On Friday, a Maryland federal court entered a preliminary injunction enjoining enforcement of certain provisions of the two anti-DEI executive orders that President Trump issued in January. This excerpt from Gibson Dunn’s memo on the decision summarizes the scope of the Court’s ruling:
The court enjoined the government defendants from freezing or terminating existing “equity related” contracts and grants (pursuant to EO 14151). With respect to EO 14173, the court enjoined the government defendants from (1) requiring federal contractors and grant recipients to certify that they do not “operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws,” (2) requiring federal contractors and grant recipients “to agree that [their] compliance in all respects with all applicable Federal anti-discrimination laws is material” for purposes of the False Claims Act, and (3) bringing any enforcement action targeting “DEI programs or principles.” However, the court declined to “enjoin the Attorney General from. . . engaging in investigation” of DEI programs.
The memo also points out that although the injunction is nationwide in scope, it is directed to the “Defendants” in the case, which means that the government is likely to take the position that non-defendant agencies, which include, among others, the Defense Department, the State Department and the Treasury Department, aren’t subject to the injunction unless they are acting in concert with the defendants.
Meredith recently hosted a Pay & Proxy Podcast on “DEI Disclosures and Metrics Following the January 2025 Executive Orders.” She was joined by Maj Vaseghi and Betty Huber, both of whom are Latham partners, and Mark Borges, who is a principal at Compensia and an editor at CompensationStandards.com. This 27-minute podcast addressed a wide range of disclosure and compensation-related issues associated with DEI programs and metrics, including:
– Students for Fair Admissions v. Harvard and private sector cases involving Section 1981 and Title VII of the Civil Rights Act
– The recent Executive Orders including the directive to federal agencies to identify potential “compliance investigations” aimed at deterring DEI programs constituting “illegal” discrimination
– How companies are considering legal risk, political risk, talent risk and business risk in preparing disclosures
– Companies, especially government contractors, weighing changes to the use of DEI metrics in compensation programs
– Disclosures regarding DEI metrics in compensation programs
– Human capital management disclosures in Form 10-Ks
– Required and voluntary board diversity disclosures in proxy statements after vacatur of Nasdaq’s “disclose or comply” board diversity rule
– ISS’s announcement that it will indefinitely halt consideration of certain diversity factors in making vote recommendations on director elections
– Voluntary proxy disclosures on DEI policies and practices
– Looking at committee charters and corporate governance guidelines
– Weighing whether to maintain the timing or delay publishing voluntary ESG reports
– Setting metrics for 2025 compensation program
These podcasts are ordinarily available exclusively to members of CompensationStandards.com, but we know many of our members are struggling with issues arising out of the recent anti-DEI executive orders, so we decided to make this podcast available to members of TheCorporateCounsel.net as well. If you’re looking for more high-quality, practical insights into executive compensation issues, you need a subscription to CompensationStandards.com. If you’re not yet a subscriber, you can sign up for a membership today online or by emailing sales@ccrcorp.com or by calling us at 800-737-1271.
Last week, Acting Solicitor General Sarah Harris sent a letter to Senator Charles Grassley informing the Senate that the DOJ had determined that statutory removal restrictions on administrative law judges were unconstitutional and that it would no longer defend them in court:
In Free Enterprise Fund v. PCAOB, 561 U.S.477(2010), the Supreme Court determined that granting “multilayer protection from removal” to executive officers “is contrary to Article II’s vesting of the executive power in the President.” Id. at 484. The President may not “be restricted in his ability to remove a principal [executive]officer, who is in turn restricted in his ability to remove an inferior [executive] officer.” Ibid.
A federal statute provides that a federal agency may remove an ALJ “only for good cause established and determined by the Merit Systems Protection Board on the record after opportunity for hearing before the Board.” 5 U.S.C. 7521(a). Another statute provides that a member of the Board” may be removed by the President only for inefficiency, neglect of duty, or malfeasance in office.” 5 U.S.C. 1202(d). Consistent with the Supreme Court’s decision in Free Enterprise Fund, the Department has determined that those statutory provisions violate Article II by restricting the President’s ability to remove principal executive officers, who are in turn restricted in their ability to remove inferior executive officers.
What does this mean for the SEC’s ALJs? Well, here’s what Project 2025 has to say about what should be done with the SEC’s administrative proceedings:
Eliminate all administrative proceedings (APs) within the SEC except for stop orders related to defective registration statements. The SEC enforcement system does not need to have both district court cases and APs. Alternatively, respondents should be allowed to elect whether an adjudication occurs in the SEC’s administrative law court or an ordinary Article III federal court.
I guess that last sentence leaves a little wiggle room, but if I were an SEC ALJ, I think I’d be updating my resume. Other commenters are more emphatic in their assessment of the impact of the DOJ’s move. For example, former SEC staff member John Reed Stark headlines his LinkedIn post on the DOJ’s action as follows: “Expect All SEC Administrative Law Judges to be Fired Forthwith.”
Warren Buffett issued his always highly anticipated annual letter to Berkshire Hathaway stockholders over the weekend. While the media has focused primarily on his advice to Donald Trump, his aversion to foreign stocks & his defense of Berkshire’s cash hoard, it’s his continuing distaste for what compliance with GAAP does to Berkshire’s operating income that caught my eye.
As we’ve pointed out in blogs about his 2023 and 2020 letters, railing against GAAP’s impact on Berkshire’s operating income has become a bit of a hobby horse for Warren Buffett. His problem is ASC 321, which requires Berkshire Hathaway to run fluctuations in the value of its public company equity investments through its income statement. Buffett thinks that results in a misleading presentation, and this excerpt from this year’s letter explains why:
Our measure excludes capital gains or losses on the stocks and bonds we own, whether realized or unrealized. Over time, we think it highly likely that gains will prevail – why else would we buy these securities? – though the year-by-year numbers will swing wildly and unpredictably. Our horizon for such commitments is almost always far longer than a single year. In many, our thinking involves decades. These long-termers are the purchases that sometimes make the cash register ring like church bells.
Fair enough, but here’s the thing – Berkshire made a business decision to take multi-billion-dollar minority stakes in enormous companies. What if it had to sell one or more of those positions? That’s what ASC 321 is getting at – it shows users of the financial statements the market risk to which Berkshire is exposed. Interestingly, despite his preference for reporting Berkshire’s non-GAAP operating earnings, he acknowledges the magnitude of this risk a few pages later:
With marketable equities, it is easier to change course when I make a mistake. Berkshire’s present size, it should be underscored, diminishes this valuable option. We can’t come and go on a dime. Sometimes a year or more is required to establish or divest an investment. Additionally, with ownership of minority positions we can’t change management if that action is needed or control what is done with capital flows if we are unhappy with the decisions being made.
As I said in my blog about Buffett’s 2020 letter, GAAP does have a conservative bias, but the disclosures it requires usually provide insights into a business that shouldn’t be ignored, and when people complain that GAAP’s distorting their company’s financial statements, it’s usually a sign that the GAAP requirements are highlighting something that makes them uncomfortable. To Warren Buffett’s credit, he acknowledges what that something is in this year’s letter.
Goodwin recently published its 2025 Proxy Statement Form Check. In addition to providing a chart laying out relevant Schedule 14A & Reg S-K line-item disclosure requirements, the document includes a detailed discussion of new and revised disclosure requirements that will apply to this year’s filings. The document also addresses certain “less than annual” disclosure requirements like say-on-pay frequency and CEO pay ratio.
Yesterday, the SEC announced the formation of a new Cyber and Emerging Technologies Unit (CETU). Its stated focus is “combatting cyber-related misconduct.” Acting Chairman Uyeda notes that the unit will “root out those seeking to misuse innovation to harm investors and diminish confidence in new technologies.”
This unit replaces the former Crypto Assets and Cyber Unit and is staffed with approximately 30 fraud specialists. The announcement lists “public issuer fraudulent disclosure relating to cybersecurity” as a priority area in addition to:
– Fraud committed using emerging technologies, such as artificial intelligence and machine learning
– Use of social media, the dark web, or false websites to perpetrate fraud
– Hacking to obtain material nonpublic information
– Takeovers of retail brokerage accounts
– Fraud involving blockchain technology and crypto assets
– Regulated entities’ compliance with cybersecurity rules and regulations
Earlier this week on The Proxy Season Blog, Liz shared that BlackRock has put a hold on planned engagement meetings on the heels of last week’s updated CDIs about Schedule 13G eligibility for large “passive” shareholders. On Wednesday, Reuters reported that Vanguard has followed suit.
It appears, for now, that these moves are temporary while both asset managers assess the impact of the new guidance. If not, Liz noted that this would be an even bigger deal than the “engagement hushing” practices I blogged about last week, and companies may end up with less visibility into feedback & voting inclinations going into their annual meetings.
Check out our “Schedules 13D & 13G” Practice Area for related law firm memos. If you do not have access to all our Practice Area resources or the latest insights provided in the Proxy Season Blog here on TheCorporateCounsel.net, sign up online or email sales@ccrcorp.com.
We’ve posted the transcript from our recent webcast – “ISS Policy Updates and Key Issues for 2025.” ISS’s Marc Goldstein provided a recap of what transpired during the 2024 proxy season, discussed the proxy advisor’s recent policy updates (as of January 22) and shared thoughts on some issues companies will face in the 2025 proxy season. Davis Polk’s Ning Chiu & Jasper Street Partners’ Rob Main joined the dialogue with Marc.
One of the things Marc addressed is how ISS will view increased perk reporting due to higher spending on executive security arrangements. Marc confirmed that, like with all perks, ISS expects companies that are outliers in terms of reported perks amounts to explain why that’s the case.
That said, Marc noted that ISS recognizes the sensitivities with disclosure related to security expenditures and does not expect companies to disclose the specific types of threats that their executives may have received or why their executives are more vulnerable than those of other companies, which may exacerbate vulnerabilities. However, ISS would like to see evidence of measures the board took to ensure that the types and cost of security benefits are appropriate and reasonable, such as if a company has hired a third-party consultant and followed those recommendations.
If you aren’t already a member with access to this transcript and the on-demand audio replay, sign up today for a no-risk trial! You can do that online or by emailing sales@ccrcorp.com. 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.
Tuesday’s Executive Order, “Ensuring Accountability for All Agencies,” has some big implications for key administrative agencies that are considered “independent” from the President compared to other agencies due to one or more features of their establishing legislation — for example, leadership by bipartisan panels of members who serve fixed terms. That includes the SEC and the FTC. Per the fact sheet, the new Executive Order states that all executive branch officials and employees are subject to Presidential supervision under Article II of the Constitution since “the Founders created a single President who is alone vested with ‘the executive Power’ and responsibility to ‘take Care that the Laws be faithfully executed.’” It goes on to say that:
– All agencies must submit all draft regulations for White House review
– All agencies must consult the White House on priorities and strategic plans
– The President and the AG (subject to the President’s supervision and control) provide “authoritative interpretations of law” for the executive branch
– Their “opinions on questions of law are controlling on all employees”
– OMB will adjust independent agencies apportionments, which may prohibit appropriations from being spent on particular activities or projects
– OMB will write “performance standards and management objectives” for the heads of independent agencies
– Independent agencies will hire a White House liaison to work with President Trump’s team
The White House has had the power to review the regulations of government agencies for more than 30 years, since President Clinton signed an executive order calling for regulatory review. However, the policy has long exempted independent regulatory agencies . . .
Project 2025 references a 1935 Supreme Court decision, Humphrey’s Executor v. US, in which the Court decided that a president cannot fire the head of an independent agency. Project 2025’s chapter on the Department of Justice argues that that decision violates the separation of powers.
In Trump’s first term, his White House asked the Justice Department for an opinion on whether he could make independent agencies submit to White House regulatory review. The DOJ said yes, but Trump did not pursue that.
It also notes that this isn’t the first action by the Trump Administration that challenges this independence:
Trump has already fired high-ranking officials at independent agencies including the Equal Employment Opportunity Commission and the National Labor Relations Board, and also more than a dozen inspectors general at independent agencies. Those decisions have already sparked lawsuits against the administration that claim the firings were illegal.
While bemoaning the politicization of the SEC isn’t new, UC Berkeley law prof Amanda Tyler says in the WSJ that the structure of these independent agencies was intended to provide some “insulation from the political winds, ensuring that we don’t have wild volatility of policy . . . If Trump prevails in wresting control of many of these agencies, that is the precedent in place for whoever succeeds him—potentially using that power for very different ends.”
Finally, ICYMI, DOGE appears to be bringing (more of) its fray to the SEC.
There have been several CTA updates recently, but I’ve been waiting for a big one to blog about because, among all of us editors, no fewer than two CTA blogs have had to be completely rewritten because of real-time updates that changed the headline. Our last update was when SCOTUS granted a stay of the preliminary injunction the Eastern District of Texas issued in December that prohibited the government from enforcing the CTA while litigation is pending in the 5th Circuit. Weirdly, that didn’t immediately impact BOI filing requirements because a second nationwide injunction remained in place.
Well, now the injunction in Smith v. Treasury has met the same fate. The DOJ under the new Trump Administration filed a motion in February to lift the Smith injunction, which the District Court granted earlier this week.
FinCEN announced that BOI reporting requirements under the CTA are back in effect, with a new deadline of March 21, 2025 for most companies. Consistent with a previous announcement, FinCEN noted that it will consider further modifying deadlines, while prioritizing reporting for entities posing national security risks and initiate a process this year to revise the reporting requirements to reduce hardship on lower-risk entities (including many U.S. small businesses).
In the meantime, Congress started weighing in — with bipartisan support in the House to delay the filing deadline for certain entities by one year. Here’s reporting from Reuters:
On February 10, the House passed the Protect Small Businesses from Excessive Paperwork Act (H.R. 736) unanimously, with a 408-0 vote. Under the bill, existing entities that are “a small business concern” as defined under 15 U.S.C. 632 would have until January 1, 2026, to submit reports about their beneficial owners to Treasury’s Financial Crimes Enforcement Network (FinCEN).