Monthly Archives: December 2019

Statement by Commissioner Peirce on Proposed Resource Extraction Rule

Hester M. Peirce is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on her recent statements at an Open Meeting of the SEC, available here. The views expressed in this post are those of Ms. Peirce and do not necessarily reflect those of the Securities and Exchange Commission or its staff

Thank you to the Chairman, the staffs in the Divisions of Corporation Finance and Economic and Risk Analysis and the Office of General Counsel, and other staff throughout the building for your diligence on this proposal.  This rule certainly has extracted lots of resources from this building.

Section 1504 of the Dodd-Frank Act and the tortured more-than-seven-year rulemaking history that it spawned serve as a reminder of the perils of permitting civil society—as this proposing release so eloquently dubs the groups that championed this rulemaking—to use the federal securities laws as an appropriate vehicle for accomplishing their own, non-securities purposes. As noble as these purposes are, the securities laws are not an appropriate Christmas tree on which to hang them.

Speaking of Christmas, ‘tis the Season, so I am going once again to trot out Charles Dickens’ tale of Ebenezer Scrooge, whose contempt for the holiday season and the people around him leads to terrifying, but edifying encounters with three ghosts. [1] The Resource Extraction rulemaking comes with its own set of ghosts. Though the lessons we have to learn are different, I hope we will be as teachable as Mr. Scrooge was.

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Statement by Commissioner Jackson on Proposed Resource Extraction Rule

Robert J. Jackson, Jr. is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on his recent statement at an Open Meeting of the SEC, available here. The views expressed in the post are those of Commissioner Jackson and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Statement on Proposed Disclosure of Issuer Payments Related To Extraction of Natural Resources

Thank you as always to our dedicated Staff, especially Barry Summer and Elliott Staffin from the Division of Corporation Finance, for their extensive work on these rules. I’m also grateful to Division Director Bill Hinman, as well as the Staff in our Office of General Counsel and Division of Economic and Risk Analysis, for all their efforts on this rulemaking.

Today the Commission proposes rules requiring issuers to disclose payments to foreign governments related to extraction of certain natural resources. This crucial transparency initiative has had a too-long and too-trying history, context that we should keep in mind as this process moves forward. But today’s proposal shines too little light on how American companies use investor funds to finance payments to foreign governments. Accordingly, I respectfully dissent.

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Statement by Commissioner Lee on Proposed Resource Extraction Rule

Allison Herren Lee is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on her recent statement at an Open Meeting of the SEC, available here. The views expressed in the post are those of Commissioner Lee, and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

This disclosure requirement is about fighting global corruption through transparency. The United States has long been a leader in international anti-corruption efforts. Congress enacted the Foreign Corrupt Practices Act in 1977, making it illegal for U.S. public companies to pay bribes to foreign government officials. [1] We were for many years the only major nation to have such a law. [2] The U.S. was a founding member of the Financial Action Task Force in 1989, an inter-governmental standards-setting body aimed at combatting money laundering. [3] We helped negotiate the United Nations Convention against Corruption in 2004. [4] We have taken this leadership role in combatting corruption worldwide not only because corrupt governments don’t provide adequately for their citizens, but because it is in our own foreign policy interests to promote stability and economic growth abroad. [5] In this tradition, Congress enacted Section 1504 of the Dodd-Frank Act to “help combat global corruption and empower citizens of resource-rich countries to hold their governments accountable for the wealth generated by those resources.” [6]

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Statement by Commissioner Roisman on Proposed Amendments to the Accredited Investor Definition

Elad L. Roisman is a Commissioner at the U.S. Securities and Exchange Commission. The following post is based on Commissioner Roisman’s recent statement at an Open Meeting of the SEC, available here. The views expressed in the post are those of Mr. Roisman and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I want to thank the staff of the Division of Corporation Finance and the Division of Investment Management for putting together this proposal. Thank you also to Chairman Jay Clayton, who has prioritized this issue on the Commission’s agenda. The accredited investor definition stands at the intersection of two components of the SEC’s mission: protecting investors and facilitating capital formation. I think the proposal today makes important strides toward furthering both of these objectives. While I support it, I believe there is more we can learn from commenters and more we should deliberate before we consider adopting the staff’s recommendations as presented.

Background

With respect to investor protection, the accredited investor definition stands between millions of Americans and opportunities for them to invest their wealth in private offerings. While this barrier was intended to protect investors from downside risk, it has also shut out all but the wealthiest from upside gains that private companies have made over the last several decades. Technically, the most effective way to protect people from losing money on an investment is to prohibit them from investing at all. But, that is not how I—or, I’d venture, many at the SEC—interpret our mission of “protecting investors.” In the public markets, our approach has been to design regulations that ensure people have the information they need to make good investment decisions, and then let them decide where to place their money. In the private markets, we have somewhat lightened the disclosure obligations for companies in exchange for restrictions on how they can raise capital through securities offerings as well as limits on who can invest in those offerings. And, of course, the anti-fraud provisions of our federal securities laws apply to both public and private offerings.

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Statement by Commissioner Jackson on Reducing Investor Protections around Private Markets

Robert J. Jackson, Jr. is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on his recent statement at an Open Meeting of the SEC, available here. The views expressed in the post are those of Commissioner Jackson and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Thank you to the terrific Staff in our Division of Corporation Finance, including especially Director Bill Hinman, for their hard work in advance of today’s open meeting. This team has certainly earned the time off I hope you’ll take over the coming holiday season. [1]

Today’s release proposes significant changes to rules governing investing in our private markets. The release is right to say that it has been decades since we have updated these rules, so they’re ripe for review. But what we need is careful, data-driven analysis of how to best balance the risks investors face in these markets with the potential rewards of participation. Instead, the release repeats by rote the intuition that exposing investors to these markets comes without corresponding costs. [2] Because there is no free lunch in financial markets, and pretending otherwise puts ordinary investors at risk, I respectfully dissent.

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Statement by Commissioner Lee on Proposed Expansion of the Accredited Investor Definition

Allison Herren Lee is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on her recent statement at an Open Meeting of the SEC, available here. The views expressed in the post are those of Commissioner Lee, and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today’s proposal would expand the definition of accredited investor in numerous ways. These proposed changes all go in one policy direction—toward expanding the pool of investors in the opaque, and indisputably high-risk, private markets. And once again, we propose to do so without adequately analyzing significant and relevant data, as Commissioner Jackson has carefully demonstrated.

The proposal contains a number of features that I hope will engender robust comment and analysis. [1] I will focus my remarks today, however, on the primary reason I cannot support sending this proposal out for comment—the approach it takes to the income and net worth thresholds. There is serious risk to retail investors, particularly elderly investors who have spent a lifetime saving for retirement, in the path this proposal takes. [2] And much of the rationale provided for this policy choice is problematic.

While I do not agree with significant policy choices reflected in this proposal, I want to recognize the work of the staff in the Division of Corporation Finance, the Office of the General Counsel, and the Division of Economic and Risk Analysis, which as usual reflects their expertise and dedication. [3] I sincerely appreciate their efforts.

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Weekly Roundup: December 13–19, 2019


More from:

This roundup contains a collection of the posts published on the Forum during the week of December 13–19, 2019.


NYSE Direct Listing Proposal


Financial Institutions Developments: Merger of Equals



Preparing Your 2019 Form F-20



CEO Succession Practices: 2019 Edition





Your 20/20 Foresight on Canada’s Proxy Season 2020


Potential Rule 10b-5 Liability for Misleading Statements and Omissions


Watching Insider Trading Law Wobble: Obus, Newman, Salman and Two Martomas


The Compensation Committee’s Role in Succession Planning


Statement by Chairman Jay Clayton at Open Meeting


On Inference When Using State Corporate Laws for Identification

On Inference When Using State Corporate Laws for Identification

Holger Spamann is Professor of Law at Harvard Law School. This post is based on his recent paper. Related research from the Program on Corporate Governance includes Firms’ Decisions Where to Incorporate by Lucian Bebchuk and Alma Cohen; Does the Evidence Favor State Competition in Corporate Law? by Lucian Bebchuk, Alma Cohen, and Allen Ferrell; How Do Staggered Boards Affect Shareholder Value? Evidence from a Natural Experiment by Alma Cohen and Charles C. Y. Wang; and Reexamining Staggered Boards and Shareholder Value by Alma Cohen and Charles C.Y. Wang (discussed on the Forum here).

A large empirical literature studies the effects of state corporate law statutes on corporate actions and performance at the firm level. Interest is in the laws for their own sake or as exogenous variation in determinants of firm behavior. For example, well over a hundred papers investigate the effects of state anti-takeover statutes or of state universal demand laws. How much should we trust the estimates of these papers? The short answer is: not much. A brief non-technical explanation follows. The full technical explanation is available on SSRN. (Quick technical summary: the conventional clustered standard errors are much too small due to the extreme cluster size imbalance.)

Like any empirical study, studies of state corporate laws have to address two potential problems: bias and noise. Bias refers to a systematic deviation of the effect estimate from the true causal effect. For example, a particular type of state might be more likely to adopt a particular type of statute and attract a particular type of firm, such that any statistical association between statute and firm outcome might be driven by selection of firms into states rather than any causal effect of the statute. Avoiding this potential bias is one reason why the vast majority of empirical studies estimate changes in firm outcomes as a function of staggered changes in state laws in a so-called difference-in-difference design. This design holds fixed individual firm’s average outcomes with so-called firm fixed effects, and usually controls for year-to-year changes common to all firms or to all firms in an industry etc. with year fixed effects or year-industry fixed effects etc. (other controls are recommended as well). Another reason to control for firm and year effects is to absorb the noise that results from firm-to-firm and year-to-year variation. Noise is random variation that is not systematically related to the variables of interest but that can obscure their relationship. The less noise, the easier the detection of true effects.

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Statement by Chairman Jay Clayton at Open Meeting

Jay Clayton is Chairman of the U.S. Securities and Exchange Commission. This post is based on Chairman Clayton’s recent statement at an Open Meeting of the SEC, available here. The views expressed in this post are those of Mr. Clayton and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Good morning. This is an open meeting of the U.S. Securities and Exchange Commission, under the Government in the Sunshine Act.

Today, we have six items on the agenda. As I’ve remarked in the past, we must efficiently allocate the Commission’s limited resources to a combination of statutory mandates and the needs of the day. The diverse array of items on today’s agenda illustrates this point—we are considering actions that represent the Commission’s continued efforts to complete the remaining, complex mandates of the Dodd-Frank Act, as well as a proposal that reflects our continued efforts to update and modernize our rules to reflect substantial changes in our markets, domestically and internationally, and advances in technology. In addition, the Commission will exercise its important oversight role with respect to the Public Company Accounting Oversight Board (“PCAOB”) in considering whether to approve the PCAOB’s 2020 budget and related accounting support fee.

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The Compensation Committee’s Role in Succession Planning

David N. Swinford is the President and Chief Executive Officer and Jannice L. Koors is a Senior Managing Director at Pearl Meyer & Partners, LLC. This post is based on their Pearl Meyer memorandum.

Naming a successor to the CEO is one of the board’s primary functions. However, boards can do more than simply identify a single next-in-line successor. More strategically minded boards actively guide the organization’s leadership development process and focus on recruiting, motivating, and retaining high performers on a broader scale than just the chief executive’s office.

The compensation committee increasingly bears much of that responsibility. Through its primary function, it can effectively serve the company’s leadership strategy by structuring and managing pay programs relative to both planned and unplanned CEO changes, as well as by taking into account a longer- term and a more holistic view of the company’s talent management philosophy.

The Inherent Risks in the C-Suite

We are seeing more turnover than usual among CEOs in recent years. This trend is both voluntary and involuntary and driven by internal issues of performance, as well as by issues of individual behavior. It is exacerbated by the current economy and employment rates, which have provided a certain level of freedom for executives to move. In this current environment, the already tough endeavor of naming a successor is even more uncertain.

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