We’ve recently posted another episode of the “Understanding Activism with John & J.T.” podcast. This time, John and J.T. Ho were joined by Jonas Kron, Chief Advocacy Officer for Trillium Asset Management. John and J.T. spoke with Jonas about how Trillium approaches the engagement process, trends in ESG activism, and how activist investors like Trillium are responding to the headwinds facing ESG activism.

Topics covered during this 33-minute podcast include:

– How Trillium decides which issues it intends to prioritize and which companies it is going to engage
– Trillium’s approach to engaging with the management of its portfolio companies
– Advice for companies when engaging with socially conscious investors like Trillium
– How Trillium works with other socially conscious investors
– Top issues for engagement by Trillium and other ESG-focused investors during the upcoming proxy season
– Investor responses to headwinds facing them on ESG and DEI initiatives
– Alternative investor approaches if Rule 14a-8 is pared back

This podcast series is intended to share perspectives on key issues and developments in shareholder activism from representatives of both public companies and activists. John and J.T. are continuing to record new podcasts, and they’re full of practical and engaging insights from true experts – so stay tuned!

– Meredith Ervine

Yesterday came the first big crypto announcement from the SEC under Acting Chair Uyeda’s leadership — the creation of a crypto task force charged with “developing a comprehensive and clear regulatory framework.” Commissioner Peirce has been tapped to lead the task force, with Richard Gabbert, Senior Advisor to the Acting Chairman, to serve as Chief of Staff, and Taylor Asher, Senior Policy Advisor to the Acting Chairman, to serve as Chief Policy Advisor.

Here’s more from the press release:

To date, the SEC has relied primarily on enforcement actions to regulate crypto retroactively and reactively, often adopting novel and untested legal interpretations along the way. Clarity regarding who must register, and practical solutions for those seeking to register, have been elusive. The result has been confusion about what is legal, which creates an environment hostile to innovation and conducive to fraud . . .

The Task Force’s focus will be to help the Commission draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks, and deploy enforcement resources judiciously.

The release notes that the task force intends to hold roundtables for public input but, for now, interested parties can share thoughts at crypto@sec.gov.

I had initially written a blog about two other crypto developments that now seem moot, but ICYMI:

– Last week, the Third Circuit ordered the SEC to fully explain why it has failed to promulgate rules for crypto regulation.

– In the separate dispute between the SEC and Coinbase regarding the SEC’s enforcement action alleging that Coinbase operated as an unregistered broker, exchange, and clearing agency, Coinbase recently won its motion for interlocutory appeal to the Second Circuit.

– Meredith Ervine 

As you consider any AI-related updates to your Form 10-K disclosures for calendar year 2024, take a look at this Orrick survey of AI-related comments made by the SEC Staff since 2021. The Orrick team identified 92 separate comments in letters issued to 56 companies, which were “well distributed across various industries, including technology, biopharmaceuticals and healthcare, real estate, retail, and financial services.”

Here are short excerpts on some trends they identified. Each of these is more fully explained in the article with additional examples given.

– Materiality. The SEC has advised companies to assess if discussions about AI in board meetings, earnings calls, and investor presentations suggest materiality and, if so, to provide corollary disclosures in SEC filings.

We note disclosure regarding the importance of AI to your business, including that your financial performance and growth will be driven in large part by the demand for AI workloads. Please revise your business section to more fully discuss the current state of AI and the potential obstacles to broad-based AI adoption. In addition, more fully discuss the current state of AI regulation within the United States and your other markets. Clarify what you would consider to be “unfavorable developments” with the potential to materially impact the company, as referenced on page XX.

– Immateriality. Interestingly, the SEC has also shown concern about immateriality, requesting companies to justify the inclusion of certain AI-related disclosures that do not seem material and to include examples of use cases that would be helpful for investors’ understanding.

Please tell us why you believe that the various AI-related programs in the timeline table disclosed are material enough to be included, especially considering the early stage of such programs and the lack of disclosure regarding these programs.

– Reasonable Basis. Approximately 30% of the SEC’s comments we reviewed addressed unsupported or unqualified statements.

Please revise the bullet points on page XX of the proxy statement to clarify, if true, that these are not yet products or services the company provides, and are instead areas of research or are aspirational. 

– Specificity and Balance. [A]pproximately 61% of the SEC’s comments we reviewed requested that companies that have disclosed AI-related initiatives, projects, or technologies clarify how the AI is or is intended to be used in those initiatives, projects, or technologies and any attendant risks.

We further note the disclosure that broad-based AI adoption is in its early phases and that AI-adoption is likely to continue and may accelerate. Please revise your business section to provide a more balanced discussion of AI. Include, without limitation, a discussion of the potential limitations, obstacles, and uncertainties associated with AI adoption, use, and commercialization.

– Define AI. 17% of the SEC’s comments we reviewed addressed the use of AI-related terminology and definitions.

Given the nature of your business, please consider including definitions of “AI,” “generative AI,” “deep learning,” “large language models,” “neural networks,” and any other industry-specific terminology.

Please explain how your software is properly characterized as AI or machine learning, rather than as an algorithm. 

– Other. 34% of the SEC’s comments we reviewed addressed other AI-related issues, such as IP, the collection and use of data implicated in AI applications, the involvement of third parties, how the AI was developed, validation of models, and disclosure inconsistencies.

– Meredith Ervine 

Late last year, John and Cleary’s J.T. Ho recorded an “Understanding Activism with John & J.T.” podcast with Jun Frank, who serves as Global Head of Compensation & Governance Advisory for ISS-Corporate. They spoke with Jun about trends in shareholder proposals and activism.

Topics covered during this 20-minute podcast include:

1. Understanding shareholder proposal trends
2. Impact of Anti-ESG campaigns
3. Withdrawal rates and engagement
4. Corporate disclosure and governance improvements and impact on support of proposals
5. Proxy advisor and investor approaches to evaluating contested elections
6. Emerging activism trends and proxy advisor and investor responses

John and J.T. hope to share perspectives on key issues and developments in shareholder activism from representatives of both public companies and activists on this podcast series. They’re continuing to record new podcasts, and I think you’ll find them filled with practical and engaging insights from true experts – so stay tuned!

– Meredith Ervine 

Yesterday, the White House announced that President Trump has designated Commissioner Mark Uyeda as Acting Chair of the SEC. Commissioner Uyeda has served as an SEC Commissioner since June 2022 and has been with the SEC since 2006 — as SEC detailee to both the legislative and executive branches, senior Advisor to Chairman Jay Clayton, Counsel to Commissioners Michael S. Piwowar and Paul S. Atkins, and Assistant Director and Senior Special Counsel in the Division of Investment Management.

Acting Chair Uyeda will preside over a three-person Commission — presumably until Paul Atkins, who President Trump has said he will nominate as Chair, is confirmed. Reuters reports that Acting Chair Uyeda and Commissioner Peirce “are expected to kick-start a cryptocurrency policy overhaul as early as this week.” Stay tuned!

– Meredith Ervine 

You know those little errors in the securities laws — the cross-reference to a vacated rule or typographical error — that don’t actually matter because it’s clear what it’s supposed to mean, but they bother you anyway? If you, like me, have some of those pet peeves, Chair Gensler has a parting gift for you!

On Friday afternoon, the SEC issued this final rule release to “correct errors that are technical in nature, including typographical errors and erroneous cross-references in various Commission rules and forms.” What type of corrections, you ask? Well, as an example, one of my biggest pet peeves — because I think it did cause confusion — was addressed.

Paragraph (a) of Item 5.08 of Form 8-K (Shareholder Director Nominations) was restated as follows:

(a) Where a registrant is required to include shareholder director nominees in the registrant’s proxy materials pursuant to either an applicable state or foreign law provision, or a provision in the registrant’s governing documents, then the registrant is required to disclose the date by which a nominating shareholder or nominating shareholder group must submit the notice on Schedule 14N required pursuant to § 240.14a–18.

This removes the first sentence of Item 5.08(a), which read:

If the registrant did not hold an annual meeting the previous year, or if the date of this year’s annual meeting has been changed by more than 30 calendar days from the date of the previous year’s meeting, then the registrant is required to disclose the date by which a nominating shareholder or nominating shareholder group must submit the notice on Schedule 14N (§ 240.14n–101) required pursuant to § 240.14a–11(b)(10), which date shall be a reasonable time before the registrant mails its proxy materials for the meeting.

What is this talking about? Here’s a reminder from WilmerHale’s Keeping Current With Form 8-K:

Item 5.08 was adopted in connection with the SEC’s proxy access rules. The first sentence of Item 5.08(a) appears to be inoperative because it implements Rule 14a-11, which was vacated. However, the second sentence of Item 5.08(a) remains relevant, because it refers to Rule 14a18, which remains in effect. Rule 14a-18 applies to a company that is required, by state or foreign law or the company’s governing documents, to include shareholder director nominees in its proxy materials

So now it’s clear that an 8-K is to be filed under Item 5.08(a) within four business days after a company determines its anticipated meeting date if the company did not hold a prior year annual meeting or changed the annual meeting date by more than 30 calendar days from the previous year’s meeting AND is required to include shareholder director nominees in their proxy materials pursuant to state law, foreign law or the company’s governing documents (e.g., proxy access bylaw). This is helpful!

There were other fixes that were truly nits as well. Our more eagle-eyed members might appreciate these edits:

– Fixing the spelling of “indentures” in the heading of Item 601(b)(4) of Regulation S-K
– Replacing that errant “; and” with the appropriate period at the end of Item 5(a) of Part II of Form 10-Q

I’m curious! What’s your pet peeve error in the securities laws? Did it get fixed? Let me know at mervine@ccrcorp.com.

– Meredith Ervine 

Join us tomorrow at 2 pm Eastern for our “ISS Policy Updates and Key Issues for 2025” webcast to hear ISS’s Marc Goldstein, Davis Polk’s Ning Chiu & Jasper Street Partners’ Rob Main discuss what transpired in 2024, ISS’s policy updates for 2025 meetings, other trends and themes expected to impact the 2025 proxy season and emerging issues for the coming year and beyond. This is one of our annual favorites you won’t want to miss!

Members of this site are able to attend this critical webcast at no charge. 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. The webcast cost for non-members is $595. You can sign up by credit card online. If you need assistance, send us an email at info@ccrcorp.com – or call us at 800.737.1271.

We will apply for CLE credit in all applicable states (with the exception of SC and NE which require advance notice) for this 60-minute webcast. You must submit your state and license number prior to or during the program using this form. Attendees must participate in the live webcast and fully complete all the CLE credit survey links during the program. You will receive a CLE certificate from our CLE provider when your state issues approval; typically within 30 days of the webcast. All credits are pending state approval.

This program will also be eligible for on-demand CLE credit when the archive is posted, typically within 48 hours of the original air date. Instructions on how to qualify for on-demand CLE credit will be posted on the archive page.

– Meredith Ervine

I’m excited to announce the launch of “Mentorship Matters with Dave & Liz” – a new podcast series available to members of TheCorporateCounsel.net. Dave Lynn and I will be sharing our perspectives on mentorship and career development – which we hope can help those looking for guidance on their own career path, as well as those who are looking for ideas on how to support people who are newer to the field.

Dave and I will be sharing our own stories and interviewing people in the community. We look forward to building on the support to our members that we provide through The Mentor Blog – and adding to our many podcast offerings across our sites.

For our first episode, Dave and I covered:

1. Why to “think outside the box” about mentorship.

2. Other principles for finding and maintaining a successful mentorship relationship.

3. Mentorship stories from Dave and Liz.

4. Traits to look for in a mentor.

5. Why mentorship is a two-way street.

Check it out, and stay tuned for future episodes!

– Liz Dunshee

We blogged last fall about an NYSE rule proposal that would make it more difficult for companies to use repeated reverse stock splits to maintain compliance with continued listing standards. The SEC designated January 15th as the date by which it would either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change. In the meantime, the NYSE amended its rule filing twice – here’s Amendment No. 2. The SEC didn’t receive any additional comments.

On January 15th, the SEC approved the rule change, as modified by Amendment No. 2, on an accelerated basis. Here’s more detail:

The Exchange now proposes to amend Section 802.01C to limit the circumstances under which a listed company that fails to meet the Price Criteria may be provided a compliance period under Section 802.01C. Specifically, the Exchange proposes that, notwithstanding the general ability of a listed company to utilize a reverse stock split as a mechanism for regaining compliance with the Price Criteria, if a listed company’s security fails to meet the Price Criteria and the company (i) has effected a reverse stock split over the prior one-year period13 or (ii) has effected one or more reverse stock splits over the prior two-year period with a cumulative ratio of 200 shares or more to one, then the company shall not be eligible for any compliance period specified in Section 802.01C and the Exchange will immediately commence suspension and delisting procedures with respect to such security in accordance with Section 804.00 of the Manual.

The Exchange also proposes to amend Section 802.01C to prohibit a listed company from effectuating a reverse stock split, for purposes of regaining compliance with the Price Criteria or otherwise, if the effectuation of such reverse stock split results in the company’s security falling below the continued listing requirements of Section 802.01A of the Manual (Distribution Criteria for Capital or Common Stock (including Equity Investment Tracking Stock)). If a listed company effectuates a reverse stock split notwithstanding this limitation, the company would not be eligible to follow the procedures outlined in Sections 802.02 and 802.03 of the Manual and the Exchange would immediately commence suspension and delisting procedures with respect to such security in accordance with Section 804.00 of the Manual.

Note that this new rule applies to a listed company even if the company was in compliance with the Price Criteria at the time of its prior reverse stock split.

– Liz Dunshee

I blogged yesterday about an enforcement action in which the SEC brought charges under the negligence-based antifraud provision of Securities Act Section 17 (specifically, Section 17(a)(3)), based only on grants of restricted stock to directors under an equity incentive plan. I have usually not paid much attention to these charges in complaints because in many cases there is a larger population of award recipients, but this one jumped out at me.

A member reminded me that this is an easy charge for the Enforcement Division to tack on, because not only does it not require scienter, but it can be predicated on either an offer or a sale. Having a registration statement on file is considered an “offer” – and an S-8 is low-hanging fruit. Most public companies have an S-8 on file, so it’s common for Enforcement to add this to its list of charges in an action. (Even if the only people actually receiving awards were directors!)

Programming Note: In observance of Martin Luther King Jr. Day, we will not be publishing blogs on Monday. We’ll return Tuesday.

– Liz Dunshee