At the recent Spring Meeting of the ABA’s Business Law Section, Corp Fin Chief Counsel Michael Seaman noted that the height of “shareholder proposal season” has concluded, from the Staff’s perspective. Michael shared these stats:
– The Staff was asked to respond to 177 no-action requests this year. That’s a significant drop from last season where the Staff reviewed 235 requests.
– This year, the Staff granted 46% of those requests, and that’s an increase from around 30% last year. 35% percent of the requests were denied and about 20% were withdrawn.
– 14a-8(i)(7) – the “ordinary business” exclusion – was the most frequent basis that the companies have asserted in their no action requests, and that is typical every year.
– This year, “procedural” requests were up significantly (requesting no-action relief on the basis of requirements like ownership, providing the company with dates and times to meet with them to discuss the proposal, etc.). Last year, the Staff saw 42 procedural requests. This year, there were 53 – despite the lower number of overall requests.
When it comes to the meaning behind these numbers, we can’t know for sure what goes on behind closed doors at every company receiving shareholder proposals, but the numbers track with the sentiment that I blogged about earlier this year: that 2023 is “The Year of the Compromise.” Even as the number of proposals submitted by proponents has remained high, companies recognize that the path to no-action relief is challenging under SLB 14L, and may have been more judicious in submitting requests to Corp Fin (instead, negotiating with proponents could be the better approach). And, the no-action requests that were submitted may have been stronger due to the increased level of vetting at the decision-making stage. As we all know, it is all very case-by-case.
For procedural requirements, Michael emphasized that “proof of delivery” – whether or not a proposal was received or responded to – has become an important issue in the age of email correspondence. Here are a couple of reminders that can help save time & headaches:
– The Staff’s no-action responses this year make it clear that things like taking a screenshot of an email that you sent somebody is not proof of delivery. Make sure to review SLB 14L for guidance on proof of delivery in the email context.
– Generally speaking, companies and proponents owe it to one another to confirm receipt by email of any message received from the other side. If you have sent a message and don’t get a receipt, then follow up.
Here’s something Meredith blogged yesterday on CompensationStandards.com, where we are covering clawback policy requirements in detail:
The SEC’s recent designation of a longer period for taking action on proposed listing standards to implement Dodd-Frank clawback rules left companies who haven’t yet adopted a compliant policy unsure whether to jump on this now using the listing rules proposed in February, or whether to wait in hopes that additional time may be forthcoming. This FW Cook blog clarifies that clawbacks should be on your summer to-do list. Here’s an excerpt:
An April 24, 2023 SEC release (see here: link), while somewhat ambiguous, could be read to suggest that the SEC would not take action before June 11, 2023, although leaving open the possibility of a later approval date.
Recent conversations between SEC staff and executive compensation practitioners suggest that the SEC is leaning toward treating June 11, 2023 as the date for final action (actually, June 9 since June 11 is a Sunday). While practitioners have strongly lobbied for the SEC to delay action until the absolute deadline of November 28, 2023, the SEC so far appears unpersuaded, at least in part because of procedural reasons referenced in the April 24, 2023 release.
Given the substantial chance the SEC will approve the listing standards no later than June 9, 2023, this means a new policy would have to be in place by August 8, 2023 (i.e., 60 days later). Even though drafting a compliant policy may be relatively straightforward, seeking Board/committee review and approval over the summer could be challenging from a practical perspective. There are many boards and committees that don’t meet in the June/August period, so waiting until the SEC has acted may result in the need for special unanticipated actions, either through special meetings or possibly unanimous written consents.
Dust off your flip flops and your employment agreements, equity plans, deferred compensation plans and existing clawback policies since, as Morgan Lewis describes in this alert, there’s a lot to consider. The good news is that we have more resources, including multiple models of a Dodd-Frank-compliant policy, in our “Clawbacks” Practice Area on CompensationStandards.com. Plus, we’ve extended our June 27th webcast on that site “Proxy Season Post-Mortem: The Latest Compensation Disclosures” by an additional 30 minutes to bring you the latest on clawback policies from our expert panel: Mark Borges, Principal at Compensia and Editor of CompensationStandards.com, Dave Lynn, Partner at Morrison Foerster and Senior Editor of TheCorporateCounsel.net and CompensationStandards.com and Ron Mueller, Partner at Gibson Dunn & Crutcher LLP.
If you attend the live version of this 90-minute program, CLE credit will be available. You just need to fill out this form to submit your state and license number and complete the prompts during the program.
Members of CompensationStandards.com are able to attend this critical webcast at no charge. The webcast cost for non-members is $595. If you’re not yet a member, 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. If you have any questions, email sales@ccrcorp.com – or call us at 800.737.1271.
Wachtell Lipton recently published an updated version of its longstanding “Audit Committee Guide.” The 2023 edition weighs in at 212 pages. Here’s an excerpt about the audit committee’s role in risk management – a topic that’s taken on heightened importance due to market fluctuations, regulatory enforcement initiatives, and today’s complex & interconnected business environment:
The board should implement a coordinated approach toward risk oversight and ensure an effective flow of information among the directors, senior management and risk managers in order to satisfy itself as to the adequacy of the risk oversight function and to understand the company’s overall risk exposures. Given the NYSE requirement, if a company oversees some or all risk management through a structure that uses a board committee other than the audit committee, these processes should nonetheless be reviewed in a general manner by the audit committee (but the risk management function of such other committee need not be replaced or duplicated by the audit committee).
If a company charges the audit committee with overseeing risk management, the audit committee should schedule time in its agenda for periodic reviews of risk management outside the context of its role in reviewing financial statements and accounting compliance. The audit committee should also hold sessions in which it meets directly with key executives primarily responsible for risk management and compliance programs. In light of the Caremark standard discussed below (see Chapter XI: “Audit Committee Member Liability Issues”), an audit committee charged with overseeing risk management should feel comfortable that “red flags” and “yellow flags” are being reported to it so that key risks may be investigated and reported to the board if appropriate.
It is important to build a record demonstrating allocation of sufficient time and focus to the risk oversight role. The goal should be to provide, through one means or another, serious and thoughtful board-level attention to the company’s risk management process and system. Further, in light of a recent Delaware holding that corporate officers may be held liable for breach of the duty of oversight, as discussed below (see Chapter XI: “Audit Committee Member Liability Issues”), the board committee tasked with overseeing risk management should take steps to ensure that officers are implementing appropriate corporate controls and addressing issues as necessary.
In addition to an overview of best practices, the Guide includes Model Charters, a Model Audit Committee Responsibilities Checklist, a Model Audit Committee Member Financial Expertise and Independence Questionnaire, a Model Audit Committee Pre-Approval Policy, Model Policies and Procedures with respect to Related Person Transactions, Model Whistleblower Procedures and a Model Audit Committee Self-Evaluation Checklist, and more – which can be modified to fit specific company situations.
This resource is posted along with heaps of other helpful resources in our “Audit Committees” Practice Area. If you aren’t already a member of TheCorporateCounsel.net, start a “no-risk trial” today! 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. If you have any questions, email sales@ccrcorp.com – or call us at 800.737.1271.
We’ve been getting a lot of questions about when to expect the SEC’s final climate disclosure rule. The short answer is we don’t know for sure. A new “Reg Flex” agenda is coming soon – and while that only reflects priorities of the Chair and general timeframes (not precise dates), it will shed some light on where things stand (or, at least, “stood” – as of April 10th – which is when the Staff submitted the info for the Unified Agenda).
At the spring meeting of the ABA Business Law Section a couple of weeks ago, Corp Fin Director Erik Gerding noted that the Staff is still engaged in the very important step of reviewing the thousands of comment letters that were submitted in response to the proposal – with greenhouse gas emissions and the Reg S-X thresholds for certain line item disclosure requirements being a couple of the top items that require careful consideration.
An additional piece of context, which Lawrence blogged about yesterday on PracticalESG.com, could be the potential interplay with EU rules. Although the notion of aligning with established reporting protocols was a theme in comment letters submitted on the SEC proposal, more issues are coming into focus as the EU regime moves forward. Here’s an excerpt from Lawrence’s blog:
One slight surprise might be new interplay between the EU Corporate Sustainability Reporting Directive (CSRD) and SEC’s proposal. The Wall Street Journal wrote that the EU indicated they may waive at least some aspects of CSRD requirements for US companies if the SEC’s final requirements “are rigorous enough.” Alignment between the two disclosure mandates would certainly be beneficial and reduce the reporting burden on US multinationals, so it makes sense that the SEC would consider the door that now appears to be open.
Yet this development may not be welcome news to everyone. Previous rumors indicated that the SEC’s support for Scope 3 emissions determinations and reporting may have been fading after consideration of the 15,000 comments submitted on the proposal. There were building expectations that the final release would not include Scope 3 requirements. However, the EU disclosure requirement includes Scope 3, so SEC’s final rule would have to address Scope 3 in a manner meaningful enough for the EU to consider it equivalent. Given that, it seems likely that Scope 3 may be back on the menu for US companies.
The WSJ – with Refinitiv data – estimates that the EU sustainability rules will affect 10k non-EU companies, about a third of which are US-based. Former SEC Commissioner Rob Jackson recently speculated that whatever the Commission and Staff are sorting through with respect to the final rule, it may take until autumn to figure it out…which, as Dave blogged last week, is also when the Supreme Court will be considering a case that could affect SEC rulemaking authority.
There’s so much chatter around the SEC’s final climate disclosure rule that I almost want to run a “guess the date” pool and offer the winner a snazzy prize. But I don’t want to get anyone in trouble with illegal gambling, so please participate in this purely speculative & just-for-fun anonymous poll instead:
With such an active SEC, it can be easy to lose track of what’s still in the queue. When SEC Chair Gary Gensler last shared his agenda, John noted that it targeted finalizing several rules in or around Q1:
We’ve already said more than enough today about climate disclosure. Within the past two weeks, the SEC has reopened the comment period for the beneficial ownership reporting rules and adoptedfinalrules for share repurchase disclosures (mark your calendars for our May 24th webcast).
The Commission’s progress on Chair Gensler’s “to-do list” has left many folks wondering, what about cyber & SPACs? At the ABA’s spring meeting, Corp Fin Director Erik Gerding said he did not expect SPACs to drop off the rulemaking agenda. Even though these deals have largely evaporated for the moment, the market is cyclical and there would be a benefit to having rules in place if the trend comes back to life.
For cyber, I have not seen any recent clues. Maybe we will see an open meeting announcement sometime soon, or maybe this will be part of the upcoming Reg Flex Agenda that is expected soon. It’s worth noting that the general topic is still very much on the SEC’s radar: in March, it proposed rules and reopened the comment period for cyber-related rules that would apply to investment advisers, brokers, transfer agents and others (here are memos). Comments for that are due in June.
It’s also worth noting – for what is probably the millionth time on this blog – that the Reg Flex Agenda simply reflects the priorities of the current SEC Chair and isn’t binding. The dates also tend to signify general time-frames versus specific monthly targets. So, while the Reg Flex can give insight, and the SEC certainly has been making progress on priorities announced earlier this year (including expected proposals), it unfortunately is not a definitive guide for anyone trying to predict SEC rulemaking for purposes of specific board agendas, budget and workflow.
I was speechless when I saw the SEC’s announcement Friday that it had issued a $279 million whistleblower award. It’s the largest-ever bounty – more than double the previous record payment of $114 million in October 2020.
The SEC says the whistleblower worked with the agency for a “sustained period” to voluntarily provide original information that helped it expand an open investigation, which led to the successful enforcement of actions by the SEC and another agency. The $279 million award is a percentage of the sanctions collected by the SEC, as well as another agency in a related action. Here’s an excerpt from the SEC’s press release:
“The whistleblower’s sustained assistance including multiple interviews and written submissions was critical to the success of these actions,” said Creola Kelly, Chief of the SEC’s Office of the Whistleblower. “While the whistleblower’s information did not prompt the opening of the Commission’s investigation, their information expanded the scope of misconduct charged.”
The SEC keeps the identities of whistleblowers confidential and doesn’t identify the investigations and enforcement actions that the awards relate to. So, we can only speculate which Covered Action this might relate to. The SEC’s order says that the award went to just one person, even though two other people attempted to claim a piece of the action.
The SEC’s whistleblower page explains more about how the process work and has lots of interesting data – including the “top 10” awards.
A Tennessee court has ruled against the US Chamber of Commerce and the Business Roundtable in a lawsuit that they brought last July to stop the SEC’s 2022 rulemaking on proxy advisors.
In that 2022 rulemaking, the SEC had rescinded parts of its 2020 rules and related guidance that would have required proxy advisors to provide voting reports to the subject companies at or before the time the reports went to investor clients, and to provide the investor clients with notice of any written statements by subject companies about the proxy advisor’s voting advice. Those provisions were favorable to companies in that they gave more of a chance to catch and correct perceived inaccuracies.
The business organizations accused the SEC of not properly following the Administrative Procedures Act in rolling back the 2020 rules. In granting the SEC’s motion for summary judgment, the court said:
Neither argument has any merit, because the plaintiffs have not identified any way in which similarly situated parties have actually been treated differently. Rather, they have identified two extraordinarily abstract questions that come up in countless settings and that, unremarkably, are often answered differently in different circumstances.
Nearly every regulatory decision involves making a choice between using government power to coerce the regulated parties or leaving those parties to their own devices. And nearly every regulation involving the exchange and/or production of information requires the relevant agency to favor more or less transparency. The fact that the SEC often favors transparency and oversight does not mean that it is locked into a policy of maximal transparency and maximal oversight every time it promulgates a rule. Such an approach would have no basis in caselaw, the text of the APA, or the text of the Exchange Act.
The 2022 iteration of the proxy advisor rules isn’t out of the woods quite yet. The National Association of Manufacturers also challenged the SEC’s 2022 rules, and that lawsuit is still pending.
The SEC has never been super cozy with the crypto industry, but things have gotten especially prickly lately. In one of the latest illustrations of friction, Coinbase recently filed an action in US federal court to compel the Commission to respond to the rulemaking petition it submitted last summer. This “flipping the tables” move follows the company’s disclosure in March that the SEC is investigating it.
A blog post from Coinbase chief legal officer Paul Grewal explains the company’s motivations for filing the legal action – which takes the form of a petition for writ of mandamus to the SEC. This Reuters article from Alison Frankel gives more detail on why the move is so unusual:
In the rare instances in which regulated businesses have persuaded appellate requests to order federal agencies to respond to their rulemaking petitions, the allegedly unreasonable delay has been a matter of years, not months.
As Alison notes, the action says that Coinbase has met with the SEC more than 30 times over the past year to present paths to registration for digital assets. In light of the Commission’s stepped-up enforcement stance against crypto, Coinbase wants the SEC to put its cards on the table. Here’s an excerpt from Coinbase’s court filing:
The SEC’s refusal to respond to Coinbase’s rulemaking petition is, in the parlance of the Administrative Procedure Act (APA), “agency action” that has been “unreasonably delayed.” 5 U.S.C. § 706(1). Coinbase brings this mandamus action to compel the SEC to do one simple thing: state on the record whether or not it will initiate proceedings to establish the ground rules that it has charged others and may soon charge Coinbase with failing to follow. The APA requires the Commission to take that simple step.
Moreover, all of the Commission’s actions suggest it has already decided internally to deny Coinbase’s petition, and is simply withholding a formal decision from Coinbase and the public, with the effect (and perhaps intent) of frustrating judicial review. But Coinbase and the crypto industry have an urgent right to a judicially reviewable decision, especially when facing unlawful, arbitrary, and capricious threats of enforcement from the Commission on the very same issue in the interim.
Now that virtual meetings have taken hold at many companies, I’ve feared that annual meeting fanboys (and fangirls) would disappear. But there is at least one teen out there who seems ready to carry on the tradition at her favorite company – even virtually. The WSJ reported on this feel-good story for all the AGM superfans out there:
Cori Borgstadt, the young fan, has become a regular at annual shareholder meetings. In fact, she has attended every annual Disney shareholder confab since 2008, when she was 3 years old. She has asked Mr. Iger a question on all but three occasions, including in 2015, when she wondered what advice he would give to “a kid who wants your job some day.”
Mr. Iger responded, “Well, one thing you can do is keep coming to our shareholders’ meeting.”
Monday will mark Ms. Borgstadt’s 16th straight appearance — this year’s meeting is virtual-only — a streak longer than nearly all of Disney’s directors have been on the company’s board. The shareholder events have allowed Ms. Borgstadt to tap into her obsession with Disney and her interest in corporate governance, while also providing an annual vacation for her family.
While I’m disappointed that it took a WSJ article for me to identify this as a potential hobby to share with my own young kids, I’m going to put an AGM tour on the “family vacation” bucket list. If there are sugary snacks or cartoon-like characters involved, a corporate governance adventure may even be able to top our 2022 visit to the world’s largest ball of twine.
