Author Archives: Liz Dunshee

John observed that for Exxon’s lawyers, telling off shareholder proponents in the proxy statement may have been a cathartic exercise. Some people are wondering whether this “all guns blazing” approach also will work to reduce the number of shareholder proposals that the company receives. Please participate in this unscientific, anonymous poll to share your guess:

– Liz Dunshee

Last fall, the SEC proposed changes to Edgar with the laudable goal of improving security & reliability for filings. Given all of the other new SEC rules and other things on their plates, corporate secretaries probably haven’t had a lot of time to focus on this proposal. The comment file reflects fewer than 30 comments received to-date. The official comment period has closed, but since the proposal would affect the process for D&O and company codes, it might be worth your while to skim through and contact your filing agent if you see any problems. Or, you can watch this 58-minute demo.

Here’s one insightful observation (full disclosure, it is from our wonderful CCRcorp team):

Noting page 51 of the proposed rule where it is stated:

“A user API token would remain valid for up to one year provided that the user associated with the token logged into the dashboard or one of the EDGAR filing websites at least every 30 days. If the user did not log in at least every 30 days, the user API token would be deactivated”.

As a provider of Section 16 filing software, we believe this requirement will cause frustration and become a roadblock when users are already stressed and focused on the filing and deadline. Our users have no reason to regularly log into the EDGAR website. If implemented as proposed, they will at the very least be required to update the user token annually. Requiring monthly logins to login.gov in addition to resetting user tokens annually seems unnecessary and burdensome.

DFIN submitted this 8-page comment letter. Here are a few of the issues it flags:

– DFIN is concerned with the notion that only account administrators would be able to submit a Form ID, because the administrator(s) might be busy, unavailable, or decide it’s a menial task. DFIN notes that the person filling out the form and submitting doesn’t necessarily need to be the account administrator, as long as the two authorized account administrators are designated in the Form ID.

– It will be problematic to wipe an account of its authorized individuals if there is a failure to satisfy the proposed annual confirmation requirements. DFIN supports a two-week temporary suspension after a two-week grace period.

– Requiring filing agents to maintain client passphrases doesn’t align with current practices and would be time consuming.

– The rule has benefits; it also will create new costs relating to filing agents needing to update or create an application to manage delegations.

– DFIN suggests that the Form ID should be revised to indicate a rush service and provide guidance for what filing scenarios could prompt a rush.

– DFIN supports making the filer dashboard available even when Edgar is closed.

– DFIN supports a bulk delegation function, where account administrators can delegate filing authority to any Edgar filer.

– For bulk enrollment, DFIN cautions against resetting the CCC for filers, where there may be multiple filing agents. DFIN suggests that the filers must confirm which filing agent is managing their bulk enrolment to eliminate any conflict.

The proposal also includes changes to the Form ID that require information about any criminal convictions or administrative suspensions as a result of a securities law violation – not just for the applicant, but also for each authorized individual, account administrator, anyone signing the Form ID pursuant to a Power of Attorney, and billing contact. Individuals that disclose the existence of these “bad actor” issues may be contacted by the SEC Staff to determine their eligibility for Edgar access.

– Liz Dunshee

No huge surprise here, but if you’re the person at your company who is expected to be on top of the status of the SEC’s climate disclosure rules, it’s worth noting that last week, over 30 G.O.P. legislators (and one Democrat) from both chambers of Congress introduced a joint resolution under the Congressional Review Act to attempt to nullify the regulations. Dave had observed this maneuvering last month and John previewed a House Committee meeting on the topic a couple of weeks ago.

The CRA resolution is at a very early stage. This MSN article reiterates that it faces an uphill battle to become law:

To overturn the SEC’s rules, the resolution’s supporters would need to pass it with simple majority rules in both the House and the Senate. If they can manage that, the resolution would then go to President Biden to be signed. If President Biden vetoed the resolution, were it to pass, Congress could override his veto with a two-thirds majority vote in each chamber.

The Sustainable Investment Caucus released a statement saying that the Democrats on the House Financial Services Committee voted unanimously to sustain the SEC’s rule. But the CRA resolution is good political messaging for the folks who signed on. And if by some way it passed, the SEC would be prohibited from proposing a similar rule for 5 years.

– Liz Dunshee

When the SEC voluntarily stayed its climate disclosure rules earlier this month, John blogged that in light of the compliance efforts that will be involved and the other disclosure regimes at play, a “go slower” approach may be safer than “pencils down.” This Covington memo gives more color on why it’s risky to become complacent:

– First, the SEC staff is likely to continue issuing comment letters on companies’ current climate-related disclosures, including comments based on the SEC’s 2010 guidance on climate change disclosures.

– Second, many public companies could become subject to separate climate disclosure requirements under laws and regulations adopted in other jurisdictions, such as the European Union and individual states in the United States, most notably in California.

– Third, even if the SEC’s rules are struck down, it is likely that investor pressure will drive continued private ordering resulting in increased and more comparable climate-related disclosures, particularly for larger public companies.

– Finally, the outcome of the challenge to the SEC’s climate rules is uncertain, including with respect to the content of any portion of the rules that is upheld and the ultimate timing of required compliance with such rules.

The memo goes on to outline next steps based on filer status – which is very helpful! There are a number of activities that large accelerated filers may want to consider while the climate disclosure litigation is pending. For companies that may be facing less pressure, the memo recommends:

Accelerated filers, smaller reporting companies and emerging growth companies may also want to consider the steps recommended above for large accelerated filers, to the extent such companies already produce or are considering producing climate-related disclosures. If these companies are not already generating or disclosing climate-related information, they could well use the time afforded by the rules’ challenge to:

– get up to speed on the climate-related reporting and the obligations it would impose on the company, and if material, educate their boards of directors to facilitate the company’s development of corporate governance and risk management policies and procedures related to climate risk;

– if climate-related risks are expected to be material, review climate-related disclosures that competitors, industry leaders, suppliers or end-users make; and

– strategize about the information systems, processes and controls that the company would need to implement if the rules come back into effect.

The Covington team points out that if all or part of the rule is upheld, the SEC is likely to provide some transition period before the clock starts ticking again, although any such transition period will likely depend on the duration and result of the litigation, including which parts of the rules remain intact. The SEC appears to be preparing for a long battle – which may go all the way to the SCOTUS. It is difficult to predict at this point when the final outcome will be determined and what it will be.

– Liz Dunshee

The NYSE has proposed an amendment to Section 802.01D of the Listed Company Manual to allow the Exchange to commence immediate suspension and delisting procedures if a company changes its primary business focus. Specifically, discretion will apply if:

The company has changed its primary business focus to a new area of business that is substantially different from the business it was engaged in at the time of its original listing or which was immaterial to its operations at the time of its original listing. If the Exchange becomes aware of such a change in the company’s primary business focus, the Exchange’s assessment of the company’s suitability for continued listing in light of such change will also, where appropriate, take into consideration other changes that may have occurred in connection with the change in the company’s primary business focus, including, but not limited to, changes in the management, board of directors, voting power, ownership, and financial structure of the company.

The Exchange will focus its analysis of the company’s suitability for continued listing on whether it would have accepted the listed company for initial listing if it had been engaged in its modified business at the time of original listing. Any company that the Exchange determines to be unsuitable for continued listing due to a change in its primary business focus will be subject to immediate suspension and delisting in accordance with the procedures set out in Section 804.00.

The amendment is intended to address the NYSE’s concern that:

Investors who acquired the company’s stock prior to this change in operations (including, in many cases, in connection with the company’s initial public offering) may have made their investment decision based on the company’s disclosure about its original business and might not have made their investment if they had been aware of how the company would change. In addition, a wholesale change in business operations may give rise to a concern about the suitability for listing of the company had it been in engaged in that line of business at the time of its application for listing. The Exchange notes that, in some circumstances, there has been significant downward price movement subsequent to such a change in business focus, which resulted in significant investor losses and an inability to meet exchange continued listing standards.

The NYSE acknowledges that seeking to suspend and delist a company’s trading under this revised rule would be an extraordinary action. It expects to seldom rely on the new discretionary authority, and only after thorough analysis of all relevant facts & circumstances. Interestingly, this NYSE proposal comes at about the same time as one that would give more breathing room to SPACs looking to complete a business combination – which Meredith blogged about earlier this month.

The SEC has posted notice of the rule change. You can submit comments here.

– Liz Dunshee

Yesterday, the SEC’s climate disclosure rules made it into the Federal Register. That means that the rules will be effective on May 28th (although compliance with the rules will not be required until the various dates specified in the rules for different types of information and issuers). The timing of this publication diminishes the risk that any change in Presidential Administration would result in the undoing of the rules. Rather, as Dave blogged last week and discussed in our webcast earlier this week, a resolution under the Congressional Review Act would be going to President Biden for review (and likely would be vetoed).

Of course, as everyone knows, this does not mean the rule is out of the woods. This Cooley blog details the latest twists & turns in the 8th Circuit litigation, which involve petitioners requesting a new administrative stay and the SEC submitting a request that the stay be denied, as well as reporting that a new petition was submitted in the 5th Circuit after the consolidation order was issued.

Companies, meanwhile, are gearing up for compliance. I shared a redline of the rule text in yesterday’s blog. I’ve now been alerted to a streamlined alternative that weighs in at a breezy 63 pages (it strips out the intro language for each rule). It also provides coloring for each type of edit – e.g., red for deletion, blue for addition, green for movement. The redline is an appendix to Holland & Knight’s client alert on the new rules. At this stage, we are all continuing to get our arms (and minds) wrapped around the new requirements, and you really cannot have too many resources to help with that. We are continuing to post memos in our “Climate Change” Practice Area!

– Liz Dunshee

Earlier this month, Meredith blogged about a federal district court case out of Alabama that held that the Corporate Transparency Act is unconstitutional. She also wrote about FinCEN’s statement in response to this holding – which said that the government will continue to enforce CTA requirements against everyone except the specific plaintiffs in this case – and she predicted that the DOJ would appeal.

Sure enough, the DOJ has filed this notice of appeal. We do not yet know when the 11th Circuit will hear this case, what the decision will be, and whether a ruling will be issued before December 31, 2024, which is the compliance deadline for entities formed before January 1, 2024. This Denton’s blog points out that FinCEN could seek a stay of the District Court’s ruling on top of its previously issued statement – which may help companies read the tea leaves of where the court ultimately will come down.

Remember that public companies need to conduct a compliance review despite appearing to have an exemption from this statute. And this King & Spalding memo says it’s too early to write off the CTA. It encourages everyone to keep marching ahead – at least with respect to conducting the compliance review and establishing processes.

– Liz Dunshee

On Tuesday of this week, BlackRock CEO & Chair Larry Fink published his letter to investors, which continues the theme in this week’s blogs of policies & reports from the world’s largest asset managers. BlackRock’s letter to shareholders doesn’t drop any bombshells about its portfolio company engagements or how it will vote at portfolio company meetings this spring – which is a good thing. Even without that drama, it understandably continues to get big headlines – and it is still an overall interesting read.

One thing I learned from this year’s letter is that, just like yours truly, Larry Fink’s dad owned a shoe store. The other thing I deduced is that this mid-March letter to investors could be the “new normal” for BlackRock communications. Based on the communication approach last year and this year, the January tradition of the “BlackRock Letter to CEOs” has fallen by the wayside, at least for now.

Something else that has fallen by the wayside is express “ESG” terminology, which has become too politically charged for Larry Fink’s tastes. However, BlackRock is not backing down from its multi-year messaging around the inevitable investment opportunity in the transition economy – specifically, with “energy infrastructure” as countries look to decarbonize their economies while at the same time achieving energy security. This year, though, the emphasis is on “energy pragmatism.” Here’s an excerpt:

Germany is a good example of how energy pragmatism is still a path to decarbonization. It’s one of the countries most committed to fighting climate change and has made enormous investments in wind and solar power. But sometimes the wind doesn’t blow in Berlin, and the sun doesn’t shine in Munich. And during those windless, sunless periods, the country still needs to rely on natural gas for “dispatchable power.” Germany used to get that gas from Russia, but now it needs to look elsewhere. So, they’re building additional gas facilities to import from other producers around the world.

Or look at Texas. They face a similar energy challenge – not because of Russia but because of the economy. The state is one of the fastest growing in the U.S., and the additional demand for power is stretching ERCOT, Texas’ energy grid, to the limit.

Today, Texas runs on 28% renewable energy – 6% more than the U.S. as a whole. But without an additional 10 gigawatts of dispatchable power, which might need to come partially from natural gas, the state could continue to suffer devastating brownouts. In February, BlackRock helped convene a summit of investors and policymakers in Houston to help find a solution.

Texas and Germany are great illustrations of what the energy transition looks like. As I wrote in 2020, the transition will only succeed if it’s “fair.” Nobody will support decarbonization if it means giving up heating their home in the winter or cooling it in the summer. Or if the cost of doing so is prohibitive.

“This is where the power of the capital markets can be unleashed to great effect,” the letter continues. And this ode to capital markets is the other big theme of the letter. In addition to highlighting BlackRock’s energy-related investments – such as a $12.5 billion agreement to acquire Global Infrastructure Partners (which owns things like pipelines, airports, wind projects, and more), the letter spotlights how capitalism makes America great. . . but not perfect.

Among other things, the letter discusses how BlackRock products can help solve not only our infrastructure problems, but also the looming global retirement crisis – and with that, the lack of hope among young people. While some might say that’s grandiose, I found it refreshing to read some traditional “marketing spin” in the annual letter to shareholders. Here are a few other interesting nuggets:

1. BlackRock will continue to invest in private markets in addition to public: “In private markets, we are prepared to capitalize on structural growth trends. Whether it’s executing on demand for much-needed infrastructure, or the growing role of private credit as banks and public lenders move away from the middle market, private capital will be essential. BlackRock is poised to capture share through our scale, proprietary origination, and track record. And we believe our planned acquisition of GIP will meaningfully accelerate our ability to offer our private markets capabilities to our clients.”

2. BlackRock will be offering more active equity funds (i.e., it’s not just “passive” index funds anymore): “BlackRock has been critical in expanding the market for ETFs by making them accessible to more investors and delivering new asset classes (like bonds) and investment strategies (like active).”

3. BlackRock will apply its voting policies to promote corporate governance & financial resilience: “we built one of the largest stewardship teams to engage with companies, often alongside our investment teams, because we never believed in the industry’s reliance on the recommendations of a few proxy advisors. We knew our clients would expect us to make independent proxy voting decisions, informed by our ongoing dialogue with companies – a philosophy that continues to underpin our stewardship efforts today. For our clients who have entrusted us with this important responsibility, we remain steadfast in promoting sound corporate governance practices and financial resilience at investee companies on their behalf.”

4. Voting Choice will continue to expand: “In 2022, BlackRock was the first in our industry to launch Voting Choice, a capability that enabled institutional investors to participate in the proxy voting process. Today, about half of our clients’ index equity assets under management can access Voting Choice. And in February, we launched a pilot in our largest core S&P 500 ETF, enabling Voting Choice for individual investors for the first time.”

– Liz Dunshee

When the Commission adopted climate disclosure rules earlier this month, it went to great lengths to demonstrate that the final rules incorporated feedback from the thousands of comment letters that were submitted in response to the proposal. In the open meeting at which the new rules were adopted, several of the Commissioners discussed ways in which the final rules differed from the proposal – which Meredith helpfully summarized for us all at the time.

To see how these accommodations are reflected in the actual line-item regulations, check out this 101-page redline that compares the final provisions of Reg S-X, Reg S-K, the affected forms and other statutes to what the Commission originally proposed. It’s wild that this redline tops 100 pages! But it is a lot quicker to read than the full 886-page adopting release – and it’s a good tool to help absorb the final rules.

– Liz Dunshee

Hat tip to Aon’s Karla Bos for alerting us that State Street Global Advisors has released its “Global Proxy Voting & Engagement Policy” – effective for voting decisions beginning March 26, 2024. This year, SSGA has centralized its standalone policies for specific markets and environmental & social factors into one Global Policy. That is a welcome change for those of us who are charged with keeping all the ins, outs & what-have-yous in our heads. I’m sure it was no small feat for the SSGA team to make it happen. The Global Policy includes these sections:

1. Overview of SSGA’s stewardship and voting program

2. Overview of proxy voting & engagement principles – effective board oversight, disclosure, shareholder protection, shareholder proposals, and engagement

3. Standalone sections addressing each of these principles

4. An appendix that sets forth SSGA’s criteria for “quality disclosure” on topics that are commonly the subject of shareholder proposals – climate disclosure, DEI disclosure, etc.

SSGA published this summary to highlight the substantive policy changes that were made as part of this update, which appear to primarily relate to director overboarding. Here’s an excerpt:

Beginning in 2024, we consider if a company publicly discloses its director time commitment policy (e.g., within corporate governance guidelines, proxy statement, company website). This policy or associated disclosure must include:

• Description of the annual review process undertaken by the nominating committee to evaluate director time commitments

• Numerical limit(s) on public company board seat(s) the company’s directors can serve on

For companies in the S&P 500, we may vote against the nominating committee chair at companies that do not publicly disclose a policy compliant with the above criteria, or do not commit to doing so within a reasonable timeframe.

For other companies in certain markets (such as the US non-S&P 500) that do not publicly disclose a policy compliant with the above criteria, we will consider the number of outside board directorships that the company’s non-executive and executive directors may undertake. Thus, State Street Global Advisors may take voting action against a director who exceeds the number of board mandates listed below:

• Named Executive Officers (NEOs) of a public company who sit on more than two public company boards

• Non-executive board chairs or lead independent directors who sit on more than three public company boards

• Non-executive directors who sit on more than four public company boards

If a director is imminently leaving a board and this departure is disclosed in a written, time-bound and publicly available manner, we may consider waiving our withhold vote when evaluating the director for excessive time commitments.

SSGA had previewed this update in a letter last year, so it shouldn’t come as a surprise. Although the summary doesn’t call out any other big updates, if SSGA is a significant shareholder for your company, it is worth viewing this year’s Global Policy as a “reset” that should be reviewed in full. Luckily, it is much easier to do that now that the policies are all in one document.

– Liz Dunshee