Monthly Archives: January 2024

January 31, 2024

CalSTRS’ Policy Updates: ESG Risks Still Guide Engagements

CalSTRS recently announced that its Investment Committee has approved changes to the pension fund’s Corporate Governance Principles and Stewardship Priorities – both of which will be in place for a three-year cycle. I blogged last week on about the changes that affect executive compensation and compensation (and human capital) committees. In addition, the Corporate Governance Principles incorporate changes in these areas:

Standardized global sustainability disclosure standards – CalSTRS endorses the International Sustainability Standards Board (ISSB) Standards.

Boards of directors’ responsibilities – Including employee wellness factors, such as workforce diversity, pay, benefits, hiring, retention and business culture.

ESG risks and opportunities – On this, CalSTRS says it believes responsible corporate governance, including the management of environmental, social, and governance factors, can benefit long-term investors like CalSTRS. It is important for companies to consider ESG issues to ensure they are long-term sustainable companies and have considered and addressed all risks and opportunities that could affect the livelihood of the business.

The Principles also explain why it makes sense for CalSTRS to look at whether portfolio companies are managing ESG issues – for engagements as well as investment decisions:

CalSTRS’ investment activities impact other facets of the economy and the globe. As a significant investor with a long-term investment horizon, the success of CalSTRS is linked to global economic growth and prosperity. Actions and activities that detract from the likelihood and potential of sustainable global growth are not in the long-term interests of the Fund. Consistent with its fiduciary responsibilities, CalSTRS adopted the Investment Policy for Mitigating Environmental, Social and Governance Risks to ensure that the corporations and entities in which CalSTRS invests strive for long-term sustainability in their operations.

The Investment Policy, in turn, says that to assist CalSTRS Staff and external investment managers in their investment analysis and decision-making, CalSTRS has developed a list of ESG risk factors that should be considered as part of the financial analysis of any active investment decision. For passive index strategies, CalSTRS uses the ESG risk factors to guide engagement activities. The topics that CalSTRS considers ESG risk factors are listed in an exhibit to the Investment Policy.

The 18-page Principles also address the pension fund’s expectations for risk oversight, political contribution policies, overboarding, evaluation & succession planning, auditor rotation, bylaw amendments, bundled proxy proposals, and more. If your company is one of the 9,000 in the CalSTRS’ portfolio – which you can check on this page – then you should know that these Principles will be used as a voting framework at your AGMs – and the Stewardship Priorities will guide engagements.

All that said, CalSTRS’ voting policies are pretty workable – at least on their face. Many of the policies – especially the ones on “ESG” – are phrased as expectations and do not expressly state that the fund will vote against directors if the company falls short. You’ll hear about it in engagements and may see escalation over time, but CalSTRS says it wants to work with portfolio companies to find reasonable outcomes that support long-term value.

Liz Dunshee

January 31, 2024

Corporate Transparency Act: Don’t Forget Your Joint Ventures

Following up on this week’s theme of “why you need to pay attention to things you thought you could ignore,” this Locke Lord blog explains why the “public company” exemption for the Corporate Transparency Act isn’t enough to insulate public companies from having to conduct a compliance review and install new internal controls. Here’s an excerpt:

There is also an exemption from the filing requirement for subsidiaries of public companies (and other exempt companies), but that exemption only applies to wholly owned or controlled subsidiaries. Any subsidiaries or investment entities of public companies that do not meet the wholly owned or controlled test do not qualify for this subsidiary exemption although they may qualify for one of the other statutory exemptions.

The blog walks through detailed considerations and offers these compliance pointers as we move forward in this brave new world:

As public companies form new entities, enter into joint ventures, exit or dissolve joint ventures and make investments, they may find themselves, the joint venture or one of their affiliates subject to a reporting requirement under the CTA. Those could include M&A transactions, venture capital, vendor or supplier investments, and internal corporate restructurings (other than solely among wholly owned/controlled subsidiaries).

Also remember that, if you, as a lawyer, are overseeing entity formation filings, you are a “company applicant” who needs to register with FinCEN! And guess what, your paralegals and mailroom folks might be too. John wrote about that insanity earlier this month.

Liz Dunshee

January 31, 2024

Timely Takes Podcast: Recent Staff Comments on Impairment Charges

If you brush up against accounting issues as you’re reviewing disclosures (and most of us do), check out this 9-minute podcast where John interviews Olga Usvyatsky about recent comments from the Corp Fin Staff on impairment charges.

Olga is a former VP of Research of Audit Analytics where she led the development of new data sets used by investors, regulators, and academics. She also is the author of the “Deep Quarry” newsletter, and an article in the newsletter on recent Corp Fin staff comments on impairment charges provides the basis for this podcast. If you’re connected with Olga on social media or subscribe to her newsletter, you know she has a keen ability to notice accounting issues and explain what they mean to businesses. John & Olga discuss:

1. An overview of GAAP’s “Impairment” concept

2. The Staff’s recent impairment comment to Kraft Heinz & the company’s response

3. Issues typically raised in Staff comments on impairment charges and disclosure

4. Guidance on minimizing the risk of impairment comments and on responding to those comments

If you’d like to join John or Meredith for a podcast to share insights on a securities law, capital markets or corporate governance topic, please reach out to them at or

Liz Dunshee

January 30, 2024

SPAC Rules: Why All Public Companies Should Care

If you don’t work with SPACs, you may be thinking that you can ignore the SPAC rule changes that the SEC adopted last week. Sadly, that is not the case. In his dissenting statement, Commissioner Uyeda cautioned that the part of the adopting release that provides guidance on “investment company” determinations is broadly applicable. Here’s an excerpt:

All types of issuers – not just SPACs – should pay heed to this guidance because the framework for investment company status determinations could have implications for an operating company that temporarily derives income from investment securities. Would a pharmaceutical company that takes more than 12 or 18 months to bring a drug to market suddenly find itself primarily engaged in the business of investing in securities? While targeted at SPACs, the knock-on effects of this guidance could raise serious legal and compliance issues across a wide array of issuers. Part of the Commission’s obligation under the Administrative Procedure Act requires that an administrative agency provide due notice of what is being proposed. With respect to this guidance, that did not occur.

Commissioner Uyeda included an addendum to his statement that further criticizes the guidance. In particular, he takes issue with using an arbitrary 12- or 18-month timeframe as a factor in whether SPACs that have not completed a business combination need to register as investment companies. He makes this prediction, which doesn’t seem too far-fetched (especially for SPACs that hold “investment securities”):

As a practical matter, when faced with such strong language, issuers and their legal counsels will need to weigh the risk that the bright line duration limits set forth in the guidance will be used as a basis to bring enforcement actions.

Liz Dunshee

January 30, 2024

(Non-)SPAC Rules: Updates to Commission Policy on Projections

Last week’s SPAC rules also enhance the disclosure requirements that apply to projections. In addition to new Item 1609 of Regulation S-K that applies specifically to de-SPAC disclosures, Item 10(b) of Regulation S-K has been expanded to address concerns about prominence and non-GAAP financial measures for all companies. This Latham blog summarizes the change:

Amendments to the SEC’s guidance in S-K Item 10(b) state that any projections that are not based on historical financial results or operational history must be “clearly distinguished” from projections that are based on historical financial results or operational history. Projections based on historical financial results or operational history must give equal or greater prominence to the historical measures or operational history. Presentation of projections that include a non-GAAP financial measure should include a clear definition or explanation of the measure, a description of the GAAP financial measure to which it is most closely related, and an explanation why the non-GAAP financial measure was used instead of a GAAP measure.

The amendments also clarify that the Item 10(b) guidelines also apply to projections of future economic performance of persons other than the registrant, such as the target company in a business combination transaction, that are included in the registrant’s filings.

Liz Dunshee

January 30, 2024

Today’s Webcast: “The Latest – Your Upcoming Proxy Disclosures”

Tune in today at 2pm Eastern for the webcast – “The Latest: Your Upcoming Proxy Disclosures” – to hear Mark Borges of Compensia and, Alan Dye of Hogan Lovells and, Dave Lynn of Goodwin Procter and, and Ron Mueller of Gibson Dunn discuss the latest guidance on how to improve your executive & director pay disclosure – including pay-versus-performance disclosure and clawbacks – to improve voting outcomes and protect your board. Understand what to expect for the upcoming proxy season, so that you can prepare your directors and C-suite – and handle the challenges that 2024 will throw your way.

We are making this webcast available on as a bonus to members – it will air on both sites. And because there is so much to cover, we have allotted extra time for this program! It’s scheduled to run for 90 minutes.

If you attend the live version of this 90-minute program, CLE credit will be available in most states. You just need to fill out this form to submit your state and license number and complete the prompts during the program. All credits are pending state approval.

Members of and are able to attend this critical webcast at no charge. The webcast cost for non-members is $595. If you’re not yet a member, try a no-risk trial now. Our “100-Day Promise” guarantees that during the first 100 days as an activated member, you may cancel for any reason and receive a full refund. If you have any questions, email – or call us at 800.737.1271.

Liz Dunshee

January 29, 2024

BlackRock’s ’24 Voting Guidelines: A Few Reasonable Updates

BlackRock Investment Stewardship has unveiled its Global Principles and U.S. Proxy Voting Guidelines for 2024 annual meetings. The 21-page Principles give a comprehensive view of BIS’s stance on 7 key themes that impact companies worldwide – ranging from board responsibilities, to shareholder protections, to sustainability.

The Voting Guidelines get more specific on how BlackRock’s perspectives on these themes apply to specific ballot items & topics in different markets. Overall, the U.S. Voting Guidelines didn’t change too much. While BlackRock seems to have backed off some of its more controversial positions, it still encourages disclosure and strong governance practices. Here are a few updates worth noting:

CEO & Management Succession Planning – The guidelines now say that where there is significant concern regarding the board’s succession planning efforts, BlackRock may vote against members of the responsible committee, or the most relevant director. (See Meredith’s blog from earlier this month about trends in “succession planning” disclosure…)

Committee Leadership – Where boards have adopted corporate governance guidelines about committee leadership and/or membership rotation, BIS appreciates clear disclosure of those policies.

ISSB Standards – Recognizing that the TCFD framework has been absorbed by the International Sustainability Standards Board (ISSB) standards, BIS encourages disclosures on governance, strategy, risk management, and metrics & targets that are aligned with IFRS S1 and S2. BIS understands that companies may phase in ISSB reporting over several years and that some companies use different reporting standards.

Climate Disclosures – BlackRock continues to seek to understand companies’ strategies for managing material climate risks & opportunities under various scenarios. BIS emphasizes that it is not dictating strategy, which is the role of the board & management, and that it can be challenging for companies to predict the impact of climate issues on their business. But it notes that this is a structural shift in the global economy that may affect regulations, technology & consumer preferences, which be material for many companies.

Key Stakeholders and HCM – While BlackRock continues to encourage disclosure on DEI approaches, workforce demographics, and natural capital issues, it no longer indicates that it will vote against directors if it determines that a company is not appropriately considering their key stakeholders or if a company’s disclosures or practices fall short relative to market peers on human capital management.

Shareholder Proposals – A new section says that when assessing shareholder proposals, BIS evaluates each proposal based on merit and long-term financial value creation. BIS does not support proposals that it believes would result in over-reaching into the basic business decisions of the company. In addition, BIS believes it’s helpful for companies to disclose the names of the proponent or organization that has submitted or advised on the proposal. BIS may support shareholder proposals when they are focused on a material business risk that the company has not adequately addressed, if the proposal is reasonable and not unduly prescriptive.

Responsiveness – Alternatively, or in addition, BIS may vote against the election of one or more directors if, in its assessment, the board has not responded sufficiently or with an appropriate sense of urgency to a shareholder proposal. BIS may also support a proposal if management is on track, but it believes that voting in favor might accelerate efforts to address a material risk.

Most of the other changes are clarifications & what the more cynical among us would call “refined corporate-speak” around ESG/sustainability, BIS’s focus on long-term financial value, and its voting authority. A new 15-page spotlight from BIS – with input from the BlackRock Investment Institute – underscores the asset manager’s focus on “financial resilience” in the face of big geopolitical & economic changes, AI disruption, demographic changes, and the worldwide transition to a low-carbon economy. If you’re engaging with BlackRock this year, expect questions on these topics.

Liz Dunshee

January 29, 2024

BlackRock’s ’24 Engagements: Priorities Haven’t Changed…But the Backdrop Has

In addition to updating its Global Principles and Voting Guidelines, BlackRock Investment Stewardship has also refreshed its Engagement Priorities. Here’s the bottom line, according to BIS:

BIS’ Engagement Priorities for 2024 are consistent with those from prior years as they continue to reflect the corporate governance norms, that in our view, drive long-term financial value. There are no material changes in our approach to engaging companies on these themes.

We do note however, that the macroeconomic and geopolitical backdrop companies are operating in has changed. This new economic regime is shaped by powerful structural forces that we believe may drive divergent performance across economies, sectors, and companies. Amid these shifts, we are particularly interested in learning from investee companies about how they are adapting to strengthen their financial resilience.

In our Viewpoint, Financial resilience in a new economic regime, we highlight the structural shifts that we believe are shaping this new regime and discuss how companies are adapting to manage risks and harness opportunities spurred by it.

The Investment Stewardship team provides more detail on engagement priorities – including how it discusses these topics with companies – in its 7 thematic commentaries:

1. Board Quality & Effectiveness

2. Strategy, Purpose, & Financial Resilience

3. Incentives Aligned with Financial Value Creation

4. Climate

5. Natural Capital

6. Human Capital Management

7. Companies’ Human Rights Impact

Liz Dunshee

January 29, 2024

Conference Chronicles: Our Own “Fab Four” Reunion!

If you were following Dave’s dispatches last week from the Northwestern Securities Regulation Institute, you know that the week was both informative & eventful. I always find it energizing to catch up with friends & fellow practitioners who come from across the country to geek out together over securities law. When you throw in a flash flood and a SPAC release, there is definitely a lot of bonding.

One thing that made this year extra special was that our editorial team for was there in force! If we didn’t catch you at this conference, let’s connect at the next one – the Proxy Disclosure & Executive Compensation Conferences will be here before we know it!

Liz Dunshee

January 26, 2024

Memorial Day Looms Large: A Shorter Settlement Cycle is Just Around the Corner

Traveling from a very snowy mid-Atlantic to a warmer (but very wet) Southern California this week reminded me of how much I miss summer at this time of year. Memorial Day weekend is always the unofficial start of the summer season, and this year it will serve to usher in the T+1 settlement cycle for U.S. securities markets. While I wouldn’t expect a ticker-tape parade to celebrate this momentous occasion, there will certainly be a lot of work in back offices around the country to facilitate the shorter settlement cycle.

Yesterday, SEC Chair Gary Gensler addressed the European Commission on the topic of a shortened settlement cycle, noting in the title of his speech that “Time is Money. Time is Risk.” Citing the meme stock insanity that was unfolding as President Biden took office, Gensler outlined how the market plumbing of clearing and settling transactions matters to the markets and investors, similar to how the plumbing in your house is so important, as demonstrated when your plumbing backs up. Gensler noted:

Shortening the clearance part of the market plumbing (the time to ensure that all parties agree to the trade details) also lowers risk. The sooner the parties have allocated, confirmed, and affirmed the trade information for their transaction, the lower the likelihood of a settlement failing since the parties will have more time to identify and resolve any potential errors. The Bank of International Settlements first recommended T+0 affirmations 22 years ago. A decade later, CPMI-IOSCO reaffirmed this in their Principles for Financial Market Infrastructures.

Shortening the cycle also means reducing the credit, market, and liquidity risks of the clearinghouse.

Lowering risks for market participants and clearinghouses, alike, reduces the likelihood that any one entity’s failure spreads risk to the financial system, making the system safer for everyone.

After providing a history of settlement developments over the years and around the world, Gensler noted the while many Americans will be celebrating the unofficial start of summer over Memorial Day weekend, the U.S. will transition to securities settlements of T+1 on May 28, 2024, returning us to “the settlement cycle that we had in the United States most of the first 50 years of Memorial Days.” Further, starting May 28, 2024, trades relating to initial public offerings will be shortened from T+4 to T+2. Gensler noted that both Canada and Mexico are joining the U.S. in moving to T+1 on Monday, May 27, 2024.

Gensler closed his speech by encouraging the European Union and the U.K. to shorten their settlement cycles to bring them in line with where North America will be when summer kicks off later this year.

– Dave Lynn