It’s rare these days to see members of Congress agree on something. But as this Mayer Brown blog reports, the House passed several bills last week on capital formation – with bipartisan support! Here’s an excerpt:
– H.R. 3343, the Greenlighting Growth Act, would establish that an EGC, as well as any issuer that went public using EGC disclosure obligations, would only need to provide two years of audited financial statements even when such EGC acquires another company.
– H.R. 3382, the Small Entity Update Act, would direct the SEC to conduct a study, followed by a rulemaking consistent with the results of such study, to define “small entity” under the Regulatory Flexibility Act (the “RFA”). Currently, the RFA requires federal agencies to consider the impact of regulations on small entities (including small businesses, small governmental units and small non-profit organizations). The RFA would mandate that agencies conduct regulatory flexibility analyses, explore less burdensome alternatives and explain their choices, especially when a particular rule is expected to have a significant economic impact on a substantial number of small entities.
– H.R. 3395, the Middle Market IPO Underwriting Cost Act would require the Comptroller General, in consultation with the SEC and FINRA, to study and report on the costs encountered by small- and medium-sized companies when undertaking IPOs.
This builds on legislation that passed the House last month. And as Dave shared last week, the House of Representatives also passed a bill – H.R. 3339 – that would allow more people to qualify as “accredited investors” under Regulation D.
There may be even more on tap, but it’s at the earlier stages. The House Financial Services Committee has advanced legislation that would lower the WKSI threshold and require the SEC to give more consideration to small companies when writing rules, among other things. Last year, the full House approved much of this as part of its effort to build on the JOBS Act of 2012, but the legislation didn’t advance in the Senate.
Earlier this month, I joined Cooley’s capital markets team as a Senior Strategic Advisor. Like the headline says, being surrounded by people at the heart of the action with deal flow, emerging issues and fast-moving clients feels to me like being a kid in a candy shop. Not to mention, every single person has given me such a warm welcome! For longtime members and readers here at TheCorporateCounsel.net, you’ll know that Broc & I are also thrilled to team up once again.
Of course, something that was important to me with this move was to be able to continue in my role as Senior Editor of TheCorporateCounsel.net and CompensationStandards.com. Thankfully, I’ll be sticking around and continuing with the rest of the awesome CCRcorp team to bring practical guidance to our community. Thanks to those who reached out to say they hoped that would be the case and to everyone who sent notes of encouragement during this time of transition! Hope to see many of you in Vegas in a few months!!!
In light of Andreessen Horowitz’s loud DExit a few weeks ago, late-stage companies are giving serious thought to the “where to incorporate” decision. Some public companies are also more open to exploring reincorporation than they would have been a year ago, especially if there are controlling shareholders in the mix.
This Cooley memo gives a thorough recap of where things stand and factors that companies are considering when deciding whether to (re)incorporate in Delaware versus Nevada or another state. It also summarizes important process issues for public and private companies to map out before getting too far down the path of changing domicile. Here’s an excerpt on that piece:
– While a controlled public company may be able to effect a move with board approval and written consent (see, for example, Dropbox’s information statement), public companies without a controlling stockholder will likely have to obtain a full stockholder vote through a proxy solicitation at an annual or special meeting. This can be onerous and time-consuming (not only to prepare the proxy statement but also to solicit the votes) and comes with the risk that stockholders will not ultimately approve the move.
– The company must determine which consents it will need in connection with a reincorporation and review its governing documents, contracts, equity plans and other documentation to ensure it is soliciting and receiving all required consents to move.
– A public company will likely need to establish a special committee to evaluate whether and where to reincorporate, have a clear rationale for why a reincorporation is good for the company, and ensure the board understands and is supportive of this rationale. Is the company trying to protect its culture of innovation? Does a different state give the board more certainty in corporate decision-making without the specter of litigation or a second-guessing of board decisions? And is this rationale ultimately compelling to the company’s stockholders?
– Keep a clear record of the board’s consideration of the decision, and ensure the board has reviewed and adequately evaluated both the benefits and risks of a move. Bring in experts and/or legal advisers to help clarify issues or considerations.
– Statutory appraisal rights of stockholders under DGCL Section 262 apply in the context of a conversion of a Delaware corporation to a foreign corporation. In the public company context, the DGCL so-called “market exception” (whereby appraisal rights do not apply to any class of stock listed on a national securities exchange or held of record by more than 2,000 stockholders) usually exempts public companies from stockholder appraisal rights in a conversion. However, the market exception does not apply to private companies, and stockholders will most likely have appraisal rights in connection with a private company conversion. Such rights can be waived, but serious consideration should be given to appraisal rights and the related process for a private company considering a reincorporation away from Delaware. Public companies with dual-class structures where a high-vote class is not listed on a public market will also have to consider appraisal rights with respect to that high-vote class.
– Proxy advisory firms may also weigh in on redomiciliation proposals by public companies. While both Glass Lewis and Institutional Shareholder Services (ISS) review such proposals on a case-by-case basis, Glass Lewis generally recommends voting against a redomiciliation if it results in a decline in shareholder rights, has minimal financial benefits and offers significantly weaker shareholder protections, while ISS will recommend voting against a proposal if the move would result in a deterioration of shareholder rights or governance standards.
It’s too early to know how much market share Delaware may lose in the coming years, but it’s safe to say that the question of where to incorporate has captured the attention of executives & directors. That means the First State is no longer a “no brainer.” Right now, it’s one of a few leading options that corporate lawyers need to understand & be prepared to work with.
The days of big whistleblower payouts appear to be on pause at the SEC, according to this Bloomberg Law article:
The commission, now with a Republican majority, denied awards in 31 consecutive orders issued between April 21 and July 15 – covering at least 55 different tipsters, Bloomberg Law found in a review of all 65 final orders issued this year. It’s the longest drought in the history of the program, which was created by the Dodd-Frank law of 2010 to encourage tips about financial wrongdoing.
Approximately $20 million has been awarded so far this year, including three awards totaling about $9 million that the agency made on July 16, two days after Bloomberg Law asked it about the lack of approvals.
The 31-0 trend is pretty striking on the SEC’s page for final orders on whistleblower claims – with the “denied” entries going on and on for several months.
The Bloomberg article says that the decline is partly due to the fact that the (much leaner) Staff is working through a backlog of questionable claims. Additionally, the Commission is applying whistleblower restrictions more strictly when it comes to people publishing their tips online or sharing them with media before coming to the SEC.
While companies obviously want to avoid any type of whistleblower or investigation if they can, it may be good news that there’s more incentive these days for disgruntled folks to go quietly to the regulator instead of also airing their grievances all over the interwebs. The downside for a company that is the subject of a whistleblower tip is that the SEC can quietly build a case and choose when to surprise you with the news.
In this 28-minute podcast, Meredith interviewed Ani Huang from the HR Policy Association and Center On Executive Compensation and Dr. Anthony Nyberg from the University of South Carolina about a report they recently co-authored on CEO succession planning.
Their research focused on 10 of the most common pitfalls in CEO succession, the risks they pose to companies and the role of Chief Human Resources Officers in supporting boards through leadership transitions. The info goes beyond CHROs, though – it’s also useful to anyone supporting boards with succession planning. In the podcast, they discussed:
1. Why the CHRO can be even more critical than the outgoing CEO in ensuring an effective succession planning process
2. What makes or breaks CHRO effectiveness in succession planning
3. Gaining buy-in on the importance of succession planning when a transition isn’t imminently expected
4. The importance of starting early – even on day two of a new CEO’s tenure
5. Identifying “future-fit capabilities” and revisiting the CEO profile as business needs evolve
6. Defining the role of the incumbent CEO in the succession planning process and avoiding the CEO “preordaining” a successor
7. Deepening the board’s engagement and understanding so succession planning doesn’t become a “check the box” exercise
8. Getting boards meaningful exposure to internal talent to evaluate critical competencies
9. Setting up the successor and the board for success when the transition happens
10. Developing internal talent and navigating challenges that arise when candidates are asked to stretch beyond core competencies
11. The criticality of considering external talent, even when there are many reasons to promote internally
12. Taking that first step.
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.
As we approach the 249th birthday of our United States of America, I realized it had been quite some time since I’d read the list of grievances in the Declaration of Independence and reflected on the events and writings leading up to the American Revolution.
I’m not going to attempt a history lesson in this blog, but it was a good reminder that we are a vibrant society with plenty of things to unite us. This weekend is a good chance to celebrate that – and build on our shared experiences.
One tradition many of us enjoy is, of course, fireworks. Wish me luck as our family tries to avoid a repeat of last year’s celebration, when a glitch with the pyrotechnics team caused the rockets to aim towards the crowd. Thankfully, despite hundreds of people running around in the dark while mortar rained down, nobody was injured!
To replace that traumatic memory, this year I’m forcing/encouraging our kids to learn to waterski over the holiday. What could go wrong?
We wish everyone a safe and happy holiday weekend. We’re off tomorrow – our blogs will be back on Monday.
I blogged a few months ago that the SEC and Ripple Labs settled the civil enforcement action that the Commission launched back in December 2020. The settlement of the SEC v Ripple Labs case was conditioned on the judge in the case agreeing to dissolve the permanent injunction and lower the penalty that had been aspects of the court’s July 2023 ruling against the company.
Late last week, the judge denied the parties’ request – saying that the SEC’s decision to reverse course on crypto enforcement isn’t grounds for changing a final judgment outside of the appeals process. From Reuters:
“The parties do not have the authority to agree not to be bound by a court’s final judgment that a party violated an Act of Congress in such a manner that a permanent injunction and a civil penalty were necessary to prevent that party from violating the law again,” she wrote.
“Accordingly, if jurisdiction were restored to this court, the court would deny the parties’ request to vacate the injunction and reduce the civil penalty,” she added.
Torres said the SEC and Ripple remain free to withdraw their appeals, or appeal her injunction.
The next day, Ripple’s CEO announced on X that the company plans to drop its cross-appeal in the case. This crypto saga always feels like a “never say never” situation to me, but the industry folks at Coindesk say that this means Ripple will pay the existing $125 million penalty and abide by the injunction to follow the law. I’ll look forward to final confirmation on this one.
The Senate passed the “Genius Act” last week in a 68-30 vote, to the delight of the crypto industry. It still has to clear the House – where it’s known as the “Stable Act” – before becoming law, but lawmakers in the House say they want to act quickly.
The Senate’s approval is viewed as a win for U.S. based stablecoin issuers – for at least a few reasons:
– It provides clarity on which entities are permitted to issue payment stablecoins and how they’ll be regulated.
– It amends the definition of “security” in the Securities Act, the Exchange Act, and certain other statutes to exclude a payment stablecoin issued by a permitted payment stablecoin issuer as defined in the statute.
– It prohibits federal banking agencies, the NCUA, and the SEC from requiring financial entities to report custodial digital assets as liabilities.
– It establishes guardrails that stablecoin companies outside of the U.S. aren’t prepared to comply with.
This Troutman Pepper memo summarizes how the regulation would work – and this WSJ article explains some of the industry dynamics. This Arnold & Porter memo explains how the reconciliation process could play out:
Differences remain, however, including regarding the breadth of federal preemption, transaction monitoring processes and know-your-customer requirements, and the need for consumer protections. The political will to make law governing stablecoins suggests that the differences between the two bills are surmountable.
No word yet on whether this legislation will ultimately be named the “Stable Genius Act.” The Senate’s version says that existing ethics rules prohibit any member of Congress or senior executive branch official from issuing a payment stablecoin during their time in public service.
Reporting on greenhouse gas emissions and climate-related risks will be required in California beginning in January 2026. Unfortunately, there’s still a lot of uncertainty about what that will involve. Over on PracticalESG.com, we just posted a helpful 17-minute podcast with Kristina Wyatt of Persefoni that gives the latest update on what companies need to be doing to comply with these laws. Kristina shares key topics from a workshop that the California Air Resources Board (CARB) recently hosted.
This new guide from ISS-Corporate also gives a quick refresher on getting started with SB 253 and SB 261 reporting. Key takeaways include:
– Emissions Disclosure: SB 253 requires companies in scope to annually disclose scope 1 and 2 GHG Emissions (Scope 3 starting 2027).
– Financial Risks: SB 261 requires companies to report biannually on climate-related financial risks.
– Future Guidance: CARB will develop guidance around the climate acts, but these will likely not be finalized until late 2025.
– Getting Ready for Emissions Reporting: Companies can begin developing disclosures aligned with SB 253 requirements using available guidance and standards.
– Framework Clarity: SB 261 is informed by the TCFD and IFRS S2 frameworks. Companies can proactively address the regulation by aligning their reporting with these standards, as CARB continues to finalize specific requirements.
The guide recommends that companies start to prepare for disclosure based on current information, which will give more breathing room and time for strategic decisions when the deadline nears.
Here are takeaways from the SEC’s Executive Compensation Disclosure Roundtable that Meredith shared yesterday on CompensationStandards.com:
Last Thursday, the SEC held its roundtable on executive compensation disclosure requirements. Our own Dave Lynn (who spoke on a panel) noted on TheCorporateCounsel.net blog on Friday that the event was well-attended. If you missed it — either in person or virtually — the SEC posted a replay of each panel on the SEC’s YouTube channel. And if listening to 4+ hours of discussion about the SEC’s executive compensation disclosure requirements is just not in the cards for you right now (or ever), we’ve got you covered!
In blogs on TheCorporateCounsel.net on Friday, Dave shared his thoughts and excerpts from the remarks by Chairman Atkins and Commissioners Crenshaw, Peirce and Uyeda. On the Proxy Disclosure Blog, Mark Borges (who also spoke on a panel) shared a few thoughts about revisiting the current disclosure requirements that occurred to him as he listened to the various panelists.
Today, I thought I’d share high-level topics, ideas and themes that I heard throughout the three panels, many of which were teed up in advance by Chairman Atkins, and whether there was consensus or some disagreement among the panelists. Here are a few:
– How or whether executive compensation disclosure requirements drive or distort compensation decision making
Panelists cited the requirement to hold a say-on-pay vote and compensation committees taking into account investor and proxy advisor policies
Panelists also noted that including executive security spend in the Summary Compensation Table’s calculation of “Total Compensation” can distort investor and proxy advisor perception and analysis of pay (although corporate representatives stressed that the board will make decisions in the best interest of the company regardless)
– Whether the executive compensation disclosure requirements effectively convey how the board and compensation committee consider compensation
A number of panelists supported the suggestion that the disclosure requirements more closely reflect the presentation of pay in board materials — including the “target” and “outcome” tables that compensation committees use
– Whether “more is better”
Investor representatives generally made suggestions for additional disclosures, and issuer or advisor representatives generally suggested that the rules could be shortened and streamlined
Repeated “asks” by investor representatives included that quantitative disclosures be machine-readable and that the disclosures more clearly present the life-cycle of an equity award
– Whether the executive compensation disclosure rules are too granular and attempt to elicit disclosure of ALL the information ANY investor might want to know, instead of focusing on materiality and the reasonable investor standard
If you’re wondering about the title of this blog, CII’s Bob McCormick shared a story about his high school job making ice cream. He once asked the owner why they make some unusual flavors that weren’t very popular. The owner explained that one customer — who drove 30 minutes each way — really liked them. From there on out, “rum raisin ice cream” was a favorite call back, but panelists disagreed whether the rules should require companies to keep making rum raisin ice cream — i.e., keep disclosing information that is very valuable only to a small subset of investors. Now you know!
– Whether simplifying the Item 402 disclosure requirements would actually result in shorter disclosures
As Dave noted, while say-on-pay required very little disclosure, companies significantly expanded their voluntary disclosures after these votes were legislatively mandated
– The complexity and homogenization of pay and the factors driving these developments
There was generally consensus that companies feeling like they have to follow a “one-size-fits-all” approach to pay programs — with most pay in the form of PSUs — is a bad thing for both companies and shareholders, and that flexibility — including to simplify equity programs to largely time-vested with a long holding period — would be beneficial
– Consensus that the prescriptive, tabular requirements generally provide overly complicated and difficult to use disclosures, while some voluntary disclosures are particularly useful (including presentations of realized and realizable pay)
A few investor representatives described the complicated process they follow to understand executive equity awards, which involves flipping between numerous tables and referencing Form 4s
– Consensus among the issuer and advisor representatives that compensation disclosures are too costly to prepare
Corporate representatives stressed that “every dollar matters” for companies both large and small, while also noting the outsized burden on less-resourced small- and mid-cap companies
Our 2025 Conferences will be taking place Tuesday & Wednesday, October 21 & 22, at the Virgin Hotels in Las Vegas, with a virtual option for those who can’t attend in person. The early bird rate expires July 25th! You can sign up by emailing info@ccrcorp.com or calling 800-737-1271.
