Happy New Year! As Dave says, “For securities lawyers, every year is a roll-forward of the last one.” I take that to mean we get better every year – with incremental improvements & updates to our disclosures (and with any luck, ourselves). When it comes to your upcoming “risk factors” update, this White & Case memo identifies 6 key trends to consider:

– Cybersecurity

– Artificial Intelligence

– Macroeconomic Considerations: Uncertainty, Interest Rates and Inflation

– International Geopolitics

– Climate

– Internal Controls

In addition to considering whether the above developments have had – or are expected to have – a material impact on your company’s business, financial condition and operating results, now is also the time to make sure your existing risks are appropriately described. The memo shares these 5 drafting reminders:

– Avoid boilerplate disclosures

– Carefully Scrutinize Hypothetical Statements

– Review for Internal Consistency

– Update or Delete Risk Factors That Have Changed in Importance or Are No Longer Relevant

– Consider the order & organization of your risk factors, and don’t forget a “Risk Factor Summary” if your disclosure exceeds 15 pages

Check out the full memo for more color on each of these topics, as well as our “Risk Factors” Handbook and Practice Area for members.

– Liz Dunshee

In this 3-page memo released last month, the Vanguard Investment Stewardship team gives insight into how it analyzed shareholder proposals at 4 companies calling for third-party audits of workplace safety practices.

Vanguard emphasizes its case-by-case approach to these shareholder proposals, based on the relevant company’s facts & circumstances. The asset manager explains factors – e.g., disclosure about board oversight and quantitative improvements in safety metrics, etc. – that led to it voting against the proposals at each of the companies. The “against” votes occurred even though Vanguard determined that worker health & safety was a material risk for all 4 of the companies, so for other companies where this is a big issue, these examples are worth checking out. Here’s what Vanguard looks for from all portfolio companies on this topic:

On behalf of the investors in Vanguard-advised funds, we believe that companies should focus on issues that are material to their business. We look for boards to have the appropriate skills and expertise to identify and oversee material risks, to understand how risks could affect shareholder value creation at the companies they oversee, and to provide clear, decision-useful disclosure on oversight and management of the company’s material risks.

Portfolio companies should adhere to applicable labor laws and, where material, maintain oversight of workplace health and safety risks. We further look for boards to appropriately challenge management and regularly reevaluate risk-mitigation practices if the degree of financial materiality or the manifestation of a specific risk changes over time.

In engagements with portfolio companies, we seek to understand how boards oversee material risks, including those that relate to human capital management. Although the Vanguard-advised funds do not seek to dictate company strategy or day-to-day operations, we continue to engage boards on how they define materiality related to human capital risks, their oversight process for mitigating material risks, and how they disclose material risks to investors.

– Liz Dunshee

We’ve posted the transcript for our recent webcast – “More on Clawbacks: Action Items and Implementation Considerations” – during which Compensia’s Mark Borges, Ropes & Gray’s Renata Ferrari, Gibson Dunn’s Ron Mueller and Davis Polk’s Kyoko Takahashi Lin continued their excellent discussion from our 20th Annual Executive Compensation Conference on complex decisions and open interpretive issues that unlucky companies faced with a restatement will need to tackle. They covered:

– What to do if a restatement occurs

– Whether to amend other policies and agreements, or update other disclosures

– Maintaining your policy going forward (we are all going to get smarter about these policies over time!)

Members of this site or of CompensationStandards.com can access the transcript to this program and all of our other webcasts by visiting the “archives page“. If you’re not a member, sign up today to get access to this essential guidance!

Also, if you are a member, make sure to confirm with your knowledge management folks that your subscription has been renewed. Many of our subscriptions run on a calendar-year basis, and you don’t want any interruption in access as we head into proxy season.

– Liz Dunshee