Securities Regulation and Corporate Governance


SEC Announces Proposed Amendments to MD&A and Guidance on Key Performance Indicators and Metrics; Commissioners Debate Addition of Sustainability Disclosure Requirements

On January 30, 2020, the Securities and Exchange Commission (the SEC) issued proposed amendments to simplify the requirements of Regulation S-K and an interpretative release relating to Management’s Discussion and Analysis (MD&A).

Proposed Amendments to Regulation S-K

The SEC announced (available here) that it had voted to propose amendments to modernize, simplify and enhance certain financial disclosure re

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Considerations Regarding Exclusion of Earliest Year From MD&A in the 10-K

Companies preparing their 2019 Form 10-K are mindful that, under the relatively new revision to Instruction 1 to Item 303(a) of Regulation S-K adopted by the SEC in March 2019, a registrant may omit from MD&A a discussion of the earliest of the three years of financials included in the 10-K if such discussion was included in a prior filing with the SEC.  (See our client alert on this here.) On January 24, 2020, the Division of Corporation Finance issued three new Compliance and Disclosure Interpretations (C&DIs) (available here) addressing common questions that have developed regarding Instruction 1 to Item 303(a).

​Question 110.03 reiterates the simple point that a registrant may not omit a discussion of the earliest of three years from its current MD&A if it believes a discussion of that year is necessary to an understanding of its financial condition, changes in financial condition and results of operations.  This is consistent with the adopting release (available here), which stated:  “Although a discussion of the earliest year of the financials could in some circumstances be material, in many cases the entirety of the discussion of the earliest year that was presented in the MD&A of a prior filing would not need to be reiterated if, in management’s view, that discussion is not necessary to understand the financial condition, changes in financial condition, and results of operations.  This is the standard that applies to all of MD&A, and our amendments do not change that standard.” When determining whether to omit the earliest year discussion, a registrant should analyze whether the entirety of the discussion of its financial condition and operating results from three years ago (e.g., 2017 for the 2019 10-K), either as previously reported or updated to reflect trends or developments, is necessary to understand its financial condition, changes in financial condition and results of operations.  If so, that discussion should be included in the 10-K.  If not, a registrant may determine to address only the most recent two years in MD&A and, if necessary, to comment on any specific aspects of its third-year financial results needed to understand its financial condition, changes in financial condition and results of opera...

Considerations for Preparing Your 2019 10-K

In a client alert published today (available here)we offer our observations on new developments and recommended practices to consider in preparing the Annual Report on Form 10-K.  In particular, given the U.S. Securities and Exchange Commission’s latest enforcement actions and recent adoption of amendments impacting disclosures in Form 10-K, there are a number of important substantive and technical considerations that registrants should keep in mind when preparing their 2019 Forms 10-K.


Our thanks to Jonathan Sapp in Dallas and David Korvin in Washington D.C. for their assistance in preparing the client alert.


SEC Releases Statement on Key Reminders for Audit Committees
On December 30, 2019, the Securities and Exchange Commission (the “SEC”) released a statement (the “Statement”) from Chairman Jay Clayton, Chief Accountant Sagar Teotia and the Director of the Division of Corporation Finance, William Hinman, addressing the role of the audit committee in financial reporting and highlighting key reminders regarding oversight responsibilities (available here).  The Statement is intended to “assist audit committees [in] carrying out their year-end work, including promoting efficient and constructive dialogue among audit committees, management and independent auditors.” 
The observations included in the Statement do not introduce new requirements for audit committees, but the Statement is a helpful reminder for audit committees, management and outside auditors about audit committee practices that help to promote healthy oversight over financial reporting.  Although the Statement covers a range of topics, a theme that runs through the observations is an emphasis on active engagement by the audit committee and on the benefits of clear communication among the audit committee, management and the outside auditor.
Below are the observations and reminders highlighted in the Statement.  The Statement styles the first five topics as “general observations" and the last three as “more specific observations."  Although most of the observations in the Statement speak for themselves in terms of next steps and practice pointers, we have provided some additional commentary in italicized text below on a few of the topics.
  • Tone at the Top:  The Statement emphasizes the role of the audit committee in “setting the tone for the company's financial reporting and the relationship with the independent auditor."  As part of this, the Statement notes that it is important for the audit committee to “set an expectation for clear and candid communications to and from the auditor" and an expectation with management and the auditor that the audit committee will engage as financial reporting and control issues arise.  Additionally, the Statement highlights the audit committee should proactively communicate with the independent auditor to understand the audit strategy and status, and raise questions regarding issues identified and understand the resolution of such issues. 
Although “tone at the top” is an amorphous concept, this is a helpful reminder for audit committees to consider the steps they are taking to reinforce effective messaging about the need to have an environment that supports integrity in the financial reporting process.  For example...
SEC Proposes Revised Resource Extraction Rules, Again!

[Updated January 18, 2020]

On December 18, 2019, the Securities and Exchange Commission (the “SEC”) released proposed rules (available here) relating to the disclosure of payments by resource extraction issuers. The SEC’s release sets forth the tortured more-than-seven-year history of this rulemaking (see previous Gibson Dunn posts regarding this topic in 2015, 2013 and 2010). The SEC is proposing these rules by mandate pursuant to Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) after having earlier adopted versions of the rules vacated in 2012 by the U.S. District Court for the District of Columbia, a ruling which the SEC declined to appeal, and disapproved in 2016 by Congress pursuant to its authority under the Congressional Review Act. While Congress disapproved of the adopted rules in 2016, it did not repeal Section 1504 of the Dodd-Frank Act, so the SEC’s rulemaking mandate remained in place. Revised rules cannot be substantially similar to the ones disapproved by Congress under the Congressional Review Act. As such, the newly proposed rules substantially differ from the previously adopted rules, and the differences are discussed in more detail below.​

Under the proposed rules implementing Section 13(q) of the Securities Exchange Act of 1934, as amended, domestic or foreign “resource extraction issuers” (the definition of which is discussed below) would have to file a Form SD on an annual basis that includes information about payments related to the commercial development of oil, natural gas or minerals that are made to a foreign government or the U.S. federal government.

The proposed rules would require disclosure of company-specific, project-level information, including the following:

Direct Listing Update: Revised Proposal for Primary Offerings

On December 3, 2019, Gibson Dunn published A Current Guide to Direct Listings discussing, among other things, a proposal submitted to the U.S. Securities and Exchange Commission (SEC) by the New York Stock Exchange (NYSE)that would permit a privately-held company to conduct a direct listing in connection with a primary offering. On December 6, 2019, the NYSE withdrew its proposal (as reported in An Interim Update on Direct Listing Rules) and was expected t...

An Interim Update on Direct Listing Rules

On December 3, 2019, Gibson Dunn published A Current Guide to Direct Listings discussing, among other things, a proposal submitted to the U.S. Securities and Exchange Commission (SEC) on November 26, 2019 by the New York Stock Exchange (NYSE) that would permit a privately held company to conduct a direct listing in connection with a primary offering, potentially creating a new on-r...

A Current Guide to Direct Listings

Direct listings have increasingly been gaining attention as a means for a private company to go public. In our most recent memo available here, we provide a summary of the current requirements for direct listings on the NYSE and Nasdaq and of NYSE’s recent proposal to amend its direct listing rules to allow primary offerings through the NYSE in conjunction with direct listings. We also explore the potential benefits and risks associated with direct listings.

A direct listing refers to the listing of a privately held company’s stock for trading on a national stock exchange (either the NYSE or Nasdaq) without conducting an underwritten offering, spin-off or transfer quotation from another regulated stock exchange. Under current stock exchange rules, direct listings involve a company effectively going public through the registration of a secondary offering with, the SEC. Existing shareholders, such as employees and early-stage investors, whose shares are registered for resale are able to sell their shares on the applicable exchange, but are not ...

Division of Corporation Finance Unveils Further Details on Its Process for Responding to Shareholder Proposal No-Action Requests

​On November 21, 2019, the Division of Corporation Finance (the “Division" or “Staff") of the Securities and Exchange Commission (“SEC") provided additional detail on how it will process responses to shareholder proposal no-action requests under Rule 14a-8.  As discussed in our prior posts, available here and here, in September 2019 the Division announced that, starting with the 2019-2020 shareholder proposal season, it may respond orally instead of in writing to some no-action requests, and in some cases its response may indicate that it is declining to state a view on whether a proposal satisfies the requirements of Rule 14a-8 or is properly excludable.

On November 21, the Division updated its Rule 14a-8 landing page, providing additional clarity around the first aspect of the September announcement; namely, the Staff's process for responding to no-action requests.[1]  The updated landing page, available here,[2] now links to a new document entitled the 2019-2020 Shareholder Proposal No-Action Response chart (the “Response Chart")[3], which will list the no-action requests to which the Division has responded, in reverse chronological order (with the most recent responses listed first).  The Response Chart presents:
(i)         the name of the company that submitted the no-action request,
(ii)        the name of the shareholder proponent,
(iii)      the date the company initially submitted the no-action request, which will include a hyperlink to all correspondence submitted by the company and the proponent,
(iv)      the regulatory bases asserted by the company to exclude the proposal,
(v)       whether or not the Staff concurred that the shareholder proposal may be excluded and, if applicable, the basis on which the Staff concurred, or whether the Staff declined to state a view on the no-action request,
(vi)      the date of the Staff's response, and
(vii)     whether or not the Staff has set forth its view in a written response (in which case, the response will be linked).[4]

The Response Chart does much to alleviate concerns over the Division's new approach for responding to no-action reques...

Developments Regarding Changes to SEC Staff’s Shareholder Proposal No-Action Responses

Several noteworthy developments have occurred following the September 6, 2019 announcement by the Division of Corporation Finance (the “Staff") of the Securities and Exchange Commission (“SEC") regarding two significant procedural changes for responding to Exchange Act Rule 14a-8 no-action requests that will be applicable to no-action requests regarding shareholder proposals submitted for annual meeting to be held in 2020.  That announcement indicated that the Staff may now respond orally instead of in writing to shareholder proposal no-action requests and that the Staff may now more frequently respond by declining to state a view on whether or not it concurs that a company may properly exclude a shareholder proposal under Rule 14a-8.

Following the Staff's announcement, a coalition of investor-related organizations sent William Hinman, Director of the SEC's Division of Corporation Finance, a letter on September 19, 2019 criticizing the change in process.[1]  The letter asked that the Staff “rescind this change in process" or, if it does not, at least take certain steps “to reduce the level of uncertainty and conflict resulting from the new approaches."  The steps requested in the letter include using the new response options sparingly “until the implications are better understood," describing the criteria for when the Staff will use the new response options, signaling early in the process if the Staff will use one of the new response options (and clarifying if the Staff will wait until after the proponent has responded to make that decision), and maintaining visibility when the Staff uses one of the new response options (for example, indicating on the SEC's website any oral decisions and providing the same information to both parties).    

Subsequent remarks by the Staff have begun to provide additional specificity regarding these shareholder proposal no-action request procedural changes and the Staff's rationale for implementing the changes.  For example, in late September, Mr. Hinman indicated that the changes were driven by the Staff trying to think of “a new and creative approach" in responding to no-action requests.[2] 

With respect to oral responses, he indicated that they generally will be used for more routine matters (such as failure to provide ownership proof) and confirmed that the Staff will reflect those responses on the SEC's website in “real time" showing whether or not the Staff concurs that a shareholder proposal may be excluded.  With respect to no-action requests where the Staff declines to state a view, he commented that the Staff may t...

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Current thoughts on development and trends in securities regulation, corporate governance and executive compensation published by Gibson Dunn.

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