Welcome back from the long weekend, everyone. In a treasured end-of-summer tradition, ISS recently announced that it has released its Annual Global Benchmark Policy Survey. There is nothing quite like this annual event to help us focus on what lies ahead in the upcoming proxy season. This year I’m particularly grateful for the opportunity to focus on the future, because my middle child is excitedly heading to his first day of kindergarten today, and there have been tears (from me, not him).
Anyway, in addition to executive compensation topics, this year’s survey includes questions on:
– Impact on director independence of being employed by a firm that provides professional services to the company
– Application of FPI vs. market-specific policy to companies that dual-list in the country of incorporation
– Whether the ISS policies should aim for global consistency on certain E&S issues vs. take a market-specific approach
– How investors and companies are considering single vs. double materiality
– What actions investors should expect companies to take to reduce an environmental or social risk that appears to be material to a company
– For high GHG emitters, whether risk should be assessed based on meeting standards under all of the governance, strategy, risk management, and metrics & targets pillars vs. each pillar individually
– Input on what guidelines, standards and frameworks are most relevant to companies and investors for drafting a climate transition strategy or plan
– How much tolerance investors will have for a reduction in transparency that results from risks from increased politicization of “ESG”
The survey is slated to close on September 21, 2023, at 5 p.m. ET.
In addition to feedback from the annual survey, as ISS develops its 2024 voting policies, it will also gather input from investors, company directors, and others by hosting various regionally-based, topic-specific roundtable discussions and other engagements. ISS will then publish for public comment the key proposed changes to its voting policies for next year, before adopting and publishing the final policies that will apply to 2024 meetings.
Glass Lewis historically has conducted a less formal process for annual voting policy updates, compared to ISS. On its “current policies” page, you can submit feedback on policy guidelines by emailing guidelinescomments@glasslewis.com. You can email Glass Lewis at any time, but if you want your feedback to be considered for the 2024 guidelines, you should probably reach out this month.
This year, a few members have informed us that Glass Lewis is also running a policy survey for its clients, which seeks feedback on specific governance, sustainability, and executive compensation topics. As a reminder, Glass Lewis’s policy updates last year related to board diversity, board oversight of E&S issues, director overboarding, cyber risk oversite, officer exculpation, and long-term incentives being tied to performance – and the updates are usually published in November or December.
When it comes to getting the votes you want during proxy season, if you want to look especially smart to your boss and save your company (and yourself) from time-consuming back & forth, the best thing you can do is sign up for our “Proxy Disclosure & 20th Annual Executive Compensation Conferences.” Our panel on “Navigating ISS & Glass Lewis” features a conversation with Rachel Hedrick – who is VP of US Executive Compensation Research at ISS – and Krishna Shah – who is Director of North America Executive Compensation at Glass Lewis – moderated by Davis Polk’s Ning Chiu. This is going to be a very practical session on the types of disclosures & practices that will (or won’t) help your cause on say-on-pay, compensation committee elections, and equity incentive plan approvals. Rachel & Krishna will bust some myths and share a few predictions for 2024.
Monday is Labor Day, which is traditionally the day that we bid farewell to summer. Unlike almost everywhere else in the country, we here in Northeast Ohio have been blessed with a really nice, temperate summer (well, aside from the 12 tornadoes that hit us last Thursday), so I’m a little sorry to see it go. On the other hand, I know that for my CCRcorp colleagues in the “Sun’s Anvil” formerly known as Austin, Texas, fall can’t come soon enough.
Still, regardless of whether the end of summer makes you a little melancholy or just makes you look forward to a lower risk of heat stroke, it seems appropriate to have a nice cool drink to give it a proper send-off this holiday weekend. If your preference for refreshment includes something with a little booze in it, then I’ve got a cocktail recommendation to pass along.
About a decade ago, I was at a soiree at a more sophisticated local watering hole than I’m accustomed to frequenting. The bartender was pushing a rum-based concoction that I’d never tried before. It was delicious. I asked what it was, and she told me that it was something called a “Dark ‘n Stormy.” To make a long story short, I’ve been happily quaffing them every summer since.
For my money, the Dark ‘n Stormy is close to a perfect summer drink. It’s not too sweet, but it’s very refreshing. It’s apparently Bermuda’s national cocktail, and the recipe is ridiculously simple – it’s a classic boat drink, just dark rum and ginger beer, with a squeeze of lime if you like. The only thing that’s a little complicated is that the name “Dark ‘n Stormy” is a registered trademark of Gosling’s Rum in Hamilton, Bermuda, and is only supposed to be made with their product, which can sometimes be hard to find. It’s worth the effort though because other dark rums don’t taste anything like Gosling’s, and you won’t appreciate the drink nearly as much.
If you’re looking for an alternative to the usual summer weekend gin or vodka & tonic or one of those hop-bomb IPAs that you kids can’t seem to get enough of, give a Dark ‘n Stormy a try. I think you’ll like it. If you prefer something non-alcoholic, then maybe give one of these summer mocktails a try. In any case, have a safe and enjoyable Labor Day weekend. Our blogs will be back on Tuesday.
As part of the SEC’s recent share repurchase disclosure amendments, it implemented a new Form F-SR, which foreign private issuers must use to provide the required quarterly tabular disclosure about their buyback activity. Yesterday, Corp Fin issued three new Exchange Act Forms CDIs on issues relating to the new form:
Question 113.01: Is a Form F-SR required to be filed if, during the covered fiscal quarter, the foreign private issuer or affiliated purchaser did not repurchase any of its equity securities registered under Exchange Act Section 12?
Answer: No, a Form F-SR is not required to be filed under these circumstances. Note, however, there is no de minimis exception to the Form F-SR filing requirement; even the repurchase of a very small number of equity securities would trigger a Form F-SR filing. [August 30, 2023]
Question 113.02: A foreign private issuer or affiliated purchaser did not conduct any repurchases that would trigger the requirement to file a Form F-SR. Is a Form F-SR nevertheless required solely to check the box under “Registrant Purchases of Equity Securities” section of Form F-SR for the covered purchases or sales of securities by a director or member of senior management who would be identified pursuant to Item 1 of Form 20-F?
Answer: No. [August 30, 2023]
Question 113.03: Is a Form F-SR required to be filed for the final quarter of the fiscal year?
Answer: Yes, if a foreign private issuer or affiliated purchaser engaged in repurchases during the final quarter of the fiscal year, then a Form F-SR would be required for that final quarter and must be filed within 45 days after the end of the quarter. Foreign private issuers are not permitted to wait to report the repurchases during the final quarter of the fiscal year in the Form 20-F for that fiscal year. See Exchange Act Release No. 34-97424 (May 3, 2023) at fn. 185. [August 30, 2023]
Corp Fin also issued a new Regulation AB CDI. The CDI relates to when documents and agreements must be filed to be considered timely for purposes of Form SF-3 eligibility. If the Reg AB CDI is helpful to you or means anything to you at all, well – you’re welcome! Even though I was once named “Ohio Securitization Lawyer of the Year” by what seemed to be a very sketchy (or at least a very confused) British lawyer rating service, I never did an asset-backed deal in my entire career, so this stuff isn’t exactly in my wheelhouse.
A few months ago, Dave blogged about Kirschner v. JPMorgan Chase Bank, N.A., a potentially significant case pending before the Second Circuit which presented the issue of whether syndicated loans were “securities” for purposes of the Securities Act. The SDNY previously held that they were not, and last week, the Second Circuit affirmed that decision. This excerpt from Debevoise’s memo on the case said that the Supreme Court’s decision in Reves v. Ernst & Young featured prominently in the Court’s reasoning:
In affirming the district court’s decision, the Second Circuit’s analysis focused on the Reves test. The court found that three factors—the plan of distribution, the reasonable expectations of the public and the existence of other risk-reducing factors—favored a conclusion that the term loan should not be classified as a security. The court found that only one factor, the investment-focused motivation of the sophisticated parties to whom the term loan was syndicated, favored classifying the term loan as a security. However, the court determined this motivation was outweighed by the other three Reves factor.
This is a case that attracted a lot of attention because as Dave said in his earlier blog, concluding that syndicated loans involved the issuance of securities could’ve really upended the $2.5 trillion market for those loans. A coalition of business groups that included the U.S. Chamber of Commerce and SIFMA filed an amicus brief in support of the position that syndicated loans weren’t securities. Interestingly, the SEC chose to sit this one out. In July, the agency said that it would not file an amicus brief in the case.
One of my “go to” resources for quickly referencing independence and other requirements applicable to public company directors has long been Weil’s chart on those requirements. I was pleased to learn that the firm has just issued an updated version of that chart which we’ve posted in our “IPOs” Practice Area. Check it out – it covers NYSE & Nasdaq listing standards for boards and committees, as well as SEC disclosure requirements relating to directors.
Liz recently blogged about some of the notable comment letters that were submitted to the PCAOB on its “NOCLAR” proposal. We can now add the ABA’s Business Law Section to that list of commenters. This excerpt from its comment letter highlights a number of concerns that the Business Law Section has about the implications of the proposal:
[W]e are concerned about the scope and impact of the Proposed Standards, which effectively would impose an affirmative obligation on auditors to detect and evaluate all noncompliance by an audit client with law and regulations that may have a direct or indirect effect on the financial statements, even where untethered to existing accounting standards.
Among other concerns, the Proposed Standards (i) place an unworkable responsibility upon accountants to make subjective assessments of often complex and uncertain legal matters, the probability of future events, and the potential impact of those events, all of which are outside the scope of auditors’ typical responsibilities, (ii) endanger the confidentiality and protections of client communications that are foundational components of the lawyer-client relationship and our legal system and which are designed to promote legal compliance, (iii) risk diluting the audit function that is at the core of ensuring the integrity of financial reporting, (iv) would disrupt the separate roles played by the legal and accounting professions that benefit clients, and (v) would do the foregoing by adding costs to the audit process that will far outweigh any limited and speculative perceived benefits.
The comment letter contrasts the proposal with the existing auditing standard and the requirements of Section 10A of the Exchange Act, and says that those standards “take a balanced approach” that addresses the need to ensure and enhance a public company’s compliance with applicable laws and regulations by imposing obligations on auditors when they become aware of illegal acts.
The letter argues that the existing requirement that auditors not ignore “red flags” that come to their attention is very different from the NOCLAR proposal, which would effectively require auditors to conduct a legal audit of a company’s compliance with laws and regulations.
Earlier this month, I blogged about a recent 3d Cir. decision holding that a company could be liable for the paraphrased comments of its CEO that appeared in an analyst report. This Bryan Cave blog also discusses that case and offers up some thoughts on recommended practices for communications with analysts. Here’s an excerpt:
Care should be exercised in dealing with analysts to avoid entanglement or inadvertently disclosing MNPI.
– Consider having an FD-trained official accompany officers meeting with analysts to monitor and assist with debriefings and, when advisable, devising FD remedial steps.
– Consider maintaining logs of contacts or phone calls and contemporaneously documenting the substance of any one-on-one discussions.
– Avoid commenting on analyst reports or earnings models, except for corrections of factual misstatements consistent with publicly available historical or factual information or to correct mathematical errors.
Maintain a written record of comments, and include a disclaimer approved by legal counsel but recognize that it may not provide complete protection, depending on the facts and circumstances.
– No other feedback or guidance on analyst reports or earnings models, including as to analyst forecasts or projections, should be communicated.
– Avoid commenting on or confirming earnings expectations, except during an approved short window following, and consistent with, prior broadly noticed and disseminated guidance, such as during an earnings call, and after consultation with legal counsel.
Other recommendations include the need to review internal reports and communications in order to ensure consistency with public disclosures, the importance of using scripts and avoiding informal comments, and the need to limit review of analysts’ reports to factual matters. Most of these recommendations aren’t new – but all of them are worth taking to heart.
Join us tomorrow at 2 pm eastern for the webcast – “Corporate DEI Programs After Students for Fair Admissions v. Harvard” – to hear Orrick’s J.T. Ho, NextRoll’s Travis Sumter and PracticalESG.com’s Ngozi Okeh discuss the implications of the Supreme Court’s recent decision to end affirmative action in higher education on corporate DEI programs.
This is a joint webcast with PracticalESG.com and 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.
We will apply for CLE credit in all applicable states (with the exception of SC and NE who require advance notice) 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.
