We’re only halfway through 2025, and the year has already given us plenty to talk about when it comes to developments in securities regulation, executive compensation, and corporate governance. That’s even before we add in the significant governance, disclosure and compliance challenges created by unexpected surprises like dramatic changes in tariff policy and the potential for a full-blown global trade war.
In the past, our PDEC Conferences have started on a Monday, but this year, they will be held on Tuesday & Wednesday, October 21-22, at Virgin Hotels Las Vegas, with a virtual option for those who can’t attend in person. Reach out to our team to register by emailing info@ccrcorp.com or calling 1.800.737.1271. If you act now, you’ll also be able to take advantage of our Early Bird Rate and save a bundle on your registration!
We won’t be blogging tomorrow in recognition of the Juneteenth holiday. Our blogs will be back on Friday.
We’ve previously blogged about updating risk factor disclosures in light of President Trump’s “Liberation Day” tariffs, but in this “D&O Diary” blog, Kevin LaCroix expands the discussion to address legal and compliance risks that companies face when doing business during a trade war. This excerpt discusses some of tariff-related compliance issues that companies may face:
In addition to the potential impact from the tariffs on corporate business results, companies also face increased tariff-related enforcement and regulatory risks. For example, a May 12, 2025, memo stating the U.S. Department of Justice’s policies on white collar crime identified as a key threat to U.S. national security from “trade and customs fraudsters, including those who commit tariff evasion,” who may seek “to circumvent the rules and regulations that protect American consumers and undermine the Administration’s efforts to create jobs and increase investment in the United States.”
In addition, as the memo’s authors note, the SEC will likely “continue to investigate companies that misrepresent identities of suppliers and customers to avoid the impact of sanctions and tariffs, falsely improve their profit margins by not recording costs associated with sanctions and tariffs, intentionally conceal disappointing financial performance in key parts of their business, or otherwise engage in accounting fraud to mislead investors.”
Kevin points out that in 2019, the SEC brought enforcement proceedings against a public company based on alleged misrepresentations concerning the country of origin of goods or materials. He also references the possibility of liability under the False Claims Act for tariff-related violations, which is a topic we’ve also blogged about.
While it’s important to keep these ongoing risks in mind when updating risk factor disclosure, it’s even more important to ensure that the potential for tariff-related misconduct is appropriately addressed in corporate compliance programs.
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.
We will apply for CLE credit in all applicable states (with the exception of SC and NE which require advance notice) for this 90-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.
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.
