The Securities and Exchange Commission may be setting forces into motion that will bring the battle for shareholder access to the proxy statement back into court—three months after the SEC approved a rule to kill proxy access for at least another year.
SEC staff earlier this month issued no-action letters to numerous companies, including Bear Stearns, JPMorgan Chase, and E*Trade—all saying the Commission had no objection to the companies keeping shareholder proposals for more access out of the proxy statement. The commissioners voted in November to clarify Rule 14a-8(i)(8) of the Securities Exchange Act to say that companies can exclude such proposals if they choose.
Lisa Schneider, director of corporate governance for the North Carolina Department of State Treasurer, which co-filed proxy access resolutions at Bear Stearns, JPMorgan Chase, E*Trade, and Countrywide, calls the SEC’s no-action letters “the culmination of the SEC’s failure to protect the rights of shareholders.” She says the treasurer’s office will not take the letters lightly.
“The ability to choose directors is one the most basic of shareholder rights, and we will continue to fight the SEC’s anti-investor stance on this issue,” Schneider said in an e-mailed statement to Compliance Week. “Despite the no-action letters, we urge the companies to allow their shareholders to vote on these proposals.”
The American Federation of State, County, and Municipal Employees, which filed the four proposals, did not respond to requests for comment. An AFSCME lawsuit against insurer American International Group led to a 2006 federal appeals court decision that Rule 14a-8(i)(8) does allow proxy-access proposals. Subsequent lobbying from the business community led the SEC to approve a quick-fix amendment that the rule does not. Proxy access supporters suspect the SEC’s promise to find a permanent solution to the problem later this year will never materialize, leaving shareholder activists with no recourse at all.
SEC Unveils XBRL ‘Financial Explorer’ Tool
The SEC has unveiled a new software application to let investors view financial statements tagged in XBRL, its latest effort to show that the financial reporting technology is worth pursuing.
Called the Financial Explorer and free to all, investors can use the program to generate financial ratios, graphs, and charts of financial statement information. That should give users a far easier time of studying and comparing financial data at public companies, rather than the painstaking approach of copying such data into a spreadsheet.
David Blaszkowsky, director of the SEC’s Office of Interactive Disclosure, encourages investors to try the software and “get a first-hand glimpse of the future of financial analysis, especially for the retail investor. ”
The online tool is the third released by the SEC using XBRL, or eXtensible Business Reporting Language. The other applications are the Executive Compensation viewer and Interactive Financial Report viewer, released last year.
SEC Chairman Christopher Cox touts the benefits of XBRL to practically any audience he can find, and has said he wants the Commission to approve a rule by the end of the year to make XBRL mandatory. The SEC staff is working on such a proposal now.
Meanwhile, XBRL U.S. has published the second draft of its taxonomy for U.S. Generally Accepted Accounting Principles, which spells out how financial data should be tagged. The new release incorporates public comment submitted through late January; the new version is out for public comment through April 4.
SEC Steams Ahead on Oil, Gas Disclosure Rules
With the comment period on its concept release now closed, the SEC is reviewing how it should overhaul 30-year-old rules on how companies disclose their oil and gas reserves.
Oil and gas companies are required to disclose their proven oil and gas reserves annually, in filings Rule 4-10 of Regulation S-X and Item 102 of Regulation S-K under the Securities Act and the Securities Exchange Act. The SEC last updated those rules in the 1970s, and many commenters welcomed the effort to bring the rules into the modern era. The SEC received more than 60 comments.
Supporters say the rules must be updated to take into account technological advances that have made it easier for companies to identify buried reservoirs and estimate the amount of oil or gas in them more accurately.
A number of oil and gas companies urged the SEC to revise its definition of “proven reserves,” which is the estimated quantities a company believes it can recover from known reservoirs, based on geological and engineering data. While companies may categorize reserves as “proven,” “probable,” or “possible,” current SEC rules bar them from including categories of reserves other than proven in their filings. The SEC also sought comment on that topic.
In a Feb. 19 letter, Bob Deere, head of accounting and financial reporting for Shell, noted that technological advances and unconventional sources of oil and gas “in particular represent areas where the industry has developed to the point that the regulations are not aligned with the business environment that the companies operate in … Closing this gap will provide better information to the users of the companies’ securities filings and related financial statements.”
BP chief financial officer Byron Grote, in a Feb. 18 letter, wrote that “a progressive update is preferable to a significant change in the overall disclosure framework. Generally, it is the interpretive guidance which has not kept pace with industry changes.”
The SEC staff would need to propose any new rules for public comment and approval by the commissioners. Informally, SEC officials have said they expect to tackle the oil and gas issue sometime this year.
Proposals for Foreign Registrants Are Published
The SEC has posted the 88-page proposing release for possible amendments to the registration exemption for foreign private issuers provided under Section 12(g) of the Securities Exchange Act.
The proposal, discussed at the Commission’s Feb. 13 open meeting, follows changes to its rules last year to ease FPI deregistration requirements and to allow FPIs, under certain conditions, to file financial statements using International Financial Reporting Standards without reconciliation to U.S. Generally Accepted Accounting Principles.
Among other things, the rule proposals would make the exemption from U.S. reporting requirements automatic for issuers that meet new eligibility requirements, ending a requirement for paper submissions to the SEC by issuers seeking the exemption. Instead of a count of U.S. shareholders, the proposal would apply a new trading volume test for determining whether non-registered FPIs are subject to SEC reporting rules, similar to one adopted by the SEC last year in its amended FPI deregistration rules.
Comments on the proposal are due 60 days after its publication in the Federal Register. The proposing release for another package of possible amendments unveiled at the same meeting should be posted shortly. Among other things, those proposals would shorten the filing deadline for annual reports on Form 20-F and would permit reporting foreign issuers to assess their eligibility to use the special forms and rules available to FPIs once a year on the last business day of their second fiscal quarter, rather than on a continuous basis, as currently required.