Complying with rules and regulations is part of the daily routine for Investor Relations (IR) professionals. Those responsible for ensuring that a company meets its regulatory standards recognize the risks of not meeting them. For example, in 2022, the SEC brought 760 enforcement actions, a nine percent increase over 2021, and it leveled $6.4 billion in civil penalties, disgorgement, and pre-judgment interest against issuers and individuals for violating SEC rules.
It’s particularly crucial to ensure SEC compliance in areas such as financial reporting, disclosures, adherence to listing rules, and the handling of inside information, especially when it comes to managing an investor relations website. With this in mind, the 2023 Examination Priorities Report included areas of focus and regulatory changes that must be accounted for to have an SEC compliant IR website.
On September 27, 2023, the SEC announced charges against six officers, directors, and major shareholders, as well as five publicly traded companies, for consistent failures in the timely filing of Form 4 and Section 13D and 13G beneficial ownership reports. This enforcement action found these issuers and insiders repeatedly delayed or neglected the required filings. Consequently, the companies and their directors and officers were penalized with a range of fines from $66,000–$200,000 each.
This action by the SEC sends a clear message about the importance of timely and accurate financial disclosures. The substantial penalties imposed reflect the seriousness with which the SEC views these reporting obligations, underscoring the need for corporate transparency in financial dealings.
To avoid penalties like those imposed by the SEC for failures in filing beneficial ownership reports, companies and their IROs can adopt several best practices regarding their IR website to best accommodate SEC compliance:
In a recent publication, PwC explained how non-GAAP measures are a significant focus for the SEC, often leading to enforcement actions and frequent topics in comment letters. These measures, used by companies to provide a deeper understanding of financial performance by excluding certain items, are subject to SEC rules when they deviate from GAAP measures.
The SEC’s guidance emphasizes avoiding misleading non-GAAP measures and requires clear reconciliation with GAAP financials. The SEC consistently scrutinizes non-GAAP disclosures, with a substantial number of comment letters in 2023 addressing these measures, indicating their ongoing importance in financial reporting and regulatory compliance.
“Non-GAAP metrics can offer insight by excluding certain items, yet their subjective nature poses both clarity and misinterpretation risks. While providing a clearer view, careful scrutiny is essential to avoid potentially misleading portrayals of financial health. Coherency is key to maintaining credibility.” – Sam Senna, Q4’s IR Services Director in Client Success
Investor Relations Officers (IROs) should adopt several key strategies in response to the SEC’s focus on non-GAAP measures, such as:
The SEC has implemented new rules that significantly impact how companies report on cybersecurity matters. These rules require registrants to disclose any material cybersecurity incidents, specifying details about the incident’s nature, scope, timing, and potential or actual material impact on the company.
Alongside incident reporting, companies must provide annual reports on their cybersecurity risk management, strategies, and governance. This includes a thorough description of the processes for identifying and managing cybersecurity threats and outlining the roles of the board of directors and management in overseeing these risks.
The timing for these disclosures is specific: companies must report material cybersecurity incidents within four business days, although there can be exceptions for national security reasons. The rules stipulate varying compliance dates for different forms, with an additional grace period for smaller reporting companies to meet the Form 8-K disclosure requirements.
To ensure compliance with these rules and best protect themselves from cyberattacks, IROs can:
In 2023, significant advancements in climate-related financial disclosures are prominent points of interest in both the United States and the European Union. The SEC’s proposed rule changes are a pivotal part of this movement, potentially requiring detailed disclosures about climate risks and their potential impact on businesses. These proposed changes aim to provide investors with consistent, comparable, and decision-useful information, reflecting a growing recognition of climate risks as critical financial considerations.
“New rules, like the SEC’s proposed changes, stress the importance of clear reporting on climate risks. This shows a growing understanding of these risks as essential financial considerations, aiming to give investors key information for making decisions.” – Sam Senna, Q4’s IR Services Director in Client Success
Simultaneously, the European Union is advancing its sustainability agenda with the European Sustainability Reporting Standards (ESRS). These standards are part of the EU’s broader strategy to integrate sustainability into corporate reporting. The ESRS framework emphasizes the need for transparent and comprehensive reporting on environmental, social, and governance (ESG) factors.
Together, these initiatives in the US and EU represent a significant shift towards enhanced ESG transparency in financial reporting, acknowledging the critical role of climate and sustainability information in investment decision-making and corporate accountability on a global scale. To specifically tailor Investor Relations websites for the evolving ESG landscape in 2023, IROs should:
In the face of escalating SEC enforcement and evolving regulations, companies must prioritize these best practices to ensure their IR website remains compliant and effective in 2024. This approach will safeguard against penalties and maintain investor trust through transparency and responsiveness to regulatory changes.
To learn more about IR website best practices, you can review Q4’s “Best-in-Class Checklist for Evaluating IR Website Partners” or speak to one of our experts today.