As I shared yesterday, the SEC is seeking feedback on whether it should amend the definition of “foreign private issuer” to better balance capital formation and investor protection. Meanwhile, the New York Court of Appeals recently delivered two decisions that are welcome news under state corporate law for foreign entities doing business in the U.S. This Cleary memo explains:
Both disputes posed the question whether New York’s Business Corporation Law (BCL) allows a shareholder plaintiff to bring derivative claims on behalf of a foreign corporation in New York so long as it satisfies the BCL requirements for such a suit, even if the plaintiff lacks standing under the law of the place of incorporation. The Court of Appeals rejected that theory and held that the BCL does not displace the well-settled internal affairs doctrine, which applies the substantive law
of the place of incorporation (not the law of the forum) to, among other things, the question of who has standing to assert derivative claims on behalf of the corporation.
Here’s Cleary’s takeaway (also see this D&O Diary blog):
In Ezrasons, the New York Court of Appeals emphatically endorsed the internal affairs doctrine and thwarted plaintiffs’ attempts to turn New York courts into unofficial arbiters of the internal corporate governance of corporations around the world. Foreign corporations and their boards should take comfort that they will not necessarily subject themselves to derivative suits in New York simply by doing business here. That said, it is important to note that shareholders still have some ability to bring derivative claims on behalf of foreign corporations if doing so is consistent with substantive foreign law and if plaintiffs can show that any contrary foreign law rule is merely procedural, not substantive.
Yesterday marked the 40th anniversary of Ferris Bueller’s day off. Brilliantly, it was also “field day” at my kids’ elementary school. Who else remembers these parachute games from their own childhood? Wishing you all a few carefree moments to enjoy baseball games, popsicles, and pool parties in the months ahead!
At its open meeting yesterday, the SEC announced publication of this 71-page Concept Release – which seeks feedback on whether the Commission should amend the definition of “foreign private issuer” to better balance investor protection and capital formation.
Dave has blogged about “the plight of foreign private issuers” – as recent rulemaking hasn’t afforded as many accommodations as FPIs might hope for. Yesterday’s 2-page fact sheet highlights that the FPI population has changed over the last two decades:
• The two jurisdictions most frequently represented among Exchange Act reporting FPIs in fiscal year 2003 were Canada and the United Kingdom, both in terms of incorporation and the location of headquarters. In contrast, the most common jurisdiction of incorporation for Exchange Act reporting FPIs in fiscal year 2023 was the Cayman Islands, and the most common jurisdiction of headquarters in fiscal year 2023 was mainland China. The Commission staff also found a substantial increase in Exchange Act reporting FPIs with differing jurisdictions of incorporation and of headquarters, from 7% in fiscal year 2003 to 48% in fiscal year 2023.
• The Commission staff found that the global trading of Exchange Act reporting FPIs’ equity securities has become increasingly concentrated in U.S. capital markets over the last decade. As of fiscal year 2023, approximately 55% of Exchange Act reporting FPIs appear to have had no or minimal trading of their equity securities on any non U.S. market and appear to maintain listings of their equity securities only on U.S. national securities exchanges. As a result, the United States is effectively those issuers’ exclusive or primary trading market.
In light of these changes to the FPI population, and in line with remarks that Commissioner Uyeda made almost exactly a year ago, the concept release seeks input on the following possible approaches to amending the FPI definition:
• Updating the existing FPI eligibility criteria;
• Adding a foreign trading volume requirement;
• Adding a major foreign exchange listing requirement;
• Incorporating an SEC assessment of foreign regulation applicable to the FPI;
• Establishing new mutual recognition systems; or
• Adding an international cooperation arrangement requirement.
The comment period will be open for 90 days following publication of the comment request in the Federal Register. You can submit comments here. Each of the Commissioners also published statements on the concept release, which provide more color on their views.
I blogged yesterday about the spike in “against” recommendations from ISS each June, for director votes and say-on-pay. In its initial look at how the “June phenomenon” applies to say-on-pay votes, Exequity looked at whether the voting trends could be explained by industry practices or pay-for-performance disconnects. Neither of those possible factors appeared to drive the trend. Exequity also looked at “repeat offenders” – which did seem to contribute somewhat to the spike, but only partially.
A member said they’d given it some thought, and pointed out that there could be another straightforward explanation:
Compared to April and May, the proportion of June meetings held by small- and mid-cap companies is higher. Those companies are more likely to have persistent material weaknesses in internal controls (a major driver of “withhold” recommendations on small-cap directors); and more likely to lack board diversity (which was a significant driver of withhold recommendations in prior years).
I’ve also noticed that in some cases, accounting issues, succession crises and other indicators of deeper problems are what cause the shareholder meeting to be delayed until June (if the company is non-timely in filing its 10-K, it may not be able to hold its AGM on the normal schedule, for example).
I’d also note that some smaller companies are less likely than their larger counterparts to make changes in response to a low say-on-pay vote – and that could drive adverse recommendations the following year – including against compensation committee members in some cases. Exequity’s “repeat offender” analysis took some of that into account and found it’s a contributing factor.
At any rate, in my experience, many small cap companies would love to have the luxury of worrying about ISS voting recommendations and AGM scheduling! Companies that geek out over a “spike” are probably not the ones affected by it…
Even though proxy advisors catch a lot of flak, my longstanding view has been that it’s actually helpful to have organizations that serve as the in-between on voting policies. On the issuer side, I’d rather keep track of a handful of policies than monitor variances across every single investor. You can also look like a hero if you really do understand the proxy advisor voting policies and can spare your company from surprises.
That’s one reason our “Navigating ISS & Glass Lewis” panel is always so popular at our annual “Proxy Disclosure & 22nd Annual Executive Compensation Conferences.” This practical session features a conversation with representatives from both proxy advisors – moderated by Davis Polk’s Ning Chiu. They’ll be covering the types of disclosures & practices that will (or won’t) help your cause on say-on-pay recommendations, compensation committee elections, and equity incentive plan approvals.
Our 2025 Conferences will be taking place Monday & Tuesday, October 21-22 in Las Vegas, Nevada, with a virtual option for those who can’t attend in person. Join us for engaging sessions full of essential and practical guidance, direct from the experts. Register now to lock in our early bird rate and save your seat!
If you track any of the “daily digests” for Staff comments, you might have noticed that the volume of Staff comments seems lower lately. It’s not always straightforward to estimate changes to comment letter practices, but Olga Usvyatsky recently took a stab at it in her “Deep Quarry” newsletter – and it appears the decrease for disclosure review comments wasn’t just in our imaginations. Here’s what she found:
Based on my analysis of the Audit Analytics data, 263 SEC reviews of periodic filings were released on EDGAR between January and April 2025 – a decline of 20% and 26% compared to the first four months of 2023 and 2024, respectively. However, it is unclear whether the decrease compared to the 2023-2024 level reflects a shift in SEC priorities or if this is merely a mechanical decline related to a lower number of reviews initiated in the second half of 2024.
The former explanation implies that the number of reviews is likely to revert to the 2020-2021 level, while the latter suggests we may see an even sharper decline on a full-year basis.
To arrive at these numbers, Olga compared the number of conversations with a closing letter on EDGAR during the applicable periods. Olga also shared data that shows a longer-term decline:
Over the past decade, the total number of SEC comment letter conversations referencing periodic filings has generally declined, with a peak in 2015 and a low in 2021, followed by a brief rebound through 2022 before declining again in 2024, according to a report by Ideagen Audit Analytics.
For the scoop on the comment letter process for both ’33 Act registration statements and ’34 Act reports, check out our 52-page handbook…
Over on CompensationStandards.com, I recently highlighted an interesting trend identified by Exequity: ISS’s adverse say-on-pay recommendations tend to spike in June. Exequity has now published additional data that shows this “June Phenomenon” also applies to director elections. Here’s an excerpt:
But the June Phenomenon for directors has an added twist: The trend of adverse recommendations in June appears to be increasing over time, whereas with say on pay the “Against” rate has been stable. In 2015 and 2016, the average rate in June was below 15%, and beginning in 2018, the recommendations “Against” have been above 20%. It is unclear what has caused the increase in “Against” recommendations during this time. Recommendations “Against” in other months have trickled up slightly, from 8% to 10%.
Unlike say on pay, votes for directors are not advisory and over the past 10 years, less than 0.1% of director nominations have failed. Failures in June appear equally likely as in other months, and Exequity finds no discernible trend in the number of companies with directors failing to be re-elected.
On average since 2015, directors have received 96% support when ISS recommends “For” and 83% when “Against.” Average support for directors when ISS recommends “Against” has trickled 1.7% higher since 2015 (from 82.4% in 2015 to 84.2% in 2025), but average support when ISS recommends “For” trickled down by 1.6% (from 97.6% in 2015 to 96.0% in 2024).
The cause of the June spike isn’t clear – and it’s probably not worth getting too neurotic over it. But with June being a popular time for annual shareholder meetings, a significant number of companies could be affected. Those with meetings this month may want to pay extra attention to proxy advisor expectations – if for no other reason than to avoid surprises.
As you may have seen, Donna Anderson is soon leaving her position as T. Rowe’s Global Head of Corporate Governance. Courtney Kamlet & I were lucky enough to catch up with her for the latest episode of “Women Governance Trailblazers” podcast before she moves on to her next chapter. With such a lengthy and impactful career in the corporate governance world, Donna had a lot of insights to share! In this 34-minute episode, we discussed:
1. Donna’s career path, including pivotal moments that led to her leading Corporate Governance at T. Rowe Price, and her compass for decision-making along the way.
2. What has changed the most – and what has stayed the same – over the time that Donna has been involved in the investment and corporate governance world.
3. Predictions for the future of corporate governance.
4. Donna’s favorite part of leading T. Rowe’s proxy voting and engagement process.
5. The types of ongoing engagement interactions that can help if a company is targeted by an activist.
6. Advice for the next generation of women governance trailblazers.
To listen to any of our prior episodes of Women Governance Trailblazers, visit the podcast page on TheCorporateCounsel.net or use your favorite podcast app. If there are governance trailblazers whose career paths and perspectives you’d like to hear more about, Courtney and I always appreciate recommendations! Drop me an email at liz@thecorporatecounsel.net.
The transition to EDGAR Next began in late March. I’ve talked to a few people who said the transition was easier than they expected. For others, the transition has been “truly horrendous” – an actual quote from our Q&A Forum (#12,717). Here’s the question that prompted that response:
Is anyone else having serious issues transitioning to EDGAR Next? For some of our submissions, it’s taking multiple weeks for processing to occur and we’ve actually had clients be locked out of filing. Sytsems going down, getting locked out, resets taking an inordinately long time and staff generally communicating being overwhelmed.
To date, no one has missed a filing that would have cost them S-3 eligibility, but we’re telling clients to try to plan to transition at a time when they don’t think they will need to file anything on EDGAR for a couple weeks (which is sometimes just beyond the client’s control). I have to imagine that if someone did have to request an S-3 waiver as a result of being unable to file that the staff would grant the waiver if you could show the communications and submission materials and related issues. Not sure what you do about a plaintiff suit if something just can’t be disclosed for that period of time. I guess one could still do press releases though that seems a bit odd/potentially an FD issue.
Just curious if we are the only ones having these issues and if anyone is aware of anything being done to address this at the SEC. Maybe they’ve just lost too many people?
It sounds like finding a quiet two-week window is good advice. Here are some other tips that members have shared – please feel free to email Meredith, John or me with any other processes that are working well for you (mervine@ccrcorp.com, john@thecorporatecounsel.net, liz@thecorporatecounsel.net):
1. Promptly reset the CCC to match the code used on the old platform
2. Take the lead for directors who have additional directorships
3. Handle insiders one by one at a time when they don’t expect upcoming filings
Check out our March Section16.net/NASPP webcast – “How to Prepare for EDGAR Next” – for additional info & suggestions, as well as our “Q&A Forum” on this site where we and other members of the community are continuing to receive and respond to questions.
If you’ve started transitioning your company and/or directors to EDGAR Next, how’s it going? Please participate in this anonymous poll to share your experience:
