The week in GRC: SEC adopts disclosure changes, and US praised for FCPA enforcement record

Nov 20, 2020
This week’s governance, compliance and risk-management stories from around the web

CNBC reported that SEC chair Jay Clayton announced he will step down at the end of the year. ‘Working alongside the incredibly talented and driven women and men of the SEC has been the highlight of my career,’ Clayton said in a statement. His term would have expired in June 2021.

SEC chairs traditionally step down when an administration ends, and Clayton’s resignation comes two months before Joe Biden will take over as US president. Potential successors at the commission include former Manhattan US attorney Preet Bharara. Clayton has said he wants to return to New York. Senior Democratic SEC member Allison Herren Lee likely will be named to serve as acting chair, Reuters reported.

The Wall Street Journal noted that companies are concerned about reopening offices due to the risk of exposing employees to Covid-19 – and legal exposure if staff get sick. For offices, the pandemic has required compliance with the kind of complex workplace-safety regulations that, until recently, applied more to industrial settings. Office spaces that fail to comply with the requirements face a liability threat few had to consider before the pandemic, employment lawyers say.

‘A white-collar company is not used to having this much burden from a workplace-safety standpoint,’ said Travis Vance, an attorney at Fisher Phillips who estimates he has advised 600 companies on Covid-19-related questions. Of those looking to reopen, about a quarter have decided the legal requirements are too challenging, he said.

– According to Reuters, one of GameStop Corp’s largest shareholders, Ryan Cohen, urged the company to conduct a strategic review of its business and to focus on digital sales rather than its traditional in-person model. Cohen’s RC Ventures is not interested in gaining a board seat, according to a letter filed with regulators. ‘GameStop needs to evolve into a technology company that delights gamers and delivers exceptional digital experiences – not remain a video game retailer that overprioritizes its bricks-and-mortar footprint and stumbles around the online ecosystem,’ Cohen said in the letter addressed to the board.

GameStop did not immediately respond to a request for comment on the letter.

– The WSJ reported that, according to people familiar with the matter, Chinese companies with shares traded in the US would be required to use auditors overseen by US regulators or face being removed from exchanges under a plan being drafted by the SEC.

The proposal, which is likely to be released for comment in December, would address the disparate treatment that applies to Chinese companies going public in the US: the Chinese authorities don’t allow their auditors’ work to be inspected by the PCAOB.

The SEC is moving fast to propose key elements of the plan before the departure of chair Jay Clayton at the end of December. The proposals would take months to adopt and implement, and Clayton’s successor and the Biden administration could seek to tweak the approach.

– In a new report, the Organization for Economic Cooperation and Development (OECD) working group on bribery in international business transactions praised the US authorities for raising the level of enforcement of the FCPA since its last evaluation by the group in 2010, according to the WSJ. It also congratulated the SEC on the success of its whistleblower program in helping detect potential wrongdoing.

The US government brought 156 cases under the FCPA or related violations, such as for false accounting and money laundering, between September 2010 and July 2019, the OECD said. Those cases resulted in the conviction or punishment of 174 companies and 115 individuals over the same period, according to the report. That is up from 88 companies and 71 individuals recorded in the previous evaluation, which took into account the period between 2002 and 2010.

– The SEC adopted rules and rule amendments that it said will provide additional flexibility in connection with documents filed with the agency by allowing the use of electronic signatures in authentication documents, and facilitate electronic service and filing in the commission’s administrative proceedings.

Rule 302(b) of Regulation ST at present requires that each signatory to an electronic filing manually sign a signature page or other document before or at the time of the electronic filing to authenticate the signature that appears in typed form within the electronic filing. The new amendments permit a signatory to an electronic filing who follows certain procedures to sign an authentication document through an electronic signature that meets certain requirements specified in the Edgar Filer Manual.

– According to CNN, president-elect Joe Biden’s agency review teams include several people who share Senator Elizabeth Warren’s reputation for being tough on the financial industry. It’s more evidence that Wall Street will be under much greater scrutiny, especially when compared with four years of President Donald Trump’s efforts to dismantle regulation and unshackle big banks. ‘The big-bank CEOs who read that list are probably somewhat concerned,’ said Isaac Boltansky, director of policy research at Compass Point Research & Trading. ‘Progressives absolutely won the day on this.’

– The WSJ reported that PG&E Corp picked Patti Poppe, the head of a Michigan utility, as its next CEO as it works to improve the safety of its electric system and strengthen its business. Poppe is now CEO of CMS Energy Corp and will take the reins at PG&E on January 4. She will succeed Bill Smith, who has served as the company’s interim CEO since July, after Bill Johnson stepped down as PG&E’s CEO following a tumultuous year steering the company through Chapter 11.

CNBC interviewed outgoing SEC chair Jay Clayton, who said one of his biggest achievements has been leveling the playing field for smaller investors. He pointed as an example to the commission’s efforts to give retail investors equal access to private markets. ‘One of the things we’ve tried to do is make sure our Main Street investor can sit side by side with professional investors in those opportunities,’ Clayton said. ‘That’s been a driving force here.’

Clayton closes his term by lending support for amending the 10b5-1 trading plan to provide for a cooling-off period when company executives can sell their shares. He said during a Senate hearing that there should be a time period of up to six months from when a trading plan is established for an executive to the time the securities can be sold. He called it part of ‘good corporate hygiene’ to remove the appearance of impropriety.

– The SEC named Marie-Louise Huth as an associate general counsel for legal policy in the office of the general counsel. In that role, she will provide legal advice to the commission and SEC divisions and offices on a range of matters, with a particular emphasis on regulatory recommendations to the commission from the divisions of investment management and trading and markets.

– According to CNBC, the CEO of the US Chamber of Commerce said Trump ‘should not delay the transition’ to Joe Biden ‘a moment longer’. Tom Donohue pointedly called Biden the ‘president-elect’ in a statement to media outlet Axios.com that urged Trump to allow federal officials to begin the transition process to the former Democratic vice president.

Donohue’s group spends more money on lobbying than any other entity in the US – $59.3 million this year, according to the political spending tracking site OpenSecrets.org.

– The WSJ reported that the SEC voted to remove certain disclosure requirements for companies as additional changes to Regulation SK, which serves as the basis for reporting rules for US public companies. The latest changes focus on the management discussion and analysis section of companies’ financial statements, among other disclosures. Companies will no longer have to provide the previous five years of selected annual financial data to the SEC, and will no longer need to disclose their contractual obligations related to leases, purchases and other liabilities in the form of a table.

The amendments also do away with an obligation for companies to carve out a separate section in their disclosures to discuss off-balance sheet arrangements that have or are likely going to have an impact on their financial position. They will have to discuss off-balance sheet items in the context of managing the overall business, instead of in a separate portion.

– Tyson Foods said it suspended employees without pay and hired former US attorney general Eric Holder to conduct an investigation in response to a wrongful death lawsuit that alleges managers at an Iowa pork plant took bets on how many employees would catch Covid-19, according to Reuters. The son of a worker at a Tyson facility in Waterloo, Iowa, who died in April of complications from the virus, filed a lawsuit that claims plant managers misled workers about Covid-19 and allowed sick employees to continue working.

Tyson said it suspended employees involved in the accusations and retained Covington & Burling to conduct an independent investigation led by Holder. ‘If these claims are confirmed, we’ll take all measures necessary to root out and remove this disturbing behavior from our company,’ Tyson said.

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