Yesterday on PracticalESG.com, we announced that we are holding a 3-part virtual workshop this Spring — an event that will deliver much-needed practical guidance on how to use data to drive DEI decisions and to measure impact. Not only do we have a fantastic lineup of content and speakers, this event is FREE to attend!
You can sign up for each of the 3 sessions, or whichever ones fit your schedule. After the live event, the sessions will also be available on-demand to members of PracticalESG.com. Here’s more detail about the series (each session will run from 2:00 – 3:30pm Eastern):
April 13 – “Collecting Diversity, Equity & Inclusion Data”: What to Measure & Why”: DEI work that is not data-driven likely won’t be made an organizational priority, have clear direction, or have an adequate process for measuring progress. Learn what data points to measure to provide business-relevant insights on diversity, equity and inclusion. Register here to secure your spot for session 1.
May 4 – “Understanding & Using Equity Audits & Civil Rights Audits”: Companies are facing growing calls from shareholders and other stakeholders to conduct equity & civil rights audits. As Emily blogged last week on the Proxy Season Blog, a high-profile shareholder proposal on this topic recently garnered majority approval, which may be a bellwether of things to come. Now is the time to understand and prepare for an audit, so that your board and your company are equipped to respond to this emerging trend. Register here to secure your spot for session 2.
May 25 – “Using Diversity, Equity & Inclusion Data: Goal-Setting & Reporting”: You have the data, how do you use it? This session will explore practical ways to use DEI data to set goals and report on progress. You will leave this session with steps you can take right away to set more targeted goals and report out on what your leaders need to know to buy-into and champion the DEI strategy. Register here to secure your spot for session 3.
The workshop guests include notable figures in the DEI space such as Deesha Dyer, Founder & CEO of Hook & Faster, Laura Murphy, thought leader for Civil Rights Audits, and Sheri Crosby Wheeler, the VP of D&I at Fossil Group, among many others. Each event will be moderated by Ruth Umoh, current Editor of Fortune and former Editor of Forbes, CNBC Reporter, and Producer for Rolling Stone Magazine.
Join other professionals from across industries and receive valuable guidance on tough DEI issues in these fast-paced 90-minute sessions, which each include a 1-1 fireside chat and a 30-minute panel. End each workshop by expanding your network during the optional 10-minute speed-friending event that allows you to quickly meet like-minded peers who are also championing DEI in their organizations. From valuable guidance to the opportunity to grow your network, this workshop series has you covered. Use the knowledge to move your organization to the next level in developing and moving the needle on your DEI goals. RSVP now to take part in this valuable series! This is an event you don’t want to miss.
We have entered a period of highly volatile markets, and it certainly appears that more volatility is in store given recent economic shocks, the war in Ukraine and economic sanctions that could affect the solvency of Russia. Yesterday, the Staff of the SEC’s Division of Trading and Markets issued a statement that “urges broker-dealers and other market participants to remain vigilant to market and counterparty risks that may surface during periods of heightened volatility and global uncertainties.”
In particular, the Staff noted that broker-dealers should be mindful of the following:
Broker-dealers should collect margin from counterparties to the fullest extent possible in accordance with any applicable regulatory and contractual requirements.
Concentrated positions of prime brokerage counterparties pose particular concerns. Staff urges broker-dealers to seek sufficient information to determine counterparties’ aggregate positions in any markets that may experience liquidity concerns and work with the counterparties to mitigate risk.
Staff urges broker-dealers to stress test positions with the proper severity in light of current events and potential market movements, and act to manage the risk of the positions, particularly those that are concentrated, appropriately.
Staff urges broker-dealers to monitor risk management limits, calibrated to the financial resources of the broker-dealer, closely intraday and escalate any breaches promptly to senior management.
Last week, the Council of Institutional Investors announced that it had approved revisions to CII’s recommended Corporate Governance Policies on shareowner meetings and poison pills.
The updated policy on shareowner meetings expresses a preference for in-person meetings but gives companies flexibility to choose the format that best reflects their shareowner base and current circumstances. The policy also encourages companies to disclose the circumstances under which virtual-only meetings would be held. It also recommends giving shareholders who are participating electronically rights and opportunities comparable to those participating in person. The revised policy on poison pills asks companies to hold a shareowner vote on a poison pill no later than a year after the pill’s adoption by the board. It also asks companies to refrain from adopting pills that contain certain provisions, such as extremely low triggers.
A few weeks ago, I blogged about the general disclosure considerations for public companies arising from the war in Ukraine, including considerations for companies that have recently completed their earnings cycles and annual report filings. Now, Deloitte has published an in-depth discussion of the key accounting and financial reporting challenges that companies are facing from the Russia-Ukraine war, including those related to SEC reporting and disclosures, forecasting, supply-chain disruptions, recoverability and impairment of assets, loss of control, the ability to exercise significant influence, cessation of operations, foreign currency matters, subsequent events, and going-concern considerations. Deloitte’s alert notes:
It is important that entities aggregate and consider their direct and indirect exposures to the impacts of the war and consider the financial accounting and reporting implications, which could be numerous, particularly those with material subsidiaries, operations, investments, contractual arrangements, or joint ventures in Ukraine and Russia.
Entities with significant suppliers, vendors, or customers in Ukraine or Russia, as well as organizations that lend to or borrow from entities in those countries, also may experience accounting challenges. Even entities that do not have direct exposure to Ukraine or Russia are likely to be affected by the overall economic uncertainty and negative impacts on the global economy and major financial markets arising from the war.
The alert highlights a wide range of impacts that are worth considering when preparing a company’s financial statements and related disclosures, including interruptions or stoppage of production in affected areas and neighboring countries; damage or loss of inventories and other assets; closure of roads and facilities in affected areas; supply-chain and travel disruptions in Eastern Europe; volatility in commodity prices and currencies; disruption in banking systems and capital markets; reductions in sales and earnings of business in affected areas; increased costs and expenditures; and cyberattacks.
The war in Ukraine has prompted the United States and other Western nations to impose unprecedented sanctions on Russia, Belarus and certain of their financial institutions, companies and individuals. The breadth of these sanctions is like nothing we have seen in our lifetimes, and the impact of these sanctions can be far-reaching given the integration of Russia into the global economy prior to the invasion of Ukraine.
I recently spoke with my colleague John Smith on MoFo’s Above Board podcast to better understand the sanctions landscape and to find out what issues companies and board of directors should be focused on when trying to understand how sanctions could impact their operations. Prior to joining MoFo as co-head of the firm’s National Security practice, John was the Director of the U.S. Treasury Department’s Office of Foreign Assets Control, often referred to as OFAC, which administers and enforces economic and trade sanctions based on U.S foreign policy and national security goals.
As noted in the podcast, the extraordinary sanctions should prompt companies and boards to assess their legal exposure to Russia and Belarus, as well as their reputational exposure arising from ongoing business with the sanctioned regimes, entities or individuals. Banking sanctions could have significant implications for ongoing and future financial transactions beginning this week, as some Russian banks are banned from participation in the SWIFT network, which is the backbone of the global payment network. Companies also need to be particularly cognizant of individuals or entities who are subject to “blocking” sanctions, which make those parties off-limits for any transactions, as well as “correspondent account” sanctions (which impact the ability of banks subject to sanctions to conduct transactions with U.S. banks) and debt and equity restrictions (which limit investment in and financing of sanctioned entities).
Last week, President Biden signed an Executive Order titled “Executive Order on Ensuring Responsible Development of Digital Assets.” The Executive Order outlines a whole-of-government approach to ensure responsible innovation in digital assets. As this Cleary alert notes:
The Order emphasizes the link between federal action and national security – both in terms of ensuring appropriate regulation and in staking out a U.S. leadership role in developing digital asset technology. Notably, in an area where some federal agencies have been criticized for moving slowly or failing to coordinate with each other, the Order mandates interagency cooperation on a series of reports, with most to be finished during 2022. The Order sets the stage for an active and potentially transformative year for U.S. regulation of digital assets.
The Order also sets out six principal policy objectives:
(i) protect U.S. consumers, investors, and businesses by ensuring safeguards are in place for digital asset exchanges and trading platforms to protect sensitive financial data and maintain privacy;
(ii) protect U.S. and global financial stability and mitigate systemic risk by ensuring compliance with regulatory and supervisory standards that govern traditional market infrastructures and financial firms, while adopting a regulatory evolution necessitated by the new and unique uses and functions of digital assets;
(iii) mitigate the illicit finance and national security risks posed by the illicit use of digital assets by ensuring appropriate controls and accountability to promote high standards for transparency, privacy, and security;
(iv) promote U.S. leadership in technology and economic competitiveness, including through the responsible development of payment innovations and digital assets;
(v) promote equitable access to safe and affordable financial services by promoting responsible innovation that expands equitable access to financial services, particularly for Americans who are underserved by the traditional banking system, including by making cross-border transfers cheaper, faster, and safer; and
(vi) support technological advances and ensure responsible development and use of digital assets in a manner that includes privacy and security in their architecture, integrates features and controls that defend against illicit exploitation, and reduces negative climate impacts and environmental pollution.
Yesterday, the SEC announced an open meeting for Monday, March 21st. According to the Sunshine Act Notice, there’s just one item on the agenda:
The Commission will consider whether to propose amendments that would enhance and standardize registrants’ climate-related disclosures for investors.
Climate change issues have soaked up a lot of oxygen at the SEC in recent years, and the open meeting comes on the heels of reports that there’s trouble in paradise among the Democratic commissioners concerning the scope of the rule proposals. Will the proposal track the expansive approach championed by Commissioner Lee, or will we end up with something more grounded in traditional conceptions of materiality? We’ll find out soon.
We continue to see a tremendously positive reception to our new membership site, PracticalESG.com. Thank you to everyone who’s signed up so far!
In the first few weeks of being live, we’ve continued to build out our organized content library with practical checklists and analysis – and we’ve held the following webcasts for members:
The SEC’s upcoming climate change disclosure proposals are yet another example of the increasing importance of ESG issues to public companies & their investors. Don’t miss out on our one-time promo event for this essential resource! Today is the final day of our offer for 25% off the regular subscription pricing. You can sign up online – or email sales@ccrcorp.com today or call 1-800-737-1271 – to take advantage of this one-time promo event and get tools to make your ESG efforts easier & more successful.
Last year, Liz blogged about the Alliance for Fair Board Recruitment’s lawsuit challenging Nasdaq’s board diversity disclosure rule. Late last month, the CII filed an amicus brief along with a group of institutional investors & other organizations in support of the rule. Here’s the CII’s statement on the filing of the brief, which appears on the homepage of its website:
On February 25, CII and seven other groups filed a joint amicus brief in support of the SEC in a lawsuit challenging the agency’s approval August 6 of Nasdaq rules that require companies listed on the exchange to disclose diversity statistics on their boards of directors. The brief, filed in the U.S. Court of Appeals for the Fifth Circuit, argues that many investors and investment advisors believe board diversity is a material benefit to companies and consider board diversity—or the lack of it—when casting votes for directors who serve on the nominating and governance committee. Other organizations co-signing the brief are: Ariel Investments; Boston Trust Walden; Gaingels; the Investment Adviser Association; Lord, Abbett; Northern Trust Investments; and the Robert F. Kennedy Center for Human Rights.
The CII’s action follows on the heels of the decision of 17 states to file an amicus brief opposing the rules in late January. This CFO Dive article has additional details on that filing.
Yesterday, the SEC announced that it was proposing a series of new rules focusing on enhanced disclosure of cybersecurity issues by public companies. Here’s the 129-page proposing release and here’s the 2-page fact sheet. The proposed rules would require current reporting & periodic updating about material cybersecurity incidents, and periodic disclosures about policies and procedures to address cybersecurity risks. In addition, companies would be required to disclose management’s role in implementing cybersecurity policies & the board’s cybersecurity expertise. This excerpt from the fact sheet spells out the specifics, and notes that the SEC proposes to:
– Amend Form 8-K to require registrants to disclose information about a material cybersecurity incident within four business days after the registrant determines that it has experienced a material cybersecurity incident;
– Add new Item 106(d) of Regulation S-K and Item 16J(d) of Form 20-F to require registrants to provide updated disclosure relating to previously disclosed cybersecurity incidents and to require disclosure, to the extent known to management, when a series of previously undisclosed individually immaterial cybersecurity incidents has become material in the aggregate and amend Form 6-K to add “cybersecurity incidents” as a reporting topic;
– Add Item 106 to Regulation S-K and Item 16J of Form 20-F to require a registrant to: Describe its policies and procedures, if any, for the identification and management of risks from cybersecurity threats, including whether the registrant considers cybersecurity as part of its business strategy, financial planning, and capital allocation; and require disclosure about the board’s oversight of cybersecurity risk and management’s role and expertise in assessing and managing cybersecurity risk and implementing the registrant’s cybersecurity policies, procedures, and strategies;
– Amend Item 407 of Regulation S-K and Form 20-F to require disclosure regarding board member cybersecurity expertise. Proposed Item 407(j) would require disclosure in annual reports and certain proxy filings if any member of the registrant’s board of directors has expertise in cybersecurity, including the name(s) of any such director(s) and any detail necessary to fully describe the nature of the expertise.
Commissioner Peirce dissented from the proposal. In her dissenting statement, she argues that “the governance disclosure requirements embody an unprecedented micromanagement by the Commission of the composition and functioning of both the boards of directors and management of public companies,” and that the granular nature of the proposed disclosure requirements makes them “look more like a list of expectations about what issuers’ cybersecurity programs should look like and how they should operate.”
The criticism of the rule as “micromanagement” of governance may be a fair comment, but if Commissioner Peirce thinks that kind of thing is unprecedented, she may want to take another look at what governance disclosures are already required by Item 407 of S-K. In any event, the comment period will end 60 days following publication of the proposing release on the SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.
