On Sunday, the Treasury Department issued yet another announcement on the enforcement and future of the beneficial ownership information reporting under the Corporate Transparency Act (CTA). The announcement notes:
The Treasury Department is announcing today that, with respect to the Corporate Transparency Act, not only will it not enforce any penalties or fines associated with the beneficial ownership information reporting rule under the existing regulatory deadlines, but it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either. The Treasury Department will further be issuing a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only. Treasury takes this step in the interest of supporting hard-working American taxpayers and small businesses and ensuring that the rule is appropriately tailored to advance the public interest.
“This is a victory for common sense,” said U.S. Secretary of the Treasury Scott Bessent. “Today’s action is part of President Trump’s bold agenda to unleash American prosperity by reining in burdensome regulations, in particular for small businesses that are the backbone of the American economy.”
Sunday’s announcement represents the third major development with the CTA in just the past two weeks! As Meredith noted on February 20, FinCEN had announced that beneficial ownership information reporting requirements under the CTA were back in effect following key court developments, with a new deadline of March 21, 2025 for most companies. Then, on February 27, FinCEN announced that it would not issue any fines or penalties or take any other enforcement actions against any companies based on any failure to file or update beneficial ownership information reports pursuant to the Corporate Transparency Act by the current deadlines, while also seeking to issue a new interim final rule that would extend the BOI reporting deadlines and solicit public comment for potential revisions to existing BOI reporting requirements.
It is understandable if you are feeling a bit of whiplash given all of the CTA developments that have played out over the past few weeks and months. At this point, it appears that at least some entities can go “pencils down” on their beneficial ownership information reporting under the CTA, and you can follow the forthcoming developments in our “Beneficial Ownership” Practice Area.
Yesterday, the SEC announced that Corp Fin has issued guidance that enhances the accommodations available to companies for nonpublic review of draft registration statements. The SEC’s announcement notes:
The enhanced accommodations will expand the types of forms eligible to be submitted as draft registration statements for nonpublic review and permit reporting companies to submit draft registration statements for nonpublic review regardless of how much time has passed since their initial public offering. In addition, companies will have added flexibility to start the review process earlier by omitting certain underwriter disclosures from their initial submissions.
More specifically, the updated Corp Fin guidance notes the following changes to the existing framework for the Staff’s review of nonpublic draft registration statements:
The Division is expanding the accommodations available for issuers that submit draft registration statements for nonpublic review. We first expanded the voluntary draft registration statement submission accommodations beyond Emerging Growth Companies to include all issuers in 2017. Based on our experience, we believe that further expansion of these accommodations can facilitate capital formation, without diminishing investor protection.
The enhanced accommodations include:
– Expanding the availability of the nonpublic review process for the initial registration of a class of securities under the Exchange Act to include both Section 12(b) and Section 12(g) registration statements on Forms 10, 20-F, or 40-F.
– Permitting issuers to submit draft registration statements regardless of how much time has passed since they became subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act.
– Expanding the availability of the nonpublic review process for a de-SPAC transaction in situations where the SPAC is the surviving entity (i.e., SPAC-on-top structure) as long as the target is eligible to submit a draft registration statement.
– Permitting issuers to omit the name of the underwriter(s) from their initial draft registration statement submissions, when otherwise required by Items 501 and 508 of Regulation S-K, provided that they include the name of the underwriter(s) in subsequent submissions and public filings.
The review of draft registration statements has proven to be a useful process for companies seeking to go public or conduct their first follow-on offerings, so these enhancements to the Staff policy are welcome. The guidance notes that companies may submit questions about their eligibility to use the expanded processing procedures to CFDraftPolicy@sec.gov.
Join us tomorrow at 2:00 pm Eastern for our “Director Independence: Recurring Issues and Recent Developments” webcast to hear Skadden’s Caroline Kim, Gunster’s Bob Lamm, Davis Polk’s Kyoko Takahashi Lin and Morris Nichols’ Kyle Pinder discuss the many considerations relevant to determining and disclosing director independence. This is a webcast that you do not want to miss!
Members of this site are able to attend this critical webcast at no charge. 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. 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.
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On Friday, State Street Global Advisors released an updated Proxy Voting and Engagement Policy that reflects several significant shifts in approach going into the 2025 proxy season. Similar to recent changes made by Blackrock and Vanguard in their voting policies, State Street has moved away from specific targets regarding board diversity, which, as this Reuters article notes, marks a significant shift for the asset manager that launched the “Fearless Girl” campaign in 2017.
Given the SEC Staff’s recent CDI which has significantly impacted shareholder engagement by large asset managers, State Street prefaces its updated policy with the statement:
When engaging with and voting proxies with respect to the portfolio companies in which we invest our clients’ assets, we do so on behalf of and in the best interests of the client accounts we manage and do not seek to change or influence control of any such portfolio companies. The State Street Global Advisors Global Proxy Voting and Engagement Policy (the “Policy”) contains certain policies that State Street Global Advisors will only apply in jurisdictions where permitted by local law and regulations. State Street Global Advisors will not apply any policies contained herein in any jurisdictions where State Street Global Advisors believes that implementing or following such policies would be deemed to constitute seeking to change or influence control of a portfolio company.
In last year’s policy, State Street had stated the firm expected boards of companies in major indexes to be 30% female, while S&P 500 companies were also expected to have at least one racial or ethnic minority director. In the newly-updated policy, these targets are no longer included, and instead State Street notes:
We believe effective board oversight of a company’s long-term business strategy necessitates a diversity of backgrounds, experiences, and perspectives, which may include a range of characteristics such as skills, gender, race, ethnicity, and age. By having a critical mass of diverse perspectives, boards could experience the benefits that may lead to innovative ideas and foster more robust conversations about a company’s strategy.
We recognize that many factors may influence board composition, including board size, geographic location, and local regulations, among others. Further, we believe that a robust nominating and governance process is essential to achieving a board composition that is designed to facilitate effective, independent oversight of a company’s long-term strategy. We believe nominating committees are best placed to determining the most effective board composition and we encourage companies to ensure that there are sufficient levels of diverse experiences and perspectives represented in the boardroom.
These changes to State Street’s policy track the changes made by the other two members of “The Big Three.” BlackRock’s updated proxy voting guidelines for 2025 no longer recommend that boards seek to have at least 30% of their directors be diverse, or indicate the prospect of an adverse voting action if a company does not adequately explain its approach to board diversity, noting instead that the investor may vote against members of the nominating committee of an S&P 500 company whose board “does not have a mix of professional and personal characteristics that is comparable to market norms.” Vanguard also softened its approach to board diversity for the 2025 proxy season, noting now that boards should be “fit for purpose by reflecting sufficient diversity of skills, experience, perspective, and personal characteristics (such as gender, age, race, and ethnicity) resulting in cognitive diversity.” Vanguard indicates that its funds may vote against a nominating committee chair if a company’s board composition and related disclosure is not consistent with market-specific governance frameworks or market norms. The proxy advisory firms also pivoted on their approach to diversity in the wake of the Trump Administration’s Executive Orders on diversity, with ISS announcing that it will no longer consider the gender, racial or ethnic diversity of a company’s board of directors when making vote recommendations with respect to the election or re-election of directors at U.S. companies, and with Glass Lewis expected to announce its revised approach today.
In a document titled “Introduction to the 2025 Proxy Season,” State Street’s Global Head of Asset Stewardship describes the firm’s move away from addressing specific voting outcomes in its voting policy:
We regularly review and refine our approach to ensure it supports effective stewardship while adapting to evolving market needs. Rather than incorporating specific potential voting outcomes including those on director elections, this year our Policy sets forth what we believe are best practices for good governance at portfolio companies and includes our viewpoints regarding what we believe can protect and promote the long-term economic value of our clients’ investments.
Some other significant changes to State Street’s policy for 2025 include:
1. With respect to director time commitments, rather than applying numerical limits on an individual director’s board memberships, State Street now considers “whether companies provide disclosures on how their nominating committees evaluate and monitor individual directors’ time commitments as a whole.”
2. A change in approach on annual director elections and board independence, consistent with State Street’s belief that these reflect good governance practices.
3. On the topic of ESG disclosures, State Street looks to companies “to provide disclosure on sustainability-related risks and opportunities that they deem material to their businesses in line with applicable local regulatory requirements and any voluntary standards and frameworks adopted by the company.”
With the release of State Street’s updated Proxy Voting and Engagement Policy, we now have a clear picture of how different this proxy season is going to be as compared to years past. This is going to get interesting folks, so strap in!
On Friday, the SEC announced that it will host a roundtable discussion on Artificial Intelligence in the financial industry. The event will take place on March 27th at the SEC’s headquarters in Washington, DC and virtually. The announcement notes: “The AI roundtable will discuss the risks, benefits, and governance of AI in the financial industry.”
Advance registration is encouraged for those planning to attend in person. The SEC is also soliciting comments from the public in anticipation of this event.
The latest issue of The Corporate Counsel newsletter has been sent to the printer. It is also available now online to members of TheCorporateCounsel.net who subscribe to the electronic format. I poured my heart and soul into this issue and came up with the following articles:
– The Other Ownership Reports: Taking a Deep Dive into Form 13F and Form 13H
– Beware of the “Other” Shareholder Proposal Rule This Proxy Season: Considering Rule 14a-4
– Changing the Annual Meeting Date: A Refresher
Please email sales@ccrcorp.com to subscribe to this essential resource if you are not already receiving the important updates we provide in The Corporate Counsel newsletter.
Yesterday, Corp Fin issued a “Staff Statement on Meme Coins” in which it said that it did not view so-called “meme coins” as securities for purposes of the federal securities laws. The Statement defined meme coins as “a type of crypto asset inspired by internet memes, characters, current events, or trends for which the promoter seeks to attract an enthusiastic online community to purchase the meme coin and engage in its trading.” It went on to analogize meme coins to collectibles, because they are usually purchased for “entertainment, social interaction, and cultural purposes, and their value is driven primarily by market demand and speculation.”
The Statement then analyzed the legal status of meme coins under the federal securities laws and concluded that they were not “securities” under the Howey Test . This excerpt summarizes the basis for that conclusion:
The offer and sale of meme coins does not involve an investment in an enterprise nor is it undertaken with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. First, meme coin purchasers are not making an investment in an enterprise. That is, their funds are not pooled together to be deployed by promoters or other third parties for developing the coin or a related enterprise. Second, any expectation of profits that meme coin purchasers have is not derived from the efforts of others. That is, the value of meme coins is derived from speculative trading and the collective sentiment of the market, like a collectible. Moreover, the promoters of meme coins are not undertaking (or indicating an intention to undertake) managerial and entrepreneurial efforts from which purchasers could reasonably expect profit.
The Staff cautioned that meme coins that don’t fit the description outlined in the statement may be securities and will be evaluated based on the economic realities of a particular transaction.
The problem of director notetaking during board meetings is a persistent one, and the bad news is that, as Ralph Ward highlighted in a recent issue of The Boardroom Insider, it’s becoming even more challenging to address as AI tools find their way into the boardroom. This excerpt provides some examples:
In a thoughtful client alert, Robins, Kaplan partner Anne Lockner cites the true-life story of an online board meeting with a member who was logged in, but not actually participating. Instead, he had an online AI assistant sit in to prepare a summary for later review (and later circulation to all participants). While there’s “nothing to prevent participants from taking their own notes, using AI to summarize would be hard to stop,” she says. Still, this situation creates multiple legal nightmares, such as whether the director is actually “attending,” fiduciary duty, and confidentiality of the notes.
Another note-taking tech headache – what if the director is indeed present and participating, but using one of the many transcription tools to take his own minutes/notes of the meeting? While most online meeting platforms give the moderator power to record the session or not (and to prevent participants doing so), using such a capture widget on your own computer (or even on your smart phone) to transcribe would be simple. Of course, this creates an alternate version of the meeting minutes. If preserved, it would be fair game for any legal discovery demand down the road, and could tell a very different tale from that of the approved minutes.
It’s enough to send a shiver down your spine, isn’t it? Anyway, I think every lawyer who has ever counseled a board has a horror story about director notes. Mine involves a director who wrote a speech opposing a proposed merger that he planned to deliver at the board meeting held to consider it. He ultimately supported the deal, so the speech went undelivered, but he kept it, and it ended up in the plaintiff’s hands. The plaintiff’s lawyer had a very good time with the speech during the director’s 11 hour deposition – the director, well, not so much.
In addition to their typically higher profile, public companies may also have heightened security concerns for their executives since they are often required by Regulation FD to disclose their executives’ involvement in certain public events, so it’s common for high-profile public companies to engage and pay for personal security services for their CEOs and other senior executives. Some public companies also require their executives to use company aircraft for personal travel due to security concerns.
The December 2024 shooting of the CEO of UnitedHealthcare has caused public companies to reassess — and sometimes enhance — their security arrangements and other measures they take to protect the safety of their executives. We’ve recently posted a new “Checklist: Executive Security” that addresses the following topics — all of which boards and management teams should be aware of as they consider changes to executive security programs:
– Recent trends in personal security spending by public companies
– Additional steps companies are now considering to minimize risks to their management teams
– Board fiduciary duty considerations
– SEC disclosure requirements
– Institutional investor and proxy advisor positions
– Tax and benefit implications of personal security arrangements
Last December, a group of prominent law professors came together to form a group they call “The Shadow SEC,” whose stated purpose is to “provide, encourage, facilitate, and distribute policy discussions and debates relating to the federal securities laws” and the SEC. In response to the Trump administration’s Executive Order asserting presidential control over independent agencies like the SEC, the members of this group penned a spirited defense of the SEC’s independence on the CLS Blue Sky Blog. Here’s what they argue are some of the consequences if the agency loses its independent status:
What would happen if the SEC in fact loses its independence? Concentrated interest groups can be expected to pressure each new administration to change regulation in ways that might not be in the interest of investors and the public and that might not enhance capital formation. Entrenched companies could seek to have the SEC build regulatory moats to prevent competition. Parties seeking to avoid the rigors of the SEC’s disclosure regime may succeed in having that regime diluted and subject to expanded exceptions, making share prices less accurate and eroding the efficiency of the pricing of capital and distorting the manner in which U.S. firms are operated.
What this defense doesn’t address is the proverbial “elephant in the room” – the Trump administration’s embrace of the “unitary executive theory” and what a judicial endorsement of that theory would mean for independent agencies. This theory essentially says that the President possesses sole authority over the Executive Branch, including the ability to remove any subordinate officials at will. In other words, truly “independent” agencies aren’t a thing that the Constitution contemplates.
As Meredith pointed out in her recent blog on the Executive Order, the SCOTUS held in a New Deal Era case called Humphrey’s Executor v. US that the President didn’t have the authority to fire the head of an independent agency. Justice Scalia questioned Congressional efforts to limit executive power in this fashion in his dissent from the SCOTUS’s 1988 decision in Morrison v. Olson(“Article II, § 1, cl. 1, of the Constitution provides: “The executive Power shall be vested in a President of the United States”. . . [T]his does not mean some of the executive power, but all of the executive power.”).
Scalia was the lone dissenter in that case, but more recently, the Humphrey’s Executor decision and cases following it have been criticized by a growing chorus of conservative scholars and practitioners. Many expect that the current SCOTUS will be open to revisiting and ultimately overruling it – and a high court showdown certainly seems to be where all this is heading.
The unitary executive theory has plenty of conservative champions, but it’s worth noting that even in this deeply partisan era, not all conservative scholars are on-board. For example, here’s what George Mason law professor Ilya Somin wrote about the risks of reviving the unitary executive theory in a 2018 Cato Institute publication:
Federal agencies now regulate almost every aspect of American life. If the president has near-total control over them, he or she has much greater power than originally granted — more than can safely be entrusted to any one person. So long as the executive wields authority far beyond the original meaning, Congress should be allowed to insulate some of it from total presidential control to prevent excessive concentration of power.