Tag: Transparency


SEC and PCAOB on Audit Committees

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update by Ms. Gregory, Jack B. Jacobs and Thomas J. Kim.

Public company counsel and audit committee members should be aware of recent activity at the U.S. Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) that could lead to additional regulation of audit committee disclosure and to federal normative expectations for how audit committees and their members behave.

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Clarity in Commission Orders

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

This statement is about the critical importance of clarity in Commission Orders for enforcement actions. One of the Commission’s most effective deterrents against future misconduct is what it says about the enforcement actions it takes. As a result, the Commission must use its position as a regulatory authority to carefully and effectively send clear messages to securities industry participants regarding what is, and what is not, acceptable behavior. For this reason, Commission Orders need to contain sufficiently detailed facts so that there is no doubt as to why the Commission brought an enforcement action, why the respondent deserved to be sanctioned, and why the Commission imposed the sanctions it did.

The Commission and its staff should always be cognizant that there is a broad audience that carefully reads Commission Orders for guidance. This broad audience is usually not familiar with the underlying facts of a particular matter, and is relying on the Order’s description of the misconduct to appreciate why a named respondent ran afoul of the applicable laws. A clear and transparent Commission Order, therefore, is an absolute necessity to ensure public transparency and accountability.

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Are Public Companies Required to Disclose Government Investigations?

Jon N. Eisenberg is partner in the Government Enforcement practice at K&L Gates LLP. This post is based on a K&L Gates publication by Mr. Eisenberg.

For many public companies, the first issue they have to confront after they receive a government subpoena or Civil Investigative Demand (“CID”) is whether to disclose publicly that they are under investigation. Curiously, the standards for disclosure of investigations are more muddled than one would expect. As a result, disclosure practices vary—investigations are sometimes disclosed upon receipt of a subpoena or CID, sometimes when the staff advises a company that it has tentatively decided to recommend an enforcement action, sometimes not until the end of the process, and sometimes at other intermediate stages along the way. In many cases, differences in the timing of disclosure may reflect different approaches to disclosure. We discuss below the standards that govern the disclosure decision and practical considerations. We then provide five representative examples of language that companies used when they disclosed investigations at an early stage.

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Congress Should Let the SEC Do its Job

Lucian Bebchuk is Professor of Law, Economics, and Finance at Harvard Law School. Robert J. Jackson, Jr. is Professor of Law at Columbia Law School. Bebchuk and Jackson served as co-chairs of the Committee on Disclosure of Corporate Political Spending, which filed a rulemaking petition requesting that the SEC require all public companies to disclose their political spending. Bebchuk and Jackson are also co-authors of Shining Light on Corporate Political Spending, published in the Georgetown Law Journal. A series of posts in which Bebchuk and Jackson respond to objections to an SEC rule requiring disclosure of corporate political spending is available here. All posts related to the SEC rulemaking petition on disclosure of political spending are available here.

Last week, the House Appropriations Committee included in its 2016 appropriations bill for financial services agencies a provision that would prevent the SEC from developing rules that would require public companies to disclose their political spending. Although this provision is unlikely to become law, its adoption is regrettable. In our view, Congress should let the SEC do its job and use its expert judgment—free of political pressures in any direction—to determine what information should be disclosed to public-company investors.

In July 2011, we co-chaired a committee of ten corporate and securities law academics that petitioned the SEC to develop rules requiring public companies to disclose their political spending. The SEC has now received over 1.2 million comments on the proposal—more than any rulemaking petition in the SEC’s history. As we have explained in previous posts on the Forum, the case for rules requiring disclosure of corporate spending is compelling. Unfortunately, Chairman Mary Jo White has faced significant political pressure not to develop such rules, and the Commission has so far chosen to delay consideration of rules in this area.

As we explained in earlier posts on the Forum (see, for example, posts here and here), we view this delay as regrettable in light of the compelling arguments in favor of disclosure and the breadth of support that the petition has received. Furthermore, as we explain in detail in our article Shining Light on Corporate Political Spending, an analysis of the full range of objections that opponents of transparency have raised makes clear that these opponents have failed to provide a convincing basis for keeping corporate political spending below investors’ radar screen.

We agree with the bipartisan group of three former SEC Commissioners who just last month referred to the SEC’s inaction on the petition as “inexplicable.” At a minimum, the broad support and compelling arguments in favor of disclosure of corporate spending on politics make clear that the Commission should move promptly to consider the petition on the merits. Unfortunately, last week’s move by the Appropriations Committee reflects another attempt to avoid consideration of the rulemaking petition on its merits. Members of Congress should not try to prevent the SEC from even considering the substantive merits of the petition.

While corporate political spending is an issue that politicians are naturally interested in, our petition focuses on whether investors should receive information regarding political spending at the companies they own. That is an issue that falls squarely within the SEC’s mandate and expertise. Regardless of their views on corporate political spending, Congressmen of all stripes should avoid interfering with the Commission’s rulemaking processes. We urge them to allow the SEC to do its job.

The SEC’s Current Views on Private Equity

Alfred O. Rose and Randall W. Bodner are partners at Ropes & Gray LLP. This post is based on a Ropes & Gray publication.

As a follow-up to last year’s “Spreading Sunshine in Private Equity” speech, in which then-OCIE Director Andrew Bowden stated that the SEC had found that more than half of the funds examined by OCIE had allocated expenses and collected fees inappropriately and identified “lack of transparency” as a pervasive issue in the private equity industry, Marc Wyatt delivered a speech on May 13, 2015, reflecting on progress in the past year as well as identifying likely areas of scrutiny the private equity industry will face in the future. Although the speech has been widely reported, we wanted to highlight particular areas of interest. In this post, we examine the key takeaways from the speech, and outline best practices for the private equity industry going forward.

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Bipartisan Group of Former SEC Commissioners Support the Rulemaking Petition for Transparency in Corporate Political Spending

Lucian Bebchuk is Professor of Law, Economics, and Finance at Harvard Law School. Robert J. Jackson, Jr. is Professor of Law at Columbia Law School. Bebchuk and Jackson served as co-chairs of the Committee on Disclosure of Corporate Political Spending, which filed a rulemaking petition requesting that the SEC require all public companies to disclose their political spending. Bebchuk and Jackson are also co-authors of Shining Light on Corporate Political Spending, published in the Georgetown Law Journal. A series of posts in which Bebchuk and Jackson respond to objections to an SEC rule requiring disclosure of corporate political spending is available here. All posts related to the SEC rulemaking petition on disclosure of political spending are available here.

We are pleased to report that a bipartisan group of three distinguished former SEC Commissioners—former Chairman William Donaldson, former Chairman Arthur Levitt, and former Commissioner Bevis Longstreth—last week submitted to the SEC a letter urging the Commission to move forward with the rulemaking we proposed in our petition on corporate political spending. We are delighted that this distinguished group of former Commissioners is adding its voice to the massive and unprecedented support that the petition has already received.

In July 2011, we co-chaired a committee of ten corporate and securities law experts that submitted a rulemaking petition urging the SEC to develop rules requiring public companies to disclose their political spending. The SEC has thus far received more than 1.2 million comments on the proposal—more than any rulemaking petition in the SEC’s history.

The three former SEC Commissioners who have now come out in support of our petition bring a rich and telling set of perspectives and experiences to this issue. William Donaldson, a Republican, was appointed by President George W. Bush after having previously served in the Nixon Administration and served as SEC Chairman from 2003 to 2005. Arthur Levitt, a Democrat, was appointed by President Bill Clinton and served as SEC Chairman from 1993 to 2001. And Bevis Longstreth, a Democrat, was twice appointed to the SEC by President Ronald Reagan, serving as a Commissioner from 1981 to 1984.

As we have discussed in previous posts on the Forum, the case for rules requiring disclosure of corporate political spending is compelling. Unfortunately, Chairman Mary Jo White has faced significant political pressure not to develop such rules, and the Commission has so far chosen to delay consideration of rules in this area. The delay is unfortunate and unwarranted in light of the strong arguments for disclosure put forward in the rulemaking petition and the remarkable and broad support that the petition has received. Moreover, as we showed in our article Shining Light on Corporate Political Spending an examination of the full range of objections that opponents of such rules have so far been able to raise indicates that these objections, both individually and in combination, fail to provide an adequate basis for opposing such rules.

In the letter submitted last week by the bipartisan group of three distinguished former SEC Commissioners, the authors opined that it is a “slam dunk” for the SEC to move forward with rules that would shine light on corporate spending on politics. We are delighted that these distinguished former Commissioners share our view that the case for mandating disclosure of corporate political spending is compelling. The SEC should proceed with rulemaking in this area without further delay.

Modernizing and Enhancing Investment Company and Investment Adviser Reporting

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s remarks at a recent open meeting of the SEC, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Good morning, everyone. This is an open meeting of the Securities and Exchange Commission on May 20, 2015 under the Government in the Sunshine Act.

The Commission today will consider two recommendations of the staff to modernize and augment the information reported by both registered investment companies, which include mutual funds and ETFs, and investment advisers. These proposals are part of a series of rulemakings to enhance the SEC’s monitoring and regulation of the asset management industry. We will discuss the two recommendations together and then will vote separately on each following the discussion.

The oversight of funds and advisers is one of the most important functions of the Commission. Over the past 75 years, our regulatory program for asset management has grown and adapted, guided by our mission, to address the challenges of this important, ever-evolving and growing area of our financial markets. Today, we once again are doing that.

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Effective Regulatory Oversight and Investor Protection Requires Better Information

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at a recent open meeting of the SEC; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

It is said that, “knowledge is power.” Knowledge, however, requires information. And there is no doubt we live in an age of information. The advent of the Internet and the breathtaking technological advances we have witnessed over the last few decades have given us access to more information than at any time in history. The available data seems to be limitless—and all available at the touch of a fingertip.

Yet, when I joined the Commission, it quickly became apparent that the SEC did not have the breadth and quality of information necessary to do its job effectively. As our country experienced the worst financial crisis since the Great Depression, and, as things began to unravel, I sought data and information to analyze the impact of what was occurring—only to find that much of the information available to the Commission was missing, stale, or incomplete.

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Supporters of Transparency Should Work with the SEC, Not Take it to Court

Lucian Bebchuk is Professor of Law, Economics, and Finance at Harvard Law School. Robert J. Jackson, Jr. is Professor of Law at Columbia Law School. Bebchuk and Jackson served as co-chairs of the Committee on Disclosure of Corporate Political Spending, which filed a rulemaking petition requesting that the SEC require all public companies to disclose their political spending. Bebchuk and Jackson are also co-authors of Shining Light on Corporate Political Spending, published in the Georgetown Law Journal. A series of posts in which Bebchuk and Jackson respond to objections to an SEC rule requiring disclosure of corporate political spending is available here. All posts related to the SEC rulemaking petition on disclosure of political spending are available here.

In July 2011, we co-chaired a committee of ten corporate and securities law experts that petitioned the Securities and Exchange Commission to develop rules requiring public companies to disclose their political spending. As reflected on the SEC’s webpage for comments filed on the petition, the SEC has now received more than 1.2 million comments on the proposal—more than any rulemaking petition in the SEC’s history. Earlier this week, a suit was filed in the federal court for the District of Columbia, relying in part on our petition and the broad support it has received, seeking an injunction requiring the SEC to initiate rulemaking on the subject. As explained below, this litigation is unhelpful to the broadly supported effort to obtain disclosure that would shed light on corporate political spending.

To be sure, we are disappointed that the SEC has not yet started the rulemaking process urged by our petition. At the end of 2012, the Director of the SEC’s Division of Corporation Finance acknowledged the widespread support for the petition, and the Commission placed the proposal on its regulatory agenda for 2013. Unfortunately, Chairman Mary Jo White faced considerable political pressure from Congress not to develop rules that would require disclosure of corporate spending on politics, and the Commission has thus far delayed any further consideration of rules in this area. As we explained in earlier posts on the Forum (see, for example, posts here and here), we view the delay as unfortunate and unwarranted in light of the compelling arguments for disclosure, the breadth of support that the petition has received, and the weakness of the objections that opponents have been able to raise.

While the SEC would do well to initiate rulemaking without further delay, we view the attempt to force the Commission to act through court action as unhelpful for two reasons. First, while the SEC’s delay in initiating rulemaking is regrettable, the SEC’s behavior thus far does not come close to satisfying the demanding conditions for judicial intervention. The court should thus not be expected to provide the injunction requested by the lawsuit.

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Optimizing Our Equity Market Structure

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s recent address at the Inaugural Meeting of the Equity Market Structure Advisory Committee; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I am pleased to welcome everyone to the inaugural meeting of the Equity Market Structure Advisory Committee. Maintaining and enhancing the high quality of the U.S. equity markets is one of the SEC’s most important responsibilities. This Committee’s work is an important part of that and will be of great assistance to the Commission as we continue our efforts to ensure that the equity markets optimally meet the needs of investors and public companies.

The U.S. equity markets have, of course, experienced a sweeping transformation over the last 20 years. Primarily manual market structures have been replaced by high-speed electronic markets in which computer algorithms dominate trading. As I have detailed before, empirical evidence shows that investors are doing better in today’s marketplace than they did in the old manual markets.

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  • Programs Faculty & Senior Fellows

    Lucian Bebchuk
    Alon Brav
    Robert Charles Clark
    John Coates
    Alma Cohen
    Stephen M. Davis
    Allen Ferrell
    Jesse Fried
    Oliver Hart
    Ben W. Heineman, Jr.
    Scott Hirst
    Howell Jackson
    Robert J. Jackson, Jr.
    Wei Jiang
    Reinier Kraakman
    Robert Pozen
    Mark Ramseyer
    Mark Roe
    Robert Sitkoff
    Holger Spamann
    Guhan Subramanian

  • Program on Corporate Governance Advisory Board

    William Ackman
    Peter Atkins
    Joseph Bachelder
    John Bader
    Allison Bennington
    Richard Breeden
    Daniel Burch
    Richard Climan
    Jesse Cohn
    Isaac Corré
    Scott Davis
    John Finley
    Daniel Fischel
    Stephen Fraidin
    Byron Georgiou
    Larry Hamdan
    Carl Icahn
    David Millstone
    Theodore Mirvis
    James Morphy
    Toby Myerson
    Barry Rosenstein
    Paul Rowe
    Rodman Ward