TheCorporateCounsel.net

Earlier this week on his Section16.net blog, Alan Dye pointed out that the Senate recently passed legislation that would create a lot of headaches for foreign private issuers:

The Senate-passed National Defense Authorization Act for Fiscal Year 2024 contains a provision (Section 6081) that would amend Section 16(a)(1) of the Exchange Act to subject insiders of foreign private issuers to Section 16 and render null and void any SEC rule exempting them from Section 16. If enacted, the amendment would partially nullify Rule 3a12-3, which provides that securities of FPIs are not subject to Section 16 and parts of Section 14. I don’t know who is behind the amendment, but I will try to find out.

Weil’s Howard Dicker subsequently provided us with the information that Alan was looking for. It turns out that a stand-alone bill removing the Section 16 exemption for FPIs was introduced in the Senate back in April 2023. That legislation was co-sponsored by Sen. John Kennedy (R-LA) and Sen. Chris Van Hollen (D-MD), both of whom co-sponsored an identically worded bill the prior year.  Then, in July 2023, those co-sponsors offered the same text as an amendment to the National Defense Authorization Act.

When they introduced the stand-alone bill, the co-sponsors issued a press release describing their reasons for the proposed legislation. Here’s an excerpt:

“Insiders at companies in Beijing and Moscow have been able to avoid billions in losses on the U.S. stock exchange by playing by a different set of rules than Americans do. This insider trading comes at a cost to American investors. The Holding Foreign Insiders Accountable Act will help stop opportunistic insider trading by requiring foreign executives to disclose trades immediately,” said Kennedy.

“All companies operating on U.S. markets should have to play by the same rules. And when corporate insiders sell their stocks, investors and the American public have a right to know. It’s time to require foreign executives to disclose these trades and provide this information to the public,” said Van Hollen.

I appreciate the rationale behind the proposed amendment, and the co-sponsors’ commentary on the bill suggests that their focus is on Section 16(a) reporting.  But as written, it looks like the amendment would also subject FPI insiders to the short-swing profit recovery provisions of Section 16(b) – and that’s something I think legislators ought to think long and hard about before they enshrine it into law.

It’s one thing to require companies that want to enjoy the privilege of a US listing to be required to publicly disclose insider trades on a timely basis, but it’s another to expose foreign company insiders to potential liability under a draconian statutory relic that’s a notorious trap for the unwary. Subjecting FPI insiders to Section 16(b) will create a pretty strong disincentive for the folks who call the shots at foreign companies to list their shares here. And we do still want them to do that, right?

– John Jenkins

Until recently, when a company ran into potential trouble with the SEC or another regulator, it usually made only the blandest of statements in its own defense if it commented at all. But these days, it’s becoming increasingly fashionable for companies to take their case to the court of public opinion and to bash their regulators as part of that strategy.  Here’s an excerpt from this Axios newsletter:

As Axios’ Crystal Kim recently pointed out in her crypto newsletter, most companies clam up when the Securities and Exchange Commission (SEC) comes knocking, but that’s not the approach Coinbase Global is taking.

Zoom in: Coinbase has been unusually vocal about run-ins with its primary regulator in blogs, tweets, podcasts and media interviews — offering up subpoenas, court filings (theirs and their adversaries) and legal analysis in near real time to the public.

Coinbase also started an advocacy campaign called Stand With Crypto seeking to mobilize public support for crypto rules. “In terms of how we thought about public messaging, we needed to start with first principles to basically reconsider anything and everything we had been taught about how to engage,” Paul Grewal, Coinbase’s chief legal officer, told Kim.

Zoom out: Coinbase isn’t alone. Activision Blizzard and Airbnb haven’t pulled punches in their battles with regulators, while DoorDash and Oatly have pushed back hard against misinformation or public critiques. “There are advantages in speaking out and creating a public issue, so others can be aware and support the defense,” Junaid Zubairi, an attorney at Vedder Price, told Axios.

I guess I can understand why companies dealing with a potentially existential regulatory issue might decide to take a scorched earth approach, but at the risk of provoking an “okay boomer” response from many of our readers, I don’t see the long-term upside of spewing vitriol at a regulator that a company is going to have to deal with on a regular basis for the foreseeable future.

– John Jenkins

Today is the second day of our “2023 Proxy Disclosure Conference” – tomorrow is our “20th Annual Executive Compensation Conference.” Here’s more info:

– How to Attend: We have emailed a direct access link for the Conference to all registered attendees, from info@ccrcorp.com. Use that link to go to the Conference platform. Once you log in to the Conference Platform, follow the “Proxy Disclosure/Exec Comp” tab to see the agendas for each day, enter sessions, and add them to your calendar. All sessions are shown in Eastern Time – so you will need to adjust accordingly if you’re in a different time zone.

If you are experiencing a technical issue on our conference platform and need assistance, please use the Help Desk tab on the left side of the conference platform for support or email our Operations Manager, Victoria Newton at VNewton@CCRcorp.com. If you have any other questions about accessing the conference, please email our Operations Manager, Victoria Newton (vnewton@ccrcorp.com).

– How to View Archives & Transcripts: If you registered to attend the Conference through CCRcorp, you will be able to access the conference archives on the conference platform next week, and unedited transcripts will be available beginning about 1-2 weeks after the event. If you registered for the conferences through NASPP, you will receive access to the video archives from NASPP. Archives and transcripts will be available on-demand until September 20, 2024, so they’ll be available for you to reference as you navigate challenging proxy season issues well after the live Conferences have concluded.

– How to Earn CLE for Live Sessions: We are applying for up to 16 hours of CLE credit for the Proxy Disclosure & Executive Compensation Conferences in applicable states – approvals of actual credit vary based on each state. Please read these CLE FAQs carefully to confirm that your jurisdiction allows CLE credit for online programs. You will need to respond to periodic prompts approximately every 20-30 minutes during the conference to attest that you are present. After the conference, you will receive an email with a link. Please complete the link with your state license information. Our CLE provider will process CLE credits to your state bar and also send a CLE certificate to your attention within 30 days of the conference.

– New this Year! On-Demand CLE: We will be offering on-demand CLE credit for the session replays, in states where that is available. There are some nuances to receiving that credit, so make sure to check out the on-demand CLE FAQs that follow the general CLE FAQs in order to be able to take advantage of that.

– Thanks To Our Sponsors! Our sponsors have helped make this event possible, and we are proud and grateful to have their support. Our gold sponsors for the Proxy Disclosure & 20th Annual Executive Compensation Conference are Fredrikson and Morrison Foerster, our silver sponsor is Kirkland & Ellis, and our media partner is Newsfile. Please visit their pages in our virtual exhibit hall!

It is not too late to register for our Conferences today! You can sign up for today’s “2023 Proxy Disclosure Conference” and tomorrow’s “20th Annual Executive Compensation Disclosure Conference” by emailing sales@ccrcorp.com or by calling 1-800-737-1271. If you miss these conferences or our “2023 Practical ESG Conference,” you can still purchase access to the archives (and, for the “2023 Proxy Disclosure & 20th Annual Executive Compensation Conferences,” may be able to earn CLE credit for watching on-demand sessions as well). Just email sales@ccrcorp.com – and we’ll also have a link available soon on this page to do that.

– John Jenkins

In 2020, the SEC issued a 7-page interpretive release providing guidance on disclosure of key performance indicators in MD&A. Among other things, the guidance noted that disclosure of certain key metrics may be required under Item 303, but said that when companies disclose such metrics, they should also consider whether additional disclosures are necessary. The release also highlighted the obligation to maintain appropriate disclosure controls and procedures when disclosing KPI metrics. Since that time, KPI disclosures have proven to be a popular topic for Staff comments – and the occasional enforcement proceeding.

One of the big reasons that KPIs attract a lot of attention from the SEC is that companies love to use them and talk about them – but a recent FEI Daily blog says that they may be overdoing it:

Key Performance Indicators (KPIs) are present at nearly every level of the leading U.S. corporations—from their HR departments, to finance, to marketing, to sales. On paper, KPIs serve a very useful function: they quantify performance over a period of time, giving teams targets to hit, establishing milestones in a company’s journey toward its goals, and providing leaders with insights that can steer the ship toward greater efficiency and profitability.

However, in the age of advanced analytics, where organizations rush to incorporate the latest in analytics into aging infrastructures, companies keep building up their list of KPIs while losing sight of the big picture. Ironically, many companies that try to incorporate more data just end up with more reports that aren’t used and the data itself becomes less useful. Imagine someone intending to knit a sweater but instead starts tunnel visioning on making more and more loops, without connecting them back to the already-woven fabric. The loops become an end in themselves. This is what organizations are doing by over-indexing on KPIs—making the means the focus, not the end. Companies need to think beyond the “loops” to connect with the fabric of the bigger picture.

It strikes me that this is something that companies should keep in mind and consider whether there’s a need to cut through the KPI underbrush to determine what performance metrics should be disclosed in SEC filings & investor communications. That’s going to require sorting out the KPIs that really matter from the ones that are less relevant or even potentially misleading.

One of the SEC’s objectives in issuing its KPI release was to encourage companies to make their MD&A disclosure more transparent.  But if you’ve got a bunch of random, non-key KPIs working their way through the company, that’s a recipe for the opposite of transparency – muddy & potentially problematic disclosure in your SEC filings.

– John Jenkins

Speaking of transparency, Labrador recently announced the winners of its 5th annual disclosure transparency awards. Here’s an excerpt from its press release:

PayPal, Target and State Street are among companies awarded top honors in the fifth annual U.S. Transparency Awards announced today by Labrador, a leading global communications firm specializing in transparent investor and stakeholder communications. The rankings compare the efficacy of corporate disclosure documents across the S&P 250 – the nation’s largest companies based on market capitalization – and are independently determined through an evaluation of all corporate disclosure documents.

Earlier this year, Labrador retained our friend & former colleague Broc Romanek to lead the charge on its disclosure transparency initiative. Broc posted more info about the awards and the winners in various categories on Labrador’s RealTransparentDisclosure.com blog.

Since I hosted our Proxy Disclosure Conference yesterday and spent all day in a coat & tie, I was hoping that somebody could finally get Broc into corporate attire for the awards ceremony. But when I saw his 8-minute video announcing the winners, I was disappointed to see that he dodged the bullet – although he looked stylish, he opted for the t-shirt with sport jacket. I sincerely doubt that Broc’s worn a tie since the last time he hosted our conferences.

– John Jenkins

We’re holding our “2023 Proxy Disclosure Conference” today and tomorrow, and we’re holding our “20th Annual Executive Compensation Conference” on Friday.  The agendas for our conferences include 18 substantive panels over 3 days – as well as an interview with Erik Gerding, the Director of the SEC’s Division of Corporation Finance. Here’s more info:

– How to Attend: We have emailed a direct access link for the Conference to all registered attendees, from info@ccrcorp.com. Use that link to go to the Conference platform. Once you log in to the Conference Platform, follow the “Proxy Disclosure/Exec Comp” tab to see the agendas for each day, enter sessions, and add them to your calendar. All sessions are shown in Eastern Time – so you will need to adjust accordingly if you’re in a different time zone.

If you are experiencing a technical issue on our conference platform and need assistance, please use the Help Desk tab on the left side of the conference platform for support or email our Operations Manager, Victoria Newton at VNewton@CCRcorp.com. If you have any other questions about accessing the conference, please email our Operations Manager, Victoria Newton (vnewton@ccrcorp.com).

– How to View Archives & Transcripts: If you registered to attend the Conference through CCRcorp, you will be able to access the conference archives on the conference platform next week, and unedited transcripts will be available beginning about 1-2 weeks after the event. If you registered for the conferences through NASPP, you will receive access to the video archives from NASPP. Archives and transcripts will be available on-demand until September 20, 2024, so they’ll be available for you to reference as you navigate challenging proxy season issues well after the live Conferences have concluded.

– How to Earn CLE for Live Sessions: We are applying for up to 16 hours of CLE credit for the Proxy Disclosure & Executive Compensation Conferences in applicable states – approvals of actual credit vary based on each state. Please read these CLE FAQs carefully to confirm that your jurisdiction allows CLE credit for online programs. You will need to respond to periodic prompts approximately every 20-30 minutes during the conference to attest that you are present. After the conference, you will receive an email with a link. Please complete the link with your state license information. Our CLE provider will process CLE credits to your state bar and also send a CLE certificate to your attention within 30 days of the conference.

– New this Year! On-Demand CLE: We will be offering on-demand CLE credit for the session replays, in states where that is available. There are some nuances to receiving that credit, so make sure to check out the on-demand CLE FAQs that follow the general CLE FAQs in order to be able to take advantage of that.

– Thanks To Our Sponsors! Our sponsors have helped make this event possible, and we are proud and grateful to have their support. Our gold sponsors for the Proxy Disclosure & 20th Annual Executive Compensation Conference are Fredrikson and Morrison & Foerster, our silver sponsor is Kirkland & Ellis, and our media partner is Newsfile. Please visit their pages in our virtual exhibit hall!

It is not too late to register for our Conferences today! You can sign up for today’s “2023 Proxy Disclosure Conference” and our “20th Annual Executive Compensation Disclosure Conference” by emailing sales@ccrcorp.com or by calling 1-800-737-1271. If you miss these conferences or our “2023 Practical ESG Conference,” you can purchase access to the archives (and, for the “2023 Proxy Disclosure & 20th Annual Executive Compensation Conferences,” may be able to earn CLE credit for watching on-demand sessions as well). Just email sales@ccrcorp.com – and we’ll also have a link available soon on this page to do that.

– John Jenkins

Pending California legislation imposing climate disclosure requirements on companies doing business in the Golden State was a topic of discussion at yesterday’s “2023 Practical ESG Conference.” Troutman Sanders’ Brinkley Dickerson reports that this legislation isn’t going to be “pending” for much longer:

Over this past weekend California’s Governor Newsom indicated that he would sign SB 253 and SB 261. SB 253, when fully implemented with rules, will require any entity with $1 billion or more in revenue (anywhere) and that “does business” in California to file annual reports covering Scope 1 and Scope 2 emissions (wherever they occur) and, ultimately, Scope 3 emissions (wherever they occur).

The reporting requirements will be effective in 2026 for 2025 Scope 1 and Scope 2 emissions, and 2027 for Scope 3 emissions. Assurance reports will be required for Scope 1 and Scope 2 emissions at the limited assurance level beginning in in 2026 and at the reasonable assurance level beginning in 2030. Assurance reports will be required for Scope 3 emissions at the limited assurance level beginning in 2030.

SB 261, when fully implemented with rules, will require any entity with $500 million or more in revenue (anywhere) and that does business in California to prepare a biennial report disclosing (i) climate-related financial risk (using the TCFD approach) and (ii) measures adopted to “reduce and adapt to climate-related financial risk disclosed” under clause (i).

The implementing rules will be critical as SB 253 does not contemplate consolidate reporting, while SB 261 does.

While both bills are likely to be challenged, the challenges will be more difficult than those to the SEC climate disclosure rules (if and when finalized) given the clear statutory authority (which was the prevailing challenge in the Supreme Court’s EPA vs. West Virginia opinion) and the recent cases narrowing preemption by the Commerce Clause. It is unclear what impact, if any, the California legislation will have on the SEC rulemaking.

– John Jenkins

Check out our latest “Timely Takes” podcast featuring a discussion with Barnes & Thornburg’s Jay Knight on the PCAOB’s proposed amendments to its Noncompliance with Laws and Regulations Auditing Standard.  In this 20-minute podcast, Jay addressed the following topics:

1. Overview of the PCAOB’s proposed Non-Compliance with Laws and Regulations (NOCLAR) Auditing Standard and how it differs from the current standard
2. The most significant concerns about the proposed NOCLAR Standard from a lawyer’s perspective
3. Implications for audit committees and their advisers
4. Implications for the relationship between management and the outside auditors

Be sure to pay a visit to Barnes & Thornburg’s new “Practical Securities Law Blog,” which we just added to our blog roll. If you have insights on a securities law, capital markets or corporate governance trend or development that you’d like to share, I’m all ears – just shoot me an email at john@thecorporatecounsel.net.

– John Jenkins

Today’s the start of a big week! We’re hosting our “2023 Practical ESG Conference.” That’s followed on Wednesday & Thursday by our “2023 Proxy Disclosure Conference,” and we cap off the week on Friday with our “20th Annual Executive Compensation Conference.” Here’s the agenda for today’s conference – which includes 8 substantive panels & a keynote address from Tufts University Professor Ken Pucker. Here’s more info:

– How to Attend: We have emailed a direct access link for the Conference to all registered attendees, from info@ccrcorp.com. Use that link to go to the Conference platform. Once you log in to the Conference Platform, follow the “Practical ESG Agenda” tab to enter sessions and add them to your calendar. All sessions are shown in Eastern Time – so you will need to adjust accordingly if you’re in a different time zone.

If you are experiencing a technical issue on our conference platform and need assistance, please use the Help Desk tab on the left side of the conference platform for support or email our Operations Manager, Victoria Newton at VNewton@CCRcorp.com. If you have any other questions about accessing the conference, please email our Operations Manager, Victoria Newton (vnewton@ccrcorp.com).

– How to View Archives & Transcripts: Conference attendees will be able to access the archives of the “1st Annual Practical ESG Conference” on PracticalESG.com via a special link that we will email to conference attendees about a week after the event. Unedited transcripts also will be available via that link, beginning about 1-2 weeks after the event.

– Thanks To Our Sponsor! Our sponsor, Morrison Foerster, helped make our “2023 Practical ESG Conference” possible, and we are proud and grateful to have their support. Please visit their page!

It is not too late to register for our Conferences today! You can sign up for today’s “2023 Practical ESG Conference” by emailing sales@ccrcorp.com or by calling 1-800-737-1271. You can still sign up online for our “2023 Proxy Disclosure Conference” & “20th Annual Executive Compensation Disclosure Conference” (with the “2023 Virtual Conferences” drop-down, and the “PDEC” options) – or you can register via email or phone. Remember, you can also still bundle the conferences together to get a discounted rate!

– John Jenkins