Deal Diary

On March 31, 2021, the Securities and Exchange Commission (SEC) provided public statements from Acting Chief Accountant Paul Munter and from the Division of Corporation Finance addressing Special Purpose Acquisition Companies (SPACs). Although each of the statements were distinct and addressed different issues, the primary focus of both was to raise awareness of critical accounting, financial reporting and governance considerations that a private operating company should carefully consider and address prior to consummating a business combination with a SPAC.

The world has changed a lot since our 2020 report. A global pandemic; a reckoning on race, inequality and social justice; a climate crisis; an economic shock; and increased political polarization have created challenging dynamics for companies and boards globally. The role of the board in managing risk and charting the course ahead is more critical today than ever before. This report delves into these wide-ranging and interlocking issues and offers insight on how directors and management must proactively embrace their stewardship roles in this brave new world.

Corporate Pay Equity

When competing for top talent, equal pay matters. Boards of directors are increasingly demanding proactive measures to ensure equal pay, and many Fortune 500 companies are publishing the results of their equal pay studies.

Election and Impeachment

The presidential race will garner much of the attention during the 2020 election cycle, but there is fierce competition elsewhere, too. Republicans and Democrats are fighting for both U.S. House of Representatives and U.S. Senate seats in the 116th U.S. Congress, with the Republican Party trying to regain House majority. Meanwhile, impeachment proceedings against President Donald Trump are shaping up to be a potential game changer for certain members of the Senate who are running for president. They’ll lose valuable time on the campaign trail while serving as jurors for the duration of the impeachment trial.

On December 17 and 19, respectively, the House and Senate passed the Secure Act as part of a budget bill known as the Further Consolidated Appropriations Act, 2020 (H.R. 1865). President Trump signed the bill into law on December 20. The Secure Act is the most significant retirement legislation in more than a decade.

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Disclosure Updates and Simplification and Regulations S-K and S-X

The SEC has adopted and proposed rule changes to reduce burdens on public companies and encourage broader securities ownership by “Main Street” investors. Among other things, the SEC has adopted significant revisions to the main body of corporate disclosure requirements under Regulation S-K and proposed revisions to simplify financial reporting in connection with debt financing transactions under Regulation S-X. In addition, the new Congress may continue recent legislative initiatives to simplify the burdens of being a public company.

As public companies prepare to file their annual reports on Form 10-K for the year ended December 31, 2018, they should consider whether they qualify for smaller reporting company (SRC) status under the recently amended definition of smaller reporting company, which became effective on September 10, 2018, and the related Compliance and Disclosure Interpretations (C&DIs) updated by Staff of the Division of Corporation Finance (“SEC Staff”) on November 7, 2018. The amended SRC definition raises the threshold to allow more companies to qualify as an SRC and benefit from the election to use the scaled disclosure accommodations available to SRCs. SRCs may choose compliance with either the SRC scaled disclosure requirements or the larger company disclosure requirements on an item-by-item or “a la carte” basis for each filing as long as disclosures are provided consistently and permit investors to make period-to-period comparisons. Additionally, to the extent an SRC scaled item requirement is more rigorous than the same larger company item requirement, SRCs are required to comply with the more rigorous SRC disclosure.