We continue on this afternoon at PLI’s Annual Securities Regulation Institute with an update from the SEC’s Division of Corporation Finance. The panel includes Division Director Meredith Cross and Deputy Directors Paula Dubberly, Lona Nallengara and Shelley Parratt. Here are the highlights:
Meredith Cross – What’s New at CorpFin:
- The Division is still busy implementing Dodd-Frank and now they have JOBS Act rule making as well
- Dodd-Frank: they have proposed everything that has a deadline and adopted all but 2 that have deadlines.
- Cross says the Compensation Committee/Consultant rules are quite practical allowing for a lot of leeway. She thinks the next step will be for exchanges to finalize their rules and the Commission to approve them. Cross even admits that her initial idea for the proposal was universally panned and ultimately discarded and says this is a good example of why comment letters are so important.
- She says the conflict minerals and resource extraction rules were the hardest rules the Division has ever had to draft because so much of it was completely “out of their wheelhouse.” They are hopeful that they will get some guidance out responding to questions they have received in this area. They are also facing multiple legal challenges on the rules.
- ABS risk retention and bad actor rules are yet to be adopted. Various Dodd-Frank executive compensation rules that have no deadlines will be addressed soon.
- Making rules workable and sticking as close to the Dodd-Frank statute is their highest priority.
- Cross said the JOBS Act happened very, very quickly and they had to scramble to get ready for it in about 3 weeks. They came out right away with practical guidance on day one and have tried to foresee what questions will come in and provide answers.
- Last year was the first year with 14a-8 private ordering and she thinks it will be interesting to see how this plays out. She thinks if there is time, we could see the Commission taking Proxy Access back up.
- Disclosure operations is 80% of her Staff and is their most important work. They have tried to tweak a few things over the past few years to emphasize professional judgment and she thinks the program is working even better now.
Shelley Parratt – 2012 Top 10:
- She never dreamed that comment letters would become news! Making so much information available on the SEC website has brought an increased focus from issuers and media alike.
- Internal controls over financial reporting are very hard under Dodd-Frank. Meredith Cross must certify the effectiveness of the disclosure program. This has led to a new disclosure controls review group.
- Fewer comments are better. They have re-calibrated the disclosure program and staff have more freedom to use judgment. This has led to more targeted comments focusing on the right issues.
- A review is just a review. SOX led to many categories of review and 10 years later they discarded them.
- A registrant is just a registrant. Foreign private issuers are no longer the odd man out. Staff are prepared to deal with IFRS and other issues unique to them.
- The more things change, the more they stay the same. Small companies have a hard time finding their identity and EGCs are just the latest iteration. They will process these filings as effectively as others.
- We all reinvent occasionally. Processing filings of mining companies is a new task and it is a big one.
- Enhanced focus on financial institution disclosure. They are getting great feedback on the continuous review model.
- There is more than one way to provide disclosure guidance. They would love to hear ideas for more topics.
- Paper filings again?! Confidential filings were being filed the old fashioned way but now they are being accepted via EDGAR.
Paula Dubberly: Policy & Capital Markets
- Chairman Schapiro received a rule making petition regarding disclosure of corporate political spending. They received an astounding 300,000+ comments on it so they are determining whether to recommend a rule making proposal to the Commission.
- He works with 5 different offices in the Division and they have all been active in Dodd-Frank and JOBS Act implementation.
- Other projects of note are:
- Chief Counsel’s Office: A major portion of their work is dealing with no-action requests when a shareholder proposal has been put forth. There were 350 requests this year, an increase of 9%. The most popular topics are corporate governance, social policy proposals, political contributions, and mandatory auditor rotation.
- Proxy access proposals (14a-8/private ordering) were the most publicized. The Chief Counsel’s office treats these the same as any no-action request so they granted relief to some and not others. Factors that led to no-action relief were: multiple proposals within a proposal in violation of 14a-8, inconsistency with company bylaws, and a proposal that was too vague.
Next up – Ongoing Disclosure and Compensation Challenges