Tag: Transparency

Announcement of New Rulemaking Database

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s recent public statement, 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.

Strong regulations are central to the Commission’s mission. For more than 80 years, we have used rulemaking to establish a comprehensive framework for our securities markets that protects investors, enhances market integrity, and promotes capital formation. The rulemaking process is the means through which the Commission responds to the ever-changing securities markets, targets and attacks harmful practices in those markets, and meets the goals mandated by Congress. Our rules provide important standards against which we assess compliance in our examinations and hold wrongdoers accountable in our enforcement actions.


Sustainability Practices 2015

Matteo Tonello is Managing Director at The Conference Board, Inc. This post relates to Sustainability Practices 2015, an annual benchmarking report authored by Mr. Tonello and Thomas Singer. The complete publication, including footnotes, graphics, and appendices, is available here.

More US companies are aligning sustainability disclosure with global standards through the Global Reporting Initiative (GRI) framework. Even though the overall environmental and social disclosure rate among global companies has remained essentially unchanged over the last year, reporting using the GRI framework continued its rise in the United States, and one out of three large U.S. companies now adopt those guidelines. Exceptional progress has also been made in the transparency of individual practices, such as anti-bribery and climate change.

These are some of the findings from The Conference Board Sustainability Practices Dashboard 2015, a comprehensive database and online benchmarking tool that serves as the foundation for this report. The dashboard captures the most recent disclosure of environmental and social practices by large public companies around the world and segments them by market index, geography, sector, and revenue group. Other key findings from this year’s data include the following:


13(d) Reporting Inadequacies in an Era of Speed and Innovation

David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. This post is based on a Wachtell Lipton publication by Mr. Katz and Laura A. McIntosh. The complete publication, including footnotes, is available here. Related research from the Program on Corporate Governance includes The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.

The Securities and Exchange Commission and other market regulators confront a challenging issue: How to effectively monitor and regulate activity in an environment that is both fast-moving and highly complex? The principles and architecture of the Securities Exchange Act of 1934 were created for a much simpler financial world—an analog world—and they struggle to describe and contain the digital world of today. The lightning speed of information flow and trading, the constant innovations in financial products, and the increasing sophistication of active market participants each pose enormous challenges for the SEC; together, even more so. The ongoing controversy over Section 13(d) reporting exemplifies the many challenges facing the SEC in this regard.


Peer Effects of Corporate Social Responsibility

Hao Liang is Assistant Professor of Finance at Singapore Management University. This post is based on an article authored by Professor Liang, and Jie Cao and Xintong Zhan, both of the Department of Finance at the Chinese University of Hong Kong.

Corporate social responsibility (CSR) has increasingly become a mainstream business activity—ranging from voluntarily engaging in environmental protection to increasing workforce diversity and employee welfare—although standard economic theories predict that it should be rather uncommon (Benabou and Tirole, 2010; Kitzmueller and Shimshack, 2012). The neoclassical economic paradigm usually considers CSR as unnecessary and inconsistent with profit maximization (e.g., Friedman, 1970). This discrepancy between theory and real-world observations has attracted much scholarly attention in recent years. One popular view on why CSR prevails is that it creates a competitive advantage for the firm and thus contributes to firm value. Following this line, numerous studies have investigated the causes and consequences of CSR by focusing on its strategic value implications.


Regulating Trading Practices

Andreas M. Fleckner is a Senior Research Fellow at the Max Planck Institute for Comparative and International Private Law in Hamburg. This post is based on a chapter prepared for The Oxford Handbook of Financial Regulation (forthcoming).

High-frequency trading, dark pools, front-running, phantom orders, short selling—the way securities are traded ranks high among today’s regulatory challenges. Thanks to a steady stream of news reports, investor complaints, and public investigations, it has become commonplace to call for the government to intervene and impose order. The regulation of trading practices, one of the oldest roots of securities law and still a regulatory mystery to many people, is suddenly the talk of the town.

From a historical and empirical perspective, however, many of the recent developments look less dramatic than some observers believe. This is the essence of Regulating Trading Practices, my chapter for the new Oxford Handbook of Financial Regulation. The chapter explains how today’s regulatory regime evolved, identifies the key rationale for governments to intervene, and analyzes the rules, regulators, and techniques of the world’s leading jurisdictions. My central argument is that governments should focus on the price formation process and ensure that it is purely market-driven. Local regulators and self-regulatory organizations will take care of the rest.


Forty-Four U.S. Senators 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 this week a group of forty-four U.S. Senators sent a letter to SEC Chair Mary Jo White expressing support for the rulemaking petition on corporate political spending submitted by the committee of corporate and securities law experts that we co-chaired. We are delighted that forty-four Senators have added their voices to the unprecedented support that the petition has already received.

In July 2011, we co-chaired a committee on the disclosure of corporate political spending and served as the principal draftsmen of the rulemaking petition that the committee submitted. The petition urged the SEC to develop rules requiring public companies to disclose their spending on politics. To date, the SEC has received more than 1.2 million comments on the proposal—more than any rulemaking petition in the Commission’s history.

The forty-four Senators’ letter begins by stating that they “write to express [their] support” for the rulemaking petition. They go on to state their belief that the disclosure rules advocated by the petition are “consistent with the SEC’s requirement for public companies to disclose meaningful financial information to the public.” They express appreciation to the SEC Chair’s “willingness to strongly consider the importance of this rulemaking.” They conclude by asking that the SEC Chair make the petition “a top priority for the SEC in the near term, and inform [the Senators] of the basis for [the SEC Chair’s] decision should [the SEC Chair] not plan to include it on the Commission’s agenda for the upcoming year.”

The Senators’ letters refers to a prior letter in support of the rulemaking petition that was sent to the SEC by a bipartisan group of former SEC officials. In this letter, former SEC Chairmen Arthur Levitt and William Donaldson and former Commissioner Bevis Longstreth stated that the rulemaking proposed in the petition is a “slam dunk” and that the SEC’s failure to act “flies in the face of the primary mission of the Commission, which since 1934 has been the protection of investors.”

As we have discussed in previous posts on the Forum, the case for rules requiring disclosure of corporate political spending is compelling. Unfortunately, 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, a close examination of the objections that opponents of such rules have raised indicates that these objections, both individually and in combination, fail to provide an adequate basis for opposing rules that would make disclose corporate political spending to investors.

The letter of the forty-four Senators highlights the remarkable level of support that the rulemaking petition has received. The SEC should proceed with rulemaking in this area without further delay.

The forty-four U.S. Senators who signed the letter supporting the rulemaking petition are:


Enhancing the Commission’s Waiver Process

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.

Requests for waivers from regulatory disqualifications remain a topic of considerable import—and lively debate—for the Commission. Such requests are typically made when certain individuals or entities become involved in Commission enforcement actions. One consequence of these enforcement actions can be that an entity or individual is automatically disqualified, as mandated by Congress, from conducting certain activities, or from relying on certain exemptions from registration. Commission rules allow entities and individuals subject to such disqualifications to approach the SEC staff and seek a waiver from these prohibitions. This post discusses how the Commission could strengthen its protocols for handling such waiver requests and provide enhanced transparency and clarity on the Commission’s waiver process. In addition, this post discusses the benefit of a more flexible and calibrated approach to waivers.


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.


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.


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.


  • Subscribe

  • Cosponsored By:

  • Supported By:

  • 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
    Daniel Burch
    Richard Climan
    Jesse Cohn
    Isaac Corré
    Scott Davis
    John Finley
    David Fox
    Stephen Fraidin
    Byron Georgiou
    Larry Hamdan
    Carl Icahn
    Jack B. Jacobs
    Paula Loop
    David Millstone
    Theodore Mirvis
    James Morphy
    Toby Myerson
    Morton Pierce
    Barry Rosenstein
    Paul Rowe
    Rodman Ward