Last week, I had the opportunity to moderate an event on shareholder activism for the Minnesota chapter of the National Association of Corporate Directors. The spectrum of perspectives on our panel made for a great conversation – a chief financial officer and independent director, an investor relations officer, outside counsel who has worked on both the activist and defense side, and a special situations communications / IR consultant who spent many years on “the other side” at a prominent activist.
Here are a few “do’s” & “don’ts” that I gleaned – also see this memo co-authored by Christine O’Brien of Edelman Smithfield, who was part of our NACD panel.
PREPAREDNESS:
DON’T over-rely on stock surveillance tools. Surveillance is a useful input, but it may not detect activists building positions through derivatives that fall below reporting thresholds. The stronger defense is maintaining ongoing dialogue with key stockholders – with IR and governance teams actively listening, identifying concerns, and escalating potential vulnerabilities to management and the board.
DO be prepared – before the call comes. By the time an activist contacts you, they have likely already accumulated a position and spoken with your stockholders. If you are only now identifying your advisors, assigning roles, and developing a response strategy, you are already behind. At a minimum, engage a proxy solicitor on retainer (so they’re on your team before an activist gets to them), and prepare a templated press release you can quickly tailor and issue. The press release should affirm that the company values input from all stockholders – signaling responsiveness while preserving time to assess your options carefully.
RESPONSIVENESS:
DON’T neglect internal and external stakeholders. Your response to an activist must address more than investor communications. Employees, business partners, customers, and other stakeholders are watching – and uncertainty can be damaging. Communicate early, set clear expectations about what the company can and cannot disclose, and ensure all communications are reviewed for consistency. Every employee should know to direct media inquiries to a single designated spokesperson.
DO listen first – then communicate deliberately. If you have the opportunity, consider adopting defensive governance structures proactively, before any threat emerges (often called a “clear day” adoption). But once an activist is at the table, defensiveness is often counterproductive. Listen openly, take their concerns seriously, and work with advisors to craft a response that is measured, consistent with your public messaging, and protective of the company’s long-term position.
DO approach settlements strategically. Settlement is currently the most common resolution to activist campaigns, due to the cost, distraction, and reputational risk of a contested proxy fight. But settling is not inherently the right outcome, and companies shouldn’t jump to accept an activist’s initial terms. Key settlement provisions – including board seat composition, standstill periods, committee assignments, and information rights – are all negotiable. Engage skilled advisors early to understand your leverage and protect the company’s interests throughout the process.
Here’s an update from Alan Dye’s Section16.net blog earlier this week: The staff of the Division of Corporation Finance has issued another no-action letter to Tower Semiconductor Ltd. (TSEM) that effectively extends to May 29 the date by which officers and directors of a foreign private issuer must file Section 16(a) reports under the Holding Foreign Insiders Accountable Act (HFIAA) if the FPI is headquartered or organized in a jurisdiction in the geographical region directly affected by the military conflict in Iran and can represent that its ability to comply with the HFIAA’s March 18 deadline has been materially affected by the direct effects of the conflict.
Here are the updated facts that led the staff to extend relief to TSEM:
…TSEM’s headquarters, management, parent company and largest fabrication facility (Fab 2) are all located less than 20 miles away from the Israel-Lebanon border, which continues to suffer rocket fires, missile strikes and air raid sirens from Lebanon. In addition, the wartime restrictions in Israel, especially in the northern part of Israel where TSEM’s headquarters, management and Fab 2 are located, remain ongoing, and TSEM employees, directors, vendors and other stakeholders located in Israel continue to be subject to shelter-in-place orders from time to time. Several parts of Israel continue to experience intermittent loss of power, internet and telecommunications services, as Israel continues to endure severe disruptions to communications and infrastructure.
As a result, these war conditions have continued to meaningfully impair TSEM’s ability to collect, verify and assist its directors and officers in reporting the security ownership information required under Section 16(a). In addition, these restrictions impact access to company records and legal and compliance services, including notary services, that are necessary to complete the reports.
For example, certain TSEM directors and officers had to reschedule notary appointments for Form ID preparations multiple times, with some of those appointments still pending as of the date of this letter, due to rocket strikes and other collateral consequences of military operations in the region.re-run S16.net blog
As regular readers of this blog will know, we’ve reached the point in the season where the major asset managers have updated their voting policies.
Weil recently published this voting guide to show where things stand with the “Big 3” – BlackRock, State Street Investment Management and Vanguard – with a special focus on environmental, social, and governance topics. It focuses on the policies that apply to the index funds managed by these institutions (i.e., not the active funds, which are a smaller portion of the holdings and may be voted differently).
The guide has two handy charts that are good as a quick reference tool. One shows year-over-year changes by topic, the other summarizes the current policies of each of the Big 3 on each of these topics:
– Board Diversity
– Director Time Commitments / Overboarding
– Independent Board Leadership
– Board Oversight of ESG Risks & Opportunities
– Use of ESG Disclosure Frameworks
– Climate Risk-Related Disclosure
– Human Capital Management / Workforce Diversity, Equity & Inclusion
– Human Rights
– Political Contributions, Lobbying & Trade Association Memberships
– ESG Metrics in Compensation
As we head into the home stretch of “proxy season” for many companies, remember that we’re posting lots of helpful resources for members in our “Proxy Season” Practice Area.
This past Friday, the SEC posted notice of filing & immediate effectiveness of a proposed NYSE rule change to enable trading of securities on the exchange in tokenized form during the pendency of the DTC tokenization pilot program. The pilot program received no-action relief back in December – and the SEC approved a corresponding Nasdaq proposal last month.
Here’s an excerpt from the NYSE notice:
The proposed rule change would establish that Exchange member organizations that are eligible to participate in the DTC Pilot Program (“DTC Eligible Participants”) may trade tokenized versions of those equity securities and exchange traded products on the Exchange that are eligible for tokenization as part of the DTC Pilot Program (“DTC Eligible Securities”), pursuant to the terms of the No-Action Letter. Pursuant to the proposed changes, DTC Eligible Securities would be able to trade on the Exchange within the current national market system, using DTC to clear and settle trades in token form, per order handling instructions that DTC Eligible Participants may select upon entering their orders for DTC Eligible Securities on the Exchange.
The Exchange’s rules do not currently permit the trading of tokenized securities on the Exchange and, unless the Exchange adopts the proposed rules, the Exchange would lack a clear framework for DTC Eligible Participants to designate, at order entry, that a DTC Eligible Security be cleared and settled in tokenized form pursuant to the DTC Pilot Program.
The Exchange accordingly proposes to amend its rules to enable the trading of DTC Eligible Securities in tokenized form on the Exchange during the pendency of the DTC Pilot Program, subject to the same conditions and restrictions as the Nasdaq rule change approved by the Commission. The Exchange believes that the existing regulatory structure mandated by Congress applies to tokenized securities, regardless of whether such securities have certain unique properties like the ability to be settled on a blockchain, much like it did when the Commission allowed securities to be decimalized and electronified and when exchange traded funds and other novel securities were initially approved. The Exchange believes that no significant exemptions or parallel market structure constructs are needed for tokenized securities to trade alongside other securities, and that the markets can accommodate tokenization while continuing to provide the benefits and protections of the national market system.
Under the NYSE rules as amended by this proposal, the term “tokenized” refers to digital representations of paper securities that utilize digital ledger or blockchain technology, as opposed to “traditional” securities, which are also digital representations of paper securities, but do not utilize blockchain technology. As long as DTC Eligible Securities are fungible with, have the same CUSIP number and trading symbol as, and afford their holders the same rights and privileges as traditional securities of an equivalent class, the Exchange will trade DTC Eligible Securities in tokenized form together with traditional securities on the same order book and according to the same
execution priority rules.
For more on this topic, listen to this recent podcast that Meredith recorded with Scott Kimpel at Hunton, check out this Cooley blog that I penned with my colleague Reid Hooper, and visit our “Crypto” Practice Area.
For a recent episode of the “Mentorship Matters with Dave & Liz” podcast, Dave and I spoke with “community involvement” powerhouse Kathy Jaffari, who is a Partner at Cozen O’Connor, where she serves as Chair of the Corporate Governance Practice and Co-Chair of the Capital Markets & Securities Practice, and Chair of the ESG Practice. Kathy is also involved with the Philadelphia Bar Association and the American Bar Association, among many other pro bono and community activities. Check out this 30-minute podcast to hear:
1. Kathy’s path to leadership in local and national Bar Associations, non-profits, and other community organizations.
2. Tips for lawyers at any stage of their career who are looking to get involved in their communities.
3. Unique professional development opportunities that Bar Associations provide, and the contributions that the Philadelphia Bar Association and American Bar Association have made to the greater legal community in recent years.
4. Potential mentorship gaps for junior corporate and securities lawyers – and how senior lawyers can fill them.
Thank you to everyone who has been listening to the podcast! If you have a topic that you think we should cover or guest who you think would be great for the podcast, feel free to contact Dave or me by LinkedIn or email.
During the ABA Business Law Section’s “Dialogue with the Director” last Friday, Corp Fin Director Jim Moloney gave an update on the semi-annual reporting proposal that the SEC is expected to issue. As you might recall, mandatory quarterly reporting has been on the hit list since it somehow attracted the attention of the President last fall. Around the same time, the Long-Term Stock Exchange announced a rulemaking petition on the topic.
The prospect of moving to semi-annual reporting seems to have a lot of buzz, even though most securities lawyers might scratch their heads over whether eliminating Form 10-Q filing requirements would change much in practice. So, here are six things to know if your clients ask what this proposal could mean for them:
1. Like all proposals, it will be subject to notice & comment and actual adoption isn’t guaranteed. Accounting firms are adamantly opposed, so you can expect to see some criticism.
2. The proposal will likely permit – not require – companies to move to semi-annual reporting.
3. There are plenty of reasons why established public companies, which already have well-honed quarterly reporting processes, may continue to release results on a quarterly basis – to open trading windows, raise capital, facilitate an active trading market, etc. But while the earnings release would remain, the formality of a “Form 10-Q” could disappear (depending on what the proposal and a final rule, if any, say). It isn’t unheard of to release numbers “off cycle” – i.e., not driven by a ’34 Act reporting obligation. For example, a company might release “flash numbers” if conducting an offering before issuing its regularly scheduled quarterly disclosures.
4. Newer and smaller public companies would be the most likely to benefit from the rule change, as it would give them more time to ease into quarterly reporting procedures. Think life sciences and small regional banks. It could help “Make IPOs Great Again” in this way.
5. For companies that take advantage of the semi-annual reporting regime, they would need to give notice before moving to a quarterly reporting cadence. Companies would likely move to a quarterly cadence eventually, for the reasons noted above.
6. US regulators aren’t alone in rethinking quarterly reports: Canada also recently launched a pilot project that would exempt certain issuers from filing first- and third-quarter disclosures. However, as Meredith blogged, companies that want to maintain the option of raising capital may not be able to participate in it.
The skuttlebutt is that this proposal is near the top of the pile in terms of near-term release dates, out of an exciting 22 “blockbuster” proposals that Jim flagged as being in the queue at Corp Fin. But the SEC has to carefully comply with all of the procedural steps before any rulemaking goes out the door.
In talking with our members about the status of much-anticipated SEC proposals, we hear a common sentiment: “A little less conversation, a little more action please.” Of course, rulemaking is an inherently lengthy and complex process – which in many ways is a good thing – and I don’t want to sound ungrateful for the positive things we’ve seen in terms of helpful guidance and practical applications of the rules as they currently stand. (And to be fully accurate, we do appreciate the conversation – we just also want to see the rules – but this isn’t nearly as catchy as the Elvis quote.)
When it comes to getting modernized rules on the books though, the unfortunate truth is that the SEC no longer has exclusive control over the timing of its proposals. Due to the February 2025 executive order limiting the power of independent agencies, everything has to pass through the White House’s Office of Information and Regulatory Affairs (OIRA). This Global Policy Watch blog from last August gave a 6-month update on how the new review process was working:
Also unclear at the time of the Trump order’s issuance was whether OIRA review would substantially delay independent agency rulemakings. Indeed, fear of undue delay was one main objection urged against the extension of OIRA review to independent agencies. But the experience of the last six months suggests that OIRA review does little to delay independent agency rulemakings. OIRA review of independent agency rulemakings (excluding rulemakings by the sui generis CFPB) lasted an average of 17 days, and no review took more than 29 days. To date, then, OIRA has reviewed independent agency rulemakings in a fraction of the ninety days allotted to it for regulatory reviews under the Clinton-era order.
I’m skeptical that this additional step is operating so smoothly – but with respect to SEC proposals, I hope I’m proven wrong (or at least, that some rules might be close to seeing the light of day). This dashboard shows which rules have been sent for review. Proposals on crypto assets and semiannual reporting were sent in late March – so if the average turnaround time applies, we could see those any day! The blog explains that Commissioners aren’t voting on rules until after they’ve made it through OIRA review.
I’m not sure if I’ve mentioned this in the blog, but once upon a time, I almost became an economist. Law school won out over graduate school largely because I was tired of calculus. So, I’ve always had a soft spot for the SEC’s Division of Economic and Risk Analysis – and last month at PLI’s “SEC Speaks” conference, I was reminded that this Division will have a significant role in Chair Atkins’ ambitious rulemaking agenda. Here are seven things I learned about DERA from that event:
1. DERA is a substantial operation. The division has approximately 170 people – economists, data scientists, statisticians, lawyers, and other professionals – with the majority holding PhDs in economics, finance, or related fields. It supports economic policy, examination, enforcement, analysis, data management, and risk analysis. It’s a “high impact” division.
2. DERA wants data for rulemaking. The panel emphasized that comment letters on upcoming rule proposals will be most persuasive if they contain data. DERA uses data from various sources for the economic analyses that inform Staff recommendations and Commission decisions – and data points from companies and other industry participants can reveal information that public filings do not. There’s a whole guide about how the economic analysis works for rulemaking. Ideally, submit data in structured format so that DERA can easily analyze it.
3. The Statistics & Data Visualizations page is a hit. I recently blogged about this page. Launched in August at Chairman Atkins’s direction, the statistics “white page” provides centralized, interactive statistics covering capital formation, market participants, market activity, and investors. Since launch, it has attracted 40,000+ views and 28,000+ users!
4. Structured data makes AI tools work better – but only if the data is clean. DERA’s Office of Disclosure designs “taxonomy” – that’s the list of tags that makes filings machine-readable. With more market participants using AI, it’s important to note that the models are only as good as the data they are trained on. Structured data with standard taxonomy provides the context that makes AI tools effective. The SEC’s own AI task force has worked on projects such as analyzing the tonality of narratives in filings.
5. Scaling errors are still a problem. We’ve blogged about DERA’s data quality reminders on fixing scaling errors, but apparently the problem continues. Other common errors include using outdated tags, creating custom tags for standard disclosures, and discrepancies between different parts of the same filing. While lawyers often don’t have much visibility into the detailed tagging process, you can remind filing agents to use public validation rules to check data quality before submitting a filing.
6. DERA’s data sets are getting more popular. DERA’s Office of Disclosure publishes 15 free datasets on its website that are regularly updated. In the past year, downloads of the “Financial Statements and Notes” data set has doubled – it’s one of the most downloaded items on sec.gov.
7. DERA’s economic analysis is also critical to enforcement actions. The Division helps establish whether material non-public information would cause a stock price change – e.g., through event studies – and identifies suspicious trading patterns – e.g., by figuring out the odds of making successful trades. They gave an interesting illustration of a marble jar that helped me wrap my head around how they find suspicious trades. I’ll spare you the details – but will definitely be passing it along to my 5th grade mathlete.
Yesterday, the SEC’s Office of Mergers and Acquisitions issued an exemptive order providing issuers and, in some cases, third party bidders with the flexibility to shorten the time period during which tender offers for equity securities must be open from 20 to 10 business days. In order to take advantage of the shorter tender offer period, the tender offer must satisfy several conditions, which vary depending on whether the target is a reporting or a non-reporting company.
Some of the more prominent conditions applicable to a tender offer for equity securities of an Exchange Act reporting company include, among others:
– The tender offer must be subject to Regulation 14D or Rule 13e-4 under the Exchange Act;
– If the tender offer is subject to Regulation 14D, (i) the offer is made pursuant to the terms of a negotiated merger agreement or similar business combination agreement between the subject company and the offeror, (ii) the offer is made for all outstanding securities of the subject class, and (iii) a Schedule 14D-9 is filed and disseminated by the subject company no later than 5:30 p.m., Eastern time, on the first business day following the date of commencement of the tender offer:
– If the tender offer is subject to Rule 13e-4, the offer is made for less than all outstanding securities of the subject class; and
– The consideration offered in the tender offer consists only of cash at a fixed price.
Certain conditions relating to the contents and dissemination of communications announcing the tender offer and any changes in its key terms must also be satisfied.
Cross-border tender offers, tender offers in connection with Rule 13e-3 transactions, and tender offers for which a competing tender offer has already been announced are ineligible to take advantage of the shortened tender period. In addition, if a competing tender offer is publicly announced, then the tender offer made in reliance on the exemptive order must be extended such that it is open for at least 20 business days from the date the initial offer commenced.
In the case of tender offers for securities of non-reporting companies, only all cash, fixed price issuer tender offers (or tender offers by wholly owned subsidiaries for the issuer’s securities) are eligible for the shortened tender offer period. Certain conditions relating to the contents and dissemination of communications announcing the tender offer and any changes in its key terms must also be satisfied.
Yesterday, the SEC announced that its Small Business Capital Formation Advisory Committee will meet on Tuesday, April 28th at 10:00 am Eastern. Here’s the agenda for the meeting, which, as this overview from the SEC’s press release indicates, is all about figuring out how to encourage more IPOs:
The committee will start the morning session by hearing from its members about their perspectives on the state of the IPO market while considering the existing regulatory framework and how decreased IPO activity and market shifts are impacting companies’ (including small caps’) desires to go public. Edwin O’Connor, Partner, Co-Chair of Capital Markets, Goodwin Procter LLP will share his views on the IPO market, trends, and factors that may be at play.
This conversation will continue into the afternoon session where the committee will hear from Beau Bohm, Managing Director, Global Co-Head of Equity Capital Markets, Cantor Fitzgerald, who will share views on the IPO market from the underwriter’s perspective.
The meeting will be open to the public and will be live streamed on SEC.gov.
