Month: December 2024
CEO succession: Is it a good idea to appoint a board member to be CEO?
In this article from the Harvard Business Review, the authors, from global leadership advisory firm ghSMART, discuss the growing number of instances in which companies appoint CEOs from the board. According to the article, from 2018 to 2023, 10% (213) of the total number of new CEOs in the S&P 500 and Russell 3000 were appointments from the board, reflecting a threefold increase over the period, and “making board director the fourth-most-common pre-CEO role,” after various executive roles. The authors note that the majority of those 213 CEOs were permanent hires. Interestingly, however, the authors observe that when a company appoints one of its own board members as CEO, the frequent assumption is that there must have been a problem with succession planning: “Maybe the company is desperately trying to get itself out of a protracted period of tumult. Maybe the previous CEO’s departure was unexpected or forced, and only a tried-and-true board member can keep the ship sailing steadily until a permanent replacement can be found. Maybe the CEO’s departure was routine and expected, but somehow the succession-planning process just came up short.” But sometimes, they suggest, the reality is that the board member was actually “the best option” to serve in that role. Why might it be a good idea? What can go wrong? How can the company increase its chances of success? In their article, the authors address these questions.
Profs share predictions for securities regulation under next Administration—and their response
In this post on the CLS Blue Sky Blog, two leading authorities on securities law, Professors John C. Coffee, Jr. and Joel Seligman, take a crack at prognosticating about SEC regulation—and even the SEC itself—under the next Administration. They contend that, with a new Republican majority on the Commission, including the new Chair, together with Republican majorities in Congress, the SEC will be in a position to “revise a broad range of statutory, rule, and enforcement policies of the Commission.” What’s more, the new Department of Government Efficiency—which they suggest, may not be entirely, um, open-minded when it comes to the SEC—could certainly put a major crimp in the resources available for the SEC’s budget. (They note the irony “that the SEC makes a large profit for the U.S. government, and in fiscal 2024, it obtained a record-high level of fines and sanctions (approximately $8.2 billion). Shrink its budget and you likely shrink that recovery.”) In their view, the SEC is “probably the most successful and effective of the New Deal administrative agencies, one that has helped preserve the integrity of our capitalist system,” but they fear that it may be handicapped in continuing to do so under the next Administration. With that in mind, they pre-announce their intent to “encourage a more informed debate by forming a ‘Shadow SEC,’ composed of acknowledged experts in securities regulation.” Let’s look at some of the potential legislation and rulemaking changes that they speculate might be in store for the SEC and public company disclosure.
“Outspoken critic” and former SEC Commissioner Paul Atkins to be nominated as SEC Chair
As widely reported, former SEC Commissioner Paul Atkins (2002-2008) is to be nominated to serve as SEC Chair. This WSJ op-ed describes him as the “anti-Gensler”—the “opposite of Mr. Gensler in temperament and regulatory ambition.” According to Politico, “Atkins has been an outspoken critic of everything from the financial reform measures enacted after the 2008 credit crisis to climate-related disclosures.” Further, Politico reports, “Atkins has sharply criticized what he considers heavy-handed policymaking for the last two decades. And he is seen by many in Washington as a well-connected regulator whose understanding of the SEC could allow him to move quickly as he enacts his vision for the regulator.” If he is confirmed, Politico continues, he “would be tasked with steering the SEC as it embarks on what is expected to be a new deregulatory age for Wall Street after nearly four years of aggressive rulemaking by the current chair, Gary Gensler. He would also be thrust into a series of policy fights over the $3 trillion cryptocurrency market, artificial intelligence and the cost of raising capital in the U.S.”
SEC charges biopharma with misleading investors about status of INDs
The SEC has announced that it filed settled charges against Kiromic BioPharma and two of its executives for alleged failure to disclose in its public statements and filings, including in its public offering prospectus, material information about its investigational new drug applications filed with the FDA for two of its drug candidates—the only two product candidates in the company’s pipeline. What was that omitted information? That the FDA had placed both of its INDs on clinical hold, meaning that the proposed clinical investigations could not proceed until the company first corrected the deficiencies cited by the FDA. Instead of disclosing in its prospectus that the INDs had actually been placed on clinical hold, the company included a risk factor describing the “hypothetical risk of a clinical hold and the potential negative consequences” on the company’s business. In light of the company’s voluntary self-reporting, remediation and other proactive cooperation, there was no civil penalty for the company, but two executives, the then-CEO and then-CFO, agreed to pay civil penalties of $125,000 and $20,000. According to the Director of the SEC’s Fort Worth Regional Office, the resolution of these cases strikes “the right balance between holding Kiromic’s then-two most senior officers responsible for Kiromic’s disclosure failures while also crediting Kiromic for its voluntary self-report, remediation, proactively instituting remedial measures, and providing meaningful cooperation to the staff.”
Will SCOTUS revive the nondelegation doctrine? Cert. granted in Consumers’ Research v. FCC
When SCOTUS granted cert. in SEC v. Jarkesy, the case challenging the constitutionality of the SEC’s administrative enforcement proceedings, one of the questions presented was whether the statute granting authority to the SEC to elect to use ALJs violated the nondelegation doctrine. Jarkesy had contended that, in adopting the provision in Dodd-Frank permitting the use of ALJs but providing no guidance on the issue, “Congress has delegated to the SEC what would be legislative power absent a guiding intelligible principle” in violation of that doctrine. Had SCOTUS gone that route, commentators suggested, the case had the potential to be enormously significant in limiting the power of the SEC and other federal agencies beyond the question of ALJs. A column in the NYT discussing Jarkesy explained that, if “embraced in its entirety, the nondelegation doctrine could spell the end of agency power as we know it, turning the clock back to before the New Deal.” And in Bloomberg, Matt Levine wrote that, while the ”nondelegation doctrine has not had a lot of wins in the Supreme Court in the last 90 years….it’s back now: There is revived interest in it at the Supreme Court.” Had Jarkesy won the nondelegation argument, that could have meant “that all of the SEC’s rulemaking (and every other regulatory agency’s rulemaking) is suspect, that every policy decision that the SEC makes is unconstitutional. Much of US securities law would need to be thrown out, or perhaps rewritten by Congress if they ever got around to it. Stuff like the SEC’s climate rules would be dead forever.” In his view, “the Supreme Court does have several justices who would love to revive the nondelegation doctrine in a way that really would undermine most of securities regulation.” That didn’t happen in Jarkesy; SCOTUS studiously avoided addressing the issue, its looming presence in the lower court decision notwithstanding. But the nondelegation doctrine has again reared its head, this time in Consumers’ Research v. FCC out of the Fifth Circuit. In late November, SCOTUS granted cert. in that case (and consolidated it with another case, SHLB Coalition v. Consumers’ Research, that presented similar questions). All three of the questions presented in the cert. petition relate to the nondelegation doctrine (although another was added by SCOTUS itself). With this case now on the docket, will SCOTUS continue its shellacking of the administrative state? (See this PubCo post, this PubCo post, this PubCo post, this PubCo post and this PubCo post.) And add another big wrinkle: how will the new Administration approach this case and this question? While, historically, according to Bloomberg, the “solicitor general typically defends federal statutes and programs regardless of party affiliation,” there is no assurance that the new Administration will follow historical practice. Indeed, according to this article in Law.com, with a new administration, “[f]lipping positions at the Supreme Court has become a common trend of incoming U.S. solicitors general, even if it tends to irk the justices themselves.”
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