U.S. Securities and Exchange Commission
Investor Advisory Committee
September 21, 2022
|10:00 a.m. – 10:25 a.m.||Welcome and Opening Remarks|
|10:25 a.m. - 10:30 a.m.||Approval of Previous Meeting Minutes|
|10:30 a.m. - 12:00 p.m.|
Panel Discussion Regarding Human Capital Management and Labor
Valuation and Performance
The strength and stability of the U.S. capital markets system largely rests on the availability of high-quality, decision-useful information investors rely on to understand and assess a company's business, risks and prospects, and to make critical decisions about how and where to direct capital. It is critical that this information is relevant, reliable, and timely.
As the primary sources of companies’ value has shifted toward “intangibles” - including labor resources - investors' informational needs have similarly evolved. In 2020, the U.S. Securities and Exchange Commission attempted to address these needs by updating the then-47 year-old reporting standards that required public issuers to report on the number of employees and to also describe, "any human capital measures or objectives that the registrant focuses on in managing the business." While some observers viewed the rules as a step in the right direction, many investors voiced concerns that the rules fell short in providing the kind of high-quality, actionable data they needed to develop a clear and effective understanding of a company’s skill in managing its workforce, while also permitting corporate management to exercise too much latitude in what human capital information would be reported.
This plenary session will consider the demand for labor-related performance data from the investor perspective, including investors' views on the quality and decision-usefulness of currently-available data, and which information - if any - investors would use should it become available, and why.
Cambria Allen-Ratzlaff, Managing Director and Head of Investor Strategies, JUST Capital
|12:00 p.m. - 1:30 p.m.||Lunch/Non-Public Administrative Session|
|1:30 p.m. - 2:05 p.m.|
Panel Discussion Regarding Proposed Rule 10B-1 Position Reporting of Large Security-Based Swap Positions / Asset-Based Swaps
Leading up to the financial crisis of 2008, both the derivatives and swaps markets grew tremendously, in some cases many times greater than the underlying assets they were referencing. In response, the SEC is moving to enact a series of changes under Title VII of Dodd-Frank that would bring greater transparency and investor protection to the swaps markets. Unlike large equity positions which must be reported to the Commission quarterly or when positions exceed 5% of the outstanding shares, no such requirements exist for swaps positions, though they give the holder similar economic exposure.
Participants in the corporate credit markets in recent years also saw the disturbing emergence of manipulative and deceptive conduct around swaps. Namely the rise of "net-short debt activism" where an investor holds long positions in corporate debt but also larger short positions via swaps. Such "net-short debt activism" has led to creditors aggressively pushing for a determination of a default against the will of other creditors or in more egregious instances, the issuer agreeing in exchange for receiving additional credit, agreeing to intentionally default, often referred to as "manufactured defaults".
This panel will discuss the Commission's proposals to modernize the reporting and regulation of the swaps markets via its newly proposed Rule 10B-1, requiring any person who owns a security-based swap position that exceeds certain thresholds to file information of their holdings and which will become publicly available over the SEC's EDGAR filing system as well as new Rule 9j-1 that would prohibit fraudulent, deceptive, or manipulative conduct associated with security-based swaps.
Gina-Gail Fletcher, Professor of Law, Duke University School of Law
|2:05 p.m. - 3:00 p.m.||Panel Discussion Regarding Schedules 13D and 13G Beneficial Ownership Reports
The SEC is proposing to modernize reporting in-line with technological advances around large positions that exceed 5% of a publicly traded issuer's outstanding shares, better inform company management and other shareholders about the presence of large activist investors, and close any longstanding information asymmetry arising from the lag in public reporting benefitting a certain set of investors.
Currently, any holder exceeding 5% of a company's outstanding shares has 10 days to file a Schedule 13D if the transaction is associated with a change-of-control, while passive holders of greater than 5% have until 45 days after the calendar year when they cross that threshold to file a Schedule 13G. These timelines were originally set under the Williams Act in the 1960s when paper filings and fax machines were the standard. Under Dodd-Frank, amendments to Sections 13(d) and 13(g) of the Securities Exchange Act of 1934 gave the SEC the authority to modernize public reporting associated with large positions in-line with today's technological advances. The SEC is therefore proposing to shorten Schedule 13-D reporting to 5 days from 10 days, while Schedule 13-G filers exceeding 5% would have to report their holdings anywhere from 5 days after to 5 days after month end.
The SEC is also proposing to close the information asymmetry enabled by the lag time between a shareholder holding greater than 5% of a stock, and the number of days until they have to publicly disclose such a position. To address the communication of material non-public information between investors who intend a change-of-control and would have to file a future Schedule 13-D and a select group of other shareholders, the SEC is proposing that any such advanced communication before a 13-D filing would constitute the set of investors as a "group" and require a joint filing disclosing their collective 13D positions.
This panel will discuss the SEC's proposals to shorten the reporting timeline around Schedule 13D and 13G and how that would affect shareholder activism. The panel will also discuss the current practices of certain shareholders disseminating not-yet-public large stakes with a select group of other shareholders, and how the SEC's proposals around classifying them as a "group" would cut the existing information asymmetry between that group and other shareholders.
Gina-Gail Fletcher, Professor of Law, Duke University School of Law
|3:00 p.m. - 4:00 p.m.||Panel Discussion Regarding ESG Fund Disclosure
This panel will focus on the importance of ESG and Greenwashing and the heightened role of ESG for investors seeking to understand their impact through investing. Our speakers will provide an overview of the definitions of ESG, sustainable investing, and greenwashing. Additionally, our speakers will discuss what investors should know about the proposed climate disclosure requirements and any observable effects of the proposal.
Jamila Abston, Partner, FSO Consulting Financial Services Risk Management, Ernst & Young LLP
|4:00 p.m. - 4:10 p.m.||Discussion of a Recommendation on Cybersecurity Disclosure|
|4:10 p.m. - 4:20 p.m.||Discussion of a Recommendation on Climate Disclosure|
|4:20 p.m. - 4:30 p.m.||Discussion of a Recommendation on Accounting Modernization|
|4:30 p.m. - 4:45 p.m.||Subcommittee Reports|
|4:45 p.m.||Closing Remarks and Adjourn|