The SEC is likely to propose a new rule next year that publicly traded companies file their financial reports using XBRL, the interactive data language SEC Chairman Christopher Cox has long hailed as a powerful tool for investors to study financial results.
Speaking at a press conference last week to unveil a new “taxonomy” of XBRL terms used to classify financial data, Cox said he has asked SEC staff to “finalize a recommendation to the Commission that we could act on next spring, about how to deliver the maximum benefit of tagged data to investors, including converting all public company disclosure into interactive data format.”
Cox
When asked about a time frame, Cox said he expects the SEC to consider recommendations in proposed form in the spring of next year, “and if it follows the course of an ordinary rulemaking, we’d probably complete that in the fall of next year and would lay out a schedule for implementation.” That plan also would neatly coincide with Cox’s departure from the SEC, which presumably will happen when a new White House administration takes office in 2009.
Cox also said at the press conference that the new XBRL taxonomy should be ready for public review by Dec. 5, at the annual XBRL International Conference in Vancouver, British Columbia. Various auditing firms, accounting rulemakers and technical experts are examining the taxonomy now.
Cangemi
Many in the business community have suspected that Cox might try to mandate XBRL. Michael Cangemi, CEO of Financial Executives International, says his group “is pleased that this stage of the process is complete,” but quickly adds: “We believe setting target dates for technology implementation is risky and should be very carefully studied, with the involvement of the major accounting software developers.”
Cox has touted XBRL to anyone who would listen since he took the helm of the SEC in 2005. Last year the Commission sunk nearly $60 million into XBRL-related activities, including an overhaul of its text-based EDGAR filing system and development of “reader” software to view XBRL-tagged documents.
Still, adoption has not exactly caught on like wildfire. Last month, the SEC announced that the combined market cap of companies submitting financial reports to the Commission in XBRL surpassed $2 trillion. That same press release noted that the number of companies now participating in an XBRL pilot program has reached “more than 40”—out of the more than 10,000 public companies listed in the United States.
Savage
In preparation for the upcoming public review, Michelle Savage, spokeswoman for the XBRL US consortium, admits “there has been some hesitation and a little bit of inertia,” by the business community. “With the new taxonomy, it will be drastically easier to implement,” she says.
Savage says XBRL could bring lower internal and external reporting costs and more accurate reporting, since XBRL lets a user create and disseminate financial data in the same format. That eliminates the extra steps of converting different types of data from various reporting systems into a format investors and others can use.
“The ultimate goal is to put XBRL into the company’s internal processes so that when data is created, it’s created once in XBRL format and pushed out to regulators analysts, lenders, and investors,” she says.
Savage says no specific timeline exists yet for the public review. Once the taxonomy is finished based on that feedback, the group will deliver it to the SEC. “Then it’s up to SEC how they’re going to move forward,” she says.
NYSE Kills Broker Vote Reform Amid SEC Action
The New York Stock Exchange has killed its plans to reform the practice of broker-dealers voting on director elections to corporate boards for at least another year, as the Securities and Exchange Commission continues its efforts to revamp the entire system of proxy rules.
In an e-mail to its listed companies last week, the NYSE said its controversial proposal to amend Rule 452 so that broker-dealers could not vote on director elections won’t be in place for the 2008 proxy season as originally hoped.
“It was our intention to have the rule change in place and effective by Jan.1, 2008,” the e-mail states. “Based on recent conversations with SEC staff members, however, we learned that our proposed rule filing is being considered by the Commission as part of a broader range of issues relating to shareholder communications and proxy access.” As a result, “Our rule filing will not be approved for the 2008 proxy season.”
The NYSE did say it will continue to work with SEC staff to move the proposed rule change forward.
Reform of “broker voting” had been a hot issue last year, but has languished at the SEC since the NYSE filed its proposed amendment in October 2006. The proposal was later revised to exempt director elections for mutual fund companies and re-submitted to the SEC in May. The SEC held a series of roundtable discussions that month to examine a host of reforms to federal proxy rules, including who should be allowed to vote in director elections, but made little headway since then.
The Council of Institutional Investors, which strongly supported the proposal, “is very disappointed that the SEC is apparently delaying action on this long-pending and important governance change,” deputy director Amy Borrus says. The CII has long argued that broker voting should be eliminated, especially in director elections, since broker-dealers generally vote per the recommendation of the company’s management. “We believe it undermines the integrity of the vote and is akin to stuffing the ballot box for management,” says Borrus.
Others, such as Jane Whitt Sellers, a partner in the law firm McGuireWoods, says the decision to delay “is a good one.”
Sellers
“Making those alterations at a time when the SEC rules regarding shareholder nominations and vote solicitations are also potentially changing introduces too many variables into a significant process at one time,” Sellers says. “The benefits to be gained from greater shareholder involvement in elections should wait until issuers, shareholders, and brokers have seen the process in which they will be involved.”
Michael Rennock, of the law firm Steptoe & Johnson, says the move is “consistent” with past SEC behavior. Historically, he says, the SEC has refrained from addressing individual reforms to large issues, in favor of more comprehensive action.
Rennock
Rennock believes broker voting in director elections ultimately will be abolished. “At least since the onset of Sarbanes-Oxley, the election of directors can no longer be considered a routine matter,” he says. Allowing broker voting in director elections “really does give management a leg up.”
Meanwhile, the comment period on the SEC’s dueling rule proposals on shareholder access to the proxy statement ends today. The SEC has said it plans to have a final rule in place in time for the next proxy season. Compliance Week will have full coverage of the comments next week.
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