Category: Corporate Governance
NYSE temporarily eases shareholder approval requirements for certain equity issuances
After the 2008 financial crisis, many companies sought to raise capital by selling equity in private placements, often to existing major shareholders, but faced limitations resulting from the NYSE’s shareholder approval requirements. To address that concern in the Covid-19 crisis, the NYSE has proposed, and the SEC has approved and declared immediately effective, an NYSE rule change to waive, through June 30, 2020 and subject to compliance with conditions, application of certain of the shareholder approval requirements in Section 312.03 of the NYSE Listed Company Manual. That rule requires listed companies to obtain shareholder approval prior to certain types of equity issuances. The general effect of the waivers, according to the NYSE, is to make these NYSE shareholder approval requirements more comparable to the similar Nasdaq requirements on a temporary basis. The waivers are intended to provide temporary relief to listed companies that may have urgent liquidity needs in the coming months as a result of the impact of COVID-19.
Glass Lewis to publish unedited company feedback with its research reports
You might recall that, in November 2019, the SEC proposed amendments to the proxy rules to add new disclosure and engagement requirements for proxy advisory firms, such as ISS and Glass Lewis. Among the amendments included in that proposal was a new provision that would require proxy advisory firms to allow companies time to review and provide feedback on the advisory firm’s advice in advance of dissemination of the advice to the firm’s clients. (See this PubCo post.) Although there has been a substantial amount of pushback with regard to the SEC proposal and its earlier related guidance, including litigation filed by ISS (see this PubCo post), as noted on thecorporatecousel.net blog, proxy advisor Glass Lewis has announced that it will now include “unedited company feedback on its research…with all its proxy research papers” and will deliver that information “directly to the voting decision makers at every investor client.” Will ISS follow suit?
Delaware emergency order provides relief regarding changes to annual meetings
As you may know, even though Corp Fin staff had provided relief allowing public companies a relatively simple way to advise their shareholders of a change in the date or location of their annual meetings (including a change to a virtual-only format), companies incorporated in Delaware that needed to make those same changes still had to address the complications associated with compliance with Delaware law. Fortunately, tonight, the Governor of Delaware appears to have come to the rescue with an emergency order that may ease many of those complications.
Corp Fin issues Disclosure Guidance: Topic No. 9 Coronavirus (COVID-19)
Today, the staff of Corp Fin issued Disclosure Guidance Topic No. 9, which offers the staff’s views regarding disclosure considerations, trading on material inside information and reporting financial results in the context of COVID-19 and related uncertainties. The guidance includes a valuable series of questions designed to help companies assess, and to stimulate effective disclosure regarding, the impact of the coronavirus. As always these days, the guidance makes clear that it represents only the views of the staff, is not binding and has no legal force or effect.
SEC staff offers relief regarding manual signature retention requirements for electronic filings in light of COVID-19
The staff of various SEC divisions, including Corp Fin, has just issued a new Statement Regarding Rule 302(b) of Regulation S-T in Light of COVID-19 Concerns. The statement offers some relief in connection with “the authentication document retention requirements under Rule 302(b) [of Reg S-T] in light of health, transportation, and other logistical issues raised by the spread of coronavirus disease 2019 (COVID-19).”
SEC Division of Enforcement emphasizes need for market integrity in context of COVID-19 pandemic
Today, the Co-Directors of the SEC Division of Enforcement, Stephanie Avakian and Steven Peikin, issued a brief cautionary statement regarding market integrity in the era of the COVID-19 pandemic. The statement acknowledged the unprecedented impact of COVID-19 on the securities markets and emphasized the importance of “maintaining market integrity and following corporate controls and procedures.”
Delaware Supreme court upholds facial validity of exclusive federal forum provisions
Yesterday, 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,” thereby reversing the decision of the Chancery Court, which had invalidated the provisions in the charters of three Delaware companies. The Chancery Court had previously invalidated the exclusive federal forum provisions (FFPs) at issue in the case because, among other reasons, Delaware’s enabling statute (Section 102(b)(1))—which provides general authority for non-mandatory charter provisions—was, in the lower court’s view, inherently limited to “internal affairs” and FFPs were “external” matters. On de novo review, the Delaware Supreme Court rejected this analysis. It characterized FFPs as intra-corporate matters, located in a new territory—the “outer band” between internal and external matters—which fell within the statutory scope of Section 102(b)(1) and are, therefore, valid on their face. Given the substantial benefits of an FFP in the event of ’33 Act litigation (which includes Section 11 claims), companies that do not have an FFP in their charters or bylaws, whether as a result of uncertainty about the validity of FFPs or otherwise—may want to revisit the issue.
SEC adopts carve-out from the auditor attestation requirement of SOX 404(b) for low-revenue companies
On March 12, the SEC voted (by a vote of three to one, with Commissioner Allison Lee dissenting) to approve amendments to the accelerated filer and large accelerated filer definitions to provide a narrow carve-out for companies that qualify as smaller reporting companies (SRCs) and reported less than $100 million in annual revenues in the most recent fiscal year for which audited financial statements were available. Most significantly, under the final amendments, companies qualifying for the carve-out will no longer be subject to the SOX 404(b) requirement to have an auditor attestation report on internal control over financial reporting (ICFR), a requirement that applies to accelerated and large accelerated filers. In adopting these amendments, the SEC said that the amendments will “more appropriately tailor the types of issuers that are included in the definitions, thereby reducing unnecessary burdens and compliance costs for certain smaller issuers while maintaining investor protections. The amendments are consistent with the Commission’s and Congress’s historical practice of providing scaled disclosure and other accommodations to reduce unnecessary burdens for new and smaller issuers.” The new rules will become effective 30 days after publication in the Federal Register.
Guidance provides regulatory flexibility regarding annual meetings
Today, in light of the spread of COVID-19, the SEC announced new Corp Fin staff guidance regarding annual meetings. Because of limitations on the ability to hold in-person annual meetings as a result of health and travel concerns, the staff guidance “provides regulatory flexibility to companies seeking to change the date and location of the meetings and use new technologies, such as ‘virtual’ shareholder meetings that avoid the need for in-person shareholder attendance, while at the same time ensuring that shareholders and other market participants are informed of any changes.”
From “Who’s Who to who’s he”—should a former CEO stay on the board?
Should a CEO that retires or otherwise steps down from his or her position remain on the board as Chair or, as seems to be a recent trend, even as Executive Chair? That’s the question discussed in this article from Fortune. Probably, we can all think of examples of former CEOs who, for one reason or another, don’t entirely cut their ties, and instead become board members or executive chairs. Sometimes it’s strictly to assist in the transition on a short-term basis; sometimes it’s because stepping away created a “psychological crisis” for the former top dog: “They’re leaving behind power, fame, income, even their identity—as one ex-CEO put it, ‘You’re going from Who’s Who to who’s he?’” In any event, suggested the author, it’s typically a call for the board to make, taking into account this question: will the appointment be for the benefit of the shareholders or the former CEO?
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