SpencerStuart recently issued its “2024 S&P 500 New Director & Diversity Snapshot”, which provides information on the expertise and demographic characteristics of newly-added directors at S&P 500 companies. Here are some of the specific findings:
– S&P 500 boards continue to seek top-level executive experience and financial expertise, with CEOs and directors with financial backgrounds comprising 29% of the incoming class. Fewer P&L leaders were appointed as directors this year.
– The proportion of next-gen new directors (those aged 50 or under) has increased after a sharp drop last year. They account for 14% of the incoming class of 2024, up from 11% in 2023 but below 2022 levels (18%).
– The increase in next-gen directors may be due to growing board interest in tech expertise. Nearly a third (29%) of this year’s next-gen new directors have backgrounds in technology/telecommunications, up from 14% in 2023. In addition, the majority (89%) of next-gen directors are actively/fully employed.
– About a third (34%) of the class of 2024 are first-time directors. Directors in this group are much more likely to be actively employed (67%) than retired. They are also much more likely to be actively employed than directors who are not first-time directors (43%).
– This year, 58% of new director appointments have been filled by diverse executives, down from 67% in 2023 and 72% in 2022. However, diverse individuals still make up a significantly bigger share of new director appointments than a decade ago.
– The percentage of new directors who are women has decreased from last year: 42% of appointments, down from 46% in 2023. It is also a decrease from five years ago, when the proportion of female new directors was the same as in 2023 (46%). However, it is a significant increase from a decade ago, when the proportion of female director appointments was 30%.
The report says that the most common industry background for the S&P 500 director class of 2024 is technology and telecommunications, followed by industrials, consumer goods and services, and the financial services sector.
We’re accustomed to seeing the SEC announce the resolution of some high-profile enforcement proceedings shortly before its September 30 fiscal year end. We expect the same this year, but it’s possible that this year may be a little different that years past, as the SEC continues to sort out the implications of the SCOTUS’s Jarkesy decision for its enforcement program. This excerpt from a recent Seyfarth guest blog on “The D&O Diary” discusses how Jarkesy might affect the agency’s decisions around fraud-based enforcement actions:
Jarkesy will likely have a significant impact on the SEC’s appetite and ability to litigate securities fraud claims going forward. As Justice Gorsuch noted in his concurrence, since the Dodd-Frank Act, the SEC has won significantly more of the enforcement actions it brought in administrative proceedings than those it brought in federal courts (Jarkesy, 144 S. Ct. at 2141 (Gorsuch, J., concurring)).
While Jarkesy left a number of open questions, it unequivocally required the SEC to bring securities fraud actions seeking civil penalties in federal court rather than in administrative proceedings. Therefore, Jarkesy will likely result in the SEC being more selective in its enforcement of securities fraud, primarily bringing the more serious fraud actions. The increase in resource usage required to bring an action in federal court will likely reduce the SEC’s ability to pursue smaller fraud cases, which may incentivize it to either settle those cases or bring lesser charges involving non-fraud claims and seek equitable remedies in administrative proceedings. This trend should provide an advantage to counsel representing entities or individuals in SEC investigations and settlement negotiations.
The blog says that while these changes will improve the fairness of outcomes to defendants by subjecting the SEC to the more demanding procedural and evidentiary standards required by federal courts, they will also reduce the SEC’s ability to bring these cases and potentially embolden bad actors.
“The Mentor Blog” has been pretty much dormant for the past couple of years, but I’m excited to announce that the blog is returning to active status today and our that Contributing Editor, Meaghan Nelson, will be blogging there Tuesday through Thursday of each week. There’s a story behind this decision, so please bear with me for a moment while I share it with you.
When Broc started The Mentor Blog, it was intended to serve as a platform for advice to help readers advance their careers. Over the years, however, it drifted away from that objective, and often just served as a place for blogs that didn’t make the cut for inclusion on this blog. That’s not exactly the kind of “value add” that we thought our members were looking for in a members-only blog, so we eventually let it go dormant.
That’s when Meaghan entered the picture. The idea of possibly bringing the Mentor Blog back entered my mind the first time I saw Meaghan’s resume. I think she’s the ideal person to provide insights to help readers manage their careers. Not only is Meaghan a super-smart person who has taken the lead on updating all of our handbooks this year, she’s also enjoyed a diverse and high-achieving legal career before joining us.
Meaghan’s worn a bunch of hats – she’s been at BigLaw firms on Wall Street and in Silicon Valley, worked in-house at public companies and startups, and is now teaching law school in addition to serving on our editorial team. What’s more, she also has a young family and is dealing with the same challenges of balancing career and family that many of you are facing.
We’re really excited that Meaghan is going to be contributing her insights on the Mentor Blog, and we think you’re going to enjoy reading what she has to say. Members of TheCorporateCounsel.net should be sure to check out her first blog, which she posted this morning. Not a member? We can fix that – email sales@ccrcorp.com to sign up today and get access to The Mentor Blog – or sign up online.
Deloitte recently published the results of a survey of CFOs of North American entities with more than $1 billion in revenues. The survey focused on identifying issues that CFOs were concerned about, and – aside from the impact of the US presidential election – respondents reported that they were worried about how talent shortages, wage inflation, and recent regulatory changes and proposals could impact their ability to manage and retain a skilled workforce. Survey respondents also identified external and internal risks that were keeping them up at night. This excerpt summarizes those concerns:
When asked to select the three external risks that worry them the most, CFOs put geopolitics near the top (52%), trailing only inflation (57%) and the economy (54%). After the election, a shift in foreign policy—or trade policy—could impact organizations with extensive overseas operations. But beyond the impact on their organizations, all three of the top three risks can directly impact key elements of the CFO’s remit: risk management, budgeting, and forecasting.
So, too, can the arrival of breakthrough technologies. Nearly half (49%) of respondents named technology transformation as one of their top three internal risks. A nearly equal amount (48%) ranked efficiency and productivity as a top internal risk, likely related to the adoption of innovative technologies. Curiously, generative AI—the most cited internal risk in our 2024 second quarter survey—fell down the list (44%) and out of the top three. The drop may have to do with CFOs now seeing gen AI as a critical enabler or element of larger concepts like tech transformation and enhanced productivity.
Overall, the CFOs surveyed were pretty downbeat about the current business climate, with only 12% of CFOs saying that now is a good time to be taking greater risks, compared to 26% in the second quarter and 41% in the third quarter of 2023. That’s probably not surprising given election year uncertainties, but public company disclosure committees and others involved in drafting SEC filings ought to take a look at the results of this survey when considering risk factor updates and trend disclosures in their upcoming 10-Qs.
In addition to the results of Deloitte’s CFO survey, you might want to keep this recent Fenwick blog in mind when you think about what might need to be updated in your “Risk Factors” disclosure. This excerpt includes a few of the specific potential risks outlined in the blog:
Risk related to Chevron and related decisions – As previously noted, we have observed that life sciences companies are adding risk factor language in response to the U.S. Supreme Court overturning the Chevron Doctrine and related decisions. Companies in life sciences or other highly regulated industries should consider whether it is appropriate to include such disclosure. Please see our alert for an example of such risk factor language.
Ongoing risk related to CrowdStrike outage – Companies impacted by CrowdStrike’s defective software update should consider updating their risk factors and forward-looking statements about systems downtime and/or reliance on third parties to operate critical business systems. Remember to revise relevant hypothetical language about outages or systems downtime to indicate that such risks have already occurred. Finally, impacted companies should also consider discussing any material impacts (if any) in the management’s discussion and analysis section of their next Form 10-Q.
In addition, software and technology companies that similarly update systems, including automated updates, should ensure their risk factors cover risks associated with errant updates, and that their boards have oversight visibility on how those risks are mitigated where it may be deemed mission critical to the company. Please see our alert for more information.
Risk related to AI – As a reminder, the EU AI Act entered into force on August 1. Companies should review and update any relevant language in their AI risk factor to reflect this development. Note that the Securities and Exchange Commission (SEC) and the plaintiffs’ bar also continue to focus on AI washing. In a recent video about AI washing, SEC Chair Gary Gensler reminded companies that “any claims about prospects should have a reasonable basis and investors should be told that basis.”
Other potential risks noted in the blog include inflation and interest rates, trade tensions between the US and China, new export control rules and – inevitably – the US presidential election.
Labrador recently announced the winners of its 6th annual disclosure transparency awards. Here’s an excerpt from its press release:
Intel, Dow, and Mastercard have emerged as champions, securing top honors in the 2024 U.S. Transparency Awards unveiled today by Labrador, a leading global communications firm specializing in transparent corporate disclosure documents. The rankings are based on a rigorous evaluation of corporate disclosure documents among the top 250 companies in the S&P 5001 and recognize companies dedicated to building investor and stakeholder trust through clear, concise, and effective communication.
The Transparency Awards celebrate the 10 most transparent U.S. companies, the top three leaders in 11 industries, and the best performers in individual disclosure categories—from best overall transparency, proxy statement, and ESG reporting to Form 10-K, investor relations websites, codes of conduct, and plain language usage.
Be sure to check out the Transparency Awards website for more details about the awards and the companies that received them. University of Michigan alums in the audience – including our own Meredith Ervine – will no doubt recognize the reference to the Wolverines’ fight song in the title of this blog. That’s intentional, because as many of you know, our former colleague & Michigan alum Broc Romanek has been leading the charge on disclosure transparency for Labrador for the past couple of years. Here’s Broc’s 8-minute video announcing the winners of this year’s awards.
Those of you who know Broc probably won’t be surprised to learn that he remains the hardest working man in show business. In addition to his Labrador gig, he’s recently joined the folks at Cooley where he’ll provide corporate governance guidance on the firm’s new “The Governance Beat” blog.
I highly recommend this Venable alert for folks looking for some education (or a thorough refresher) on the available safe harbors for forward-looking statements. For junior securities lawyers, it may even help you understand why we do some of the weird things we do in legends & disclaimers! It starts with a detailed review of Securities Act Rule 175, Exchange Act Rule 3b-6, the PSLRA and the bespeaks caution doctrine, including when each safe harbor or defense is available and how to invoke it. For example, on the PSLRA, the alert has this table summarizing the issuers, transactions and circumstances where the PSLRA safe harbor won’t apply:
Excluded Issuers
Excluded Transactions and Circumstances
“Bad actor” issuers
IPOs
Penny stock issuers
Offerings of securities by blank check companies [for the PSLRA, this now includes SPACs]
Investment companies
Roll-up transactions
Partnerships
Going private transactions
Limited liability companies
Tender offers
Direct participation investment programs
Financial statements prepared in accordance with GAAP*
Section 13 filings
*Hidden in a footnote to this table is a reminder of something I frequently reiterated to clients: “Issuers should take care to locate forward-looking statements in MD&A rather than notes to financial statements, and when, as is common, similar disclosure is contained in both MD&A and financial statements notes, to remove any forward-looking statements from the notes.”
Here are some of the alert’s suggestions for crafting PSLRA safe harbor legends:
Avoiding misuse of the PSLRA safe harbor legend. While it might seem straightforward, it is crucial to avoid the inclusion of the PSLRA safe harbor language in documents or oral presentations that do not contain forward-looking statements. This practice, though it may not directly affect the specific document, can lead to allegations that the issuer is not meaningfully employing the PSLRA safe harbor, thus potentially exposing unrelated statements to vulnerability under “boilerplate” attacks.
Hyperlink the legend if the media does not permit its inclusion. When social media platforms or other media limit the number of symbols or otherwise render the inclusion of a PSLRA safe harbor legend impossible or impractical, the legend should be prominently provided through an active hyperlink. Although this practice has not been expressly blessed by the SEC, we do not see the reason why the SEC would oppose this, especially considering the analogous approach permitted with Rule 134 legends. While the legend can be included in a series of sequential posts (for instance, on X), a hyperlink will better ensure that the legend will be attached to the statement in case of reposting or other dissemination, which will not be the case with sequential messages. Issuers may choose to combine both methods—sequential messaging and hyperlinks—if they find it does not compromise the aesthetic qualities of the message.
Format and timing of the PSLRA legend may potentially render the legend meaningless. Logistical planning for announcing PSLRA legends is essential. For instance, if forward-looking statements are intended only for a Q&A session following a formal adjournment of an annual meeting, it may be inappropriate to announce the safe harbor legend before the meeting begins or state in such legend that oral forward-looking statements will take place during the annual meeting. Additionally, for unscripted speeches, clearly defining the topics to be discussed beforehand allows for the crafting of the safe harbor language in a meaningful way, ensuring the legend identifies relevant risks without being overly broad or generic.
The alert has many more tips related to PSLRA legends & forward-looking disclosures. We’ve posted this in our “Forward-Looking Information” Practice Area.
This Sullivan & Cromwell governance alert purports to provide a non-exclusive list of hot topics for board and committee agendas in the next 12 months. The alert organizes topics by the board and each committee, although it acknowledges that where a topic is addressed will vary from company to company based on how responsibilities are allocated. For a sneak preview, here’s the list of just the topic headings (the alert explains each in more detail):
Board
– Addressing the Use of Artificial Intelligence
– Overseeing Management Succession Planning – Monitoring the Company’s Compliance Culture – Improving Committee Coordination
– Monitoring the Business Impact of Emerging Trends (e.g., rulemaking, enforcement, political polarization, M&A, case law developments, etc.)
What does the alert mean by improving committee coordination? Here’s more:
Although the right balance will vary by company and issue, potential options for enhancing committee coordination on relevant issues may include: (a) establishing practices/procedures that promote a minimum amount of discussion or reporting between applicable committees; (b) maintaining overlapping committee memberships; (c) periodically conducting joint committee meetings on topics of significance to multiple committees; and/or (d) having committee chairs provide updates to each other between meetings.
At the same time, in light of stockholders’ increased use of DGCL §220 books and records demands and Caremark lawsuits to challenge corporate oversight processes over the last few years, any relevant communications or decisions between or by committees should continue to be made in compliance with applicable board/committee procedures and kept to formal channels.
Back in April, the Society for Corporate Governance, NIRI and NYSE jointly submitted a petition requesting the SEC to initiate rulemaking to shorten the 45-day filing period for Form 13F filings to no more than five business days. The petition calls the current filing period “outdated” and says it’s “the one prominent ownership transparency rule that has not yet been modernized.” It argues shortening the deadline would “improve the utility of 13F filings for market participants and increase investor confidence in the integrity of the U.S. securities markets.”
Wachtell supports the rulemaking petition in this article, which notes that the petitioners urge public company stakeholders to submit comment letters (available here) in support of the petition. Here’s more from Wachtell:
Under current rules, adopted in 1979, investment managers with at least $100 million in U.S. publicly traded assets under management are required to disclose their share ownership positions on Form 13F within 45 days after each calendar quarter. Given the speed of today’s equity markets, 13F disclosure is generally considered already stale when published, and moreover, does not include information on options, swaps and other derivatives that are commonly used by activist hedge fund investors.
The fact that 13F positions are reportable as of the last day of the calendar year or quarter also means that short-term trades that occur between the reportable dates are underreported, or as the petition notes, “an investment manager can still buy a 4.99 percent stake on Jan. 2 and not have to report that position until May 15.” The lack of transparency of 13F disclosures hinders issuers’ ability to make informed decisions on key matters including preparing for shareholder outreach and engagement and identifying and responding to activism and takeover threats. Many companies and boards continue to fly blind even as shareholder activism and hostile takeover activity continue at high levels.
As the SEC has continued to shorten filing deadlines for other disclosures, including amending Sections 13(d) and 13(g) of the Exchange Act last year to shorten reporting deadlines for Schedule 13D and 13G filings, the time has also come to move 13F reporting toward realtime disclosures that promote market transparency.
Form 13F filings are on the SEC’s radar! This week, the Commission announced charges against 11 institutional investment managers for failing to file required 13Fs, with nine firms agreeing to pay more than $3.4 million in civil penalties. A few firms had no civil penalties since they self-reported the violations and cooperated with the SEC’s investigation.
Yesterday, federal agencies were apparently big on cutting things by half a … something. I’m referring, of course, to the rate cuts, but also to the SEC announcing final amendments to the rules governing how exchanges quote individual stock prices, including by reducing the minimum pricing increment for ‘tick-constrained stocks’ (those with narrow bid-ask spreads) to half a penny.
On September 18, 2024, the Securities and Exchange Commission adopted amendments to [e]stablish a second minimum pricing increment, also known as tick size, of $0.005 under Rule 612 of Regulation NMS for the quoting of certain NMS stocks, which are stocks listed on a national securities exchange, regardless of trading venue….
Minimum Pricing Increments. For quotations and orders in NMS stocks priced at or greater than $1.00 per share, the amendments to Rule 612 set forth two minimum pricing increments:
Minimum Pricing Increment If the Time Weighted Average Quoted Spread of the NMS stock during the Evaluation Period was $0.015 or less: $0.005
Minimum Pricing Increment If the Time Weighted Average Quoted Spread of the NMS stock during the Evaluation Period was Greater than $0.015: $0.01 …
[T]he compliance date will be the first business day of November 2025.
Here’s the explanation under “Why This Matters”:
When market participants submit orders to buy and sell shares of an NMS stock, the difference between the best buy order and the best sell order is the “bid-ask spread.” Rule 612 sets forth a minimum pricing increment of $0.01 for quotes and orders in NMS stocks priced at or greater than $1.00. This prevents bid-ask spreads for these stocks from being less than $0.01.
Since the adoption of Rule 612, there has been a marked increase in the trading volume of NMS stocks that would likely be priced with tighter spreads if their pricing was not constrained by Rule 612’s minimum pricing increment. In other words, easing constraints on ticks for these NMS stocks would allow for narrower spreads, reduce transaction costs for market participants, including investors, and allow prices to be determined in a more competitive manner.
Check out the reporting from the Wall Street Journal. And take a look at the fact sheet if you’re interested in the other changes related to access fees and transparency of better-priced orders.
