Yesterday, the SEC announced and posted a notice of formal withdrawal for fourteen notices of proposed rulemaking that were issued between March 2022 and November 2023. Not surprisingly, the list includes the 2022 proposal to amend Rule 14a-8, which would have modified three bases for excluding shareholder proposals under the rule — substantial implementation, duplication and resubmission.
This is the only withdrawn Corp Fin rulemaking proposal. The remaining thirteen relate to the Division of Investment Management and the Division of Trading and Markets.
1. Executive Compensation Decisions: Setting Compensation and Informing Investment and Voting Decisions
2. Executive Compensation Disclosure: How We Got Here and Where We Should Go
3. More on Executive Compensation Disclosure: How We Got Here and Where We Should Go
The panelists include a mix of outside and in-house counsel, investors, compensation consultants, and more – including our very own Dave Lynn and Mark Borges, and several other folks who will be familiar to members of our sites! Mark just shared a few observations relating to topic #1 on his “Proxy Disclosure Blog” on CompensationStandards.com – and Dave shared on LinkedIn his perspective on creating the “summary compensation table” and “compensation discussion & analysis” disclosure rules.
The roundtable will be held at the SEC’s headquarters at 100 F Street, N.E., Washington, D.C., from 1 p.m. – 5:35 p.m. ET. The event will be open to the public and webcast live on the SEC’s website. Doors will open at noon ET. For in-person attendance, registration is required. For online attendance, registration is not necessary – you can find the broadcast on the SEC’s website.
We expect to see more activity around comment letters and suggestions after the roundtable.
The latest issue of The Corporate Counsel newsletter has been sent to the printer. It is also available now online to members of TheCorporateCounsel.net who subscribe to the electronic format. The issue includes the following articles:
– Brace for Impact: Grappling with Economic Uncertainty
– The Staff Throws a Lifeline to Rule 506(c) of Regulation D
– Navigating Shareholder Engagement After the Staff’s February 2025 Schedule 13G Guidance
Please email info@ccrcorp.com to subscribe to this essential resource if you are not already receiving the important updates we provide in The Corporate Counsel newsletter.
On Monday, the DOJ announced the highly anticipated, updated Guidelines for Investigations and Enforcement of the Foreign Corrupt Practices Act (FCPA). In a Tuesday speech, the head of the DOJ’s Criminal Division summarized the updated guidelines, noting that they “provide evaluation criteria and a non-exhaustive list of factors to balance when deciding whether to pursue an FCPA case.” The listed, non-exhaustive factors (no one factor is necessary or dispositive) include whether the alleged misconduct:
– Deprived specific and identifiable U.S. entities of fair access to compete;
– Involves key infrastructure or assets;
– Bears strong indicia of corrupt intent tied to particular individuals and serious misconduct; or
– Is associated with the criminal operations of a Cartel or Transnational Criminal Organization.
He continues, “The through-line is that these Guidelines require the vindication of U.S. interests. People have speculated about the meaning of that phrase, but the DAG’s memo makes it clear. It is not about the nationality of the subject or where the company is headquartered. In plain terms, conduct that genuinely impacts the United States or the American people is subject to potential prosecution by U.S. law enforcement. Conduct that does not implicate U.S. interests should be left to our foreign counterparts or appropriate regulators.”
The updated FCPA Enforcement Guidelines also make clear that the DOJ is resuming foreign bribery investigations. However, the WSJ reported yesterday that the narrowed focus of enforcement on “matters that relate to U.S. strategic interests” has caused the DOJ to close “nearly half of its foreign-bribery investigations to align with new guidelines” — but, notably, they don’t “anticipate dismissing any more cases that have already been criminally charged.”
The Guidelines also include some procedural changes, described in this WilmerHale alert:
– First, the Guidelines state that the initiation of all new FCPA investigations and enforcement actions must be authorized by the Assistant Attorney General (or the official acting in that capacity) for the Criminal Division or a more senior Department official. The authority to open FCPA investigations formerly had been the provenance of the DOJ’s Fraud Section and the DOJ’s FCPA Unit.
– Second, the Guidelines explicitly direct prosecutors to consider the disruption to lawful business and the impact on a company’s business throughout an investigation—establishing the need to consider “collateral consequences” throughout an investigation and “not just at the resolution phase.”
– Third, the Guidelines also direct prosecutors to consider the likelihood that foreign regulators are willing and able to investigate and prosecute the misconduct, signaling deference to foreign authorities in the absence of compelling U.S. interests.
– In addition, the Guidelines state that “prosecutors shall focus on cases in which individuals have engaged in misconduct and not attribute nonspecific malfeasance to corporate structure.” During his remarks, Mr. Galeotti explained this aspect of the Guidelines as directing focus on “specific misconduct of individuals, rather than collective knowledge theories.” This language signals that the DOJ may take a stricter approach to the FCPA’s knowledge requirement in corporate cases.
The alert continues with these thoughts about FCPA enforcement going forward:
– Travel and entertainment cases and certain cases predicated on internal accounting control violations—both robust areas of enforcement over the years—may not present the severity of harm contemplated for DOJ enforcement under the Guidelines.
– Given the focus on cartels and TCOs, the next three years could see greater scrutiny of certain geographies—like Mexico—over other geographies that have more historically been at the center of FCPA investigations and resolutions.
– It remains to be seen how the SEC will fit into this new FCPA enforcement regime and whether the SEC will adopt the DOJ Guidelines, whether formally or informally, when considering its own FCPA enforcement.
It also includes these important reminders about the continued importance of compliance, including in areas that may not be highlighted in the Guidelines:
– Any abandonment or roll-back of FCPA compliance that some may have contemplated in the wake of the Executive Order would be unwise and ill-advised, particularly for non-U.S. entities who may find themselves competing with U.S. companies for business.
– Most importantly, as we noted in our client alert on the Executive Order, the FCPA remains U.S. law and carries a statute of limitations of five years (which may be extended far longer under certain conspiracy theories and when evidence is formally sought from overseas); FCPA violations committed today or in the next few years may be reviewed, and potentially prosecuted, under a different administration. It is important that companies remain vigilant to ensure that they have compliance programs in place that can prevent and detect violations of the statute and procedures in place to appropriately escalate and resolve issues when they do occur.
You may roll your eyes if you read the longer descriptions for the panels — I couldn’t help myself and had a bit of fun with the Las Vegas theme.
Anyway, our Conferences will be held Monday & Tuesday, October 21-22 at Virgin Hotels Las Vegas, with a virtual option for those who can’t attend in person. Reach out to our team to register by emailing info@ccrcorp.com or calling 1.800.737.1271.
An ATM program can be an attractive alternative to a traditional underwritten offering for companies that have frequent capital needs but don’t need a large influx of capital in a short time. That’s especially true during prolonged periods of capital markets volatility when traditional offerings are especially challenging to execute. As John and Dave shared in the March-April 2023 Issue of The Corporate Counsel newsletter, ATM programs allow issuers to raise money quickly in amounts that can be digested by the market through normal trading activity without adversely affecting the trading price, they’re relatively inexpensive, they don’t require management to devote time to roadshows and they’re flexible, allowing issuers to take advantage of favorable market conditions.
This Goodwin alert notes that the popularity of ATM programs among REITs has surged in recent years, surpassing traditional underwritten offerings in volume. In the fourth quarter of 2024, REITs raised the largest quarterly total on record through ATM programs. The alert goes on to describe some recent developments in the use and structure of ATMs by REITs, some of which are applicable more broadly.
For example, the alert notes that sales syndicates are expanding — sometimes with up to 15 broker-dealers listed as sales agents on the ATM prospectus supplement cover, which helps issuers satisfy the relationship expectations of banks that serve as lenders in their debt syndicates and may motivate these banks to enhance research coverage. But a large syndicate can introduce complexity in an offering structure appreciated for its efficiency. The alert says that issuers often employ one or more of these solutions to address the operational complexity:
– Rotational execution schedules: Many ATM programs adopt formal rotation schedules (daily, weekly, monthly, or quarterly), assigning execution rights to different agents on a rolling basis. These schedules are often established up front (or managed by a lead administrative agent) to ensure equitable participation, reduce conflicts, and accommodate bank availability and investor flows.
– Lead administrative agent model: A lead bank can be designated as a de facto “administrative agent,” tasked with maintaining the rotation calendar, coordinating diligence bring-downs, and overseeing compliance procedures. Although not formally designated in the offering documents, this role somewhat mimics the administrative agent role in a loan facility.
– Coordination role of sales agent counsel: The role of counsel to the sales agents takes on a broader scope in multidealer ATM programs, where even modest changes (e.g., updating a risk factor or tax disclosure) can require iterative sign-off from multiple sales agents’ legal and compliance teams. Typically, a single law firm will represent all named sales agents and serve as the primary point of contact for the issuer and its counsel in managing diligence, documentation, and procedural workflows. This firm is responsible for gathering internal approvals and sign-offs from each participating broker-dealer, often requiring outreach to multiple deal teams and compliance personnel. In-house legal and regulatory staff at the individual banks are looped in on a need-to-know basis, preserving confidentiality and minimizing administrative burden on the issuer.
Some ATMs also include a form of revenue-sharing arrangement that “provides for all agents participating in the program to receive a portion of the sales agent commissions generated by trade executions, often irrespective of whether the particular agent was an executing agent.” This addresses issues that can arise when the list of sales agents is very long — in which case, some “back of the order” agents won’t get many opportunities to execute trades and may not have the same infrastructure and trading experience, particularly for forward sales, which are now a standard feature of ATM programs for many issuers.
Cornerstone Research recently published its latest report, Securities Class Action Settlements—2024 Review & Analysis. While securities class action settlements generally “continued at a pace typical of recent years,” median settlement amounts for securities class actions declined a bit from the 13-year high in 2023. The report identifies several potential reasons for this.
– Institutional investors served as lead plaintiff less frequently in 2024 settlements, with their involvement reaching the lowest level in 10 years. An institutional investor serving as lead or co-plaintiff has historically been associated with cases with larger settlements and higher plaintiff-style damages. Lower institutional investor involvement is consistent with lower median plaintiff-style damages.
– Issuer defendants had significantly smaller median total assets than in 2023, marking the lowest level observed since 2018. Additionally, a greater percentage of 2024 settlements involved issuers that had been delisted from a major exchange and/or had declared bankruptcy. Issuer defendant firm assets and issuer distress both have potential implications for the ability to fund a settlement, which is consistent with the smaller settlements in 2024.
– This was also the first year in which a large number of settled cases were related to SPACs. SPAC cases tended to settle for smaller amounts compared to non-SPAC cases. Commentators have suggested that D&O insurance coverage for SPAC cases was likely limited, which may have played a role in the lower SPAC-related settlement values.
The authors expect the proportion of SPAC-related settlements to continue for a few years. They also believe that the number of settled cases will continue at a similar pace, given recent filing trends, and settlement amounts may remain at relatively high levels, based on the data on potential investor losses reported by Cornerstone Research in its Securities Class Action Filings — 2024 Year in Review.
John recently recorded an informative 12-minute podcast with Kristina Veaco, principal at Veaco Group. Veaco Group is a corporate governance consulting firm specializing in board evaluations and assessments leading to more effective boards. Don’t miss this episode if you’re looking to engage a governance consultant. They discussed:
Do board evaluations really help boards become more effective?
How governance consultants approach an engagement
The parties involved in a governance consulting engagement
How a governance consultant can help in resolving specific challenges
The most important skills needed by a governance consultant
Willingness of directors to participate in the process
Key questions a company considering retaining a governance consultant should ask
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. Email me at mervine@ccrcorp.com or John at john@thecorporatecounsel.net.
The SEC’s Investor Advisory Committee met last Thursday. As Dave shared, the major agenda topics included pass-through voting/engagement with beneficial owners and non-GAAP financial disclosures. Here are some of the most interesting tidbits I took away from the commentary on pass-through voting by panelists Jill Fisch of University of Pennsylvania Carey Law School, John Galloway of Vanguard, Will Goodwin of Tumelo, Katie Sevcik of EQ Shareowner Services, and Paul Washington of the Society of Corporate Governance:
– The challenges with offering true voting choice (not just policy choice) for retail investors are largely engagement-related, not due to technology limitations.
– For institutional investors, the biggest issue with the traditional system is that there’s often a discrepancy between how their shares are voted in their separate account and how their shares held in pooled vehicles are voted, which dilutes their input. Pass-through voting can solve this discrepancy.
– There are more options when pass-through voting is offered to institutions, including true pass-though voting (voting their own individual ballots), creating a tailored voting policy or choosing among policies.
– Pass-through voting may present some challenges for issuers that need to be addressed. Those include: (i) identifying, communicating and engaging with upstream investors, (ii) educating retail investors about the choices offered, (iii) difficulties getting a quorum, (iv) implications for loaned shares and (v) other proxy plumbing considerations.
– There are many hurdles to greater retail investor participation. Those include: (i) access to information/information overload, (ii) limited time, (iii) intermediation issues (for example, that beneficial owners can’t attend a meeting without documentation from the broker), and (iv) the need for nuanced analysis on a proposal by proposal basis.
Law Prof Jill Fisch also pointed out that the voting instruction forms sent by brokers sometimes inadequately describe proposals, presenting another hurdle to retail investor participation because they have to do more digging. For example, a voting instruction form might just list “racial equity audit” or “health and safety governance” with no explanation of what the proposal is actually seeking to accomplish.
The panelists didn’t necessarily agree on the best outcome or path forward, but they seemed to acknowledge the importance of each other’s ‘must-haves’ and ‘need-to-haves’ as the proxy voting system evolves. Those include strong turnout, an informed voting base, that the system is cost-effective and efficient, that voting outcomes are accurate, and that there’s a democratic process for beneficial owners.