Month: September 2022
Fifth Circuit hears oral argument on challenge to Nasdaq board diversity rules—will the rules survive?
On Friday, August 6, 2021, the SEC approved a Nasdaq proposal for new listing rules regarding board diversity and disclosure, accompanied by a proposal to provide free access to a board recruiting service. The new listing rules adopted a “comply or explain” mandate for board diversity for most listed companies and required companies listed on Nasdaq’s U.S. exchange to publicly disclose “consistent, transparent diversity statistics” regarding the composition of their boards. (See this PubCo post.) As anticipated, a court challenge to these rules didn’t take long to materialize. On Monday, August 9, the Alliance for Fair Board Recruitment filed a slim petition under Section 25(a) of the Exchange Act in the Fifth Circuit Court of Appeals—the Alliance has its principal place of business in Texas—for review of the SEC’s final order approving the Nasdaq rule. (See this PubCo post.) That petition was soon followed by a new petition challenging the rules filed by the National Center for Public Policy Research and subsequently transferred to the Fifth Circuit where the earlier filed petition was pending. (See this PubCo post.) Last week, a three-judge panel of the Fifth Circuit heard oral argument in the case, Alliance for Fair Board Recruitment, National Center for Public Policy Research v. SEC. Did it signal a result?
California’s proposed Climate Corporate Accountability Act goes belly up—for now at least
“California Approves a Wave of Aggressive New Climate Measures” was a headline in the NYT on Thursday, and that included a “record $54 billion in climate spending, a measure to prevent the state’s last nuclear power plant from closing, sharp new restrictions on oil and gas drilling and a mandate that California stop adding carbon dioxide to the atmosphere by 2045.” But one climate bill didn’t make the cut. That was SB 260, California’s Climate Corporate Accountability Act, which, on Wednesday, failed to pass in the California legislature, notwithstanding much ink being devoted to it this past year (see, e.g., this Bloomberg article). Had the bill been signed into law, it would have mandated reporting and disclosure of GHG emissions data—Scopes 1, 2 and 3—by all U.S. business entities with total annual revenues in excess of a billion dollars that “do business in California.” Those requirements for GHG emissions reporting and attestation exceeded even the SEC’s proposed climate disclosure proposal. (See this PubCo post.) And, under the existing broad definition of “doing business” in California, the bill would have captured a large number of companies, estimated to be about 5,500, including many incorporated outside of California. (Nothing new for the Golden State—see this PubCo post and this PubCo post.) According to Politico Pro, Scott Wiener, the sponsor of the legislation, said in a statement that he was “deeply disappointed in this result….If we want to avoid a full climate apocalypse, we need to understand corporate pollution—all the way down the supply chain.” He added that “he ‘won’t give up’ and that he’s ‘very likely’ to reintroduce SB 260 next year.” Time will tell.
SEC adopts final pay-versus-performance disclosure rule [updated]
[This post revises and updates my earlier post primarily to reflect in greater detail the contents of the adopting release.]
Last week, without an open meeting, the SEC finally adopted a new rule that will require disclosure of information reflecting the relationship between executive compensation actually paid by a company and the company’s financial performance—a new rule that has been 12 years in the making. In 2010, Dodd-Frank, in Section 953(a), added Section 14(i) to the Exchange Act, mandating that the SEC require so-called pay-versus-performance disclosure in proxy and information statements. The SEC proposed a rule on pay versus performance in 2015 (see this PubCo post and this Cooley Alert), but it fell onto the long-term, maybe-never agenda until, that is, the SEC reopened the comment period in January (see this PubCo post). According to SEC Chair Gary Gensler, the new rule “makes it easier for shareholders to assess a public company’s decision-making with respect to its executive compensation policies. I am pleased that the final rule provides for new, more flexible disclosures that allow companies to describe the performance measures it deems most important when determining what it pays executives. I think that this rule will help investors receive the consistent, comparable, and decision-useful information they need to evaluate executive compensation policies.” In the adopting release, the SEC articulates its belief that the disclosure “will allow investors to assess a registrant’s executive compensation actually paid relative to its financial performance more readily and at a lower cost than under the existing executive compensation disclosure regime.” For the most part, although there is some flexibility in some aspects of the new rule, the approach taken by the SEC in this rulemaking is quite prescriptive; the SEC opted not to take a “wholly principles-based approach because, among other reasons, such a route would limit comparability across issuers and within issuers’ filings over time, as well as increasing the possibility that some issuers would choose to report only the most favorable information.” Commissioners Hester Peirce and Mark Uyeda dissented, and their statements about the rulemaking are discussed below.
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