As John blogged a couple of months ago, the comment period for the SEC’s proposal to modernize Rule 10b5-1 officially expired on April 1st – and 169 letters are now posted. Here are a few notable submissions:
– Shearman & Sterling – suggesting modifications to the proposal that would lessen the burden on companies
– Davis Polk – responding to a large number of the Commission’s specific requests for comment, including support in principle for a narrow and shorter D&O cooling-off period, but not supporting a cooling-off period for company plans
– Sullivan & Cromwell – identifying areas of concern for the proposal being too broad & burdensome, and urging a transition period of at least 12 months if the proposal is adopted
– Cravath – generally supportive of Commission efforts to prevent abuse of the affirmative defense and increase transparency around Rule 10b5-1 – e.g., supportive of a D&O cooling-off period – but unaware of empirical evidence suggesting abuse in the context of share repurchases that would justify the additional costs imposed by proposed restrictions on issuer trades
– Dorsey & Whitney – raising questions & potential resolutions with respect to the operation of open market employee stock purchase plans
– Liz Dunshee
The comment period for the SEC’s proposal to modernize repurchase disclosure also officially expired on April 1st – and just under 100 letters have rolled in so far. A number of prominent law firms & corporations have weighed in, as well as:
– The Society for Corporate Governance – raising concerns about the proposal’s requirements for daily disclosure and operational information about buyback programs and about the impact on investor returns, liquidity & capital formation
– Senators Marco Rubio (R-FL) & Tammy Baldwin (D-WI) – supporting the proposal & encouraging additional enhanced disclosures about alternative uses of capital and whether repurchases are financed by additional debt
– Oxfam – 8 pages on the supposed harms of share repurchases
– NYSE – supporting the proposal in principle, including enhanced periodic disclosure and XBRL data, but expressing concern over unduly burdensome disclosure requirements that would also erode information quality
– Business Roundtable – opposing the proposal due to adverse impacts on efficient capital allocation and undue costs & consequences for issuers, investors and the capital markets overall
– Better Markets – supporting the proposal, advocating for even more disclosure about financing of and motivations for repurchases, and suggesting that Form SR be “filed” rather than “furnished”
– US Chamber of Commerce & others – urging the SEC to reconsider the assumptions underpinning the proposal until it has conducted further economic analysis of the proposal’s potential impact, including in relation to the Rule 10b5-1 proposal (also see this 30-page addendum)
– Liz Dunshee
We’ve just posted the registration information for our “Proxy Disclosure Conference” & our “19th Annual Executive Compensation Conference” – which will be held virtually October 12th – 14th. We’re excited to offer a format for this pair of combined conferences that can be either “live & interactive” or “on-demand” (your choice! or do both!) – to deliver candid & practical guidance, direct from the experts.
With new SEC rules, record support levels for shareholder proposals, and relentless regulatory & investor scrutiny, your proxy disclosures – and the actions that support them – are more important than ever. The Proxy Disclosure & Executive Compensation Conferences will inform you of what you need to know to protect your company and board. Get practical guidance about rule changes, staff interpretations, emerging disclosure risks, investor and proxy advisor positions, executive pay expectations, the board’s role, and more. Check out the agendas – 17 sessions over three days.
Early Bird Rates – Act Now! As a special “thank you” for early registration, we’re offering an “early bird” rate for a limited time. Get the best price by registering today – online by credit card or by emailing sales@ccrcorp.com.
– Liz Dunshee
I’m happy to share that we’ll be hosting our 1st Annual Practical ESG Conference this fall – presented by our new membership resource, PracticalESG.com. This year’s event is fully virtual and will occur on Tuesday, October 11th, which is the day before we kick off our pair of Proxy Disclosure & Executive Compensation Conferences.
The Practical ESG Conference will deliver usable, practical guidance on hot ESG topics, in a candid and conversational format. Join recognized ESG practitioners from legal, accounting/auditing and in-house corporate backgrounds to stay ahead of reputational risks, stakeholder demands and regulatory initiatives – and get meaningful pointers to design, implement and improve corporate ESG programs. Check out the agenda – and know that we’ll be adding even more content & detail as the event gets closer.
Early Bird Rates – Act Now! As a special “thank you” for early registration, we’re offering an “early bird” rate for a limited time. Get the best price by registering today – online by credit card or by emailing sales@ccrcorp.com. You can purchase access to this Conference on a standalone basis – or bundle & save by also registering for our Proxy Disclosure & Executive Compensation Conferences the same week.
– Liz Dunshee
Join us tomorrow, Wednesday April 13th at 2pm Eastern Time, for the first of PracticalESG.com’s 3-part DEI workshop series – “Collecting Diversity, Equity & Inclusion Data: What to Measure & Why” – to hear DiversityIQ’s Cheryl Cole, Fossil Group’s Sheri Crosby Wheeler, Aon’s Aria Glasgow, Pipeline Equity’s Katica Roy, Fortune’s Ruth Umoh, and NextRoll & PracticalESG.com’s Ngozi Okeh discuss, among other things:
– What data points are useful in driving DEI strategy & progress;
– How to measure diversity, equity & inclusion;
– How to account for intersectionality;
– Data traps to avoid; and
– How to use data to develop a unique business case for your corporate DEI initiative.
If you’ve not yet registered, you can still sign up here.
This PracticalESG.com workshop is free, courtesy of our wonderful sponsors, Morrison & Foerster and Holmes Murphy. A replay will be available to PracticalESG.com members – along with many other useful resources! If you’re working on ESG matters and haven’t already signed up for a PracticalESG.com membership, now is the time to get filtered & organized access to rapidly evolving ESG developments! You can become a member online or by emailing sales@ccrcorp.com.
– Liz Dunshee
The Canadian government unveiled its federal budget last week, with an entire chapter devoted to climate. As US companies assess the SEC’s climate disclosure proposal and shareholder demands, this requirement by our neighbor to the north is another sign that regulators and investors are losing patience with voluntary disclosures about emissions and climate risks to companies, and moving towards mandates for comparable info.
Among other things, Section 3.4 of the budget calls on the investment industry and federally regulated financial institutions to support the “transition economy” on the path to net-zero emissions. Here’s an excerpt:
Climate Disclosures for Federally Regulated Institutions
The federal government is committed to moving towards mandatory reporting of climate-related financial risks across a broad spectrum of the Canadian economy, based on the international Task Force on Climate-related Financial Disclosures (TCFD) framework.
The Office of the Superintendent of Financial Institutions (OSFI) will consult federally regulated financial institutions on climate disclosure guidelines in 2022 and will require financial institutions to publish climate disclosures—aligned with the TCFD framework — using a phased approach, starting in 2024.
OSFI will also expect financial institutions to collect and assess information on climate risks and emissions from their clients.
As federally regulated banks and insurers play a prominent role in shaping Canada’s economy, OSFI guidance will have a significant impact on how Canadian businesses manage and report on climate-related risks and exposures.
Separately, the government will move forward with requirements for disclosure of environmental, social, and governance (ESG) considerations, including climate-related risks, for federally regulated pension plans.
This move follows a proposal last fall by the Canadian Securities Administrators to require TCFD-aligned reporting by issuers. That particular proposal is still under consideration.
– Liz Dunshee
Tune in tomorrow from 1-2pm Eastern Time for our PracticalESG.com webcast – “Parsing the SEC’s New ‘Climate Disclosure’ Proposal.” We’ve gathered an excellent mix of perspectives – Morrison & Foerster’s Dave Lynn and Sidley’s Sonia Barros, who both previously served in high-level Staff roles at the Commission; Travelers’ Yafit Cohn and NuStar Energy’s Mike Dillinger, who have been assessing the proposal and overseeing ESG disclosures in-house; and our very own Lawrence Heim, Editor of PracticalESG.com with 35+ years of experience in the ESG field from a technical, auditing and management perspective. We will also be making this program available to members of TheCorporateCounsel.net.
This program will cover aspects of the proposal that are fundamentally different than the SEC’s current disclosure regime – and how to understand that. But we won’t stop there – we’ll also be discussing practical actions and realities companies need to know right now in preparing for climate disclosures aligned with SEC’s proposal. Not only will compliance require a long lead time, but investors may also push for the information regardless of the rule’s adoption and compliance date.
If you attend the live version of this 60-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 this site and PracticalESG.com are able to attend this critical webcast at no charge. If you’re not yet a member, subscribe now. The webcast cost for non-members is $595. 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. If you sign up for a membership today, you not only get to credit the cost of this webcast towards your membership, you also unlock access to the entire suite of checklists, guidebooks, member-exclusive blogs and our library of carefully curated content. Don’t delay!
– Liz Dunshee
We’ve posted the transcript for our recent webcast for members, “Shareholder Insights: 2022 Priorities.” This was a very informative discussion amongst Council of Institutional Investors’ Glenn Davis, Dimensional Fund Advisors’ Kristin Drake, Sustainable Governance Partners’ Rob Main, and Federated Hermes – International’s Tim Youmans. Here’s an interesting point raised by Rob & Tim:
Main: As we’ve entered into this 2022 season, it does feel like the burden of proof when it comes to shareholder proposals has shifted.
If I think back three, four, five years ago when there was a proposal, the clear burden of proof was on the shareholder proposal proponent. Now, it does feel like the notion of supporting shareholder proposals is becoming more mainstream. There is an inclination from the proxy advisors, but I think increasingly from the mainstream institutional investors as well, who start at a point of supporting the proposal and then must be convinced to walk it back if they’re not going to support that specific proposal at the company. I don’t know if there’s any reactions to that view from my fellow panelists.
Youmans: This is a good segue into a trend that’s happening, which is if you look at the leadership last year of IBM, Wendy’s, arguably Morgan Stanley, BlackRock, and then also on responses to racial equity audits and then on the board of GE regarding climate shareholder proposals, we are seeing more boards supporting shareholder proposals. That’s very interesting.
When that happens, the board can then seize the narrative, and pretty much control the entire discussion about this. It’s moving beyond the shift that you talked about, Rob. Boards are being self-active holders of their own narrative. This is a very interesting trend, and we hope to see more of this.
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
You can imagine that Larry Fink, the co-founder, Chair & CEO of the world’s largest asset manager, sat down 6 weeks ago to start outlining his letter to shareholders and vetting everything through the appropriate channels. There were plenty of important issues to cover – the net zero transition, human capital, inflation. Then Russia invaded Ukraine. Governments and private companies are cutting ties, the world order has been upended, we’re witnessing a massive humanitarian crisis, and BlackRock had to make some key recalculations & decisions in a very uncertain regulatory environment – including how to handle portfolios with Russian securities. BlackRock’s success & shareholder returns are very much tied to macroeconomic conditions.
The letter to shareholders that was posted yesterday (and filed in multiple formats on Edgar as additional soliciting material) is remarkably responsive to these recent developments, in line with the speed at which many companies took action. Larry Fink says that the way things are playing out reinforces BlackRock’s approach to using capitalism for good:
These actions taken by the private sector demonstrate the power of the capital markets: how the markets can provide capital to those who constructively work within the system and how quickly they can deny it to those who operate outside of it. Russia has been essentially cut off from global capital markets, demonstrating the commitment of major companies to operate consistent with core values. This “economic war” shows what we can achieve when companies, supported by their stakeholders, come together in the face of violence and aggression.
He goes on to say that supply chains and the inflationary impact will become even more important:
Russia’s aggression in Ukraine and its subsequent decoupling from the global economy is going to prompt companies and governments worldwide to re-evaluate their dependencies and re-analyze their manufacturing and assembly footprints – something that Covid had already spurred many to start doing.
And while dependence on Russian energy is in the spotlight, companies and governments will also be looking more broadly at their dependencies on other nations. This may lead companies to onshore or nearshore more of their operations, resulting in a faster pull back from some countries. Others – like Mexico, Brazil, the United States, or manufacturing hubs in Southeast Asia – could stand to benefit. This decoupling will inevitably create challenges for companies, including higher costs and margin pressures. While companies’ and consumers’ balance sheets are strong today, giving them more of a cushion to weather these difficulties, a large-scale reorientation of supply chains will inherently be inflationary.
I admit I was surprised to not find anything in this letter about cybersecurity or disinformation, or any specific references to China. But those topics aside, it does have something for almost everyone – which makes sense, given the wide-ranging fallout of this war and the many issues that BlackRock and its portfolio companies are dealing with. On crypto:
Finally, a less discussed aspect of the war is its potential impact on accelerating digital currencies. … As we see increasing interest from our clients, BlackRock is studying digital currencies, stablecoins and the underlying technologies to understand how they can help us serve our clients.
On the net-zero transition:
Longer-term, I believe that recent events will actually accelerate the shift toward greener sources of energy in many parts of the world. During the pandemic, we saw how a crisis can act as a catalyst for innovation. Businesses, governments, and scientists came together to develop and deploy vaccines at scale in record time.
To ensure the continuity of affordable energy prices during the transition, fossil fuels like natural gas will be important as a transition fuel. BlackRock’s investments – including one late last year – on behalf of our clients in natural gas pipelines in the Middle East are a great example of helping countries go from dark brown to lighter brown as these Gulf nations use less oil for power production and substitute it with a cleaner base fuel like natural gas.
On client-directed voting:
Much like asset allocation and portfolio construction, where some clients take an active role while others outsource these decisions to us, different clients are interested in different levels of involvement when it comes to casting proxy votes. After talking with our clients, we used new technology and other innovations to offer proxy voting choice. This is now available to institutional clients representing just over $2 trillion of index equity assets, including public pension funds serving over 60 million people. We see this as just a first step. Our ambition over time is to continue developing new technologies and working with industry partners to expand voting choice for even more clients.
On board oversight of strategy and recent downturns in performance, slotted in to the mid-section of the letter:
Our strategy, which we regularly review with our Board of Directors, remains rooted in our commitment to serving clients over the long term. We will: keep alpha at the heart of BlackRock; accelerate growth in iShares, private markets, and Aladdin; deliver whole portfolio advice and solutions to our clients and be the global leader in sustainable investing. Successful execution of this strategy will enable us to continue delivering industry-leading organic growth and generate value for our shareholders over the long term.
On BlackRock’s attention to internal human capital issues:
At the same time, we recognize the pandemic has redefined the relationship between employers and employees. To retain and attract best-in-class diverse talent, we need to maintain the flexibility of working from home at least part of the time. And our Aladdin technology has given us the flexibility to quickly pivot our operating model over these past two years, which will continue to be important given the uncertainty of the pandemic and the threat of new variants emerging.
We also remain focused on investing in our employees’ experience with BlackRock in other important ways: improving training and development, expanding mental health services and other benefits, and continuing to advance diversity, equity and inclusion (DEI) to make sure we’re broadening representation across the firm and cultivating an inclusive culture.
On Board composition:
We also give careful consideration to the composition of our Board to ensure it is positioned to be successful over the long term. We are committed to evolving our Board over time to reflect the breadth of our global business and look for directors with a diverse mix of experience and qualifications. We will continue to introduce fresh perspectives and make diversity in gender, race, ethnicity, nationality, age, career experience and expertise, as well as diversity of mind, a priority when considering director candidates.
In times of crisis, many companies take the very reasonable approach of saying that they’re monitoring events and will respond accordingly. What’s impressive about this particular letter, even though it’s still just words on a page, is that it “shows” rather than “tells.” The level of detail puts to rest any doubts that the board & management are thinking through the evolving situation from all angles, while not losing sight of the core business strategy and commitments. Larry Fink and team didn’t gain $10 trillion in assets under management without being master communicators.
– Liz Dunshee
After releasing a bunch of guidance earlier this year on its priorities & expectations, State Street Global Advisors has now also recently updated the following documents to reflect its positions:
1. North American Proxy Voting & Engagement Guidelines
2. Global Proxy Voting & Engagement Principles
3. Global Proxy Voting & Engagement Guidelines for E&S Issues
4. Frameworks for Voting E&S Shareholder Proposals
5. Issuer Engagement Protocol
This 6-page summary of material changes outlines the most significant changes, which include:
– Climate-Related Disclosure: SSGA may vote against the independent board leader at companies in the S&P 500, S&P/TSX Composite, FTSE 350, STOXX 600 and ASX 100 if companies fail to provide sufficient disclosure in accordance with the TCFD framework. SSGA views this as a “natural escalation” of previously stated expectations and expects to continue to expand this policy in coming years.
– Enhancing Racial & Ethnic Diversity: SSGA may vote against the Chair of the Nominating Committee at companies in the S&P 500 and FTSE 100 that do not have at least one director from an underrepresented racial and/or ethnic community on their boards; and may vote against the Chair of the Compensation Committee at companies in the S&P 500 that do not disclose their EEO-1 reports.
– Board Diversity: SSGA is maintaining its policy to possibly vote against the Chair of the Nominating Committee at companies in the S&P 500 and FTSE 100 that do not disclose, at minimum, the gender, racial and ethnic composition of their boards. In 2022, it will expect boards of listed companies in all markets & indices to have at least one woman director.
In 2023, it will expect companies in the Russell 3000, TSX, FTSE 350, STOXX 600, and ASX 300 indices to have boards composed of at least 30 percent women directors. It may waive the policy if a company engages with State Street Global Advisors and provides a specific, timebound plan for reaching the 30 percent representation of women directors.
SSGA may vote against the chair of the nominating and governance committee if a company fails to meet expectations. If that continues for 3 consecutive years, it may vote against all incumbent members of the nominating committee.
– R-Factor: Again this year, State Street Global Advisors may take voting action against the independent board leaders at companies in the S&P 500, FTSE 350, ASX 100, TOPIX 100, DAX 301 and CAC 40 indices that are R-FactorTM ‘laggards’ and ‘momentum underperformers’ unless it sees meaningful change. In 2024, it will be expanding the voting screen to include all R-FactorTM ‘laggards’ and ‘underperformers’ (i.e. not only ‘momentum underperformers’).
– Overboarding: As previously announced, starting in 2022, for non-executive board chairs/lead independent directors and director nominees who hold excessive commitments, as defined above, we may consider waiving our policy and vote in support of a director if a company discloses its director commitment policy in a publicly available manner (e.g., corporate governance guidelines, proxy statement, company website).
These updated policies & guidelines are posted along with other institutional investor policies in our “Investor Voting Policies” Practice Area, so that members can have easy access to policies of various investors in one place. If you aren’t yet a member and want access, email sales@ccrcorp.com.
– Liz Dunshee
