March 6, 2020

Shareholder Proponent on Losing End of Court Case

Last month I blogged about a shareholder proponent that sued a Montana energy company seeking to force the company to include the proponent’s proposal on the company’s proxy ballot. Well, last week, the court ruled in the company’s favor and said the proposal could be excluded. What implications might this case have for shareholder proposal litigation? A timely Jones Day memo helps walk through that analysis. Here’s an excerpt from the memo:

The Court determined that under the Auer doctrine it should defer to the SEC’s formal releases, but that informal SEC staff interpretations, such as Staff Legal Bulletins and no-action letters, were entitled to “consideration” but not “persuasive weight.” Drawing on the Third Circuit’s analysis in Trinity Wall Street, a decision that the SEC staff had disavowed in a prior Staff Legal Bulletin, the Court held that the proposal could be excluded under the “ordinary business” exclusion of SEC Rule 14a-8.

Looking Ahead: The ruling may impact shareholder proposal litigation in two ways. First, the decision’s approach to Auer deference may breathe renewed life into certain Rule 14a-8 exclusions that were previously interpreted narrowly by informal SEC staff pronouncements. Second, the Court’s reliance on Trinity Wall Street reinforces the Third Circuit’s issuer-friendly analysis of the “ordinary business” exclusion.

Future of the PCAOB

As reported in various news outlets (here’s one from Accounting Today), President Trump’s 2021 budget includes a proposal that would consolidate the PCAOB into the SEC. Consider me a skeptic as to the likelihood of this actually happening, but then again it’s up to Congress so we’ll see. This blog from Baker Botts discusses some of what this might mean for issuers and auditors if it really happens. Here’s some considerations:

– Would the monitoring of public accounting firms be carried out in the same manner as it has been under the PCAOB? Would the SEC replicate the scope, magnitude, and rigor of the PCAOB’s regulatory activities?

– The proposed budget raises the possibility that funding will be reduced, does this mean auditor oversight activities would be reduced under the SEC—or would consolidation truly save millions without a reduction in oversight activities?

– Would the SEC would assume the PCAOB’s standard-setting function?

– Would audit firms and auditors lose confidentiality protections, which were explicitly required when Congress created the PCAOB, that aren’t necessarily available for charges brought by the SEC?

As alluded to in the blog, perhaps even if the consolidation doesn’t happen, there may be other changes in store for the PCAOB.

Managing Data Privacy Compliance

With 2020 bringing the effectiveness of the California Consumer Privacy Act and the New York Stop Hacks and Improve Electronic Data Security Act (otherwise known as the “SHIELD Act”) – and other state legislatures preparing to advance their own data privacy laws – this Jackson Lewis blog provides a list of 10 steps to help manage data privacy compliance.  The list is a helpful reminder for managing any program but especially helpful as many compliance departments may be feeling overwhelmed with the proliferation of data privacy laws.  Here’s an excerpt:

– Set expectations – remember staying on top of privacy laws will be an on-going effort

– Build interdisciplinary teams – include not only IT, but also HR, legal, operations and other business area representatives

– Evaluate new technologies carefully – not all technologies may have been developed or designed with an eye toward data privacy or security

– Remember to manage data retention – retain data and information strategically and deliberately

As for the CCPA, California’s Attorney General proposed two rounds of amendments to the regulations in February.  This Cleary memo provides a summary of the proposed changes and we’re posting additional memos in the “state law” section of our “Cybersecurity/Privacy/Data Governance” Practice Area.

– Lynn Jokela