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Even before the Trump tweet, discussions regarding interim reporting requirements for U.S. public companies had been ongoing for several years.  In fact, going back to 2015, the Securities and Exchange Commission’s Advisory Committee on Small and Emerging Companies considered the advantages and disadvantages associated with discontinuing quarterly reporting.  In 2016, the Director of the Commission’s Division of Corporation Finance addressed the issue in a speech in Europe, noting that, “The United Kingdom has stopped mandating that companies provide quarterly financial reports to investors. Lately, some commentators have asked the Commission to re-think the need for quarterly reporting by U.S. issuers, which has been a staple of the U.S. regulatory system since 1970, advocating that this frequency leads to short-term thinking by investors and company management. These commentators note that financial reporting that focuses on short-term performance is not conducive to building sustainable businesses because it steers management to focus on short-term goals and performance.”  Flash forward a few years, and Title XXII Section 2201 of the JOBS Act 3.0 requires that the Securities and Exchange Commission conduct an analysis regarding the costs and benefits of quarterly reporting on Form 10-Q, especially for emerging growth companies.  This provision may have been influenced by a report published by various trade groups, including SIFMA, about which we recently blogged.  In that trade group report, a recommendation is made that emerging growth companies be given the option to issue a press release with their quarterly results rather than be required to file a quarterly report on Form 10-Q.  The trade group report states that quarterly reports have become longer and more detailed, and therefore producing such reports has become more expensive.  In the trade group report, the focus was on costs and reporting burdens.

At the same time, the debate relating to quarterly earnings guidance has been reinvigorated.  Some have argued that quarterly reporting distracts managers from focusing on long-term goals and observe that public companies are all too concerned with short-term gains at the expense of long-term investments. The same commentators have focused in particular on the potential detrimental effects of providing quarterly earnings guidance.  Perhaps these concerns are overstated.  It seems that over time, fewer and fewer companies continue to provide quarterly earnings guidance.  According to a recent study, approximately one-third of public companies issue quarterly earnings guidance.  Nonetheless, in a piece titled “Short-Termism is Harming the Economy,” Jamie Dimon and Warren Buffett joined the Business Roundtable in calling for companies to refrain from giving quarterly guidance. The National Association of Corporate Directors and the National Investor Relations Institute joined in the call to eliminate earnings guidance. However, the Business Roundtable report does not advocate terminating the filing of quarterly reports on Form 10-Q.  Regardless of whether quarterly reports on Form 10-Q are mandated or not, it would still be the case that companies would report quarterly results.  The two issues—quarterly filings and quarterly guidance—appear to have been conflated making it more difficult to parse the real issues.

Thursday, October 4, 2018
8:00 a.m. – 8:30 a.m. Registration & Breakfast
8:30 a.m. – 4:30 p.m. Program
4:30 p.m. – 5:30 p.m. Cocktail Reception

Location
Mayer Brown
71 South Wacker Drive
Chicago, IL 60606

Please join Mayer Brown in Chicago for our 1st Annual Executive Compensation University.

During this full-day program, we will explore tax and securities issues impacting executive compensation and hear from leading Mayer Brown lawyers about the changing regulatory landscape as they provide practical, business-focused guidance on dealing with these challenges. This program will cover such areas as the taxation of equity awards, disclosure issues and hot topics and current trends in executive compensation, including updates on issues related to say on pay, proxy disclosure, institutional shareholders and tax reform. The event will include an ethics program focused on issues relevant to in-house counsel dealing with executive compensation and securities issues. We plan to conclude the day with a cocktail reception.

We look forward to open dialogues with our guests.

A detailed program agenda can be found here.

Registration is available here.

CLE credit is pending.

As we previously blogged, a Trump tweet called on the Securities and Exchange Commission to undertake a study regarding the costs and benefits of quarterly versus semi-annual filings.  Though no particular connection was drawn in the tweet between semi-annual periodic reports and a focus on long-term investment, the Commission responded with a statement from Chair Clayton titled, “Statement on Investing in America for the Long Term,” that refocuses the discussion and is reprinted below in its entirety:

“The President has highlighted a key consideration for American companies and, importantly, American investors and their families — encouraging long-term investment in our country. Many investors and market participants share this perspective on the importance of long-term investing. Recently, the SEC has implemented — and continues to consider — a variety of regulatory changes that encourage long-term capital formation while preserving and, in many instances, enhancing key investor protections. In addition, the SEC’s Division of Corporation Finance continues to study public company reporting requirements, including the frequency of reporting. As always, the SEC welcomes input from companies, investors, and other market participants as our staff considers these important matters.”

In a very early morning tweet, the President chose to comment on the requirement to file quarterly reports on Form 10-Q. (See the tweet here.)  We noted in a prior post that the House JOBS Act 3.0 bill already included a requirement that the Securities and Exchange Commission conduct a study regarding the costs and benefits associated with quarterly filing requirements, especially for emerging growth companies. Not clear whether a tweet asking the Commission to study this will change the dynamic.

On July 18, 2018, the Securities and Exchange Commission issued a concept release soliciting public comment on potential ways to modernize compensatory offerings and sales of securities, consistent with investor protection. Specifically, the concept release requests comment on aspects of Rule 701 under the Securities Act of 1933 and on Form S-8. This Legal Update highlights key questions raised by the concept release and practical considerations for public and private companies.

Wednesday, August 1, 2018
1:30 p.m. – 2:00 p.m. EDT

During this session, the speakers will address some of the topics that should be among the principal areas of focus for disclosure committees, audit committees and others with responsibility for, or oversight of, reporting company disclosures.  We will focus on:

  • Reviewing risk factor disclosures in light of current areas of staff focus;
  • Policies and procedures related to the use of non-GAAP financial measures;
  • Cyber related disclosures;
  • Perk disclosures; and
  • Implementing recently adopted or new accounting standards.

Speakers:

  • Michael L. Hermsen
    Partner, Mayer Brown LLP
  • Anna T. Pinedo
    Partner, Mayer Brown LLP

For more information, or to register for this session, please visit the event website.

A paper titled, “The Impact of Exchange Listing on Corporate Governance Evidence from Direct Listing,” written by Dan French, Andrew Kern, Thibaut Morillon, and Adam Yore, considers the impact on corporate governance policies attributable to the listing of a class of securities on a national securities exchange.  The authors focus on direct listings and challenge the notion that companies that undertake direct listings may not adopt investor protections and governance practices due to the absence of underwriters that typically act as gatekeepers.  The authors examine public non-listed REITs that undertake a listing, or “transitioning REITs.”  By doing so, the authors attempt to demonstrate the value of a listing without an offering, or a direct listing.  The authors consider various data points, including board size, board independence, nominating and compensation committee independence, etc., in order to draw comparisons between public non-listed REITs and transitioning REITs.  Transitioning REITs even before listing on a securities exchange already meet many of the governance standards of the securities exchanges.  This suggests that the REITs that undertake direct listings already have characteristics associated with public companies.  In addition, once listed on exchanges they ave significant institutional stockholders, and this serves to reinforce the heightened governance standards.  The authors conclude that even without the benefits of the traditional IPO process, companies that undertake direct listings have comparable governance standards.  The authors note that “changes in corporate governance occur gradually through time as opposed to abruptly just after the listing event.”

In a paper titled, “The Importance of Inferior Voting Rights in Dual-Class Firms,” author Dov Solomon focuses on companies with a class of non-voting stock.  By offering non-voting stock to the public and listing that class of securities on a national securities exchange, an issuer is not subject to a number of disclosure and related securities law requirements that are tied to voting rights.  For example, an issuer with non-voting stock is not subject to the proxy rules. Holders of the class of non-voting stock are not entitled to vote on matters that typically would be raised at stockholders’ meetings or to put forward stockholder proposals for consideration at such a meeting.  An issuer with non-voting stock also would not be subject to Schedule 13D or 13G filings for that class of shares.  Holders, including insiders, also would not be subject to Section 16 filing requirements.  The author suggests that the Securities and Exchange Commission impose such disclosure and governance requirements on issuers with a class of non-voting stock.

Tuesday, July 24, 2018
1:00 p.m. – 2:00 p.m. EDT

Share buybacks have been making headlines recently. During this session, Partner Anna Pinedo will discuss the regulatory framework relating to company share buybacks, including the Rule 10b-18 safe harbor. The different ways in which companies may choose to structure share repurchases will be addressed.

Topics will include:

  • Basics of Rule 10b-18;
  • Required authorizations, disclosures, and documentation;
  • Accelerated share repurchases and other modified repurchase plans; and
  • Legislative proposals relating to 10b-18 and other recent developments.

For more information, or to register for this session, please visit the event website.