Tune in tomorrow for our webcast – “Cyber, Data & Social: Getting in Front of Governance” – to hear Melissa Krasnow of VLP Law Group, Lisa Beth Lentini Walker of Lumen Worldwide Endeavors, Sue Serna of Serna Social and Heidi Wachs of Stroz Friedberg/Aon discuss what boards need to know about cyber, data & social – risks & opportunities, monitoring new threats, managing compliance with changing laws & different jurisdictions, social media oversight, director liability issues and more!
We will apply for CLE credit in all applicable states for this 1-hour webcast. You must submit your state and license number prior to or during the program. Attendees must participate in the live webcast and fully complete all the CLE credit survey links during the program. You will receive a CLE certificate from our CLE provider when your state issues approval; typically within 30 days of the webcast. All credits are pending state approval.
No registration is necessary – and there is no cost – for this webcast for our members. If you are not yet a member, sign-up now to access the program. You can sign up online, send us an email at info@ccrcorp.com – or call us at 800.737.1271.
– Lynn Jokela
Yesterday, the SEC announced that Renee Jones will serve as Corp Fin’s next Director. Renee most recently served as Professor of Law and Associate Dean for Academic Affairs at Boston College Law School, where she taught courses in corporations, securities regulation, startup company governance, and financial regulation. Previously, she represented private and public companies on corporate and securities matters at Boston law firm, Hill & Barlow. Coming in from academia isn’t entirely new, as John Coates was a long-time academic when he was appointed as the Division’s Acting Director, but traditionally the head of Corp Fin has been a practitioner.
Along with Renee’s appointment, after having served as Corp Fin’s Acting Director since February 2021, John Coates was named SEC General Counsel. Both appointments are effective June 21st.
– Lynn Jokela
With news about cyber attacks seeming to crop up almost daily, considerations about potential ransomware attacks extend beyond information security officers. Alston & Bird recently issued a memo addressing considerations about ransomware attacks for the general counsel. Among other things, one of the items covered in the memo relates to how increased ransom payments have placed strains on the insurance industry. The memo warns that companies may encounter a more rigorous underwriting and renewal process than they’ve experienced in prior years.
Indeed, as companies seek to acquire new cyber-insurance policies or renew existing ones, the insurers’ enhanced diligence procedures may require additional disclosures or the implementation of new or more stringent cybersecurity procedures to meet the insurer’s standards. Policies can often require a checklist of specific security controls to be in place and periodically tested for effectiveness, for example, which are designed to mitigate the risk of ransomware.
Other insurers are taking different approaches. Just this week, one European insurer announced that it will no longer issue cyber-insurance policies in France that reimburse insureds for ransom payments.
There is also the risk that an insured company may find that its policy’s pre-approval process for the retention of outside counsel, forensic experts, ransom payment facilitators, and even the potential ransom payment itself is in tension with the company’s interest in a swift and immediate response to a ransomware event. The extent to which the policy includes recovery costs can pose an additional challenge if a policy does not treat expenses related to the forensic investigation, ransom payment itself (if applicable), and rebuilding affected systems as covered recovery costs.
– Lynn Jokela
Last year’s Rule 14a-8 amendments may or may not be here to stay. The Senate “fast-track” deadline under the Congressional Review Act – which could have undone the amendments – expired at the end of May, according to Daniel Pérez of the GW Regulatory Studies Center. Now though, Rule 14a-8 is among the items listed in the SEC’s new Reg Flex Agenda – which was posted Friday as part of a federal agency-wide reveal of the new Administration’s plans for rulemaking.
The Rule 14a-8 amendments are listed in the Reg Flex Agenda’s section for “proposed rulemaking” – targeting April 2022 for a proposal. Among other items included in the agenda’s proposed rulemaking stage, with some targeted to potentially come along quickly, are:
– Rule 10b5-1 – October 2021
– Climate change disclosure (climate-related risks & opportunities) – October 2021
– Human Capital Management disclosure – October 2021
– Enhanced cybersecurity risk governance disclosure – October 2021
– SPACs – April 2022
– Proxy Voting Advice – April 2022
And, among items included in the pre-rule stage are the exempt offerings framework and gamification (out of the Division of Trading & Markets).
The SEC’s regulatory agenda is non-binding and doesn’t really mean a lot other than it identifies the SEC Chair’s priorities. Stay tuned, these agendas tend to change over time.
As for Rule 14a-8, the rule amendments adopted last fall remain intact and are currently effective – although the Commission adopted a transition period that says the final amendments first apply to any proposal submitted for meetings held on or after January 1, 2022. We’ll be following any Commission action or agency statements about the rulemaking closely and will be sure to blog about it.
To get up to speed on the Rule 14a-8 amendments before a shareholder proposal lands on your desk, check out our “Shareholder Proposals Handbook”- it’s been updated and incorporates the 14a-8 amendments, members can access it at no charge right here on TheCorporateCounsel.net.
– Lynn Jokela
Increased gender and ethnic diversity on public company boards is generally viewed positively. Nasdaq’s board diversity listing proposal has generated a bit of back and forth discussion as some have questioned the empirical research Nasdaq cited as justification for the proposal – John blogged back in April with one take on it and then Liz blogged about another take on it in May. Last week, the SEC issued a notice stating that it designated a longer period to consider Nasdaq’s proposed rule change. August 8 is the new date by which the Commission shall either approve or disapprove Nasdaq’s proposed rule change, as modified by Amendment No. 1.
Besides the back and forth that John and Liz blogged about, there’s been quite a number of comment letters about Nasdaq’s proposal and the Commission’s notice says it’s extending the period so it has sufficient time to consider the proposed rule change and the comment letters. And, for those reading the latest Reg Flex Agenda closely, you probably noted that corporate board diversity is among items listed in the proposed rulemaking stage, which includes an October 2021 target date.
– Lynn Jokela
With stakeholders continuing to look for disclosure about board diversity, we’re starting to see increased company disclosure. To help stakeholders compare disclosure practices, KPMG (along with the help of ESGauge) recently launched a free new tool that tracks disclosure about board diversity. Here’s the press release, which includes some initial findings and a link to the tool.
KPMG’s tool facilitates comparison of disclosure practices by sector, index (Russell 3000 and S&P 500) and company size. When preparing next year’s proxy statement disclosure about board diversity, this tool might help in-house counsel see how much companies in their industry and size range are disclosing about board and individual director diversity and related policies and help ensure their disclosure is keeping step!
For more board diversity info, Deloitte and the Alliance for Board Diversity recently released a 44-page report examining representation of women and racial/ethnic minorities on boards among Fortune 100 and Fortune 500 companies. See this Cooley blog for a recap of some of the report’s findings.
– Lynn Jokela
A recent Law.com post from Alston & Bird attorneys Elizabeth Clark and Robert Long provides a summary of several initial court decisions involving Covid-19-related securities actions. In these cases, courts ruled on early-stage motions to dismiss and even though the decisions were mixed, the authors say plaintiffs will face major hurdles in bringing claims related to Covid-19’s impact on a company’s business operations.
Three initial decisions on motions to dismiss reflect that courts are going to closely scrutinize allegations related to COVID-19 and analyze challenged statements in view of the pandemic-related information available at the time, including scrutinizing what the company could have reasonably known at the time of its public statements.
The primary takeaway is that, even in the wake of a global pandemic and unprecedented volatility in the stock market, courts continue to recognize that the heightened pleading standard of the Private Securities Litigation Reform Act acts as a roadblock to ferret out thin and conclusory claims even at the earliest stage of a securities fraud case.
One case the authors discuss involved Norwegian Cruise Line and in that case, the court found certain company statements constituted nothing more than corporate puffery. The case emphasizes the importance of including a comprehensive safe harbor disclosure statement. In granting the motion to dismiss, the court said that many of the challenged statements were accompanied by specific, cautionary language and were protected by the PSLRA’s safe harbor provision.
Take Our Quick Surveys: Board Meeting Health Protocols & Insider Trading – COVID-19 Adjustments
We’re continuing to post memos about “return to work” and other pandemic issues in our “COVID-19” Practice Area – but one topic that isn’t getting as much attention is what companies are planning to do to keep their boards productive, cohesive & healthy. Please take a moment to participate in our anonymous “Quick Survey: Board Meeting Health Protocols”.
While you’re there, please also give your input on our “Quick Survey: Insider Trading – COVID-19 Adjustments”. Don’t forget to mark your calendars for our July 20th webcast, “Insider Trading Policies & Rule 10b5-1 Plans.”
Memorial Day Weekend
Many have made it through another long proxy season – as I blogged earlier this week, it’s been a wild ride this year. We wish each of you an enjoyable Memorial Day weekend, we’ll be back here on Tuesday. Please take a moment to honor and remember those who have sacrificed for our country.
– Lynn Jokela
This year’s wild proxy season continued yesterday when ExxonMobil announced that a dissident won at least two seats on the company’s 12-member board. The dissident – Engine No. 1 – has waged a campaign that pressures the company to set a “climate transition” plan that would result in net-zero emissions from the company – and its products – by 2050.
Considering Engine No. 1’s ownership stake in Exxon is only about 0.02%, it’s remarkable that the hedge fund pulled this off. It came at no small cost – this has been one of the most expensive proxy fights ever, with Exxon spending at least $35 million and Engine No. 1 spending $30 million. Reports are based on preliminary voting results, so until the final vote results are released it’s unclear how close the vote was for the two seats that were won. As of yesterday afternoon, there were two more seats still up for grabs. The vote was so hotly contested that Exxon called a recess during the meeting as votes were still being cast.
This WSJ article summarizes the proxy contest. Here’s a snippet about yesterday’s drama:
Both sides feverishly made their case to investors until the last minute. Exxon delayed the closing of the voting by an hour Wednesday morning and Engine No. 1 said the company was calling investors to ask them to change their votes. In a message sent to shareholders, the fund urged them ‘not to fall prey to any such strategic efforts.’
In another somewhat new practice, Vanguard posted a vote bulletin saying it backed two dissident nominees and BlackRock posted its vote bulletin for Exxon’s meeting yesterday afternoon, nearly in real time. As I blogged yesterday morning, word was already out that BlackRock was planning to support three dissident nominees. BlackRock said that, although Exxon had announced more commitments and transparency, it believes more urgent action is needed. Here’s an excerpt from BlackRock’s bulletin:
We believe that three of the four directors nominated by Engine No. 1 bring relevant private sector experience including independent U.S. energy production (Mr. Goff); renewable products, including wind energy (Ms. Heitala); and energy infrastructure, legislation and new energy technology (Mr. Karsner). Hence, we believe that this suite of directors will complement the skills and experience of the remaining incumbent directors, bringing fresh perspectives as well as successful track records of value creation for shareholders.
BIS supported the re-election of Mr. Frazier and Mr. Woods because our engagement with each of them over the past several months has given us greater confidence that they are prepared to internalize shareholder feedback, and lead the company, in their respective roles as Lead Independent Director and CEO, on a more ambitious course of action in adapting to the energy transition and responding to shareholders. We also believe some leadership stability is important in the context of the urgency with which the company is expected to deliver on its commitments.
Many predict the vote result will force the company to change its strategy, which has been fossil fuel focused. Institutional holders are signaling that they’re willing to take drastic action to reduce climate risks, which may also jolt the energy sector – and others. The vote is even more shocking in light of the fact that the company had already added three directors earlier this year in response to activist pressure, including Jeff Ubben. That means that if any additional dissidents are certified as elected, new directors would comprise at least half of the board.
As an exclamation point yesterday, shareholders not only approved a change in leadership, they also approved proposals calling for more info on climate lobbying and other lobbying activities, which weren’t supported by the board.
Whistleblower Awards Continue Rolling Along
Liz blogged back in March about a SEC whistleblower award and noted the Commission had already made 40 individual awards this year. Since then, the Commission has awarded more and last week announced a few more. First, there was an announcement of awards totaling more than $31 million in connection with two enforcement actions, with the awards divided between two whistleblowers in each action.
In the first order, the SEC awarded almost $27 million to two claimants who provided SEC staff with new information and assistance during an existing investigation, including meeting with the staff in person on multiple days. Their information and cooperation helped the Commission bring the enforcement action, which resulted in the return of millions of dollars to harmed investors.
In the second order, the SEC awarded one whistleblower an award of approximately $3.75 million and the other whistleblower an award of approximately $750,000. While both whistleblowers independently provided information that assisted SEC staff in an ongoing investigation, the whistleblower who received the larger award provided information and assistance that was more important to the resolution of the overall case.
Also last week, the Commission announced an award totaling more than $28 million and this one was in connection with an Enforcement Division action and a related action by another federal agency. Based on information received from the whistleblower’s attorneys, the WSJ reported that the award was in connection with a bribery settlement. Although the SEC’s whistleblower program provides that whistleblower’s can receive up to 30% of monetary penalties when their tips result in a successful enforcement action and when the penalties total more than $1 million, the WSJ said the $28 million award represented 10% of the monetary penalties collected from both the SEC and DOJ actions. It’s not entirely clear what led to the lower percentage award in this case, but the article does say that the settlement involved different regions than the one initially identified by the whistleblower.
Since first issuing an award in 2012, with last week’s awards, the agency has awarded approximately $903 million to 163 individuals. As these awards continue rolling along, it’s looking like it may be possible for the agency to surpass $1 billion in total awards under its program sometime later this year.
Former Chief of SEC Whistleblower Office Joins Arnold & Porter
The SEC announced back in April that Jane Norberg was leaving the agency that month, she had served as Chief of the agency’s Office of the Whistleblower. Jane had been with the Office since near its inception in 2012 serving as its first Deputy Chief and, since 2016, its Chief. With what’s seeming like pretty regular whistleblower award announcements, it appears that securities enforcement practices could see a good volume of work and earlier this week, Arnold & Porter announced that Jane has joined the firm’s Securities Enforcement and Litigation Practice as a partner in its Washington DC office. In the announcement, Richard Alexander, the firm’s chairman, commented that Jane’s joining the firm at a time when whistleblower-driven investigations and enforcement actions are ticking up. A Bloomberg piece citing Jane’s move to private practice quotes her as saying she ‘expects this administration to be very pro-whistleblower.’
Find More on Our Other Blogs!!
We are gradually resuming our blog email notifications – and hope you’ll enjoy the improvements. In the meantime, don’t forget that you can visit the blog landing pages for our latest entries. For members of TheCorporateCounsel.net, that includes Mike Gettelman’s Blog (with recent posts about NY private offerings and crypto predictions), as well as our Mentor Blog (with recent posts about director tenure, board assessments, and more).
Members of CompensationStandards.com can visit that page for recent proxy disclosure samples, via Mark Borges’ Proxy Disclosure Blog (with recent samples of corporate responsibility and perks disclosures) and for Mike Melbinger’s take on hot executive pay and related issues, via Melbinger’s Compensation Blog.
Members of Section16.net can access Alan Dye’s Section16.net Blog for news on that front (with a recent post about attorney’s fees on a profit disgorgement case).
And our free DealLawyers.com Blog is also still going strong every day with John’s M&A nuggets!
– Lynn Jokela
Back in December, I blogged about whether sustainability concerns would lead to more proxy contests. At that time, Engine No. 1 LLC launched a campaign to name four directors to Exxon Mobil’s board. We didn’t know then whether the campaign would continue gathering steam but it has and yesterday, Reuters reported that BlackRock intends to back three of Engine No. 1’s director nominees to join Exxon’s board. It’s not too often that you hear of a large asset manager backing dissident nominees and here, BlackRock is Exxon’s second largest shareholder, holding a 6.7% stake in the company.
Exxon’s annual shareholder meeting is scheduled for today. This Politico article takes a deeper dive on this proxy contest and says ISS and Glass Lewis made recommendations that favor Engine No. 1. Other shareholders that are reportedly supporting Engine No. 1 include CalSTRS, CalPERS, the New York State Common Retirement Fund, Legal & General and Federated Hermes. Engine No. 1’s focus of attack has been about the company’s financial performance and decision making around investment in cleaner energy and many are watching to see which way votes are cast by large asset managers. Here’s an excerpt with more:
The vote will also be watched for how certain shareholders cast their ballots. Vanguard, BlackRock and State Street, three of the world’s largest asset managers, are Exxon Mobil’s biggest shareholders. Those companies haven’t indicated how they’ll vote, but all have drawn complaints from other investors and environmentalists such as the Sierra Club, who say they have failed to deliver on their own pledges to put a premium on environmental, social and governance, or ESG, metrics.
‘I am tracking the voting records of BlackRock and Vanguard, and expect full transparency and sufficient explanations regarding the reasoning and justification for the votes BlackRock and Vanguard cast,’ Wisconsin State Treasurer Sarah Godlewski said in a written statement. ‘It is critical for the financial resiliency of our funds that asset managers hold corporate boards accountable and stop at nothing less than a guaranteed commitment to address systemic climate risk.’
The article notes that even with the support of BlackRock, Engine No. 1 doesn’t have an easy path because nearly half of Exxon’s shares are held by retail shareholders, which tend to vote with management. The article says Exxon’s 20 largest shareholders only hold 35% of the vote.
Glass Lewis Recommends Ouster of Female Board Chair Due to Board’s Gender Imbalance, Huh?
With eyes on board diversity, a recent article in the Guardian caught my eye as the headline said shareholders have been urged to vote out a board chair due to gender imbalance. As I read a little further, I was surprised to see that Glass Lewis has recommended the ouster of the board chair although the board chair happens to be a woman. Although the company, Playtech is a constituent of the FTSE 250 and UK based, the situation sends a message about how Glass Lewis could view a similar situation should it arise here.
Should Playtech’s chair be ousted, its board will be left with an even greater gender imbalance. What gives? According to the article, the board makeup includes 7 members, 2 of which are women, which is below the 33% target for board gender diversity. Although the target is voluntary, Glass Lewis takes a tough stance in holding the board, and in this case the board chair, accountable for lack of progress on improving the company’s diversity:
While the government-backed 33% target is voluntary, Glass Lewis reprimanded Playtech for its failure to follow its peers and improve its boardroom gender diversity. The company is adding another male director at its upcoming meeting, which means women would only occupy a quarter of Playtech’s board positions. Women represented just 19% of senior management, while 39% of the firm’s employees were female.
Glass Lewis criticised Playtech’s stance on improving diversity at the company, saying that it had ‘failed to adequately outline any measurable diversity objectives, instead opting for boilerplate language which provides little insight into what strategy the board is employing to enhance diversity’.
The advisory group added: ‘The board has not disclosed any commitment to achieve the Hampton-Alexander Review targets within a defined time frame despite the company failing to achieve the same by the 2020 deadline.’
There’s likely more to the story than the Guardian was able to pull together for its article. Word to the wise for companies thinking that placing a woman in a board leadership role will appease Glass Lewis to the point of looking past other diversity shortcomings, that move probably won’t help win over the folks at Glass Lewis. Also, ISS takes a similar stance for racial diversity, they’ll vote out a board leader even if they themselves are from an underrepresented community – see Liz’s blog from a couple weeks back.
Annual Meeting Season: Wild Ride in UK Too
Many will probably agree that this year’s annual meeting season is turning out to be a bit of a wild ride. Liz and I have been blogging on our “Proxy Season Blog” about some of the early vote results as several shareholder proposals have received majority shareholder support, while others, despite being first-year proposals have received over 30% shareholder support. Meanwhile, Liz blogged not too long ago about increased opposition to say-on-pay proposals this year.
For more on this year’s wild ride, last week Reuters reported that over in the UK, Lloyds Banking Group had to temporarily adjourn its annual meeting due to a shareholder repeatedly shouting complaints. According to the story, the chairman adjourned the meeting and after 15 minutes of disruption, in which the shareholder was removed and the webcast suspended, the meeting was restarted. With most companies holding annual meetings virtually, it was somewhat surprising to read about the interruption, but the FT reported that Lloyds made a last minute shift and decided to allow up to 100 shareholders to attend. Although the article says only 10 investors attended, it only takes one to bring an element of disarray to a meeting.
To help plan and prepare for any sort of disruption at your annual meeting, see our checklists that are available to members online. Here are a few relating to annual meetings that can help ensure your meeting runs smoothly: Adjournment & Postponement, Rules of Conduct & Procedure, Meeting Surprises, Security for Annual Meetings, and Virtual Annual Meetings.
– Lynn Jokela