The latest issue of The Corporate Counsel newsletter has been sent to the printer. It is also available now online to members of TheCorporateCounsel.net who subscribe to the electronic format. The issue includes the following articles:
– Annual Season Items
– Our 2026 Conferences — October 12-13 in Orlando, FL
As we do every year, the “Annual Season Items” article provides you with the key annual season items that you should be considering now as you finalize annual reports and prepare proxy statements. On the hot topic of AI disclosure, we note in this issue:
Given this evolving disclosure risk landscape, it is critically important for companies to follow a “back to basics” approach when it comes to AI. In the absence of specific SEC guidance about what companies should be saying in their public disclosures about AI, it is now more important than ever to thoroughly review all of a company’s external and internal statements about the development, deployment and integration of AI, as well as the attendant risks. It is important that the company’s risk management practices specifically focus on the many risks associated with AI, and that identified risks be clearly disclosed to shareholders as a means for providing appropriate context for the positive disclosures about the company’s utilization or development of AI. It is also important for a company to implement disclosure controls and procedures to ensure that public disclosures and statements concerning AI are accurate, complete and consistent across communications platforms (not just in the company’s SEC filings or in earnings releases). Further, companies should take steps to identify specific substantiation for public statements about AI, while at the same time making sure that the company’s internal documents do not include information that is contrary to the public statements. While many of these steps are important disclosure controls for any public company statements, we believe that the current environment calls for special attention to public statements about AI.
Finally, companies should recognize that their public disclosures are increasingly being consumed by AI-powered analytics, which investors are leveraging to understand company performance and inform votes on proposals presented at shareholder meetings. This recognition should continue to inform how disclosures are presented and should emphasize the importance of consistency across a company’s communications platforms.
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If you were wandering around Capitol Hill yesterday and were in the mood for a less fiery type of Congressional hearing to visit, you might have chosen the appearance of SEC Chairman Paul Atkins before the House Committee on Financial Services. As I mentioned on Monday, Chairman Atkins has back-to-back hearings on the Hill this week, and Wednesday marked is first appearance before the House Committee on Financial Services. House Financial Services Committee Chairman French Hill opened the hearing with these remarks, in which he noted:
The SEC’s mission is clear: to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. At its core, this mission is about fostering public confidence in our markets.
These are not suggestions, nor are they partisan preferences. They are statutory mandates enacted by Congress.
Unfortunately, during the Biden Administration, the SEC strayed from this mission. Instead of focusing on its core mandate, the Commission pivoted toward politicized rulemakings that stretched far beyond the bounds of its authority.
A great disappointment, former Chair Gary Gensler, we witnessed a Commission that relied on “regulation-by-enforcement” rather than transparent rulemaking.
We saw attempts to embed political and social objectives into securities regulation, all at the expense of American investors and small business owners.
The consequences of this approach speak for themselves. Coupled with crushing compliance burdens, these policies accelerated the shrinking of our public markets. Since 2021, the number of publicly listed companies dropped by over 10 percent.
Leading entrepreneurs found their capital for growth in private markets delaying opportunities for America’s individual investors, while much of cutting-edge innovation was driven offshore by regulatory uncertainty.
That’s why in December the House advanced the INVEST Act. This strongly bipartisan legislation is designed to reignite our capital markets by cutting red tape, empowering entrepreneurs and small businesses, and expanding investment opportunities for all Americans.
I want to commend Chairman Atkins for his efforts to reverse prior rulemakings that hindered capital formation and for steering the Commission back to its fundamental enforcement responsibilities.
These actions align with Committee Republicans’ commitment to foster efficient, transparent, and innovation-friendly markets that protect investors and provide regulatory clarity that markets need, particularly in emerging areas such as digital assets.
It is imperative that Congress provide a functional and durable framework for digital asset markets. We look forward to sending market structure legislation to the President’s desk.
In his prepared remarks for the hearing, Chairman Atkins stated:
Nine months ago, I returned to the SEC with a clear mandate to recommit the agency to our core mission of protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation. I am grateful to work alongside dedicated public servants who have hit the ground running in pursuit of these priorities.
America’s $124.3 trillion capital markets are the deepest and most liquid in the world, leading both in market capitalization and trading volume. They are a marvel of human ingenuity. Yet over the years, the federal government’s natural tendency has asserted itself, and rules have multiplied faster than the problems that they were intended to solve.
This Congress and the Trump Administration are focused on bringing down the cost of living for the American people, and the SEC has a vital role to play. For example, public companies spend $2.7 billion a year to file their annual reports. This is $2.7 billion that companies are not reinvesting in their businesses to create jobs. $2.7 billion that our disclosure regime is diverting from your constituents to corporate lawyers, accountants, and consultants.
Now, this is not to say that we want to gut corporate disclosure, which is vital. But we must modernize, rationalize, and streamline reports so that they are meaningful, understandable, and not a repellant to investors. After all, how many of you would read through an annual filing that rivals War and Peace? Disclosure documents of that length can do more to obscure than to illuminate.
As I have stated previously, regulation ideally should be smart, effective, and appropriately tailored within the confines of our statutory authority. Instead, it has made the path to public ownership narrower, costlier, and saddled with rules that can create more friction than benefit.
For context, shortly after I left the SEC in the mid-1990s, there were more than 7,800 companies listed on the U.S. exchanges. By the time that I returned as Chairman, that figure had fallen by roughly 40 percent.
Chairman Atkins noted his support for the Senate’s Empowering Main Street in America Act and the House’s INVEST Act, both of which are geared to enhancing capital raising opportunities for companies, and the Congressional efforts to enact the CLARITY Act, which would establish a federal framework for crypto markets.
More to come in today’s Senate Committee on Banking, Housing and Urban Affairs hearing.
As Chairman Atkins and members of the House Committee on Financial Services discussed potential legislative and regulatory efforts to address topics such as capital raising and crypto assets at the House Committee on Financial Services hearing yesterday, it called to mind one of the dilemmas that the SEC faces with its rulemaking efforts – the chicken and the egg problem. All things being equal, the SEC would generally prefer for Congress to enact legislation that authorizes the SEC to adopt implementing regulations in order to meet a particular policy objective. This puts the SEC on much better standing in the courts and provides the SEC with (mostly) clear direction from the legislative branch on the regulatory matter at hand. The legislative path also allows the SEC to deploy its scarce resources toward other rulemaking initiatives, because Congress is doing the legwork to define the direction that the SEC must pursue, rather than having the SEC use the somewhat inefficient notice and comment rulemaking process to triangulate on a regulatory approach.
The dilemma arises because there is no assurance as to when or if Congress is able to pass legislation, particularly in these fractured political times. As we know all too well, bipartisan action on legislation is pretty rare these days, so even good ideas can have a hard time advancing from bill to law. As Chairman Atkins noted in his testimony, there is pending legislation in Congress addressing significant aspects of the SEC’s agenda, including the House and Senate capital formation bills and the CLARITY Act addressing crypto markets. From a regulator’s perspective, the question arises as to whether the SEC should use its existing authority to proceed with rulemaking in these areas within the potentially limited time available, or wait around for the legislative process to play out before investing significant resources into the rulemaking effort, which could ultimately face legal challenges in the absence of clear legislative authority.
It will be interesting to see how the SEC navigates this conundrum over the course of the coming weeks and months.
We recently posted the transcript for our “The Secret of My Success: Best Practices for Management Succession Planning” webcast, featuring Derek Chien of Synopsys, Richard Fields of Russell Reynolds Associates, Tracey Heaton of Heidrick & Struggles, J.T. Ho of Cleary Gottlieb and Jennifer Kraft, formerly of Foot Locker, who addressed a wide range of succession planning topics, including:
– Long-term succession planning
– Emergency succession planning
– The role of the board and management in succession planning
– When an executive chair role may be appropriate
– Shareholder perspectives and communications
– Executive compensation considerations
– Disclosure considerations and requirements
Members of the TheCorporateCounsel.net can access the transcript of this program. If you are not a member, email info@ccrcorp.com to sign up today and get access to the full transcript – or call us at 800.737.1271.
Yesterday, the PCAOB announced that that Demetrios (Jim) Logothetis was sworn in as Chairman of the Board, and Dr. Mark Calabria and Steven Laughton were sworn in as Board Members. The swearing-in ceremony took place at the SEC. Meredith highlighted the appointment of the new PCAOB Chairman and Board Members (along with their backgrounds) last week. The PCAOB’s announcement of the swearing-in ceremony states:
“I am deeply honored to have been appointed to lead the PCAOB, and I am grateful to SEC Chairman Atkins and to Commissioners Peirce and Uyeda for their faith in me to serve in this important role,” said Chairman Logothetis. “Independent oversight of auditors is a critical pillar of the investor confidence that powers the U.S. capital markets, and I look forward to partnering with the SEC, my fellow Board Members, and the PCAOB’s dedicated staff to fulfill our organization’s statutory responsibilities efficiently and effectively.”
Chairman Logothetis was appointed to a term that expires on October 24, 2030. Board Member Calabria’s term expires on October 24, 2027, and Board Member Laughton’s term expires on October 24, 2026.
The SEC has also appointed Kyle Hauptman to the PCAOB, and announced that George R. Botic (former acting Chairman of the PCAOB) will continue his service as a Board Member for a term that expires on October 24, 2028.
As John recently noted, these gentlemen will find their positions to be significantly less lucrative than in the past, with the SEC slashing the compensation of the PCAOB’s Chairman and its other Board Members by 52% and 42%, respectively, in the 2026 PCAOB budget. For more on the potential impact of that decision, be sure to check out Dan Goelzer’s analysis in The Audit Blog.
It is hard to believe that nearly nine years ago, the PCAOB adopted a new auditing standard that requires public company audit reports to contain a discussion of critical audit matters (CAMs) that arose during the audit. If your were practicing back then, you might recall that there was a great deal of attention focused on this significant change to the audit reporting model, and we spent a lot of time trying to understand what CAMs the auditors might report on, and how that reporting interacted with the disclosure provided in the company’s SEC filing. But then, as with so many things, with the passage of time the attention to CAMs seems to have waned, and overall the number of CAMs reported by auditors has decreased.
Dan Goelzer highlighted in his most recent Audit Committee and Auditor Oversight Update a new report from PCAOB’s Investor Advisory Group with the catchy title “The Second Annual Investor Advisory Group Most Decision-Useful Critical or Key Audit Matters For 2024.” The report provides a history of CAMs, reviews the Investor Advisory Group’s activities related to CAMs, discusses the findings of the Investor Advisory Group’s CAM evaluation process, and provides suggestions for improving CAMs. Dan notes that for audit committees, the report provides insight into how investors view CAM reporting and how they would like it to be enhanced. Dan highlights the following suggestions for improving CAMs included in the report:
The IAG report concludes with three recommendations for improving CAM reporting:
– CAMs should include what the auditors found. “To facilitate communication, auditors should present their findings by including a detailed conclusion.” The IAG recommends that the PCAOB amend the CAM standard to require the auditor to describe its conclusions. Currently, the PCAOB standard merely states that the auditor “may describe” such matters as the outcome of the audit procedures performed and key observations with respect to the CAM.
– CAMs should explore non-routine topics that are more likely to provide decision-useful information. The report states: “Perhaps fearing that unique CAMs will reveal information that the management would prefer not to be disclosed, many auditors use the same topics for their CAMs every year. However, repeating CAM topics may offer little additional information to investors.” The IAG encourages auditors to use CAMs “as an opportunity to actively explore more unique, lesser-understood topics, such as tax provisions, to communicate with investors.”
– The number of CAMs reported should increase. The number of CAMs has decreased over time. See Most Audit Reports Contain a CAM, But Only One, November-December 2025 Update. The IAG report recommends that auditors consider increasing the number of CAMs in their reports.
In addition to these steps to improve CAM reporting, the IAG members also suggest adding quantitative information to CAM disclosures, providing more description of the audit procedures performed, using more bullet points, and increasing coverage of CAMs on investment research platforms.
Dan suggests that audit committees may want to discuss these ideas from the Investor Advisory Group’s report with their auditor and seek to understand the reasons for the auditor’s approach to CAM reporting, while potentially seeking input from investors on improvements to CAM reporting.
– The current state of the digital asset ecosystem, including regulatory developments;
– How auditors are well-positioned to provide attestation services to enhance trust in the digital asset ecosystem; and
– Considerations and questions for boards, regulators, and policymakers as the digital asset ecosystem continues to evolve.
The report notes that auditors looking for information related to auditing digital asset transactions can refer to the AICPA practice aid, Accounting for and Auditing of Digital Assets, which provides nonauthoritative guidance on how to account for and audit digital assets.
We have noted the trend that the Corp Fin Staff is answering more no-action and interpretive requests on a variety of topics these days, as well as putting out new and revised Compliance and Disclosure Interpretations at a steady pace over the course of the past year. Consistent with this recent trend, the Staff of the Office of Mergers and Acquisitions recently issued an interpretive letter addressing whether the parties to an over-the-counter derivatives contracts referencing equity or other securities would be deemed a “group” for the purposes of Section 13(d)(1) or Section 13(g)(1) of the Exchange Act. The interpretive request was submitted by O’Melveny on behalf of Bank of America and affiliates. As this O’Melveny alert notes:
On January 23, 2026, the staff (the “Staff”) of the Office of Mergers and Acquisitions in the U.S. Securities and Exchange Commission’s (the “SEC”) Division of Corporation Finance issued an interpretive letter to Bank of America, N.A. and its affiliates (collectively, “BofA”) clarifying that the entry by BofA and a sophisticated counterparty into over-the-counter (“OTC”) derivative contracts in the ordinary course of business, without more, is not a sufficient legal basis to deem the parties a reporting “group” (i.e., single person for purposes of calculating beneficial ownership) pursuant to Section 13(d)(1) or Section 13(g)(1) of the Securities Exchange Act of 1934 (the “Exchange Act”).
* * * * *
Prior to the BofA Letter, there existed substantial uncertainty as to whether parties to a derivative contract would be considered to be “acting as” a “group” for purposes of Section 13(d)(1) or Section 13(g)(1) of the Exchange Act as a result of entering into the contract. If the parties were deemed to be a reporting group, such group would beneficially own all of the shares of the class of securities underlying the derivative contract owned by each of the group members, thereby causing each of the parties: (i) if the group owned more than 5% of the outstanding class of securities, to become subject to reporting under Sections 13(d) or 13(g) of the Exchange Act, and (ii) if the group owned more than 10% of the outstanding class of securities, to be individually subject to Section 16 of the Exchange Act.
The Staff indicated in its response that it would not object to any determination by a financial institution that it does not “act as” a “group” with any counterparty to an OTC derivative and that, therefore, the institution together would not be required to aggregate ownership as a single “person,” solely as a consequence of entering into an OTC derivative contract, based on the representations provided by Bank of America in the request, which are generally applicable to ordinary course OTC derivative transactions.
The O’Melveny alert notes that this the interpretive letter is the sixth example of Staff interpretive guidance obtained by O’Melveny and BofA in the context of OTC derivatives since 2011. Shoutout to my former Corp Fin colleague Rob Plesnarski for all of his great work in this area!
Over five years ago, the SEC adopted amendments to Regulation S-K that require more detailed disclosure concerning a public company’s human capital. The amendments proved to be controversial, because they relied on a principles-based approach the gave companies leeway to determine what was material from a human capital perspective, and for the ensuing four years we expected further amendments to the item requirement that would be more prescriptive in approach. Those changes never materialized, but in 2025 companies encountered a distinct shift in government and shareholder approaches to diversity, equity and inclusion, which had been one topic that many companies addressed in their human capital disclosure.
With all of these developments, it is helpful to take a look back on human capital disclosures over the past five years, and Gibson Dunn recently provided us with this perspective in its alert “Five Years of Evolving Form 10-K Human Capital Disclosures.” The alert notes:
Human capital resource disclosures by public companies have continued to be a focus since the U.S. Securities and Exchange Commission (the “Commission”) adopted the new rules in 2020, not only for companies making the disclosures, but employees, investors, and other stakeholders reading them. This alert updates the alert we issued in December 2024, “Four Years of Evolving Form 10-K Human Capital Disclosures,” available here, and reviews disclosure trends among S&P 100 companies categorized into 28 topic areas. Each of these companies has now included human capital disclosure in their past five annual reports on Form 10-K. This alert also provides practical considerations for companies as we head into 2026.
Overall, our findings indicate that companies are reframing their disclosures related to diversity, equity, and inclusion (“DEI”) in response to the current legal, regulatory, and political environment, with the acronyms “DEI” and “DE&I” being completely removed from all human capital disclosures of S&P 100 companies in 2025. This year, companies generally continued to shorten their human capital-related disclosures, decrease the number of topics covered, and include less quantitative information in some areas, often as a result of decreased diversity-related disclosures.
Among the findings reported, Gibson Dunn notes the following with regard to the content of human capital disclosure:
Most common topics covered. This year, the most commonly discussed topics remained consistent with the previous three years, with the top five most frequently discussed topics being talent development, talent attraction and retention, employee compensation and benefits, diversity and inclusion, and monitoring culture. The topics least discussed this most recent year, however, changed slightly from those of the previous year as quantitative pay gap and diversity in promotion disclosures were tied as the fifth least frequently covered topics (joining physical security, diversity targets or goals, quantitative new hire diversity, and supplier diversity), replacing full-time and part-time employee split.
I think that we can certainly expect to see more evolution in the approach taken to this disclosure requirement during the course of the 2026 annual reporting and proxy season.
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