As most of our readers know, our friend and colleague Liz Dunshee is on medical leave and has spent the last few weeks here in Cleveland recuperating from thoracic surgery at the Cleveland Clinic. Liz has asked me to thank everyone for their good wishes and to let you know that she’s doing well and is heading home to Minneapolis today. We know that you join us in continuing to wish her a speedy recovery and look forward to having her back with us soon!
Last month, Meredith blogged about the ongoing kerfuffle over whether Delaware corporations should consider reincorporating in another jurisdiction. In that blog, she cited a Wilson Sonsini memo pointing out that one of the big factors that might prompt a corporation to remain in Delaware is the ability to access the Delaware judiciary’s corporate law expertise. According to a recent blog from Keith Bishop, one newly converted Nevada corporation appears to want to keep that access:
I was doubly surprised to come across the following provision in the articles of incorporation of a corporation that had recently converted from a Delaware corporation to a Nevada corporation:
Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery in the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer, other employee or stockholder of the Corporation to the Corporation or the Corporation’s stockholders . . . (iv) any action to interpret, apply, enforce or determine the validity of these Articles of Incorporation or the Bylaws . . .
The corporation’s preference to have a Delaware court interpret and apply Nevada law is one reason that Keith was “doubly surprised” by this provision. More importantly for companies that might be interested in this kind of “Nevada-ware” alternative, the other reason for his surprise was the failure of the articles to include at least one Nevada court as a forum for internal actions, which is required by Nevada’s statute.
By the way, I’m very pleased with myself for the “Nevada-ware” moniker, which I think I’ve coined. It will be interesting to see if other companies that opt to move away from Delaware try to figure out ways to take the parts of Delaware they like with them as they move to their new homes. Anyway, if Nevada-ware corporations become a thing, just remember you heard it here first.
A new report from ISS Corporate Services reviews shareholder proposals received in 2024. Among the report’s other conclusions, it says that pro-ESG shareholder proposals have seen a slight uptick in support during the current proxy season. Here’s an excerpt with some of the key takeaways:
– The volume of shareholder proposals submitted for annual meetings held between Jan. 1 through May 31 increased to 739 proposals with 273 voted thus far and 249 still pending.
– The median support level of all shareholder proposal is largely unchanged at 20.6% for 2024, but those receiving majority support is ticking up.
– Governance and compensation proposals are regaining focus and interest from investors, with 268 such proposals submitted for the first five months of 2024. The median support surged to 34.9%, a level unseen in the past five years.
– The volume of environmental proposals decreased to 130 proposals and social proposal volume remained mostly flat. However, support on both environmental and social proposals are up slightly, reversing the two-year consecutive decline in support since 2021.
– Anti-ESG proposals continue to increase in number, but the support remains low.
-Top 5 most prevalent proposals on ballot represent a broad range of topics, including shareholder rights, board accountability, executive pay, GHG emissions, and political spending.
To put some numbers around the excerpt’s characterization of “slightly” increased support for ESG related proposals, support for environmental proposals increased from 19.8% last year to 21.0% this year, and support for social proposals rose from 18.5% in 2023 to 20.7% this year. In contrast, support for anti-ESG proposals dropped from 1.7% to 1.6%. Part of the increase in support for environmental proposals may reflect a little more selective approach by proponents – the 130 proposals submitted this year represent more than a 11% drop from the 147 submitted last year.
If you are looking for motivation to take a deep dive into artificial intelligence, my guess is this information may do the trick – according to PwC’s “AI Jobs Barometer” report, lawyers are at the top of the list when it comes to the premium they earn for having AI skills. Here’s an excerpt from the press release announcing the report’s findings:
Across the five major labour markets for which wage data is available (US, UK, Canada, Australia and Singapore), jobs that require AI specialist skills carry a significant wage premium (up to 25% on average in the US), underlining the value of these skills to companies. Across industries (in the US for example), this can range from 18% for accountants, 33% for financial analysts, 43% for sales and marketing managers, to 49% for lawyers.
A little reality check – you aren’t going to command a premium if you just play around with ChatGPT to help you write a memo or brief. The lawyers that businesses will pay through the nose for are those with what the report calls “AI specialist skills.” These are technical AI skills like deep learning or cognitive automation, so no posers need apply. Obviously, that leaves me out.
When the SEC announced its decision to stay the climate disclosure rules pending the outcome of litigation challenging them, it didn’t address the issue of whether there would be any changes in the implementation period for the new rules if the agency prevailed. This Gibson Dunn blog addressing the briefing schedule established by the 8th Circuit for that litigation highlights a recent court filing by the SEC that indicates that it intends to establish a new implementation period:
The SEC stated in a subsequent court filing that its voluntary stay eliminates the harms challengers had asserted that compliance with the rule would impose, including in the form of costs incurred to prepare for compliance with the rule, and that “[t]he Commission will publish a document in the Federal Register at the conclusion of the stay addressing a new effective date for the [final climate disclosure rules].” While the SEC has not specified the duration of the further implementation period if the rules survive the litigation, it thus has confirmed that a new implementation period will be provided.
The blog says that in light of this statement, companies may prefer to monitor the litigation and delay significant compliance investments until the outcome of the litigation is known, but observes that a complete “pencils down” approach isn’t viable for those companies that must prepare for climate disclosure requirements under other reporting regimes.
Artificial intelligence tools are becoming a key part of growth strategies for companies across a wide range of industries. In turn, keeping pace with developments in AI and the issues they create has become a top priority for legislators and regulators, including the SEC. The growing importance of AI and the risks associated with it means that it can be added to the list of critical data governance issues that corporate boards must effectively address. This Freshfields blog provides some thoughts on what boards need to know about AI and other data governance topics in order to satisfy their oversight responsibilities.
The blog reviews the rapidly evolving regulatory environment for AI, cybersecurity and data privacy, as well as the growing risks of privacy litigation. It advises boards to engage with management in order to understand how the company assesses and manages the risks associated with data collection, use and storage and to set expectations for levels of acceptable risk. The board should also be involved in budgeting for risk mitigation efforts and monitor the progress of those efforts. The blog says that the board should also set “red flag” rules ensuring that management informs it when certain risks are elevated. This excerpt highlights some of the key questions boards should ask concerning their oversight of data-related governance:
– Does the company have a framework for measuring risks related to data, understanding controls and mitigations for those risks, and accepting residual risks?
– Does management keep the board informed regarding critical risks, including risks related to its most important “crown jewel” data, ongoing regulatory risks, and potential reputation impact of its data practices?
– Does the board understand the company’s data strategy and how data is used in its key products?
– Is data central enough to the company’s mission and success that a board committee should be assigned oversight of data governance? Has a cadence of regular reporting to the committee and the board been established? Have committee charters been updated or revised to conform to this allocation of responsibilities?
The blog identifies several other areas of inquiry for the board, including the frequency with which the board discusses existing, new and emerging data-related risks and the level and amount of information required to permit the board to fulfill its oversight responsibilities.
Happy T+1 Settlement Day to those who celebrate! All the ink that’s been spilled about the transition to T+1 settlement – including by us – reminded me a little of the fuss surrounding Y2K. That’s why I thought it would be appropriate to celebrate the big day by recalling one of the most entertaining bits of silliness from that era – ESPN SportsCenter’s epic “Follow me! Follow me to freedom!” Y2K commercial.
According to a new report issued by the Shareholder Rights Group, the Staff is seeing a lot more no-action letter requests on shareholder proposals this year, and is permitting companies to exclude a significantly higher percentage of those proposals than they did last year:
Evaluation of SEC staff no action decisions on shareholder proposals from November 1, 2023 to May 1, 2024 demonstrates that the SEC has supported company requests for exclusion of proposals roughly 68% of the time. Companies sharply increased the number of requests filed with the SEC during the same period, with these two developments combining to produce a surge of exclusions.
At this time last year, the Staff permitted exclusion of 56% of the proposals for which no-action relief was sought. The report says that so far this year, the Staff has issued 259 decisions on no-action letters compared to 167 last year and has granted no-action requests for 139 proposals, compared to 76 last year. The report says that numerous climate-related proposals have been excluded in situations where companies argued they involved micromanagement, and that social-related proposals have been bounced on similar grounds.
Last week, Meredith blogged about the inevitable challenge to the FTC’s non-compete ban filed by the US Chamber of Commerce. Given the SEC’s recent experience in the federal courts, I think many of us are inclined to believe that a court will ultimately strike down or pare back the FTC’s ban. But University of Chicago Law School professors Jonathan Masur & Eric Posner say that the ban is legal, and it’s not a close call. Here’s an excerpt from their recent post on the ProMarket Blog:
The FTC’s statutory authority to issue the noncompete rule is not an edge case. Section 5 of the FTC Act of 1914 authorizes the FTC to prevent firms from engaging in “unfair methods of competition.” Congress used this phrase, which was novel at the time and deliberately broad, to encompass anticompetitive behavior that was both already covered by the antitrust laws (which prohibited firms from using “restraints of trade” and from “monopoliz[ing]” markets) as then interpreted by the courts and that reached beyond them.
Like countless other regulatory agencies before and since, the FTC was entrusted with authority to interpret the law, effectively to make policy within the law’s ambit. As a noncompete is just a restraint of trade that restricts competition, the statute plainly authorizes the FTC to issue a rule regulating noncompetes.
While the authors acknowledge that the FTC has typically used case-by-case adjudication to make policy instead of rulemaking, it’s clear that Congress also gave the agency the authority to “make rules and regulations for the purpose of carrying out the provisions of” the FTC Act in section 6(g).
This Morgan Lewis memo provides a heads up about amendments to NYSE Rule 123D that address trading halts around reverse stock splits that will go into effect on Saturday, May 11th. The amendments are being implemented to harmonize the NYSE’s rules with those of Nasdaq. This excerpt from the memo describes the amendments:
The NYSE Amendments add new subparagraph (f) to Rule 123D, which provides that the NYSE will halt trading in a security for which the NYSE is the Primary Listing Market before the end of post-market trading on other markets on the day immediately before the market effective date of a reverse stock split. Such a trading halt due to a reverse stock split will be mandatory.
In connection with a reverse stock split, the NYSE has stated that it expects to initiate the halt at 7:50 pm EST, prior to the end of post-market trading on other markets at 8:00 pm EST, on the day immediately before the market effective date of the reverse stock split. Trading in the security will resume with a Trading Halt Auction starting at 9:30 am EST on the market effective date of the reverse stock split.
The memo says that the rule change was prompted by market participants’ concerns that allowing trading on an adjusted basis during early morning trading sessions could result in system errors or problems going unnoticed for a period of time when a security that has undergone a reverse stock split opens for trading with other thousands of securities.
