Archive for the ‘Accounting & Disclosure’ Category

The First Annual Conflict Minerals Filings: Observations and Next Steps

Posted by Amy L. Goodman, Gibson, Dunn & Crutcher LLP, on Saturday December 20, 2014 at 11:57 am
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Editor’s Note: Amy Goodman is a partner and co-chair of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. The following post is based on a Gibson Dunn alert.

As companies prepare for the second year of filings under the Securities and Exchange Commission’s (“SEC”) new conflict minerals rule, many companies are looking for guidance from the first annual filings, which were due June 2, 2014. As expected, the inaugural Form SD and conflict minerals report filings reflect diverse approaches to the new compliance and disclosure requirements. We offer below some observations based on the first round of conflict minerals filings for companies to consider as they address their compliance programs and disclosures for the 2014 calendar year. It is important to note, however, that the shape of future compliance and reporting obligations will be impacted by the outcome of the pending litigation challenging the conflict minerals rule, which also is discussed below, and any subsequent action by the SEC.

…continue reading: The First Annual Conflict Minerals Filings: Observations and Next Steps

Three Pathways to Global Standards: Private, Regulator, and Ministry Networks

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday December 4, 2014 at 9:14 am
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Editor’s Note: The following post comes to us from Stavros Gadinis of University of California, Berkeley Law School.

Scores of governments around the world have chosen to introduce international standards as domestic law, even though they were not legally obliged to do so. The drafters of these standards are not sovereigns or international organizations, but transnational regulatory networks: informal meetings of experts from various countries, some with government affiliations, and others without. Networks have puzzled scholars for years. Fascinated by the institutional novelty of the network phenomenon, some theorists praised their speed, informality, and lack of hierarchy. Others were not so enthralled. They were concerned about the influence of interest groups or the weight of big countries. This debate has examined both the inputs to the network phenomenon—preferences—and the outputs—global coordination—but has not discussed the mechanism: how do we get from preferences to standards? How do these networks come together, what is their strategy for their success? My new study, Three Pathways to Global Standards: Private, Regulator, and Ministry Networks, seeks to open up the black box of network standard setting and analyze these mechanisms. It proposes a new theoretical framework that distinguishes among private, regulator, and ministry networks, and presents empirical evidence that illustrates why these three network types appeal to different countries for different reasons.

…continue reading: Three Pathways to Global Standards: Private, Regulator, and Ministry Networks

Short Selling Pressure, Stock Price Behavior, and Management Forecast Precision

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday December 1, 2014 at 9:03 am
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Editor’s Note: The following post comes to us from Yinghua Li of the School of Accountancy at Arizona State University and Liandong Zhang at City University of Hong Kong.

Corporate executives pay considerable attention to secondary market prices and they have strong incentives to maintain or increase the level of their firms’ stock prices. The accounting literature has long recognized that managers can make strategic financial reporting or disclosure choices to influence stock prices. A large body of empirical research examines whether and how corporate disclosures affect stock prices. The literature, however, provides little directional evidence on whether the behavior of stock prices has a causal effect on managerial strategic disclosure decisions. The difficulty in establishing causality stems largely from the endogenous nature of stock prices. In the paper, Short Selling Pressure, Stock Price Behavior, and Management Forecast Precision: Evidence from a Natural Experiment, which is forthcoming in Journal of Accounting Research, we use a randomized experiment, the Regulation SHO pilot program, to examine the causal effect of stock price behavior on managers’ voluntary disclosure choices.

…continue reading: Short Selling Pressure, Stock Price Behavior, and Management Forecast Precision

Strategic News Releases in Equity Vesting Months

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday November 11, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Alex Edmans, Professor of Finance at London Business School; Luis Goncalves-Pinto of the Department of Finance at the National University of Singapore; Yanbo Wang of the Finance Area at INSEAD; and Moqi Xu of the Department of Finance at the London School of Economics.

In our paper, Strategic News Releases in Equity Vesting Months, which was recently made publicly available on SSRN, we study the link between the equity vesting schedules of CEOs and the timing of corporate news releases. We show that, in months in which the CEO has equity vesting, the firm releases more news. This is an easy way to pump up the short-term stock price, as news attracts attention to the stock. This attention also increases trading volume, which allows the CEO to cash out his equity in a more liquid market. Indeed, we find that these news releases lead to significant increases in the stock price and trading volume in a 16-day window, but the effect dies down over 31 days, consistent with a temporary attention boost. The median CEO cashes out all of his vesting equity within seven days—within the window of price and volume inflation.

…continue reading: Strategic News Releases in Equity Vesting Months

Nanotechnology and the S&P 500

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday November 3, 2014 at 9:16 am
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Editor’s Note: The following post comes to us from Heidi Welsh, Executive Director at the Sustainable Investments Institute (Si2), and is based on a Si2 report.

Corporations globally have been investing $9 billion annually in nanotechnology, yet less than one-tenth of S&P 500 companies report to shareholders and other stakeholders on their involvement in nanotechnology. Although it has the potential to revolutionize industries like healthcare, information technology and energy systems, nanotechnology’s promise is tethered to unique environmental, health and safety (EH&S) issues that are not yet fully understood. Investors eyeing rapid growth and minimal regulation are engaging companies in discussions about nano-related EHS risks and recently forced a vote on the first nano-related shareholder resolution.

…continue reading: Nanotechnology and the S&P 500

Elements of an Effective Whistleblower Hotline

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday October 25, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Bill Libit, Chief Operating Partner concentrating in the corporate and securities area at Chapman and Cutler LLP, and is based on a Chapman publication by Mr. Libit, Walt Draney, and Todd Freier.

It has been reported that approximately two-thirds of companies in the U.S. are affected by fraud, losing an estimated 1.2% of revenue each year to such activity. [1] Indirect costs associated with fraud, such as reputational damage and costs associated with investigation and remediation of the fraudulent acts, may also be substantial. When and where implemented, an internal whistleblower hotline is a critical component of a company’s anti-fraud program, as tips are consistently the most common method of detecting fraud. [2] Consequently, it is essential that companies consider implementing, if they have not already done so, effective whistleblower hotlines. [3] To the extent hotlines are currently in place, companies need to evaluate them to ensure that the hotlines are operating as intended and are effective in preventing and identifying unethical or potentially unlawful activity, including corporate fraud, securities violations and employment discrimination or harassment. This evaluation should be a key element of every company’s assessment of its compliance and ethics program.

…continue reading: Elements of an Effective Whistleblower Hotline

Updated CD&A Template Aims to Improve Communication

Posted by Matt Orsagh, CFA Institute, on Friday October 24, 2014 at 9:02 am
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Editor’s Note: Matt Orsagh is a director at CFA Institute.

In 2011, CFA Institute released the Compensation Discussion and Analysis (CD&A) Template as a tool to help companies produce a more succinct and informative CD&A that served the needs of both companies and investors. At the time there were complaints from both issuers and investors that the typical CD&A was seen by too many issuers as a compliance document that was too lengthy and too opaque to serve as the communication tool investors desired.

In the intervening years disclosures in the CD&A have improved a great deal, due in part to increased engagement between issuers and investors, a better understanding of disclosure best practices by issuers, and more willingness by some issuers to experiment with more creative ways of telling their stories.

…continue reading: Updated CD&A Template Aims to Improve Communication

Disclosure and Financial Market Regulation

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday October 19, 2014 at 8:31 am
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Editor’s Note: The following post comes to us from Luca Enriques, Allen & Overy Professor of Corporate Law at University of Oxford, Faculty of Law, and Sergio Gilotta of University of Bologna.

In our recent paper, Disclosure and Financial Market Regulation, we provide a critical overview of the role of disclosure in financial market regulation.

We begin by discussing the goals of disclosure regulation, which we identify in investor protection, agency cost reduction and price accuracy enhancement. Disclosure protects investors because (a) it gives them the information that is needed in order to make correct investment decisions, (b) it prevents them from being “exploited” by traders having superior information, and (c) it constrains managers’ and controlling shareholders’ opportunistic behavior. In this last respect, the goal of investor protection equates that of agency cost reduction.

…continue reading: Disclosure and Financial Market Regulation

SEC Enforcement Actions Regarding Section 16 Reporting Obligations

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday October 14, 2014 at 9:09 am
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Editor’s Note: The following post comes to us from John P. Kelsh, partner in the Corporate and Securities group at Sidley Austin LLP, and is based on a Sidley Austin publication by Mr. Kelsh, Paul V. Gerlach, and Holly J. Gregory.

Last month, the SEC announced that it brought enforcement actions primarily relating to Section 16(a) under the Securities Exchange Act against 34 defendants. The defendants were 13 individuals who were or had been officers or directors of public companies, five individual investors, ten investment funds/advisers and six public companies.

This post briefly discusses several noteworthy points regarding this development and also discusses practical steps that companies could consider taking in response.

…continue reading: SEC Enforcement Actions Regarding Section 16 Reporting Obligations

2014 CPA-Zicklin Index of Corporate Political Disclosure

Posted by Bruce F. Freed, Center for Political Accountability, on Tuesday October 7, 2014 at 9:17 am
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Editor’s Note: Bruce F. Freed is president and a founder of the Center for Political Accountability. This post is based on the 2014 CPA-Zicklin Index of Corporate Political Disclosure and Accountability by Mr. Freed and Sol Kwon; the full report is available here. Work from the Program on Corporate Governance about corporate political spending includes Shining Light on Corporate Political Spending by Lucian Bebchuk and Robert Jackson, discussed on the Forum here. A committee of law professors co-chaired by Bebchuk and Jackson submitted a rulemaking petition to the SEC concerning corporate political spending; that petition is discussed here.

Dozens of leading American corporations have embraced political transparency without the prodding of shareholder proposals. This is a new and important finding in the fourth annual CPA-Zicklin Index of Corporate Political Disclosure and Accountability released by the Center for Political Accountability on September 24.

At the same time, the Index found that companies that have already adopted disclosure and accountability continue to strengthen their policies, making them more robust and comprehensive. All this is happening in the face of intense opposition by several of the leading business trade associations.

…continue reading: 2014 CPA-Zicklin Index of Corporate Political Disclosure

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