Big 4 firms have been making a play for legal services for more than two decades. This Artificial Lawyer blog says that in countries where they’ve entered the market, they haven’t “rocked the world.” Richard predicts we’d likely see the same (minimal) impact here.

What do you think? Please participate in our anonymous poll to share your view on what would happen if KPMG gets the license it’s seeking:

– Liz Dunshee

It’s been gut-wrenching to watch the wildfire destruction that has occurred in California over the past several days. Our hearts go out to the nearly 8 million residents of L.A. and Ventura Counties who are facing dangerous conditions, and everyone else affected by the disaster. I think that even if they haven’t lived in California, many people across the country have some connection to the Los Angeles region. We have all been watching with sadness – as well as hope that people will come together to rebuild.

As of this morning, the SEC has not made a broadly applicable announcement about filing relief, but I expect they would encourage companies and other regulated entities to contact the Staff with questions and concerns and tell investors to watch out for scams, similar to their response to Hurricane Helene. We will continue to monitor developments.

– Liz Dunshee

John drew the short draw of blogging over the holidays, and the CTA drama gave him a few things to write about. The saga isn’t over, but we now have more clarity. Here’s an update, courtesy of this McGuireWoods blog:

You may recall that on December 26, 2024, the Fifth Circuit vacated the “part of the motions-panel order granting the Government’s motion to stay the district court’s preliminary injunction enjoining enforcement of the CTA,” as well as the Reporting Rule. In other words, FinCEN cannot enforce the CTA and there is no reporting obligation until this gets resolved.

The Fifth Circuit has issued an expedited briefing. Briefing will occur in February, and the court has scheduled oral argument on March 25, 2025, after which it will need time to issue an opinion. As with the temporary lifting of the injunction precluding enforcement, FinCEN would likely provide additional time to file should the law go back into effect. In light of this schedule, Reporting Companies now have some clarity on the time – likely Q2 2025 – they have to analyze their compliance obligations.

– Liz Dunshee

In this 27-minute episode of the “Women Governance Trailblazers” podcast, Courtney Kamlet and I interviewed Karla Munden, who is SVP and Chief Audit Executive with Lincoln Financial Group, and an Independent Director at American Express National Bank. Karla also recently spent time in South Africa as part of the immersive B-Direct program, where she learned how to adapt her U.S.-based corporate governance skills to a different culture. We discussed:

1. Karla’s leadership experiences and learnings over the years.

2. U.S. versus South African approaches to corporate governance and stakeholder priorities, and the importance of cultural dexterity.

3. Leadership lessons from Karla’s Navy service that have translated into her corporate roles.

4. Karla’s experiences on the boards of American Express National Bank and the William and Mary Foundation, including similarities in not-for-profit and for-profit boards, and the top qualities of effective board members.

5. Karla’s role as a minority owner of the Caroline Cobras, a football team in the National Arena League.

6. What Karla thinks women in the corporate governance field can add to the current conversation on the societal role of companies.

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.

– Liz Dunshee

Here’s something that Meredith blogged a couple days ago on CompensationStandards.com: You probably saw this week’s Wall Street Journal article on the Delaware Chancery’s latest decision related to Elon Musk’s 2018 Tesla pay package. There are very few takeaways for executive compensation professionals in the decision, but it seems worthy of addressing here — even if only for its novelty. So, keeping with the theme of my April post on Tesla’s proxy filing — including the proposal requesting that stockholders ratify said pay package after the Chancery Court ordered it rescinded — here are five things to know about the latest decision:

– This opinion was still at the Chancery Court level — penned by Chancellor McCormick, who was also responsible for the initial post-trial decision ordering rescission of the award. The order addressed the defendants’ motion to “revise” the post-trial opinion based on the stockholder vote and plaintiff attorneys’ petition for fees and expenses.

– Chancellor McCormick used this opportunity to clarify/emphasize a few points from the initial post-trial opinion. Specifically, that the decision did not hold that the Tesla board should have paid Musk nothing. She says, “there were undoubtedly a range of healthy amounts that the Board could have decided to pay Musk. Instead, the Board capitulated to Musk’s terms and then failed to prove that those terms were entirely fair.” She also clarified that none of the legal theories applied in the opinion were novel — if anything was novel in the opinion, it was simply that those legal principles had not previously been applied by the court to Musk vis-a-vis Tesla.

– The opinion considered events post-dating the initial post-trial decision, including the actions of the single-member special committee that was formed to assess the redomestication of Tesla to Texas and whether Musk’s 2018 award should be submitted to a second stockholder vote and the 2024 stockholder vote intended to “ratify” the award.

– Chancellor McCormick found that the “ratification” argument had four fatal defects — three expected, one surprising.

• First, there are no procedural grounds for flipping the outcome of a post-trial decision based on evidence created after trial. Procedural rules allow the court to reopen the trial record for newly discovered evidence (“in existence at the time of trial”) but not newly created evidence. From a policy perspective, if this was allowed, “lawsuits would become interminable” and it would “eviscerate the deterrent effect of derivative suits.”

 

• Second, as an affirmative defense, common-law ratification is waived if not timely raised. And, “wherever the outer boundary of non-prejudicial delay lies,” raising the defense “six years after this action was filed, one and a half years after trial, and five months after the Post-Trial Opinion” was too late.

 

• Third, in a conflicted-controller transaction, the “maximum effect” of stockholder ratification is to shift the burden of proving entire fairness; it doesn’t shift the standard of review, which would require MFW’s additional protection of an independent committee and conditioning the transaction on the dual protections before negotiations. Defendants tried to argue that MFW was invoked after the post-trial opinion, to which the opinion says, “One does not ‘MFW‘ a vote, which is part of the MFW protections; one ‘MFW‘s a transaction.”

 

• Finally, the proxy statement contained material misstatements. Tesla went to great lengths to avoid any argument that this second vote was not fully informed — having annexed 10 documents to the proxy, including the opinion and the special committee’s report to the board. But the legal impact of the stockholder ratification was unclear — and, trying to be transparent, the proxy said as much. That was a problem. “To be fully informed for ratification purposes, ‘the stockholders must be told specifically . . . what the binding effect of a favorable vote will be.’”   Plus, the proxy used phrases like “extinguish claims,” “any wrongs … should be cured” and the disclosure deficiencies “corrected,” which were “materially false and misleading.”

 

– Using “sound” methodology, the plaintiff’s attorneys asked for $5.6 billion in freely tradeable Tesla shares as attorney fees. To this, the opinion says, “in a case about excessive compensation, that was a bold ask.” To avoid a windfall and reach a reasonable number, the opinion adopts the defendants’ approach of using the $2.3 billion grant date fair value to value the benefit achieved and applies 15% to that amount, resulting in a (still massive) fee award of $345 million.

– Liz Dunshee 

As Dave noted last week, one thing that many of us are grateful for this holiday season is that we can take a big – and possibly permanent – pause from working to comply with the SEC’s climate disclosure rule that was adopted last spring. However, as Dave also pointed out, CSRD compliance will still require effort from many companies. On that front, Ropes & Gray recently updated its “transposition tracker” – which shows which EU member states have implemented CSRD requirements in their national laws.

A recent Teneo memo predicts that CSRD may even affect companies that aren’t subject to that disclosure regime, if institutional investors push for comparable disclosure across their portfolios. This consequence is included in the memo as one of the 10 most likely scenarios that could impact corporate environmental & social initiatives as the balance of power shifts in Washington. Here are 4 more possibilities that Teneo shares for 2025 & beyond:

– Greater scrutiny of company DEI programs. While the 2023 Supreme Court’s Students for Fair Admissions rulings focused on higher education, conservative campaigns to end corporate DEI programs have landed on company doorsteps this year. As a result, many companies have conducted legal reviews of their DEI programs and communications. New challenges to DEI initiatives are expected under the next administration, including the reinstatement of an executive order against “divisive topics” in DEI training for contractors and possible action from the Department of Labor to change federal policies. In addition to the risk of another shift in the legal landscape, the Trump administration is expected to appoint vocal critics of DEI, such as Elon Musk, Vivek Ramaswamy and Stephen Miller, to federal positions. Companies should prepare for the campaign against DEI to become more public and challenging as advocates, including employee groups, nonprofits and investors, press companies to stand firm with prior commitments.

– Revisited attacks on proxy advisory firms and ESG shareholder proposals. The SEC may resume its prior initiatives to rein in the perceived power of proxy advisory firms like ISS and Glass Lewis. Rules requiring proxy advisors to eliminate corporate advisory services and/or allow companies to review their reports ahead of official publication may also be revisited. ESG raters could also be affected by these initiatives. Other regulation that could limit the number of ESG shareholder proposals will likely be considered, such as higher minimum share ownership requirements for proponents and expanded grounds for companies to exclude ESG proposals. If shareholder powers become more limited, companies should expect proponents to adjust tactics, such as launching more “vote-no” campaigns against directors and/or Say on Pay votes, as well as single-issue proxy contests.

– Increasing importance of shareholder engagement. Investors will be eager to understand how these fundamental shifts will impact ESG and DEI programs within their portfolio companies. U.S. investors may have a very different perspective than European investors. With off-season shareholder engagement underway, companies should not deviate from the values expressed in their sustainability reports, as these statements are on-record, signed by the CEO and leadership of the company. As the new administration’s policies play out, companies can respond to changes by communicating them in proxies, ESG reports, websites, earnings calls and social channels.

– Fewer ESG mentions on earnings calls. Over the past year, companies have increasingly reevaluated their ESG communications strategies, especially during earnings calls. Under a Trump administration, there is expected to be less emphasis on sustainability and DEI-related policies. As regulatory pressures around ESG issues arise, companies may prioritize other financial and operational topics. The polarization of ESG may lead many companies to avoid further public discussion on contentious topics to steer clear of potential backlash. Going forward, earnings calls are expected to feature less ESG-related content, as they primarily focus on short-term performance and have limited time to address issues beyond financial metrics.

This memo is part of a series that Teneo has been running, which you may want to check out if you’re involved with your corporate sustainability disclosures:

– State of Sustainability: 10 takeaways & key stats from 2024 sustainability reports

– DEI Will Survive: how corporate DEI-related programs & disclosures have evolved in the wake of recent backlash

– What Chief Sustainability Officers Are Thinking: moving towards pragmatic goals & balancing interests

Remember to visit PracticalESG.com for a deeper dive into how to implement initiatives and disclose ESG performance. We’re also continuing to post relevant resources in our “Sustainability” Practice Area on this site.

– Liz Dunshee

For years, we’ve maintained a blog roll on the left side of this page – which you can use as a resource to check out corporate governance & securities updates from practitioners and others in our community. Given the number of informative podcasts that folks have launched over the past few years, we’ve now added a similar list on our “podcasts” page!

One of the newer series that I’ve been enjoying is the “Shareholder Primacy” podcast with activist investor & advisor Michael Levin and Tulane Law Prof Ann Lipton. Of course, you can also access the archives of our podcasts on that page… dating all the way back to 2003! (Broc was an OG on the podcasting front!) And don’t miss Meredith’s “Pay & Proxy Podcast” over on CompensationStandards.com.

– Liz Dunshee

Yesterday, the President-elect announced more picks for leadership roles in the incoming administration, including the one we’ve all been waiting for: SEC Chair.

The nominee – Paul Atkins – is already familiar to many practitioners. He served as an SEC Commissioner from 2002 – 2008 (and during that time, current SEC Commissioners Hester Peirce and Mark Uyeda served as his Counsel). He held several other roles at the agency prior to that, including as Chief of Staff to then-Chair Richard Breeden and later as Counsel to SEC Chair Arthur Levitt. Since then, Mr. Atkins founded and has been running a prominent consulting firm, Patomak Global Partners, among other activities.

The confirmation process should give us more insight into the priorities of an Atkins SEC. For now, it’s a safe bet that at least some of those priorities will differ from what we’ve experienced during Chair Gensler’s tenure. In fact, the WSJ Editorial Board nicknamed him the “Anti-Gensler” in an op-ed yesterday, with lots of optimism that he’ll curb enforcement efforts, improve our capital markets, and work to lower costs for public companies & investors.

In this roundup of Atkins’ past commentary, Cooley’s Cydney Posner points out that he has also criticized the shareholder proposal process, saying the SEC had “eviscerated the exclusions,” as well as the notion of “decision-useful” (vs. “material”) information for investors, the trend of expanding risk factors, and many other requirements that have created compliance challenges for companies. This Politico article offers a few more predictions (also see reporting from the WSJ and Bloomberg):

As chair, Atkins would likely weigh unwinding parts of Gensler’s agenda and crafting bespoke rules for the crypto market — something Trump himself vowed to do on the campaign trail. While speaking at a Federalist Society event in April, Atkins called the lack of regulatory clarity around crypto a “fundamental underlying issue” that the SEC needs to address.

He also said that a change in administration would likely also mean a move to undo some of the rules enacted under Gensler. But Atkins added that he hoped the SEC would “get beyond that,” too.

We don’t know exactly when the agency’s new chair will be confirmed. This nomination is at least a month ahead of schedule compared to the last couple of go-rounds, when nominations were announced in January, but whether that will affect the Senate’s timeline is still an open question. Back in 2020 when Chair Gensler was nominated, the process went like this: nomination announced in late January, Senate Banking Committee met to approve the nomination in early March and full Senate confirmation came along in mid-April. As previously announced, Chair Gensler is leaving the SEC on January 20th.

– Liz Dunshee

Dave blogged last week about the SEC’s surprising FY24 Enforcement results. The SEC’s lengthy press release is organized by topic and is worth a read for whichever category (or categories) of Enforcement priorities might be most likely to affect your company.

This report from Cornerstone Research and the NYU Pollack Center for Law & Business also spotlights some interesting trends. As noted in their press release, some key Enforcement sweeps contributed to the results:

The SEC’s FY 2024 enforcement priorities were evident in the 38 actions that were part of five sweeps. Most prominent was the sweep of recordkeeping failures stemming from companies’ use of off-channel communications (22 actions). This led to an increase in actions with Broker Dealer allegations, with such actions jumping to 29% of all FY 2024 actions compared with 19% during the previous fiscal year. The SEC also brought seven actions for violations of the whistleblower protection rule in FY 2024, up from three in FY 2023.

Here are some other key takeaways from the report:

– While the average monetary settlement was higher than in FY 2023, the median monetary settlement was lower at $3.2 million in FY 2024 compared to $4.0 million in FY 2023.

– The percentage of public company and subsidiary defendants for which the SEC noted cooperation was at its highest level (75%) since FY 2019 (77%) and the second highest in SEED. The average from FY 2015 through FY 2023 was 64%.

– The SEC imposed $784 million in civil penalties in administrative proceedings in FY 2024, accounting for 54% of total monetary settlements. The $784 million was higher than the FY 2023 total of $694 million in civil penalties imposed.

– In FY 2024, the percentage of total monetary settlements from disgorgement and prejudgment interest in civil actions was 15%, the highest percentage since FY 2020.

– Public company and subsidiary defendants with admissions of guilt under the current Gensler administration totaled 66, more than double the number under Chair White (29) and more than seven times those under Chair Clayton (9).

Even though SEC Enforcement Director Gurbir Grewal left the SEC in early October, shortly after the agency’s fiscal year end, we are continuing to see activity. Cooley’s Cydney Posner has covered a few newer Enforcement actions that were announced in recent weeks. The allegations related to:

– Goodwill impairment charges,

– Channel stuffing, and

– Material omissions about FDA developments

– Liz Dunshee

We’ve posted the transcript for our recent webcast – “SEC Enforcement: Priorities & Trends.” Our panelists – Hunton Andrews Kurth’s Scott Kimpel, Locke Lord’s Allison O’Neil, and Quinn Emanuel Urquhart & Sullivan’s Kurt Wolfe – provided their lessons learned from recent enforcement activities and insights into what the new year might hold. Topics addressed included:

– SEC Enforcement Activities in 2024 and Priorities for 2025

– Implications of Jarkesy for SEC’s Enforcement Program

– Monetary and Non-Monetary Penalties

– Accounting and Disclosure Actions

– Actions Targeting “Internal Controls”

– Self-Reporting and Cooperation Credit

– Coordination with DOJ Investigations

Members of this site can access the transcript of this program. If you are not a member of TheCorporateCounsel.net, email sales@ccrcorp.com to sign up today and get access to the full transcript – or sign up online.

– Liz Dunshee