While a recent survey of CEOs (discussed in this PubCo post yesterday) showed increasingly favorable reactions to ESG and its potential impact—transforming ESG “from a nice-to-have to integral to long-term financial success”— what about CFOs? According to this survey of CFOs from CNBC, they’re just not all that into it. Granted, this survey of CFOs was minuscule compared to the KPMG survey of CEOs—actually, compared to any survey. But the results were strikingly different. CNBC labeled it an “ESG backlash.”
KPMG has recently posted its 2022 CEO Outlook. With inflation raging and a possible recession looming, KPMG found that CEOs were “ready and prepared to weather current geopolitical and economic challenges while still anticipating long-term global growth.” According to the survey, confidence in economic growth over the next three years has risen to 71%. Of particular interest were the survey results related to ESG. According to KPMG, “ESG has gone from a nice-to-have to integral to long-term financial success.” But will a potential recession curtail their enthusiasm?
Corp Fin has issued a few new CDIs—two relating to Section 16 and one relating to beneficial ownership under Rule 13d-3. The new CDIs address issues in connection with exchange-traded funds, or ETFs, and the use of “informational barriers.”
On Wednesday, the SEC’s Investor Advisory Committee held a jam-packed meeting to discuss, among other matters, human capital disclosure and the SEC’s proposal on Schedule 13D beneficial ownership. Wait, didn’t this Committee just have a meeting in June about human capital disclosure, part of the program about non-traditional financial information? (See this PubCo post.) Yes, but, as the moderator suggested, Wednesday’s program was really a “Part II” of that prior meeting, expanding the discussion from accounting standards for human capital disclosure to now consider other labor-related performance data metrics that may be appropriate for disclosure. The Committee also considered whether to make recommendations in support of the SEC’s proposals regarding cybersecurity disclosure and climate disclosure.
At last week’s PLI program, SEC Speaks, Corp Fin Director Renee Jones and crew discussed a number of topics, among them disclosure of emerging risks, recent rulemakings, staff focus on Part III disclosures, shareholder proposals and MD&A disclosures. But there’s no denying that the most entertaining moments came from the caustic side commentary provided by former SEC Commissioner Paul Atkins, whose perspective on current trends is, hmmm, distinctly at odds with the zeitgeist currently prevailing at the SEC.
Countries outside the U.S. have sometimes been trendsetters when it comes to board diversity. For example, according to the California’s board gender diversity bill, SB 826, signed into law in 2018, “in 2003, Norway was the first country to legislate a mandatory 40 percent quota for female representation on corporate boards.” Under Nasdaq’s board diversity rules (see this PubCo post), board diversity encompasses more than gender diversity—it also includes persons who self-identify as underrepresented minorities or LGBTQ+. Nasdaq’s new diversity rules also apply to foreign private issuers. What does “board diversity” mean for foreign private issuers and non-US companies considering US IPOs? Does it focus solely on women or does it have a broader scope? Who are “underrepresented individuals in home country jurisdiction”? These questions and more are addressed in this fascinating piece, Board Diversity for Foreign Private Issuers: Does Board Diversity Mean the Same Thing Worldwide?, from Cooley’s Singapore office, posted on the Cooley CapitalXchange blog.
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?
[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.
At the end of last week, Corp Fin issued three new CDIs related to universal proxies under Rule 14a-19. In November 2021, the SEC amended the federal proxy rules to mandate the use of universal proxies in all non-exempt solicitations in connection with contested elections of directors of operating companies. By mandating the use of universal proxies—proxy cards that, when used in a contested election, include a complete list of all candidates for director duly nominated by both management and dissidents—the SEC’s rules now allow a shareholder voting by proxy to choose among director nominees in an election contest in a manner that closely mirrors in-person voting. (See this PubCo post.) The new CDIs address questions that have arisen in connection with notice and proxy statement disclosure. Below are brief summaries.
It’s been 12 years since Dodd-Frank mandated, in Section 953(a), so-called pay-versus-performance disclosure, and amazingly, no rules had been adopted to implement that mandate…until yesterday, when adoption of the final rule crept in “on little cat feet.” Well, ok, there was a press release, but it was still quite a surprise. Yesterday, without an open meeting, the SEC finally adopted a new rule that would require disclosure of information reflecting the relationship between executive compensation actually paid by a company and the company’s financial performance. 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, “[t]oday’s 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.” Commissioners Hester Peirce and Mark Uyeda dissented.