Earlier this fall, the SEC adopted a rule change that will (among other things) amend the minimum pricing increments for the quoting and trading of exchange-listed stocks. As Meredith wrote at the time, the rule is intended to address “tick-constrained stocks” – which have narrow bid-ask spreads. You may wonder, “How many stocks suffer from ‘tick constraints?'” A recent Sidley memo points out that the answer is “most of them.” Here’s an excerpt:

Once implemented, the changes to minimum tick size will cause a majority of stocks — approximately 74.3%, based on the SEC’s estimate using 2023 data — to be quoted in more granular half-penny (i.e., $0.005) increments, rather than the $0.01 minimum tick most prevalent today.

This will likely necessitate systems changes for a large number of market participants, including broker-dealers and exchanges, to allow for the submission, ranking and display of orders at more granular pricing increments.

Moreover, the applicable minimum tick sizes will vary by stock and may change for each stock on a biannual basis, which will require broker-dealer systems be able to accommodate such changes, and inform their customers.

The Sidley memo also notes that the amendments have been challenged by a retail investor advocacy group. This Bloomberg article reports that Nasdaq and Cboe have also filed a joint petition focused on challenging the “access fee” portions of the rule change.

– Liz Dunshee

I don’t know about you, but I can’t wait for next Wednesday when the relentless political advertising on television will cease. I much prefer the mindless advertising about bathroom renovations and big screen TV sales that dominate the airways when we are not in an election season. I also yearn for a time when politics is boring. Boring is good. We need more boring.

This week we saw the release of the 2024 CPA-Zicklin Index, a collaboration between the Center for Political Accountability (CPA) and The Carol and Lawrence Zicklin Center for Business Ethics Research. The CPA-Zicklin Index has been benchmarking political spending since the Citizens United decision in 2010. The Index highlights significant improvement in in corporate political disclosure and accountability, noting:

The 2024 CPA-Zicklin Index is published shortly before Election Day and at an unparalleled time in the nation’s political history. The Index’s data reflect leading companies holding firm overall to established norms of political disclosure and accountability, despite fierce headwinds against environmental, social, and governance (ESG) and related principles for investors and U.S. corporations.

Moreover, when the 2024 Index results are compared against the last presidential election years of 2020 and 2016, the picture is striking: Many large public companies have realized major gains in disclosure and accountability for their election-related spending from corporate funds, and the gains are permanent. Whether examining the overall number of S&P 500 companies in 2024 or the 331 companies that have been a constant in the Index since 2015, the Trump years (2017 to 2021) plus Biden years (2021 to the present) have seen solid and dramatic increases in corporate political disclosure and accountability.

Some of the highlights from this year’s Index include:

– The number of all S&P 500 companies scoring 90 percent or above for political disclosure and accountability was 103, an increase over last year’s 100, and comprising more than 20 percent of all S&P 500 companies evaluated.

– 206 companies in the overall S&P 500 (over 41 percent) placed in the first Index tier (scoring from 80 percent to 100 percent). This number was more than double the 94 top-tier companies in 2016 and well beyond the 156 companies in 2020.

– The number of core S&P 500 companies scoring lowest for disclosure and accountability – in the bottom 20 percent – has declined sharply. From 106 bottom tier companies in 2016 it has declined to 73 in 2020, 37 in 2023 and 31 this year.

– For Russell 1000 companies that do not belong to the S&P 500, the average score for political disclosure and accountability is 16.5 percent. This compares to an average score of 59.9 percent for all companies in the S&P 500.

This year’s CPA-Zicklin Index certainly highlights some considerable progress in corporate political disclosure and accountability, particularly among the largest companies. Presidential election years always put a lot of focus on political spending by public companies, and having good transparency and getting the governance right can go a long way toward dispelling concerns of investors and the public.

– Dave Lynn

Yesterday, ISS-Corporate released a well-timed report on a very scary topic for many companies: shareholder proposals. The report is titled “U.S. Shareholder Proposals: A Decade in Motion,” and the press release announcing the report notes:

ISS-Corporate, a leading provider of compensation, governance, cyber risk monitoring, and sustainability offerings to help companies improve shareholder value and reduce risk, today announced the findings of an in-depth analysis of shareholder proposals submitted at U.S. public companies over a 10-year period running from July 2014 through June 2024. The analysis examines investor sentiment around assessing environmental, social, and governance (ESG) risks via the volume and support levels of different types of such proposals and looks at the underlying patterns of corporate behavior and disclosures driving shareholders’ ESG campaigns. Amid intensifying debate around the value of ESG and the emergence of shareholder campaigns that seek to counter corporate action on environmental and sustainability topics, the report investigates how the debate around ESG has impacted investor sentiment and shaped corporate practices more broadly.

Some of the key finding of the report include:

– Proposals related to E&S topics accounted for 62 percent of the total proposals submitted by shareholders in 2024, up from 44 percent a decade earlier.

– Support levels for E&S shareholder proposals have decreased since peaking in 2021, but this does not necessarily indicate a de-prioritization of sustainability factors for many investors.

– Shareholder campaigns tend to target large-cap firms, and these companies have made particularly significant strides over the last several years in the quality of their sustainability disclosures and practices and corporate governance practices.

– Anti-ESG proposals made up approximately 11 percent of the total shareholder proposals submitted in 2024 – up from around 2 percent of submitted requests from July 2014 to June 2021 – but average support levels remain in the low single digits at 1.7 percent of votes cast during the last three years.

All signs point to yet another very active proxy season for shareholder proposals, so buckle up and get ready!

– Dave Lynn

Mark your calendars today for our upcoming webcast, “SEC Enforcement: Priorities and Trends,” which is coming up on Wednesday, November 13, 2024 here on TheCorporateCounsel.net. Joining us for the program are Scott Kimpel of Andrews Kurth LLP, Allison O’Neil of Locke Lord LLP and Kurt Wolfe of Quinn Emanuel Urquhart & Sullivan, LLP. They plan to address the very active SEC enforcement environment we are experiencing, including:

1. SEC Enforcement Activities in 2024 and Priorities for 2025
2. Implications of Jarkesy for SEC’s Enforcement Program
3. Monetary and Non-Monetary Penalties
4. Accounting and Disclosure Actions
5. Actions Targeting “Internal Controls”
6. Self-Reporting and Cooperation Credit
7. Coordination with DOJ Investigations

Members of TheCorporateCounsel.net are able to attend this critical webcast at no charge. If you’re not yet a member, subscribe now. The webcast cost for non-members is $595.

– Dave Lynn