Month: September 2020

The Business Roundtable shifts position on action to address climate change

Last year, the Business Roundtable created quite a buzz when it released a new Statement on the Purpose of a Corporation that moved “away from shareholder primacy” as a guiding principle and opted in to a kind of “stakeholder capitalism” (see this PubCo post). Now, just in time for climate week, in another striking sign of changing perspectives, the Business Roundtable has released a new principles-and-policies guide endorsing a new approach to action on climate change. According to the press release, the BRT is now advocating “new principles and policies to address climate change, including the use of a market-based strategy that includes a price on carbon where feasible and effective. Such a strategy would incentivize the development and deployment of breakthrough technologies needed to reduce greenhouse gas (GHG) emissions. To combat the worst impacts of climate change, Business Roundtable CEOs are calling on businesses and governments around the world to work together to limit global temperature rise this century to well below 2 degrees Celsius above pre-industrial levels, consistent with the goals of the Paris Agreement. In the United States, this means reducing net-greenhouse gas emissions by at least 80 percent by 2050 as compared to 2005 levels.” As this article in the WSJ observes, it’s not that the principles and policies break new ground—they don’t—rather, “the significance of the statement is that it shows how business is shifting from a source of resistance to a force for action on climate.”

Proposed amendments to shareholder proposal rules—bruised but unbowed?

The SEC may have postponed until next week the open meeting originally scheduled for yesterday to consider adoption of revisions to the shareholder proposal rules, but Reuters has the inside scoop on the outcome of at least one controversial provision: according to Reuters, say farewell to the “momentum” provision. The expected deletion of the provision, Reuters observed, “marks a critical reprieve for supporters of social and environmental motions, which can take years on the ballot to gain traction.” Reuters reports that investors have continued to press the SEC in letters and meetings with SEC staff, hoping to put the kibosh on the proposed amendments altogether. They appear to be having some impact. Will the SEC move ahead in the face of this strong opposition?

How has the pandemic affected CEO pay?

In this new study, Equilar and the Rock Center for Corporate Governance at Stanford examine how COVID-19 has affected CEO compensation. Are boards focused more on making sure that CEOs have the right incentives to continue their jobs under trying circumstances? After all, in the case of the pandemic, the trying circumstances are not of their own making. Or are boards more inclined to focus on showing the public and other stakeholders, especially employees, that CEOs are “sharing the pain”? CEO pay attracts a lot of attention in ordinary times, but in times of severe economic distress when corporate performance and stock prices plummet and companies engage in substantial layoffs, furloughs and pay cuts for employees—who likewise are not responsible for the economic crisis—CEO pay can attract intense scrutiny. In those circumstances, paying the same or greater levels of CEO comp can seem unfair to the employees and invite shareholder and public criticism. How have boards addressed this issue?

Corp Fin amends guidance on extensions of confidential treatment orders

Corp Fin has amended Disclosure Guidance Topic No. 7, Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2, to modify the alternatives available for companies with confidential treatment orders that are about to expire. The guidance—which, as always, is just that and not intended to be binding—addresses procedures for CTRs that were submitted, not under the new streamlined approach adopted last year (see this PubCo post), but rather under the old traditional approach that still lives but is now rarely used. Under the prior guidance, when a CT order obtained under the traditional process was about to expire, companies could use a short-form application for extensions, but they were not permitted to transition to the streamlined new process by simply filing the redacted exhibit on EDGAR following the streamlined procedures. However, under the new amended guidance, transition to the new streamlined approach is now one of the permitted alternatives.

CFTC report on climate change finds major risk to financial system—advocates enhanced disclosure requirements for public companies

This blog doesn’t typically write about the goings-on at the Commodity Futures Trading Commission, but here’s an exception—especially given that its recommendations encompass the SEC. In July, the CFTC voted to establish a Climate-Related Market Risk Subcommittee, which was asked to provide a report that would “identify and examine climate change-related financial and market risks.” The Subcommittee comprised over 30 financial market participants, including members from “financial markets, the banking and insurance sectors, as well as the agricultural and energy markets, data and intelligence service providers, the environmental and sustainability public policy sector, and academic disciplines focused on climate change, adaptation, public policy, and finance.” That Report was released yesterday. What does it conclude? That “[c]limate change poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy,” calling for U.S. financial regulators to “move urgently and decisively to measure, understand, and address these risks.” The Report includes 53 recommendations, such as putting an “economy-wide price on carbon,” developing a strategy for integrating climate risks into the monitoring and oversight functions of financial regulators, allowing 401(k) retirement plans to use ESG factors in making investments (contrary to currently proposed controversial DOL regulations) and developing standardized classification systems for physical and transition risks. Importantly, the Report also concludes that current disclosure by U.S. companies is inadequate—in no small part because of what might be a cramped interpretation of the concept of “materiality”—and recommends, as discussed further below, that the SEC update its 2010 guidance on climate risk disclosure and impose specific climate-related disclosure requirements on public companies. Will the Report make a difference?

California court enforces Delaware exclusive federal forum provision

In Salzberg v. Sciabacucchi (pronounced Shabacookie), the Delaware Supreme Court unanimously held that charter provisions designating the federal courts as the exclusive forum for ’33 Act claims are “facially valid.” (See this PubCo post.) Given that Sciabacucchi involved a facial challenge, the Court had viewed the question of enforceability as a “separate, subsequent analysis” that depended “on the manner in which it was adopted and the circumstances under which it [is] invoked.” With regard to the question of enforceability of exclusive federal forum provisions if challenged in the courts of other states, the Delaware Supreme Court said that there were “persuasive arguments,” such as due process and the need for uniformity and predictability, that “could be made to our sister states that a provision in a Delaware corporation’s certificate of incorporation requiring Section 11 claims to be brought in a federal court does not offend principles of horizontal sovereignty,” and should be enforced. But would they be? Following Sciabacucchi, many Delaware companies that did not have FFPs adopted them, and companies with FFPs involved in current ’33 Act litigation tried to enforce them by moving to dismiss state court actions. In an apparent case of first impression, one such case was just decided in the San Mateo Superior Court in California, Wong v. Restoration Robotics (18CIV02609, Sept. 1, 2020).

No primary direct listings for now—order approving NYSE rule change stayed

On August 26, the SEC’s Division of Trading and Markets took action, pursuant to delegated authority, to approve a proposed NYSE rule change that would allow companies going public to raise capital through a primary direct listing.  (See this PubCo post.) This week, that rule change hit a “snag,” as the WSJ put it—the SEC notified the NYSE that the approval order had been stayed because the SEC had received a notice of intention to petition for review of the approval order. What’s that about?