On this Veteran’s Day, it is important to honor the service of military veterans who have made many sacrifices to protect us and our way of life. I am so grateful for their service to our country and I am glad that we have this holiday to remind us of their contributions.
An important element in honoring our veterans is considering the contributions they make to our economy and society after the conclusion of their military service. Some veterans elect to continue their public service in positions as first responders or in government roles, while others enter the private sector. As such, military veterans make up a critically important part of our workforce in this country.
With the SEC’s recent amendments to Item 101 of Regulation S-K requiring disclosure about human capital resources, we now have a glimpse into how companies support their employees who are military veterans. Many companies disclose that they have internal employee resource or inclusion groups that are dedicated to military veterans. The groups are often dedicated to supporting the attraction, development and retention of talent, provide professional and leadership opportunities, and support community and business efforts within the company. Some companies, such as JPMorgan Chase & Co., actually provide statistics on the percentage of its worldwide employees that are military veterans (3%). We will likely see this type of disclosure continue to evolve over time, as companies consider how to effectively describe their workforce and how that workforce is developed and supported.
Today, let’s not forget to show our gratitude to our nation’s veterans for all of the important work that they do in the military and when they go on to become our colleagues in the workforce.
Yesterday, the SEC posted a notice indicating that it will consider two rulemaking actions at an open meeting next Wednesday. The Commission will consider whether to adopt amendments to the proxy rules relating to the use of universal proxy cards, and will consider whether to propose amendments to the proxy rules governing proxy voting advice by the proxy advisory firms.
The universal proxy rulemaking has been dragging on for quite some time. The rule changes were originally proposed in 2016, and then the comment period was reopened in April of this year. The rules regarding proxy voting advice were on a much faster track (although they were a long time in coming), given that they were proposed in 2019, adopted in 2020, and then subject to reconsideration this year.
With these actions now on the calendar, it seems that the SEC rulemaking floodgates are starting to open, and we should no doubt see quite a bit of activity in the coming months.
In the latest Deep Dive with Dave podcast, I speak with David Hamm from Summit Materials about a podcast he has recently launched, Conversations with GCs.
As we have previously reported, over the past few months companies across a wide range industries have been receiving comments from the Corp Fin Staff that are focused on climate change disclosure. In September, the Staff published a sample comment letter highlighting its comments on climate change disclosure. Now that companies have had a chance to respond to the initial round of comments and the Staff has had time to consider those responses, we are now seeing round 2 of the climate change comment letters.
Comments in the first round of letters asked questions focusing on a company’s materiality analysis with respect to information about climate change, harkening back to the SEC’s 2010 climate change disclosure guidance. In round 2, the Staff is generally digging deeper into a company’s materiality analysis, asking for additional details on the company’s determination that disclosure of climate change matters was not material. In some cases, the follow-up comments request more quantitative information from companies in support of the materiality determination. Some companies and practitioners have been surprised by this approach, noting that the Staff has in the past been more deferential to a company’s conclusions as to materiality.
It is obvious from these round 2 comment letters that the Staff is not going to “let it go” when it comes to climate change, and additional work will be necessary to justify for the Staff why climate-related disclosure was not included in the periodic reports that the Staff has reviewed. Areas of focus in the round 2 comments letters appear to be:
More information concerning disclosure decisions with respect to specific transition risks related to climate change that are relevant to a company’s business and operations;
Considerations made in determining whether to disclose the direct and indirect consequences of climate-related regulations or business trends;
The existence (or nonexistence) of material capital expenditures for climate-related purposes, and how that materiality decision was made;
Consideration of the impact of weather-related events on a company’s results of operations and financial condition; and
The quantification of material compliance costs associated with climate change.
We expect that with climate change disclosure rules just around the corner, the Staff has an incentive to continue to press for more information through the comment process. The round 2 comment letters that we have seen appear to be focusing mostly on asking for additional information and analysis, rather than requesting specific disclosures in the future, or seeking amendments to prior periodic reports.
The Staff’s ongoing climate change disclosure review project often raises the question: what should companies do going into the Form 10-K season knowing what areas the Staff has focused on in the comment process? My advice has generally been “stay the course.” Unless you are a recipient of a one of the Staff’s climate change comments letters – in which case the outcome may depend on the ultimate resolution of those comments – now is probably not the best time to completely revamp your climate-related disclosure in the Form 10-K.
As had been the case before the Staff’s review project got under way, it is critically important to consider the SEC’s 2010 guidance when preparing your disclosures, and it may be appropriate to take extra steps this year to document and “pressure test” your materiality analysis when considering that guidance. Further, it is always helpful to draw on your engagement efforts to understand what information investors are interested in seeing, so that you can consider that input when preparing the Form 10-K and proxy statement.
We will undoubtedly see rule proposals regarding climate change risks in the near term, and when those rules are ultimately adopted, it will then be appropriate to reconsider your disclosure approach in light of those more specific disclosure requirements.
As the proxy season fast approaches, be sure to keep up with the latest developments covered in our Proxy Season Blog. For example, Emily recently highlighted the best practice takeaways from Broadridge’s 2022 proxy design library. If you do not have access to the Proxy Season Blog, subscribe today!
Yesterday, the SEC announced the appointments of Erica Y. Williams as Chairperson and Christina Ho, Kara M. Stein, and Anthony (Tony) C. Thompson as Board members of the PCAOB. The SEC stated that Duane DesParte will continue to serve as a Board member and will remain Acting Chairperson until Erica Williams is sworn in.
Under the Sarbanes-Oxley Act, the SEC has the authority to select the members and the Chairperson of the Board of the PCAOB. As John noted earlier this year, the SEC announced that it had removed PCAOB Chair William Duhnke and had designated Duane DesParte to serve as acting Chair. At the same time, the SEC announced that it was seeking candidates to replace all five current members of the PCAOB Board.
Williams is a partner at Kirkland & Ellis LLP and had previously served in various roles at the SEC and as Special Assistant and Associate Counsel to President Obama.
Ho has held positions with the Treasury Department, University of Maryland, Deloitte & Touche LLP and Elder Research.
Stein served as a Commissioner of the SEC from 2013 to 2019, and has also had roles at the University of Pennsylvania Carey Law School, the Center on Innovation at University of California Hastings Law and on the Hill.
Thompson currently serves as the Executive Director and Chief Administrative Officer of the CFTC, has served in other federal government positions and is an Air Force veteran.
Commissioners Peirce and Roisman, who had expressed concern with the firing of the PCAOB Board back in June, issued a statement expressing support for the new Board.
SEC Enforcement Director Gurbir Grewal delivered the Scott Friestad Memorial Keynote address at the “SEC Regulation Outside the United States – ThinkIn 2021” program yesterday, and he started off his speech by quoting from Lewis Carroll’s poem, The Hunting of the Snark. The quoted stanza ends with “Just the place for a Snark! I have said it thrice: What I tell you three times is true.” Grewal noted:
Repetition, after all, is a persuasive technique used regularly by effective orators and children alike to make convincing and, on occasion in my home, winning arguments. That’s because repeated information is often perceived as more truthful than new information. But as we all know, just because a statement is made repeatedly doesn’t necessarily make it true.
Grewal went on to rebut the often-repeated notion that the SEC is “regulating by enforcement,” particularly in the area of digital assets and ESG. Instead, he says that the SEC is “using all of our tools to pursue wrongdoers, protect investors, and fulfill our mission.” Grewal recounted a number of cases that the SEC has brought in the digital asset space, and commented on the progress of the Climate and ESG Task Force, as well as prior cases that the SEC has brought involving ESG issues.
At last week’s PLI Annual Institute on Securities Regulation, Corp Fin Director Renee Jones and Acting Deputy Director Lisa Kohl spoke about priorities in the Division, and it was mentioned that Corp Fin is in a hiring mode for lawyers. I am often asked about how to get a job in Corp Fin, and I always encourage people to go there when the can, because the Division provides opportunities for excellent training and experience and the chance to work with a very talented group of people. The window for job openings notoriously opens and closes over time, so often timing is the most important factor to consider when trying to land a job in the Division.
While the SEC does post more senior positions in Corp Fin from time to time, the best chance of getting in is by applying for positions in the Operations groups, where you would review filings. Once you have spent some time in Operations, it is often possible to move to other roles within the Division, or perhaps to other Offices or Divisions within the Commission. I believe that the hiring process in Corp Fin is relatively decentralized these days, so often you are interviewing with the people in Operations group that you would be working with if you were hired. If you have been thinking about working at the SEC, now might be a good time to dust off that resume!
Last week, ISS announced that it is seeking comments on its proposed voting policy changes for 2022. The comment period runs through November 16. As usual, ISS seeks input from all interested parties.
ISS solicits comment on 16 proposed voting policy changes across all markets, including the following key changes in the U.S.:
Gender Diversity – ISS proposes to extend its board gender diversity policy to companies that are not in the Russell 3000 and S&P1500 indices, effective for meetings on or after February 1, 2023.
Unequal Voting Rights – When ISS implemented its original unequal voting rights policy back in 2015, the attention was on addressing concerns with newly-public companies that adopted unequal voting rights without a sunset mechanism. As a result, companies with an unequal voting rights structure whose first shareholder meeting was prior to 2015 were exempted from the voting rights policy. ISS now proposes to remove the differential policy application that arose from that exemption and, after a grace period in 2022, begin in 2023 to recommend against responsible directors at all U.S. companies with unequal voting rights.
Climate – For the highest GHG emitting companies, ISS proposes a new climate-related board accountability policy. ISS proposes to recommend against the re-election of directors or any other appropriate items at companies that have not made appropriate climate-related disclosures, such as according to the TCFD framework, or that have not set quantitative GHG reduction targets.
Say-on-Climate – ISS proposes to codify the case-by-case analysis frameworks for management and shareholder say-on-climate proposals.
We can expect ISS to publish updated voting policies applicable for shareholder meetings occurring on or after February 1, 2022 in the coming weeks.
