What events will I be watching in 2012 to move the world of corporate governance and compliance forward? Funny you should ask. In no particular order…
Adoption of IFRS accounting in the United States. The Securities and Exchange Commission originally promised a final decision on whether to adopt International Financial Reporting standards sometime in 2011. In December the SEC then announced what everyone already knew: It needed more time. Let me point out what else everyone already knows: We are going to adopt IFRS in this country. The real questions are how (via condorsement) and when (maybe 2016). Hopefully the SEC will affirm those answers later this spring.
The Consumer Financial Protection Bureau comes alive. This could be the first big regulatory issue settled in 2012—possibly as soon as you read these words on Jan. 3. The Obama Administration has nominated Richard Cordray to be the CFPB's first director, and Republicans have blocked the nomination. The president could put Cordray into the job via a recess appointment, and he will have a split second this week where last year's Congress adjourns and the 2012 Congress has yet to reconvene. Theodore Roosevelt did such a maneuver in 1903, and Republicans have left this president few other options.
Adoption of the revised COSO framework. In December the Committee of Sponsoring Organizations finally published its much-anticipated, long-overdue proposal to revise the Internal Control-Integrated Framework, which everyone and his uncle uses to govern internal control over financial reporting. Already questions are brewing about whether the revision gives enough attention to risk management. Expect that debate to continue for months, and expect COSO to publish its final revised framework sometime in the fall.
The Volcker Rule and the inevitable lawsuit to follow. Last month regulators announced that they would extend the public comment period on the proposed Volcker Rule until mid-February. That tells me that while the idea of prohibiting financial firms from some forms of proprietary trading sounds good, writing a rule to that effect is much more complex than Congress or regulators ever understood. Moreover, compliance officers in the finance sector tell me this too. And let's be honest: any idea as far-reaching as the Volcker Rule is bound to be challenged in court.
Appellate court review of the SEC's settlement with Citigroup. Good lord, this battle has become the best show in town—and the defendant, Citigroup, isn't even in the fight! The parties are the SEC, which is trying to settle fraud charges against Citi, and federal district court judge Jed Rakoff, who is refusing to accept the terms of the deal. In December the SEC took the extraordinary step of appealing Rakoff's decision. Other judges have begun delaying their own verdicts on SEC settlements, waiting to see what the appellate court might say. Just last week, Rakoff and the SEC exchanged even more paperwork accusing each other of misconduct.
The Cloud continues to roll in. This is more of a trend than a specific event, but 2011 has proven that cloud computing technology has arrived and is going to stay. Maybe your IT department is going to adopt it and you'll be pulled into long discussions about data security; maybe your employees will adopt it without telling you and you'll be pulled into enforcement actions instead. Either way, the cloud is going to enter your world imminently soon.
Guidance on the FCPA. Assistant Attorney General Lanny Breuer gave a speech in November where he suggested that sometime in 2012 the Justice Department will provide formal guidance on the Foreign Corrupt Practices Act—real guidance, not just opinion releases on specific situations or deferred-prosecution agreements we all study like tea leaves. We don't know what this guidance will address, or when it will arrive. But it will be much more useful than the second-guessing legal analysis we all do right now.
MF Global after the meltdown. Losing $1.2 billion in customers' money through an internal control failure brings consequences; in today's political and legal climate—after Bernard Madoff's Ponzi scheme, after the Sarbanes-Oxley Act, after the bank bailouts in 2008—losing money through a control failure brings severe consequences, for many more parties than MF Global. Expect many more “How did this happen? What can we to do prevent another?” hearings in Congress. Expect regulators to compel banks that received MF Global money to give it back to customers. Expect more calls to regulate high-frequency trading and to impose a consolidated audit trail.
Shareholder fights on proxy access and political donations. OK, in truth, proxy season is really about a small number of institutional investors making a stink at a small number of companies; most investors when they're unhappy with a company simply sell the stock. But thanks to the courts invalidating the SEC's rule allowing proxy access, and the SEC also creating a new path to let shareholders propose proxy access, this age-old fight is back on the menu. So are fights over political donations, thanks to the Supreme Court's Citizens United decision in 2010.
The recession that isn't here. We are not in a bad economy. By no means are we in a good economy, either, but one of the unsung business stories of 2011 was quarter after quarter of positive GDP growth, companies beating earnings estimates, and respectable job creation in the private sector. We are in a durable economy, and if nothing else, durability brings certainty.
Could Europe create a second banking crisis like we did in 2008, and cause another recession? Perhaps. Maybe China will collapse, maybe Iran will cause an oil crisis, maybe terrorists will create some economic disaster. But to my observation, most things stay mostly the same most of the time, so I suspect 2012 will look a lot like 2011. And as many subscribers told me in 2011, “Things look really bad out there, but we're holding our own here, thankfully.” You can't all be right and be in recession at the same time.