Shelley Parratt of the SEC’s Corporation Finance Division gave the afternoon keynote on Day 2 of Compliance Week 2010. She spoke about the Commission’s program of enhanced disclosure.
With 10K companies filing and SOX requiring the Commission to review every companies filing at least once in three years, she said that the SEC has to use their resources appropriately, and the filter that they use is how will the information be used by investors.
On executive compensation, she acknowledged that this is a very emotional topic. The SEC is trying to provide a clearer and more complete picture of what executives get paid. First, companies must provide a framework for how they make compensation decisions, but the SEC is interested in how the framework is used in real decisions. Also, the SEC is focusing on performance targets, how those targets change, and whether those targets are disclosed. “A company must engage in a thoughtful discussion about its disclosure decisions.” It is not sufficient, for instance, to just say that the target is “challenging” but should be put in context of historical performance.
On disclosure about the board and company leadership, Parratt was very clear that Chairman Shapiro is interested in increased disclosure on leadership choices and risk oversight. She said that there is no requirement for a risk committee. Different companies may choose different approaches to discharge their responsibility for risk oversight.
Regarding non-GAAP financial measures, Parratt said that disclosures should be consistent across filings and other communications. In other words, if a company uses non-GAAP financial measures in its earnings call, they should also use those measures in their filings. In no circumstances, however, should those measures be misleading, whether they are in a filing or not.
Regarding climate change, Parratt was careful to state that the Commission was not taking a position on the potential effects of climate change
During the Q&A session, Editor-in-Chief Matt Kelly asked about the current quality of the enhanced disclosure filings. Parratt acknowledged that “what we see in the first year of disclosure is often vastly different than what we will see in the second,” but noting that the first year’s disclosures aren’t necessarily out of compliance, inadequate, or poor, implying, of course, that this year’s proxy filings are all of the above!