2. The “ordinary business,” “micromanagement” and “economic relevance” bases for exclusion following SLB 14M
3. Whether companies will continue to submit a “board analysis”
4. The significance of SLB 14M’s note that the 2022 proposed amendments to the “substantial
implementation,” “duplication” and “resubmission” bases for exclusion under 14a-8 have not been adopted
5. SLB 14M’s guidance on proof of ownership and deficiency letters
6. What the timing of SLB 14M means for companies as they navigate this shareholder proposal season
If you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share, email John at john@thecorporatecounsel.net or Meredith at mervine@ccrcorp.com.
Here’s something that Meredith blogged Friday over on DealLawyers.com: Yesterday, Corp Fin released an updated version of Securities Act Sections CDI 239.13 and Securities Act Forms CDI 225.10 governing the use of Form S-4/F-4 to register offers and sales of a buyer’s securities after it has obtained “lock-up” commitments from target insiders to vote in favor of the transaction. The CDI permitted registration in certain circumstances but noted that the Staff has objected to the subsequent registration of offers and sales to any of the target shareholders where the insiders also previously executed consents approving the deal – because it viewed the offer and sale as already completed privately.
Now, as you can see from the redline, the CDI provides that the Staff will not object to the subsequent registration on Form S-4/F-4 where the target company insiders also deliver written consents, as long as (1) those insiders will be offered and sold securities of the acquiring company only in an offering made pursuant to a valid Securities Act exemption and (2) the registered securities will be offered and sold only to target company shareholders who did not deliver written consents.
At the same time, Corp Fin also released five new Tender Offer Rules and Schedules CDIs (101.17 through 101.21), adding to the 34 CDIs released in March 2023. The five new CDIs address the “general rule” that an offer should remain open for at least five business days after a material change is first disclosed and clarify the Staff’s views regarding when a change related to financing and funding conditions constitutes a “material change.” For example, to paraphrase three of the CDIs:
– CDI 101.18 clarifies that the Staff views a subsequent securing of committed financing to be a material change where an offeror had commenced an all-cash tender offer without sufficient funds or committed financing. The CDI details steps the offeror must take in that situation.
– On the other hand, CDI 101.20 and 101.21 clarify that the Staff does not view either the substitution of a funding source or the actual receipt of the funds from the lender when the offeror had already obtained (and disclosed) a binding commitment letter to be a material change. The CDIs address disclosure considerations for these situations and where the lender does not fulfill its obligation to provide the funds.
Check out our DealLawyers.com site for more information – we’re posting memos in the “Tender Offers” Practice Area.
For those of you who have followed this blog for a long time, you may be asking yourself “Why does Dave always seem to blogging about government shutdowns?” I promise you that I do not have some sort of weird government shutdown fixation, it just seems that our elected representatives in Congress consistently have a hard time getting their act together to fund the government, so we go through this now seemingly routine cycle of getting down to the wire on a government shutdown, with a bad habit of averting the crisis at the very last minute. With chaos reigning in Washington these days, the prospect of a government shutdown after March 14 seems more likely, and this time we could be in for lengthy shutdown given the views of the Administration toward the federal workforce and the distinct lack of any incentive on the part of either party to reach across the aisle to find a solution. Perhaps it is time again to start playing The Government Shutdown Blues!
Not to get off-topic too much here, but my seemingly endless fixation with government shutdowns prompts some reflection on certain of my less-than-stellar parenting moments, when I would very often lecture my kids about Aesop’s fable of the boy who cried wolf, and in particular how frequently raising the alarm about something that did not happen would lessen one’s credibility when in fact something significant did happen. I am certain that these lectures have caused my children everlasting distress and anxiety, and for that I am truly sorry. Perhaps I should get a taste of my own medicine when it comes to always raising the alarm on government shutdowns.
As this Reuters article notes, the Speaker of the House is aiming to hold a vote on a continuing resolution by next Tuesday, and he believes that he has enough votes to pass the bill, although we have all seen this movie before and we know that a lot of things could go wrong between now and March 14. Given the prevailing uncertainty, I incorporate by reference into this blog some of my greatest hits on shutdown preparedness, including my top ten takeaways from the Staff’s previous shutdown guidance that you should consider now in the face of yet another potential government shutdown:
As I did at around this time last year, I will note one piece of guidance that is particularly relevant at this point in the proxy season. Corp Fin’s latest government shutdown guidance from December 2024 notes:
Will the Division provide a response to my Rule 14a-8 no-action request if I need to print my proxy materials during the shutdown?
No. The staff will not be able to review or respond to 14a-8 materials during a shutdown. We ask that companies and proponents work together to resolve questions to the best of their ability. It is important to note that the staff’s no-action responses to Rule 14a-8(j) submissions reflect only informal staff views.
The staff will return to reviewing no-action requests when our operating status changes.
In light of this stark warning, companies with a Rule 14a-8 no-action request pending with the Staff should reach out to check on the status of that request and should prepare contingency plans in the event that they do not receive a response from the Staff prior to mailing the proxy materials. In past government shutdown scenarios, we have seen companies note in their proxy materials that a no-action request is pending with the Staff regarding the potential exclusion of the proposal, and if the company hears back from the Staff that the proposal can be excluded, the proposal would not be presented for a vote at the annual meeting. I would also note that today is a great time to call your examiner in Corp Fin about any pending registration statements that you would like to get effective before any potential government shutdown kicks in.
Last year, I blogged about the PCAOB’s adoption of rules requiring registered accounting firms to disclose performance metrics regarding their larger audit engagements, and earlier this year I blogged about the pushback that the SEC received on these requirements. As Dan Goelzer notes in the February 2025 Audit Committee and Auditor Oversight Update, the SEC recently posted a notice stating that the PCAOB had withdrawn its rules on firm reporting and firm and engagement metrics. Dan notes:
On February 11, the Securities and Exchange Commission issued a notice stating that the Public Company Accounting Oversight Board had withdrawn its rules on firm reporting and firm and engagement metrics. PCAOB rules and standards cannot take effect unless approved by the SEC. Therefore, the PCAOB’s decision to withdraw these rules from SEC consideration means that they are dead, at least for now. News accounts reported that the Board withdrew the rules after consultation with the SEC and that it would continue “to work with the Commission and all stakeholders to protect investors and increase transparency.”
In November 2024, the PCAOB adopted rules requiring registered accounting firms to disclose performance metrics regarding their larger audit engagements. These rules would have required firms that audit accelerated filers or large accelerated filers to publicly report eight metrics relating to specific audit engagements or to the firm’s overall audit practice (e.g., hours worked by senior professionals relative to more junior staff across all of the firm’s large accelerated and accelerated filer engagements and on each specific engagement). The Board also adopted expanded firm operational and financial condition reporting. Under the firm reporting rules, PCAOB-registered accounting firms would have been required to disclose certain financial information (e.g., aggregate fees billed to issuer clients), governance information (e.g., the names of the individuals holding certain leadership positions), network relationships, and material events impacting the firm’s audit services. See PCAOB Adopts Pared Back Engagement Performance Metrics and Audit Firm Reporting Rules, November 2024 Update.
The SEC published the firm reporting and performance metrics rules for comment in early December, and both rules attracted considerable comment. Opponents, including several large accounting firms, argued that the rules had been rushed to approval without a full analysis of their costs and benefits and that the performance metrics were potentially misleading. Investor advocates strongly supported the rules, arguing that they would provide audit committees and investors with useful information that would better inform decision-making and auditor evaluation. In conjunction with the change in the Presidential Administration, SEC Chair Gensler and Democratic Commissioner Lizárraga resigned from the Commission in January, and it seems unlikely that a majority of the remaining Commissioners would have approved the rules. See SEC Sidetracks PCAOB Engagement Metrics and Firm Reporting Rules, January 2025 Update.
While mandatory disclosure of the PCAOB’s metrics seems unlikely in the foreseeable future, audit committees are free to request any performance data they feel would be useful from their auditor.
I am very pleased to be hosting the “Mentorship Matters with Dave & Liz” podcast with Liz, where we share our thoughts on mentorship, career paths, and how to succeed as a corporate and securities lawyer. In the latest episode of the podcast, we tackle the topic of client relationship management, addressing:
– Identifying “the client” – and common situations that complicate relationships
– How to attract and retain clients as outside or in-house counsel
– How client relationship management and business development changes over the course of one’s career
– Qualities that the most successful advisors possess
– What to do if you make a mistake or encounter a difficult situation
– How mentorship can help you navigate new trends that may affect corporate and securities law career paths
Thank you to everyone who has been listening to the podcast, and we appreciate all of the great feedback. If you have a topic that your think we should cover or guest who you think would be great for the podcast, feel free to contact me or Liz by LinkedIn or email.
Meredith noted a few weeks ago that Glass Lewis sent a letter to its clients stating that it was re-evaluating its DEI-related voting guidance in light of the Trump Administration’s Executive Orders addressing DEI, and earlier this week Glass Lewis advised clients of the outcome from that review. As noted on Cooley’s The Governance Beat blog, the new guidance indicates that Glass Lewis will continue to apply its existing policies for the 2025 proxy season. The blog goes on to note:
However, Glass Lewis will now provide a “For Your Attention” flag on any proxy report with a negative diversity-related director recommendation, “pointing clients to a supporting rationale they can leverage if their preference is to vote differently from the recommendation.” Under Glass Lewis’s existing board diversity policies:
– For Russell 3000 companies, Glass Lewis generally recommends voting against the nominating committee chair of a board that is not at least 30% gender diverse or all nominating committee members of a board with no gender diverse directors. For companies outside of the Russell 3000 index, Glass Lewis will recommend voting against the nominating committee chair if there are no gender diverse directors.
– For Russell 1000 companies, Glass Lewis generally recommends voting against the nominating committee chair of a board with fewer than one director from an underrepresented community.”
Back in February, Corp Fin issued updated CDIs on the filing of Schedules 13D and 13G that threatened Schedule 13G eligibility for investors “influencing” through director votes, which prompted a suspension of engagement activities by BlackRock and Vanguard. Meredith noted on the Proxy Season Blog that BlackRock resumed its engagement activities back on February 24, while Vanguard only just resumed its engagement activities earlier this week.
As this Reuters article notes, Vanguard issued internal guidance to personnel to guide communications around on-going engagements:
The document seen by Reuters summarizes a message that Vanguard representatives are sharing with portfolio companies, aiming to underscore the passive design of its funds.
It states that considering the new SEC guidance, “and to ensure that companies understand that we invest and engage for investment purposes only, we are taking some steps to further clarify communications regarding our engagements with portfolio companies.”
Among other things, Vanguard will make proactive statements at the start of each meeting about the funds’ passivity, the document states.
As I noted earlier this week, State Street Global Advisors prefaces its Proxy Voting and Engagement 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 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.
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 Executive newsletter.
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.
