The Compliance Week in Preview

We’ve got quite a week of compliance and governance news coming up this week, folks. I can’t recall the last time we’ve seen so many different stars in our particular universe align, so perhaps it’s worth drafting a scorecard for the week:

Shareholder activism and disclosure. Remember that investor advisory committee the Securities and Exchange Commission formed last year? Neither did I, so I was pleasantly surprised to see that the committee will hold its third meeting ever on Monday. On the agenda are reports from various sub-committees—including the "Investor as Owner Subcommittee," which plans to give its views about Regulation Fair Disclosure, as well as reports on plans for environmental, social, and governance disclosure and on financial reform legislation. Hmmm.

Typically the recommendations that these SEC advisory committees make do carry some influence, and SEC Commissioner Luis Aguilar has already hinted that the Commissioner has big ideas for disclosure at least as it pertains to climate change, which is a stone's throw from the "ESG" disclosure this committee will discuss. So whatever these people are doing is worth watching.

Bank of America smackdown. Sometime this week—possibly as soon as Monday—federal judge Jed Rakoff should make a ruling in the SEC's proposed enforcement action against Bank of America. I say “should” because at almost every turn, Rakoff has told the SEC to re-check its homework: draw up stronger sanctions against BofA, provide more evidence, and so forth. What was originally a $33 million settlement reached last year was reborn into a $150 million settlement replete with a raft of governance reforms, and should be great fodder for the next season of “Damages.” Probably it will reach a conclusion Monday. Personally I hope not, because it's the best governance spat going.

Aside from the obvious implications for Bank of America, the rest of the corporate world should watch this settlement to see just how far other parties can push enforcement settlements. The SEC's new proposal forces governance reforms such as a say-on-pay vote for shareholders, "super-independence" for the board's compensation committee, and CEO certification that he has reviewed all information in the proxy statement. And the SEC has proposed those reforms because Rakoff told the agency last year to impose stronger sanctions against BofA. If Bank of America becomes an indicator of enforcement actions yet to come, Corporate America could be in for a rough time.

IFRS! IFRS! We pivot back to the SEC for more news on Wednesday, when the commissioners will hold an open meeting to discuss their latest thinking on adopting International Financial Reporting Standards in the United States. The meeting notice is rather cryptic: the SEC will consider "whether to publish a statement regarding its continued support for a single-set of high-quality globally accepted accounting standards and its ongoing consideration of incorporating IFRS into the financial reporting system for U.S. issuers." You don't get much more vague than that.

I suspect the underlying goal will be to dial back expectations that the Commission will move ahead with adoption as originally envisioned in the IFRS roadmap proposed in 2008. That plan called for the Commission to decide in 2011 on whether to require IFRS adoption by 2014, and to allow a select group of large filers to experiment with filing in IFRS as soon as this year. Since then, however, the economy crashed and the SEC has had more pressing issues on its calendar. The select group of large filers who might volunteer to try IFRS conversion never materialized. And the Financial Accounting Standards Board and the International Accounting Standards Board, which keep promising to converge U.S. and international accounting rules by June 2011, still have a huge volume of work in front of them. All that makes speedy progress on IFRS adoption unlikely.

Regulatory reform. Christopher Dodd, chairman of the Senate Banking Committee, may unveil his latest proposal for reforming financial regulation and corporate governance this week. Precisely when this may happen is unknown, but news broke last week that Dodd and the Obama Administration have reached an agreement on creating a “council of regulators” to monitor systemic financial risks rather than one supra-agency. The chairman of the this council would be the treasury secretary, and the vice-chair the head of the Federal Reserve.

Compliance officers should remember several points here. First, a regulator of systemic risk isn’t the major sticking point with the Senate legislation; a consumer financial protection agency is. Dodd’s last proposal died a quick death in November from lack of interest and any hint of Republican support. He has made significant efforts to win support of committee Republicans this time around, but the party as a whole implacably opposes any hint of larger government, which a financial protection agency clearly is. So don’t be surprised if this new bill quickly sinks into the usual Senate quagmire, too.

Second, all this talk of Senate hang-ups over risk regulators still ignores the already-passed House bill, and its provisions to exempt small filers from compliance with Section 404(b) of the Sarbanes-Oxley Act. That 404(b) exemption was not in the first Dodd bill; we’re waiting to see whether it will be in the second one. Either way, reform legislation is still a long, long way from success—and 404(b) compliance goes into effect for small filers on June 15 of this year. As I've warned previously, any non-accelerated filer betting that Congress will deliver a permanent 404(b) exemption before that deadline does so at his peril.