includes a revenue standard, the classification of an issuer as a large accelerated filer, an accelerated filer, or… a non-accelerated filer does not involve a revenue standard. We chose not to propose a revenue standard to qualify for ‘smaller reporting company’ status for most companies to provide greater simplicity, consistency, and certainty.”

In other words, “we chose not to use a revenue standard because we chose not to use a revenue standard.”  (Please excuse the sarcasm, but it seems appropriate in the circumstances.)

The good news is that the SEC has reached out to my favorite professional organization, the Society for Corporate Governance (and possibly others), for thoughts and observations, and the Society has submitted a very well written and thoughtful letter and a related appendix in response.

So far so good.  However, even if the SEC accepts the Society’s recommendations (as I hope it does), the companies that would qualify as SRCs range in size from nano- or micro-caps to companies of a substantial size.  As a result, compliance with requirements applicable to SRCs generally may be relatively easy for companies at the larger end of the range but very challenging for those at the smaller end of the range.  We have seen this time and again in the past, perhaps most clearly in the climate disclosure rules that have, thankfully, ridden off into the sunset, but the problem will unquestionably arise again and again in the future. 

The current and proposed standards raise another concern that I believe to be greater, at least in the long run, than compliance by companies that are already publicly held.   Specifically, they will continue to deter companies seeking to raise capital from going to the public markets.  The number of companies that have gone public has diminished significantly over time, and the SEC and others have expressed concern with this development.  However, treating all SRCs alike from the regulatory perspective will, in my view, perpetuate this problem.  Personally, while I’m a staunch supporter of accessing the public markets, I tend to tell clients and prospective clients who want to go public that they should think long and hard before they do so.  And several have gone ahead, only to tell me years later that they wish they’d paid more attention to my warnings.

I have reason to believe that the SEC’s reforms in this area will not be limited to those suggested in the Society’s letter, but it’s still early days.

Fingers crossed!

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It’s early days, but I’m pleased to report that the optimism I expressed about the SEC in the aftermath of the 2024 election may have been warranted.  At a minimum, the actions taken by the SEC since January 20 demonstrate support for the issuer community, an interest in pursuing the traditional goals of the SEC, and a willingness to help those of us who advise clients with respect to SEC rules and the many interpretations of those rules.

What the Commissioners Are Saying

First, on January 27, Commissioner Hester Peirce spoke before the Northwestern Securities Regulation Institute.  Her remarks were witty (as always) and, for the most part, spot on, to the point that I considered copying them here.  (I haven’t, though I have copied some of her choice remarks below.)  I do take issue with a few of her remarks (also as always), including her view that a corporation’s singular focus should be on building value for shareholders; it seems to me that it is not possible to build value without focusing on other constituencies such as customers, suppliers, and – yes – even the community at large.  Those matters aside, Ms. Peirce made the following good points, among others:

Continue Reading So Far, So Good
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Image by Erich Röthlisberger from Pixabay

For the benefit of new subscribers, every January I depart from my usual screeds about the SEC and corporate governance and indulge in the slightly less nerdy exercise of telling you about my favorite books of the year gone by.  As regular readers know, unlike the New York Times and other publications, my favorite books are those I read in 2024, regardless of their publication dates.

Having mentioned the Times, I have to say that the more I read its book reviews and “10 Best” lists, the less I relate to them.  I have a theory as to the reasons for that, but I’ll spare you. That said, if you’ve read the 2024 10 Best list in the “Gray Lady,” you’ll see that it has little in common with mine. 

Finally, I decided this year that I won’t be bound by the number 10, largely because I usually find myself agonizing over which books to cut, and it’s just not worth it.  So this year’s list contains more than 10 books, and my favorites are not evenly divided between fiction and non-fiction.

Here goes. 

Continue Reading Bob’s Best Books of 2024