Compliance issues are far from the only tariff-related operational challenges facing companies. This Debevoise memo discusses some of the friction points in commercial contracts that may arise due to tariffs. Here’s an excerpt addressing the potential contractual implications of supply chain disruptions:
Tariffs may cause delays and increase costs along a company’s supply chain. This may affect the ability of companies to meet contractual delivery, payment or timing obligations.
To assess risks in this scenario, companies should identify any price, delivery, timing or payment obligations in their contracts that may expressly allocate tariff risks to any given party. Some contracts, for example, may provide that the purchase price is inclusive of all applicable tariffs, whether existing or imposed during the term of the contract, thereby allocating tariff risks to the seller. Other contracts may establish procedures for determining which party bears the risk of any material change in circumstances, including tariff increases. For example, the seller may be given an opportunity to propose an adjusted price to reflect an increase in tariffs, after which the parties are to negotiate an equitable adjustment in good faith.
But not all fixed price, delivery or timing clauses will account for tariff risk. In many cases the clauses will impose hard deadlines and firm prices with clear consequences if an obligation is not met. Fixed delivery or “time is of the essence” provisions, for example, could allow the buyer to cancel the order, seek liquidated damages, or claim nonperformance for any late deliveries regardless of the cause. Some contracts may account for such risks in other types of clauses, which we describe below. However, where there is any ambiguity in the contract’s accounting of such risk, parties should expect dispute vulnerability to increase.
The memo points out that parties to a contract may have allocated tariff risk through broad indemnity or pass-through provisions, even if tariffs are not specifically called out in the language of the contract. It also addresses the potential role of liquidated damages provisions, force majeure provisions and non-contractual excuses for non-performance, and issues surrounding contract terminations and renegotiations.
Tune in at 2:00 pm Eastern today for our annual CompensationStandards.com webcast “Proxy Season Post-Mortem: The Latest Compensation Disclosures” to hear Mark Borges of Compensia, Dave Lynn of CompensationStandards.com & Goodwin and Ron Mueller of Gibson Dunn discuss the ins and outs of compensation disclosures during the 2025 proxy season and share some thoughts on the SEC’s upcoming Executive Compensation Roundtable, for which all three of them are serving as panelists.
In the last two years, we’ve extended the runtime of this program to 90 minutes since we were all tackling major new rulemaking. (I’m talking about you, PvP and clawbacks!) So much has happened this proxy season, we’re sticking with a 90-minute so Ron, Mark and Dave have time to cover all these hot topics:
2025 Shareholder Engagement Challenges
2025 Proxy Statements — DEI and Other E&S Developments
2025 Proxy Statements — Executive Compensation Disclosures
– Say-on-Pay during the 2025 proxy season
– CD&A highlights
– Pay-versus-Performance disclosure
– Compensation clawbacks
– Perquisite disclosure
– Proxy advisory firm policies
– Equity award grant practices
Shareholder Proposals
Upcoming SEC Roundtable
Members of CompensationStandards.com can attend this critical webcast at no charge. If you’re not yet a member, you can sign up by contacting our team at info@ccrcorp.com or at 800-737-1271. 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.
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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.
On Friday, the SEC announced the appointment of Kurt Hohl to serve as the agency’s Chief Accountant. This excerpt from the SEC’s press release provides information on Mr. Hohl’s accounting industry and regulatory experience:
Mr. Hohl most recently founded Corallium Advisors, which helps businesses navigate the complexities of auditing, regulatory compliance, risk management, and initial public offerings. Before that, he spent 26 years as a partner at Ernst & Young (EY) in a variety of roles. His final EY role was as global deputy vice-chair of EY’s Global Assurance Professional Practice. In that role he was responsible for the operation and oversight of the technical, regulatory, risk, and quality oversight functions of EY’s global professional practice organization — a team of more than 1,400 professionals.
Mr. Hohl previously served at the SEC from 1989 to 1997, rising to Associate Chief Accountant in the Division of Corporation Finance. There he authored what became the Financial Reporting Manual, a primary guide for the SEC accounting staff and practitioners in the application of the federal securities laws. He began his professional career at Deloitte Haskins & Sells.
Ryan Wolfe, the SEC’s Acting Chief Accountant since Paul Munger’s departure in January, will return to his prior position as Chief Accountant for the Division of Enforcement.
The SEC also announced the appointment of Brian Daly as Director of the Division of Investment Management and the appointment of Erik Hotmire as the agency’s Chief External Affairs Officer and Director of the Office of Public Affairs.
If you’re following the DExit debate, you may be interested in this recent blog by Prof. Ben Edwards, which tracks the status of all 2025 public company Nevada reincorporation proposals. According to the blog, 12 of 14 proposals to move from Delaware to Nevada have passed, and the failure of the other two to pass was due to a large number of broker non-votes. Prof. Edwards notes that one vote in particular may be worth keeping in mind when it comes to the formula for success of future proposals:
One thing worth highlighting here is that Fidelity National succeeded on its second attempt to shift to Nevada. Previously in 2024, it secured 1110,277,692 votes in favor with 107,467,828 votes against. With about 27,000,000 broker non-votes, this wasn’t enough for the necessary majority. This year the votes were different with 147,059,505 votes cast in favor of the move and 74,874,567 votes cast against the move.
So what changed? As I covered in an earlier post, Fidelity National’s Nevada charter increased shareholder protections above the Nevada default threshold. This may have shifted some votes and makes it something to watch for future efforts.
The blog says that two proposals to move from Delaware to Nevada are currently pending, along with one proposal to move from New York to Nevada. Moves by public companies from Delaware to Nevada or other states are getting a lot of media attention, but let’s face it, 14 public company migrations during the current year with the possibility of two more isn’t exactly a reincorporation tidal wave.
My guess is that we’ll need to see whether, over time, IPO candidates are incorporating in places other than Delaware in order to assess just how big a long-term threat Delaware is facing. That’s because the data suggests that most Delaware public companies are unlikely to migrate, and some have argued that the bigger threat may be from private equity and venture capital investors who are persuaded that other jurisdictions will offer them a greater opportunity to keep calling the shots post-IPO than will the Delaware Chancery Court.
The latest issue of The Corporate Counsel newsletter has been sent to the printer. It is also available now online to members of TheCorporateCounsel.net who subscribe to the electronic format. The issue includes the following articles:
– Brace for Impact: Grappling with Economic Uncertainty
– The Staff Throws a Lifeline to Rule 506(c) of Regulation D
– Navigating Shareholder Engagement After the Staff’s February 2025 Schedule 13G Guidance
Please email sales@ccrcorp.com to subscribe to this essential resource if you are not already receiving the important updates we provide in The Corporate Counsel newsletter.
On Monday, the DOJ announced a “Civil Rights Fraud Initiative” that will use the False Claims Act to “investigate and, as appropriate, pursue claims against any recipient of federal funds that knowingly violates federal civil rights laws.” While the DOJ’s announcement focuses on educational institutions, this McGuire Woods blog notes that government contractors may also find themselves in the crosshairs:
Under this new initiative, implemented through a memorandum issued by the Deputy Attorney General, DOJ will utilize the FCA to investigate and pursue claims against federal contractors and funding recipients (e.g., grants, cooperative agreements, etc.) that “knowingly violate[] federal civil rights laws.” A central focus of the initiative appears to be pursuing claims against entities who certify compliance with civil rights laws while “knowingly” engaging in what the memorandum implementing the initiative calls “racist preferences, mandates, policies, programs, and activities, including thorough [DEI] programs” that provide benefits based on race, ethnicity, or national origin.
The blog says that the DOJ will coordinate with other federal agencies, and will establish partnerships with state attorney generals and local law enforcement to share information and coordinate enforcement actions. Traditionally, qui tam actions brought by private “whistleblowers” have featured prominently in FCA actions, and in the DOJ’s announcement of this new initiative, it said that it “strongly encourages anyone with knowledge of discrimination by federal funding recipients to consider filing a qui tam action under the False Claims Act.”
Texas has been getting most of the headlines in the DExit sweepstakes, but earlier this week, the Nevada legislature adopted amendments to the state’s corporate statute that provide a reminder that The Silver State is still a formidable competitor in the race to dethrone Delaware as the nation’s preferred jurisdiction of incorporation.
The most notable changes involve enabling Nevada corporations to adopt charter provisions waiving jury trials for stockholder lawsuits, and defining the fiduciary duties owed by controlling stockholders, establishing a procedure for cleansing transactions involving controlling stockholders, and limiting their liability. This excerpt from a Business Law Prof Blog on the amendments summarizes the changes affecting controlling stockholders:
Duties
The legislation also addresses controlling stockholder duties. The Nevada Business Law Section explains the change as providing:
that the only fiduciary duty owed by a controlling stockholder is to refrain from exerting undue influence over a director or officer with the purpose and proximate effect of inducing a breach of fiduciary duty by said director or officer that (a) results in liability under NRS 78.138 and (b) involves a contract or transaction where the controlling stockholder has a material and nonspeculative financial interest and results in a material, nonspeculative and nonratable financial benefit to the controlling stockholder.
Cleansing
The changes allow for disinterested directors to approve a transaction with a controlling stockholder, granting a presumption that there was no breach of fiduciary duty.
The proposed amendment further provides the presumption that there is no breach of fiduciary duty by a controlling stockholder if the underlying contract or transaction has been approved by either (1) a committee of only disinterested directors or (2) the board of directors in reliance upon the recommendation of a committee of only disinterested directors.
Liability
The legislation also gives controlling stockholders protection similar to the Nevada business judgment rule for officers and directors. It also notes that Nevada aims to “maintain Nevada’s competitive advantage as a leader in stable, predictable and common-sense corporate law.”
The amendments also address Delaware’s Activision-Blizzard decision by clarifying that Nevada directors do not need to approve “final” merger documents and allowing them to use their business judgment to decide when the documents are sufficiently “substantially final” for board approval.
On Tuesday, the SEC approved a proposed NYSE rule that will require companies facing delisting for noncompliance with a listing standard to be current in their fees before the Exchange will review their compliance plans. This excerpt from the SEC’s order approving the rule change provides more detail:
The Exchange proposes to require listed companies that have been identified to be below the Exchange’s continued listing standards and are submitting a plan to regain compliance under Sections 802.02 and 802.03 of the Manual to pay any unpaid listing or annual fees due to the Exchange prior to the Exchange expending resources to initially review a plan, periodically review a plan, or deem a company has demonstrated a return to compliance under a plan.
The Exchange will disclose to these listed companies the amount of all unpaid listing and annual fees in the Non-Compliance Letter and at the beginning of the quarterly or semi-annual review period, as applicable. The Exchange also proposes that it will commence suspension and delisting procedures if such companies fail to pay the disclosed fees in full within a certain time period following such disclosure.
The NYSE’s rationale for the rule change is the significant amount of resource-intensive and costly work its staff must undertake in initially and periodically reviewing and analyzing plans submitted by noncompliant companies.
Although the SEC’s order acknowledges that the NYSE already has the authority to delist companies for failing to pay required fees, it says that the new rule will provide greater transparency to listed companies about how the Exchange will handle unpaid fees in circumstances where companies seek to use or are using a compliance plan.
The defendant in the criminal case arising out of last year’s hack of the SEC’s X account, Eric Council, Jr., entered a guilty plea in the case and was sentenced last Friday. Prosecutors sought a two-year sentence, but Judge Amy Berman Jackson sentenced Council to only 14 months in federal prison. The U.S. Attorney’s announcement of the sentencing included the following comments from the DOJ, FBI and SEC:
“Council and his co-conspirators used sophisticated cyber means to compromise the SEC’s X account and posted a false announcement that distorted important financial markets,” said Matthew R. Galeotti, Head of the Justice Department’s Criminal Division. “Prosecuting those who seek to enrich themselves by threatening the integrity of digital assets through fraud is critical to protecting U.S. interests. The Department of Justice is committed to holding accountable individuals who commit cyber fraud and harm investors.”
“The deliberate takeover of a federal agency’s official communications platform was a calculated criminal act meant to deceive the public and manipulate financial markets,” said FBI Criminal Investigative Division Acting Assistant Director Darren Cox. “By spreading false information to influence the markets, Council attempted to erode public trust and exploit the financial system. Today’s sentencing makes clear that anyone who abuses public platforms for criminal gain will be held accountable.”
“Today’s sentencing exemplifies SEC OIG’s commitment to holding bad actors accountable and maintaining the integrity of SEC programs and operations through thorough investigative oversight,” said SEC OIG Special Agent in Charge Amanda James. “We are committed to working with the SEC and other law enforcement partners to help the SEC effectively and efficiently deliver on its critical mission.”
In addition to the prison time, Council was ordered to forfeit $50,000 and received an additional three years of supervised release with the condition that he not use computers to access the dark web or commit further identity fraud.
Here’s something Meredith posted on CompensationStandards.com earlier this week:
Last Friday, the SEC announced that it will host a roundtable discussion on executive compensation disclosure requirements on June 26. It will be held at the SEC’s headquarters and open to the public (plus streamed live on SEC.gov). More Information on the agenda & speakers will be posted before the event.
In the meantime, Chairman Atkins issued a statement saying, “While it is undisputed that [the executive compensation] requirements, and the resulting disclosure, have become increasingly complex and lengthy, it is less clear if the increased complexity and length have provided investors with additional information that is material to their investment and voting decisions. It is important for the Commission to engage in retrospective reviews of its rules to ensure that they continue to be cost-effective and result in disclosure of material information without an overload of immaterial information.” He then includes the following questions for the staff to consider — and for members of the public to provide views on (before or after the event). Comments can be provided by mail or electronically — see the announcement for details.
Executive compensation decisions: setting compensation and making investment and voting decisions
– What is the process by which companies develop their executive compensation packages? What drives the development and decisions of compensation packages? What roles do the company’s management, the company’s compensation committee (or board of directors), and external advisors play in this development?
– Current disclosure requirements seek to unpack these processes for investors. How can our rules be revised to better inform investors about the material aspects of how executive compensation decisions are made?
– What level of detail regarding executive compensation information is material to investors in making their investment and voting decisions? Is there any information currently required to be disclosed in response to Item 402 of Regulation S-K that is not material to investors or that could be streamlined to improve the disclosure for investors? How do companies’ engagement with investors drive compensation decisions and compensation disclosure?
Executive compensation disclosure: past, present, and future
– The Commission substantially revised its executive compensation disclosure requirements in 2006 with requirements to provide, among other things, enhanced tabular disclosure of compensation amounts and a compensation discussion and analysis of the company’s compensation practices. The rules were intended to provide investors with a clearer and more complete picture of the compensation earned by a company’s executive officers. Have these disclosure requirements met these objectives? Do the required disclosures help investors to make informed investment and voting decisions? Given the complexity and length of these disclosures, are investors able to easily parse through the disclosure to identify the material information they need? In what ways could disclosure rules be revised to return to a simpler presentation and focus?
– The Dodd-Frank Act added several executive compensation related requirements to the securities laws, including shareholder advisory voting on various aspects of executive compensation. What types of disclosure do investors find material in making these voting decisions? Are companies able to provide such disclosure in a cost-effective manner? Do the current rules strike the right balance between eliciting material information and the costs to provide such information?
– With the experience of almost 20 years of implementing the 2006 rule amendments, how can the Commission address challenges that either companies or investors have encountered with executive compensation rules and the resulting disclosures in a cost-effective and efficient manner while continuing to provide material compensation information for investors? For example, are there requirements that are difficult or costly to comply with and that do not elicit material information for investors? Are there ways that we can reduce the cost or otherwise streamline the compensation information required by the rules
Executive compensation hot topics: exploring the challenging issues
– The Commission recently adopted rules implementing the requirements of Dodd Frank related to pay-versus-performance and clawbacks. Now that companies have implemented the new rules, are there any lessons we can learn from their implementation? Can these rules be improved? If so, how? For example, which requirements of these rules are the most difficult to comply with and how could we reduce those burdens while continuing to provide investors with material information and satisfy these statutory mandates?
– Since adoption of the pay-versus performance rules, I have continued to hear concerns regarding the rule’s definition of “compensation actually paid” (CAP). What has been companies’ experience in calculating CAP and what has been investors’ experience in using the information to make investment and voting decisions?
– What has been companies’ experience in applying the two-part analysis articulated by the Commission in 2006 with respect to evaluating whether perquisites for executive officers must be disclosed? How do disclosure requirements resulting from the test, and whether a cost constitutes a perquisite, affect companies’ decisions on whether or not to provide a perquisite? For example, how has the application of the analysis affected evaluations relating to the costs of security for executive officers? Are there types of perquisites that have been particularly difficult to analyze? How do investors use information regarding perquisites in making investment and voting decisions?
It certainly seems that the SEC’s retrospective review of executive compensation disclosures will be very broad! I immediately noted that clawbacks, PvP (in particular, the CAP calculation) and perks (in particular, executive security) were all specifically noted — while CEO pay ratio was not. But Mark Borges said he suspects pay ratio is probably in the spotlight as well. He also noted that each of the cited rules is statutorily mandated — so the Commission is probably most interested in how it can streamline the compliance burden associated with these disclosures.
