As investors, advisers, corporations and other stakeholders become increasingly focused on environmental, social and governance (ESG) investments and disclosures, regulators are becoming increasingly concerned with potential “greenwashing,” which Kelly Gibson, Chair of the Securities and Exchange Commission’s (SEC) ESG Task Force, defined as “exaggerating” a “commitment to, or achievement of climate . .  . related goals.”

During a discussion with the Environmental Law Institute, Gibson shared that the ESG Task Force will be concentrated on detecting and bringing enforcement actions for greenwashing in the upcoming year. Gibson explained that due to the “dramatic surge in popularity for ESG focused investment funds” without an equally paced development in U.S.-law and ESG criteria, there is a significant risk that investors may be misled by greenwashing.

Continue Reading The Not So Green-Friendly Practice of Greenwashing

Please join the Bass, Berry & Sims Corporate & Securities Practice Group for a series of complimentary webinars exploring various public company-related securities law issues. These CLE programs will be an extension of our Securities Law Exchange Blog and will feature timely and practical guidance for SEC disclosure counsel on key topics of interest.

In November 2021, the Securities and Exchange Commission (SEC) approved amendments to the federal proxy rules to, among other things, mandate the use of a universal proxy card in public solicitations involving director election contests.

Will the adoption of these rules embolden activists and change the game when it comes to proxy contests and other activist tactics? Are certain types of activists more likely to benefit from the changed rules than others? What should companies be doing now to prepare for the new regime?

The next installment of our public company webinar series features Scott Bell and Jay Knight, corporate & securities attorneys at Bass, Berry & Sims, discussing these and other issues relating to the universal proxy rules.

The webinar will cover the following topics:

  • Overview of the universal proxy requirement.
  • Proxy contests under the new regime.
  • Universal proxy’s influence on activist strategies and tactics.
  • What companies should be doing now to prepare.

Please join us Thursday, February 24 from 12:00 p.m. – 1:00 p.m. CT for this informative discussion. To register, please click here.

Continue Reading [WEBINAR] SEC’s New Universal Proxy Rules: Key Considerations & Next Steps to Prepare

The rules of the New York Stock Exchange (NYSE) and the Nasdaq Stock Market (Nasdaq) require that a majority of a listed company’s board of directors (board) must be comprised of “independent directors” and that vital board committees such as the audit, compensation and nominating/governance committees must be comprised solely of independent directors (subject to certain exceptions).

For a director to be considered independent under the NYSE and Nasdaq rules, the company’s board must affirmatively determine that the director has no material relationship with the company. Further, the NYSE and Nasdaq rules provide for specific bright-line independence tests which preclude the board from determining that a director is independent, including certain employment, family and business relationships, as well as certain interlocking compensation committee relationships. The “independence” definitions are narrow and essentially require that directors be truly free of any relationship or transaction that could interfere with the director’s exercise of independent judgment in carrying out his or her responsibilities to the company.

Because the determination of director independence is crucial for maintaining SEC and stock exchange compliance (as well as Delaware law process protections in some situations), in-house and outside securities counsel often closely scrutinize the facts and circumstances of various relationships to confirm that director independence would not be jeopardized. Companies will often produce written memoranda that carefully analyze the specifics facts and circumstances of a director to help support the board’s determination that a director or director nominee is “independent” under the applicable standards.

It is with this background that we found interesting a recent comment letter exchange in which the Securities and Exchange Commission (SEC) Staff questioned the registrant about its disclosure that a director was deemed independent notwithstanding the fact that the director was then-serving as the company’s corporate secretary.

Continue Reading SEC Staff Comments on Director Serving as Corporate Secretary

On December 15, the Securities and Exchange Commission (SEC) proposed enhanced disclosure requirements and amendments to the rules regarding issuer share repurchases and Rule 10b5-1 plans. The proposals related to Rule 10b5-1 plans address perceived gaps in the current reporting obligations and concerns over insider trading, which SEC Chairman Gary Gensler first raised in early summer 2021. Likewise, the share repurchase proposals aim to “lessen the information asymmetries between issuers and investors.”

These topics have received political, media and academic commentary over the years but little SEC enforcement attention.  The key takeaway is that these proposals would be very impactful and make substantive changes to how such activities are conducted today.  The relatively short comment period (45 days from the date of Federal Register publication) means these proposals could become final rules in the first half of 2022.

Share Repurchases

The proposed rules regarding share repurchases, also known as buybacks, include, among other items, repurchase disclosure on a new “Form SR” and increased periodic disclosures by amending Item 703 of Regulation S-K.

  • New Form SR
    • Issuers would be required to furnish (but not file) Form SR before the end of the first business day after the day on which the issuer repurchases shares. (Note Section 16 reporting is within two business days and Form 8-K reporting is within four business days.) Form SR would require disclosure of the following:
      • Date of the repurchase.
      • Identification of the class of securities purchased.
      • The total number of shares purchased, including all issuer repurchases whether or not made pursuant to publicly announced plans or programs.
      • The average price paid per share.
      • The aggregate total number of shares purchased on the open market.
      • The aggregate total number of shares purchased in reliance on the safe harbor in Exchange Act Rule 10b-18.
      • The aggregate total number of shares purchased pursuant to a plan intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c).

Continue Reading SEC Proposes New Rules for Share Repurchases and Rule 10b5-1 Plans

Last month at the 2021 United Nations Climate Change Conference (commonly referred to as the COP26), the International Financial Reporting Standards Foundation (IFRS Foundation) announced the formation of an International Sustainability Standards Board (ISSB).

The IFRS Foundation also announced that it had reached an agreement to consolidate with the Climate Disclosure Standards Board (CDSB), an initiative of CDP (formerly the Carbon Disclosure Project), and the Value Reporting Foundation (which resulted from the already merged International Integrated Reporting Council (IIRC) and Sustainability Accounting Standards Board (SASB) Foundation).

In light of these developments, the Corporate Reporting Dialogue (CRD), – an initiative convened in 2014 to strengthen cooperation, coordination and alignment amongst key international standard setters and framework developers – dissolved last month.  The IIRC formed the CRD as a response to “market calls for better alignment and reduced burden in corporate reporting.”  In connection with its dissolution, the CRD cited the success of its mission given the upcoming consolidation of four of its seven members with the formation of ISSB.

Continue Reading Consolidation and Globalization of ESG Standards Progress: CRD Dissolves to Support IFRS Foundation and ISSB

Bass, Berry & Sims invites you to join us for our 3rd Annual Corporate & Securities Counsel Public Company Forum. Although we are unable to meet in-person due to ongoing concerns resulting from the COVID-19 pandemic, we are excited to host this year’s forum virtually.

This complimentary program will feature timely and practical guidance on the latest developments in corporate and securities matters impacting public company in-house counsel.

Panel and breakout discussion topics will include:

  • Environmental, Social & Governance (ESG) considerations
  • 2022 Proxy season preparations
  • General counsel roundtable
  • Retail industry trends
  • Capital markets update

Panels will include speakers from AutoZone, Brown-Forman, Delta Air Lines, Inc., Genesco, Raymond James, Shoals Technologies Group, Tractor Supply Company, Travel + Leisure Co. and more.

Click here to view the agenda.

The program will take place on December 16, 2021, from 1:00-4:30 PM CT and is intended for in-house counsel, public company finance and SEC reporting personnel, compliance officers, and other interested professionals.

Continue Reading [Virtual Event] Corporate & Securities Counsel Public Company Forum

As you have inevitably read about, in September 2021, the Biden administration instructed the Department of Labor’s Occupational Safety and Health Administration (OSHA) to write a rule that would generally require employers with more than 100 employees to mandate vaccination or weekly testing and mask-wearing for unvaccinated employees.

OSHA published its final rule on Friday, November 5, which generally requires, among other things, employees to be vaccinated or start testing by January 4, 2022, with an earlier (December 5, 2021) enforcement date regarding the rule’s mask mandate, among other requirements for employers. Within 24 hours of the publication of the final rule, the Fifth Circuit Court of Appeals granted an emergency motion to stay enforcement of the vaccine requirement and required the administration to respond by Monday, November 8. In its response, the administration asked the court to lift the stay. Final resolution of the matter is pending.

Continue Reading Potential SEC Disclosure Considerations Related to Vaccine Mandates

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

I recently co-authored an article for Corporate Counsel with Stephanie Bignon, assistant general counsel at Delta Air Lines, highlighting key environmental, social and governance (ESG) disclosure developments. “Public companies are facing a rapidly changing regulatory and investor landscape with respect to climate and other environmental, social and governance (ESG) disclosures,” the authors observed.

One area of particular regulatory focus from the Securities Exchange Commission (SEC) is climate change, as several new initiatives aim to revamp the existing disclosure framework in this area, including:

  • Indications from SEC Chairman Gary Gensler that new climate change disclosure rules will be proposed in late 2021 or early 2022.
  • Significantly enhanced focus of the SEC’s Division of Corporation Finance on climate-related disclosure in public company filings, including a sample SEC Staff comment letter sent to at least dozens of companies questioning whether consideration had been given to including climate-related disclosures in SEC filings.
  • SEC Division of Enforcement announcement in early 2021 that it is creating a Climate and ESG Task Force, and signaling that enforcement actions in the climate change area under existing SEC rules may be forthcoming.

With this heightened focus, we concluded the article with five practical takeaways for companies:

Continue Reading Key ESG Disclosure Developments

In light of the increasing level of investor and Securities and Exchange Commission (SEC) focus on environmental, social and governance (ESG) disclosure matters and the associated increase in the scope of ESG disclosures included by public companies both within and outside of SEC filings, public companies are well-advised to assess whether their disclosure control and procedures should be modified to address ESG disclosures.

Background on ESG Disclosures

As background, the SEC rules that implemented the Sarbanes-Oxley Act of 2002 require public companies to have disclosure controls and procedures (which are designed to ensure that the information required to be disclosed by a public company in its Exchange Act filings is recorded, processed, summarized and reported in accordance with SEC rules).  Additionally, the SEC recommended that public companies establish disclosure committees as a component of their disclosure controls and procedures, and a significant majority of public companies have disclosure committees consistent with the SEC’s recommendation.

Disclosure committees may also be helpful to public companies as a means to support the Section 302 and 906 certifications required to be provided by the CEO and CFO on a quarterly basis under the Sarbanes-Oxley Act in connection with disclosures provided in periodic reports.

The amount of ESG disclosures included in SEC filings has significantly increased in recent years. This trend will no doubt continue once the SEC’s climate change rules expected to be proposed later this year or early next year become effective.  Additionally, there has been a significant expansion in the scope of ESG disclosures being provided by many public companies (particularly large-cap companies) outside of SEC filings, including via corporate social responsibility or similar reports, and company website disclosures.

Continue Reading Should Public Companies Establish an ESG Disclosure Committee?