While the universal proxy rules won’t go live for most companies until next year, this Goodwin blog recommends including some language in this year’s proxy about next year’s deadline for submitting the names of dissident nominees and other information required under new Rule 14a-19. This excerpt provides some sample language as well as a brief explanation of why the firm is making this recommendation:
Because universal proxy will apply to contested director elections at all 2023 annual meetings, we recommend including disclosure regarding the universal proxy deadline in this year’s proxy statement, including for companies that hold their annual meeting well in advance of the September 1, 2022 mandatory compliance date.
Sample disclosure for this purpose could be as follows: “to comply with the universal proxy rules (once effective), stockholders who intend to solicit proxies in support of director nominees other than the company’s nominees must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act no later than [INSERT DATE THAT IS 60 DAYS PRIOR TO ONE YEAR ANNIVERSARY OF 2022 ANNUAL MEETING].
This additional voluntary disclosure could be particularly useful for companies with no advance notice bylaws or with advance notice bylaws that provide a notice deadline of less than 60 days prior to the meeting, and could also be useful for companies that have longer advance notice deadlines, but move their meeting date and thereby create new accelerated deadlines.
While the blog recommends this disclosure – which is called for under new Rule 14a-5(e)(4) – for meetings held prior to September 1, 2022, it also acknowledges that the universal proxy rules don’t require that disclosure for meetings held prior to that date. If you’re interested, check out Topic #10934 in our Q&A Forum, which notes that some major companies (including Apple and Starbucks) have opted to include similar disclosure in their proxies. You’ll also find there my half-baked musings about some other reasons to consider this kind of disclosure.
When a company experiences a cybersecurity incident, a disciplined communication strategy is essential in order to protect attorney-client privilege and mitigate the legal and business risks associated with the unintended disclosure of internal communications about the incident. This Bryan Cave blog lays out some “dos” and “don’ts” when it comes to communicating internally about a breach. Here are some of the don’ts:
– DO NOT include subjective conclusions/assessments (e.g., “this was a big mistake,” “our systems were not adequately protected”) in email communications.
– DO NOT circulate forensics or other reports via email, particularly in draft form. Reports should be reviewed using a screen sharing application or similar means, and any dissemination via email or otherwise should be done only when the report has been finalized and at the direction of counsel.
– DO NOT communicate about the incident via other unofficial means (e.g., texts, instant messaging, other non-company communication applications), unless the nature of the incident mandates use of an approved secondary communication method.
– DO NOT destroy or delete any written communications related to the incident until receiving specific instructions to do so.
While the tips provided by the blog are intended to address communications surrounding a cybersecurity incident, many of the dos & don’ts laid out in the blog apply generally to internal communications arising out of other crisis situations.
The January-February issue of “The Corporate Counsel” newsletter is in the mail. It’s also available now online to members of TheCorporateCounsel.net who subscribe to the electronic format – an option that many people are taking advantage of in the “remote work” environment (subscribe here to be “in the know”). The issue includes articles on:
– SEC Looks to Amend Rules on Issuer and Insider Securities Transactions
– Is Your Insider Trading Policy Ready for Prime Time?
Dave & I also have been doing a series of “Deep Dive with Dave” podcasts addressing the topics we’ve covered in recent issues. We’ll be posting one for this issue soon. Be sure to check it out on our “Podcasts” page!
Even before SEC Chair Gary Gensler was officially confirmed to his current office, people were predicting that Section 13(d) reform would be high on his list of priorities. Yesterday, the SEC announced that it is proposing amendments to Regulation 13D-G. If adopted, the primary impact of the amendments would be to accelerate the filing deadline for Schedule 13D and 13G reports – to address the concern over “information asymmetry” that John blogged about last month.
This is a welcome development for the contingent of folks who think the current rules are outdated – see this 2011 WLRK petition, for example. If this proposal is adopted, it’ll be the most significant amendment to Regulation 13D-G since the rules were adopted in 1968.
– Accelerate the filing deadlines for Schedules 13D and 13G beneficial ownership reports – generally, from 10 to 5 days for Schedule 13D and from 45 days from the end of the year to 5 business days from the end of the month for Schedule 13G;
– Expand the application of Regulation 13D-G to certain derivative securities;
– Clarify the circumstances under which two or more persons have formed a “group” that would be subject to beneficial ownership reporting obligations; and
– Require that Schedules 13D and 13G be filed using a structured, machine-readable data language.
Chair Gensler issued a statement in support of the proposal. But not everyone is celebrating. Commissioner Peirce, who doesn’t share the view that information asymmetry is a problem in this context, issued a dissenting statement. We’ll be posting memos about this proposal in our “Schedules 13D & 13G” Practice Area. Comments are due 30 days after publication in the Federal Register or April 11th, whichever is later.
Also yesterday (and on the heels of our excellent webcast from earlier this week about whistleblower policies & procedures), the SEC announced that it had issued proposed amendments to two whistleblower program rules. From the fact sheet:
The SEC is proposing two amendments to Exchange Act Rules 21F-3 and 6, the rules governing its whistleblower program:
– The first proposed amendment would allow the Commission to make an award for a related action that might otherwise be covered by an alternative whistleblower program even where the alternative whistleblower program has the more direct or relevant connection to the related action in certain circumstances.
– The second proposed amendment would affirm the Commission’s authority to consider the dollar amount of a potential award for the limited purpose of increasing the award amount, but would eliminate the Commission’s authority to consider the dollar amount of a potential award for the purpose of decreasing an award.
As expected (and previously criticized by Commissioner Peirce and former Commissioner Roisman), this proposal revisits whistleblower program rules that were most recently amended in late 2020. So, it’s not surprising that Commissioner Peirce dissented. Chair Gensler issued a supporting statement to say that the amendments will provide reassurance to prospective whistleblowers. We’ll be posting memos in our “Whistleblowers” Practice Area. Comments are due 30 days from the date of publication in the Federal Register or April 11th, whichever is later.
Dave blogged last month that the SEC has drawn criticism for proposing rules with comment periods that are shorter than the traditional 60 days, which typically runs from the date that the proposal is published in the Federal Register. On the flip side, it seems to be taking a very long time to get proposals published. As far as I can tell, the proposals on buybacks and Rule 10b5-1 reform still have not made it into the Federal Register – so the comment period clock has not yet started ticking.
For this week’s slew of rulemaking, the SEC seems to be taking a new approach. Comments are due 30 days after publication in the Federal Register OR 60 days after issuance of the proposal, whichever is later. At a minimum, that gives people until April 11th to submit comments on these proposals.
The SEC announced yesterday that the Commissioners voted to propose “market plumbing” rules that would shorten the settlement cycle for most broker-dealer transactions from T+2 to T+1 – i.e., trades would settle one business day after the trade date – aimed at addressing one of the areas identified by the Staff Report on 2021 market volatility. A shortened settlement cycle is something that industry groups have been recommending – I most recently blogged about that in December – and all 4 of the current Commissioners issued statements in support of the proposal (Gensler, Lee, Peirce, Crenshaw).
As explained in the 247-page proposing release – and the accompanying 2-page fact sheet – the proposal also goes beyond merely shortening the settlement cycle to T+1. Specifically, the proposed changes would:
– Shorten the standard settlement cycle for securities transactions from two business days after trade date (T+2) to one business day after trade date (T+1)(by March 31, 2024);
– Eliminate the separate T+4 settlement cycle for firm commitment offerings priced after 4:30 p.m.;
– Improve the processing of institutional trades by proposing new requirements for broker-dealers and registered investment advisers intended to improve the rate of same-day affirmations (T+0); and
– Facilitate straight-through processing by proposing new requirements applicable to clearing agencies that are central matching service providers (CMSPs) – i.e., fully automated transactions processing.
The proposal also seeks comment on the path toward same-day settlement (T+0). In her statement, Commissioner Peirce laid out specific issues for which she would like comments:
(1) Would a T+0 settlement cycle unnecessarily increase trading costs, including in some cases potentially requiring prefunding of transactions?
(2) Would it force other changes that may significantly affect market structure in ways that decrease liquidity?
(3) Would blockchain technology be useful in facilitating the transition to a T+0 timeframe?
(4) How could the Commission go about working with the market to make the transition to T+0 if it does in fact seem worthwhile?
In addition to proposing to shorten the settlement cycle, yesterday’s open meeting also resulted in a proposal on compliance issues for private fund advisers under the 1940 Act – which John blogged about today on DealLawyers.com – and a proposal on cybersecurity risk management for registered investment advisers and investment companies. This one was issued on a 3-1 vote, with Commissioner Peirce issuing this dissenting statement (she wants a rule that fosters more direct & transparent cooperation between regulators & financial firms) and Chair Gensler, Commissioner Lee and Commissioner Crenshaw issuing supporting statements.
The cybersecurity proposal is significant because it underscores the SEC’s (and Biden administration’s) focus on cyber threats and shows what the Commission might view as “best practices” that could be implemented even outside of the investment adviser space. The SEC’s fact sheet explains that the proposal would:
– Require advisers and funds to adopt and implement written policies and procedures that are reasonably designed to address cybersecurity risks;
– Require advisers to confidentially report significant cybersecurity incidents to the Commission on proposed Form ADV-C within 48 hours of discovery;
– Enhance adviser and fund disclosures related to cybersecurity risks and incidents; and
– Require advisers and funds to maintain, make, and retain certain cybersecurity-related books and records
A Skadden memo from earlier this week previews cyber rulemaking and suggests steps for companies and their service providers to consider. In regards to yesterday’s proposal, this Wachtell Lipton memo offers these takeaways:
We have long highlighted the critical importance for public companies of maintaining effective disclosure controls concerning cybersecurity breaches and risks, and that boards of directors maintain focus on oversight of cybersecurity risks, including cultivating an understanding of the idiosyncratic risks companies face based on the systems they use and data they collect. We have also repeatedly stressed the need to maintain robust written policies and procedures with respect to cybersecurity protective measures, incident detection and response, and disclosure protocols.
Apart from their direct applicability to RIAs and funds, the SEC’s new proposed rules constitute a significant step toward formalization of national standards and regulatory expectations for corporate approaches to cybersecurity risk management, public disclosure of cyber-related risks, and timely regulatory and public notification of significant cyber incidents. As cybersecurity threats proliferate and become ever more sophisticated, companies both within and without the investment industry should carefully consider the SEC’s prescriptions and consider whether any or all of these proposed components should be integrated into their existing cybersecurity risk management systems and procedures.
We’ve posted the transcript for our recent webcast for members, “ISS Forecast for 2022 Proxy Season.” Marc Goldstein, Head of US Research at ISS, was joined by Ning Chiu from Davis Polk and Bob Lamm from Gunster to review what happened in the 2021 proxy season, the changes that ISS is making to its policies in 2022, and a variety of hot topics for the upcoming proxy season. Here’s what Marc had to say about ISS’s new climate accountability policy:
The other aspect of climate I wanted to mention is a new climate accountability policy, which is a new approach for us. We’re rolling it out fairly slowly, by which I mean it’s baby steps for 2022. We are looking at high-emitting companies as identified by Climate Action 100+, which is 167 companies globally. However, the policy actually isn’t going to be applied in every single country for 2022. In the U.S., UK, continental Europe and Russia, we’re going to be applying the accountability policy at companies that are both significant carbon emitters and also have poor disclosure and no greenhouse gas reduction targets.
We are setting the bar low for 2022 and we don’t expect a lot of negative recommendations under this policy. It’s possible that we may raise the bar in future years, but we would be happy to be able to conclude that every company clears the bar, so that we don’t feel compelled to recommend votes against directors. Our clients have made it very clear to us that this is a risk oversight issue and Boards need to be on top of these risks, taking them seriously and taking steps to align the business with the reality of the need to reduce greenhouse gas emissions and transition to renewable energy.
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