Parsing the SEC’s Recent Disclosure Amendments

On August 17, the SEC announced a sprawling array of rule amendments designed to simplify and update its disclosure requirements. You may recall that the Fixing America’s Surface Transportation (FAST) Act of 2015 directed the SEC to identify amendments to accomplish those goals. This is a step toward implementing that directive. The new rules will be effective 30 days after publication in the Federal Register.

Although the final release is extensive (more than 300 pages) and the rule changes are numerous, the overall impact is more cosmetic than substantive. In fact, the SEC states that the changes will not “significantly alter […] the total mix of information provided to investors,” while facilitating and simplifying disclosure. That is a fair assessment of these mostly technical and modest amendments. Continue Reading

SEC Amends Rules to Require Inline XBRL Reporting

Just before Independence Day, the SEC adopted amendments to its eXtensible Business Reporting Language (XBRL) reporting requirements, which will become effective 30 days after their publication in the Federal Register. (Although the amendments apply to both operating companies and funds, I’ll address only the impact on companies.)

The amendments will require, on a phased-in basis, that companies use Inline XBRL when submitting financial statement information. This means that XBRL data must be embedded directly into the company’s filing, rather than appended as a separate exhibit, and will be both human-readable and machine-readable. The amendments do not change the categories of filers or scope of disclosures subject to XBRL requirements. Continue Reading

Linking Stock Buybacks and Insider Sales: An SEC Commissioner’s Concerned Perspective

New SEC Commissioner Robert J. Jackson Jr. (sworn in last January) delivered an interesting speech last week at the Center for American Progress highlighting an apparent connection between corporate stock buybacks and insider stock sales – and calling for remedial regulatory and governance action.

Commissioner Jackson said that his long-standing interest in stock buybacks was rekindled by the new tax law, which provided a tax holiday for international corporations to repatriate billions of dollars of overseas cash. But rather than make long-term investments in innovation or their workforces, many of these corporations, according to Commissioner Jackson, instead bought back a record $178 billion of their own stock in the first quarter of 2018. Continue Reading

Board Engagement: The Ethics and Compliance Missing Link

It’s been a year since I wrote about The Board’s Overlooked Role in Compliance. At the time, it seemed that momentum was building for more proactive board engagement in establishing and overseeing compliance programs. After all, regulators and courts have been increasingly outspoken about the importance of effective compliance programs and pointed about the essential role of boards of directors. Deputy Attorney General Rod Rosenstein recently addressed that very topic at Compliance Week’s 2018 Annual Conference for Risk Professionals in Washington, D.C. During his remarks, Mr. Rosenstein emphasized the need for companies to design, implement, and maintain effective enterprise-wide compliance programs, highlighting both the positives of success and negatives of failure.

Yet many companies still are not taking the necessary steps, and boards of directors may be partly to blame. For example, although the director panelists at Compliance Week 2018 consistently and emphatically supported the concept of effective ethics and compliance programs, they generally fell short of acknowledging the board’s affirmative duty to proactively oversee the process. The focus was instead on the now venerable (and perhaps overused) “tone from the top” concept, with some speakers seeming to take the view that proper board oversight consists of ensuring that the company hires capable personnel and then receiving periodic reports about any known compliance glitches. Continue Reading

Corporate Sustainability Focus Continues to Trend Upward

Public company focus on environmental, social, and governance issues has been trending upward for years, largely at the insistence of investors, employee, regulators, and other company stakeholders. A recent report entitled Turning Point: Corporate Progress on the Ceres Roadmap for Sustainability does a nice job of quantifying, and providing context for, that trend.

Ceres is a nonprofit organization whose mission is to “… transform the economy to build a sustainable future for people and the planet.” Turning Point reflects Ceres’ analysis of how 600 of the country’s largest public companies – representing more than 80 percent of the total market capitalization in the United States – are responding to various sustainability challenges and positioning themselves for the future. Continue Reading

Don’t Overlook the SEC’s Cybersecurity Governance Guidance

In late February, the SEC approved what it labeled “Guidance on Public Company Cybersecurity Disclosures.” And, sure enough, about three-quarters of its 24 pages focus on the various categories and locations of cybersecurity risk and incident disclosure obligations, as well as materiality determinations. Because the SEC’s much-anticipated guidance appeared right in the thick of calendar-year companies’ Form 10-K and proxy statement preparations, much attention has been paid to its disclosure aspects. But as the dust settles on Form 10-K and proxy statement filings, don’t lose sight of the SEC’s important governance guidance. Continue Reading

Five Common Compliance Myths

The recently released Society of Corporate Compliance and Ethics 2017 Compliance and Ethics Officer and Staff Salary Survey contains a host of interesting CCO and other compliance personnel compensation information. Also interesting is the survey’s profile data regarding compliance professionals and their companies.

The SCCE is a nonprofit association of more than 5,800 members, including CCOs and their staffs, employed in a wide range of industries. The 2017 survey’s data was derived from 1,376 email responses, which were then distilled down to 444 individuals employed by non-health care providers and responsible for at least 26 percent of their organization’s legal and regulatory risk (i.e., actual compliance personnel rather than personnel with isolated compliance duties).

A review of the survey’s data exposed five common compliance myths. Continue Reading

SEC Amends NYSE’s After Market Announcement Rule

The SEC recently approved an amendment to NYSE’s Listed Company Manual prohibiting companies from issuing material news after NYSE closes for trading – 4:00 p.m. Eastern time on normal trading days – until the earlier of (a) publication of the company’s official closing price by NYSE and (b) five minutes after NYSE’s official closing time. An important exception permits companies to publicly disclose material information immediately following a non-intentional disclosure if necessary to comply with Regulation FD.

According to the SEC’s final rule release, the amendment is designed to address the fact that trading occurs after 4:00 p.m. Eastern time on other securities exchanges and non-exchange venues (known as “away markets”). Therefore, if a company issues material news before NYSE completes its trading process and posts the company’s closing price, there can be material differences between NYSE’s closing price and trading prices on away markets, potentially creating “significant investor confusion.”

As a practical matter, this means that NYSE-listed companies should wait at least five minutes before releasing news after the market closes in order to comply with the new rule. This is a change from the old advisory text to Section 202.06 of NYSE’s Listed Company Manual, which requested that listed companies wait until the earlier of publication of their security’s official closing price on NYSE and 15 minutes after NYSE’s closing time before releasing material news.

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SEC Guidance Regarding the Tax Cuts and Jobs Act

You may have heard that the Republican tax overhaul (originally known as the Tax Cuts and Jobs Act of 2017) was signed into law on December 22, 2017. That same day, the SEC staff provided helpful disclosure guidance in the form of Staff Accounting Bulletin No. 118 and C&DI 110.02. Together, this timely guidance clarifies how companies should disclose certain income tax effects of the new law and the extent to which Item 2.06 of Form 8-K (disclosure of asset impairments) is implicated.

SAB 118

SAB 118 responds to widespread concern over how to comply with applicable financial and other reporting requirements while companies are still figuring out the impact of the new tax law. SAB 118 specifically addresses, and is limited to, issues related to tax recognition for the current year and deferred tax liabilities and assets for future years in accordance with FASB Accounting Standards Codification Topic 740. The guidance acknowledges that there may be situations where the accounting for certain tax effects of the law will be incomplete by the time financial statements are issued for a company’s reporting period that includes December 22, 2017 and seeks to provide more certainty and consistency of views where a company does not have the necessary information available, prepared or analyzed (including computations) by the applicable filing date.

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The DOJ’s Latest Compliance Program Warning

U.S Deputy Attorney General Rod Rosenstein recently announced the Department of Justice’s revised FCPA Corporate Enforcement Policy. The revised Policy is based on the DOJ’s FCPA Pilot Program (in place since April 2016), which provided mitigation credit for voluntary reporting of wrongdoing and specified levels of cooperation and remediation in connection with the resulting investigation.

Much has been made about the new Policy provisions that create the presumption of a DOJ enforcement declination and specify percentage reductions from the U.S. Federal Sentencing Guidelines in the event that a company self-discloses, cooperates and/or remediates in accordance with specified Policy requirements. Certainly, these provisions significantly further the shift toward encouraging company cooperation, as well as continue the focus on holding individuals accountable, and deserve careful attention.

It was, however, Deputy Attorney General Rosenstein’s third “policy enhancement” that most caught my eye. That provision provides detail about how the DOJ evaluates compliance programs, specifying what he calls “hallmarks of an effective compliance program.”

The Policy first states that the criteria for an effective compliance and ethics program may vary based on the size and resources of the organization, which seems fair enough. It then provides a list of criteria (quoted below), which it says will be periodically updated:

  • The company’s culture of compliance, including awareness among employees that any criminal conduct, including the conduct underlying the investigation, will not be tolerated;
  • The resources the company has dedicated to compliance;
  • The quality and experience of the personnel involved in compliance, such that they can understand and identify the transactions and activities that pose a potential risk;
  • The authority and independence of the compliance function and the availability of compliance expertise to the board;
  • The effectiveness of the company’s risk assessment and the manner in which the company’s compliance program has been tailored based on that risk assessment;
  • The compensation and promotion of the personnel involved in compliance, in view of their role, responsibilities, performance, and other appropriate factors;
  • The auditing of the compliance program to assure its effectiveness; and
  • The reporting structure of any compliance personnel employed or contracted by the company.

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