January 6, 2021

Political Spending Disclosure: What BlackRock Wants to See

BlackRock’s Investment Stewardship team recently shared this commentary on corporate political activities – which urges companies to provide transparent disclosure so that investors and other stakeholders can understand how public messaging and strategy are aligned with contributions to lobbying efforts and trade associations. Where the stewardship team notes “material inconsistencies” with stated policy priorities and spending, BlackRock may support a shareholder proposal requesting additional disclosure or explanation.

The asset manager says that companies should provide easy-to-navigate info on their website – and should consider disclosing:

1. The purpose of the company’s political contributions and engagement in lobbying activities and trade associations,and how this activity aligns with the company’s strategy and/or goals of public participation, including the company’s legislative and regulatory priorities.

2. How the company engages in these activities (ex: Government Relations/Policy Team).

3. The company’s political contribution and lobbying policy, including management and board responsibilities.

4. The board’s oversight process for monitoring political contributions and lobbying activities.

5. If the company has established a PAC,and if so,how the PAC’s spending furthers the aims of the company’s political contributions.

6. Trade association memberships for which dues exceed a predetermined threshold that requires board approval or oversight.

7. An affirmation ofcompliance with federal and state laws governing political activities and lobbying.

Congress Expands SEC’s Disgorgement Powers

Lynn blogged last week about the proposed expansion of SEC’s disgorgement powers that was nestled in the 1480-page National Defense Authorization Act for Fiscal Year 2021. Although the President vetoed the bill, Congress overrode that and it became law on January 1st. As Lynn noted, the amendments double the statute of limitations for the SEC to seek disgorgement for fraud claims – from 5 to 10 years – as well as raise a number of interpretive questions. This WilmerHale memo discusses possible implications – here’s an excerpt (also see this commentary from Russ Ryan, former Assistant Director of the SEC’s Enforcement Division and Partner with King & Spalding):

The amendments are notable for the SEC’s enforcement program. Most prominently, the extended statute of limitations for scienter-based fraud may incentivize Division of Enforcement staff to investigate conduct that is much more dated than the familiar five-year statute and to expend additional efforts to find evidence supporting a scienter-based charge, which risks complicating responses to Commission requests and increasing defense costs. Moreover, in order to seek disgorgement from a broader period that is only available for scienter-based fraud, the Division of Enforcement may be less inclined to accept settled resolutions that charge non-scienter-based alternatives. This has the potential to complicate settlement negotiations, including because scienter-based resolutions can trigger more significant collateral consequences for some respondents.

The amendments also leave open several questions, including the extent to which the new statutory disgorgement framework supplants the requirements for disgorgement outlined in Liu. For example, the amendments do not expressly address Liu’s requirement that the Commission return disgorged funds to injured investors. They also are silent on Liu’s holding that the Commission must net a defendant’s legitimate expenses when calculating disgorgement awards and on whether and when the Commission may hold defendants jointly and severally liable for disgorgement awards. However, the statutory language’s focus on “unjust enrichment by the person who received such unjust enrichment” provides compelling arguments in favor of netting legitimate expenses and against expansive joint and several liability

Regulatory Risks: Global Chart

One lesson from the pandemic has been that boards need to find a way to identify and address emerging risks – and ideally have contingency plans in place to be able to quickly pivot. This is by no means a new concept, but it remains difficult to master. One resource that we recently posted in our “Risk Management” Practice Area could help – at least with legal risks. It’s an interactive database from Lex Mundi that allows you to select countries around the world to compare regulatory and legislative developments. Also check out this 52-page TCFD guidance on risk management integration and disclosure.

Liz Dunshee