The latest issue of The Corporate Executive newsletter has been sent to the printer. It is also available now online to members of TheCorporateCounsel.net who subscribe to the electronic format. This issue addresses a number of very timely topics for the proxy season:
– DEI Developments: Adjusting Your Practices and Disclosures Now
– Pay Versus Performance Disclosure: Lessons from SEC Comment Letters
– Executive Security Arrangements: Approaching Your Disclosures
On the topic of DEI Developments in particular, the January-February issue of The Corporate Executive notes:
The opening days of 2025 have presented a particular challenge for public companies when it comes to their efforts to promote diversity, equity and inclusion (“DEI”). Against a backdrop of a growing anti-ESG sentiment and 2024’s spate of anti-DEI activism, public companies (and the rest of the U.S.) have been confronted with a particularly rapid about-face on DEI programs at the federal level, including specific actions by the new Trump Administration to target such programs in the private sector.
The timing of the federal efforts to reverse DEI-related policies came just as many public companies were finalizing their annual reports and drafting disclosures in proxy statements for upcoming annual meetings. Companies have been assessing the risks that they face with their DEI-related activities and have been prompted to revisit their messaging around such efforts, while the proxy advisory firms and some institutional investors have recently pivoted in their own approaches to topics such as board diversity. Beginning on page 2, we survey the complicated and rapidly evolving DEI landscape, while offering our thoughts on what companies should consider now in light of the current environment.
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I may be seriously dating myself, but I can’t help humming the Pete Seeger song “Where Have All the Flowers Gone?” when preparing proxy statements this season, as it is became clear that all of the annual Schedule 13Gs amendments that we relied on each year to update the beneficial ownership table have disappeared, thanks to the SEC’s 2023 amendments to the Schedule 13D/G reporting requirements. Companies have had to adapt upon discovering that the updated beneficial ownership information that was required to be filed by February 14th each year is no longer available.
Prior to the effective date of the 2023 amendments to Schedule 13D/G filing requirements, beneficial owners who filed on Schedule 13G were required to file annual amendments to Schedule 13G if there had been any change in the previously filed Schedule 13G as of the end the calendar year. The deadline for this annual filing was 45 calendar days after the end of the calendar year, which usually fell on February 14th (unless that day fell on a weekend or holiday), which neatly coincided with the time when most calendar year end companies prepared their proxy statements that must report the beneficial ownership of greater than 5% beneficial owners as of the “most recent practicable date.”
As Liz noted last year, beginning with the quarter ended September 30, 2024, a beneficial owner that files on Schedule 13G is required to file amendments quarterly only if there is a “material” change to its existing disclosure. While the SEC hasn’t expressly defined what constitutes a “material” change, it has pointed to the “reasonable investor” test and Rule 13d-2(a) as instructive. Rule 13d-2(a) deems the acquisition or disposition of beneficial ownership of 1% or more of a covered class as a material change in the Schedule 13D amendment context.
This change in the reporting requirements applicable to beneficial owners is significant for companies, because when it comes to disclosure concerning greater than 5% beneficial owners, Instruction 3 to Item 403 of Regulation S-K states:
The registrant shall be deemed to know the contents of any statements filed with the Commission pursuant to section 13(d) or 13(g) of the Exchange Act. When applicable, a registrant may rely upon information set forth in such statements unless the registrant knows or has reason to believe that such information is not complete or accurate or that a statement or amendment should have been filed and was not.
229.02 When asked whether an issuer would be required to consider Form 13-F reports of “investment discretion” in determining the identity of 5 percent beneficial owners under Item 403(a), the Division staff advised that the concept of “investment discretion” was not the same as “beneficial ownership,” noting that investment managers subject to Form 13-F reporting would also have to file Schedule 13D or Schedule 13G if their interest in the securities constituted beneficial ownership. The Division staff emphasized the statement in Item 403 that the issuer could rely on Schedules 13D and 13G, but that such reliance could not be exclusive if it had knowledge (or has reason to believe that such information is not complete or accurate or that a statement or amendment that should have been filed was not) of any 5 percent beneficial owners who had not filed such reports. [Mar. 13, 2007]
The early indications are that companies preparing their Item 403 of Regulation S-K beneficial ownership tables are continuing rely on information set forth in the beneficial owner’s last Schedule 13D or Schedule 13G (or amendment) as permitted by Instruction 3 to Item 403 of Regulation S-K, even when that last filing was not recently filed. The disclosure in the footnotes to the table clearly indicates the date of that source report. Obviously, if a company knows or has reason to believe that the information in the Schedule 13D/G is not complete or accurate when the beneficial ownership table is being prepared, the company does have an obligation to update the information accordingly as specified in Instruction 3 to Item 403(b) of Regulation S-K. As was the case prior to the effective date of the Schedule 13D/G amendments, practice varies as to the extent companies look to information reported on Form 13F, although as Regulation S-K CDIs Question 229.02 notes, Form 13F reporting obligations are based on the concept of “investment discretion,” which is different from the concept of “beneficial ownership.”
The SEC has announced that the newly-inaugurated Crypto Task Force will host a series of roundtables to discuss key areas of interest in the regulation of crypto assets. This series is dubbed the “Spring Sprint Toward Crypto Clarity” and the first event will take place on March 21 at the SEC’s headquarters and virtually. The first roundtable is titled “How We Got Here and How We Get Out – Defining Security Status” and the SEC’s announcement states:
The initial roundtable on March 21 is open to the public and will be held from 1:00 p.m. to 5:00 p.m. at the SEC’s headquarters at 100 F Street, N.E., Washington, D.C. Please note that the number of in-person participants may be limited and visitors will be subject to security checks. The primary discussion will be streamed live on SEC.gov, and a recording will be posted at a later date. In addition to the roundtable, all attendees will be able to participate in small group breakout sessions which will not be broadcast. Information regarding the agenda and roundtable speakers will be posted on the Crypto Task Force webpage in the coming days.
The public is invited to communicate directly with the Crypto Task Force on this and other topics.
– Nasdaq and NYSE’s minimum bid price requirements
– The basics of reverse stock splits
– The problem the stock exchanges were looking to solve with recent amendments
– Nasdaq’s numerous rule changes since 2020 related to compliance periods, notice requirements and accelerated delisting for companies with repeated stock splits or a bid price at or below $0.10
– The rules applicable to NYSE companies and NYSE’s recent amendment
– The potential impact of the rule changes and takeaways for listed companies
If you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share, just send an email to John at john@thecorporatecounsel.net or Meredith at mervine@ccrcorp.com.
On Sunday, the Treasury Department issued yet another announcement on the enforcement and future of the beneficial ownership information reporting under the Corporate Transparency Act (CTA). The announcement notes:
The Treasury Department is announcing today that, with respect to the Corporate Transparency Act, not only will it not enforce any penalties or fines associated with the beneficial ownership information reporting rule under the existing regulatory deadlines, but it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either. The Treasury Department will further be issuing a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only. Treasury takes this step in the interest of supporting hard-working American taxpayers and small businesses and ensuring that the rule is appropriately tailored to advance the public interest.
“This is a victory for common sense,” said U.S. Secretary of the Treasury Scott Bessent. “Today’s action is part of President Trump’s bold agenda to unleash American prosperity by reining in burdensome regulations, in particular for small businesses that are the backbone of the American economy.”
Sunday’s announcement represents the third major development with the CTA in just the past two weeks! As Meredith noted on February 20, FinCEN had announced that beneficial ownership information reporting requirements under the CTA were back in effect following key court developments, with a new deadline of March 21, 2025 for most companies. Then, on February 27, FinCEN announced that it would not issue any fines or penalties or take any other enforcement actions against any companies based on any failure to file or update beneficial ownership information reports pursuant to the Corporate Transparency Act by the current deadlines, while also seeking to issue a new interim final rule that would extend the BOI reporting deadlines and solicit public comment for potential revisions to existing BOI reporting requirements.
It is understandable if you are feeling a bit of whiplash given all of the CTA developments that have played out over the past few weeks and months. At this point, it appears that at least some entities can go “pencils down” on their beneficial ownership information reporting under the CTA, and you can follow the forthcoming developments in our “Beneficial Ownership” Practice Area.
Yesterday, the SEC announced that Corp Fin has issued guidance that enhances the accommodations available to companies for nonpublic review of draft registration statements. The SEC’s announcement notes:
The enhanced accommodations will expand the types of forms eligible to be submitted as draft registration statements for nonpublic review and permit reporting companies to submit draft registration statements for nonpublic review regardless of how much time has passed since their initial public offering. In addition, companies will have added flexibility to start the review process earlier by omitting certain underwriter disclosures from their initial submissions.
More specifically, the updated Corp Fin guidance notes the following changes to the existing framework for the Staff’s review of nonpublic draft registration statements:
The Division is expanding the accommodations available for issuers that submit draft registration statements for nonpublic review. We first expanded the voluntary draft registration statement submission accommodations beyond Emerging Growth Companies to include all issuers in 2017. Based on our experience, we believe that further expansion of these accommodations can facilitate capital formation, without diminishing investor protection.
The enhanced accommodations include:
– Expanding the availability of the nonpublic review process for the initial registration of a class of securities under the Exchange Act to include both Section 12(b) and Section 12(g) registration statements on Forms 10, 20-F, or 40-F.
– Permitting issuers to submit draft registration statements regardless of how much time has passed since they became subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act.
– Expanding the availability of the nonpublic review process for a de-SPAC transaction in situations where the SPAC is the surviving entity (i.e., SPAC-on-top structure) as long as the target is eligible to submit a draft registration statement.
– Permitting issuers to omit the name of the underwriter(s) from their initial draft registration statement submissions, when otherwise required by Items 501 and 508 of Regulation S-K, provided that they include the name of the underwriter(s) in subsequent submissions and public filings.
The review of draft registration statements has proven to be a useful process for companies seeking to go public or conduct their first follow-on offerings, so these enhancements to the Staff policy are welcome. The guidance notes that companies may submit questions about their eligibility to use the expanded processing procedures to CFDraftPolicy@sec.gov.
Join us tomorrow at 2:00 pm Eastern for our “Director Independence: Recurring Issues and Recent Developments” webcast to hear Skadden’s Caroline Kim, Gunster’s Bob Lamm, Davis Polk’s Kyoko Takahashi Lin and Morris Nichols’ Kyle Pinder discuss the many considerations relevant to determining and disclosing director independence. This is a webcast that you do not want to miss!
Members of this site are able to attend this critical webcast at no charge. If you’re not yet a member, try a no-risk trial now. Our “100-Day Promise” guarantees that during the first 100 days as an activated member, you may cancel for any reason and receive a full refund. 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 which require advance notice) for this 60-minute webcast. You must submit your state and license number prior to or during the program using this form. 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.
On Friday, State Street Global Advisors released an updated Proxy Voting and Engagement Policy that reflects several significant shifts in approach going into the 2025 proxy season. Similar to recent changes made by Blackrock and Vanguard in their voting policies, State Street has moved away from specific targets regarding board diversity, which, as this Reuters article notes, marks a significant shift for the asset manager that launched the “Fearless Girl” campaign in 2017.
Given the SEC Staff’s recent CDI which has significantly impacted shareholder engagement by large asset managers, State Street prefaces its updated policy with the statement:
When engaging with and voting proxies with respect to the portfolio companies in which we invest our clients’ assets, we do so on behalf of and in the best interests of the client accounts we manage and do not seek to change or influence control of any such portfolio companies. The State Street Global Advisors Global Proxy Voting and Engagement Policy (the “Policy”) contains certain policies that State Street Global Advisors will only apply in jurisdictions where permitted by local law and regulations. State Street Global Advisors will not apply any policies contained herein in any jurisdictions where State Street Global Advisors believes that implementing or following such policies would be deemed to constitute seeking to change or influence control of a portfolio company.
In last year’s policy, State Street had stated the firm expected boards of companies in major indexes to be 30% female, while S&P 500 companies were also expected to have at least one racial or ethnic minority director. In the newly-updated policy, these targets are no longer included, and instead State Street notes:
We believe effective board oversight of a company’s long-term business strategy necessitates a diversity of backgrounds, experiences, and perspectives, which may include a range of characteristics such as skills, gender, race, ethnicity, and age. By having a critical mass of diverse perspectives, boards could experience the benefits that may lead to innovative ideas and foster more robust conversations about a company’s strategy.
We recognize that many factors may influence board composition, including board size, geographic location, and local regulations, among others. Further, we believe that a robust nominating and governance process is essential to achieving a board composition that is designed to facilitate effective, independent oversight of a company’s long-term strategy. We believe nominating committees are best placed to determining the most effective board composition and we encourage companies to ensure that there are sufficient levels of diverse experiences and perspectives represented in the boardroom.
These changes to State Street’s policy track the changes made by the other two members of “The Big Three.” BlackRock’s updated proxy voting guidelines for 2025 no longer recommend that boards seek to have at least 30% of their directors be diverse, or indicate the prospect of an adverse voting action if a company does not adequately explain its approach to board diversity, noting instead that the investor may vote against members of the nominating committee of an S&P 500 company whose board “does not have a mix of professional and personal characteristics that is comparable to market norms.” Vanguard also softened its approach to board diversity for the 2025 proxy season, noting now that boards should be “fit for purpose by reflecting sufficient diversity of skills, experience, perspective, and personal characteristics (such as gender, age, race, and ethnicity) resulting in cognitive diversity.” Vanguard indicates that its funds may vote against a nominating committee chair if a company’s board composition and related disclosure is not consistent with market-specific governance frameworks or market norms. The proxy advisory firms also pivoted on their approach to diversity in the wake of the Trump Administration’s Executive Orders on diversity, with ISS announcing that it will no longer consider the gender, racial or ethnic diversity of a company’s board of directors when making vote recommendations with respect to the election or re-election of directors at U.S. companies, and with Glass Lewis expected to announce its revised approach today.
In a document titled “Introduction to the 2025 Proxy Season,” State Street’s Global Head of Asset Stewardship describes the firm’s move away from addressing specific voting outcomes in its voting policy:
We regularly review and refine our approach to ensure it supports effective stewardship while adapting to evolving market needs. Rather than incorporating specific potential voting outcomes including those on director elections, this year our Policy sets forth what we believe are best practices for good governance at portfolio companies and includes our viewpoints regarding what we believe can protect and promote the long-term economic value of our clients’ investments.
Some other significant changes to State Street’s policy for 2025 include:
1. With respect to director time commitments, rather than applying numerical limits on an individual director’s board memberships, State Street now considers “whether companies provide disclosures on how their nominating committees evaluate and monitor individual directors’ time commitments as a whole.”
2. A change in approach on annual director elections and board independence, consistent with State Street’s belief that these reflect good governance practices.
3. On the topic of ESG disclosures, State Street looks to companies “to provide disclosure on sustainability-related risks and opportunities that they deem material to their businesses in line with applicable local regulatory requirements and any voluntary standards and frameworks adopted by the company.”
With the release of State Street’s updated Proxy Voting and Engagement Policy, we now have a clear picture of how different this proxy season is going to be as compared to years past. This is going to get interesting folks, so strap in!
On Friday, the SEC announced that it will host a roundtable discussion on Artificial Intelligence in the financial industry. The event will take place on March 27th at the SEC’s headquarters in Washington, DC and virtually. The announcement notes: “The AI roundtable will discuss the risks, benefits, and governance of AI in the financial industry.”
Advance registration is encouraged for those planning to attend in person. The SEC is also soliciting comments from the public in anticipation of this event.
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. I poured my heart and soul into this issue and came up with the following articles:
– The Other Ownership Reports: Taking a Deep Dive into Form 13F and Form 13H
– Beware of the “Other” Shareholder Proposal Rule This Proxy Season: Considering Rule 14a-4
– Changing the Annual Meeting Date: A Refresher
Please email sales@ccrcorp.com to subscribe to this essential resource if you are not already receiving the important updates we provide in The Corporate Counsel newsletter.
