Monthly Archives: May 2022

May 25, 2022

California’s Board Gender Diversity Statute: Down, But Not Out?

Dave blogged last week that a California court struck down the state’s board gender diversity statute, finding that it violated the Equal Protection Clause of the California Constitution. The same plaintiffs also recently prevailed on a motion for summary judgment to challenge the statute that would require a certain number of directors from “underrepresented communities.”

According to this Cooley blog, the California Secretary of State has announced that the state will appeal the May 13th decision. As the blog details, the Secretary of State believes that the statute is narrowly tailored to serve a compelling interest.

If you’re advising a California-headquartered company on next steps, remember to check the voting policies of the company’s shareholders and consider that in your analysis. For example, State Street announced that beginning in 2023, it expects Russell 3000 companies to have boards composed of at least 30% women directors. It may vote against the chair of the nominating committee if the company fails to meet expectations – and against all members of the nominating committee if the failure continues for 3 consecutive years. For convenience, we’ve collected voting policies from major institutional investors and asset managers in our “Institutional Investors” Practice Area – along with interpretive analysis, info on voting outcomes, and more.

Liz Dunshee

May 25, 2022

Today’s DEI Workshop: Using DEI Data for Goal Setting & Reporting

Join us today at 2 pm Eastern Time for the third & final webinar of our 3-part DEI series – “Using DEI Data: Goal Setting & Reporting” – to hear Hook & Fasten’s Deesha Dyer, Jenner & Block’s Courtney Carter, Skadden’s Caroline Kim, and Vityl’s George Ho discuss practical ways to use DEI data to set goals and report on DEI progress. If you’ve not yet registered, you can still sign up here. This workshop is free, courtesy of our wonderful sponsors, Morrison & Foerster and Holmes Murphy.

If you can’t make it today, the replay of this session will be available on-demand to members. If you aren’t already a member, sign up now and take advantage of our “100-Day Promise” – During the first 100 days as an activated member, you may cancel for any reason and receive a full refund! You can sign up online, by calling 800-737-1271, or by emailing

Liz Dunshee

May 24, 2022

ALJ Drama Could Spell Trouble for SEC Rulemaking

Dave blogged last week about a Fifth Circuit decision that ruled against the SEC’s use of Administrative Law Judges to conduct civil trials without a jury. As he noted, the opinion went a step further and also said that the ALJ system relies on unconstitutionally delegated legislative power.

Some people are saying that’s a big deal, because it could lay the groundwork for challenges to actual SEC rulemaking. In this column, Bloomberg’s Matt Levine explains:

But the panel is making a broader point here. The broader point is Justice Gorsuch’s point about political accountability, an excess of lawmaking, etc.; the opinion talks about those principles at length and cites Justice Gorsuch’s Gundy dissent. The point is that the nondelegation doctrine is alive again, and the Fifth Circuit is making a bet that the next time it goes before the Supreme Court it will win. The point is that the SEC’s actual legislative actions — writing rules about stock buybacks or swaps disclosure or climate change — are now in danger. It used to be accepted as a routine matter that the SEC could make rules under a very broad grant of power from Congress to regulate securities markets in the public interest. I am not sure that is true anymore.

This may not be a particularly big deal. Two judges on one panel of one appeals court found that one small part of what the SEC does is an unconstitutional delegation of power. It is possible that this decision is fairly narrow: Congress did delegate this decision — about whether to bring cases in federal courts or its own forums — to the SEC, fairly recently, without any guidance at all, which is unusual. Perhaps the “intelligible principle” standard allows the SEC to do all of its other rulemaking (because Congress has mostly given it some broad guidance about protecting investors in the public interest, and because SEC rules do help to fill in a fairly detailed statutory system), but not to make this particular decision. Still. I think the Fifth Circuit went out of its way to find a nondelegation problem because the Supreme Court has changed and now there will be a lot more courts finding a lot more nondelegation problems. I think this might be a sign of where things are going.

John blogged a couple months ago that the non-delegation doctrine could be a key part of challenges to the Commission’s climate change disclosure rule. Now, there is precedent.

Liz Dunshee

May 24, 2022

Climate Change Comments: The CII’s 38-Page Letter

Earlier this month, the SEC extended the deadline for its controversial climate change disclosure proposal. Thousands of comments have been received so far. While most of the late-landing letters have come from individuals, there have also been thoughtful comments along the way that examine the SEC’s rulemaking authority and the impact on smaller companies.

Last week, the Council of Institutional Investors added its 38-page letter to the mix. Here’s a summary from CII’s LinkedIn post:

CII’s May 19 letter to the SEC, penned by General Counsel Jeff Mahoney generally supports the basic disclosure requirements in the commission’s March 21 proposed rule on “The Enhancement and Standardization of Climate-Related Disclosures for Investors,” but also recommending changes to the proposed initial compliance dates and to the threshold for the proposed footnote disclosure on climate-related metrics and impacts. Overall, CII supports the SEC’s proposed disclosure requirements on climate-related risks, Scope 1 and Scope 2 emissions, and Scope 3 emissions with certain accommodations for companies.

Among other changes, CII is urging the SEC to extend the compliance date for climate disclosure by at least one year. It supports the proposal to include financial footnote disclosure about climate-related metrics – but not the “bright-line” 1% threshold. Rather, CII supports a more traditional “reasonable investor” materiality test.

CII supports the provisions of the proposal that would require disclosure about board oversight of climate-related risks, the potential & actual impact of material climate-related risks, scenario analysis, and emissions disclosure. For Scope 3 emissions, CII suggests a liability safe harbor, an exemption for smaller companies, and other accommodations to ease the corporate compliance burden. The comment letter also suggests extending the compliance date for the proposed attestation requirement.

We are closely monitoring the proposal – and we’re wading through the practical disclosure & process implications so that you aren’t caught flat-footed when your directors and investors ask about your plan. If you haven’t already bookmarked the transcript from our April webcast with Sidley’s Sonia Barros, Travelers’ Yafit Cohn, NuStar Energy’s Mike Dillinger, and our own Dave Lynn & Lawrence Heim, head over there now. This conversation wasn’t just a review of the proposal – we discussed what you need to do now to prepare for final rules as well as investor demands.

If you aren’t already a member with access to that guidance, sign up now and take advantage of our “100-Day Promise” – During the first 100 days as an activated member, you may cancel for any reason and receive a full refund! You can sign up online, by calling 800-737-1271, or by emailing Make sure to also check out our new membership resource,, for comprehensive & practical guidance to goal-set, measure & disclose progress on climate and other E&S issues.

Liz Dunshee

May 24, 2022

Quick Poll: Will We Reach 10k Climate Comments?

On its “submitted comments” page, the SEC has recorded more than 8100 form letters in response to its climate disclosure proposal – plus a hefty number of bespoke, thoughtful letters. Lawrence has predicted that we’ll hit 10k before the extended June 17th deadline. I’ll owe him five bucks if he’s right!

Who’s with me on this wager? Please participate in this anonymous poll to share your guess of where we’ll end up:

Liz Dunshee

May 23, 2022

Countdown to Universal Proxy: Assess Your Vulnerabilities Now

The universal proxy rules go effective in only 3 short months – August 31st, 2022. A recent article from The Activist Investor explains how the rule could significantly decrease activists’ costs to conduct a proxy contest. That means that companies & boards will be facing more threats and more distractions, and navigating proxy contest responses in a dramatically altered landscape. Now is the time to prepare.

In our webcast earlier this year, Goodwin Proctor’s Sean Donohue, Gibson Dunn & Crutcher’s Eduardo Gallardo, Sidley Austin’s Kai Liekefett and Hogan Lovells’ Tiffany Posil suggested tactical steps that companies should take in advance of the compliance date. Make sure to take a spin through the transcript if you haven’t already. Kai also emphasized that:

“We have an entire business that is functioning as profession second guessers, and they will be coming for you once they see an opening. So, you need to get ready for it and the universal proxy is just another reason to get ready for shareholder activists.”

We’ve posted memos about the final rule in our “Proxy Cards” Practice Area, and we explained the steps that companies need to take to comply in the November-December ‘21 issue of The Corporate Counsel newsletter. More analysis is available in our “Proxy Fights” Practice Area on John has also blogged about the difference between “proxy access” and “universal proxy” – a key point.

If you aren’t already a member of our sites, sign up now and take advantage of our “100-Day Promise” – During the first 100 days as an activated member, you may cancel for any reason and receive a full refund! You can sign up online, by calling 800-737-1271, or by emailing

Liz Dunshee

May 23, 2022

Universal Proxy: What If There’s More Than One Activist?

The universal proxy rule will change tactics for activists & companies. The investor resource The Activist Investor is exploring the ramifications with a collection of articles and other information. In this article, Michael points out that the SEC rule doesn’t directly address the situation of multiple activists – leaving companies & challengers to sort that out in the trenches. He notes:

The rule is silent on the critical elements of how the UPC will apply to proxy contests with more than one activist investor. Without further guidance from the SEC, companies and activists may handle these situations in dramatically different ways.

We see three such critical elements:

– The proxy card contents and format

– Notifications among the activists and the company

– Reference in proxy statements to information about director nominees.

The article goes on to outline ways this might play out, in the absence of SEC guidance:

We can easily envision situations in which a company wishes to comply strictly with the SEC rule. If the SEC doesn’t require something, then (conveniently!) it won’t do it.

It might notify each activist only of the company’s nominees, since that’s all the rule requires. Each activist would then have an incomplete proxy card.

Or, a company may list all activist candidates together, alphabetically as the rule prescribes. This will likely confuse shareholders, and perhaps prompt them to vote for company nominees.

We can also envision situations in which one activist wishes to avoid ceding any advantage to another activist. Then, one activist might want to not list director nominees from another. Or, one activist might refer shareholders to proxy materials only for the company, and not for other activists.

This is just a start. Resourceful companies (and activists) can no doubt think of other ways that creative interpretation of the new rule will confound multiple activists that nominate director candidates at a company.

The SEC hasn’t given indications that it will provide additional guidance on this rule before the August 31st effective date. It may wait to see what issues actually materialize and how companies & activists respond. Remember that if you encounter a sticky situation, you can use our “Q&A Forum” to get thoughts from the securities law community.

Liz Dunshee

May 23, 2022

ESG Fraud Hits Interviews in Banking & the NFL

Here’s something Lawrence blogged last week on (if you’re not already subscribed to Lawrence’s updates, which are focused on cutting through all the ESG noise to provide practical takeaways to companies, sign up here):

Yesterday I recorded a podcast with Chris McClure, the National Head of ESG Services at Crowe, about fraud in ESG (that podcast will be available to members soon). Only after that did I see the New York Times article about Wells-Fargo allegedly conducting fake job interviews: “Black and female candidates are sometimes interviewed after the recipient of a job is identified, current and former employees say.”

The article discusses allegations made public by Joe Bruno, a former executive in the bank’s wealth management division.

… Mr. Bruno noticed that often, the so-called diverse candidate would be interviewed for a job that had already been promised to someone else.

He complained to his bosses. They dismissed his claims. Last August, Mr. Bruno, 58, was fired. In an interview, he said Wells Fargo retaliated against him for telling his superiors that the “fake interviews” were “inappropriate, morally wrong, ethically wrong.”

Wells Fargo said Mr. Bruno was dismissed for retaliating against a fellow employee.

Mr. Bruno is one of seven current and former Wells Fargo employees who said that they were instructed by their direct bosses or human resources managers in the bank’s wealth management unit to interview “diverse” candidates — even though the decision had already been made to give the job to another candidate. Five others said they were aware of the practice, or helped to arrange it.

These claims are similar to those levied in 2019 against the National Football League (NFL) and three of its teams by Former Miami coach Brian Flores, who is Black. From a Sports Illustrated piece on the matter:

It was clear from the substance of the interview that Mr. Flores was interviewed only because of the Rooney Rule [NFL teams must interview two minority candidates when looking for a team’s next head coach], and that the Broncos never had any intention to consider him as a legitimate candidate for the job. Shortly thereafter, Vic Fangio, a white man, was hired to be the Head Coach of the Broncos.

Fraud is making quite a splash in ESG as pressure to meet DEI and other ESG goals increases. I’ve written about fraud many times before and Chris echoed those thoughts and more. Keep a look out for my podcast with Chris, where he talks about the problem and offers ideas on solutions. I’ll announce its availability soon. Members can also refer to our checklist on Internal Controls for E&S Information and our E&S Data Validation Guidebook.

Even further, using DEI data to set goals and reporting on progress is the topic of the third & final DEI workshop – this Wednesday May 25th from 1:00pm – 2:30pm Central time. To attend this critical event for free, register here.

Liz Dunshee

May 20, 2022

One More Anniversary: The Sarbanes-Oxley Act!

When I was recounting all of the significant anniversaries in 2022 earlier this week, I definitely forgot a big one – the Sarbanes-Oxley Act! I hope all of the Sarbanes-Oxley fans out there will forgive me for that oversight.

The law was enacted July 30, 2002 in response to the major corporate scandals of the early 2000s, and it changed everything about the way public companies comply with their reporting obligations and govern themselves, as well the way auditors conduct their audits and interact with the companies they audit (under the supervision of the PCAOB). I was actually not at the SEC at the time when Sarbanes-Oxley was enacted – I was on the “dark side,” working on a number of the above-referenced scandals. I rejoined the SEC in 2003 when implementation of Sarbanes-Oxley was in full swing, which was definitely a very interesting time to work at the agency.

There is one aspect of the Sarbanes-Oxley Act legacy that I think is worth revisiting now that we are going on 20 years into living with the Act, and that is the certification process. As we all know, the Sarbanes-Oxley Act imposed certification requirements on CEOs and CFOs in Sections 302 and 906 of the Act. The legislative purpose behind Sections 302 and 906 of the Sarbanes-Oxley Act was to enhance investor confidence in the quality and reliability of periodic reports by compelling CEOs and CFOs to take a more active role in the disclosure processes of public companies through individual responsibility for the accuracy and completeness of periodic report disclosures.

What many companies have done to support their Sarbanes-Oxley certifications is to implement a process of sub-certifications that compel responsible individuals throughout the organization to provide certifications that the CEO and CFO can rely on to provide their own certifications with the periodic report. Neither the statutory provisions of the Sarbanes-Oxley Act, nor the SEC’s implementing rules, specify any requirement that sub-certifications be executed by responsible individuals within a public company as a means to support the certifications signed by the CEO and the CFO. Further, the SEC has not provided any substantive guidance on the use of sub-certifications as part of a public company’s overall disclosure controls and procedures.

Sub-certifications can serve as important evidence supporting the executive’s state of mind. This evidence would be particularly important if the government were to pursue a criminal case based on the executive’s certification, which would require the DOJ to prove the executive “willfully” signed a certification “knowing” that the report did not comply with the SEC’s requirements. It is more difficult for the government to prove such an allegation if the executive was told that the report did in fact comply with the applicable requirements through the sub-certification process. The more specific the sub-certifications are, the more helpful they are for this purpose.

Remember that sub-certifications are not a substitute for implementing, utilizing and periodically evaluating effective disclosure controls and procedures and internal control over financial reporting. If used properly as part of a disciplined disclosure process, sub-certifications can serve the purpose of reinforcing effective disclosure controls and procedures and internal control over financial reporting, while promoting a corporate culture of compliance. Sub-certifications can sometimes be perceived negatively as a means for the CEO and CFO to transfer responsibility for the company’s SEC filings to subordinate employees, rather than taking responsibility themselves.

I think the 20th anniversary is a good opportunity to take another look at your sub-certification process. Some question you could ask are as follows:

1. Are the appropriate individuals within the organization providing sub-certifications?

2. Are the individuals taking the steps necessary to appropriately provide the sub-certification, or are they treating it as a pro forma process?

3. Can the sub-certification process be streamlined in any way to increase its effectiveness and enhance to protections that are sought through the process?

4. Is the sub-certification process appropriately integrated with the company’s overall disclosure controls and procedures and internal control over financial reporting?

5. Does the disclosure committee, or another appropriate governance body, periodically review the sub-certification process?

6. Do you have a plan in place for when an individual refuses to provide a sub-certification?

For more about Sarbanes-Oxley Act certifications and sub-certifications, check out our “CEO/CFO Certifications” Practice Area.

– Dave Lynn

May 20, 2022

My Favorite Wacky Feature: The Sarbanes-Oxley Report

Over the course of this year, I have been taking a walk down memory lane and looking back on 15 years of contributing to CCRcorp publications. Today I unearth the most wacky thing I have done with CCRcorp, and that is the forever classic “Sarbanes-Oxley Report.” I had hoped that perhaps the Sarbanes-Oxley Report had disappeared from the Internet sometime during the past 15 years, but sure enough, it is still available in all its wackiness on

I have a few observations looking back at the bizarre episodes of the Sarbanes-Oxley Report. First, it is very obvious that these episodes were filmed before the invention of the iPhone. For some reason, it looks like we filmed them using a Kodak Brownie 9mm movie camera from the 1950s, but I am certain that we had more recent technology. Second, I am glad in many ways that I got to be the straight man to Billy Broc Oxley, because I probably would not be writing about these episodes today if I had to wear the wigs. Third, I am glad that the episodes are very short. Fourth, these episodes of the Sarbanes-Oxley Report remind me to not take myself too seriously. Finally, the Sarbanes-Oxley Report reminds me of how Broc Romanek was always willing to push the envelope to both educate and entertain our members.

– Dave Lynn