The U.S. Securities and Exchange Commission has indicated that ESG disclosure regulation will be a central focus of recently confirmed SEC Chair Gary Gensler’s tenure. At the top of the agenda is climate change disclosure, and the Commission is taking steps toward broader reform. Then-Acting Chair Allison Herren Lee announced in March that the SEC will be “working toward a comprehensive ESG disclosure framework” and pursuing initiatives such as “offering guidance on human capital disclosure to encourage the reporting of specific metrics like workforce diversity, and considering more specific guidance or rule making on board diversity.” Acting Chair Lee also … Read more
California has made headlines this summer with legislative action toward instituting gender quotas for boards of directors of public companies headquartered in the state. The legislation has passed the state senate; to be enacted, it must be passed by the California state assembly and signed by the governor. In 2013, California became the first state to pass a precatory resolution promoting gender diversity on public company boards, and five other states have since followed suit. The current legislative effort has come under criticism for a variety of reasons, and, while it is not certain to become law, it could be … Read more
In light of evolving—and sometimes actively debated—perspectives on the role of public companies with respect to sustainability, corporate social responsibility and other ESG matters (e.g., Barron’s recent report on Sustainable Investing), we are providing a high-level overview of how boards of directors and senior management teams may wish to approach these issues:
- Be aware that sustainability has become a major, mainstream governance topic that encompasses a wide range of issues, including a company’s long-term durability as a successful enterprise, climate change and other environmental risks and impacts, systemic financial stability, management of human capital, labor standards, resource
“To take notes or not to take notes – that is the question” often asked in corporate board rooms today. As a matter of good governance, it is important that the minutes serve as the single, clear, official record of each in-person or telephonic board and committee meeting. Board materials that are circulated and discussed at the meeting should be part of the official record and either attached to the minutes or maintained in the corporate secretary’s files, as appropriate. In connection with significant transactions, board minutes will be reviewed by third parties for diligence purposes and to confirm that … Read more
The SEC Division of Corporate Finance recently provided useful guidance on excluding certain Rule 14a-8 shareholder proposals (Staff Legal Bulletin No. 14I). While helpful, we hope the SEC will undertake a much-needed comprehensive review of Rule 14a-8, including its outdated eligibility requirements.
“Ordinary Business” and “Economic Relevance” Exclusions. A shareholder proposal relating to a company’s ordinary business operations may generally be excluded from the company’s proxy statement unless significant policy issues transcending ordinary business are involved (Rule 14a-8(i)(7)). Noting that this exclusion often involves difficult judgment calls (and without addressing the distinction between the SEC’s interpretive approach … Read more
Yesterday [October 22, 2015], the Staff of the Securities and Exchange Commission’s Division of Corporation Finance issued Staff Legal Bulletin No. 14H. SLB14H formally narrows the long-standing approach to interpreting Rule 14a-8(i)(9), which permits a company to exclude a shareholder proposal that otherwise complies with Rule 14a-8 from its proxy statement “[i]f the proposal directly conflicts with one of the company’s own proposals to be submitted to shareholders at the same meeting.”
Prior to the 2015 proxy season, the exclusion applied in many corporate governance, shareholder rights and executive compensation contexts to avoid the risk of inconsistent and confusing … Read more
Due to a recent Delaware Chancery Court ruling, the topic of director compensation currently is facing an uncharacteristic turn in the spotlight. Though it receives relatively little attention compared to its higher-profile cousin—executive compensation— director compensation can be a difficult issue for boards if not handled thoughtfully. Determining the appropriate form and amount of compensation for non-employee directors is no simple task, and board decisions in this area are subject to careful scrutiny by shareholders and courts.
The core principle of good governance in director compensation remains unchanged: Corporate directors should be paid fair and reasonable compensation, in a mix
The Securities and Exchange Commission announced [several weeks ago] that it had charged eight directors, officers and major stockholders for failing to timely disclose steps taken to take their respective companies private in their beneficial ownership reports on Schedule 13D. The orders issued by the SEC indicate the SEC staff became aware of the violations in the course of their review of proxy and Schedule 13E-3 transaction statements, which described the steps taken in the required disclosures regarding the background of the transactions. The orders note that emails and other contemporaneous communications clearly indicate the steps taken that had not … Read more
Yesterday the Staff of the Securities and Exchange Commission’s Divisions of Investment Management and Corporation Finance issued regulatory guidance (in the form of a user-friendly Q&A) concerning the proxy voting responsibilities of investment advisers (such as fund managers), the use of proxy advisory firms and the applicability of the proxy rules to such firms. The Staff also made clear their expectation that proxy advisory firms and investment advisers will change current processes and systems to conform to the new guidance “promptly, but in any event in advance of next year’s proxy season.”
This welcomed guidance is part of the … Read more
The following post comes to us from David A. Katz, a partner at Wachtell, Lipton, Rosen & Katz, and Laura A. McIntosh, a consulting attorney for the firm. The views expressed are the authors’ and do not necessarily represent the views of the partners of Wachtell, Lipton, Rosen & Katz or the firm as a whole. This article is also being published today in the New York Law Journal.
Two recent Delaware cases involving independent directors of corporations with foreign operations provide a powerful reminder that resigning from the board of directors of a troubled company may not be a … Read more
Earlier this week, the SEC announced that it had entered into a non-prosecution agreement (NPA) with Ralph Lauren Corporation to resolve an investigation under the Foreign Corrupt Practices Act (FCPA). While the Department of Justice also announced that it had entered into an NPA with Ralph Lauren, it is the SEC agreement that is most notable. This agreement, only the fourth publicly reported NPA that the SEC has entered since it announced that it would begin using such agreements – and the first such agreement in an FCPA case – illustrates the potential benefits of cooperation.
The SEC’s press release … Read more
Yesterday, the Securities and Exchange Commission (SEC) directly addressed the application of Regulation Fair Disclosure (Regulation FD) to corporate use of social media outlets such as Facebook and Twitter. In a Report of Investigation—a format used by the SEC to issue general guidance based on a specific situation—the SEC expressly stated that Regulation FD applies to social media in the same manner as it does to company websites: Any of these communication channels can serve as effective, legal means of broadly disseminating material information to investors, if access to them is unrestricted and if the company has provided advance notice … Read more
With the 2013 proxy season now well underway, two recent decisions emphasize the potential litigation risks public companies face under federal and state disclosure law. These decisions highlight the need for companies to focus on disclosure requirements as they prepare their proxy statements.
In a highly anticipated opinion issued this past Friday, the federal court for the Southern District of New York has enjoined a vote on a management-sponsored proposal at Apple’s upcoming annual shareholder meeting. Greenlight Capital, L.P. v. Apple, Inc., No. 13 Civ. 900 (RJS) (S.D.N.Y. Feb. 22, 2013). Two of Apple’s shareholders (including an activist shareholder … Read more