TheCorporateCounsel.net

Providing practical guidance
since 1975.

Monthly Archives: January 2025

January 31, 2025

Risk Factors: Allianz Rates 2025’s Top Business Risks

Allianz’s 2025 Risk Barometer identifies the following as the top five risks facing global business in 2025: cyber incidents, business interruption, natural catastrophes, changes in legislation and regulation, and climate change. Here’s what Allianz has to say about business interruption:

Business interruption ranks #2 in the Allianz Risk Barometer, meaning it has appeared in the top two risks for the past 10 years. It is the top risk in the Asia Pacificregion (new) and in 12 countries / territories – Austria (new), Canada, China (new), Hong Kong (new), Indonesia (new), Malaysia, Mexico (new), Netherlands, Philippines (new), Singapore, South Korea and Sweden (new).

It is also the top risk in (11) industries: Consumer goods (new), entertainment, food and beverages, heavy industry, hospitality (new), manufacturing (both automotive and other), oil and gas, power and utilities, renewable energy, and transportation and logistics (new).

The impact of a cyber incident or a natural catastrophe are the business interruption exposures companies fear most. The most important actions that companies are taking to de-risk their supply chains and make them more resilient, according to respondents are: Developing alternative/multiple suppliers; Broadening geographical diversification of supplier networks in response to geopolitical trends; and Initiating/improving business continuity management.

Allianz says that the top risks for large companies mirror its top global risks, with cyber incidents, business interruption and natural catastrophes leading the way. For smaller companies, the risks of changes in legislation and regulation have become more significant, and risks like climate change and political violence that were in the past concerns for larger businesses have become more prominent for smaller companies.

John Jenkins

January 31, 2025

“DExit” to Texas? Think Twice (At Least for Now)

Amid the rumblings and grumblings about companies leaving Delaware as a result of a handful of controversial 2024 Chancery Court decisions, two states have emerged as potential contenders for Delaware emigres. The first, Nevada, has long been touted as an alternative to Delaware. More recently, Elon Musk’s decision to move Tesla to Texas, together with the state’s decision to establish a dedicated Business Court, have had more companies eyeing The Lone Star State as a possible new home.

Companies thinking about reincorporating in Texas should read this recent CLS Blue Sky Blog post, which suggests that Texas has a long way to go to before its Business Court provides companies with anything comparable to the Delaware Court of Chancery:

Delaware’s Court of Chancery is celebrated for rapid and efficient decisions. Complex disputes, including merger-related injunctions, are often resolved within weeks. The absence of juries is a big reason for this speed, which helps, maintain stability for litigants and financial markets. The availability of jury trials in the Business Court, however, introduces unique considerations for complex corporate litigation and could lead to substantial delays and unpredictability. Jury selection, deliberation, and the potential for appeals based on jury decisions prolong case resolution and can create outcome inconsistencies.

The 1985 Pennzoil v. Texaco case in Texas serves as a cautionary tale. It resulted in an unprecedented $10.53 billion verdict against Texaco and highlighted the potential for unpredictable outcomes in high-stakes corporate litigation. To address these challenges while maintaining the constitutional right to a jury trial, Texas should consider a specialized jury selection process, which would provide enhanced jury education, encourage bench trials for complex cases, implement bifurcated trials, and use special masters or neutral experts.

Delaware’s streamlined processes enhance its reputation for efficiency. Procedural rules in the Court of Chancery are designed to expedite high-stakes corporate litigation, with mechanisms like summary judgments and injunction hearings conducted on tight schedules. The Business Court, by contrast, must develop similar procedural innovations to ensure it can meet the time-sensitive demands of corporate litigants.

The blog also notes that the right to a jury trial and the two-year terms of Business Court judges may impede Texas’s ability to develop the kind of deep body of opinion precedent necessary to compete with Delaware’s.

John Jenkins

January 31, 2025

Longer Sustainability Reports Aren’t Better – And Pickleball Might Kill You

I ran into our friend & former colleague Broc Romanek at SRI this week and we had a chance to grab lunch together. It was great to see him, and it reminded me to check out his latest post on Cooley’s “Governance Beat” blog. As usual, it’s worth sharing. In his post, Broc discussed the rapid growth in the length of corporate sustainability reports, which have apparently grown by nearly 20% on average since 2021. He cites a few factors driving their increasing length:

– Alignment with more reporting frameworks, creating many pages of SASB and GRI tables.

– More sophisticated and granular quantitative – particularly, climate – reporting, with a more detailed discussion of methodology.

– Attempts to focus reporting more on company-specific initiatives and issues, rather than broad generic topics, resulting in multipage discussions – with plenty of marketing gloss – about company programs, including case studies.

Broc doesn’t necessarily endorse this trend, noting that there’s frequently unnecessary fluff in longer reports and their length makes quality control more difficult. Also, the longer the report, the more plaintiffs have to shoot at.  Broc sums up his general approach to sustainability reports & life in general in the blog’s first paragraph:

As I get older, my motto has been “less is more.” That certainly works for a mindful lifestyle. And it also works for pickleball, as one learns to hit the ball softly and place it cleanly rather than banging away at it to earn points.

Broc plays a lot of pickleball, so I know his advice about the game is sound. I’ve played only a little pickleball, but I have also some advice for you if you’re thinking of giving the game a try. My advice is this – pickleball was invented by malevolent orthopedic surgeons, and this deceptively gentle-looking game carries a not insignificant risk of injury for Boomers & Gen Xers who take it up. As I will now explain, I know this from experience.

Last year, my wife signed us up for pickleball lessons at a local tennis club. All went well until the final class, when I was playing doubles, and my partner missed the ball. Since I firmly believe that I’m 62 going on 22, I determined that I would race across the court and attempt a daring save of the point. I failed miserably, lost my balance, and grabbed the tennis net behind me in an effort to break my fall. My hand got tangled in the net and, to make a long story short, I was soon on my way to the emergency room with the two middle fingers on my right hand pointed at a 45-degree angle.

This was unpleasant, although the folks at the emergency room seemed to enjoy the story of how I ended up there. Between giggles, the nurses told me they see a lot of pickleball injuries from geriatrics like me who refuse to go gentle into the good night. They also said that there is a widely held hypothesis among ER professionals that the game was invented by orthopedic surgeons to drum up business.

Fortunately, my fingers weren’t broken, just badly dislocated. The doctor popped my fingers back in and The Cleveland Clinic sent me a bill for $3,000. Because I didn’t cry about either of these events, my wife bought me McDonald’s for being such a brave little guy.

The bottom line is that I’ve played hockey ineptly for over 20 years without a scratch, but it only took me three weeks of pickleball to end up in the emergency room. So, based on my own experiences as I get older, my spin on Broc’s motto is that for me, when it comes to pickleball, “less is more.”

John Jenkins

January 30, 2025

EDGARNext: Beware the Ides of March!

In case you’ve forgotten, EDGARNext goes live on March 24, 2025 (okay, I know that’s not exactly the Ides of March but indulge me). Filers will be able to use the current platform until September 15, 2025. At that point, existing filer codes will be deactivated, and filers will need to enroll in EDGARNext in order to make future filings. This Hogan Lovells memo outlines what filers need to do in order to transition to EDGARNext, and this excerpt addresses the actions companies should take in preparation for the new filing regime:

Obtain Login.gov credentials. All individuals who make submissions on behalf of a company or Section 16 filers, or who manage the EDGAR accounts/access codes of those filers, including anyone who will be in charge of enrolling filers in EDGAR Next, should obtain Login.gov account credentials. Login.gov account credentials may be obtained now.

Take advantage of the EDGAR Next beta. Become familiar with the new dashboard. Login.gov credentials are required for access.

Collect current EDGAR access codes. Maintain a running list of all current CIKs, CCCs, and passphrases to ensure smooth enrollment. Check to make sure you have the codes of the company and any Section 16 filers for which the company is responsible for, and confirm that the codes work.

Identify individuals who will serve in various roles. Decide who will serve as Account Administrators and Users for the company and any Section 16 filers for which the company provides filing support. Companies commonly manage EDGAR submissions for Section 16 filers who are directors of more than one public company, so those companies and the Section 16 filer will need to coordinate to determine who is going to enroll the filer in EDGAR Next once it goes live and who will serve as Account Administrator(s).

Annual Confirmation. Determine which Account Administrator will be responsible for the annual confirmation discussed above.

Coordinate with filing agents. Coordinate with any filing agents you use to ensure that the filing agent is implementing appropriate processes in connection with the EDGAR Next transition.

Update onboarding process to account for Form ID. After March 24, 2025, any new Section 16 filers that need EDGAR codes will need to designate who will serve as Account Administrator(s) and provide certain other information (e.g., information regarding history of past securities law violations and good standing) via the new Form ID.

Also, be sure to check out the EDGARNext page on the SEC’s website. The EDGAR Business Office has done several informative webinars addressing EDGARNext and the enrollment process for issuers and individual filers. Replays of those presentations (together with downloadable slide decks) are available on that page.

John Jenkins

January 30, 2025

Executive Security Arrangements: Governance Considerations

We’ve previously blogged about the potential disclosure issues surrounding security arrangements for corporate executives, but that’s not the only thing that companies looking to implement or enhance those arrangements need to think about. As this Covington memo points out, there are also corporate governance considerations resulting from the increasing threat environment that boards should keep in mind:

As part of its duty of oversight, a board of directors should periodically consider the company’s needs with respect to executive security arrangements. This involves assessing: the potential risks to the safety and well being of executive officers and other employees in light of the company’s location, business and industry; the public profile and roles played by executives; current social, economic and political events; and any significant threats to company personnel.

In light of these risks, the board should assess whether it would be prudent for the company to implement new security measures or modify existing ones. Boards also should understand the policies and procedures that a company has adopted to monitor and respond to potential executive security threats, including escalation to law enforcement. In circumstances where there are material changes to a company’s risk profile or new threats to company personnel, boards should be prepared to revisit their prior analyses and consider changes as circumstances warrant.

The memo suggests that boards may want to consider going beyond traditional arrangements like company-funded vehicles and security staff and implement policies regarding background checks on employees, contractors and business partners, heightened data protection and privacy procedures, including encryption and restrictions on access to sensitive information, cybersecurity training or other procedures designed to address safety risks. It also points out that these security measures may need to extend to employees beyond the C-suite.

One of the interesting implications of the memo’s suggestion that executive security implicates the board’s duty of oversight is the potential that directors might face Caremark claims in the event that lax personal security arrangements lead to the death or injury of a key executive. That’s yet another incentive for companies to take a hard look at their existing executive security arrangements.

John Jenkins

January 30, 2025

Arizona Supreme Court Pumps the Brakes on KPMG Law Firm Effort

Liz recently blogged about KPMG’s efforts to obtain approval to provide legal services in Arizona. Earlier this week, Arizona’s Supreme Court refused to approve KPMG’s request, and instead asked for more information.  Here’s an excerpt from a Bloomberg Law article:

The Arizona Supreme Court on Tuesday requested more information on KPMG’s application to practice law in the state, declining for now to approve the company’s request. The court met to consider the application Tuesday after an Arizona committee earlier this month recommended KPMG’s approval, which would make it the first Big Four accounting firm to practice law in the US.

“The KPMG application remains under review,” court communications director Alberto Rodriguez said in an email. The court has requested “additional information or clarification on aspects of the application.” There are “no specifics or timeframe” as to when the court will make a final decision, Rodriguez said.

KPMG didn’t immediately respond to a request for comment.

John Jenkins

January 29, 2025

Crypto: Trump Signs Digital Assets Executive Order

Last week, President Trump issued an Executive Order titled “Strengthening American Leadership in Digital Financial Technology.” The new order repeals President Biden’s 2022 Executive Order on digital assets and other Biden-era digital policies. Sullivan & Cromwell’s memo on the new order says that it also:

– Outlines key digital asset policy objectives, including: (i) protecting and promoting access to and use of open public blockchain networks “for lawful purposes” and without “persecution,” including developing and deploying software, mining and validating activity, transacting without “unlawful
censorship,” and maintaining self-custody of digital assets; (ii) promoting the growth of “lawful and legitimate” U.S. dollar-backed stablecoins; (iii) protecting “fair and open access” to banking services for “law-abiding” individuals and firms; (iv) providing regulatory clarity and certainty “built on technology-neutral regulations”; and (v) protecting against the risks associated with CentralBank Digital Currencies (“CBDCs”);

– Establishes the President’s Working Group on Digital Asset Markets (the “Working Group”), chaired by the Special Advisor for AI and Crypto and including the Treasury Secretary, SEC Chairman, CFTC Chairman, Attorney General, and various national security and technology officials;

– Instructs the Working Group to: (i) within 30 days, identify all “regulations, guidance documents, orders, or other items that affect the digital asset sector”; (ii) submit recommendations to the Chair within 60 days with respect to those regulations and guidance (e.g., to rescind or modify); (iii) submit a report to the President within 180 days proposing a Federal regulatory framework for
digital assets; (iv) evaluate a potential national digital assets stockpile; and (v) consult with the National Security Council and digital asset market experts, as appropriate; and

– Prohibits agencies from undertaking any action to establish, issue, or promote CBDCs.

The Trump administration’s crypto czar David Sacks touted the order, but crypto skeptics are less enamored with it. Here’s what one industry watcher had to say:

“Any crypto regulation should actually protect investors rather than defending the ability of cryptocurrency issuers to stuff the public with another useless digital currency,” says James Royal, Bankrate principal investment and wealth management reporter. “Given the crypto industry’s sizable donations to the Trump campaign and the Trump family’s own personal stake in newly launched cryptocurrencies, I’m not optimistic that any regulation proposed here will do much more than pave the way for legalized scams.”

Media reports suggest that crypto backers are likely to be disappointed that the order merely calls for a study to evaluate a national cryptocurrency stockpile, instead of immediately creating one.

John Jenkins

January 29, 2025

Crypto: So Long, SAB 121!

In addition to President Trump’s executive order, and the SEC’s creation of a crypto task force to study how to regulate digital assets, the crypto industry received more good news last week with the SEC’s Accounting Staff issued SAB No. 122, which rescinded its controversial SAB No. 121. That interpretation required crypto platforms to treat their obligations to safeguard the crypto-assets held for its platform users as liabilities. Critics contended that it deterred financial institutions from serving as custodians for digital assets and deprived owners of more secure alternatives for holding those asset. This excerpt lays out the substance of SAB No. 122:

This SAB rescinds the interpretive guidance included in Topic 5.FF in the Staff Accounting Bulletin Series entitled Accounting for Obligations to Safeguard Crypto-Assets an Entity Holds for its Platform Users. Upon application of the rescission of Topic 5.FF, an entity that has an obligation to safeguard crypto-assets for others should determine whether to recognize a liability related to the risk of loss under such an obligation, and if so, the measurement of such a liability, by applying the recognition and measurement requirements for liabilities arising from contingencies in Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Subtopic 450-20, Loss Contingencies, or International Accounting Standard (“IAS”) 37, Provisions, Contingent Liabilities and Contingent Assets under U.S. generally accepted accounting principles and IFRS Accounting Standards, respectively.

The new interpretation goes on to say that entities should effect the rescission of SAB No. 121 on a fully retrospective basis in annual periods beginning after December 15, 2024, and that they may elect to effect the rescission in any earlier interim or annual financial statement period included in SEC filings after the effective date of SAB No. 121.

John Jenkins

January 29, 2025

Crypto: What the SEC Should Do Now

A recent CoinDesk article co-authored by former Corp Fin Director Bill Hinman has some suggestions for the SEC’s crypto task force concerning actions that the SEC should take right now to regulate crypto.  Topping the list is providing guidance on airdrops:

The SEC should provide interpretive guidance for how blockchain projects can distribute incentive-based crypto rewards to participants — without those being characterized as securities offerings. Blockchain projects typically offer such rewards — often called “airdrops” — to incentivize usage of a particular network. These distributions are a critical tool for enabling blockchain projects to progressively decentralize, as they disseminate ownership and control of a project to its users.

If the SEC were to provide guidance on distributions, it would stem the tide of these rewards only being issued to non-U.S. persons — a trend that is effectively offshoring ownership of blockchain technologies developed in the U.S., yet at the expense of U.S. investors and developers.

What to do:

Establish eligibility criteria for crypto assets that can be excluded from being treated as investment contracts under securities laws when distributed as airdrops or incentive-based rewards. (For example, crypto assets that are not otherwise securities and whose market value is, or is expected to be, substantially derived from the programmatic functioning of any distributed ledger or onchain executable software.)

The article’s other recommendations for immediate SEC action include modifying crowdfunding rules to make them more crypto-friendly, enabling broker-dealers to operate in crypto, providing guidance on custody and settlement, reforming standards for exchange traded products, and implementing a certification requirement for ATS listings.

John Jenkins

January 28, 2025

Corp Fin Issues New & Updated CDIs on Notices of Exempt Solicitations

Yesterday, Corp Fin issued three new CDIs and updated two existing CDIs addressing Notices of Exempt Solicitations (aka, PX14A6G filings). Here are the three new CDIs:

Question 126.08

Question: Can a person submit written soliciting material under the cover of a Notice of Exempt Solicitation on EDGAR if the written soliciting material has not been sent or given to security holders?

Answer: No. The submission of a Notice of Exempt Solicitation on EDGAR is not intended to be the means through which a person disseminates written soliciting material to security holders. Rather, its purpose is to notify the public of the written soliciting material that the person has sent or given to security holders through other means. See Release No. 34-30849 (June 23, 1992) (proposing the notice requirement so there would be public notice of extensive soliciting activity made in reliance on the Rule 14a-2(b)(1) exemption); Release No. 34-31326 (Oct. 16, 1992) (adopting the notice requirement in response to commenters’ concerns that, absent such a requirement, the Rule 14a-2(b)(1) exemption would permit large shareholders to conduct “secret” solicitation campaigns). [January 27, 2025]

Question 126.09

Question: Can a person submit a Notice of Exempt Solicitation on EDGAR for a written communication that does not constitute a “solicitation” under Rule 14a-1(l)?

Answer: No. Because Rule 14a-6(g) only applies to solicitations made pursuant to the Rule 14a-2(b)(1) exemption, only written communications that constitute a “solicitation” should be submitted under the cover of a Notice of Exempt Solicitation. For example, a written communication solely about matters that are not the subject of a solicitation by the registrant or a third party for an upcoming shareholder meeting generally would not be viewed as a solicitation and, therefore, should not be submitted under the cover of a Notice of Exempt Solicitation. [January 27, 2025]

Question 126.10

Question: Does Rule 14a-9, which prohibits materially false or misleading statements, apply to written soliciting materials sent or given to security holders in reliance on the Rule 14a-2(b)(1) exemption and filed under the cover of a Notice of Exempt Solicitation?

Answer: Yes. Rule 14a-2(b) does not provide an exemption from Rule 14a-9. As a result, written soliciting material attached to a Notice of Exempt Solicitation is subject to liability under Rule 14a-9. See also Release No. 34-31326 (Oct. 16, 1992) (“Pursuant to the [Rule 14a-2(b)(1)] exemption, solicitations by or on behalf of eligible persons would be exempt from all of the proxy statement filing, delivery and information requirements imposed by the proxy rules but remain subject to Rule 14a-9, which prohibits false or misleading statements in connection with written or oral solicitations.”). [January 27, 2025]

Updated CDIs are usually the most difficult ones for us to blog about, because we usually have to try to figure out the changes without any indication from the Staff about what they were. That’s not the case with this batch, because the Staff has included marked copies of each updated CDI showing the changes from the original version. This is a huge help to everyone who is trying to keep up to date on Corp Fin’s guidance and I sure hope it becomes a standard practice. Anyway, here are links to the marked versions of the updated CDIs, and you folks can see for yourselves what changes were made:

Question 126.06 – Addresses the circumstances under which the Staff will permit soliciting persons owning less than $5 million of the subject class of securities to voluntarily submit a Notice of Exempt Solicitation.

Question 126.07 – Addresses the presentation requirements applicable to the identifying information required by Rule 14a-103 in a Notice of Exempt Solicitation.

Gibson Dunn’s blog on the new & updated CDIs points out that public companies may find them helpful in dealing with some of the shenanigans that have plagued the exempt solicitation process in recent years:

The new and revised C&DIs will be welcome by companies in light of concerns that PX14A6G filings have become a bit of a “Wild West” where shareholder proponents or their representatives use PX14A6G filings to assert arguments or claims in support of their proposals without disclosing their involvement with the proposal, and without verifying or taking responsibility for claims set forth in their PX14A6G filings. In its annual “stakeholders meeting” with shareholder proponents, proponent representatives, and public companies, the Staff has confirmed that it will take appropriate action when informed of problematic PX14A6G filings. These C&DIs go a long way to help address those practices.

John Jenkins