Public Companies Update – September One Minute Reads // Cooley // Global Law Firm
The SEC drafts a strategic plan for 2022 to 2026
On August 24, 2022, the The United States Securities and Exchange Commission announced that he had published a sound project strategic plan for fiscal years 2022 to 2026with an accompaniment request for public comments. The draft strategic plan sets out three overarching goals to: “(1) protect working families from fraud, manipulation and misconduct; (2) [d]develop and implement a robust regulatory framework that keeps pace with changing markets, business models and technologies; and (3) [s]support a skilled workforce that is diverse, equitable, inclusive, and fully equipped to advance agency goals. The strategic plan also includes several components for each main objective. For a more detailed overview, refer to this Cooley PubCo blog post on SEC strategic plan.
SEC accuses crypto firm of Section 5 violations
In our August edition of One-Minute Reads, we discussed a recent insider trading case in which the SEC found certain digital assets to be securities, and the possibility that this discovery could lead to enforcement actions. execution against crypto asset companies for sale and offer. unregistered securities in violation of Section 5 of the Securities Act. As of August 16, this possibility has materialized, as the SEC announced charges against a group of entities and their founder for their roles in unregistered crypto offerings. According to Complaint to the SEC, the company conducted an unregistered offering of a crypto asset, including via an Initial Coin Offering, illegally raising over $16 million in proceeds through unregistered offerings and sales of these securities. We will follow this litigation as it progresses and continue to monitor further SEC actions relating to digital assets as securities subject to Section 5.
SEC Chairman’s Comments on Sarbanes-Oxley Act
July 27, SEC Chairman Gary Gensler gave a speech at the Center for Audit Quality about what we learned from Sarbanes-Oxley (SOX) in commemoration of its 20th anniversary. Gensler addressed SOX’s role in restoring public trust after the Enron and WorldCom scandals, while pointing out key areas where there is still room for improvement. Notably, Chairman Gensler asked the Public Company Accounting Oversight Board (PCAOB) to consider adding updated auditor independence standards to its agenda, and said the SEC may “review the rules as well. independence of SEC auditors”. Gensler acknowledged the importance of SOX in establishing the PCAOB, but noted that he has been too slow to update auditing standards, although he expects there will be challenges. measurable progress on standardization over the next year. He also touched on audit inspections, investigations and enforcement – highlighting the role of the PCAOB in the recent charges against Ernst & Young for cheating by its auditors on ethics reviews – as well as the Holding Foreign Companies Accountable Act (HFCAA) and the lack of US inspections of audits and investigations in China. look at this Cooley PubCo blog post on HFCAA for more color, and refer to this Cooley PubCo blog post on SOX for more on Gensler’s remarks.
Semler Brossy publishes a report on ESG measures of executive compensation
On July 18, Semler Brossy published its ESG Report + Incentives 2022, providing benchmark data on the prevalence and types of environmental, social and corporate governance (ESG) measures used by the S&P 500 in their executive compensation programs. According to the report:
- 70% of S&P 500s that filed proxies between April 2021 and March 2022 included an ESG measure in their compensation packages (compared to 57% in the same period a year earlier).
- Of these companies, 95% have included human capital management metrics in their compensation programs (the most common being related to diversity, equity and inclusion) – in comparison, 23% have included metrics environmental and 41% included other parameters, such as cybersecurity.
- Notably, 98% of all companies that have incorporated ESG measures into their compensation programs have done so in their annual incentive plans (ESG measures in long-term incentive plans remain relatively rare, at just 14 %).
- The most common structure for ESG metrics is part of a dashboard (41%), followed by a discretionary structure where ESG is included as an additional layer that may impact payouts (23%).
Glass Lewis releases 2022 proxy season review
On August 4, Glass Lewis released his 2022 Season Proxy Briefingproviding an overview of its initial observations and voting recommendations from the 4,574 reports on U.S. publicly traded companies with an annual meeting held between January 1 and June 30, 2022. Here are some key points from Glass Lewis’ report:
- Support was recommended for 86% of directors, with negative recommendations most often stemming from IPO-related governance issues, insufficient gender diversity on the board, no director principal or independent chairman and the presence of an affiliate on a committee.
- Support was recommended for 84.3% of say-on-pay votes, with negative recommendations most often stemming from concerning pay practices (subsidies/excessive pay at 41.6%), poor program design structure, or reward (34.9%), pay/performance disconnects (34.7%), others concerning salary practices (16.7%) and insufficient responses to shareholders (15.8%).
- Support was recommended for 85.7% of stock plans, with negative recommendations most often stemming from the presence of persistent clauses (44.7%), price review clauses (27.3%), excessive timing or nature of subsidies (12.4%), plan costs (13%), and excessive dilution/overhang (6.8%).
Cooley’s tax team highlights implications of the Inflation Reduction Act
On August 16, President Joe Biden signed into law the Inflation Reduction Act (IRA), which includes several important tax provisions, among other important items. This IRA client alert from Cooley’s tax team highlights a few key tax provisions of the law, primarily the Alternative Minimum Corporate Tax (AMT), which imposes a 15% AMT on U.S. corporations whose profits exceed a certain threshold, and a 1% excise tax on the fair market value of any stock redemptions by publicly traded U.S. corporations and certain U.S. subsidiaries of non-U.S. publicly traded corporations, subject to several exceptions . Corporate AMT will apply for tax years commencing after December 31, 2022, with excise tax taking effect for applicable redemptions after that same date.
PwC releases trending summary of SEC comment letters
PwC recently published its annual summary of Trends in SEC Comment Letterswhich details trends in Corporate Finance Division comments on corporate filings from July 2021 to June 2022. Here are the top 10 issues by comment volume, and compared to last year:
- Non-GAAP (Generally Accepted Accounting Principles) measures are at the top.
- The management report (MD&A) is at the top.
- Segment information is down.
- Risk factors and climate change issues are at the top.
- Revenue recognition is down.
- The fair value measurement is unchanged.
- Disclosure controls and internal control over financial reporting (ICFR) are unchanged.
- Inventories and cost of sales are unchanged.
- Form compliance and exhibits are unchanged.
- Business combinations are unchanged.
PwC’s report also covered industry-specific comment letter trends.
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