Although there is an SEC open meeting scheduled for this week, the commissioners won’t be taking up any proposals from Corp Fin at that meeting (see the agenda). That’s a little puzzling given that the SEC’s agenda for Corp Fin was near to bursting, especially for highly anticipated disclosure proposals on climate and human capital, among other things. Those two topics, for example, had appeared on the two most recent SEC reg-flex agendas with proposal target dates of October 2021, then delayed to December 2021, with expectations later vaguely conveyed for January 2022, unlikely now to be met. [UPDATE: At the Northwestern Pritzker School of Law’s Annual Securities Regulation Institute on Tuesday, Corp Fin Director Renee Jones indicated that said that they expect to have a proposal on climate disclosure before the SEC this quarter.] However, according to Bloomberg, the SEC does have Corp Fin-related plans for this week: to reopen the public comment period on the 2015 pay-versus-performance proposal “after a vote taken behind closed doors.”
Corp Fin staff updates annual meeting guidance for presentation of shareholder proposals in light of continuation of COVID-19
Back in March 2020, before we could even imagine that we would still be struggling with COVID-19 in 2022, the SEC announced 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 provided “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.” (See this PubCo post.) That guidance was then updated in April 2020 and April 2021. (See this PubCo post and this PubCo post.) Now, the Corp Fin staff has once again updated that guidance for this year, tweaking the advice related to presentation of shareholder proposals to extend its application to the 2022 proxy season.
You might recall that, in 2019, Corp Fin discontinued its longstanding approach of responding by written letter to each no-action request to exclude a shareholder proposal. Instead, the staff responded by letter only when it believed “doing so would provide value, such as more broadly applicable guidance about complying with Rule 14a-8,” and declined to respond by letter to requests that it considered to be ordinary course. The vast majority of responses were publicly communicated on a chart posted on the Corp Fin website. At the time, the staff indicated that the change was intended to make the process more efficient and effective. (See this PubCo post.) On review, the staff has now decided to revert back to prior practice.
Climate risk disclosure “glaringly absent” in financial statements? Will regulators act to require more?
In one of the illustrative comments in Corp Fin’s just published sample comment letter on climate issues, Corp Fin asks companies to explain what consideration they may have given to providing in their SEC filings the same type of expansive climate-related disclosure that’s in their corporate social responsibility reports. One place in companies’ SEC filings where climate-related disclosure is “glaringly absent,” according to this report from the Carbon Tracker Initiative, is in the financial statements. Although many companies face serious climate risk, and many have even made net-zero pledges, the report “found little evidence that companies or their auditors considered climate-related matters in the 2020 financial statements.” According to the lead author of the report, “[b]ased on the significant exposure these companies have to transition risks, and with many announcing emissions targets, we expected substantially more consideration of climate matters in the financials than we found. Without this information there is little way of knowing the extent of capital at risk, or if funds are being allocated to unsustainable businesses….” Financial statement disclosure was so deficient, the report concluded, investors were essentially “flying blind.”
This afternoon, Corp Fin posted a sample letter to companies containing illustrative comments regarding climate change disclosures. Presumably, the goal is to help companies think about and craft their climate-related disclosure.
Today, the SEC announced that Renee Jones has been appointed as the new Director of Corp Fin, replacing Acting Corp Fin Director John Coates, who will become SEC General Counsel. Both appointments are effective June 21, 2021.
Whether and how to regulate proxy advisory firms, such as ISS and Glass Lewis, has long been a contentious issue, with some arguing that their vote recommendations were plagued by conflicts of interest and often erroneous, while others saw no reason for regulation given that the clients of these firms were satisfied with their services. In September 2019, the SEC published in the Federal Register a new interpretation and guidance directed at proxy advisory firms confirming that their vote recommendations were considered to be “solicitations” under the proxy rules and subject to the anti-fraud provisions, and providing some “suggestions” about disclosures that would help avoid liability. (See this PubCo post.) In July 2020, the SEC adopted new amendments to the proxy rules regarding proxy advisory firms, codifying the SEC’s interpretation that made proxy voting advice subject to the proxy solicitation rules. In addition, the SEC adopted two new conditions to the exemptions from those rules for proxy advisory firms, which required disclosure of conflicts of interest and adoption of principles-based policies to make proxy voting advice available to the subject companies and to notify clients of company responses. Compliance with the new conditions was not required prior to December 1, 2021. (See this PubCo post). Yesterday, SEC Chair Gary Gensler directed the staff to consider whether to recommend further regulatory action regarding proxy voting advice. In his statement, Gensler highlighted his direction that the staff consider “whether to recommend that the Commission revisit its 2020 codification of the definition of solicitation as encompassing proxy voting advice, the 2019 Interpretation and Guidance regarding that definition, and the conditions on exemptions from the information and filing requirements in the 2020 Rule Amendments, among other matters.” As a result, Corp Fin issued a Statement indicating that “it will not recommend enforcement action to the Commission based on the 2019 Interpretation and Guidance or the 2020 Rule Amendments during the period in which the Commission is considering further regulatory action in this area.” What approach will the SEC now take to proxy advisory firm regulation?
As reported by Bloomberg, Acting Corp Fin Director John Coates told a webinar audience that mandatory ESG disclosures were “overdue,” and that the SEC was moving quickly on related rulemaking. In the webinar, sponsored by NYU’s Institute of Accounting Research and the Institute for Corporate Governance & Finance, Coates said that he expects the SEC to soon be in a position to review and consider staff proposals for mandatory prescriptive rules on ESG addressing both general and industry-specific requirements. These actions are expected to be the SEC’s most significant action on climate since the 2010 guidance. (See this PubCo post.)
Corp Fin staff updates guidance regarding presentation of shareholder proposals in light of COVID-19
On Friday, the Corp Fin staff announced that it has updated its Guidance for Conducting Shareholder Meetings in Light of COVID-19 Concerns originally published on March 13, 2020 and updated on April 7, 2020 (see this PubCo post and this PubCo post). The updated guidance posted on Friday tweaks the advice related to presentation of shareholder proposals, extending its application to the 2021 proxy season.
As has been widely reported, there has been a phenomenal increase in the volume of SPAC transactions as an alternative approach to becoming a public company. According to Bloomberg, around “300 SPACs launched on U.S. exchanges in the first quarter, raising almost $100 billion. That total was more than all of last year.” In this statement, Corp Fin Acting Director John Coates discusses liability risks potentially arising out of SPAC and de-SPAC transactions, that is, the transactions in which a private operating company undertakes a business combination with a SPAC, ultimately becoming a public operating company. The essence of his message is: why should a SPAC be treated differently from a traditional IPO?