For companies that are considering IPOs this year, capital structure is an important consideration. The “Investor Coalition for Equal Votes” – which was launched a few years ago to stop “unrestrained dual-class structures” as companies go public – recently released a 23-page report that summarizes the voting policies on dual-class structures of 31 of the world’s largest investors.
The report covers policies of asset owners & managers as they stood going into 2025. Although it remains to be seen whether recent Staff guidance will affect investor positions on this topic or the consequences they say they’ll impose, the report can give you a sense of investor sentiment for purposes of marketing a deal and long-term planning. Here’s an excerpt:
Although a spectrum of approaches is taken – from votes against ‘dual-class enabling’ directors at every company board they sit on, to expressing support for “one-share, one-vote” proposals – what is clear is that institutional investors have strong views on this issue. It is also the case that many investors are strengthening their lines over time, as well as using other escalation activities such as co-filing shareholder resolutions (including on class-by-class disclosure) and statements at Annual General Meetings (AGMs) and other meetings.
The report says that some investors are also beginning to vote against capital resolutions (e.g., share buybacks & issuances) at companies that have dual-class share structures. In addition to covering investors policies, ICEV also summarizes the policies of proxy advisors and global investor groups. Here in the U.S., the Council of Institutional Investors has made no secret of its preference for “one share, one vote” capital structures.
As I’ve shared on the Proxy Season Blog, despite investor disdain, proposals to eliminate dual-class share structures almost always face a steep uphill battle. However, that may not be a bad thing, because dual-class companies also tend to outperform single-class companies over the long term.
The SEC has designated a longer period for action on two NYSE proposals – one of which would affect certain companies initially listing on the exchange, and the other of which would affect companies facing delisting. Here’s more detail:
1. The first extension relates to calculation of initial distribution standards on a worldwide basis for non-U.S. companies. Meredith first blogged about the proposal last fall. In November, it was amended and restated. The Commission has received no comments and has extended the time period for approving or disapproving the proposed rule change, as amended, until May 8th. If approved, Section 102.01 of the NYSE Listed Company Manual would be amended to provide that the distribution standards therein will be calculated on a worldwide basis when listing a company from outside North America and such company (i) is listing in connection with its initial public offering, and (ii) is not listed on any other regulated stock exchange.
2. The other extension relates to a proposal to provide that the Exchange won’t review a compliance plan submitted by a domestic or non-U.S. listed company that is determined to be below compliance with a continued listing standard unless the company has paid in full all outstanding listing or annual fees due to the Exchange and will immediately commence suspension and delisting procedures in accordance with Section 804.00 of the Manual if such fees are not paid in full by the plan submission deadline; or (2) with respect to any unpaid fees that have become due and payable since the commencement of its plan period, will immediately commence suspension and delisting procedures in accordance with Section 804.00 of the Manual if such fees are not paid in full at the time of any required periodic review of such plan. The Commission has designated June 13th as the date by which it will either approve or disapprove the proposed rule change. If you’re facing delisting and also behind on your fees, you’ve got a few more months to find that money…
Yesterday on DealLawyers.com, John shared the latest episode of our “Understanding Activism with John & J.T.” podcast, which is available to members of DealLawyers.com. This time, J.T. Ho and John were joined by Garrett Muzikowski, Managing Director, M&A, Activism & Governance Advisory at FTI Consulting. They spoke with Garrett about recent developments and trends in activism.
Topics covered during this 20-minute podcast include:
– The rise of new activists
– The potential for a rise in private equity “white knight” investors
– Trends in activist demands
– Trends in timing of activist approaches
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 & J.T. continue to record new podcasts, and they’re full of practical and engaging insights from true experts – so stay tuned!
If you aren’t already a DealLawyers.com member and want access to this podcast series and our other helpful M&A, Delaware law, and activism resources, 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. 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.
Yesterday, the SEC issued this 5-page final rule to eliminate the delegated authority that had permitted the Director of the SEC’s Division of Enforcement to issue formal orders of investigation. I blogged last month about a policy-level precursor to this change – and its impact on SEC investigative procedures. Here’s more detail from the final rule:
The Commission delegated authority to issue formal orders of investigation to the Director on August 11, 2009. “Delegation of Authority to Director of Division of Enforcement,” 74 FR 40068-01 (Aug. 11, 2009). The delegation was made effective for a one-year period, ending on August 11, 2010, to allow Commission review of the Division’s exercise of formal order authority. On August 16, 2010, the Commission amended its rules to extend the Director’s delegated authority to issue formal orders of investigation beyond the one-year period. “Delegation of Authority to the Director of Its Division of Enforcement,” 75 FR 49820-01 (Aug. 16, 2010); see also 17 CFR 200.30-4(a)(13).
The amendment will delete this delegation provision, 17 CFR 200.30-4(a)(13), to more closely align the Commission’s use of its investigative resources with Commission priorities.
As noted in the rule, a formal order of investigation is needed in order to authorize specifically designated enforcement staff to exercise the Commission’s statutory power to subpoena witnesses and take certain other actions.
You may be wondering why the SEC skipped issuing this amendment as a proposal and went straight to the final rule. The rule states that no notice and comment period is needed to delete the delegated authority because the amendment relates solely to agency organization, procedure, and practice. Accordingly, the amendment is final and will become effective upon publication in the Federal Register.
Boards are certainly not lacking on “data” these days. In fact, one of the most challenging aspects of working with boards right now is sorting through all the possible information & data points in order to pinpoint what is actually helpful and decision useful. Despite all the blood, sweat & tears that go into preparing board materials, I recently heard one director share that he felt he was “wading through mud.” So, it sounds like there’s still room for improvement.
This report from Board Intelligence and NACD shares practical ideas for striking the right balance between context & information overload, and between reviewing the last quarter’s corporate performance & considering what’s ahead. Here are the top 3 “board pack critical thinking gaps,” according to directors:
1. Too operational at the expense of strategy
2. Too internally focused, with little insight into the wider market
3. Light on the implications of the information presented
To close those gaps, the report recommends asking these questions about the board materials before they go out:
– Does each report address the key questions that are on directors’ minds?
– Do reports provide a balanced analysis, giving a forward-looking view as well as looking backward, and considering the internal and external context?
– Does management offer actionable insights by answering two key questions in their reports: “What are the implications?” and “What will we stop, start, or do differently as a result?”
– If management is using slides to share information, are those slides sufficiently detailed or accompanied by a memo so they can be easily understood without a voice-over?
– Is each report tailored to the board’s specific needs and sufficiently strategic?
– Is the board pack shared in a timely manner to allow sufficient review and meeting preparation?
In the latest 20-minute episode of the “Women Governance Trailblazers” podcast, Courtney Kamlet and I talked with Niamh Corbett, who is Head of Americas for Board Intelligence. We discussed:
1. Niamh’s career path, from investment banking to Board Intelligence commercial roles and national thought leadership.
2. Top trends in board communication and advice on how boards can be most effective.
3. Similarities and differences between the U.K. and U.S. on board reporting and corporate governance, including stances on diversity and inclusion.
4. The biggest risks and opportunities for today’s boards of directors.
5. What governance practitioners should be thinking about in the U.S. deregulatory environment.
To listen to any of our prior episodes of Women Governance Trailblazers, visit the podcast page on TheCorporateCounsel.net or use your favorite podcast app. If there are “women governance trailblazers” whose career paths and perspectives you’d like to hear more about, Courtney and I always appreciate recommendations! Shoot me an email at liz@thecorporatecounsel.net.
If you work with life sciences companies, you know that clinical data developments and releases do not always fit neatly into SEC disclosure and fundraising rules. Two recent Fenwick memos give must-read roadmaps on these topics. Here are a couple of disclosure considerations (also read this fundraising / IR piece):
What if data are expected around the time of a Form 10-K or Form 10-Q filing or a planned investor meeting?
If the company has undisclosed topline clinical data when filing an Annual Report on Form 10-K or a Quarterly Report on Form 10-Q, it generally must disclose those data in the filing.
To avoid issues, you can either advance the Form 10-Q filing to a date before the company receives the data or delay the data receipt until after the scheduled filing.
Once the CEO or any other key executives who regularly engage with investors are aware of the data, they should stop all discussions with investors prior to disclosure.
Does the four business day reporting deadline for Form 8-K apply to topline clinical data releases?
No. A span of six to seven days from the point of receiving the data to public release is typical, however, more rapid disclosure may be necessary with negative results. Additionally, there may be other important timing considerations if the data are expected to support a financing for the company. A proactive legal strategy includes early discussion of the preferred release time with your investor relations team.
The memo also covers special blackouts, conference presentations, and more. Given these complexities, it’s smart to think ahead. The Fenwick team outlines how to prepare in advance:
When should I start preparing for disclosure?
Preparations can often begin several months in advance. Once a calendar is set for planned readout dates, establish a strong communication channel with the clinical team working on the trial readout, your investor relations team and your legal team. Make sure that you understand the basics—the trial structure, when the data are planned to arrive, and what data are anticipated. This will help you evaluate regulatory risks and necessary disclosures while setting expectations for the internal and external flow of information. Having a communications plan in place early can also be helpful if it becomes necessary to disclose data early (e.g., if there is a safety signal necessitating early unblinding or trial termination).
What can I prepare in advance?
It can help to develop a detailed day-by-day task plan. This plan should include proposed tasks from the moment the data arrives at the company for processing and reviewing, right up to the date of disclosure, and even beyond. This approach also helps solidify your position as a crucial participant in decisions about data timing and provides structure for the internal dissemination of data during the pre-public release phase.
Collaborate with the cross-functional team responsible for managing the data release to create core forms of press releases, corporate presentation slides and other supplementary items, such as a preliminary Q&A.
Establishing a structured timeline can be instrumental in ensuring everyone is aligned on key disclosure dates, the availability of key stakeholders, and assessing potential training needs in advance of receiving data.
2. The “ordinary business,” “micromanagement” and “economic relevance” bases for exclusion following SLB 14M
3. Whether companies will continue to submit a “board analysis”
4. The significance of SLB 14M’s note that the 2022 proposed amendments to the “substantial
implementation,” “duplication” and “resubmission” bases for exclusion under 14a-8 have not been adopted
5. SLB 14M’s guidance on proof of ownership and deficiency letters
6. What the timing of SLB 14M means for companies as they navigate this shareholder proposal season
If you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share, email John at john@thecorporatecounsel.net or Meredith at mervine@ccrcorp.com.
Here’s something that Meredith blogged Friday over on DealLawyers.com: Yesterday, Corp Fin released an updated version of Securities Act Sections CDI 239.13 and Securities Act Forms CDI 225.10 governing the use of Form S-4/F-4 to register offers and sales of a buyer’s securities after it has obtained “lock-up” commitments from target insiders to vote in favor of the transaction. The CDI permitted registration in certain circumstances but noted that the Staff has objected to the subsequent registration of offers and sales to any of the target shareholders where the insiders also previously executed consents approving the deal – because it viewed the offer and sale as already completed privately.
Now, as you can see from the redline, the CDI provides that the Staff will not object to the subsequent registration on Form S-4/F-4 where the target company insiders also deliver written consents, as long as (1) those insiders will be offered and sold securities of the acquiring company only in an offering made pursuant to a valid Securities Act exemption and (2) the registered securities will be offered and sold only to target company shareholders who did not deliver written consents.
At the same time, Corp Fin also released five new Tender Offer Rules and Schedules CDIs (101.17 through 101.21), adding to the 34 CDIs released in March 2023. The five new CDIs address the “general rule” that an offer should remain open for at least five business days after a material change is first disclosed and clarify the Staff’s views regarding when a change related to financing and funding conditions constitutes a “material change.” For example, to paraphrase three of the CDIs:
– CDI 101.18 clarifies that the Staff views a subsequent securing of committed financing to be a material change where an offeror had commenced an all-cash tender offer without sufficient funds or committed financing. The CDI details steps the offeror must take in that situation.
– On the other hand, CDI 101.20 and 101.21 clarify that the Staff does not view either the substitution of a funding source or the actual receipt of the funds from the lender when the offeror had already obtained (and disclosed) a binding commitment letter to be a material change. The CDIs address disclosure considerations for these situations and where the lender does not fulfill its obligation to provide the funds.
Check out our DealLawyers.com site for more information – we’re posting memos in the “Tender Offers” Practice Area.
Earlier this week, an Executive Order directed Attorney General Pam Bondi to pause DOJ enforcement of the Foreign Corrupt Practices Act for 180 days. Here’s more detail from the fact sheet:
The Order directs the Attorney General to pause FCPA actions until she issues revised FCPA enforcement guidance that promotes American competitiveness and efficient use of federal law enforcement resources.
– Past and existing FCPA actions will be reviewed.
– Future FCPA investigations and enforcement actions will be governed by this new guidance and must be approved by the Attorney General.
The Order implies that the new enforcement guidance will give U.S. companies more leeway with their global business practices. But before you get carried away with bribing foreign officials, it’s important to keep in mind that – at least for now – the SEC still has power to bring civil enforcement actions for FCPA-related violations. This Cleary Gottlieb memo gives more color on how that could play out:
It remains to be seen whether, once confirmed, Atkins will bring the SEC’s enforcement policy in-line with the DOJ’s. The SEC, which enforces the FCPA only on U.S. and foreign issuers of U.S. securities, will also need to consider the impact on investors of pausing enforcement wholesale.
In particular, the SEC enforces the books and records and internal controls provisions of the FCPA, which are codified as part of the Securities and Exchange Act, against numerous companies both inside and outside of the FCPA context to ensure that issuers have accurate books and records and reasonable internal controls over financial accounting, regardless of whether evidence of corrupt payments is established.
According to the memo, the Executive Order and a related DOJ memo create a number of open questions – and that’s part of the reason companies will still benefit from maintaining their anti-corruption compliance programs during this pause and beyond. A memo from BakerHostetler summarizes why FCPA still matters:
■ Foreign and Regulatory Anticorruption Regimes Remain Unaffected. Foreign anticorruption architecture and FCPA analogs in the UK, the EU and other major economies remain in place. The executive order also does not impact the Securities and Exchange Commission’s (SEC) FCPA civil enforcement programs, which include a robust and successful whistleblower program. Companies will still be subject to these laws and regulations.
■ Bribery Impacts the Bottom Line. Bribery often causes companies to lose money through slush funds and other undocumented expenditures that cannot be internally tracked or audited. Indeed, prior FCPA cases, such as the recent trial in United States v. Aguilar in the Eastern District of New York, show that executives may embezzle money in tandem with bribery schemes.
■ FCPA Enforcement will be Decentralized. Bondi’s memorandum lessens the gatekeeping function over FCPA cases related to cartels and TCOs and gives more autonomy to United States Attorney’s Offices (USAOs) around the country, which might undermine prior goals of consistency. While the character of FCPA cases may change, this reduced DOJ oversight and new independence for USAOs could increase overall FCPA enforcement. However, it could also lead to more inconsistent and less predictable enforcement, requiring businesses to maintain comprehensive and flexible FCPA compliance policies — especially with respect to prosecution of companies/individuals that could be considered to be aiding or transacting with cartels or TCOs as described above.
■ Other Statutes Remain Applicable. Statutes for crimes such as wire fraud and money laundering can be used in traditional FCPA fact patterns and support criminal enforcement. The False Claims Act can be used similarly in civil cases.
■ DOJ May Revisit Past Conduct. After the review period mentioned in the executive order, the Attorney General is authorized to “determine whether additional actions, including remedial measures with respect to inappropriate past FCPA investigations and enforcement actions, are warranted” and to “take any such appropriate actions.” This leaves the door open for a reexamination of past FCPA-related investigations or conduct. Companies that relax their FCPA compliance policies may find themselves vulnerable to later enforcement actions. This may be especially so with foreign companies, given President Trump’s comments about the unfair impact to date on U.S. entities.
