Number of whistleblower complaints explodes
Since the onset of the COVID-19 pandemic, the number of whistleblower complaints received by regulators has exploded on both sides of the Atlantic. That’s the subject of this new Cooley Alert, Whistleblower Complaints and Rewards Explode Worldwide, from our White Collar Defense and Investigations group.
SEC adopts universal proxy and proposes significant amendments to 2020 rules governing proxy voting advice
At an open meeting yesterday, the SEC took up two rulemakings aimed at shareholder voting. First, the SEC voted four to one (a bipartisan if not unanimous vote) to adopt amendments to the proxy rules—initially proposed in 2016 and then shelved—relating to the use of universal proxy cards. The final rules require, in a contested director election, that proxy cards identify all director nominees for election at the upcoming shareholder meeting, including those candidates on dissident slates, allowing proxy voters to split their tickets and more closely replicate in-person voting. The final rules also enhance disclosures regarding voting options and voting standards that will apply to all director elections. According to SEC Chair Gary Gensler, the amendments “address concerns that shareholders voting by proxy cannot vote for a mix of dissident and registrant nominees in an election contest, as they could if voted in person….Today’s amendments will put these candidates on the same ballot. They will put investors voting in person and by proxy on equal footing. This is an important aspect of shareholder democracy.” The Council of Institutional Investors, which had petitioned the SEC in 2014 to adopt universal proxy, hailed the rule: “Imagine if, in a political election, you could vote only for Democrats or only for Republicans….That has been the dilemma facing most investors voting in a proxy contest at U.S. companies.”
The SEC also voted, three to two, to propose amendments to the proxy rules governing proxy voting advice, reversing some key provisions of the controversial amendments adopted in July 2020. Those amendments had codified the SEC’s interpretation making proxy voting advice subject to the proxy solicitation rules and included a significant new condition to the exemptions (with two components) from those solicitation rules essentially requiring proxy advisory firms to engage with the companies that are the subjects of their advice. The proposed amendments would rescind the key condition regarding engagement as well as the 2020 changes that were made to the proxy rules’ liability provision. According to Gensler, proxy advisory firms “play an important role in the proxy process. Their clients deserve to receive independent proxy voting advice in a timely manner.” The U.S. Chamber of Commerce said that the “rules finalized by the SEC last year created a level playing field and ensured that investors would have access to high quality information free of bias. If the SEC decides to roll back these rules, it will signal that it is not serious about rooting out and eliminating misinformation and conflicts of interest in the proxy process and will instead place special interests at the head of the line, harming investors and markets. We will engage with the SEC to stop these misguided proposals from moving forward.”
More SPAC restatements on the way?
It’s been weeks since the SEC last took SPACs to task! According to Bloomberg, the SEC is now requiring many SPACs to “Big R” restate their financial statements because they tripped over the classification of certain shares they offered to investors. Auditors with whom Bloomberg spoke said that the latest SPAC accounting snafu relates to incorrect categorization of Class A shares—which are typically redeemable—as “permanent equity instead of temporary equity.” One auditor described the issue as “pervasive[:] everyone’s dealing with it because everyone did it wrong.”
Is your audit committee climate literate?
According to audit firm Deloitte, “[i]nformative climate reporting requires a complex transformation of reporting processes, of data collection, education of the finance function, and in many cases, of the audit committee itself. Yet, despite the urgency and magnitude of the task, many boards are hesitating in the face of inconsistent standards, fragmented global standard-setting, and myriad expectations from investors.” Just how prepared are companies, their boards and especially their audit committees to deal with climate risk and climate reporting? That’s the big question that Deloitte asked 353 audit committee members globally (56% of whom were chairs) in September 2021. The answer? Not so much. According to Deloitte’s new report, 42% of respondents indicated that their company’s “climate response is not as swift and robust as they would like” and almost half “do not believe that they are well-equipped to fulfil their climate regulatory responsibilities.” Deloitte called the responses “sobering.”
Advisor Teneo surveys 2021 sustainability reports
While the global powers are occupied at the COP26 climate summit with negotiating and pledging (or, is it more “blah, blah, blah,” as teenage activist Greta Thunberg contends in some, uh, straight talk?), and we await the SEC’s expected climate disclosure framework, it might be worthwhile to get a handle on what companies are doing about sustainability reporting in the meantime. To help companies understand the current state of the art, CEO advisory firm Teneo surveyed 200 sustainability reports from S&P 500 companies in eleven industries published in the period between January 1 to June 30, 2021. Teneo’s report, The-State-of-U.S.-Sustainability-Reporting, provides useful samples, market statistics for various aspects of the content and design of these reports, as well as some practical considerations.
ISS releases proposed benchmark policy changes for 2022
Last week, ISS released for public comment its proposed benchmark policy changes for 2022. If adopted, the proposed policy changes would apply to shareholder meetings held on or after February 1, 2022. The proposed changes for U.S. companies relate to board diversity, board accountability for unequal voting rights, board accountability for climate disclosure by high GHG emitters and say-on-climate proposals.
Hearing on board gender diversity statute—will the court issue a preliminary injunction? (Updated)
On October 19, a federal district court judge held a hearing on a motion for a preliminary injunction in Meland v. Weber, a case challenging SB 826, California’s board gender diversity statute, on the basis that it is unconstitutional under the equal protection provisions of the 14th Amendment. The judge had previously dismissed the case on the basis of lack of standing, but was reversed by the 9th Circuit. What did the hearing reveal? (This post has been updated to reflect additional information regarding the hearing. See “At the hearing” below.)
SEC proposes more mandatory electronic filing
Yesterday, the SEC published proposed amendments—which the SEC voted unanimously to propose—to update the electronic filing requirements. The proposed rule and form amendments would require that certain forms be filed or submitted electronically and would amend certain forms to require structured data reporting (i.e., XBRL). Most notably, the proposal would require electronic submission in PDF format of “glossy” annual reports. According to SEC Chair Gary Gensler, the “proposed amendments are intended to modernize and increase the efficiency of the filing process—for filers, investors, or other interested parties.” The comment period will be open for 30 days.
In new SLB 14L, Corp Fin takes new (old) approach to “ordinary business” and “economic relevance” exceptions
Yesterday, Corp Fin issued Staff Legal Bulletin 14L, which outlines Corp Fin’s most recent interpretations of Rule 14a-8(i)(7), the ordinary business exception, and Rule 14a-8(i)(5), the economic relevance exception. The new SLB also rescinds SLBs 14I, 14J and 14K, following a “review of staff experience applying the guidance in them.” Generally, new SLB 14L presents its approach as a return to the perspective that historically prevailed prior to the issuance of the three rescinded SLBs. SEC Chair Gary Gensler said that “[t]oday’s bulletin will provide greater clarity to companies and shareholders on these matters, so they can better understand when exclusions may or may not apply. The updated staff legal bulletin, which replaces three previously issued bulletins, is consistent with the Commission’s original intention.” The effect of the new SLB is to relax some of the interpretations of “significant social policy,” “micromanagement” and “economic relevance” imposed under the rescinded SLBs, making exclusion of shareholder proposals—particularly proposals related to environmental and social issues—more of a challenge for companies. Needless to say, climate activists are pleased that their proposals will now likely find a more receptive audience at the SEC.
Commissioner Roisman talks cybersecurity
On Friday, in remarks before the L.A. County Bar Association, SEC Commissioner Elad Roisman addressed some of the challenges associated with cybersecurity and cyber breaches and similar events. In his presentation, Roisman considers cybersecurity in a variety of contexts, such as the exchanges, investment advisers and broker-dealers, but his discussion of cybersecurity in the context of public companies is of most interest here. Although the SEC has imposed some principles-based requirements and issued guidance about cybersecurity disclosure, Roisman believes that there is more in the way of guidance and even rulemaking that the SEC should consider “to ensure that companies understand [the SEC’s] expectations and investors get the benefit of increased disclosure and protections by companies.”
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