This week marked the 10th anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law on July 21, 2020.  At various virtual events celebrating the milestone, including a webinar co-sponsored by advocacy group Better Markets and George Washington University Law School’s Business and Finance Law Program, creators Chris Dodd and Barney Frank, as well as former President Barack Obama, Elizabeth Warren and Maxine Waters, among others, shared their insights and memories, as well as views on the Dodd-Frank Act’s role in strengthening banks, which arguably helped them withstand the COVID-19 storm.

The SEC website page on implementing the Dodd-Frank Act shows that to date, the SEC has adopted final rules for 67 mandatory rulemaking provisions of the Dodd-Frank Act.  Here is what remains outstanding:

• Executive Compensation: 4 proposed
  • Section 953(a): Pay vs. performance disclosure (proposed rules issued April 29, 2015 that continue to be characterized as a Long-Term Action on SEC’s recently released Spring 2020 Reg-Flex Agenda)
  • Section 954: Recovery of executive compensation (proposed rules issued July 1, 2015 and listed in the short term “proposed rule stage” of the Spring 2020 Reg-Flex Agenda)
  • Section 956(a):  Compensation structure reporting at certain financial institutions (jointly proposed rules issued May 6, 2016 that continue to be characterized as a Long-Term Action on SEC’s recently released Spring 2020 Reg-Flex Agenda)
  • Section 956(b): Prohibition on certain compensation arrangements at certain financial institutions (jointly proposed rules
    

On Friday, July 10, the SEC proposed amendments to Form 13F to substantially increase the reporting threshold to $3.5 billion from the current level of $100 million and make certain other changes.  This would be the first change to the threshold since the form was adopted in 1978.

SEC rules require institutional investment managers to file a Form 13F for each quarter if the accounts over which they exercise investment discretion hold more than $100 million of “13(f) securities”, which primarily consist of U.S. exchange-traded stocks, shares of closed-end investment companies and shares of ETFs.  The form was adopted to promote greater visibility into the investment activities and holdings of larger investment managers.

According to the SEC, the new threshold would reflect proportionally the same market value of U.S. equities that $100 million represented in 1975, when Congress directed the SEC to develop a reporting regime.  The SEC believes the change would result in disclosure of over 90% of the dollar value of the holdings data currently reported while eliminating the Form 13F filing requirement and its attendant costs for the nearly 90% of filers that are smaller managers. Further, the aggregate value of section 13(f) securities reported by managers would represent approximately 75% of the U.S. equities market as a whole, as compared with 40% in 1981, the earliest year for which Form 13F data is available.

At the same time, the SEC acknowledges that some of the holdings data that would no longer be reported relates

On June 30, 2020, Jay Clayton, SEC chair, and Bill Hinman, Director of Corporation Finance, hosted an investor roundtable seeking input from investors on how to improve disclosures during this period of COVID-19.  The participants included Gary Cohn, Former Director of the National Economic Council; Glenn Hutchins, Chairman of North Island; Tracy Maitland, President and CIO of Advent Capital; and Barbara Novick, Vice Chairman and Co-Founder of BlackRock.

The discussion was wide-ranging, but several themes emerged:

• While swift government action from the Federal Reserve and the CARES Act appears to have helped stabilize the economy and markets, investors expressed concern that the macro-economic picture remains very uncertain, particularly as certain government programs expire.
• Investors want to see greater transparency as to how the company expects to perform in the near term, including with respect to such matters as cash flow, working capital and covenant compliance as well as key assumptions. For example, is the company’s ability to restore production dependent on schools reopening so that parents can return to work?  Or does the company’s supply chain depend on European travel being restored?
• Glenn Hutchins noted that fewer than 10% of the S&P 500 have maintained earnings guidance. As a result, investors seek greater insight into the range of potential outcomes and the ability of companies to manage through different scenarios as well as a greater understanding if companies have “tools for adaptability” and an ability to adjust to changes in an uncertain environment. He cited the joint statement
  

In light of health, transportation and logistical issues raised by COVID-19, the SEC staff recently extended previously announced relief for several types of submissions.

• Form 144 paper filings and certain forms (other than 144s) that are permitted to be filed in paper (such as annual or other reports by foreign private issuers on Form 6-K, Form 11-K and certain other specified forms) may be submitted via email in lieu of mailing or physical delivery if the complete Form 144 or other document is attached as a PDF sent to PaperForms144@sec.gov or CorporationFinancePaperForms@SEC.gov, respectively.
  • If a manual signature cannot be provided with the email, the SEC staff has announced that it will not recommend enforcement action if a typed signature is included instead and: (i) a manually signed page or other document acknowledging or otherwise adopting his or her signature in the filing is retained by the signatory and is provided upon request by the SEC staff; (ii) the signature page indicates the date and time when signed; and (iii) appropriate policies and procedures are established relating to this process.
  • Filers may continue to submit these documents to the SEC mailroom but there may be delays in processing.
• The signature requirement for Edgar filings may create challenges for public companies and other filers to have such filings executed before the time of the electronic filing due to circumstances arising from COVID-19. While the SEC staff expects filers to comply with requirements to
  

On June 23, 2019, both the Division of Corporation Finance and the Office of the Chief Accountant issued additional statements to public companies and their stakeholders about the importance of “high-quality” financial reporting and the need for focused analysis and disclosures in the context of the principles-based disclosure system.

The Division of Corporation Finance issued CF Disclosure Guidance Topic No. 9A, a supplement to Topic No. 9 issued near the close of the first quarter of this year (see our prior blog post on Topic No. 9 here).  The new guidance states that the Division is monitoring how companies are addressing COVID-19 related disclosures and encourages public companies to provide meaningful disclosures of the current and expected impact of COVID-19 through the eyes of management.  The key topics covered by the guidance are the effects of the pandemic on a company’s operations, liquidity and capital resources; the short and long-term impact of any federal relief received under the CARES Act; and the company’s ability to continue as a going concern.

The staff acknowledges that companies are making many operational changes as a result of the pandemic – from converting to telework to modifying supply chain and customer contracts, and now converting to the return to the workplace and business reopenings.  The guidance says that companies need to consider whether any or all of those changes “would be material to an investment or voting decision” and disclose accordingly.  The staff takes a similar tack with respect to the

The SBA and Treasury published the much anticipated PPP loan forgiveness application late last Friday evening.  The application itself provides more guidance than contained in the existing FAQs and regulations relating to use of PPP loan proceeds and eligibility for forgiveness and includes new certifications.  Absent from the form is any requirement to address the necessity of the loan or to report revenue levels, profitability or other evidence of the impact of the economic uncertainty brought on by the COVID-19 pandemic.

In its press release announcing release of the form, Treasury and the SBA stated that the form and its instructions reflected measures designed to reduce compliance burdens and simplify the process for borrowers.  Those measures relate primarily to calculation of payroll costs and step-by-step instructions to calculate eligibility for loan forgiveness.  In addition, the form provides that eligible non-payroll costs (so long as not in excess of 25% of the total forgiveness amount) can include payments of interest on any business mortgage obligation (real or personal property) incurred before February 15, 2020; business rent or lease payments on leases in effect prior to February 15, 2020; and covered utility payments so long as for services that began before February 15, 2020.  For a more thorough discussion of the guidance provided by the application form, see our analysis here.

Interestingly, if the borrower and its affiliates received PPP loans in excess of $2 million, the borrower must “check the box”.  We assume this is to flag those

Because of the rapid shift from in-person to virtual annual meetings mandated by COVID-19 health and safety concerns, many companies held first-time virtual-only meetings, with both management and shareholders exploring the process in real time.  Not surprising, reports of virtual meeting glitches soon began to emerge.

Twenty minutes into the virtual-only annual meeting of Goodyear Tire & Rubber Company, shareholder John Chevedden was presenting his shareholder proposal (to allow shareholders to vote on bylaw and charter amendments) when the microphone cut out.  Chevedden filed a shareholder alert with the SEC requesting that the polls be reopened so Goodyear shareholders can vote based on the full text of his proposal presentation.  So far, no word from Goodyear on Chevedden’s allegation that management cut off the microphone.

Earlier this week, the Council of Institutional Investors (CII) sent to a letter to the SEC Investor Advisory Committee expressing concern about some virtual-only annual meetings early in the 2020 proxy season, citing anecdotal reports of problems including:

• Shareholders struggling to log into meetings, in part due to control number snafus;
• Inability to ask questions in some cases if the shareholder voted in advance by proxy;
• Shareholders unable to ask questions during the meeting;
• Possible cherry-picking of questions asked by shareholders and lack of transparency on questions asked by shareholders; and
• Confusion on channels for shareholder participation, with shareholder proposal proponents required to use a different line than that used for general shareholders.

The CII urged public companies to mitigate the

Late Monday, the SEC Staff published FAQs addressing several questions relating to the SEC’s March 25th Order extending filing relief for public companies unable to meet a filing deadline because of circumstances related to COVID-19 and previously discussed in our April 1 blog post.

• Disclosure Required to Utilize Filing Extension (FAQ 1). To utilize the filing extension, a reporting company must disclose in the Form 8-K (or 6-K):
  • that it is relying on the Order;
  • a brief description of the reasons why the company could not make the filing on a timely basis;
  • the estimated filing date;
  • a company-specific risk factor or factors explaining the impact, if material, of COVID-19 on its business; and
  • if the reason the report cannot be timely filed relates to the inability of a third party to provide any required opinion, report or certification, the filing should include as an exhibit a statement signed by the third party specifying the reasons they were unable to provide the document by the original due date.

When the delayed report is eventually filed, the company must disclose that it is relying on the Order and state the reasons why it could not file the report on a timely basis.

• Shelf-Takedowns Permitted If Required Information Included in Prospectus (FAQ 2). A company that has utilized the Order to delay filing current or periodic reports can continue to complete shelf-takedowns from an effective shelf registration statement if it determines
  

As states slowly move to reopen their economies, many returning employees will be shocked by the radical changes in their workplaces.  Collaborative spaces, ping pong tables and community break rooms, among other areas, will be transformed or closed for social distancing.  Employers will monitor and collect employee health information as never before.  Some employers already have announced they are exploring contact tracing and testing apps and wearable wristbands to alert employees if they are within six feet of each other or have come into close proximity with someone who has tested positive for COVID-19.

Directors will play a crucial role in overseeing these pandemic-related corporate culture and privacy challenges, far beyond typical oversight of operations and finance.  Directors have duties of care and loyalty to make well-informed decisions and act in the best interest of company stockholders.  To fulfill those duties and protect themselves under the business judgement rule, directors should require management to provide appropriate and timely reports  so they can monitor and consider up-to-date information in order to provide strategic direction and oversight in the rapidly-changing COVID-19 environment.

While there is always tension and management sensitivity about possible board over-reach into day-to-day operations, management and directors may need to work together more closely than in the past so that directors are fully informed in order to monitor management’s real-time decisions to re-open while fulfilling their oversight duties.

Conflicts in workplace protocols are likely, as management and directors grapple to balance risks and uncertainties with employee and customer privacy

As more companies prepare to file Form 10-Qs, they should give special attention to risk factors – particularly to consider whether new risks have emerged or hypothetical ones have become real.  The Form calls for disclosure of any material changes from risk factors included in the last 10-K.  However, the COVID-19 pandemic presents unique challenges to responding to other requirements as well, such as instructions to address “known trends and uncertainties” in MD&A or to provide “such further information . . . as may be necessary to make the required statements, in the light of the circumstances under which they were made not misleading” in Rule 12b-20.  Careful consideration of risk factors can help complete the picture for investors. Although companies need only disclose what is known or reasonably available, it can be challenging to comfortably determine what elements of the current state of affairs will, with hindsight, be viewed as both “known” and material to investors.

In order to prepare their disclosures, companies should

• utilize appropriate disclosure controls and procedures, and seek input from relevant constituencies, including operating units, HR, IT, the law department and finance, to determine the scope and depth of impacts
• if a designated individual or team is addressing the company’s COVID-response, be sure they are included
• review each of the 10-K risk factors to evaluate which ones might need to be updated or supplemented or whether new ones should be added
• confer with IR and senior management to assess the state of existing knowledge