When I mentioned in a blog post yesterday that more stock market volatility is undoubtedly on the way, I certainly did not envision a market rout of the scale that we experienced yesterday. As a student of finance (I have a Master’s degree in finance, believe it or not), I would have thought that the markets had already priced in the risks from tariffs to a great extent, given that trade policy was a major plank of President Trump’s campaign platform and he had in fact already imposed significant tariffs against major trading partners (not just remote islands where the only inhabitants are penguins). But unfortunately, markets do not operate with the ruthless efficiency that was touted in my finance textbooks and are instead fragile creatures susceptible to overreaction and panic when reality bites. The major stock indexes experienced their worst day since the depths of the pandemic in 2020, with the Dow Jones Industrial Average down 4% and the Nasdaq Composite down 6%. Strangely, we did not see the usual announcement from the SEC that is posted during market freefalls in which the agency assures use that it is closely monitoring markets.
I don’t know about you, but I have very distinct memories of the stock market routs that I have experienced over the course of my adult life. I was in college when the infamous “Black Monday” crash occurred on October 19, 1987. It was cataclysmic in its scale, with the Dow Jones Industrial Average dropping 22.6% in a single trading session, representing the largest stock market rout since the Great Depression. Next up was the bursting of the dot.com bubble in the early 2000s, which was much more of a prolonged form of torture. I was in private practice at the time and wondering where my next deal was going to come from, but then the corporate scandals came along and I was very busy for the next couple of years. And then of course there was the 2008 financial crisis, which prompted a prolonged market collapse where the Dow Jones Industrial Average fell by 53 percent between October 2007 and March 2009, as we all teetered on the edge of the economic equivalent of “nuclear winter.” In more recent memory, we experienced the terrifying market descents that arrived with the realization of the scope and impact of the COVID-19 pandemic and the measures taken to prevent the spread of the disease, which at the time seemed like something approaching “end of days.” In all of these cases, the markets eventually dusted themselves off and got back up to continue their ascent. Sometimes it took only a few days, and sometimes it took years. Let’s hope that this time we are in the “only a few days” category.
In the meantime, public companies of all shapes and sizes are scrambling to come up with a game plan for addressing the new market and economic environment that is brought about by the shift in global trade policy. Here are five key considerations from my perspective:
1. The impact of the tariffs, including the potential for supply chain disruptions and the closing of existing global markets, should be assessed quickly so that the uncertainty can be addressed in upcoming earnings releases, earnings calls and SEC filings. For some companies, it may be necessary to accelerate the earnings process or schedule ad hoc presentations to address investor concerns as quickly as possible. In the meantime, companies should be cognizant of Regulation FD when communicating with investors and analysts who are seeking immediate answers through one-on-one communications. Many companies will likely need to revisit their earnings guidance for the year, and those revisions will need to be addressed quickly in upcoming earnings communications. In prior periods of significant economic uncertainty (such as during the COVID-19 pandemic), many companies were forced to suspend or discontinue their guidance, given the difficulty in forecasting future performance.
2. Companies are obligated to address in the MD&A “known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations” and “known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant’s liquidity increasing or decreasing in any material way.” I would say that these tariff actions fall squarely in the “known trends and uncertainties” category, so even though they go into effect in the current quarter, companies will need to address the impact of the tariffs and the other potential collateral consequences in SEC filings covering the recently ended quarter. Disclosures in SEC filings should be closely aligned with the messaging in the company’s earnings release and earnings call and any other public statements on the topic.
3. Companies will need to carefully assess their liquidity and capital needs in light of the potential for continued volatility in the markets, the potential impact of the global trade situation and the prospect of an economic recession. There may be opportunities to advantageously access the debt capital markets or lending markets as interest rates continue to decline. As we last saw with the COVID-19 pandemic, when faced with significant uncertainty, companies often shift into a cash preservation mode, and thereby delay or abandon plans for major capital expenditures, acquisitions, etc.
4. Many companies will inevitably consider ways to prop up their stock price, given the profound market drop that we experienced yesterday. During the early days of the COVID-19 pandemic, share repurchase programs proliferated as companies sought to stem the tide of stock price declines. A significant challenge for companies at this particular point in time is that they are likely in possession of material nonpublic information about their completed fiscal quarter (and potentially the impact of the new tariffs), so unless they had put a Rule 10b5-1 plan in place prior coming into possession of that information, such companies will not be able to enter the market to repurchase their own securities pursuant to a pre-existing share repurchase program or under a newly-established program until the material nonpublic information is disclosed. Those companies that do not currently have a share repurchase program in place may wish to get the board to approve one, so that it could be announced when the company releases its earnings. In evaluating whether to repurchase shares in an effort to support the company’s stock price, companies should carefully consider their liquidity needs and whether the cash directed toward share repurchases is better preserved or directed elsewhere during this time of significant uncertainty.
5. A prolonged decline in stock prices and uncertainty about the ability to meet financial objectives due to external factors can wreak havoc on equity and incentive compensation programs. Companies will inevitably struggle with how to properly incentive their executives and employees during the course of turbulent market and economic conditions. In my opinion, companies should resist the urge to consider option repricings, for all of the reasons that I lay out in the ariticle “Option Repricing: Are You That Deparate?” in the May-June 2022 issue of The Corporate Executive. Similarly, companies should think twice about “moonshot awards” as a means to retain executives, as a I discuss in the articles “To the Moon and Back: A Reflection on ‘Moonshot Awards’” in the July-August 2022 issue of The Corporate Executive and “Houston, We Have a Problem: When ‘Moonshot’ Awards Come Back to Earth” in the May-June 2024 issue of The Corporate Executive. Depending on how all of this plays out, companies may need to revisit their incentive compensation programs so that they can continue to retain talent during tough times, often in ways that prove to be unpopular with the proxy advisory firms and institutional investors. Finally, companies should be monitoring any situations where executives have pledged a significant amount of their stock. As you may recall, during and after the financial crisis, the stock market rout triggered forced sales of company securities for executive officers and directors of public companies, resulting in high-profile meltdowns at some major companies. For more on this topic, check out my article “Hedging and Pledging Revisited in Volatile Markets” in the May-June 2022 issue of The Corporate Executive.
This week on the Proxy Season Blog, Liz notes a trend that has emerged thus far in this proxy season where we are seeing “unprecedented” withdrawal rates for environmental and social shareholder proposals. Liz notes that the Staff’s publication of Staff Legal Bulletin No. 14M earlier this year may have something to do with an increased propensity on the part of the proponents to withdraw these types of proposals. A new ISS-Corporate analysis of 295 shareholder proposals on E&S topics submitted to companies year-to-date in 2025 notes:
While the outcome of 72% of these proposals remains pending, a review of those with a finalized status (voted, withdrawn, omitted) reveals significant shifts in both proponent behavior and the SEC’s response to no-action requests from companies. Excluding pending proposals, proponents have withdrawn 95% of requests focused on environmental issues and 62% of requests focused on social issues (excluding those related to lobbying and political contributions) – an unprecedented withdrawal rate.
The ISS report goes on to note:
This heightened expectation for proposal omissions is evident in the review of proposals focused on lobbying and political contributions transparency. Between 2015 and 2024, only 32 of 915 such proposals were omitted due to a no-action request. So far, in 2025, 71% of these requests have been omitted, signaling a clear shift in the SEC’s approach and enforcement under its new guidance.
These observations signal a potentially significant shift in the shareholder proposal landscape. We will continue to monitor these developments as the proxy season unfolds.
We have covered in this blog last week’s enactment of Senate Bill 21, which makes several significant changes to the Delaware General Corporation Law. The amendments address safe harbors for transactions involving interested directors or officers or controlling stockholders and also impose limits on stockholder books and records inspection demands.
The law firm memos have been rolling in on this topic, and you can read all of the important insights that those memos provide in our “Delaware Law” Practice Area. Check it out today!
It was only two months ago when I first blogged about the Trump Administration’s initial round of tariffs, which were announced as many larger companies were finalizing their annual reports on Form 10-K for the year ended December 31, 2024. Now, as those companies are beginning to prepare their earnings reports and quarterly reports on Form 10-Q for the first quarter, the Trump Administration has announced sweeping new tariffs that are more broadly applicable than the initial round of tariffs, which had targeted specific countries and goods. Companies will now need to revisit the disclosure implications from these tariff actions in the context of preparing their earnings releases, as well as the Risk Factors and Management’s Discussion and Analysis sections of their upcoming SEC reports.
Yesterday, President Trump declared that foreign trade and economic practices had created a national emergency under the International Emergency Economic Powers Act of 1977 (IEEPA) and imposed across-the-board tariffs on all countries, along with individual reciprocal higher tariffs for certain countries, subject to certain exceptions. The White House Fact Sheet regarding the latest tariff action notes:
– Using his IEEPA authority, President Trump will impose a 10% tariff on all countries.
– This will take effect April 5, 2025 at 12:01 a.m. EDT.
– President Trump will impose an individualized reciprocal higher tariff on the countries with which the United States has the largest trade deficits. All other countries will continue to be subject to the original 10% tariff baseline.
– This will take effect April 9, 2025 at 12:01 a.m. EDT.
– These tariffs will remain in effect until such a time as President Trump determines that the threat posed by the trade deficit and underlying nonreciprocal treatment is satisfied, resolved, or mitigated.
– Today’s IEEPA Order also contains modification authority, allowing President Trump to increase the tariff if trading partners retaliate or decrease the tariffs if trading partners take significant steps to remedy non-reciprocal trade arrangements and align with the United States on economic and national security matters.
– Some goods will not be subject to the Reciprocal Tariff. These include: (1) articles subject to 50 USC 1702(b); (2) steel/aluminum articles and autos/auto parts already subject to Section 232 tariffs; (3) copper, pharmaceuticals, semiconductors, and lumber articles; (4) all articles that may become subject to future Section 232 tariffs; (5) bullion; and (6) energy and other certain minerals that are not available in the United States.
– For Canada and Mexico, the existing fentanyl/migration IEEPA orders remain in effect, and are unaffected by this order. This means USMCA compliant goods will continue to see a 0% tariff, non-USMCA compliant goods will see a 25% tariff, and non-USMCA compliant energy and potash will see a 10% tariff. In the event the existing fentanyl/migration IEEPA orders are terminated, USMCA compliant goods would continue to receive preferential treatment, while non-USMCA compliant goods would be subject to a 12% reciprocal tariff.
As with the prior tariff actions taken this year, the new tariffs will undoubtedly prompt retaliatory action by other countries and escalate the ongoing trade war. With these latest across-the-board tariffs, more companies that depend on international trade will be impacted, and as a result disclosures will need to reflect the scope of the impact. As I noted back at the beginning of February, companies should consider the following factors when updating their disclosures:
– Whether the new US tariffs or new tariffs to be imposed by the other countries will be collected on the company’s goods or goods that are utilized in production of the company’s goods.
– How the tariffs will impact the price that is charged for the company’s goods.
– How the tariffs will impact the cost of goods utilized in producing the company’s goods.
– Whether the imposition of tariffs may impact the availability of goods, including goods in the company’s supply chain.
– Whether the imposition of tariffs will impact the demand for goods that are subject to the tariffs.
– Whether the imposition of tariffs will cause inflationary pressures in the economy and will otherwise have negative economic impacts that could in turn impact the demand for a company’s goods and services.
– Whether mitigation strategies could increase costs that a company may not be able to recover.
As the earnings season for the first quarter plays out over the next few weeks, we are likely to see the impact on companies of the initial round of tariffs, which could offer insights on how these latest tariff actions could impact a broader range of companies in the second quarter and beyond.
As this Nasdaq First Quarter Review & Outlook notes, the first quarter of 2025 was a rough one for the stock market, as the period was marked by “significant economic, geopolitical and market turbulence in the United States.” The piece notes that the S&P 500 registered its worst quarterly performance since the third quarter of 2022, correcting more than 10% in the latter half of the first quarter. The economic uncertainty does not appear to be receding any time soon, so it appears that the markets will continue to be in for a rough ride for the foreseeable future.
With the return of significant market volatility, now is good time to have access to all of the essential resources available on our sites and in our publications. We have seen this movie before, and we have all of the resources that you need to navigate the volatile market environment. Here are just a few of the resources that we have archived on our sites for your consideration in today’s environment:
The memo goes on to provide several best practices for AI governance including:
– “Establishing clear data provenance and governance practices.
– Designating cross-functional AI leads within the organization (legal, IT, HR, etc.).
– Providing employee-level training on AI tools and acceptable uses.
– Updating licensing agreements to reflect new transparency requirements.
– Maintaining awareness of evolving federal and state-level regulations.”
Good AI governance isn’t always easy, but through utilizing best practices companies can capitalize on AI and minimize risk. One key point is that AI can be applied very differently across a company. These differing use cases present unique governance challenges and underlie the need for transparency at every level. Companies should also be clear in their policies about what constitutes “AI use.” Sales and marketing may use AI in the context of pitching ideas or writing copy, and research and development may use machine learning AI systems to analyze data or develop new products. Good AI governance requires leadership to understand all AI deployments within a company and the unique challenges associated with each.
If you have not checked out all of the useful information available on the AI Counsel Blog, I encourage you to do so today. If you do not have access to the blog, please sign up online or email sales@ccrcorp.com.
Over the course of just the past month, we have observed the SEC pivot to an agenda that is particularly focused on capital raising matters. In the past month, the SEC Staff has issued the following guidance:
– On March 3, the Staff enhanced the accommodations available to companies seeking confidential review of draft registration statements;
– On March 12, the Staff issued new guidance and an interpretive letter addressing what the Staff views as an acceptable process for verifying “accredited investor” status in a Rule 506(c) offering; and
– On March 20, the Staff revised its position on the information that is required to be included in a non-automatically effective registration statement on Form S-3 filed during the period between when a company files its Form 10-K and its proxy statement, permitting registration statements to be declared effective during that period.
This Staff guidance is no doubt an opening salvo in efforts to be undertaken by the Commission and Congress to encourage capital raising by both public and private companies. The developments make it a particularly good time to attend the SEC’s 44th Annual Small Business Forum, which is taking place next Thursday, April 10 at the SEC’s headquarters in Washington DC. Those who are not able to attend in person will be able to tune into a webcast of the program. The full agenda for the program is now available and features a wide range of topics relevant to capital-raising by smaller companies. As Meredith recently noted, the SEC is asking the public to register in advance and submit suggestions ahead of the Forum.
I am honored to be speaking at the program this year, on a panel titled: “Small Cap Playbook: Entering and Advancing in the Public Market Arena.” It promises to be an interesting discussion of the opportunities and challenges faced by smaller companies seeking to raise capital in public markets. I hope that you can join me at this year’s program!
The paper draws insights from a recent survey and ongoing engagement with thousands of Nasdaq-listed companies and advances critical policy proposals to strengthen the public markets and retain the U.S. capital markets’ status as the global standard for economic innovation and wealth creation.
Over the past 25 years, the number of public companies listed on U.S. exchanges has declined 36%, from 7,000 to 4,500, while the number of private equity-backed companies in the U.S. has increased approximately 475%, from 2,000 to 11,500. One of key drivers behind this trend is the increased burden associated with public company status. The decline in the number of public-traded companies is harmful to the overall strength, liquidity, and depth of the U.S. markets. The unjustifiable increase in the burdens and costs that must be borne as the price for the privilege of accessing U.S. public markets has needlessly hampered U.S. companies’ growth, scale, and competitiveness in the global economy. Importantly, it has also limited Main Street Americans from benefiting from the value and wealth creation potential from American innovation.
Nasdaq’s paper recommends pragmatic and results-oriented regulatory changes to restore balance between oversight and accessibility in the public markets. The analysis includes views from companies and argues for proxy process modernization, scaled disclosure with renewed emphasis on materiality, common sense litigation reform, and increased transparency into short selling.
Several of the key policy initiatives addressed in the paper include:
– Proxy Process Modernization, including improving proxy plumbing, common sense proxy access and shareholder proposal reforms, and proxy advisory reform.
– Scaled Disclosure Relief, including anchoring disclosure requirements in materiality, streamlining quarterly reporting practices, and updating scaled disclosure for emerging growth companies, accelerated filers, smaller reporting companies and well-known seasoned issuers.
– Leveling the Playing Field with Smart Regulation, including ensuring audits remain relevant and affordable, updating short selling disclosures, and reining in unproductive litigation practices.
In a Q&A with John Zecca, Nasdaq’s Executive Vice President and Global Chief Legal, Risk, and Regulatory Officer, that was released at the same time as the paper, John was asked “What are the risks if the advice in the report is not taken?” He replied:
I think the biggest risk is that companies skip the public markets, and that will impact the ability of mainstream investors to save for retirement and meet their needs. They’ll have fewer investment options. On top of that, the U.S. economy as a whole will be impacted if there are fewer public companies, generating fewer jobs. And the cutting-edge companies of tomorrow that need to raise capital may not have that capital and may struggle.
Without these modernization reforms, we will lose ground to other countries. If you look around the world now, the U.S. markets are the envy of the world: When I travel, I hear repeatedly that others are looking to emulate the U.S. model. And these other countries are not standing still: They are deregulating and changing their listing rules to try to draw in more companies. So, if the U.S. doesn’t act now, then we are at risk of falling behind in the global capital race.
That’s the core risk, but the good news is that U.S. policymakers understand this, and they see these concerns. The new administration is very focused on improving the public company model.
That’s why we believe this report outlines the right policy ideas at the right time.
Capital-raising is certainly not the only thing on the SEC’s agenda. It is likely that another area of attention will be the rules that the SEC has proposed or adopted over the course of the past four years. Yesterday, members of the House Committee on Financial Services announced that they had sent letters to various agencies “requesting the rescission, modification, or re-proposal of specific Biden-Harris Administration actions.”
The letter to Acting SEC Chairman Uyeda calls on the SEC to withdraw several final and proposed rules, with the members noting in the press release:
These proposals and final rules have not only made our capital markets less attractive to companies considering going public but also have imposed undue burdens on existing public companies. As global economic competition escalates, it is incumbent upon the Commission to abandon misguided rulemakings and work to maintain our capital markets’ status as the envy of the world.
The letter specifies a list of fourteen adopted and proposed rules to be withdrawn, including:
1. Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure;
2. Short Position and Short Activity Reporting by Institutional Investment Managers;
3. Reporting of Securities Loans;
4. Pay Versus Performance;
5. Investment Company Names;
6. Form N-PORT and Form N-CEN Reporting; Guidance on Open-End Fund Liquidity Risk Management Programs;
7. Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker Dealers and Investment Advisers;
8. Open-End Fund Liquidity Risk Management Programs and Swing Pricing;
9. Regulation Best Execution;
10. Order Competition;
11. Position Reporting of Large Security-Based Swap Positions;
12. Regulation Systems Compliance and Integrity;
13. Outsourcing by Investment Advisers; and
14. Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices.
It looks like Corp Fin would get off pretty easy with this list, with only two Corp Fin rules highlighted for withdrawal. Too bad EDGAR Next did not make the list!
While there have been a few rumors floating around about DOGE working at the SEC over the past two months, it now appears that DOGE contacted the SEC last week to initiate an interaction with the SEC Staff. As this Reuters article notes, the Staff was informed that DOGE has indeed arrived on the scene:
SEC staff were informed that the DOGE task force had contacted the regulator, and that they would be treated as staff for the purposes of network, system and data access. The SEC is establishing a liaison team with the “intent to partner” with DOGE, the email said…
“Our intent will be to partner with the DOGE representatives and cooperate with their request following normal processes for ethics requirements, IT security or system training, and establishing their need to know before granting access to restricted systems and data,” the staff email stated.
A spokesperson for the DOGE task force referred questions to the SEC, whose spokesperson confirmed it was beginning to onboard DOGE members. But the SEC declined to comment on what role, if any, Musk would play at the agency as part of DOGE or what data access the team would have. Musk did not immediately respond to a request for comment.
The article notes that the arrival of DOGE personnel at the agency comes at a time when the SEC is already undergoing staffing changes, with over 600 people agreeing to leave the agency under the resignation and retirement programs that have been offered over the past two months.
During his confirmation hearing, SEC Chairman nominee Paul Atkins noted that he would be definitely willing to work on efficiencies at the SEC if confirmed.
The arrival of DOGE personnel at 100 F Street is not likely to improve the morale around the SEC, where the frequent departures and an overall sense of chaos is undoubtedly contributing to a great deal of distraction and uncertainty for the Staff. I have a great deal of confidence in the talented SEC Staff members who will most certainly be able to continue the agency’s mission amidst this current storm. We all may need to have some patience as the SEC adjusts to a “new normal” over the course of the next weeks and months.
I fully realize that if I had posted a blog with this title and content one year ago, it would have easily been identified as an April Fool’s Day joke – but this is our reality today, and certainly no joking matter.