I recently recorded an illuminating conversation with Cas Sydorowitz – the Global Head of Georgeson – and Hannah Orowitz – the Senior Managing Director and Head of US ESG for Georgeson. In the 39-minute episode, we discuss:
1. Expectations for the 2022 AGM season in the US, particularly considering the surprises we saw during the 2021 proxy and annual meeting season
2. Early trends for shareholder proposals
3. Changes in voting behaviour of traditional investors – and what they are most likely to focus on
4. Whether the record-breaking level of negotiated proposals in the 2021 season is the ‘new normal’
5. How the new SEC guidance on Rule 14a-8 will impact shareholder proposals during the 2022 proxy season and beyond
6. What impact COP26 and the formation of the International Sustainability Standards Board may have on companies in 2022
7. Following COP26, there was a rapid uptake of asset managers signing The Net Zero Asset Managers Initiative, which includes BlackRock, Vanguard, States Street and at least 220 others. What might that mean for 2022?
8. Predictions for activism in 2022, in light of environmental issues playing a role in a successful proxy contest, and activists’ cooperation with NGO proponents (e.g., Ceres and As You Sow)
I’ve blogged a few times about the impact that retail investors could begin to have on proxy voting – here’s a write-up from last spring about how increasing retail involvement could make voting outcomes less predictable, particularly if they take on a “gaming” aspect akin to the meme-stock frenzy. Now, investors’ wait for an easy way to actually do this is over: the new “iconik” app will encourage users to crowdsource their voting power, along with offering commission-free trading. The app’s website includes this “voting agreement & revocable proxy,” along with this summary of what the founders hope to accomplish:
– On iconik, people run campaigns to help make changes at publicly traded companies. Campaigns can be about almost anything, from better corporate governance to increasing share value (and everything in-between).
– Simply purchase shares and delegate your voting rights to the campaign organizer. You will always own the shares, but now those voting rights are going towards something that matters.
Because fractional shares may not include voting rights, shareholders who want maximum voting power need to buy individual stocks. So, that could prevent this from taking off in force. But as I wrote a few months ago, many retail investors today feel like they’re more likely to vote and care about E&S issues. iconik’s CEO was inspired by the meme stock rally, and he’s banking on the possibility that retail investors are willing to sacrifice diversification for influence.
This DealBook article notes that the platform launched with two active campaigns. One is targeting Meta (Facebook) – to shut down hate speech on the platform. The other is going after JPMorgan Chase – to stop lending to fossil fuel companies.
iconik likely isn’t going to be the only game in town here when it comes to crowdsourcing voting activities. In late summer, I noted that Robinhood acquired Say Technologies, which appeared to be a play into the voting & engagement space. Stay tuned.
With the end of 2021 fast approaching, there is no time like the present to reflect on where we have been in 2021. It has been quite a year!
It wasn’t 2020. One of the main things that 2021 had going for it was that it wasn’t 2020. For a long list of reasons, last year at this time we had all had enough of 2020, and we were looking to 2021 with a great deal of optimism. Can you recall that brief late Spring 2021 respite from the relentless spread of COVID-19 when we thought that Summer 2021 was going to be the best summer ever? At least we had that time, which alone makes 2021 an improvement over 2020. While it is hard to get our hopes up, maybe we will finally see some semblance of “back to normal” in 2022?
The Great Resignation. Much was made in 2021 of “The Great Resignation,” as people realized en masse that life was too short and they needed to get themselves a new job or pursue some other passion. While the trend began in 2020, it really seemed to accelerate in 2021. Having been someone who has changed jobs a few times in his career, I can definitely understand the underlying feelings behind The Great Resignation, particularly in the midst of the pandemic when many of us have reevaluated our priorities. With so much focus on human capital these days, the challenge for public companies will be disclosing how this trend has affected them and addressing their specific plans for retaining and attracting workers.
The Tip of the Iceberg. Towards the end of 2021, we saw the regulatory engines fire up at the SEC under the leadership of SEC Chair Gary Gensler, which has exposed just the tip of the iceberg of a broad and aggressive regulatory agenda. At this time last year, we were frantically picking through an avalanche of 11th hour rulemaking that had been adopted under former SEC Chair Jay Clayton’s leadership, and now some of those rules are already in the process of being undone. What is certain is that we will see a great deal of activity on the rulemaking front in 2022 that will definitely reshape a number important areas of public company disclosure and governance.
Climate and ESG Take Center Stage. It is not as if we were not talking about climate and ESG back in 2020 (and before), but in 2021 those topics seemed to dominate every conversation. The SEC, for its part, has clearly signaled that the topics of climate and human capital are at the top of its agenda, and demonstrated to us that they mean business on climate and ESG with an Enforcement task force and climate comment letters from the Division of Corporation Finance. We very well may look back and say that 2021 was the turning point on how public companies address these topics from a governance and disclosure perspective.
Our Resources. I am proud to have been a part of the fantastic team here, providing you with so many great resources that were hopefully useful for keeping up with all of the developments in 2021. I am excited to be blogging again here on TheCorporateCounsel.net, recording the Deep Dive with Dave podcast, updating the Executive Compensation Disclosure Treatise, contributing to The Corporate Counsel and The Corporate Executive, and participating in our conferences and webcasts. I hope we were able to keep you informed about all of the developments in 2021, and provide you with the analysis and insight that you can’t find elsewhere. In 2022, I will celebrate 15 years working on these publications – where did the time go?
I wish you all the best for the holiday season and I hope you have a great 2022!
– Dave Lynn
Programming Note: This blog will be off tomorrow, back next week.
In the latest Deep Dive with Dave podcast, John and I talk about the topics we cover in the November-December 2021 issue of The Corporate Counsel. We discuss the annual season items that you should keep in mind as we go into the annual reporting and proxy season, review the SEC’s universal proxy rules and address Staff Legal Bulletin 14L. Thanks for listening to the Deep Dive with Dave podcast!
– Dave Lynn
Programming Note: This blog will be off tomorrow, back next week.
Earlier this week, the SEC announced that it had brought charges against yet another hacking ring accused of accessing earnings releases prior to issuance and trading based on the information obtained through the hack. The earnings announcements were accessed by hacking into the systems of two filing agent companies before the announcements were made public. In the complaint, the SEC alleges that the insider trading scheme yielded $82 million in profits during a period from February through August 2020.
As has been the case with many of the Division of Enforcement’s recent cases, the Staff credits powerful analytical tools for helping to make the case against the defendants. The complaint notes:
The trades by the Trader Defendants were disproportionately focused around the earnings announcements of publicly-traded companies that used the Servicers to make their EDGAR filings, as compared to earnings announcements where the required EDGAR filings were not made through the Servicers. Indeed, statistical analysis shows that there is a less than one-in-one-trillion chance that the Trader Defendants’ choice to trade so frequently on earnings events tied to the EDGAR filings of the Servicers’ public company clients would occur at random.
This latest hacking scheme points to the vulnerability of material nonpublic information when it is stored in the cloud prior to making the EDGAR filing. Despite all of the efforts to maintain the security of the systems used to process and store this information, sophisticated hackers can often find a way in. Unfortunately, there is not much that companies can do to protect themselves in this situation, other than to try to minimize the time that the submission is on the filing agent’s system. This is no doubt not the last of these schemes that the SEC will find with its sophisticated trading surveillance methods.
I may be slow on the uptake here, but I just started wondering what the heck is going on with my telephone that has not been working for the past week or so. Apparently, my telephone is one of many casualties of the “Log4Shell” vulnerability, which has been wreaking havoc across the technology world for almost two weeks now. As Emily notes over on the Mentor Blog, Log4Shell is a piece of ubiquitous code that TechCrunch has called the “bug that’s breaking the internet.”
Now, having been someone who lived through the infamous Y2K vulnerability, which was billed as potentially ending modern civilization as we know it, I tend to take that sort of statement with a big grain of salt. However, as we grind through this holiday week, the last thing we need is for the Log4Shell problem to continue gather steam and give us something other than the Omicron variant to worry about. The Mentor Blog notes these critical steps that companies should take, as highlighted in this recent DLA Piper memo:
Legal team to communicate with vendors and service providers to determine whether Log4j software is used in their products, whether Log4j software has been patched, whether Log4Shell has impacted their systems/services/products and if so, the status of remediation. Review vendor contracts for notice rights and indemnity obligations and take appropriate action to preserve contractual and other remedies
Legal team to print a hard copy of the cyber insurance policy
Legal and InfoSec teams to print hard copies of the incident response plans and playbooks and notify members of the incident response team to be on standby in the event they need to be activated
If InfoSec team detects unauthorized activity, activate IR plans and get legal involved to conduct privileged investigation
Legal and InfoSec teams to stay current on Log4Shell threats.
Note that we have plenty of other resources addressing cybersecurity threats available in our “Cybersecurity” Practice Area.
The November-December issue of The Corporate Executive has been sent to the printer (email sales@ccrcorp.com to subscribe to this essential resource). 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. The issue includes articles on:
• SEC Reopens Comment Period for Compensation Clawback Rules
• ISS and Glass Lewis Update Proxy Voting Guidelines
• Accounting Rules Now Allow Private Companies to Use Section 409A Methodology
• A Blast from the Past: The SEC Issues Guidance on “Spring-Loaded” Awards
SEC Commissioner Elad Roisman released a statement yesterday indicating his plan to resign his position by the end of January 2022. Roisman has served as a Commissioner since September 2018, and served as acting Chairman for a brief time from December 2020 to January 2021. Commissioner Roisman joined the SEC from the U.S. Senate Committee on Banking, Housing, and Urban Affairs, where he served as Chief Counsel. He had also served as Counsel to SEC Commissioner Dan Gallagher, and worked at NYSE Euronext and Milbank. Commissioner Roisman’s statement gives no indication of what he plans to do next.
Yesterday, the Staff of the Division of Corporation Finance published a sample letter highlighting comments issued to companies that are based in, or that have the majority of their operations in, the People’s Republic of China. The lead-in to the sample letter notes:
[T]he Division is issuing comments to China-based companies seeking more specific and prominent disclosure about the legal and operational risks associated with China-based companies. The Division’s comments focus on the need for clear and prominent disclosure regarding the structure of the company, including the relationship between the entity conducting the offering and the entities conducting the operating activities, risks associated with a company’s use of the VIE structure, and the potential impact on the company’s operations and investors’ interests if such structure were disallowed or the contracts were determined to be unenforceable. The Division’s comments also focus on additional legal, regulatory, and enforcement risks that may apply to investments in China-based companies, such as the potential impact of the Holding Foreign Companies Accountable Act and related rules and any necessary PRC permissions a China-based company may need to operate its business or offer securities to foreign investors.
The Staff goes on to point out that for a SPAC with sponsors based in China, executive offices in China, a majority of its executive officers and/or directors that are located in or have significant ties with China, or that is contemplating a merger with a company incorporated in China, “specific disclosure about these circumstances is warranted to meet the company’s disclosure obligations.” The Staff indicates that the disclosure should address the risks associated with the SPAC’s operations, as outlined in the sample letter. Also, for China-based companies with ongoing SEC periodic reporting obligations or that are engaged in capital raising transactions via takedowns from an effective shelf registration statement, the Staff expects prospectus supplements or incorporated periodic or current reports (and future periodic reports) to disclose the information and risks discussed in the Staff’s sample letter.
Recently, the SEC announced that it had named James Grimes as the agency’s new Chief Administrative Law Judge. Judge Grimes succeeds Brenda Murray, who retired in 2019 after 25 years of service as the SEC’s Chief Administrative Law Judge.
The SEC’s administrative law judges conduct hearings, issue initial decisions, and adjudicate matters in administrative proceedings before the agency. I point this out because I got my start at the SEC serving as a law clerk in the Office of Administrative Law Judges. I was hired by Judge Murray and had the great opportunity to work with her and all of the judges in the office at that time in the mid-1990s. I was fortunate that the Office of Administrative Judges was on the same floor as several Corp Fin review offices, and I met Shelley Parratt in the hallway (at the time, Shelley was an Assistant Director running the review office that handled real estate and a number of other industries). That chance meeting with Shelley led to my first job in Corp Fin, and the rest, as they say, was history. It just goes to show how one opportunity can lead to another, and a chance meeting can sometimes change the course of your career!
