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Working with both national and local companies in the REIT, healthcare, food and petroleum refining sectors, Eric Knox routinely counsels public and private companies on a variety of corporate and securities issues.

Institutional investors and proxy advisory firms continue developing and refining their policies regarding board diversity. While gender diversity on public company boards has been in focus for some time now, institutional investors and proxy advisory firms are also increasingly focusing on racial and ethnic diversity as part of their evolving approach to board diversity.

This post summarizes published board diversity policies of several institutional investors and proxy advisory firms into a singular resource for ease of reference. Below the initial breakdown is a description of specific policies concerning board diversity shareholder proposals. 

Continue Reading A Summary of Certain Proxy Advisory Firm and Institutional Investor Board Diversity Policies

On November 3, Chairman Gary Gensler announced that the Staff (Staff) of the Securities and Exchange Commission’s (SEC) Division of Corporation Finance released SLB 14L (“new guidance”) regarding shareholder proposals.

The new guidance significantly changes the Staff’s approach when determining whether a shareholder proposal may be properly excluded from a company’s proxy statement. The new guidance rescinds SLBs 14I, 14J, and 14K (Rescinded SLBs), as well as any provisions of other prior Staff guidance that could be considered as inconsistent with the new guidance.  A few of these changes are highlighted below.

Significant Social Policy Exception

The new guidance significantly impacts Rule 14a-8(i)(7), commonly referred to as the “ordinary business exception.”  This substantive basis for exclusion permits a company to exclude a proposal that “deals with a matter relating to the company’s ordinary business operations.”  Under the new guidance, the Staff will realign its approach for determining whether a proposal relates to “ordinary business” with the standard the SEC initially set forth in 1976, which provided an exception for certain proposals that raise significant social policy issues.

According to the new guidance, the Staff believes that an “undue emphasis was placed on evaluating the significance of a policy issue to a particular company at the expense of whether the proposal focuses on a significant social policy.”

Continue Reading SEC Staff Significantly Changes Guidance on Shareholder Proposals and Rescinds Prior Guidance

Institutional investors and proxy advisory firms continue to develop and refine their policies regarding board diversity. While gender diversity on public company boards has been in focus for some time now, institutional investors and proxy advisory firms are also increasingly focusing on racial and ethnic diversity as part of their evolving approach to board diversity.

This post is a summary of published board diversity policies of certain institutional investors and proxy advisory firms into a singular resource for ease of reference. Below the initial breakdown, certain policies concerning board diversity shareholder proposals are described. 

Continue Reading A Summary of Certain Proxy Advisory Firm and Institutional Investor Board Diversity Policies

Bass, Berry & Sims attorneys Kevin Douglas, Eric Knox and Sehrish Siddiqui were co-presenters alongside Stephanie Bignon, Assistant General Counsel, Delta Air Lines and Priya Galante, Vice President, Assistant General Counsel & Assistant Secretary, AutoZone at the Society for Corporate Governance’s Southeastern Chapter webinar earlier this month.

This program, titled, “Preparing for the Upcoming Proxy

Over the last few weeks, we have seen a flurry of activity concerning diversity in the boardroom. The Nasdaq Stock Market LLC (Nasdaq) proposed to the Securities and Exchange Commission (SEC) a new diversity rule and proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis each announced expanded diversity proxy voting guidelines. These developments continue a trend of increased investor focus on board diversity.

Nasdaq Proposes Diversity Requirement

Nasdaq filed a proposal this week that, if approved by the SEC (subject to certain exceptions), would ultimately require boards of Nasdaq-listed companies to have at least two diverse directors, consisting of at least one director whose self-identified gender is female and at least one director who self-identifies as either an underrepresented minority or LGBTQ+ (in each case as defined in the proposal).

If approved by the SEC, all Nasdaq-listed companies would be required to disclose certain statistical information regarding the diversity of their boards within one year of approval by the SEC (the Effective Date) and have at least one diverse director within two years of the Effective Date. Additionally, companies listed on the Nasdaq Global Select or Global Market tiers would be required to have at least two diverse directors within four years of the Effective Date and companies listed on the Nasdaq Capital Market would have to meet the same requirement within five years of the Effective Date. Companies failing to meet applicable requirements would have to provide to Nasdaq an explanation of their non-compliance. According to Nasdaq’s study, currently, more than 75% of its listed companies would not meet the requirements set forth under the proposed rule.

Continue Reading Focus on Boardroom Diversity Intensifies

On November 17, in response to a formal rulemaking petition that garnered support from nearly 100 public companies, the Securities and Exchange Commission (SEC) issued a final rule amending Regulation S-T and the Electronic Data Gathering, Analysis and Retrieval system (EDGAR) Filer Manual to permit the use of electronic signatures when electronically filing documents with the SEC. The amendments will be effective upon publication in the Federal Register, though the SEC indicated in its November 20 Statement that it will not take enforcement action against issuers who elect to comply with the amendments before their effectiveness so long as signatories comply with the new requirements.

Amended Rule 302(b) and Other Amendments

Rule 302(b) of Regulation S-T, as amended, will permit a signatory to an electronic filing to electronically sign the document, provided that the signatory follows certain procedures and the electronic signature meets certain requirements specified in the EDGAR Filer Manual. Under those requirements, the electronic signing process must, at a minimum do the following:

  • Require the signatory to present a physical, logical, or digital credential that authenticates the signatory’s individual identity.
  • Reasonably provide for non-repudiation of the signature.
  • Provide that the signature be attached, affixed, or otherwise logically associated with the signature page or document being signed.
  • Include a timestamp to record the date and time of the signature.


Continue Reading SEC Adopts Rules Permitting Use of Electronic Signatures and Provides Further COVID-19 Relief

On September 23, the Securities and Exchange Commission (SEC) approved amendments, originally proposed in November 2019 and discussed in a prior blog post, to Rule 14a-8, which governs the process for a shareholder to have its proposal included in a company’s proxy statement.

The amendments to Rule 14a-8 are intended to “modernize and enhance the efficiency and integrity of the shareholder-proposal process for the benefit of all shareholders, including to help ensure that a shareholder-proponent has demonstrated a meaningful ‘economic stake or investment interest’ in a company before the shareholder may draw on company resources to require the inclusion of a proposal in the company’s proxy statement, and before the shareholder may use the company’s proxy statement to command the attention of the other shareholders to consider and vote on the proposal.”

Set forth below is a chart comparing the key amendments. Practical considerations regarding the amendments follow.

Continue Reading SEC Adopts Amendments to Shareholder Proposal Requirements, Modestly Raising Thresholds

Following up on our prior blog post regarding first quarter COVID-19 risk factor disclosure considerations and our prior blog post regarding second quarter COVID-19 risk factor disclosure considerations, we surveyed the risk factor disclosures of 75 calendar year-end NYSE- and Nasdaq-listed companies included in Quarterly Reports on Form 10-Q (Form 10-Qs) filed for the first and second quarters of 2020.

Risk Factor Survey Results

Of the companies surveyed, we found that 96%, or 72 of the companies surveyed, included standalone risk factors related to COVID-19 (the average number of COVID-19 risk factors was approximately 1.16). None of the companies surveyed included an additional standalone COVID-19 risk factor in the second quarter Form 10-Q that was not in the first quarter Form 10-Q.  Approximately 63%, or 47 of the companies surveyed, updated their COVID-19 risk factor disclosure from their first quarter 2020 Form 10-Q in their second quarter 2020 Form 10-Q.

The three companies that did not include a standalone COVID-19 risk factor disclosure during their first or second quarter 2020 Form 10-Q did include language indicating that COVID-19 could exacerbate or heighten the risk factors that were previously included in their 2019 Annual Report on Form 10-K. A small portion of the companies we surveyed repeated the risk factor disclosure from their first quarter Form 10-Q verbatim in their second quarter Form 10-Q. However, most of the companies that did not update their first quarter Form 10-Q COVID-19 risk factor disclosure in their second quarter Form 10-Q incorporated their first quarter Form 10-Q risk factor disclosure by reference.

Continue Reading Updated Risk Factors in Response to COVID-19

As public companies continue to navigate the ongoing economic upheaval caused by the COVID-19 pandemic, opportunistic activist investors may find the resulting economic conditions conducive to accumulating significant ownership positions, agitating for changes in corporate strategy and management, and pursuing public activist campaigns.  Although the number of overt activist campaigns were down during the primary 2020 proxy season, as the annual meeting season for most public companies took place during the initial months of the pandemic lockdown, the third and fourth quarters generally tend to see an increase in activist activity as hedge funds make initial preparations for the following year’s proxy season. Given these circumstances, this is an opportune time for public companies to make preparations by reviewing and evaluating their defensive profiles.

The following summarizes most of the common defensive mechanisms that companies utilize when faced with activist campaigns, hostile takeover attempts, and other attempts to influence corporate policy in ways that may not be in the best interest of all shareholders. While there is no one-size-fits-all approach to defensive measures, an evaluation of the existing defensive profile of the company is a critical first step.  In our experience advising on behalf of companies and their boards of directors, an analysis of the corporation’s defenses under its organizational documents and applicable law is usually undertaken and summarized for the board in connection with a defensive profile review.

Defensive Measures Related to Stockholder Meetings

Are stockholders able to take action by written consent?

Section 228(a) of the Delaware General Corporation Law (DGCL) generally provides that, unless restricted by the certificate of incorporation, the requisite stockholders needed to approve an action may do so by written consent instead of a meeting—including actions to elect new directors or to approve a takeover proposal.  Limiting stockholder action by written consent is particularly important for companies with large blocks of its common stock concentrated among one or several large stockholders, including holdings by large institutional holders, which could otherwise take swift action by written consent and without holding a stockholder meeting.

Continue Reading A Practical Guide to Evaluating a Company’s Defensive Profile