The SEC has announced that it will host the 44th Annual Small Business Forum on April 10, 2025 in-person at SEC Headquarters in Washington D.C., with the option of virtual participation. The announcements notes:
Organized by the Office of the Advocate for Small Business Capital Formation, the Forum brings together members of the public and private sectors—including entrepreneurs, small business leaders, investors, and those that support them across the small business ecosystem—to discuss and provide suggestions to improve securities policy affecting how companies raise capital from investors.
This event is planned for 1:00 pm – 4:30 pm Eastern, with an optional networking reception to follow. A full agenda will be provided as the date draws closer.
As John noted in the blog back in November, all signs point toward the SEC being more interested in promoting small business capital formation. For example, in the area of capital formation, the agenda published by Project 2025 calls for the SEC to take, among others, the following actions:
– Simplify and streamline Regulation A (the small issues exemption) and Regulation CF (crowdfunding) and preempt blue sky registration and qualification requirements for all primary and secondary Regulation A offerings.
– Either democratize access to private offerings by broadening the definition of accredited investor for purposes of Regulation D or eliminate the accredited investor restriction altogether.
– Allow traditional self-certification of accredited investor status for all Regulation D Rule 506 offerings.
– Exempt small micro-offerings from registration requirements.
– Exempt small and intermittent finders from broker–dealer registration requirements and provide a simplified registration process for private placement brokers.
It remains to be seen what regulatory efforts will ultimately be pursued, but it is encouraging that during the first Trump Administration we saw the SEC adopt the comprehensive exempt offering harmonization rule changes, which have proven to be beneficial for small business capital formation (including my favorite part, the adoption of Marty Dunn’s integration manifesto in Rule 152).
‘Tis the season for an avalanche of annual reporting and proxy season reminders as we ramp up our 2025 efforts.
First and foremost, I commend to you our “Annual Season Items” article in the November-December 2024 issue of The Corporate Counsel, which covers a wide range of topics that will be of interest when preparing your annual report and proxy statement. But if you are looking for a more condensed version, check out Weil’s “Top 10 Tips for the Form 10-K,” which does a great job of highlighting the latest top trends and considerations for companies preparing to file their Form 10-K for the fiscal year ending in December 2024, including: lessons learned from recent SEC comment letters, guidance, enforcement proceedings and litigation; new SEC rules and applicable NYSE/Nasdaq corporate governance listing standards; and developments companies face stemming from regulatory, geopolitical and other events, including considerations relating to the new administration.
As the calendar turns over to 2025, it is now time to focus on what’s next – and that is EDGAR Next. As I noted last October, the SEC adopted its “EDGAR Next” amendments in September 2024, and there has been a considerable amount of hand-wringing since that time as we have absorbed everything that is contemplated by the significant changes to the EDGAR access system.
In short, EDGAR Next will replace the current EDGAR access system that relies on old-fashioned passwords with a new access system that requires each person who accesses the EDGAR filing system to establish a user account and select a method for two-factor authentication. Filers will generally establish two account administrators, who have the responsibility for designating other persons authorized to make EDGAR filings on behalf of the filer. Filers with valid electronic filing credentials as of March 21, 2025 will have until September 12, 2025 to transition to EDGAR Next. Filers that do not complete EDGAR Next enrollment by that date will be unable to file or submit documents using the EDGAR filing system after September 12, 2025, and filing agents will be unable to make filings or submissions on behalf of the filer after that date. Existing EDGAR filers that have not completed enrollment by December 19, 2025 will not be able to enroll online, but will be required to submit a new Form ID to obtain access to the EDGAR filing system. The SEC has provided a resource page on the transition to EDGAR Next that includes this handy infographic highlighting the key steps toward implementation.
The transition to EDGAR Next will obviously have a big impact on Section 16 filers, and the SEC’s EDGAR Business Office is hosting a webinar focused on this topic on Thursday, January 23, 2025 from 1:00 to 2:30 pm Eastern time. You must register in advance for this webinar. Staff from the EDGAR Business Office will be available to answer questions during this live webinar.
There are very few things in life that are certain, but one thing I can say for certain after living with EDGAR for thirty years is that EDGAR is glitchy and rollouts of big changes can be very rocky. So it is important to focus on these EDGAR Next changes now to avoid surprises and frustrations down the road.
The SEC could have gone two ways with its rollout of Inline XBRL tagging – it could have required Inline XBRL tagging for everything in an SEC filing, which obviously would have created huge burdens for filers, or it could adopt Inline XBRL requirements as part of individual rule changes, which tortures us with a drip, drip of random tagging requirements. Obviously, the SEC chose the latter approach, and as a result it is important to try to stay on top of what new disclosure requirements require Inline XBRL tagging as the annual reporting season for year-end companies kicks off.
In 2025, the following disclosures will require Inline XBRL tagging:
– The new insider trading policies and procedures disclosure required pursuant to Item 408(b) of Regulation S-K;
– The new option grant practices disclosure required pursuant to Item 402(x) of Regulation S-K;
– Pay versus performance disclosures provided by smaller reporting companies; and
– Cybersecurity disclosures required by Item 106 of Regulation S-K (after a one-year phase in).
Keep in mind that if a company does not file interactive data exhibits on a timely basis, the company will be deemed to not be current with its Exchange Act reports for purposes of eligibility for Form S-3, Form S-8 and other forms, and will be deemed not to have available current public information for purposes of Rule 144. A filing delinquency can be remedied by filing an amendment that includes the required interactive data files, at which time the company will be deemed to be current again.
AI, cyber, and other emerging technologies are creating novel, high-stakes risk management and compliance challenges for public and private companies. We have covered SEC compliance and board governance issues associated with these technologies on this blog, and we’ll continue to do that. But we also know that law departments, compliance professionals, and the outside counsel who advise them need more granular guidance – and that’s why we’re excited to introduce our new “AI Counsel Blog.”
Our objective with the AICounsel.com blog is to highlight useful resources and guidance on best practices, as well as to alert readers to evolving issues in order to help front-line risk management and compliance professionals do their jobs. We think you’ll find this blog to be a helpful addition to your morning reading, so check it out and subscribe to receive it in your inbox!
With the proxy season now looming large, you will definitely want to join me, Mark Borges, Alan Dye and Ron Mueller tomorrow at 2:00 pm Eastern time for our annual webcast “The Latest: Your Upcoming Proxy Disclosures.” We are planning to delve into a wide range of topics, including:
– Potential Impact of New Administration on SEC Rulemaking
– Potential Impact on Compensation Disclosure (Pay Ratio, Rule 701 and more)
– Evolution of Clawback Policies, Disclosures to Date and Clawback Mechanics
– Pay vs. Performance — Preparing for the First Year of Five-Year Disclosure
– Proxy Advisor Compensation Policy Updates
– The Key CD&A Topics and Tabular Insights
– New Item 402(x) and Equity Grant Policies
– Incentive Plan and ESG Metric Trends
– Compensation-Related Shareholder Proposals
– Planning for 2025 Say-on-Pay Votes
– Planning for 2025 Equity Plan Proposals
This is a webcast that you don’t want to miss! I know that I always learn a lot during our annual program.
Members are able to attend this critical webcast at no charge. If you’re not yet a member, subscribe now. The webcast cost for non-members is $595. You can sign up by credit card online. If you need assistance, send us an email at info@ccrcorp.com – or call us at 800.737.1271.
We will apply for CLE credit in all applicable states (with the exception of SC and NE who require advance notice) for this 1-hour webcast. You must submit your state and license number prior to or during the live program. Attendees must participate in the live webcast and fully complete all the CLE credit survey links during the program. You will receive a CLE certificate from our CLE provider when your state issues approval; typically within 30 days of the webcast. All credits are pending state approval. This program will also be eligible for on-demand CLE credit when the archive is posted, typically within 48 hours of the original air date. Instructions on how to qualify for on-demand CLE credit will be posted on the archive page.
As I noted in the blog back at the end of November, the PCAOB announced the adoption of a set of new requirements regarding public reporting of standardized firm and engagement metrics, as well as a separate set of amendments regarding the PCAOB framework for collecting information from audit firms. These amendments were subject to approval by the SEC.
As this Thomson Reuters Tax & Accounting article notes, the PCAOB requirements have faced significant pushback from the accounting industry. Right before Christmas, the AICPA submitted a comment letter to the SEC, stating:
As we expressed to the PCAOB in our comment letter dated June 18, 2024, the recently adopted rules mandate the disclosure of performance metrics for audits of accelerated and large accelerated filers, and expanded operational and financial condition reporting by registered accounting firms. These rules will disproportionately affect smaller and medium-sized audit firms. We believe these rules will have unintended negative consequences, including driving small and medium-sized firms out of the public company auditing practice. This would result in fewer firms performing such audits which are critically important for smaller and medium size companies seeking to access the U.S. capital markets. Consequently, companies will face greater challenges and higher costs in meeting necessary audit requirements to access the U.S. capital markets. The PCAOB acknowledges that mid-sized and smaller accounting firms serving small to mid-sized public companies will incur substantial, if not prohibitive, costs in complying with the proposed amendments. The final rules reaffirm the PCAOB’s belief that these rules will disproportionately affect smaller firms.
Other groups have opposed the PCAP rulemaking, including the U.S. Chamber of Commerce, which stated in its letter:
Unfortunately, conditions for sound rulemaking have not been followed in this instance. The PCAOB rushed to adopt these transformative and controversial rules without appropriate consideration of comments, adequate economic analysis, and respect for due process. Despite attempts to address some issues raised in the comment process substantive issues remain.
The SEC also rushed due process and ignored options to give stakeholders sufficient time to participate in a robust comment process. The SEC submitted the Proposed Rules to the Federal Register within two business days of Board adoption and allowed only a few weeks for comments (i.e., twenty-one days from publication in the Federal Register). Other factors likewise reinforce the need for an extended comment period.
On the flip side, the Thomson Reuters article notes that investor groups, including the Council for Institutional Investors, have supported the PCAOB’s action.
Given this comment file, I imagine that this might be a tough one to squeeze under the wire before January 20!
With Gary Gensler set to step down as Chair of the SEC in a week and a half, we have entered the final countdown for his time as Chair. All in all, it has been a pretty quiet past few months at the SEC from a rulemaking perspective, which may have come as a surprise to some, given the very active rulemaking agenda that marked the past three and a half years.
As I have mentioned before, there now seems to be two schools of thought as to SEC rulemaking activity in a Presidential election year. The conventional wisdom that had prevailed during most of my time practicing securities law was that the Commission would significantly curtail its rulemaking activity beginning in the summer before the Presidential election, and that status would continue after the election, even when the same party held onto the White House. That approach was generally not followed at the end of the last Trump administration, when the agency continued to consider a number rulemakings during the time before the 2020 election, and even after the election was over. For example, the SEC adopted the third try at the controversial resource extraction issuer disclosure rules in December 2020, and proposed changes to the Rule 144 holding period and the filing Form 144 filing requirements in that same month. By contrast, we have not seen any significant new proposed or final rulemaking actions affecting public companies over the past six months or so, other than the adoption of the annoying EDGAR Next rules back in September.
With all of that said, the business of the Commission must trudge on, even with an impending change in leadership, and last week the SEC issued an order approving the PCAOB’s amendment to Rule 2107 with respect to withdrawal from registration. The amendment “permits the Board, under specified conditions, to treat a registered firm’s failures both to file annual reports and to pay annual fees for at least two consecutive reporting years as a constructive request for leave to withdraw from registration and to deem the firm’s registration withdrawn.” In a statement, Chair Gensler expressed his support for the PCAOB action, and PCAOB Chair Erica Williams issued a statement noting that the amendment “will not only make PCAOB registration information more useful for investors, audit committees, and other stakeholders, it will also help our organization use its staff time and resources more efficiently and effectively.”
Last month, BlackRock released its updated its voting guidelines that will apply to 2025 annual meetings – including updates to its guidelines for U.S. securities as well as its “Global Principles.” The policy changes are effective as of January 2025.
As this Fenwick alert notes, “while the 2025 proxy voting guidelines are largely consistent with last year’s version, there are a few notable changes, particularly to BlackRock’s policy on board diversity.” On the important topic of board composition, the Fenwick alert goes on to state:
Perhaps the most notable changes to the proxy voting guidelines appear in this section, where the focus is now on “board composition” rather than “diversity” and achieving a variety of “experiences, perspectives, and skillsets.” Going forward, companies are urged to explain how their approach to board composition supports the company’s governance practices.
The updated guidelines (other than a footnote) no longer include references to gender, race/ethnicity, and age. Additionally, the recommendations that boards aspire to at least 30% diversity and include at least two women and one director from an underrepresented group have been removed.
However, the updated guidelines do indicate that to the extent an S&P 500 company board is an outlier and does not have a mix of professional and personal characteristics (including, but not limited to, gender, race/ethnicity, disability, veteran status, LGBTQ+, and national, Indigenous, religious, or cultural identity) that is comparable to market norms, BlackRock may vote on a case-by-case basis against members of the nominating/governance committee.
For companies with smaller market capitalization and those in certain sectors facing more challenges in nominating directors from different backgrounds, BlackRock will look for a relevant mix of professional and personal characteristics.
The alert highlights changes to a number of other governance-related voting guidelines relating to: boards and directors; the oversight role of the board; board term limits and director tenure; capital structure proposals – equal voting rights; material sustainability related risks – climate change; and corporate political activities.
As Liz noted yesterday on The Advisors’ Blog available on CompensationStandards.com, BlackRock made incremental updates to its voting policies that relate to executive compensation, with some of those changes identifying factors that the BlackRock investment stewardship team was already applying in practice to its voting decisions. Liz provides the following highlights for the compensation-related changes:
– Focus on financial value: When it comes to linking pay to performance, BlackRock now specifies that it means “financial” value creation.
– Your rationale for compensation decisions: New language encourages companies to clearly explain how compensation outcomes have rewarded performance (versus basing pay increases solely on peer benchmarking). The policy clarifies that companies should consider rigorous measure(s) of outperformance in addition to peer benchmarking.
– Clawbacks: BlackRock built on its existing policy to say that it expects boards to exercise limited discretion in forgoing, releasing or settling amounts subject to recovery for executives and not to indemnify or insure executives for losses they incur.
– Equity compensation plans: BlackRock added a new paragraph – “We find it helpful when companies submit their equity compensation plans for shareholder approval more frequently than required by listing exchange standards to facilitate the timely consideration of evolving plan governance practices. Particularly when share reserve requests grow significantly versus prior plans, boards should clearly explain any material factors that may potentially contribute to changes from the company’s past equity usage. We may support an equity plan share request if we determine that support for such plan is in the best interests of shareholders; however, we may also vote against members of the compensation committee to signal our concerns about the structure or design of the equity compensation plan or the company’s equity grant practices and the imprudent use of equity.”
– Repricings: For option repricings and exchanges, the policy specifies that BlackRock may vote against members of the compensation committee where a board implements or approves a repricing or option exchange without shareholder approval. Where such a repricing or option exchange includes named executive officers, we may also vote against the company’s annual advisory vote on executive compensation. This builds on BlackRock’s existing policy of voting against equity plans that permit repricing without shareholder approval.
