Last week, Staff from the SEC’s Division of Economic and Risk Analysis posted this reminder about double checking XBRL tags on “public float” figures. Here’s an excerpt:
Staff recently conducted an assessment on the public float data in Forms 10-K for the fiscal year ending in 2024. Staff has continued to observe scaling errors in certain filings. For example, one filer reported a public float of $78 million in its HTML filing, but reported a public float of $78 in its XBRL data. Staff also observed inconsistencies in the date information between the HTML filing and the tagged data. For example, certain filers disclosed the public float date in the HTML filing as the last business day of the most recently completed second fiscal quarter but tagged the public float value with the fiscal year end date.
Filers should carefully review their public float data to ensure accuracy and consistency. For more data quality reminders, see Staff Observations and Guidance.
This reminder might look familiar to folks who regularly read this blog or track Staff announcements – I blogged about DERA’s prior notice on this specific public float issue several years ago, and a sample comment letter from Corp Fin that raised the broader issue of scale in XBRL tags. And we’ve blogged about other aspects of XBRL requirements (too) many times.
This latest announcement is a good reminder that while disclosure lawyers may not be on the front lines of the tagging process, it’s worth getting slightly outside your lane here – since the QA is apparently falling through the cracks for some companies. We have a very helpful checklist for members that identifies all of the disclosures that are required to be tagged in various forms. If you aren’t already a member with access to that resource (and many others), make sure to sign up today by calling 800.737.1271, emailing info@ccrcorp.com, or visiting our membership center.
Glass Lewis has launched its annual policy survey – joining ISS, which Dave blogged about last week. The survey is geared towards investors – since that’s the customer base for the proxy advisor – but it’s open to anyone willing to spend 45 minutes of their time. Glass Lewis’s announcement gives this additional color:
The goal of this survey is to inform Glass Lewis’ policy development along with our processes and understanding of the governance landscape by gathering a wide range of perspectives. The topics included should be relevant to all parties involved in corporate governance. However, some of the questions are directly related to proxy voting, and their phrasing reflects Glass Lewis’ role supporting investors in their proxy voting and broader stewardship work, as well as our understanding of investor expectations.
We have indicated where questions may not be applicable to non-investors, but nonetheless welcome their perspective on these topics. In addition, we have indicated where questions are relevant to specific markets.
The survey should be understood in the context of Glass Lewis’ approach to proxy research, which combines broad initial filters, used to identify outliers based on market best practices and investor expectations, with nuanced, case-by-case analysis. We do not employ (nor does this survey seek to establish) one-size-fits-all rules in determining ultimate vote recommendations – every recommendation reflects the company’s unique circumstances.
Responses will be accepted until 5pm PT on September 15th.
Here’s something Meredith wrote yesterday on The Proxy Season Blog: Last week, Dave shared that Glass Lewis is taking legal action following the enactment of Senate Bill 2337, which he blogged about back in June. We now know that ISS filed a lawsuit the same day. This alert from Meridian Compensation Partners has more on the challenges:
Glass Lewis and ISS allege the Texas law is unconstitutional by violating their First Amendment right to advise clients even if the state does not agree with the advice.
In addition, both proxy advisors claim that the Texas law will (i) impose significant costs on their business and (ii) require the firms to provide misleading warnings to their clients that their proxy advice was against their clients’ financial interests. Glass Lewis further claims that the law exposes its clients to the risk of unwarranted litigation by private parties and the Texas Attorney General. Moreover, ISS alleges the law is designed to protect corporate directors and will harm shareholders whose votes are an “important check and balance” against boards.
Meridian expects the Texas court will rule on the cases before the law takes effect in September.
After reading over the weekend that DOGE is using an AI tool to identify thousands of rules that could be ripe for elimination, it struck me that the government is really serious about this “deregulation” thing. While DOGE’s presentation about the tool doesn’t call out the SEC as a case study, it does say there’s a September 1st goal for all agencies to complete the “DOGE AI Deregulation List.” The overall goal, according to DOGE, is to delete 50% of all federal regulations.
At this point, we can only speculate what might be on the “delete list” at the SEC. My crystal ball says there could be a couple executive compensation disclosure rules – but we don’t yet have a Reg Flex agenda that shows Chair Atkins’ top priorities.
What do the tea leaves say? In addition to recent PCAOB changes, Matt Kelly at Radical Compliance pointed out that a recent GAO report about the money companies are spending to comply with Section 404 of the Sarbanes-Oxley Act could be laying the groundwork for reform of that statute. The GAO analysis found what everybody already knows, which is that:
Larger (nonexempt) companies generally incurred higher overall Sarbanes-Oxley compliance costs, but these costs were proportionally more burdensome for smaller (exempt) companies. Nonexempt companies (generally those with $75 million or more in publicly held shares or companies not qualifying as emerging growth companies) had higher costs (19 percent) than their exempt counterparts, according to GAO’s analysis of a nongeneralizable sample of 96 companies.
Companies generally experienced increased audit costs when they transitioned from exempt to nonexempt status (became subject to auditor attestation because their public float or revenues grew above exemption thresholds). Audits of nonexempt companies involve more work because the incremental auditing standards that apply to them require more planning, control testing, and quality review. GAO’s analysis found a median increase of $219,000 (13 percent) in audit fees in the year a company became nonexempt. Audit fees generally leveled off in the year after transition.
Some aspects of Sarbanes-Oxley could be easy to refine. As John recently shared, the Society for Corporate Governance had suggested improvements to auditor attestation requirements as part of its recent comment letter on filer status & scaled disclosure, which would make things easier for some smaller companies.
As Matt highlights on his blog, the cost savings from a dramatic overhaul are less certain. The GAO report also cites a correlation between weak internal controls and intentionally misleading reports – and we know that even in this deregulatory environment, the SEC is still very interested in preventing and punishing fraud.
It’s rare these days to see members of Congress agree on something. But as this Mayer Brown blog reports, the House passed several bills last week on capital formation – with bipartisan support! Here’s an excerpt:
– H.R. 3343, the Greenlighting Growth Act, would establish that an EGC, as well as any issuer that went public using EGC disclosure obligations, would only need to provide two years of audited financial statements even when such EGC acquires another company.
– H.R. 3382, the Small Entity Update Act, would direct the SEC to conduct a study, followed by a rulemaking consistent with the results of such study, to define “small entity” under the Regulatory Flexibility Act (the “RFA”). Currently, the RFA requires federal agencies to consider the impact of regulations on small entities (including small businesses, small governmental units and small non-profit organizations). The RFA would mandate that agencies conduct regulatory flexibility analyses, explore less burdensome alternatives and explain their choices, especially when a particular rule is expected to have a significant economic impact on a substantial number of small entities.
– H.R. 3395, the Middle Market IPO Underwriting Cost Act would require the Comptroller General, in consultation with the SEC and FINRA, to study and report on the costs encountered by small- and medium-sized companies when undertaking IPOs.
This builds on legislation that passed the House last month. And as Dave shared last week, the House of Representatives also passed a bill – H.R. 3339 – that would allow more people to qualify as “accredited investors” under Regulation D.
There may be even more on tap, but it’s at the earlier stages. The House Financial Services Committee has advanced legislation that would lower the WKSI threshold and require the SEC to give more consideration to small companies when writing rules, among other things. Last year, the full House approved much of this as part of its effort to build on the JOBS Act of 2012, but the legislation didn’t advance in the Senate.
Earlier this month, I joined Cooley’s capital markets team as a Senior Strategic Advisor. Like the headline says, being surrounded by people at the heart of the action with deal flow, emerging issues and fast-moving clients feels to me like being a kid in a candy shop. Not to mention, every single person has given me such a warm welcome! For longtime members and readers here at TheCorporateCounsel.net, you’ll know that Broc & I are also thrilled to team up once again.
Of course, something that was important to me with this move was to be able to continue in my role as Senior Editor of TheCorporateCounsel.net and CompensationStandards.com. Thankfully, I’ll be sticking around and continuing with the rest of the awesome CCRcorp team to bring practical guidance to our community. Thanks to those who reached out to say they hoped that would be the case and to everyone who sent notes of encouragement during this time of transition! Hope to see many of you in Vegas in a few months!!!
In light of Andreessen Horowitz’s loud DExit a few weeks ago, late-stage companies are giving serious thought to the “where to incorporate” decision. Some public companies are also more open to exploring reincorporation than they would have been a year ago, especially if there are controlling shareholders in the mix.
This Cooley memo gives a thorough recap of where things stand and factors that companies are considering when deciding whether to (re)incorporate in Delaware versus Nevada or another state. It also summarizes important process issues for public and private companies to map out before getting too far down the path of changing domicile. Here’s an excerpt on that piece:
– While a controlled public company may be able to effect a move with board approval and written consent (see, for example, Dropbox’s information statement), public companies without a controlling stockholder will likely have to obtain a full stockholder vote through a proxy solicitation at an annual or special meeting. This can be onerous and time-consuming (not only to prepare the proxy statement but also to solicit the votes) and comes with the risk that stockholders will not ultimately approve the move.
– The company must determine which consents it will need in connection with a reincorporation and review its governing documents, contracts, equity plans and other documentation to ensure it is soliciting and receiving all required consents to move.
– A public company will likely need to establish a special committee to evaluate whether and where to reincorporate, have a clear rationale for why a reincorporation is good for the company, and ensure the board understands and is supportive of this rationale. Is the company trying to protect its culture of innovation? Does a different state give the board more certainty in corporate decision-making without the specter of litigation or a second-guessing of board decisions? And is this rationale ultimately compelling to the company’s stockholders?
– Keep a clear record of the board’s consideration of the decision, and ensure the board has reviewed and adequately evaluated both the benefits and risks of a move. Bring in experts and/or legal advisers to help clarify issues or considerations.
– Statutory appraisal rights of stockholders under DGCL Section 262 apply in the context of a conversion of a Delaware corporation to a foreign corporation. In the public company context, the DGCL so-called “market exception” (whereby appraisal rights do not apply to any class of stock listed on a national securities exchange or held of record by more than 2,000 stockholders) usually exempts public companies from stockholder appraisal rights in a conversion. However, the market exception does not apply to private companies, and stockholders will most likely have appraisal rights in connection with a private company conversion. Such rights can be waived, but serious consideration should be given to appraisal rights and the related process for a private company considering a reincorporation away from Delaware. Public companies with dual-class structures where a high-vote class is not listed on a public market will also have to consider appraisal rights with respect to that high-vote class.
– Proxy advisory firms may also weigh in on redomiciliation proposals by public companies. While both Glass Lewis and Institutional Shareholder Services (ISS) review such proposals on a case-by-case basis, Glass Lewis generally recommends voting against a redomiciliation if it results in a decline in shareholder rights, has minimal financial benefits and offers significantly weaker shareholder protections, while ISS will recommend voting against a proposal if the move would result in a deterioration of shareholder rights or governance standards.
It’s too early to know how much market share Delaware may lose in the coming years, but it’s safe to say that the question of where to incorporate has captured the attention of executives & directors. That means the First State is no longer a “no brainer.” Right now, it’s one of a few leading options that corporate lawyers need to understand & be prepared to work with.
The days of big whistleblower payouts appear to be on pause at the SEC, according to this Bloomberg Law article:
The commission, now with a Republican majority, denied awards in 31 consecutive orders issued between April 21 and July 15 – covering at least 55 different tipsters, Bloomberg Law found in a review of all 65 final orders issued this year. It’s the longest drought in the history of the program, which was created by the Dodd-Frank law of 2010 to encourage tips about financial wrongdoing.
Approximately $20 million has been awarded so far this year, including three awards totaling about $9 million that the agency made on July 16, two days after Bloomberg Law asked it about the lack of approvals.
The 31-0 trend is pretty striking on the SEC’s page for final orders on whistleblower claims – with the “denied” entries going on and on for several months.
The Bloomberg article says that the decline is partly due to the fact that the (much leaner) Staff is working through a backlog of questionable claims. Additionally, the Commission is applying whistleblower restrictions more strictly when it comes to people publishing their tips online or sharing them with media before coming to the SEC.
While companies obviously want to avoid any type of whistleblower or investigation if they can, it may be good news that there’s more incentive these days for disgruntled folks to go quietly to the regulator instead of also airing their grievances all over the interwebs. The downside for a company that is the subject of a whistleblower tip is that the SEC can quietly build a case and choose when to surprise you with the news.
In this 28-minute podcast, Meredith interviewed Ani Huang from the HR Policy Association and Center On Executive Compensation and Dr. Anthony Nyberg from the University of South Carolina about a report they recently co-authored on CEO succession planning.
Their research focused on 10 of the most common pitfalls in CEO succession, the risks they pose to companies and the role of Chief Human Resources Officers in supporting boards through leadership transitions. The info goes beyond CHROs, though – it’s also useful to anyone supporting boards with succession planning. In the podcast, they discussed:
1. Why the CHRO can be even more critical than the outgoing CEO in ensuring an effective succession planning process
2. What makes or breaks CHRO effectiveness in succession planning
3. Gaining buy-in on the importance of succession planning when a transition isn’t imminently expected
4. The importance of starting early – even on day two of a new CEO’s tenure
5. Identifying “future-fit capabilities” and revisiting the CEO profile as business needs evolve
6. Defining the role of the incumbent CEO in the succession planning process and avoiding the CEO “preordaining” a successor
7. Deepening the board’s engagement and understanding so succession planning doesn’t become a “check the box” exercise
8. Getting boards meaningful exposure to internal talent to evaluate critical competencies
9. Setting up the successor and the board for success when the transition happens
10. Developing internal talent and navigating challenges that arise when candidates are asked to stretch beyond core competencies
11. The criticality of considering external talent, even when there are many reasons to promote internally
12. Taking that first step.
If you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share, email John at john@thecorporatecounsel.net or Meredith at mervine@ccrcorp.com.
Yesterday, ISS announced the launch of its Annual Global Benchmark Policy Survey. The ISS announcement notes:
This year’s survey begins with core governance topics, including shareholder rights in relation to multi-class capital structures, considerations with regard to shareholder proposals, and board governance, with a focus on director overboarding. It then solicits views on both non-executive director pay and on executive compensation, including equity time-based vs. performance-based long-term executive incentives, say-on-pay responsiveness policy in the U.S., modification or removal of ESG metrics for in-flight awards in the U.S. and Canada, and hybrid equity incentive plans in the United Kingdom. The survey then covers evolving potential governance and risk management issues with regard to artificial intelligence, biodiversity, cybersecurity, and human rights. Finally, the survey invites views on board diversity and on shareholder proposals on diversity, equity and inclusion topics in the U.S.
In addition to the survey, ISS will be conducting a series of “regionally-based, topic-specific roundtable discussions and other engagements.” The survey is scheduled to close on August 22, 2025, at 5:00 p.m. ET.
