1. We greeted SEC Chairman Schapiro’s recent statement, here, about the release of SEC interpretive guidance on climate change disclosure with some skepticism (“We’re not saying climate change is real, but we are adopting guidance on how to disclose stuff about it so that you do it right”), but we naively assumed the guidance would be a simple recitation of the possibly relevant existing disclosure rules that would leave both environmental advocates and public companies dissatisfied. The release (here), however, appears to be only a slightly toned down version of the rule-making requests environmental advocates have previously filed (see here, here, and here) and clearly, albeit not explicitly, espouses the view that climate change is real, is caused by greenhouse gas emissions, and may have devastating physical, as opposed to merely regulatory, impacts. (For example: “As noted in [a March 2007] GAO report, severe weather can have a devastating effect on the financial condition of affected businesses. The GAO report cites a number of sources to support the view that severe weather scenarios will increase as a result of climate change brought on by an overabundance of greenhouse gases.”).

The release describes the sections of Regulation S-K that could require disclosure about climate change – Items 101 (business), 103 (litigation), 303 (MD&A), and, of course, 503 (risk factors) – and four climate change topics a company may need to address: legislation and regulation, international accords, indirect consequences of regulation or business trends, and physical impacts. Some particularly ominous items from the release:

  • “Unless management determines that it is not reasonably likely to be enacted, it must proceed on the assumption that the legislation or regulation will be enacted. . . . Unless management determines that a material effect is not reasonably likely, MD&A disclosure is required.” (Emphasis added.)
  • “Registrants need to regularly assess their potential disclosure obligations given new [regulatory] developments.”
  • “Management should ensure that it has sufficient information regarding the registrant’s greenhouse gas emissions and other operational matters to evaluate the likelihood of material effect arising from the subject legislation.”
  • “[A] registrant may have to consider whether the public’s perception of any publicly available data relating to its greenhouse gas emissions could expose it to potential adverse consequences . . . from reputational damage.”
  • “We will monitor the impact of this interpretive release on company filings as part of our ongoing disclosure review program. . . . We will consider our experiences with the disclosure review program . . . as we determine whether further guidance or rulemaking relating to climate change disclosure is necessary or appropriate in the public interest or for the protection of investors.”

The release purports to “remind” companies of their obligations under existing securities laws, stressing that the SEC is not changing the law. Irrespective of your views on climate change, however, don’t be a sap – the point of the release is to change the application of the law. Although the extent to which enforcement actions or shareholder suits will flow from the SEC’s “non-binding” guidance remains to be seen, count on “climate change” appearing more frequently in company risk factors, at least, in upcoming annual reports, and on public company boards spending more time talking about it.

  1. “Guidance” is all the rage with FINRA, too, which recently let securities firms and brokers know, here, FINRA’s views on the use of social networking sites to communicate with the public.
  2. The SEC amended its proxy rules, here, to state the requirements for TARP participants’ mandated “say on pay,” which amount to little more than the requirement that “[TARP recipients] shall provide a separate shareholder vote to approve the compensation of executives . . . .”
  3. No further word on the likely direction of SEC proxy access rules, but the debate continues. Here is the transcript of Harvard Law School’s recent proxy access roundtable.
  4. The SEC approved amendments to Nasdaq’s delisting rules, here, so that an issuer must fall below a minimum market value for 30 (rather than 10) consecutive trading days and then has 180 (rather than 90) calendar days to regain compliance. The changes make the market value rules consistent with the time periods for Nasdaq’s minimum bid-price standards. The amendments also increase from 105 to 180 the maximum number of days an issuer can remain non-compliant before being delisted and extend from 15 to 45 days the period in which an issuer must submit a compliance plan to Nasdaq to regain minimum requirements for stockholders’ equity, the number of publicly held shares, and the number of shareholders. Just another depressing sign of the times.
  5. The SEC proposed changes to the Rule 10b-18 safe harbor for company stock repurchases, here. The rules “clarify and modernize” the safe harbor provisions, which haven’t been updated since 1982. Comments on the proposed rule are due by March 1, 2010.
  6. The SEC posted a few CDIs to deal with the new proxy disclosure rules along with a few transitional updates, and a correction to a formerly posted CDI about Non-GAAP Financial Measures. Links to the CDIs are here and brief summaries of the proxy-related items are here and here.
  7. The SEC has revamped its enforcement division and added a new “spotlight” section to its website, here, on which it unveils new initiatives to encourage company and individual cooperation during SEC investigations. The site links to a few revised sections of the SEC’s Enforcement Manual, here, among other things.
  8. RiskMetrics announced, here, the end of the Corporate Governance Quotient, which it will replace with GRId (that’s “Governance Risk Indicators”). Beginning March 2010, the GRId will rate companies according to RM’s “best practices” criteria across four areas of governance: audit, board, compensation/remuneration, and shareholder rights. RM’s FAQs let issuers know where they can go to verify company data. Most significantly, though, the new rating system is color coded (see here)!
  9. A consortium of 51 law firms has published a white paper, here, aimed at garnering agreement among practitioners on interpretive issues in New York’s new power of attorney law, namely that the law does “not apply to proxies for shares of New York corporations and non-New York corporations, certain powers of attorney executed in connection with the registration of transfer of certificated securities or many powers of attorney granted in connection with the formation and governance of non-New York limited liability companies and non-New York limited partnerships.”
  10. The IRS announced, here, that it intends to require business taxpayers with more than $10 million in assets (or “almost everyone”), including taxpayers that prepare financial statements subject to FIN 48, Accounting for Uncertainty in Income Taxes, to file a schedule describing with specificity their uncertain tax positions, the IRC sections implicated, and the maximum potential liability attributable to each position, among other things. It’s perhaps no coincidence that the IRS announcement follows the request to the U.S. Supreme Court to review an appellate court decision holding that attorney work-product doctrine does not shield tax work papers from an IRS summons (see here). Comment on the proposal described in the announcement is due by March 29, 2010. Count on accountants and tax lawyers being all over this interesting IRS effort to facilitate enforcement actions against business taxpayers.
  11. Pondering what to get that special public company this Valentine’s Day? You just can’t go wrong with a Schedule 13G, due February 14 (well, usually, but actually February 16 because of weekends and holidays). Remember, nothing says “I own more than 5% of a public company’s stock” like a Schedule 13G.