Results for: conflict minerals
SEC’s Fall 2023 Reg-Flex Agenda is out—climate disclosure rules delayed again
The SEC’s Fall 2023 Reg-Flex Agenda—according to the preamble, compiled as of August 22, 2023, reflecting “only the priorities of the Chair”—has now been posted. And it’s Groundhog Day again. All of the Corp Fin agenda items made an appearance before on the last agenda and, in most cases, several agendas before that. Do I hear a sigh of relief? Of course, the new agenda is a bit shorter than the Spring 2023 agenda, given the absence of regulations that have since been adopted, including cybersecurity risk governance (see this PubCo post) and modernization of beneficial ownership reporting (see this PubCo post). At first glance, the biggest surprise—if it’s on the mark, that is—is that the target date for final action on the SEC’s controversial climate disclosure proposal has been pushed out until April 2024. Keep in mind that it is only a target date, and the SEC sometimes acts well in advance of the target. For example, the cybersecurity proposal had a target date on the last agenda of October 2023, but final rules were adopted much earlier in July. I confess that my hunch was that we would see final rules before the end of this year, but adoption this year looks increasingly unlikely (especially given that the posted agenda for this week’s open meeting does not include climate). Not surprisingly, there’s nothing on the agenda about a reproposal of the likely-to-be vacated (?) share repurchase rules, although, at the date that the agenda was compiled, the possibility of vacatur was not yet known. (See this PubCo post.) Describing the new agenda, SEC Chair Gary Gensler observed that “[w]e are blessed with the largest, most sophisticated, and most innovative capital markets in the world. But we cannot take this for granted. Even a gold medalist must keep training. That’s why we’re updating our rules for the technology and business models of the 2020s. We’re updating our rules to promote the efficiency, integrity, and resiliency of the markets. We do so with an eye toward investors and issuers alike, to ensure the markets work for them and not the other way around.”
A jam-packed Spring 2022 agenda for the SEC
The SEC has posted its Spring 2022 Reg-Flex agenda and it’s crammed with pending and new rulemakings—and they’re all going to be proposed or adopted in October! (Ok, admittedly, that’s an exaggeration, but not much of one.) Here is the short-term agenda and here is the long-term agenda. According to SEC Chair Gary Gensler, the “U.S. is blessed with the largest, most sophisticated, and most innovative capital markets in the world….But we cannot take that for granted. As SEC alum Robert Birnbaum and his team said decades ago, ‘no regulation can be static in a dynamic society.’ That core idea still rings true today.” Gensler’s public policy goals for the agenda are “continuing to drive efficiency in our capital markets and modernizing our rules for today’s economy and technologies.” As with recent prior agendas, SEC Commissioner Hester Peirce has almost no kind words for the agency’s plans—“flawed goals and a flawed method for achieving them.” In fact, she went so far as to characterize the agenda as “dangerous”: in her view, the agenda represents “the regulatory version of a rip current—fast-moving currents flowing away from shore that can be fatal to swimmers. Just as certain wave and wind conditions can create dangerous rip currents, the pace and character of the rulemakings on this agenda make for dangerous conditions in our capital markets.” There’s no dispute that the agenda is laden with major proposals—human capital, SPACs, board diversity. What’s more, many of these proposals—climate disclosure, cybersecurity, Rule 10b5-1—are apparently at the final rule stage. Whether or not we’ll see a load of public companies submerged by the rip tide of rulemakings remains to be seen, but there’s not much question that implementing them all would certainly be a challenge in any case.
Peirce and Roisman object to SEC’s new agenda
Even the SEC’s new Reg Flex Agenda (which reflect the priorities of the SEC Chair) has now elicited a “dissent” from the two SEC Commissioners on the other side of the political aisle. In this statement, posted yesterday, Commissioners Hester Peirce and Elad Roisman lambast the new Spring 2021 Agenda for “the regrettable decision to spend our scarce resources to undo a number of rules the Commission just adopted.” While the Agenda contains several “important and timely items”—which they identify as rules related to transfer agents and government securities alternative trading systems—the absence of other items was notable, including important rulemakings that would “provide clarity for digital assets, allow companies to compensate gig workers with equity, and revisit proxy plumbing.” (Of course, two of those rulemakings were not entirely absent, but have instead been moved to the long-term agenda. See this PubCo post.) Perhaps, they suggest, too much attention to undoing existing rules rather than creating new ones?
Fifth Circuit grants petition for rehearing en banc for Nasdaq board diversity rule
In August 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.) It didn’t take long for a court challenge to these rules to materialize: the Alliance for Fair Board Recruitment and, later, the National Center for Public Policy Research petitioned 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 and this PubCo post) In October 2023, a three-judge panel of the Fifth Circuit denied those petitions, in effect upholding Nasdaq’s board diversity listing rules. Given that, by repute, the Fifth Circuit is the circuit of choice for advocates of conservative causes, the decision to deny the petition may have taken some by surprise—unless, that is, they were aware, as discussed in the WSJ and Reuters, that the three judges on this panel happened to all be appointed by Democrats. Petitioners then filed a petition requesting a rehearing en banc by the Fifth Circuit, where Republican presidents have appointed 12 of the 16 active judges. (See this PubCo post.) Not that politics has anything to do with it, of course. That petition for rehearing en banc has just been granted by the Fifth Circuit—on Presidents’ Day—and the opinion of the lower court was vacated.
A nugget about conflict minerals reporting
This from consultant Elm Sustainability: Elm advises that companies working on their conflict minerals reporting should not be surprised to see a decline in the number of their audited smelters and refiners:
SEC offers another packed agenda for Fall 2021
The SEC’s new Fall reg-flex agenda is posted and, no surprise, it’s packed. Here is the short-term agenda and here is the long-term version. And just as with the spring agenda, Commissioners Hester Peirce and Elad Roisman have lambasted it in a dissenting statement. The agenda is laden with major proposals that were on the Spring agenda, but didn’t quite make it out the door, such as plans for disclosure on climate and human capital (including diversity), cybersecurity risk disclosure, Rule 10b5-1, Rule 14a-8 amendments and SPACs, as well as a new, already controversial, proposal to amend the definition of “holders of record.” Some of the agenda items have recently been proposed, for example, new rules regarding mandated electronic filings (see this PubCo post) and amendments to the proxy rules governing proxy voting advice (see this PubCo post). Similarly, three items identified as at the “final rule stage” have already been adopted: universal proxy (see this PubCo post), filing fee disclosure (see this PubCo post) and amendments under the Holding Foreign Companies Accountable Act (see this PubCo post). The agenda also identifies a couple of topics that are still just at the pre-rule stage, such as exempt offerings (updating the financial thresholds in the accredited investor definition, amendments to Rule 701 and amendments to the integration framework). Notably, political spending disclosure is not expressly identified on the agenda (see this PubCo post), nor is there a reference to a comprehensive ESG disclosure framework (see this PubCo post). Below is a selection from the agenda.
New challenge to Nasdaq board diversity rule
A new petition has been filed challenging the Nasdaq board diversity rule (see this PubCo post). The National Center for Public Policy Research filed the petition on Tuesday with the U.S. Court of Appeals for the Third Circuit, but asked the court to transfer the proceeding to the Fifth Circuit, where an earlier petition filed by the Alliance for Fair Board Recruitment is pending. (See this PubCo post.) The new Nasdaq listing rules, which were approved by the SEC on August 6, adopt a “comply or explain” mandate for board diversity for most listed companies and require companies listed on Nasdaq’s U.S. exchange to publicly disclose “consistent, transparent diversity statistics” regarding the composition of their boards.
It’s not over till it’s over: Petition filed for rehearing en banc on Nasdaq board diversity rule
As discussed in this PubCo post, on October 18, a three-judge panel of the Fifth Circuit denied the petitions filed by the Alliance for Fair Board Recruitment and the National Center for Public Policy Research challenging the SEC’s final order approving the Nasdaq listing rules regarding board diversity and disclosure. 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.) Given that, by repute, the Fifth Circuit is the circuit of choice for advocates of conservative causes, the decision to deny the petition may have taken some by surprise—unless, that is, they were aware, as discussed in the WSJ and Reuters, that the three judges on this panel happened to all be appointed by Democrats. Yesterday, the Petitioners filed a petition requesting a rehearing en banc by the Fifth Circuit, where Republican presidents have appointed 12 of the 16 active judges. Not that politics has anything to do with it, of course.
SEC v. AT&T headed to trial—is Reg FD constitutional?
Reg FD cases rarely get to court, but here’s one that, barring a settlement, appears to be headed to trial. In a 129-page opinion in SEC v. AT&T, 9/08/22, the federal district court for the SDNY denied summary judgment for both sides in a case the SEC brought in March of 2021 against AT&T and three members of its Investor Relations Department for violations of Reg FD. (See this PubCo post.) The SEC alleged that, in March 2016, AT&T learned that, as a result of a “steeper-than-expected decline in smartphone sales,” AT&T’s first quarter revenues would fall short of analysts’ estimates by over a $1 billion. Given that AT&T had missed consensus revenue estimates in two of the three preceding quarters, AT&T, it was alleged, embarked on a “campaign” to beat consensus revenue estimates for Q1: the three defendant IR employees were asked by the CFO and IR Director to contact the analysts whose estimates were too high to “walk” them down. As part of that campaign, the SEC alleged, they selectively disclosed the company’s “projected or actual total revenue, and internal metrics bearing on total revenue, including wireless equipment revenue and wireless equipment upgrade rates.” The campaign worked. But—and it’s a big but—it also led the SEC to bring claims against AT&T for violating Reg FD, and against the three IR employees for aiding and abetting that violation. As to AT&T and the other defendants, the Court was not persuaded by their arguments that there was insufficient evidence to support the SEC’s claims of a Reg FD violation, nor did the Court agree that Reg FD was “invalid” under the First Amendment. And, as to the SEC, while the Court viewed as “formidable” the evidence showing that the information at issue was material, nonpublic and selectively disclosed, the question of scienter was a closer one, and a reasonable jury could find for the defendants on that point.
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