It’s hard to believe we are just one week away from our “Proxy Disclosure & 21st Annual Executive Compensation Conferences” – bundled together as one great event that you can attend with us in person in San Francisco or virtually!
On October 14th, we’ll take a deep dive into the upcoming proxy season with the “2024 Proxy Disclosure Conference” – with panels on shareholder activism, governance & disclosure of AI, cyber-related disclosure trends, shareholder proposal trends, climate disclosure updates, and more. Plus, you don’t want to miss our first-ever “All-Star Feud,” during which our intrepid “SEC All-Stars” will face off gameshow-style over burning questions on proxy disclosure and executive compensation.
On October 15th, we turn our attention to critical executive compensation matters at the “21st Annual Executive Compensation Conference” – including key updates on proxy advisors, clawback practices, compensation trends, and perks.
In addition to live and on-demand access to these fast-paced sessions, Conference attendees get exclusive access to our Course Materials – which include unique & practical bullet points and examples from our experienced speakers on each topic we’ll be covering. Our speakers go the extra mile to provide usable takeaways. The Course Materials are an invaluable resource to refer back to as proxy season approaches!
For those seeking CLE credit, here’s a list of states in which credit is available – and CLE FAQs about live and on-demand credit.
Act Now: The Conferences begin next Monday, October 14th. With 17 sessions over 2 days, you’ll walk away with action items to help support director elections and say-on-pay, leverage your executive compensation, and avoid costly mistakes. You can still register. Sign up online or by calling 1-800-737-1271.
Lastly, if you have registered, remember that your unique access link and attendance instructions will be emailed to you from no-reply@events.ringcentral.com. Here’s more detail on what to watch for.
Late last week, the SEC posted notice that it was extending the time period for action on Nasdaq’s proposal to accelerate the delisting process for non-compliance with minimum bid price requirements. I blogged about the proposed amendment when it was published in August – and Meredith shared follow-up commentary that AI and biotech startups are most at risk of delisting if the rule is approved.
The Commission has now designated November 21st as the date by which it will either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change.
I’m delighted to return, with Vontier’s Courtney Kamlet, for the 6th season of our “Women Governance Trailblazers” podcast. In our latest 20-minute episode, we interviewed Karen Boykin-Towns, who is an independent director at iFit, Vice Chair of the NAACP National Board of Directors, President/CEO of Encore Strategies, and a Senior Advisor of FGS Global. Karen is also a former Pfizer executive (her leadership roles include its first-ever Chief Diversity Officer in 2008). We discussed:
1. Karen’s career path, current endeavors and what she’s been most proud of over the course of her career.
2. Karen’s thoughts on the current state of corporate diversity, equity and inclusion programs and commitments.
3. How companies can balance the call to numerically measure progress in DEI initiatives with the arguments that inclusion can’t be measured and that quotas create legal risk.
4. Karen’s experience on the iFit board, including the decision to withdraw the company’s IPO.
5. Advice to boards and management for adapting to rapidly shifting information, and for monitoring their corporate reputation and emerging issues before they become a crisis.
6. What Karen thinks women in the corporate governance field can add to the current conversation on the societal role of companies.
To listen to any of our prior episodes of Women Governance Trailblazers, visit the podcast page on TheCorporateCounsel.net or use your favorite podcast app. If there are “women governance trailblazers” whose career paths and perspectives you’d like to hear more about, Courtney and I always appreciate recommendations! Shoot me an email at liz@thecorporatecounsel.net.
As John noted here and Alan noted over on the Section16.net blog, last week the SEC announced yet another enforcement sweep in the area of beneficial ownership and Section 16 reporting. As part of the sweep, the SEC announced settled charges against 23 entities and individuals for failure to timely report about their securities holdings and transactions in public company securities. The SEC brought similar “sweep” cases in this area in the past, including in 2014, 2015 and 2023. As in the past, the SEC has made clear that it uses the agency’s data analytics capabilities to identify the reporting violations that Enforcement then pursues.
Notable among these numerous cases is that, in two of the cases, the company had undertaken to make Section 16 filings for its insiders, but the filings were repeatedly late, and the company also failed to make required disclosures regarding delinquent Section 16 filings. As we all know, the individual insiders (e.g., officers, directors and greater than 10% shareholders) have the obligation to file their required Section 16 reports; however, in most situations that I have seen over the years, companies voluntarily take on the obligation to file the Section 16 reports for officers and directors (and sometimes significant shareholders). This voluntary undertaking happens out of “market” practice and a genuine desire on the part of the company to make things more convenient for the insiders, but as these recent SEC sweep cases demonstrate, a company can face some legal consequences for late filings and missed disclosures when things go awry.
In two of the cases involving a large number of late Section 16 filings, the SEC charged the companies who voluntarily accepted the responsibility to file the insider’s Section 16 reports with causing the Section 16(a) violations. As one Order Instituting Cease-and-Desist Proceedings notes:
14. Although the Commission encourages the practice of many issuers to assist insiders in complying with Section 16(a) filing requirements, issuers who voluntarily accept certain responsibilities and then act negligently in the performance of those tasks may be liable as a cause of Section 16(a) violations by insiders.
15. Since at least 2018, Respondent has voluntarily agreed with its officers and directors, as well as two other greater than 10% beneficial owners, to perform certain tasks in connection with the filing of Section 16(a) reports on their behalf, including the preparation and filing of all such reports for which Respondent had timely notification of the required information concerning the transactions. However, on multiple occasions, Respondent acted negligently in its performance of such tasks and was a cause of Legacy insiders failing to file Section 16(a) reports on a timely basis. The procedures and practices employed by Respondent were insufficient to the extent that those practices resulted in the recurrent failure to meet the two-business day filing deadline.
16. For example, between July 2019 and July 2022, Respondent’s insiders filed more than 200 untimely Forms 4 to report transactions related to, among other things, open-market stock sales and award grants of stock and options to officers and directors. Although Respondent had agreed to perform all tasks in connection with preparing and filing such reports, the reports were not timely filed due to Respondent’s negligent procedures and practices.
17. As a result of the conduct described above, Respondent was a cause of certain violations of Section 16(a) of the Exchange Act and Rule 16a-3 thereunder by Respondent’s insiders.
The company was also charged in this case with failing to disclose the late filings pursuant to Item 405 of Regulation S-K, noting:
11. Respondent failed to make the required Item 405 disclosure for its 2019, 2020, and 2021 fiscal years by improperly omitting it from its Forms 10-K filed with respect to such fiscal years. Respondent’s Forms 10-K filed with respect to such fiscal years purported to provide all Part III information required, such as information regarding its executive officers, directors, corporate governance and other required matters, but failed to include any Item 405 disclosure and did not state that it was incorporating by reference any information from other filings. An issuer may only omit the disclosure if there are no Section 16(a) delinquencies to report, and numerous Legacy insiders had multiple delinquent filings during each of its 2019, 2020, and 2021 fiscal years. Respondent also did not file an amendment to such Forms 10-K not later than 120 days after the end of the fiscal year covered by the Form 10-K to provide such information or file a definitive proxy statement no later than the end of the 120-day period that included such information.
These latest sweep cases emphasize the need to implement robust procedures and controls whenever a company voluntarily takes on the obligation to file SEC reports on behalf of insiders. While there is no one-size-fits-all approach that can apply to every situation, companies should consider:
1. Dedicating sufficient resources to the company’s Section 16 filing responsibilities, including providing sufficient staffing, training and resources such as Section16.net;
2. Establishing clear lines of responsibility for the preparation, review, approval and filing of the Section 16 reports in a timely manner;
3. Establishing a robust tracking system for monitoring transactions by and holdings of insiders that facilitates the prompt reporting of transactions;
4. Educating insiders and company personnel on the consequences of late or missed Section 16 filings and emphasizing the importance of timely communication with the company whenever transactions in company securities are contemplated;
5. Emphasizing to insiders the importance of promptly responding to requests to approve Section 16 reports that the company has prepared so those filings can be made within a two business day timeframe;
6. Leveraging the preclearance process applicable to insiders in the company’s insider trading policy as an “early warning system” for upcoming Section 16 filings;
7. Implementing appropriate follow-up procedures so that someone outside of the process of preparing the report is checking to see if the Section 16 report is on track to be timely submitted to the SEC;
8. Utilizing appropriate questions in D&O Questionnaires to solicit information about potential filing delinquencies so those delinquencies can be addressed and reported in accordance with the company’s disclosure obligation under Item 405 of Regulation S-K;
9. Establishing procedures for amending reports or filing late reports in a timely manner when it is determined that an error has occurred; and
10. Periodically reviewing the Section 16 filing process to determine if improvements can be made to the process and procedures.
Are there other procedures that you have put in place to facilitate the timely filing of Section 16 reports? Send them my way, I would love to hear from you!
I don’t know about you, but in the current high-risk environment that we live in, I seem to have risk factors running through my brain on a loop and it is very difficult to quiet them down. I suspect that is a message to me that it is a good time to revisit public company risk factor disclosure as we enter yet another reporting cycle to see if any material updates are warranted in this particularly risky time. Here are my top five risk areas that seem to haunt me the most:
1. Political risks – As we have seen in the past two Presidential elections, some companies are including risk factors that address the political uncertainties that we face in this country and the potential consequences for public companies.
2. Conflict risks – With the continued war in Ukraine and rising tensions in the Middle East, companies should continue to review their risk factors concerning geopolitical risks and conflict around the world.
3. Cybersecurity risks – The cybersecurity threat environment only seems to get scarier every day, so it is always a good idea to stay current in your disclosure concerning the nature of that threat environment and the incidents that the company has been experiencing.
4. Artificial intelligence risks – As companies increasingly integrate generative AI into their business, risk factor disclosure should continue to evolve as risks with AI continue to reveal themselves.
5. Climate risks – While the SEC’s climate disclosure rules remain on pause, the SEC’s 2010 climate guidance is still applicable to your public disclosures, including the guidance about risk factor disclosure. Weather-related events over the course of the past year have certainly emphasized areas where companies may encounter climate risk in their daily operations, so it is important to keep any risk factor disclosure on this topic up-to-date.
Keep in mind that risk factors should be tailored to provide investors with an accurate and complete view of the risks that the company faces. Further, it is not sufficient to highlight a risk in the abstract or as a hypothetical risk when company has experienced that risk.
Well, it is hard to believe that our 2024 Proxy Disclosure and the 21st Annual Executive Compensation Conferences in San Francisco are just nine days away! This will be my last impassioned plea for you to register for these Conferences. It will be great to be attending in person this year, and even if you are not able to attend the live show, there is a virtual option.
I want to thank all of the great folks at CCRcorp, who have worked very hard to make this an outstanding event, and I also want to thank all of our great speakers, who have put in so much effort getting ready for the Conferences. It is not too late to register, so please sign up today!
Yesterday, the SEC announced that SEC Enforcement Director Gurbir Grewal will be leaving the SEC, effective October 11, 2024. Sanjay Wadhwa, the Division’s Deputy Director, will serve as Acting Director, and Sam Waldon, the Division’s Chief Counsel, will serve as Acting Deputy Director. Grewal’s tenure as Director of the Division of Enforcement will no doubt be remembered for being very active. The press release announcing the personnel changes notes:
“We have been incredibly fortunate that such an accomplished public servant, Gurbir Grewal, came to the SEC to lead the Division of Enforcement for the last three years,” Chair Gary Gensler said. “Every day, he has thought about how to best protect investors and help ensure market participants comply with our time-tested securities laws. He has led a Division that has acted without fear or favor, following the facts and the law wherever they may lead. I greatly enjoyed working with him and wish him well.”
Chair Gensler added, “I’m pleased that Sanjay Wadhwa has said yes to taking on the Acting Director role. He has served as part of a remarkable leadership team, along with Gurbir, as Deputy Director and has been with the agency for more than two decades. He has shown strong leadership, is widely respected among his colleagues, and has provided invaluable counsel to the Commission. I’m pleased that Sanjay will be joined by Sam Waldon, currently Enforcement’s Chief Counsel, who is becoming Acting Deputy Director. Sam has provided sound advice to the Division and the Commission on critical legal issues.”
Before joining the SEC as Director of the Division of Enforcement in June 2021, Grewal served as Attorney General of the State of New Jersey, and he had served as a prosecutor at the state and Federal levels. He spent time in private practice as well.
Over the next few months, we will likely be covering more departures of the SEC’s current leadership. It is rare these days that Directors and other senior leaders at the SEC serve for more than the few years that coincide with a Chair’s tenure. Particularly in a Presidential election year where no incumbent is running, it is foreseeable that changes to the SEC’s leadership and agenda will be coming soon, no matter what the outcome of the election. In my recollection, the reality of this inevitable turnover at the top at the SEC is always tough to navigate, because as a Staffer you are doing your thing and then someone new comes along and changes the priorities without necessarily understanding the situation. But then again, that is the job you sign up for!
Last week, the SEC posted a notice indicating that the NYSE had withdrawn a proposed rule change that would have extended the deadline for a de-SPAC transaction from 36 to 42 months in certain circumstances. This Cooley blog notes:
The proposal would have extended that deadline to 42 months under certain circumstances. As proposed to be amended, Section 102.06e would have provided that the SPAC “will be liquidated if it has not (i) entered into a definitive agreement with respect to its Business Combination within (A) the time period specified by its constitutive documents or by contract or (B) three years, whichever is shorter or (ii) consummated its Business Combination within the time period specified by its constitutive documents or by contract or forty-two months, whichever is shorter.” If the SPAC failed to comply, the NYSE would promptly commence delisting procedures.
The NYSE proposal was originally posted in April, and in May, the SEC posted a notice of designation of a longer period for SEC action. Then, in July, the SEC posted an Order instituting proceedings to determine whether to approve or disapprove the proposed rule.
The SEC’s Order Instituting Proceedings raised a number of concerns with the NYSE proposal, and the only comment letter that was submitted by the Council of Institutional Investors expressed concerns about the proposal that were consistent with the SEC’s concerns. With all of these headwinds, it is not too surprising that the NYSE ultimately withdrew the proposed rule change.
Members are able to attend this critical webcast at no charge. The webcast cost for non-members is $595. If you’re not yet a member, subscribe now by emailing sales@ccrcorp.com – or call us at 800.737.1271.
The SEC recently announced the publication of its report to Congress summarizing policy recommendations made during the 43rd Annual Small Business Forum. The Forum, which took place on April 16-18, is hosted by the SEC’s Office of the Advocate for Small Business Capital Formation. As this Mayer Brown blog notes, the report highlights the following fifteen policy recommendations that emerged from the dialogue at the Forum:
– Support entrepreneurs, including underrepresented founders, with modernized educational resources to allow businesses to better understand how to access capital, including capital from investors
– Expand the accredited investor definition to include additional measures of sophistication, including through an investor course or test
– Establish a regulatory framework for finders that includes an exemption from broker-dealer registration and helps facilitate small business capital formation
– Expand regional, federal, and state options available for non-dilutive funding to support the earliest stages of entrepreneurship
– Ensure capital raising rules provide equitable access to capital for underrepresented founders and investors
– Bolster and expand tax incentives that promote equity ownership and drive investment in the startup and small business ecosystem
– Focus SEC rulemaking efforts on reducing administrative and regulatory burdens on small business and their investors to improve capital allocation efficiency
– Support underrepresented emerging fund managers—specifically diverse and women managers—who are building funds that diversify capital allocation, engage sophisticated investors, and challenge pattern matching trends
– Support companies that offer equity ownership to employees and gig workers, and support policies that would better enable employee-owners to realize the value of their equity through transparency, appropriate tax policy, and access to secondary liquidity
– Expand venture capital funds’ qualifying investments to include fund-of-funds investments in other venture capital funds and investments acquired through secondary transactions
– Increase the $75 million public float threshold in the accelerated filer definition so that only larger filers are required to provide an auditor attestation of management’s assessment of internal control over financial reporting over Section 404(b) of the Sarbanes-Oxley Act
– Revise the “small entity” definition under the Regulatory Flexibility Act to better assess the regulatory costs of compliance for small and growing businesses
– Improve public trading for small companies by requiring more disclosures about short selling, institutional holdings, insider and affiliate holdings and transactions, paid stock promotion and information about the security from transfer agents
– Revise the public float and revenue thresholds for smaller reporting companies and accelerated filers to be rolling averages instead of thresholds determined on a particular date
– Revise Section 12(g) of the Securities Exchange Act of 1934 to remove the threshold for non-accredited investor holders and increase the asset threshold to $20 million
In commenting on the views of participants with respect to the challenges facing smaller public companies, the report notes that participants identified the principal challenge confronting smaller public companies as the cost of compliance. This was followed, in turn, by the burden of reporting requirements, and by trading volume concerns. Participants noted that the top priority for smaller public companies when it comes to their investors and shareholders was attracting more institutional investors. The next most significant priorities were engaging with investors and generating return on investment. Generally, the Forum recommendations have been considered by the SEC in connection with rulemaking.
Whether Congress or the SEC will take up any of the report’s suggestions is hard to say. Improving access to capital for smaller businesses does remain on the radar in Congress. For example, earlier this year, the U.S. House of Representatives passed H.R. 2799, the Expanding Access to Capital Act, which sought to build on the success of the JOBS Act of 2012, but that legislation did not advance in the Senate.
