Liz blogged last December about companies potentially being caught in the middle of the vaccine debate. With increased attention on boards relating to human capital and worker safety matters, this likely pulls considerations about vaccines into the conversation. As companies – and law firms – make plans about possibly returning to the office, many companies are wondering whether they can or should mandate vaccines for employees that do return to the office. One aspect of mandatory vaccination programs that hasn’t received a lot of attention relates to the board and its oversight role. A well-timed memo (see pages 4-7) from Sidley Austin provides a discussion about considerations for boards relating to potential company Covid-vaccination programs.
As noted in the memo, boards will need to consider various risks such as litigation and reputational risk, and whether a company chooses to require employees be vaccinated will depend on, among other things, their specific circumstances and tolerance for risk. Here’s an excerpt with discussion about the board’s oversight role with respect to company Covid vaccination programs:
Oversight of the program may be undertaken by the full board or handled by a board committee—most logically the committee tasked with overseeing human capital management matters. The board (or committee) should assess whether management is taking appropriate action with respect to the vaccination program—but also office reopening plans and workforce strategy more broadly—and provide guidance and direction to the extent the board determines is prudent. The board should also ensure that there is a robust, confidential system in place for employees to raise concerns and a firm policy against retaliating against an employee who refuses to be vaccinated. To be most effective, the board must stay well-informed of developments within the corporation as well as the rapidly changing situation externally.
Liz blogged a couple of weeks ago about of Rule 10b5-1 plan “cooling off” periods – it’s one topic being evaluated as a potential reform to Rule 10b5-1. A recent King & Spalding memo discusses potential reforms that the SEC will most likely consider and one involves increased public disclosure of 10b5-1 trading plans. Today, company practice varies when it comes to public disclosure of trading plans, one reason being that disclosure requirements about such plans are minimal. The memo says it’s likely any Rule 10b5-1 reform proposal will include enhanced disclosure requirements and a challenge could be determining the level of detail for disclosure. Here’s an excerpt with thoughts on that:
The more difficult question for the SEC will be the level of detail required to be disclosed. While disclosure of basic plan details – such as the date of adoption, the date range of anticipated trading, and the anticipated number of shares to be traded – might garner broad support, excessive disclosure of granular plan details or of the plan’s specific mechanics, algorithms, and trading strategies could raise personal privacy concerns with little obvious benefit to ordinary investors. Furthermore, disclosure of plan details may invite trading designed to disrupt or front-run an executive’s planned trading. A requirement that Form 4 filings explicitly indicate whether a trade was made pursuant to a Rule 10b5-1 plan also seems likely, as does a requirement, as discussed further below, that Rule 144 filings (which already require the filer to at least disclose the date of adoption of any plan pursuant to which a sale is made) be filed electronically and made available to the public through the EDGAR system.
With potential Rule 10b5-1 reforms on the way, be sure to tune-in for our July 20th webcast – “Insider Trading Policies & Rule 10b5-1 Plans” for guidance and tips about revisiting your insider trading policy & trading plans. We’ve got an all-star panel lined up, don’t miss it!
Back in March, I blogged about Virginia being the second state in the US to enact a comprehensive data privacy law. Colorado became the third state to enact a comprehensive data privacy law as Colorado’s Governor signed the law this week. Laws in California, Virginia and now Colorado are scheduled to take effect in 2023 and those who work with compliance programs will want to ensure the programs address nuances of each of these laws.
To help understand what those nuances are, this Hogan Lovells memo outlines 10 key differences across the three privacy laws. Among differences outlined in the memo are provisions relating to exemptions for certain entities and certain types of data, consumer opt-out rights and signals, contracting requirements, sensitive data requirements, appeals for rights requests, regulator enforcement and cure periods. Here’s an excerpt about privacy law provisions relating to data protection assessments:
California (CPRA)
– Does not currently have any requirements for data protection assessments.
– However, there is a provision in the rulemaking section that calls for the issuance of regulations requiring risk assessments for processing activities that present significant risk to consumers’ privacy or security. Therefore, this requirement may be added before the law takes effect.
Virginia (VCDPA)
– Requires controllers to conduct data protection assessments for a range of activities, including: targeted advertising, sales of personal data, the processing of personal data for profiling that creates certain risks for consumers, the processing of sensitive data, and any other activities that present a heightened risk of harm to consumers.
Colorado (CPA)
– Requires controllers to conduct data protection assessments for a range of activities, including: targeted advertising, sales of personal data, the processing of personal data for profiling that creates certain risks for consumers, and the processing of sensitive data.
The memo provides a reminder that a thorough understanding of the similarities and differences between the three laws will be necessary to design an efficient and effective compliance program prior to 2023. Without any comprehensive federal privacy law, we’ll likely see additional states adopt privacy legislation this year. It’s hard to say which state may be next although this Cleary memo says to keep your eyes on Washington and New York, which may both pass privacy legislation sometime this year.
Last month, John blogged about the removal of the PCAOB Chair and the pending overhaul of the members of the PCAOB board. Some view these moves as political, but aside from that, a Troutman Pepper memo advises companies to prepare for potentially more rigorous auditing processes. The memo notes that a revamped PCAOB will likely place more emphasis on enforcement, which could lead auditors to engage in more intense audits. More than that, the memo also discusses a district court decision out of the D.C. Circuit relating to attorney-client privilege that could raise tension between auditors and companies.
The court’s decision required the company to provide information from an internal investigation to the SEC after the company’s outside counsel shared information with the company’s outside auditor. Between the PCAOB developments and this court decision, companies could feel the heat a little more than years past as they work through the annual audit process with outside auditors. Here’s more about the court decision:
The issue here started shortly after the company announced a False Claims Act settlement with the DOJ and from there, things began to unravel. The SEC then initiated a formal investigation into RPM’s public disclosures. Due to the SEC’s investigation, RPM’s outside auditor, E&Y, informed RPM that they could not sign off on RPM’s 10-K without RPM conducting an internal investigation. RPM hired outside counsel to conduct an internal investigation, who interviewed 19 current and former RPM employees.
To give E&Y comfort, RPM’s outside counsel made an oral presentation to E&Y, which included specific quotes from their interviews. RPM’s outside counsel then drafted 19 interview memoranda based on their interviews.
The SEC then sued RPM alleging that the company didn’t timely record accruals relating to the DOJ settlement. As part of discovery, the SEC requested documents including the interview memoranda. The court ordered the company to produce all of the interview memoranda to the SEC, holding that the interview memoranda wasn’t work product because it wasn’t prepared in anticipation of litigation, by sharing the substance of the information with E&Y (and subsequently allowing E&Y to share information with the SEC), the company waived its work product protection and while most of the interview memoranda reflected privileged communications between the company’s outside counsel and company employees, the company waived attorney-client privilege when it disclosed facts from the investigation to E&Y.
The court’s holding in this case really highlights the limitations companies could encounter when seeking to rely on attorney-client privilege and work product protection. For more on the court’s decision in this case, this Skadden memo provides a discussion of the court’s reasoning. Also, our “Attorney-Client Privilege” Practice Area has memos with tips and guidance about how to manage risks in protecting privileged information.
Over the last year, as many transitioned to remote work arrangements some, if not most, boards held remote board and committee meetings. Some have been wondering whether and when boards might return to in-person meetings, as whichever way boards decide to go with future meetings, no one wants to get flagged as an outlier – we recently received a question directly on point in our Q&A Forum (#10781). A recent PwC blog provides a look at what some boards are planning based on results from a poll of 160 governance professionals, executives and board members, here’s an excerpt:
– 43% of respondents said their board is already meeting in-person or planned to do so in Q2 and another 37% plan to do so in Q3
– More than half of respondents said they plan to keep at least some board/committee meetings virtual
– Over a third plan to give directors flexibility to choose their method of participation
– Only 8% of respondents said their boards plan to curtail social elements, such as dinners or outings, of board meetings
To help each other learn more about company plans for helping keep boards productive, cohesive & healthy, take a moment to participate in our anonymous “Quick Survey: Board Meeting Health Protocols”.
We continue to post new items on our blog – “Proxy Season Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply entering their email address on the left side of that blog. Here are some of the latest entries:
– Engaging with Vanguard: Shareholder Communications, Even Director Videos Might Suffice
– 14a-8 No-Action Requests: Board Analyses Appear to Help Some, Not All
– Record-Breaking ESG Votes Show That Investors’ Focus is Shifting
– Political Spending Disclosure: Why Your CPA-Zicklin Score Matters
It’s been a while since John blogged about the Long-Term Stock Exchange (LTSE) – it’s backed by several Silicon Valley power players and aims to attract long-term investors. Companies listed on the LTSE commit to strong ESG stances and are expected to promote transparency. The LTSE started trading stocks last September, and until now, there haven’t been any companies listed on LTSE but the WSJ recently reported that it landed its first listings. In August, Twilio Inc. and Asana Inc. will become the fist two companies to dual list on the LTSE, each company is also listed on the NYSE.
In terms of transparency, for companies listed on the LTSE, it means they’re not only expected to make various corporate governance commitments, but they’re also expected to solidify the commitments as policies so that LTSE can monitor them. Even with commitments to ESG and transparency, critics don’t like the dual-class share structure. Reuters reports that Twilio and Asana plan to do away with the dual-class structure sometime in the next 7-10 years, whereas many investors would prefer to see companies ditch the structure within a set amount of time.
Last summer, Liz blogged about the appointment of an independent oversight committee to monitor proxy advisor “best practices.” Last week, the oversight committee issued its first report with an assessment of the extent to which proxy advisory firms adhere to industry best practices. Along the lines of the familiar “exceeds performance expectations”, “meets expectations”, etc., the 61-page report generally says proxy advisors meet “best practices” relating to service quality, conflicts of interest avoidance and management and communications policy but then it also includes suggestions for improvement.
Assessment of proxy advisor practices begins on page 52, and some of the areas for improvement include suggestions for improved proxy advisor disclosures relating to how they manage staff development and staff qualifications, professional staff length of service and information about staff workload. This excerpt touches on proxy advisor quality assurance:
The Committee would like to see more robust disclosures on such internal controls over quality, reliability, independence, and accuracy, including data on alerts to clients concerning errors or revisions. The Committee also sees the need for more expansive reporting on Guidance 1.3(e), which suggests assurance that each Signatory maintains “records of the sources of data used for the provision of services to clients”, and Guidance 1.3(g), which urges Signatories to be “transparent regarding the sources used and content included in the research information they provide to clients”.
For more information about the committee’s work, the report provides background about the committee’s mission, composition and principles and guidance relating to proxy advisor “best practices.” Going forward, the report says the committee intends to launch a survey of stakeholders to gather opinion on the proxy advisory firm industry and it plans to release survey results in October. The committee will then use information from the survey to help inform perspectives on whether to revise its proxy advisor “best practices” principles.
The latest edition of our “In-House Essentials Treatise” is here! The 2022 Edition provides definitive guidance on securities law for in-house lawyers. With over 2000 pages, the Treatise incorporates the most recent SEC guidance, including among other things, updates for the rules simplifying Regulation D, SEC enforcement actions, proxy advisor policies and updated SEC filing fees. Here’s a Detailed Table of Contents listing the topics so you can get a sense of the Treatise’s practical nature.
It’s not every day that you see a headline saying a company adjourned its annual shareholders’ meeting due to lack of quorum but that’s exactly what happened late last week. According to the company’s press release, at the time the annual meeting was adjourned, proxies had been submitted by stockholders representing approximately 40% of the company’s outstanding stock. Under the company’s bylaws, a quorum consists of a majority of the shares entitled to vote.
Earlier this year, Liz blogged on the Proxy Season Blog about TD Ameritrade’s elimination of discretionary voting. One potential impact of TD Ameritrade’s change is on companies that rely on discretionary votes to reach a quorum. We’ve been hearing that over time more companies may encounter difficulty obtaining enough votes to reach a quorum as a result of the rise in retail shareholders, along with historically lower vote returns from retail holders. For the company impacted, it’s not clear what their mix of shareholders might be but it’s an indicator that lack of quorum could be a reality for some. For now, they’ve engaged a proxy solicitor to help reach a quorum and the meeting is adjourned until August 23.
We’ve got a checklist with considerations relating to “Adjournment & Postponement of Annual Meetings” available here on TheCorporateCounsel.net. It’s available to members for free, check it out in the event you ever find yourself in this situation!