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Photo by brennahRO
Photo by brennahRO

In recent years, the SEC – frequently due to Congressional mandates – has reduced the amount of disclosure that smaller public companies must provide.  Most recently, on June 27, the SEC proposed yet another rule that would reduce disclosure burdens by enabling more companies to qualify as “smaller reporting companies,” or “SRCs.”

The proposal would expand the definition of SRCs to cover registrants with less than $250 million in public float and registrants with zero public float if their revenues were below $100 million in the previous year.

If your company is not currently an SRC and you are wondering what relief you might get if you were, the proposing release lays it out in an easy-to-read table:
Continue Reading Smaller gets bigger

4532941987_9004c36616_mIn a June 27 speech to the International Corporate Governance Network, SEC Chair Mary Jo White engaged in a bit of full disclosure herself:

“I can report today that the staff is preparing a recommendation to the Commission to propose amending the rule to require companies to include in their proxy statements more meaningful board diversity disclosures on their board members and nominees where that information is voluntarily self-reported by directors.”

As noted in her remarks, the SEC adopted the current disclosure requirements on board diversity in 2009.  However, the requirements were added to other board-related disclosure requirements at the last minute, when it was reported that Commissioner Aguilar refused to support the other requirements unless diversity disclosure was also mandated.  As a result, the diversity requirements were never subjected to public comment, did not define “diversity,” and seemed to require disclosure only if the company had a diversity “policy”.   When companies failed to provide the disclosure because they had no policy, the SEC clarified that if diversity was a factor in director selection then, in fact, the company would be deemed to have a policy, thus requiring disclosure.Continue Reading Coming soon to an SEC filing near you: board diversity (but not sustainability…for now)

Photo by Chad Cooper
Photo by Chad Cooper

Good, but not surprising, news for issuers considering a Regulation A+ offering. Back in May 2015, Massachusetts and Montana sued the SEC in an attempt to invalidate the Regulation A+ rules.  Montana had attempted to obtain an injunction to prevent the Regulation A+ rules from going into…

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© Michael Sutton-Long

In recent weeks, the SEC has given public companies some new menu items, including the following:

  • On June 1, the SEC adopted an “interim final rule” that permits companies to include a summary of business and financial information in Annual Reports on Form 10-K.  The rule implements a provision of the Fixing America’s Surface Transportation Act, or FAST Act, in keeping with the new trend to give statutes names that someone thinks make nifty acronyms. (Of course, the connection between this rule and surface transportation remains a mystery.)
  • On June 13, the SEC issued an order permitting companies to file financial statement data in a format known as “Inline XBRL” rather than filing such data in exhibits to a filing.

Here is a quick review of these new menu items.

The new, improved 10-K summary – The rule permitting a 10-K summary is interesting in several respects.  First, companies have long been able to provide summaries; in other words, there doesn’t seem to have been any reason for the “new” rule.  Second, as noted, it permits but does not require the use of summaries; thus, companies that have not provided summaries in the past and don’t want to now don’t have to.
Continue Reading The SEC’s summer menu

It’s almost exactly one year to the day since I took Senator Elizabeth Warren to task for what I believed was an unwarranted and particularly vicious attack on the SEC – or, rather, Chair White’s tenure at the SEC.  Apparently, Senator Warren decided to celebrate the anniversary with another attack on the SEC and Chair White at a Senate Banking Committee hearing.  (You can watch the entire unpleasantness here, including Senator Warren’s refusal to allow Chair White to answer any of her questions before launching another attack.)

This time, the attack was directed to the SEC’s “effective disclosure” project – something that many companies and investors support – claiming that by pursuing this project the SEC is putting companies’ interests ahead of investor protection and demanding that Chair White provide evidence to justify that investors are suffering from information overload.  Her comments to Chair White included the following: “Your job is too look out for investors, but you have put the interests of the Chamber of Commerce and their big business members at the top of your priority list.”

Really?  Perhaps Ms. Warren should ask some investors to testify.  She might learn that many investors do not read disclosure documents, particularly proxy statements (which will soon contain the pay ratio disclosures that she once said should be the SEC’s highest priority), because they are too long and investors just don’t have the time.  She might also learn that many investors applaud the SEC’s initiative, because it is designed to enhance some disclosures rather than just eliminate them. 
Continue Reading Senator Warren strikes again

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Until recently, I’ve firmly believed that the SEC’s use of the bully pulpit can be effective in getting companies to act – or refrain from acting – in a certain way.  Speeches by Commissioners and members of the SEC Staff usually have an impact on corporate behavior.  However, the use of non-GAAP financial information – or, more correctly, the improper use of such information – seems to persist despite jawboning, rulemaking and other attempts to stifle the practice.

Concerns about the (mis)use of non-GAAP information are not new.  In fact, abuses in the late 1990s and early 2000s led the SEC to adopt Regulation G in 2003.  It’s hard to believe that Reg G has been around for 13+ years, but at the same time it seems as though people have been ignoring it ever since it was adopted.  Over the last few months, members of the SEC and its Staff have devoted a surprising amount of time to jawboning about the misuse of non-GAAP information; for example, the SEC’s Chief Accountant discussed these concerns in March 2016; the Deputy Chief Accountant spoke about the problem in early May 2016; and SEC Chair White raised the subject in a speech in December 2015.  And yet, the problem seems to persist.Continue Reading Mind the GAAP

Those of you who’ve been following my postings know that I’m not a fan of Congressional interference in the workings of the SEC. Well, those same wonderful folks who’ve garnered the lowest opinion ratings in history are at it again.

First, you may recall that Congress acted a few weeks ago to avoid another federal government shutdown. Well, a few interesting provisions were added to that legislation and – you guessed it – one of them was precisely the kind of thing that sets me off; in this case, it was a prohibition against any SEC rulemaking requiring disclosure of political contributions.Continue Reading They're back…

The SEC has issued its much-anticipated Staff Legal Bulletin on two rules impacting shareholder proposals. You can find the SLB here. The SLB looks a bit more benign than some had feared; in other words, it’s got some bad news, but the good news is that it’s not as bad as some feared.

2162651915_df13af7594_zRule 14a-8(i)(9) – Conflicting Proposals

The SLB deals with two areas of SEC Rule 14a-8 – the Rule governing shareholder proposals. The first area relates to Rule 14a-8(i)(9), which addresses what happens when a shareholder proposal “directly conflicts” with a company proposal. This issue reared its head during the 2015 proxy season, when the SEC withdrew a no-action letter it had granted to Whole Foods permitting it to exclude a shareholder proposal on proxy access and, at the direction of SEC Chair White, declared a moratorium on issuing no-action letters under Rule 14a-8(i)(9).Continue Reading Conflict management: the Staff Legal Bulletin on shareholder proposals

It’s done. On August 5, the SEC adopted final rules that will require publicly traded companies to disclose the ratio of the CEO’s “total compensation” to that of the “median employee.” We’re still wending our way through the massive (294 pages) adopting release, but one piece of good news (possibly the only one) is that it appears that pay ratio disclosures won’t be needed until 2018 for most companies.

I’ve already posted my views on this rule (see “CEO pay ratios: ineffective disclosure on steroids”), so it’s no surprise that I’m not happy. However, what is surprising are the myths and madness that the mandate has already created. First, there’s the “median employee,” who may be a myth in and of him/herself. But that’s not all; the media (notably The New York Times) have begun to tout the rule and make all sorts of predictions about how it will impact CEO pay, many of which involve myths and madness of their own.

Myth: In an August 6 column, Peter Eavis wrote about the rule, saying “the ratio, cropping up every year in audited financial statements, could stoke and perhaps even inform a debate over income inequality”. Really? In the audited financial statements? I haven’t finished reading the rule, despite its being such a page-turner, but I didn’t see that in there and don’t think I will. Someone better tell the audit firms – and also tell Mr. Eavis that the ratio is not auditable.Continue Reading Pay ratio disclosure: Myths and madness

For those who think nothing ever gets done in Washington, last week must have been a challenge. From outward appearances, both the SEC and the PCAOB seem to be working overtime, possibly in order to ruin our holiday weekend or at least lay some guilt on us for not spending the weekend reading what they’ve put out.

First, on July 1 the SEC published rule proposals on the last of the so-called Dodd-Frank “four horsemen” (or, as the SEC Staffers called them, the “Gang of Four”) compensation and governance provisions – specifically, clawbacks. It’s too soon for even nerds like me to have gone over the proposed rules in any detail, but at first blush they disappoint in a few respects. Among other things, they appear to call for mandatory recoupment of performance-based compensation whenever the financials are restated, without regard to fault or misconduct; even a “mere” mistake will trigger the clawback. Moreover, neither the board, nor the audit committee, nor the compensation committee will have any discretion or any ability to consider mitigating circumstances. Last (for now), they do not seem to provide any exemptions or relief for small companies, emerging growth companies or the like. Interestingly, equity awards that are solely time-vested will not be considered performance-based compensation for purposes of the proposed rules. Of course, these are only proposed rules, and they will eventually take the form of exchange listing standards rather than SEC rules, but the basic approach is absolute and draconian, and it’s difficult to envision them changing very much.Continue Reading  Summer doldrums in DC? Not so much!