July 27, 2018

Sustainability: Will Delaware’s Certification Statute Move the Needle?

Last month, Delaware enacted legislation permitting businesses to signal their commitment to global sustainability by signing on to a voluntary certification regime. Here’s an excerpt from this Richards Layton memo summarizing the statute’s operation:

For an entity to seek certification as a “reporting entity” subject to the terms of the Act, the “governing body,” which is defined generally to mean the board of directors or equivalent governing body, must adopt resolutions creating “standards” (i.e., the principles, guidelines or standards adopted by the entity to assess and report the impact of its activities on society and the environment) and “assessment measures” (i.e., the means by which the entity measures its performance in meeting its standards).

The Act enables an entity to select its own standards, tailoring them to the specific needs of its industry or business. In designing its standards, the governing body may rely upon various sources, including third-party experts and advisors as well as input from investors, clients and customers. The Delaware Secretary of State does not evaluate or pass judgment on the substantive nature of an entity’s standards or assessment measures.

Entities that participate in the regime contemplated by the Act can obtain a certification of adoption of transparency and sustainability standards from the Delaware Secretary of State. Obtaining the certificate involves the creation of a standards statement (which includes the standards and assessment measures), the payment of relatively nominal fees to the Delaware Secretary of State, and the entity’s becoming and remaining a reporting entity. That an entity is a reporting entity allows it to disclose its participation in Delaware’s sustainability reporting regime.

Any entity that wishes to continue as a reporting entity must annually file a renewal statement. The renewal statement requires disclosure with respect to changes to the entity’s standards and assessment measures. The entity must also include in its renewal statement an acknowledgement that its most recent sustainability reports are publicly available on its website, and must provide a link to that site. If the entity fails to file a renewal statement (and thus becomes a non-reporting entity), it may have its status as a reporting entity restored through the filing of a restoration statement, which requires disclosure and acknowledgments similar to those in the renewal statement.

The statute does not give anyone a right to bring claims for an entity’s decision regarding whether or not to become a reporting entity – and there’s no penalty for a reporting entity’s failure to comply with its own standards.

Some people seem pretty excited about this new statute’s potential, but I’m skeptical. Maybe I’m too cynical, but since everything is voluntary & “do-it-yourself” and there’s no real liability exposure, the statute appears to be little more than a mechanism for virtue-signaling. You know what I mean – it’s sort of the corporate equivalent of buying a Subaru.

Universal Proxy: Rumors Say It’s “Face Down & Floating”

Earlier this month, Reuters reported that the SEC has shelved its proposal to implement a “universal proxy”. Despite Reuters’ report, there’s been no official word from the SEC indicating that the proposal has assumed room temperature. If it is gone, we’re kind of sad to see it go. It’s not that we’re pro or con – it’s just that universal proxy’s been such fertile “blog-fodder” for us here & on!

We’ve previously blogged about the potential impact on activism of an SEC decision to adopt – or not adopt – the proposal. We’ve also discussed Pershing Square’s unsuccessful efforts to persuade ADP to use a universal proxy card – and, more recently, SandRidge Energy’s decision to become the first company to use a universal proxy card in a proxy contest.

This recent blog from Cooley’s Cydney Posner provides some history on the universal proxy proposal. If the SEC’s proposal truly is on the shelf, it will be interesting to see if there’s a move toward more aggressive private ordering when it comes to the use of a universal ballot.

Cybersecurity: More Scrutiny from Boards than Regulators?

This Deloitte survey says that C-suite execs expect more scrutiny from their boards on cybersecurity programs this year than from regulators. Here’s an excerpt from a press release announcing the results:

As pressure to develop more effective corporate cybersecurity programs continues to mount, 63% of C-suite and other executives in a recent Deloitte poll expect board of director requests for reporting on cybersecurity program effectiveness to increase in the next 12 months. A slightly lower 57% percent of executives expect increased cybersecurity regulatory scrutiny during the same period.

One possible reason for executives’ expectations for increased board attention – the survey says that less than 17% of executives say they are highly confident in the effectiveness of their organization’s current cybersecurity program.

John Jenkins