As we head into proxy season, make sure to stay in-the-know on the latest developments by subscribing to our “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:
– Vote No Campaigns: Getting More Sophisticated?
– T. Rowe Completes Spin-Off That Could Affect Smaller Co Voting & Engagements
– Big Decline in 14a-8 No-Action Requests: New Normal?
– Sustainable Packaging Proposal Achieves Record-Breaking 94.2% Support
– What to Do Now to Get Your Retail Vote
– 2022 Proxy Season: Be On Alert for Eroding Director Election Support
If you’re not already a member and able to access our daily updates, sign up today by emailing sales@ccrcorp.com – or call 1-800-737-1271. This blog and our many other proxy season resources will equip you with practical guidance on disclosure, shareholder resolutions & voting trends, so that you’re not caught off-guard during the busiest time of year.
While much attention was focused on the SEC’s proposed cybersecurity disclosure rules that were approved last week, Congress has also weighed in with legislation establishing new cybersecurity reporting requirements for private sector companies that was signed into law this week.
The latest $1.5 trillion government spending bill included new requirements for critical infrastructure entities to report cyber incidents. The legislation: (i) requires critical infrastructure entities to report cyber incidents to the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) within 72 hours; and (ii) requires critical infrastructure entities to report ransom payments in response to ransomware attacks within 24 hours, also to CISA. These changes represent a significant expansion in the federal requirements for private sector reporting of cyber incidents. What constitutes “critical infrastructure” will be defined in CISA regulations, but will include areas such as energy, financial services, food and agriculture, healthcare, information technology, defense industrial base, among others.
CT Corporation recently sent an alert to customers noting that the State of California is planning to launch an enhanced business entity system on Tuesday, March 29, 2022. In preparation for this update, most of California’s systems will be offline Wednesday, March 23 through Monday, March 28. During this time, filings submitted to the Business Entities office of the Secretary of State will receive the file date of submission (provided that they are in fileable order), but there will be little to no evidence returned during this time frame. On top of all that, the California Secretary of State’s office will be closed on Thursday, March 31, 2022, in observance of César Chávez Day. Needless to say, if you have transactions involving California business entities during this timeframe, you should check in with your filing agent.
Over the course of this year, I have been taking a walk down memory lane and looking back on 15 years of contributing to CCRcorp publications. One of my favorite features of the sites in the CCRcorp universe is the Q&A Forum, which just hit a new milestone of over 24,000 questions answered!
When I first joined the organization in 2007, I manned the Q&A Forums on TheCorporateCounsel.net and CompensationStandards.com, because I believed that I was uniquely qualified to answer the questions from our members, having just finished serving as the Chief Counsel of the SEC’s Division of Corporation Finance. I soon discovered it was a daunting task, and doing it gave me a new appreciation for how Broc Romanek and Alan Dye had been responding to all of those questions in the years before I started. Alan is of course always the inspiration, because he has been providing so much timely, useful advice on the Section16.net Q&A Forum for many years.
One of the most valuable things that I learned in my time serving at the SEC was how important it is to answer the question asked, and that is what attracted me to the Q&A Forums on the CCRcorp sites. I have sometimes been dubbed the “Shell Answer Man” because I developed a knack for answering questions over the course of my career. But the thing that I like the most about the Q&A Forums is the ability to interact directly with our members while getting a sense of the issues that they are struggling with in practice, because that helps me in my own practice and is useful for developing practical content for the CCRcorp publications.
We recently passed a significant milestone, the two-year anniversary of when the World Health Organization first characterized COVID-19 as a pandemic. We all no doubt recall those early March 2020 days when we optimistically thought that things would be back to normal in a couple of weeks once we could successfully “bend the curve,” but shortly after that things were anything but normal for the next two years. Today, we are now stuck in the “new normal,” whatever that is. For public companies, there have been a few lessons from the pandemic worth reflecting on:
The benefits of current disclosure. I am always a staunch defender of our current and periodic reporting system in the United States, often noting that public companies do not have to disclose all material information all of the time – companies need only make disclosures when they have an affirmative disclosure obligation. However, in a crisis situation like the onset of the COVID-19 pandemic, there are benefits to utilizing current disclosure to keep the market informed about developments, even when the future outcome may be uncertain. Former SEC Chair Jay Clayton and former Director of Corp Fin Bill Hinman issued a statement in April 2020 calling for companies to provide detailed real-time disclosure about the impact of the pandemic, even when the future was very hard to predict.
A little help from the SEC. Over the years, the SEC has been pretty good about putting out guidance and making accommodations when a crisis hits. I can recall sitting in Marty Dunn’s office many years ago coming up with relief for public companies affected by Hurricane Katrina, which came to serve as a model for future crisis situations. In the case of COVID-19, the SEC was quick to act, putting out a series of statements and orders which recognized the challenges of dealing with a shift to a work-from-home environment, the ability to meet filing deadlines, the need to quickly pivot to virtual annual meetings, the need for more disclosure about the impact of the pandemic, etc. The SEC and the Staff were proactive, and that is always a positive thing for public companies and the markets.
The triumph of risk factors. It is hard to fathom that we still have COVID-19 risk factors in most public company filings. References to the impact of a global pandemic in risk factor disclosure prior to 2020 were often in the context of a vague laundry list of the “parade of horribles,” e.g., war, natural disasters, earthquakes. But very quickly in 2020, the COVID-19 risk factor became something of an art form, laying out what was generally known and unknown about the pandemic and providing some very important context to the COVID-19 disclosures included elsewhere in the filing. I think that the COVID-19 pandemic resulted in a greater appreciation for the value of risk factor disclosure as a means of dealing with significant uncertainty.
The triumph of technology. If you had told me in 2019 that my kids would soon be attending school virtually and that I would be working from home 100% of the time, I would have thought you were engaged in some sort of Jetsons-style futuristic fantasy. As it turned out, those things were entirely possible with the technology that we had readily at hand. Of course none of it was perfect and we all have our gripes about the setup to this day, but we should be grateful that we had the ability to “move on” quickly after the onset of the pandemic and continue the important functions of education and commerce. This certainly applies to public company annual meetings – thanks to the efforts of the industry and with a little help from the SEC, companies were able to pivot quickly to virtual annual meetings en masse, allowing directors to be elected and business to be conducted at a time when it would have been impossible to have traditional in-person annual meetings.
Above all else, today I am eternally grateful to all of the “front line” workers who have been out there during the pandemic keeping us alive and keeping the wheels of commerce moving. At the same time, I grieve for all of the lives lost from this disease. I sincerely hope that brighter days are ahead for all of us.
The SEC has announced the details for the 41st Annual Government-Business Forum on Small Business Capital Formation, which is hosted by the Office of the Advocate for Small Business Capital Formation. The event will take place virtually again this year, in four sessions taking place on April 4-7 from 1:00-2:30 pm ET.
Sessions will focus on the following topics:
• Mon., April 4 – Empowering Entrepreneurs: Tools to Navigate Capital Raising
• Tue., April 5 – Hometown Entrepreneurship: How Entrepreneurs Can Thrive Outside of Traditional Capital Raising Hubs
• Wed., April 6 – New Investor Voices: How Emerging Fund Managers Are Diversifying Capital
• Thur., April 7 – Small Cap World: What to Know and How to Think Ahead
The SEC notes that the website for the Annual Government-Business Forum will continue to be updated with details on the agenda, speakers, registration, and FAQs in the coming weeks.
We’ve posted the transcript for our recent webcast for members, “Audit Committees in Action: The Latest Developments.”
Deloitte’s Consuelo Hitchcock, Maynard Cooper & Gale’s Bob Dow, Tapestry Networks’ Eric Shor and Ernst & Young’s Josh Jones discussed the ever-expanding areas of oversight responsibility for the audit committee, accounting and auditing topics on the SEC’s radar and auditor independence. Here is a nugget from Josh Jones about the role of audit committees in ESG oversight and documentation:
If you’re the audit committee, you’ll need to think about, “How have we thought about some more of these ESG risks?” You’ll also need to consider how the company has thought through its own particular strategy and how that’s working its way into the financial reporting process, including all of these kinds of required kind of disclosure elements in the filing. Consider how the company’s controls are perhaps expanding beyond the normal financial reporting department to really capture those elements when thinking about things like impairment decisions.
It’s casting a wider net and adding more variables to some of those controls and decisions than we have in the past. And in some cases, those impacts may not be imminent and may not be easily discernible. But at the same time, at least asking the question, “How has the company thought about those in connection with the financial statements relative to public disclosures and elements of their public sustainability reports?” It’s all things that audit committees would be well versed to making sure they’re connecting all those dots as it relates to meeting their regulatory obligations.
If you are not a member of TheCorporateCounsel.net, email sales@ccrcorp.com to sign up today and get access to the full transcript.
Yesterday, Commissioner Allison Herren Lee announced that she had notified President Biden that she intends to step down from the Commission once her successor has been confirmed. Lee’s term as a Commissioner expires in June. As SEC Chair Gary Gensler pointed out in a statement, Commissioner Lee first joined the SEC’s Division of Enforcement in the Denver Regional Office in 2005, and served as Counselor to former Commissioner Kara Stein and Senior Counsel in the Complex Financial Instruments Unit. Commissioner Lee served as Acting Chair in early 2021, taking an unusually active role in jumpstarting the SEC’s efforts on climate change.
Earlier this month, Commissioner Lee spoke at the PLI program Corporate Governance – A Master Class 2022 and took on the topic of over-zealous representation of clients by corporate lawyers. In particular, she called for the SEC to take steps to address situations where bad legal advice can inflict harm on investors. Commissioner Lee noted:
The “bad advice” I refer to arises from a type of “can-do” approach to lawyering that is ill-suited to lawyers in a gatekeeping role. It is born from a desire to give management the answer that it wants. Or, as a Delaware court recently stated, it stems from a “contrived effort to generate the client’s desired result when real-world facts would not support it.”
Commissioner Lee went on to note that bad advice can extend to disclosure decisions that public companies make, and that principles-based rules adopted by the SEC result in lawyers being more involved. She also noted how the involvement of lawyers can make it difficult to charge individuals for disclosure violations in Enforcement cases.
Commissioner Lee argued in her speech that the existing framework for professional conduct is not adequate to address these issues, and she suggests that the SEC use its authority under Section 307 of the Sarbanes-Oxley Act, which directs the SEC to adopt “minimum standards of professional conduct for attorneys appearing and practicing before the Commission in any way in the representation of issuers.”
In January, I blogged about the NYSE’s new listing standard related to rights, which was adopted. Earlier this month, the NYSE filed a proposal with the SEC to adopt fees for listed rights.
The NYSE proposes to apply the same fee schedule to listed rights as it currently applies to warrants under Section 902.03 of the Listed Company Manual. In connection with the listing of a class of warrants, Section 902.03 provides for a fee of $0.004 per warrant. Section 902.03 provides that listed warrants are subject to annual fees at a rate of $0.0017 per warrant, subject to a minimum annual fee of $5,000 per series of warrants, with special provisions for SPACs and foreign issuers.
