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Corp Fin Director Highlights the Need for Tailored Brexit Disclosures and Principles-Based Sustainability Disclosures
In his March 15, 2019 speech at the 18th Annual Institute on Securities Regulation in Europe, William Hinman, Director of the Securities and Exchange Commission's ("SEC") Division of Corporation Finance ("Corp Fin"), addressed the importance of well-crafted disclosure on topics relevant to investors, specifically with respect to Brexit and sustainability. He emphasized that disclosure should allow investors "to understand how management is positioning the company in the face of uncertainties" and provide them with material, company-specific information about risk and risk-mitigation plans.
SEC Proposes Amendments to Modernize Disclosures; Considers Requiring Human Capital Resources Disclosure
On August 8, 2019, the Securities and Exchange Commission (“SEC”) proposed amendments1 to crucial disclosure requirements under Regulation S-K, including Item 101 (Description of Business), Item 103 (Legal Proceedings) and Item 105 (Risk Factors) as part of its ongoing initiative to update and modernize its disclosure.
In light of the increased spotlight on environmental, social and governance (“ESG”) disclosures, White & Case’s Public Company Advisory Group conducted a survey of environmental and social (“E&S”) disclosures in the Securities and Exchange Commission (“SEC”) filings of the top 50 companies by revenue in the Fortune 100.
On May 9, 2019, the SEC proposed amendments to effectively remove another regulatory burden for certain lower-revenue companies, including companies in the biotech and health care industries, in order to encourage more companies to access the public capital markets.
On March 20, 2019, the SEC voted to adopt amendments to modernize and simplify disclosure requirements for public companies, investment advisers, and investment companies.
On February 6, 2019, the Securities and Exchange Commission's Division of Corporation Finance ("Corp Fin") posted two identical Compliance & Disclosure Interpretations ("C&DIs") relating to diversity disclosure under Items 401 and 407 of Regulation S-K ("Reg S-K")
This memorandum outlines considerations for foreign private issuers ("FPIs") in preparation for the 2019 annual reporting season. Part I (pg. 2) provides a summary of certain key trends and insights from the 2018 US proxy season that may be of relevance to FPIs; Part II (pg. 4) sets forth an overview of recent corporate governance developments and trends; Part III (pg. 8) examines disclosure considerations and regulatory updates; and Part IV (pg. 14) includes a brief discussion of upcoming regulatory developments and pending rulemaking initiatives.
Keeping up with the commitment to promote capital formation, on December 19, 2018, the Securities and Exchange Commission ("SEC") adopted final rules to allow publicly reporting companies to rely on the Regulation A ("Reg A") exemption from registration for securities offerings of up to $50 million in a 12-month period. Prior to this amendment, Reg A was available only to eligible3 issuers not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act.
On December 21, 2018, the federal government failed to enact appropriations to fund certain federal operations, resulting in a partial government shutdown. The Securities and Exchange Commission ("SEC") has published a detailed plan for the agency's operation during the shutdown that goes into effect on December 27, 2018. Under the plan, the SEC will initially be open and "fully operational for a limited number of days beyond the start of a government shutdown. During the time [it] remain[s] open, [it] will conduct ordinary business."
This memorandum outlines certain considerations for US public companies in preparation for the 2019 annual reporting and proxy season.
SEC Releases New Guidance on Board Analyses and Rule 14a-8 Ordinary Business and Economic Relevance Exceptions
On October 23, 2018, the staff (the "Staff") of the Division of Corporation Finance ("Corp Fin") of the Securities and Exchange Commission ("SEC") issued Staff Legal Bulletin 14J ("SLB 14J") to provide the Staff's views on: (i) board analyses in connection with no-action requests that seek to rely on the "economic relevance" or "ordinary business"3 exceptions as a basis to exclude shareholder proposals; (ii) the scope and application of "micromanagement" as a basis to exclude a proposal under the "ordinary business" exception; and (iii) the scope and application of the "ordinary business" exception for proposals concerning senior executive and/or director compensation matters.
On October 18, 2018, Institutional Shareholder Services ("ISS") proposed a new voting policy1 on board gender diversity for public companies in the United States. The proposed policy provides that, beginning in 2020, ISS may recommend voting against the nominating committee chair where a company's board has no female directors.
Stop Payment: SEC Investigative Report Highlights Need for Proper Training, Controls to Prevent Cyber-Related Fraud
The Securities and Exchange Commission ("SEC") decided not to pursue enforcement actions against any of nine publicly traded companies, each of which lost over $1 million when their internal accounting controls failed to detect fraudulent email requests for wire transfers or vendor payments.
On September 18, 2018, Institutional Investor Services ("ISS") released the results of its "2018 Governance Principles Survey," which canvassed institutional investors, corporate executives, board members and other interested constituencies on a limited number of corporate governance matters. These results are expected to inform ISS's new and updated policies for the 2019 proxy season, which are usually released in November.
On August 17, 2018, the Securities and Exchange Commission ("SEC") adopted amendments to eliminate or modify certain disclosure requirements that have become duplicative, overlapping or outdated in light of other SEC disclosure requirements, US Generally Accepted Accounting Principles ("GAAP") or "changes in the information environment."
On August 21, 2018, the Treasury Department and the Internal Revenue Service (the "IRS") released Notice 2018-68, which provided initial limited guidance on recent changes to the application of the limitation on the deduction of compensation paid to certain "covered employees" under §162(m) of the Internal Revenue Code. Additional IRS guidance on §162(m) is still expected in the future.
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