Last week, the US Department of Justice announced withdrawal of a 1987 letter to ISS that had indicated that – at the time of the letter – the DOJ had no current intention to bring action under the antitrust laws to enjoin the establishment and operation of ISS. The announcement says that circumstances have changed. Here’s an excerpt:
ISS and Glass, Lewis & Co. LLC (“Glass Lewis”), control more than 90 percent of the proxy advisory market and their clients’ holdings represent a significant ownership stake in the United States’ largest publicly traded companies. As a result of this concentration of market power, ISS and Glass Lewis have tremendous influence in corporate governance matters and, based on their market dominance, shape the policies of America’s largest companies.
At the time that the Antitrust Division issued its 1987 BRL to ISS, proxy advising as an industry was in its infancy. The Letter noted that, based on the understanding that ISS “will offer advice only on matters relating to the exercise of voting rights on issues of corporate governance, and that ISS will not provide advice or engage in discussions with respect to the corporate operations or business activities,” the Department of Justice “ha[d] no current intention to bring action under the antitrust laws to enjoin the establishment and operation of ISS.” The 1987 BRL did not address corporate consulting services, which ISS now offers in connection with proxy voting services. ISS’s business model is now in direct conflict with the language in the Letter. ISS is, in fact, now providing advice with respect to corporate operations. In so doing, ISS wields enormous influence over corporate governance issues and policies through its proxy voting services.
The letter continues:
Indeed, the representation at the time that ISS would not “provide or engage in discussions with respect to the corporate operations or business activities” may run contrary to ISS’s business model today. The 1987 BRL expressly qualified the Antitrust Division’s enforcement position to exclude services directed at corporate operations or activities. The Department of Justice has since clarified that while antitrust safe harbors for passive investment protect most beneficial corporate governance advocacy, they do not protect the use of commonly held stock in competitors to encourage market-wide reductions in output or other anticompetitive conduct.[1]
To be clear, proxy advising is not inherently problematic and the lawful exercise of voting rights pursuant to a proxy advisor recommendation does not raise competition concerns. The Antitrust Division is withdrawing its 1987 BRL because the Letter does not reflect ISS’s current business practices or the Antitrust Division’s view of those practices. Moreover, the concentration of market power in the proxy advisory market raises significant competition concerns.
It appears that while proxy advisors may be winning a battle right now at the state level, they haven’t won the war. And broadly speaking, the “war” over how companies are influenced is still being waged on multiple fronts – including against institutional investors that may join topic-based coalitions to urge companies to act in certain ways. The “clarification” that the DOJ cited in its announcement was provided in connection with the Texas v. BlackRock litigation, which Vanguard settled earlier this year but continues against the other defendants.
As we head into the second week of August, many people are thinking ahead about fall activities like back-to-school and, of course, Government Shutdown Season. I was pleased to see that Senators are thinking about this too – passing a bill over the weekend that would fund the government until December 11th. If there’s one thing our lawmakers might be able to agree on right now, it’s that they don’t want to be talking about a shutdown during midterm elections!
That said, the House also has to approve this version of the bill, so a functional government is not a done deal quite yet. This Politico article has more detail:
The House and Senate have now each passed different bills aimed at averting a shutdown at the end of the fiscal year. The House bill would fund the government through Dec. 4.
The Senate legislation sets up a year-end standoff over the Trump administration’s controversial plan to put political appointees in charge of approving federal grants. The bill would block the administration from finalizing that rule during the length of the stopgap — and lawmakers are already expecting a December brawl over the issue.
The good news from a capital formation and securities lawyer perspective, is that even if we do experience another shutdown this fall, the SEC has shown a willingness to mitigate shutdown-related obstacles that may prevent nearly final IPOs from getting across the finish line. But just because there’s a way to get things done doesn’t mean that it’s ideal. The size of the backlog coming out of last year’s record-breaking shutdown is probably not something that folks are eager to repeat…
Here’s something I blogged last week on The Proxy Season Blog for members:
I blogged earlier this summer about academic research showing that “mirror voting” could diminish the influence of “passive” funds. Mirror voting is a type of “proportional voting” where – loosely speaking – non-voting shares are cast in favor of or against a proposal in the same proportion as the votes cast by other shareholders who actually voted.
It slipped by us that the Texas Stock Exchange has filed a 63-page proposal to require proportional voting for uninstructed shares. The proposal would eliminate broker discretionary votes for uninstructed shares – and the routine/non-routine dichotomy that often seems to cause confusion – and replace it with a uniform vote allocation process for all matters. Specifically:
The Exchange proposes to amend Rule 13.003 to establish a mandatory process for the proportional allocation and voting of uninstructed shares held by Members of the Exchange on behalf of beneficial owners of TXSE-listed equity securities. Specifically, the proposed rule would require a Member to vote uninstructed shares at shareholder meetings and to allocate votes on each proposal in proportion to voting instructions received from beneficial owners for whom such Member holds shares in the applicable TXSE-listed security, subject to the exclusions and methodology set forth in the proposed rule.
The proposed rule reflects the principle that voting outcomes on matters up for a vote at TXSE-listed companies should be determined by the voting instructions of participating beneficial owners, with such instructions applied uniformly to the voting of uninstructed shares for every matter submitted to a shareholder vote. By replacing broker discretionary voting with a formula-driven allocation tied to instructions actually submitted, the proposed rule eliminates the exercise of broker discretion over shares in which the broker has no economic interest and also eliminates the inconsistent and proposal-dependent treatment of uninstructed shares produced by the framework currently in place in the market, while preserving all existing shareholder voting rights.
The proposal also says that – if approved and implemented – the rule change could improve companies’ ability to achieve a quorum and reduce solicitation costs. In late July, the SEC designated a longer time period – till September 9th – to take action on the proposal. Here are the comments that have been submitted to-date – including:
– This 12-pager from the Investment Company Institute that offers preliminary views on this complex issue
– This 8-page letter from SIFMA that “supports the goal of proportional voting to improve quorum and retail representation but has significant concerns about the proposed rule’s operational feasibility” and includes a number of recommendations
In her blog, University of Colorado Law prof Ann Lipton offers this thought on what the change would mean for voting tallies:
I believe [the proposal] means that in situations that require a majority of all outstanding shares to vote in favor – mergers, charter amendments, and the like – nonvotes would no longer be “no” votes, and a majority of voting shares would be able to swing it.
The TXSE just went fully live at the end of July, following its phased roll-out. This is certainly one way to make a splash!
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President Trump’s decision to institute a new tariff regime to replace the one that the SCOTUS tossed makes the DOJ & DHS’s new “Resource Guide for Trade Fraud Enforcement” a must read for any company engaged in international trade. This BakerHostetler memo provides an overview of the Guide and discusses some of the key compliance issues that companies should address. This excerpt discusses the central role that the False Claims Act is plays in the Trump administration’s trade fraud enforcement efforts:
The Guide provides a public roadmap for how federal agencies are likely to evaluate trade fraud, customs violations and supply chain misconduct. For companies that import goods, rely on third-party brokers, purchase from overseas suppliers, or resell imported products, the practical message is clear: customs compliance failures may now be evaluated through a broader enforcement lens that includes civil False Claims Act liability, criminal prosecution, forfeiture and whistleblower-driven reporting.
Although the Guide surveys a broad range of enforcement tools, its examples and enforcement discussion underscore a central point for companies engaged in international trade: the False Claims Act has become one of the government’s most significant vehicles for pursuing customs fraud, tariff evasion and duty underpayment cases.
The Trade Fraud Task Force also announced that it has surpassed $1 billion in civil and criminal recoveries, penalties, forfeitures and publicly charged losses since its August 2025 launch, emphasizing DOJ’s intent to treat customs fraud as a serious civil and criminal enforcement priority rather than a routine administrative compliance issue.
The memo goes on to identify some key takeaways for companies that result from the adminstration’s use of the FCA as its primary enforcement tool. These include the need to test supply chain due diligence against the demanding FCA standards, the importance of customs documentation that shows the analysis underlying the basis for the company’s decisions and the due diligence it conducted, and the potential to reduce damages through early disclosure of violations.
Over on The Business Law Prof Blog, Prof. Ben Edwards recently posted his analysis of midyear IPO trends. Here are some of his findings:
– SPACs are back in a big way. SPACs accounted for 112 of the 200 IPOs completed during the first half of 2026, raising $20.9 billion. While SPACs outpaced operating companies in the number of deals, the 88 operating company IPOs completed during the first half raised a total of $129 billion. Of course, that number includes SpaceX’s gargantuan $85 billion IPO, which distorts the stats quite a bit.
– Forget Delaware, Nevada and Texas – if you include SPACs, the Cayman Islands is the leading jurisdiction of incorporation for this year’s IPOs, with 109 issuers (54%) incorporated there. Delaware followed with 57 issuers (28%), while Nevada had six (3%) and Texas had four (2%).
– Excluding SPACs, Delaware remains the overwhelming favorite for the jurisdiction of incorporation of this year’s IPO issuers, with 67% of those issuers choosing to incorporate there. Nevada was the choice of 7% of issuers, and Texas was chosen by 5% of them.
– In terms of the proceeds raised, Texas outpaced everyone, thanks to Elon. IPO issuers incorporated in Texas raised $86.1 billion, while Delaware issuers raised $28.9 billion and Nevada issuers raised $5 billion.
Ben also includes a bunch of different league table measures for issuer’s and underwriters’ counsel and lead underwriters for this year’s IPOs, as well as some interesting data on where controlled companies that engaged in IPOs this year opted to incorporate (spoiler alert: Delaware still leads the pack, but not by as much).
It’s pretty apparent from looking at a quick tally of investor comments on the SEC’s semiannual reporting proposal that they are universally opposed to it and aren’t happy that it seems almost inevitable that the SEC will move forward with it, their opposition notwithstanding.
Investors who are angered that their comments are likely to be given short shrift may get some sympathy from an unexpected source – public companies and their advisors. That’s because, as Gunster’s Bob Lamm pointed out around the time the regimes changed, issuers found themselves in the same position during the Gensler era. Of course, people being what they are, not everyone may respond with sympathy. My guess is that there’s a healthy dose of schadenfreude among the issuer community as well.
There’s always tension between the SEC’s investor protection mandate and its desire to promote capital formation, so issuers and investors are unlikely to ever be unanimous in their support of the SEC’s regulatory initiatives.
Still, dramatic shifts in the regulatory climate every four years that leave one side or the other enraged at rule changes and chomping at the bit to undo them when their side gets back in power isn’t exactly an ideal model for financial regulation. Unfortunately, it appears to be one we’re going to be stuck with for a while.
I’m not going to pretend that I’ve waded through the avalanche of comments on the SEC’s semiannual reporting proposal, but with some notable exceptions, many of the comments I’ve seen shed more heat than light on the benefits and detriments of a semiannual reporting option for public companies. That’s why I found this recent study comparing Europe’s semiannual reporting regime with the United States’ quarterly reporting regime interesting.
The study, which appeared in The International Journal of Financial Studies, compared quarterly reporting DJIA firms with semiannually reporting STOXX 50 firms, to assess how the cadence of disclosures affects market reactions to earnings news. It’s worth noting at the outset that this study focused on some of the largest of the large caps, so caution is warranted before applying its conclusions across the public company universe. But with that caveat, here’s an excerpt from the study’s conclusion:
Our comprehensive analysis, comparing quarterly reporting DJIA firms with primarily semiannual-reporting STOXX firms, reveals a profound influence of disclosure frequency on the intensity, duration, and volatility of earnings-related price reactions. Quarterly reporting, for instance, compresses price discovery into shorter windows, significantly accelerating information assimilation and reducing the persistence of post-announcement mispricing.
This expedited information flow facilitates faster capital reallocation, enhancing market allocative efficiency. However, this substantial informational benefit is accompanied by a significant drawback: sharper short-term volatility spikes, particularly during periods characterized by high market volatility, in response to negative earnings surprises, and within cyclically sensitive sectors where investor expectations are inherently more susceptible to shifts.
Conversely, semiannual reporting presents a different set of trade-offs. While it effectively mitigates contemporaneous noise and lowers short-term volatility, thereby dampening apparent overreactions, these benefits come at the cost of slower and more gradual information absorption. When markets remain underinformed, this extended period can widen risk premium and delay crucial capital reallocation in response to fundamental information.
The authors conclude that the data indicates that the two alternative reporting cadences involve inevitable tradeoffs: quarterly reporting results in faster information processing by the market and more transparency, while semiannual reporting mitigates short-term market instability and overreactions.
Given the tradeoffs the study identified, the authors argue that a more complex regulatory approach than that embodied in the SEC’s current proposal may be optimal:
Advocating for a uniform or monolithic disclosure cadence across all market environments may not achieve an optimal outcome. Instead, a more adaptive regulatory framework, one that allows for tailored disclosure guidance based on specific factors such as sectoral sensitivity to economic cycles, the prevailing macroeconomic conditions, and the inherent complexity of information within an industry, could strike a more effective balance between market transparency and stability.
Honestly, this is where they lost me. This “adaptive regulatory framework” sounds like a complicated mess that only an academic could love. Sometimes, I think that people who read and write about disclosure for a living think that companies exist to satisfy their unending desire for an avalanche of trivial information more disclosure and more intricate disclosure requirements. Unfortunately for them, the people running those companies think they’re in business to make money.
Yesterday, the SEC announced that it had established a unit in the Division of Enforcement focusing on financial reporting and accounting cases. This excerpt from the SEC’s press release provides some background on the new unit:
The Securities and Exchange Commission today announced it is establishing a new specialized unit within the Division of Enforcement to provide the dedicated expertise, focus, and capacity to pursue accounting and financial reporting fraud cases as well as general misconduct in the accounting and auditing areas. The Financial Reporting and Accounting Unit will work in close collaboration with staff across all relevant SEC divisions and offices to ensure its approach to enforcing federal securities laws is consistent with the Commission’s policy goals.
“Since my return to the Division, I have been assessing every aspect of our staffing to ensure that we are aligned to deliver results in our core mission areas,” said David Woodcock, Director of the SEC’s Division of Enforcement. “This new unit – which expands on the Division’s current and historical efforts to crack down on bad actors in the accounting and auditing profession – will be critical in our efforts to pursuing financial reporting fraud, as well as accounting and auditor misconduct more generally.”
The SEC said that the unit will be staffed by lawyers and accountants with specialized skills related to financial reporting, accounting, and auditing. The unit will be led by Timothy Zimmerman, who joins the SEC from RSM US LLP, where he served as Deputy General Counsel. Prior joining RSM, Mr. Zimmerman spent more than a decade with Gibson Dunn in the firm’s Denver office.
Glass Lewis recently blogged about its observations on shareholder proposals during the 2026 proxy season. The excerpt notes that the early trend toward issuers including a greater percentage of shareholder proposals following the SEC’s withdrawal from the Rule 14a-8 process continued throughout the season:
One of the main trends that we observed mid-season appears to have been borne out: in the absence of no-action relief from SEC staff, companies were far less likely to exclude shareholder proposals. Compared to 2025, barely half the number of exclusion notices were filed. . .
When the SEC’s decision was announced in November 2025, there was speculation that far fewer shareholder proposals would go to vote in proxy season 2026, given that issuers appeared to have free rein to set their AGM agenda. Ultimately, issuers were reluctant to exclude proposals without SEC backing, largely offsetting the reported decline in the number of proposals being submitted.
Even though the number of shareholder proposals filed is down by as much as 47%, the number of shareholder proposals that went to a vote is only down by approximately 12.4% compared to 2025. That’s largely because over the same period, the number of exclusion requests filed by companies dropped by 48.5%.
When it comes to deciding which proposals to exclude, Glass Lewis said that the identity of the proponent mattered a lot. Issuers were much more likely to exclude proposals submitted by individual proponents – particularly those named John Chevedden – than they were to exclude proposals from asset managers, pension funds, and “mission-driven investors.” The blog also discusses, among other things, the basis upon which issuers excluded proposals, and how investors have responded to exclusions.
According to this survey from Deloitte and the Society for Corporate Governance, public companies boards are pretty far from being “all-in” when it comes to the adoption of AI tools for board business. The survey solicited input from corporate secretaries, in-house counsel, and other governance professionals at 92 public companies and 14 private companies. Here’s excerpt with some of the highlights:
– Board adoption of AI/GenAI remains early-stage and inconsistent. Many companies have not formally enabled or standardized AI/GenAI for board activities, with nearly half of public companies not expressly supporting its use. Respondents overall are “unsure” whether their boards use AI/GenAI for board activity, and known adoption and use cases vary across organizations.
– Current use and capability-building efforts are focused on practical applications and education. Boards that use AI/GenAI primarily apply it to administrative and analytical tasks such as reviewing reports, summarizing materials, preparing questions, and identifying discussion topics. Respondents report that their organizations are more commonly enhancing AI capability through management briefings and director education than through formal governance mechanisms, recruitment efforts, or board evaluation processes.
– Policies, guidance, and governance practices are still developing. Most respondents reported a lack of board-specific AI policies or governance practices. Where policies exist, they tend to focus on security, confidentiality, acceptable use, legal considerations, and recordkeeping.
One of the most striking findings was the degree of uncertainty among governance professionals at public companies concerning whether their boards were using AI tools. For example, 71% of respondents were unsure about whether directors had used AI/GenAI tools in meeting-related activities during the past six months, and 72% didn’t know whether the board or any of its committees used AI/GenAI to support key oversight activities during the same period.
Given the potential downside of ill-considered uses of AI tools, these are pretty disconcerting findings.
What about your own use of AI/GenAI tools? We’re very interested in learning how our members are using AI tools in their work, so please take a moment to complete the AI Usage Survey for Corporate & Securities Lawyers that we posted a couple of weeks ago.
