Five Things for Companies to Watch in 2023

Last year at this time, we told you that companies should keep an eye out for developments in cryptocurrency regulation; corporate disclosure of environmental, social and governance issues; and COVID-19 pandemic-related human capital challenges. Here’s a rundown of five key areas to monitor in 2023.

GOP takes over the House

Republicans won control of the U.S. House of Representatives in November, ending the Democratic trifecta in Washington. Theoretically, that should give the GOP more influence over lawmaking and oversight – including securities regulation. The current impasse among party members over picking a House Speaker, however, suggests they won’t find much common ground on any legislation.

As such, we can probably count out the passage of any new laws affecting the financial system. Perhaps some conservative lawmakers will take an interest in using their committees to scrutinize securities regulation and the goals of the Securities and Exchange Commission instead? Also, expect to see some prominent CEOs paraded before House committees to testify about “woke capital,” which has become a popular campaign issue among Republican politicians.

Regulating private equity

One group that could use some assistance from their longtime GOP allies on Capitol Hill: private equity firms. Historically, the sector has enjoyed a light touch from federal regulators. Those days are apparently coming to an end.

To be sure, buyout firms are finding some slow going because of market developments like rate hikes and speculation about a recession. But they’re also dealing with more government intervention. Take the Justice Department’s recent interest in putting an end to so-called interlocking directorates involving directors sitting on the boards of competing corporations at the same time. The department’s sweep of corporate boards turned up multiple instances of private equity executives violating the rule. The effort is part of a broader push to apply antitrust laws more rigorously to the sector.

New governance of their fees now looms on the horizon for the firms as the SEC looks to finalize rules it proposed last year.

Climate-change disclosures

The SEC in March issued its long-awaited rules for standardizing corporate disclosures of performance tied to environmental measures. Originally, the proposed rule could have potentially affected the FY2023 reporting year, but the final version’s release has since been pushed back to an unknown date after the SEC in October extended the comment period. Meantime, a U.S. Supreme Court ruling issued after the proposed rule might curb the SEC’s power to regulate climate risk disclosure, and Republican lawmakers have proposed legislation to prevent the rule from taking effect.

Companies have asked the SEC to dramatically scale back its climate mandates, including eliminating the requirement to disclose emissions from their supply chains and other indirect sources. Similar supply-chain issues were raised by opponents of the SEC’s conflict minerals rule, which the agency adopted in 2012 over concerns that the trade of certain minerals was fueling armed conflict in the Democratic Republic of Congo region. Following a legal challenge, a federal appeals panel in 2015 invalidated part of the rule that required companies to report to the SEC and state on their websites that any of their products have “not been found to be ‘DRC conflict free.’”

When it comes to the actual work of environmental reporting, even companies with the best of intentions regarding climate-related transparency are running into logistical roadblocks. Expect even more fits and starts in the next 12 months.

Enhancing cybersecurity

Hackers and scam artists continue to push the envelope of online crime. Much like ESG, therefore, cybersecurity will probably remain on lists like this one for years to come.

The theme in corporate cybersecurity this year might be “give a little to get a little.” Companies could benefit from government action to stabilize the market for cyber insurance, which is getting pricier as the need for corporations to beef up their online defenses intensifies. At the same time, the SEC is pressing for companies to disclose more information about their cybersecurity programs. Seems like a fair trade in the current climate.

More crypto

You didn’t think we could go without mentioning that mysterious alternative money, did you?

Skeptics surely felt vindicated last year as the collapse of cryptocurrency exchange FTX roiled the market and cast doubts on crypto’s long-term future. For its part, the SEC Division of Corporation Finance took FTX’s blowup as an opportunity to delve deeper into what the fallout in the sector means for issuers.

Political pressure and public interest in regulators getting their arms around crypto’s issues won’t let up this year.

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