Last month, I blogged about White & Case’s report on the terms of publicly filed insider trading policies. Wilson Sonsini recently reviewed the terms of insider trading policies adopted by a particular subgroup of those companies – the SV 150. Here are some of their key findings:
Broad applicability of policies: Insider trading policies generally apply broadly to all directors, officers, employees, and other service providers, with 88 percent of the policies reviewed covering the foregoing persons and their affiliates. The list of persons subject to quarterly blackout periods and pre-clearance requirements is often narrowed to directors, officers, and a specified subset of employees or other service providers.
Quarterly blackout periods: Most of the insider trading policies reviewed impose quarterly blackout periods that commence two to four weeks before the then-current fiscal quarter-end (with two weeks being the most common timing), and end one or two trading days following the public release of quarterly earnings. Ten of the SV150 companies impose a longer quarterly blackout period for directors and senior-level employees, and a shorter quarterly blackout period for other employees and service providers.
Pre-clearance requirements: Most of the insider trading policies reviewed require certain insiders to obtain pre-clearance before trading even in an open trading window. Pre-clearance requirements are often limited to directors, officers, and employees with access to material nonpublic information (MNPI).
Treatment of gifts: Recent amendments to SEC rules require reporting of gifts by Section 16 filers on the same basis as open market sales and other disposition transactions, likely leading some companies to adjust policies with respect to gifts. Among the insider trading policies reviewed, most provide some restrictions on gifts and charitable contributions of securities, but approaches vary.
Restricted activities: hedging, pledging, and margin accounts: Nearly all insider trading policies prohibit hedging transactions involving company securities. Approximately 43 percent of insider trading policies permit pledging of company stock, with prior approval and/or only by certain company insiders, but only 27 percent of insider trading policies allow margin accounts, with similar approval and limitation structures.
I admit that I haven’t pored over the details of Wilson Sonsini’s findings, but at a glance it doesn’t seem that there’s much that differentiates the way that the SV 150 have approached their insider trading policies from the approach taken by public companies in other industries. That being said, White & Case did find that 20% of public company policies addressed shadow trading. Since Wilson Sonsini’s report didn’t mention the topic, perhaps this is an area where SV 150 companies are somewhat less restrictive than some of their more conservative counterparts in the broader public company group.
We cover the Delaware Chancery Court all the time over on DealLawyers.com, but we don’t feature its decisions very often on this blog. I’m making an exception today though, because although the Chancery Court didn’t issue any groundbreaking corporate law decisions last week, it did issue a pair of opinions that I can’t resist mentioning here.
The first, Renovaro v. Grumrucku, involved fraud claims arising out of a merger. Cases involving fraud allegations are never pretty, but as the first paragraph of Vice Chancellor Zurn’s opinion demonstrates, this one took a particularly dark turn:
Serhat Gumrukcu was in a bind. He was about to close a transaction in which he would sell lies, about himself and medical advancements he had purportedly developed, for millions of dollars. But Greg Davis, who Gumrukcu had defrauded in a previous scheme, was threatening to go to the authorities. Gumrukcu was afraid that would jeopardize the sale. He had Davis killed.
It’s not often that you see a Chancery Court opinion turn into a script for a Coen Bros. movie in less than a paragraph, but there you have it. Although on second thought, maybe I should’ve said a script for a Roman Polanski movie, because Bloomberg’s Mike Leonard won the Internet when he posted an excerpt from the case on LinkedIn accompanied by the following one-sentence intro:
Forget it Jake, it’s Chancery.
On Friday, Vice Chancellor David issued her opinion in Callahan v. Nelson, a less dark but no less compelling case involving a couple who purchased a trendydoodle goldendoodle named Tucker and have engaged in a multi-year custody battle over the pup ever since they parted company. That dispute ended up in Chancery Court, and Vice Chancellor David’s 17-page opinion kicks off with a quote from Rudyard Kipling’s “The Power of a Dog” & includes a footnote finding that “it is undisputed that Tucker is a very good boy.” Check it out if you’re looking for a distraction today.
You may wonder how a Court that spends the vast majority of its time dealing with complex corporate disputes end up deciding who gets custody of a dog. Well, the short answer is that pets are legally considered property in Delaware, and the Chancery Court has jurisdiction over equitable matters involving property ownership.
After a week like this, I guess the only thing left to say is – Texas and Nevada, the ball’s in your court!
Yesterday, the Division of Corporation Finance issued a statement indicating that, except for no-action letters seeking to exclude shareholder proposals under Rule 14a-8(i)(1), it’s out of the Rule 14a-8 no-action letter business for the remainder of 2025 and 2026. This excerpt summarizes Corp Fin’s action and reminds issuers of their continuing notice obligations:
The Division of Corporation Finance has thoroughly considered its role in the Rule 14a-8 process for the 2025-2026 proxy season. Due to current resource and timing considerations following the lengthy government shutdown and the large volume of registration statements and other filings requiring prompt staff attention, as well as the extensive body of guidance from the Commission and the staff available to both companies and proponents, the Division has determined to not respond to no-action requests for, and express no views on, companies’ intended reliance on any basis for exclusion of shareholder proposals under Rule 14a-8, other than no-action requests to exclude a proposal under Rule 14a-8(i)(1).
Pursuant to Rule 14a-8(j), companies that intend to exclude shareholder proposals from their proxy materials must still notify the Commission and proponents no later than 80 calendar days before filing a definitive proxy statement. We remind companies and proponents, however, that this requirement is informational only, there is no requirement that companies seek the staff’s views regarding their intended exclusion of a proposal, and no response from the staff is required.
In light of recent developments regarding the application of state law and Rule 14a-8(i)(1) to precatory proposals, the Division has determined that there is not a sufficient body of applicable guidance for companies and proponents to rely on. As such, the Division will continue to review and express its views on no-action requests related to Rule 14a-8(i)(1) until such time as it determines there is sufficient guidance available to assist companies and proponents in their decision-making process.
Corp Fin’s willingness to have the Staff continue to referee disputes over whether precatory proposals are excludable should be read in the context of Chairman Atkins’ remarks last month indicating the Staff’s readiness to entertain arguments that such proposals are excludable under Rule 14a-8(i)(1) as not being proper subjects for shareholder action under state law.
Corp Fin’s statement applies to the current proxy season (October 1, 2025 – September 30, 2026) as well as no-action requests received before October 1, 2025 that haven’t yet been responded to by the Staff.
Although no-action letters are mostly off the table for now, the statement provides that if a company wants to receive a response from the Staff about its exclusion of a proposal, it may include, as part of the required notification, “an unqualified representation that the company has a reasonable basis to exclude the proposal based on the provisions of Rule 14a-8, prior published guidance, and/or judicial decisions.” Companies that follow this procedure will receive a response from Corp Fin to the effect that based solely on that representation, the Division won’t object if the company omits the proposal from its proxy materials.
Commissioner Crenshaw issued her own statement on Corp Fin’s action, and it probably won’t surprise you to find that she’s doesn’t find much to like in it:
Today’s Announcement is a Trojan horse. It cloaks itself in neutrality by expressing that the Division will not weigh in on any company’s exclusion of shareholder proposals, but then it hands companies a hall pass to do whatever they want. It effectively creates unqualified permission for companies to silence investor voices (with “no objection” from the Commission). This is the latest in a parade of actions by this Commission that will ring the death knell for corporate governance and shareholder democracy, deny voice to the equity owners of corporations, and elevate management to untouchable status. In a neutral way, of course.
I’ve got to admit that I’m still processing this blockbuster, and at this point the first response that comes to mind is “Holy Smokes!” This is a huge change, and it’s likely to have some pretty profound implications for the shareholder proposal process. I’ll speculate about some of what those implications might be in the next blog.
As I understand it, the SEC has been in the Rule 14a-8 no-action letter business since shortly after the rule was adopted in 1942, so we are entering truly uncharted territory. What will the SEC’s decision to retreat from its historical role as Rule 14a-8’s referee mean for public companies and shareholder proponents? Nobody knows for sure, but here’s my two cents on some of the potential implications:
Will we see more shareholder proposals excluded? Yes, but maybe not to the extent that some might expect. With the benefit of favorable recent guidance like SLB 14M and without the prospect of the Staff looking over their shoulder, companies may be inclined to take a more aggressive approach to excluding proposals than in years past. That being said, decisions to exclude proposals won’t be made in a vacuum.
Companies will need to consider how key investors or other constituencies may respond if they are perceived as acting too aggressively to “silence” shareholders. The facts and circumstances surrounding a particular proposal may also enter into the equation. For example, when dealing with proposals that have the backing of well-financed proponents but that aren’t likely to get much support (like anti-ESG proposals), companies may also decide that fighting their inclusion may not be worth the headaches associated with excluding them.
Will companies seek Corp Fin’s sign-off on exclusions? Corp Fin’s statement outlines a process by which companies can obtain some cold comfort from the Staff about their decision to exclude a proposal. Despite Commissioner Crenshaw’s characterization of this process as a “hall pass” permitting companies to exclude shareholder proposals, my guess is that companies may be hesitant to put themselves in the position of making the representation required to obtain this assurance unless the precedent they’re relying upon is bullet-proof. Some decisions might fall into that category, but if you’re dealing with a sophisticated proponent, you may not find a lot of bullet-proof precedent permitting you to exclude that shareholder’s proposal.
I think in many cases that don’t involve the proverbial “no brainer,” a company that excludes a proposal may opt to do so without going through this cold comfort process. I know I’d rather defend a good faith judgment about excludability after the fact than have to deal with a situation where an unqualified representation made to the SEC that “there’s nothing to see here” is being challenged.
Will we see more Rule 14a-8 litigation? From time-to-time, issuers have bypassed the no-action process and filed lawsuits seeking declaratory relief permitting them to exclude a proposal under Rule 14a-8. Will the SEC’s withdrawal from the playing field result in more suits like these? My guess is that we’re unlikely to see much of this kind of litigation. These lawsuits were filed to avoid the Rule 14a-8 no-action process, and there’s less reason to pursue this strategy if that process is unavailable. Of course, it’s still available in the case of precatory proposals sought to be excluded under Rule 14(a)(8)(i)(1), so I suppose a company that may not be able to provide the kind of opinion the Staff is looking for to exclude that proposal through the no-action process might consider litigation as an alternative.
What about proponents – will they take companies to court to force inclusion? That seems unlikely in most cases not involving well-financed activist hedge funds (who typically aren’t big users of Rule 14a-8 anyway) and some deep-pocketed members of the anti-ESG crowd. For the most part, the shareholder proposal process has given gadflies & NGOs with limited funding the ability to get proposals on corporate proxy cards relatively inexpensively, and many of those proponents simply don’t have the financial resources to litigate a company’s decision to exclude a proposal.
Will we see more unorthodox strategies from proponents? I think that’s a sure thing. To quote from Virgil’s Aeneid, “If I cannot move heaven, I will raise hell.” With the Rule 14a-8 process substantially crimped, it seems inevitable that shareholder proponents will turn to alternative ways of getting their messages across.
In the case of sophisticated investors, these might include withhold vote campaigns targeted at chairs of board committees responsible for areas of concern to a proponent. (John Chevedden recently did this at Microsoft after it excluded his proposal). Withhold vote campaigns may be conducted as exempt solicitations, but perhaps we’ll also finally see a few inexpensive “nominal solication” campaigns under the universal proxy rules. We may even see a rise in innovative Rule 14a-8 workarounds, like the “zero slate” campaign first waged by the United Mine Workers in 2024.
Now also might be a good time to dust off your copies of Saul Alinsky’s Rules for Radicals, because companies should probably prepare for a little old fashioned “hell raising.” Along those lines, proponents who feel that they were denied a voice through the Rule 14a-8 process may be inclined to deliver their message through floor proposals at shareholders’ meetings, or through protests at or other disruptions of those meetings or other investor events. I’d also be on the lookout for increased use of social media campaigns targeting company policies and board members.
I’m sure there are a dozen other potential implications of Corp Fin’s decision that I haven’t addressed, including the biggest question of all – is this the beginning of the end for shareholder proposals?
Well, maybe. While we hopefully won’t be dealing with the fallout from another shutdown, the SEC’s staffing constraints are unlikely to improve much over the course of the next several years, so it wouldn’t surprise me at all if its withdrawal from the no-action process extends beyond 2026. Moreover, if the precatory proposals citadel falls, there isn’t going to be a whole lot left to fight about.
On the other hand, in the immortal words of Sideshow Bob, “You can’t keep the Democrats out of the White House forever!” So, whatever happens over the course of the next few years, we’re unlikely to let our Shareholder Proposals Handbook go out of print.
Meredith just hosted a terrific new Timely Takes Podcast featuring Davis Polk’s Ning Chiu and ExxonMobil’s David Kern on ExxonMobil’s new retail investor voting program. During this 33-minute podcast, Ning and David discussed:
– What led ExxonMobil to create this program and seek no-action relief from the SEC
– The basics of the program, focused on the aspects that were critical to the no-action relief
– The process of getting the program up & running
– Interest in the program and feedback received so far
– Maintaining the program and how investors opt in and out
– The process each year during proxy season
– What other companies should think through if considering a similar program
As always, if you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share in a podcast, we’d love to hear from you. You can email me and/or Meredith at john@thecorporatecounsel.net or mervine@ccrcorp.com.
According to PwC’s 2025 Annual Corporate Directors Survey, a majority of the public company directors surveyed would like to see at least one of their colleagues voted off the island. This excerpt notes that this sentiment is on the rise, and suggests some of the reasons that may be behind it:
Frustration in the boardroom is mounting, and directors are increasingly acknowledging it. This year’s survey reveals discontent with peer performance is at a record high: 55% of public company directors surveyed believe that at least one of their board colleagues should be replaced, up six percentage points from last year.
This suggests that directors are becoming more candid about underperformance among their peers. It may also reflect a greater understanding that directors are looking for more from each other in today’s dynamic business environment. Indeed, the most common concern fueling this point of view is a lack of meaningful contribution to board discussions.
The survey found 41% of directors who want a colleague to leave said that it was because that person didn’t contribute meaningfully to discussions. When asked to elaborate, those directors’ comments reflected “a broader concern about alignment, engagement and boardroom dynamics.”
Director tenure appears to play a big part in this, with PwC observing that in many cases, directors believe that long tenure may result in diminished performance. Bolstering that conclusion was the fact that 34% of directors who wanted to replace a board member also cited long-tenured directors as contributing to board underperformance.
While we’re on the topic of director deadwood, a recent Heidrick & Struggles report highlights the benefits of approaching board refreshment as a strategic discipline. As this excerpt points out, increasing the board’s ability to keep activists at bay is not the least of the benefits associated with a proactive approach to board refreshment:
While being assured of the quality of your leaders for today and tomorrow is the primary reason to prioritize board refreshment, doing so also helps reduce exposure to costly and time-consuming activist campaigns.
So far in 2025, 43% of activist campaigns have targeted board seats, according to one recent report. Though activists have been relatively quiet amid economic uncertainty, many are preparing for a surge in the months ahead. Companies, in turn, are quietly hiring advisers to prepare defenses.
It is important to note that even though public proxy fights are becoming less common, negotiations are still disruptive and expensive. Boards that have failed to demonstrate board refreshment discipline are more vulnerable to activist critique and less able to credibly defend their position.
The report goes on to observe that with research finding that more than 75% of institutional investors see activists as catalysts for change and more than 70% see them as catalysts for accountability, boards that fail to take the intiative when it comes to refreshment “may find their refreshment agenda shaped for them—by others.”
Rounding out “Board Governance Day” on TheCorporateCounsel.net Blog, be sure to check out our recent “Timely Takes Podcast” featuring my discussion with governance expert Ralph Ward. In this 26-minute podcast, Ralph and I discussed the following topics:
– Qualities that separate good boards from not-so-good boards
– Preparing boards to address emerging governance issues
– Effective communication between boards and management
– Keys to good board and committee meetings
– The role and dangers of AI tools in the boardroom
– Advice for prospective directors on their due diligence
– Improving interactions between the board and its advisors
– Preparing for unexpected crises
– Some boardroom “hacks” to keep in mind
As always, if you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share in a podcast, we’d love to hear from you. You can email me and/or Meredith at john@thecorporatecounsel.net or mervine@ccrcorp.com.
Please indulge me with one last government shutdown blog this week.
The Corp Fin Staff was back to work yesterday following an end to the government shutdown on Wednesday, and they did not waste any time putting out new guidance on how they will process filings now that the government shutdown has ended. Those issuers who filed a Securities Act registration statement without a delaying amendment or filed an amendment to remove the delaying amendment got some welcome relief, with the Staff essentially saying that they would not stand in the way of allowing those registration statements to become effective after 20 days had passed pursuant to Section 8(a) of the Securities Act and Rule 459 thereunder. In the prior shutdown guidance, Corp Fin had indicated that the Staff may ask companies to amend a registration statement to include the delaying amendment following an end to the government shutdown.
1. Registration Statements Without a Delaying Amendment. The Division indicates that if a company removed a delaying amendment or filed a new registration statement without a delaying amendment while the Division’s operating status was closed during the government shutdown, the company does not need to amend the registration statement to add a delaying amendment now that the Division’s operating status has changed to open following the end of the government shutdown. Similar to the guidance that the Division issued at the commencement of the government shutdown, the post-shutdown guidance notes that the liability and antifraud provisions of the federal securities laws apply to all registration statements, including those that go effective pursuant to Section 8(a) of the Securities Act, and the Division cautions that the company and its representatives should ensure that the registration statement does not contain any material misstatements or omissions of material information required to be stated therein or necessary to make the statements therein not misleading. In a change from the guidance issued on October 1, 2025 (as updated on October 9, 2025), the post-shutdown guidance no longer indicates that the Staff may ask companies to amend a registration statement to include the delaying amendment.
2. Continuation of Rule 430A Guidance. The Division reiterates the Rule 430A guidance that it provided on October 9, 2025, noting that “the Staff will not recommend enforcement action to the Commission if a company omitted the information specified in Rule 430A from the form of prospectus filed as part of a registration statement during the shutdown and such registration statement goes effective after the shutdown by operation of law pursuant to Section 8(a) of the Securities Act and Rule 459 thereunder.”
3. Acceleration Requests. Consistent with the prior guidance, the post-shutdown guidance notes that the Staff will consider requests to accelerate the effective date of registration statements for which the delaying amendment was omitted, or that were amended to remove the delaying amendment, if such registration statements are amended to include a delaying amendment prior to the end of the 20-day period “and acceleration pursuant to Rule 461 is appropriate.”
4. Pending Post-Effective Amendments. The guidance notes that, for any post-effective amendments to registration statements that were filed during the time when the Division’s operational status was closed, the Staff will declare those post-effective amendments effective, unless the Staff hears from that company indicating that it does not want the post-effective amendment to be declared effective until a later time. Companies are encouraged to reach out to their assigned industry office as soon as possible if they want to delay the effective date of a pending post-effective amendment.
5. Pending Preliminary Proxy or Information Statements. The guidance indicates that those companies with pending preliminary proxy or information statements can file their definitive proxy or information statement once the 10-calendar-day period has expired; however, the Division notes that if the Staff had indicated that it would review the filing prior to the shutdown, the Staff will continue its review of the filing now that the Division’s operational status is open.
6. Pending Exchange Act Registration Statements. The guidance indicates that pending Form 10 registration statements filed to register a class of securities under Section 12(g) of the Exchange Act will go automatically effective after 60 calendar days, and the Staff reminds companies that they will be subject to the current and periodic reporting requirements of the Exchange Act once the Form 10 goes automatically effective. The Staff notes that it may review subsequent periodic reports filed by the company under the Exchange Act.
7. Filing Reviews. The post-shutdown guidance notes that if the Staff had indicated that it was not reviewing a pending registration statement prior to the government shutdown, the company many now submit an acceleration request when ready. For those situations where a filing was under review before the government shutdown, the Staff will continue to review those filings in the order that they were received. With respect to those registration statements that included delaying amendments and were filed during the government shutdown, the Staff will process those filings in the order that they were received. This same approach applies to draft registration statements that were submitted during the government shutdown.
Corp Fin’s post-shutdown guidance does not address other types of SEC submissions that require Staff action, such as no-action or interpretive requests, but as I mentioned earlier in the week, I expect that the Staff will respond to such requests in the order in which they were received.
I would also note that those companies that are seeking to list securities on an exchange in connection with, e.g., an IPO, should work with the exchange to determine whether they are going to permit the listing when a Securities Act registration statement goes effective by lapse of time pursuant to Section 8(a) of the Securities Act. As I noted earlier this week, the exchanges are likely to revert back to their pre-shutdown approach to IPO issuers seeking to list on the exchanges, in that they will expect issuers to resolve all Staff comments before approving a listing.
Earlier this week, Chairman Atkins delivered a speech at the Federal Reserve Bank of Philadelphia where he provided more details on the SEC’s “Project Crypto.” He offered these core principles underlying Project Crypto:
Before I walk through how I view the securities laws as applied to crypto tokens and transactions, let me state two basic principles that guide my thinking.
First, that a stock is still a stock whether it is a paper certificate, an entry in a DTCC account, or represented by a token on a public blockchain. A bond does not stop being a bond because its payment streams are tracked using smart contracts. Securities, however represented, remain securities. That is the easy part.
Second, that economic reality trumps labels. Calling something a “token” or an “NFT” does not exempt it from the current securities laws if it in substance represents a claim on the profits of an enterprise and is offered with the sorts of promises based on the essential efforts of others. Conversely, the fact that a token was once a part of a capital-raising transaction does not magically convert that token into a stock of an operating company.
These principles are hardly novel. They are embedded in the Supreme Court’s repeated insistence that we look to the “substance” of a transaction, not its “form,” when deciding whether the securities laws apply. What is new is the scale and speed at which asset types evolve in these new markets. This pace requires us to be nimble in response to market participants’ urgent requests for guidance.
Chairman Atkins noted that, in the coming months, he hopes that the Commission will consider “a package of exemptions to create a tailored offering regime for crypto assets that are part of or subject to an investment contract.”
