Last week, the DC Circuit affirmed a federal district court’s 2024 decision vacating the SEC’s 2020 rule that would have subjected proxy advisors to enhanced regulation by saying they engaged in the “solicitation” of proxies. In reaching its decision, the Court noted that the Exchange Act doesn’t define the term “solicitation,” and so it looked to evidence of its ordinary definition at the time the statute was enacted:
Contemporaneous dictionaries suggest that “to solicit” and “solicitation” entail seeking to persuade another to take a specific action. . . In short, extending the term “solicit” to encompass voting recommendations requested by another would go beyond the 1934 meaning.
And the same is true today. Between a proxy adviser and its client, it might be reasonable to say that the client “solicits” the adviser’s recommendation but that interpretation does not suggest that, in providing that recommendation, the adviser has “solicited” the client’s vote. The adviser, although it holds itself out to attract clients, does not initiate the exchange; it provides advice only in response to the client’s request. In other words, the solicitation runs in the opposite direction to the one suggested by NAM.
By contrast, a company director who hopes to obtain a particular outcome from a particular vote might “solicit” the proxy votes of shareholders in order to achieve his goal. Based on that understanding, we conclude that the ordinary meaning of “solicit” does not include entities that provide proxy voting recommendations requested by others, even if those recommendations influence the requestors’ eventual votes.
Barring an appeal to the SCOTUS, it appears that the proxy advisors have won this round – but they aren’t out of the woods yet. In addition to state initiatives like the legislation recently enacted in Texas, a new piece of proposed federal legislation was introduced in late June that would prohibit proxy advisors from issuing voting advice in any situation where they have a conflict of interest – which the proposed legislation defines as broadly as you think it would.
The latest issue of The Corporate Executive newsletter has been sent to the printer. It is also available now online to members of TheCorporateCounsel.net who subscribe to the electronic format. This issue includes Dave’s observations on areas that the Commission should consider if it decides to proceed with overhauling its executive compensation disclosure rules – as well as these other practical topics:
– Clawbacks: The Process After a Decision to Restate
– New Staff Guidance on Clawback Disclosures
– Unlock Luck with a Winning Strategy — Join Us in Vegas!
If you are not already receiving the important updates we provide in The Corporate Executive newsletter, please email info@ccrcorp.com to or call 1.800.737.1271 to subscribe to this essential resource.
Winston & Strawn looked at 2025 Fortune 100 proxy filings, and their recent blog says that the Trump administration’s executive orders targeting DEI programs have influenced the way that public companies talk about DEI in their proxy statements:
An overwhelming majority (68 out of 74 companies reviewed) of public Fortune 100 companies parsed back references to DEI initiatives in their proxy statements in at least some way. A number of public companies took a literal approach and reduced the frequency with which the words “diversity” or “diverse” appear in their proxy statements. Others chose to qualify any mention of “diversity” with phrases such as “of experiences and backgrounds” instead of explicitly mentioning gender or race. Some companies took deliberate steps to minimize the visibility of their diversity matrices, such as rendering them in gray scale, shrinking their size, or including them in less-prominent sections of the proxy statement.
A handful of companies eliminated any mention of diversity entirely, but the more common approach was to repackage the same information in a more scaled-back form, presumably to mitigate legal and regulatory risk. Out of 74 companies reviewed, 38 companies highlighted women directors/general board gender diversity, 33 companies highlighted racially diverse directors, and only two companies highlighted LGBTQ+ directors.
The blog also says that after the 5th Cir.’s decision to invalidate Nasdaq’s Board Diversity Rule, many companies have opted to eliminate board diversity matrix disclosure. Winston & Strawn found that only three of the 14 Fortune 100 Nasdaq-listed companies it reviewed, only three continued to include the diversity matrix in their 2025 proxy statements.
Anyone who has dealt with the Staff during the comment process has from time-to-time made the strategic decision not to contest a comment that they don’t necessarily agree with, but the 9th Circuit’s recent decision in Pino v. Cardone Capital, (9th Cir.; 10/24), indicates that such a decision can sometimes be very consequential.
The case involved allegations that the defendants knew that projections about internal rates of return an investment fund would achieve and distributions that it would make to investors made during the marketing process for its Reg A offering were false and misleading. The plaintiff contended that the defendants failed to disclose an SEC comment letter request the fund to remove the projected rates of return and distributions from its offering materials constituted a material omission under Section 12(a)(2) of the Securities Act.
Under Omnicare, in order for a defendant to be liable for statements of opinion, that opinion must be objectively false, and the speaker must not actually hold the professed opinion. This latter requirement is known as “subjective falsity,” and the 9th Circuit believed that the defendant’s failure to contest the SEC’s comment provided significant evidence of it:
Under Omnicare, subjective falsity goes to whether “the speaker actually holds the stated belief.” Omnicare, 575 U.S. at 184. Pino’s allegation of Cardone’s subjective disbelief is both strong and reasonable: Cardone made a projection of 15% IRR and relatedly high distributions in its initial offering circular. The SEC reviewed the offer and in a letter to Cardone stated these projections lacked backing and should be removed. Cardone pushed back on other criticisms from the SEC, but not this one, suggesting Cardone did not truly believe its own projections and lacked evidence to rebut the SEC.
Barnes & Thornburg’s Jay Knight and Scott Budlong suggest in a recent blog that the 9th Circuit’s decision may prompt companies to consider including their own version of a “Tandy” representation in their response letters to Staff comments:
The Pino opinion suggests that, depending on the circumstances, a company may want to consider including a statement in its comment letter response that is effectively the obverse of a Tandy representation — that is, a statement to the effect that the company’s response to any particular comment should not be construed as indicating the company’s agreement with the comment. In other words, while Tandy said that the company would not use the SEC review process as a shield in a legal proceeding, Pino entailed the plaintiff using the SEC review process as a sword, and companies may wish to consider defending themselves preemptively from that risk.
A recent Bryan Cave blog provides a reminder to calendar-year end companies that it’s time to confirm their filer status:
In light of the recent market volatility, public companies should keep in mind the upcoming annual re-evaluation of their filer status, as a change may have ramifications for both the timing and content for the following year’s SEC reporting. June 30 is a key measurement date for calendar fiscal year reporting companies in determining whether their filing status changes for the following year in respect of the following:
– Large accelerated filer (LAF)
– Accelerated filer (AF);
– Non-accelerated filer (NAF);
– Smaller reporting company (SRC); and
– Emerging growth company (EGC).
The year-end determination governs (i) the deadline for the respective annual report and subsequent quarterly reports for LAFs, AFs and NAFs, and (ii) the availability of certain scaled reporting obligations for SRCs and EGCs.
In case you need a refresher, the blog goes on to discuss the qualifications for each level of filer status and the different reporting obligations to which each filer class is subject.
As we approach the 249th birthday of our United States of America, I realized it had been quite some time since I’d read the list of grievances in the Declaration of Independence and reflected on the events and writings leading up to the American Revolution.
I’m not going to attempt a history lesson in this blog, but it was a good reminder that we are a vibrant society with plenty of things to unite us. This weekend is a good chance to celebrate that – and build on our shared experiences.
One tradition many of us enjoy is, of course, fireworks. Wish me luck as our family tries to avoid a repeat of last year’s celebration, when a glitch with the pyrotechnics team caused the rockets to aim towards the crowd. Thankfully, despite hundreds of people running around in the dark while mortar rained down, nobody was injured!
To replace that traumatic memory, this year I’m forcing/encouraging our kids to learn to waterski over the holiday. What could go wrong?
We wish everyone a safe and happy holiday weekend. We’re off tomorrow – our blogs will be back on Monday.
I blogged a few months ago that the SEC and Ripple Labs settled the civil enforcement action that the Commission launched back in December 2020. The settlement of the SEC v Ripple Labs case was conditioned on the judge in the case agreeing to dissolve the permanent injunction and lower the penalty that had been aspects of the court’s July 2023 ruling against the company.
Late last week, the judge denied the parties’ request – saying that the SEC’s decision to reverse course on crypto enforcement isn’t grounds for changing a final judgment outside of the appeals process. From Reuters:
“The parties do not have the authority to agree not to be bound by a court’s final judgment that a party violated an Act of Congress in such a manner that a permanent injunction and a civil penalty were necessary to prevent that party from violating the law again,” she wrote.
“Accordingly, if jurisdiction were restored to this court, the court would deny the parties’ request to vacate the injunction and reduce the civil penalty,” she added.
Torres said the SEC and Ripple remain free to withdraw their appeals, or appeal her injunction.
The next day, Ripple’s CEO announced on X that the company plans to drop its cross-appeal in the case. This crypto saga always feels like a “never say never” situation to me, but the industry folks at Coindesk say that this means Ripple will pay the existing $125 million penalty and abide by the injunction to follow the law. I’ll look forward to final confirmation on this one.
The Senate passed the “Genius Act” last week in a 68-30 vote, to the delight of the crypto industry. It still has to clear the House – where it’s known as the “Stable Act” – before becoming law, but lawmakers in the House say they want to act quickly.
The Senate’s approval is viewed as a win for U.S. based stablecoin issuers – for at least a few reasons:
– It provides clarity on which entities are permitted to issue payment stablecoins and how they’ll be regulated.
– It amends the definition of “security” in the Securities Act, the Exchange Act, and certain other statutes to exclude a payment stablecoin issued by a permitted payment stablecoin issuer as defined in the statute.
– It prohibits federal banking agencies, the NCUA, and the SEC from requiring financial entities to report custodial digital assets as liabilities.
– It establishes guardrails that stablecoin companies outside of the U.S. aren’t prepared to comply with.
This Troutman Pepper memo summarizes how the regulation would work – and this WSJ article explains some of the industry dynamics. This Arnold & Porter memo explains how the reconciliation process could play out:
Differences remain, however, including regarding the breadth of federal preemption, transaction monitoring processes and know-your-customer requirements, and the need for consumer protections. The political will to make law governing stablecoins suggests that the differences between the two bills are surmountable.
No word yet on whether this legislation will ultimately be named the “Stable Genius Act.” The Senate’s version says that existing ethics rules prohibit any member of Congress or senior executive branch official from issuing a payment stablecoin during their time in public service.
Reporting on greenhouse gas emissions and climate-related risks will be required in California beginning in January 2026. Unfortunately, there’s still a lot of uncertainty about what that will involve. Over on PracticalESG.com, we just posted a helpful 17-minute podcast with Kristina Wyatt of Persefoni that gives the latest update on what companies need to be doing to comply with these laws. Kristina shares key topics from a workshop that the California Air Resources Board (CARB) recently hosted.
This new guide from ISS-Corporate also gives a quick refresher on getting started with SB 253 and SB 261 reporting. Key takeaways include:
– Emissions Disclosure: SB 253 requires companies in scope to annually disclose scope 1 and 2 GHG Emissions (Scope 3 starting 2027).
– Financial Risks: SB 261 requires companies to report biannually on climate-related financial risks.
– Future Guidance: CARB will develop guidance around the climate acts, but these will likely not be finalized until late 2025.
– Getting Ready for Emissions Reporting: Companies can begin developing disclosures aligned with SB 253 requirements using available guidance and standards.
– Framework Clarity: SB 261 is informed by the TCFD and IFRS S2 frameworks. Companies can proactively address the regulation by aligning their reporting with these standards, as CARB continues to finalize specific requirements.
The guide recommends that companies start to prepare for disclosure based on current information, which will give more breathing room and time for strategic decisions when the deadline nears.
Here are takeaways from the SEC’s Executive Compensation Disclosure Roundtable that Meredith shared yesterday on CompensationStandards.com:
Last Thursday, the SEC held its roundtable on executive compensation disclosure requirements. Our own Dave Lynn (who spoke on a panel) noted on TheCorporateCounsel.net blog on Friday that the event was well-attended. If you missed it — either in person or virtually — the SEC posted a replay of each panel on the SEC’s YouTube channel. And if listening to 4+ hours of discussion about the SEC’s executive compensation disclosure requirements is just not in the cards for you right now (or ever), we’ve got you covered!
In blogs on TheCorporateCounsel.net on Friday, Dave shared his thoughts and excerpts from the remarks by Chairman Atkins and Commissioners Crenshaw, Peirce and Uyeda. On the Proxy Disclosure Blog, Mark Borges (who also spoke on a panel) shared a few thoughts about revisiting the current disclosure requirements that occurred to him as he listened to the various panelists.
Today, I thought I’d share high-level topics, ideas and themes that I heard throughout the three panels, many of which were teed up in advance by Chairman Atkins, and whether there was consensus or some disagreement among the panelists. Here are a few:
– How or whether executive compensation disclosure requirements drive or distort compensation decision making
Panelists cited the requirement to hold a say-on-pay vote and compensation committees taking into account investor and proxy advisor policies
Panelists also noted that including executive security spend in the Summary Compensation Table’s calculation of “Total Compensation” can distort investor and proxy advisor perception and analysis of pay (although corporate representatives stressed that the board will make decisions in the best interest of the company regardless)
– Whether the executive compensation disclosure requirements effectively convey how the board and compensation committee consider compensation
A number of panelists supported the suggestion that the disclosure requirements more closely reflect the presentation of pay in board materials — including the “target” and “outcome” tables that compensation committees use
– Whether “more is better”
Investor representatives generally made suggestions for additional disclosures, and issuer or advisor representatives generally suggested that the rules could be shortened and streamlined
Repeated “asks” by investor representatives included that quantitative disclosures be machine-readable and that the disclosures more clearly present the life-cycle of an equity award
– Whether the executive compensation disclosure rules are too granular and attempt to elicit disclosure of ALL the information ANY investor might want to know, instead of focusing on materiality and the reasonable investor standard
If you’re wondering about the title of this blog, CII’s Bob McCormick shared a story about his high school job making ice cream. He once asked the owner why they make some unusual flavors that weren’t very popular. The owner explained that one customer — who drove 30 minutes each way — really liked them. From there on out, “rum raisin ice cream” was a favorite call back, but panelists disagreed whether the rules should require companies to keep making rum raisin ice cream — i.e., keep disclosing information that is very valuable only to a small subset of investors. Now you know!
– Whether simplifying the Item 402 disclosure requirements would actually result in shorter disclosures
As Dave noted, while say-on-pay required very little disclosure, companies significantly expanded their voluntary disclosures after these votes were legislatively mandated
– The complexity and homogenization of pay and the factors driving these developments
There was generally consensus that companies feeling like they have to follow a “one-size-fits-all” approach to pay programs — with most pay in the form of PSUs — is a bad thing for both companies and shareholders, and that flexibility — including to simplify equity programs to largely time-vested with a long holding period — would be beneficial
– Consensus that the prescriptive, tabular requirements generally provide overly complicated and difficult to use disclosures, while some voluntary disclosures are particularly useful (including presentations of realized and realizable pay)
A few investor representatives described the complicated process they follow to understand executive equity awards, which involves flipping between numerous tables and referencing Form 4s
– Consensus among the issuer and advisor representatives that compensation disclosures are too costly to prepare
Corporate representatives stressed that “every dollar matters” for companies both large and small, while also noting the outsized burden on less-resourced small- and mid-cap companies
Our 2025 Conferences will be taking place Tuesday & Wednesday, October 21 & 22, at the Virgin Hotels in Las Vegas, with a virtual option for those who can’t attend in person. The early bird rate expires July 25th! You can sign up by emailing info@ccrcorp.com or calling 800-737-1271.
