Category: Corporate Governance
Corp Fin urges companies to amp up disclosure on impact of crypto market developments
Last week, Corp Fin posted another sample comment letter—this one urging affected companies to provide “specific, tailored disclosure” about the “disruption” in the crypto markets and collateral events, the “company’s situation in relation to those events and conditions, and the potential impact on investors.” The sample comments focus on “the material impacts of crypto asset market developments, which may include a company’s exposure to counterparties and other market participants; risks related to a company’s liquidity and ability to obtain financing; and risks related to legal proceedings, investigations, or regulatory impacts in the crypto asset markets.” Below is a brief summary.
Corp Fin posts new CDIs regarding the use of universal proxy cards
Corp Fin has issued three new CDIs regarding universal proxy. 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 compliance by dissident shareholders with advance notice provisions and the use by dissident shareholders of their own proxy cards. Below are brief summaries.
SEC reopens comment period (again) for proposal on stock buyback disclosure
Yesterday, the SEC announced that it was reopening (again) the public comment period for its proposed rule on stock buyback disclosure modernization, a rule proposed at the end of 2021. (Remember that the comment period for this proposal was previously reopened in October because of the “technical glitch.” See this PubCo post.) The proposal is focused on enhancing disclosure by requiring more detailed and more frequent and timely disclosure about stock buybacks. (See this PubCo post.) Why did the SEC reopen the buyback proposal comment period? Because, at the time the proposal was issued, the Inflation Reduction Act of 2022 had not yet been enacted, which meant that the implications of that Act could not be considered as part of the proposal’s original cost/benefit analysis. However, as demonstrated in a new memo from the SEC’s Division of Economic and Risk Analysis, the excise tax on stock buybacks imposed under the IRA could affect that analysis, and consequently, the public’s evaluation of the proposal. As a result, the SEC determined to make the DERA memo part of the comment file and to reopen the comment period for an additional 30 after publication of the reopening release in the Federal Register.
ISS issues benchmark policy updates for 2023
At the end of last week, ISS announced its benchmark policy updates for 2023. The policy changes will apply to shareholder meetings held on or after February 1, 2023, except for those with one-year transition periods. The changes for U.S. companies relate to policies regarding, among other things, unequal voting rights, problematic governance structures, board gender diversity, exculpation of officers, poison pills, quorum requirements, racial equity audits, shareholder proposals on alignment between public commitments and political spending and board accountability for climate among the Climate Action 100+. The results are based in part on the results of ISS’s global benchmark surveys (see this PubCo post) as well as a series of roundtables.
California Appeals Court reinstates injunctions against California Board diversity laws
You may recall that, earlier this year, two Los Angeles Superior Courts struck down as unconstitutional two California laws mandating that boards of public companies achieve specified levels of board diversity and enjoined implementation and enforcement of the legislation. Those injunctions, however, were temporarily lifted as the state appealed. Now, the appeals court has vacated those temporary stays. What does it mean for the diversity legislation?
What is the financial impact of legislation targeting companies taking disfavored stances?
As discussed in this PubCo post, we’ve lately been witnessing a profusion of state and local legislation targeting companies that express public positions or adopt policies on sociopolitical issues or conduct their businesses in a manner disfavored by the government in power. Bloomberg observes that, while “companies usually faced mainly reputational damage for their social actions, politicians are increasingly eager to craft legislation that can be used as a cudgel against businesses that don’t share their social views.” And many of these state actions are aimed, not just at expressed political positions, but rather at environmental and social measures that companies may view as strictly responsive to investor or employee concerns, shareholder proposals, current or anticipated governmental regulation, identified business risks or even business opportunities. These laws are presumably detrimental to the targeted companies, but are there any adverse consequences for the state or locality adopting this legislation and its citizens? To better understand the phenomenon and its impact on financial market outcomes, this paper from authors at the University of Pennsylvania and the Federal Reserve Bank of Chicago looked at the impact of one example of this type of legislation—a law recently adopted in Texas that blocks banks from government contracts in the state if the banks restrict funding to oil and gas companies or gun manufacturers. The authors concluded that the Texas legislation has had, and is expected to continue to have, a “large negative impact on the ability for local governments to access external finance. Our results suggest that if economies around the world that are heavily reliant on fossil fuels attempt to undo ESG policies by imposing restrictions on the financial sector, local borrowers are likely to face significant adverse consequences such as decreased credit access and poor financial markets outcomes.”
Corporate Sustainability Reporting Directive receives final approval, applicable to US companies with EU presence
On Monday, according to this press release from the Council of the European Union, all 27 members of the European Council voted in favor of the adoption of the Corporate Sustainability Reporting Directive, the last step for the CSRD to become law in the EU. The new rules require subject companies […]
Should we link pay to ESG measures?
According to this report by The Conference Board, in collaboration with Semler Brossy and ESGAUGE, the vast majority (73% in 2021) of companies in the S&P 500 are “now tying executive compensation to some form of ESG performance.” To be sure, some companies have long tied executive comp to particular […]
Will climate disclosures translate into climate action?
In light of the billions that even the SEC’s economic analysis estimates would be spent complying with its proposed climate disclosure regulations (see this PubCo post, this PubCo post and this PubCo post), will those disclosures catalyze real climate action? In this recent EY Global Climate Risk Barometer, accounting firm EY analyzed why, notwithstanding the vast amounts spent on climate disclosures, they “are still not translating into practical strategies to accelerate decarbonization.” In fact, EY pointed out, “global energy-related carbon dioxide emissions rose by 6% in 2021 to 36.3 billion tonnes [a metric unit of mass equal to 2,240 lbs], their highest-ever level, according to the International Energy Agency.” Will companies be able to “close the major disconnect between the disclosures they are making” and “their own transformation journeys”? Is integrating climate risk into the financial statements the key? Is climate risk disclosure just a “box-ticking exercise” or, by enabling accountability, can climate disclosures help to accelerate “the decarbonization process”?
Political spending transparency from Russell 1000 companies? Not so much
In the wake of the events of January 6, a number of companies, highly sensitized to any misalignment between their political contributions and their public statements or announced core values, determined to suspend or discontinue some or all of their political donations (although many have since resumed business as usual). As social and political unrest and political polarization have continued, demand for disclosure about corporate political spending has increased. In the midst of an unusually fraught mid-term election season, the Center for Political Accountability and the Zicklin Center for Business Ethics Research at the Wharton School of the University of Pennsylvania released their annual CPA-Zicklin Index of Corporate Political Disclosure and Accountability for 2022. The Index annually benchmarks public companies’ disclosure, management and oversight of corporate political spending, and includes specific rankings for companies based on their Index scores, as well as best practice examples of disclosure and other helpful information. (See this PubCo post.) This year, accompanying the Index is a new CPA-Zicklin Model Code of Conduct for Corporate Political Spending, designed to provide a “thorough and ethical framework” for corporate political spending. CPA launched the Index in 2011 following the decision by SCOTUS in Citizens United, benchmarking only the S&P 100. In 2015, it began to benchmark the S&P 500. This year, the Index has expanded its coverage to the Russell 1000. The difference in the levels of transparency between the S&P 500 and the Russell 1000 (excluding companies in the S&P 500) is dramatic.
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