Nasdaq’s 2024 Governance Pulse Survey is now live. The Survey gathers insights from board members, CEOs, general counsel, corporate secretaries, and other key leaders on governance practices and board priorities. The data and findings will be published in Nasdaq’s Global Governance Pulse Report this fall and featured and discussed at Nasdaq’s Global Governance Pulse Forum on October 28, 2024. See last year’s Global Governance Pulse Report and Global Governance Pulse Forum. Survey participants will receive an advance copy of Nasdaq’s 2024 Report of data and key findings and an invitation to the Forum.

Take the survey here.

In recent public comments, SEC Commissioner Hester Peirce shared her personal concerns regarding the “fuzziness around what ESG means.” The Commissioner noted that often market participants emphasize the importance of ESG; however, they may not articulate their particular areas of focus. She notes that ESG may encompass a broad range of issues, including, but not limited to, climate, biodiversity, clean water, oceans, employee well-being, labor rights, community engagement, the circular economy, etc. In part, in the Commissioner’s view, the elasticity of the term has contributed to controversy—in that different groups may embrace different causes all under the same banner and their perceptions regarding these issues, and the degree of importance they attribute to these issues, may change over time. The Commissioner notes that a number of issues under the ESG rubric have historically been associated with considerations that investors factored into their assessments of the long-term value of companies before there was a label for them. In turn, companies considered environmental and social factors that impacted their returns and that they considered material to their long-term financial value. The Commissioner posits that there might be less controversy if ESG-related issues were evaluated based on an assessment of their correlation to long-term financial value for the particular company in question.

In her remarks, the Commissioner also questions ESG-related investment objectives and whether there may be conflicts of interest that may impair the imperative to focus on maximizing financial returns. She also raises concerns regarding causality and the extent to which causal connections between ESG factors and financial returns are supportable. For many of these reasons, the Commissioner expresses the view that asset managers should state clearly whether and how they will invest in, vote in, and engage with portfolio companies on behalf of clients.

The Commissioner observes that, in her view, companies sometimes target ESG objectives that may be inconsistent with financial returns and in so doing point to broader stakeholder interests. These more highly discretionary factors and ESG metrics, the Commissioner notes, weaken board accountability and management accountability. The Commissioner also commented at length regarding the decision to collect, track, analyze, and report on ESG data, including the costs associated with building the information technology and other systems necessary for appropriate disclosure controls and procedures and internal control over financial reporting. This resource allocation may, in itself, affect decisionmaking and limit corporate flexibility.

Perhaps given that the Commissioner was speaking in Poland, she addressed the Corporate Sustainability Reporting Directive, or CSRD, which affects European companies and, to some extent, U.S. companies. The Commissioner also cited the European Taxonomy Regulation and the Corporate Sustainability Due Diligence Directive. The Commissioner noted that requiring the reporting of granular ESG-related metrics may come to have an effect on corporate and capital resource allocation. She notes that regulator-mandated ESG metrics may reflect a particular view of what should be important to decision-making, which may be divorced from the views of the real economy and retail investors. To that end, the Commissioner emphasizes the importance of principles-based disclosures based on financial materiality that allow registrants to address the ESG items that are important to the registrants’ businesses. See the full text of Commissioner Peirce’s remarks.

In June 2024, the Center for Audit Control (the “CAQ”) released its report entitled “Financial Restatement Trends in the United States: 2013 – 2022,” announcing the findings from its study examining trends and characteristics of public company restatement events that took place between January 1, 2013 and December 31, 2022.  For purposes of the study, “restatements” are defined as corrections of errors in public company financial statements filed with the U.S. Securities and Exchange Commission (“SEC”).  The population of restatements can be divided into two kinds: (1) “Big R” restatements, which involve restatements of previously filed financial statements that have been deemed unreliable by the company or its auditors and are subject to mandatory disclosure under Item 4.02 of Form 8-K; and (2) “little r” restatements, which involve restatements to correct immaterial errors to prior period financial statements that, if uncorrected, would cause the current period financial statements to be materially misstated.  Of the 5,793 restatements identified by CAQ from 2013 to 2022, 1,352 were “Big R” restatements and 4,441 were “little r” restatements.

Read more about the key findings from the CAQ’s study.

In August 2022, the Delaware General Assembly amended the Delaware General Corporation Law to allow corporations to adopt charter provisions exculpating certain officers from personal liability for monetary damages for breaches of the duty of care. Since that time, observers have considered to what extent Delaware public company boards would propose officer exculpation amendments (“OEAs”) to their stockholders. In this Legal Update, we examine the latest data with respect to Delaware public companies proposing and adopting OEAs, recent judicial developments relating to OEAs, and the results of OEA proposals in light of proxy advisor recommendations. Read our Legal Update.

The SEC’s Division of Corporation Finance today published five new Compliance and Disclosure Interpretations, or “C&DIs,” all concerning Item 1.05 of Exchange Act Form 8-K, Disclosure of Cybersecurity Incidents.

New C&DI 104B.05 describes a ransomware attack on a public company ended by a payment to the threat actor before any materiality evaluation of the incident. The C&DI holds that, despite the end of the attack, the company must still make a materiality determination for the event. The interpretation necessarily implies that a report on Form 8-K would be required in the event that the incident was found to be material on general securities law principles.

Question 104B.06 describes a material cybersecurity incident that is ended or remediated by a ransom payment before the filing of a report on 8-K. The interpretation holds that a current report is still required.

Insurance covering all or a substantial part of a ransomware payment may not mean that that an associated cybersecurity incident must have been immaterial in the view expressed in Question 104B.07.

In the SEC staff’s perspective, the size of a ransomware payment is only one factor to consider in the materiality assessment of a cybersecurity incident. Thus, under Question 104B.08, a small ransomware payment would not categorically mean that the related incident was immaterial.

In Question 104B.09, a public company experiences a series of individually immaterial cybersecurity incidents. In the described circumstances, the company must determine whether any incidents were related and, if so, assess whether the related events were cumulatively material.

See the C&DIs here.

Webinar | June 27, 2024
1:00 – 2:00 pm ET
Register here.

The SEC adopted amendments aimed at enhancing and standardizing disclosures related to cybersecurity risks and incidents. But how is this impacting SEC registrants and how are they addressing cyber incidents within the new framework?

Join us for an overview and discussion on cyber disclosures and other topics affecting companies in this webinar. Topics to be discussed include:

  • Overview of the rules
  • Changes to Regulation S-K and disclosing a registrants processes for assessing, identifying, and managing material risks from cybersecurity threats
  • The national security and public safety delay provision
  • Implications for how companies respond to cyber incidents
  • Addressing cyber policies and procedures
  • Board skillsets, oversight and other governance matters
  • Making materiality assessments and evaluating Form 8-K disclosures
  • Sample disclosures

For decades, corporate merger and acquisition deals have been plagued by meritless claims asserting, typically, that the companies and their officers and directors have provided insufficient disclosures. Courts have sought to crack down on these lawsuits, but—as in the game of whack-a-mole—the plaintiffs bringing these lawsuits have adjusted their tactics to avoid the judicially imposed barriers.

Defendants and courts pulled unwillingly into this game just received a substantial assist from the Seventh Circuit in opposing efforts to demand mootness fees related to merger disclosures. Judge Frank Easterbrook’s opinion for the court in Alcarez v. Akorn, Inc. might even mark the beginning of the end for the practice of paying fees to plaintiffs’ counsel for dismissing certain insufficient-disclosure claims under the federal securities laws, which has received substantial criticism in the courts and academic circles. This article reviews the evolution of mootness fees and then considers whether the Akorn opinion opens a major new phase in that evolution, as the decision concludes that court review of the suit’s propriety under the Private Securities Litigation Reform Act (“PSLRA”) and Federal Rule of Civil Procedure 11 is required for both individual stockholder actions—the current predominant practice—and purported stockholder class actions, like those at issue in the Akorn opinion. No matter what the next phase brings, Akorn gives merger-litigation defendants and companies that receive disclosure-related demand letters more leverage to refuse to pay mootness fees.

Read our Legal Update.

In this MB Sounding Board MicroTalk, Larry Cunningham talks to Henrique Canarim, Vice President, Senior Assistant General Counsel, and Assistant Corporate Secretary at Leidos, about the rising trend of shareholder engagement by directors, its advantages, and preparing directors for this process.

May 21, 2024
16:00 – 19:00 BST
Register here.

Join the Nasdaq Center for Board Excellence and connect with fellow board members and CEOs for a discussion about the transformative role of artificial intelligence, ethics, governance, and strategies for a competitive advantage. Together with Mayer Brown, we look forward to welcoming you and sharing enriching conversations to inspire board excellence.

May Fair Hotel
Stratton Street
London W1J 8LT

Webinar | May 14, 2024
12:00 p.m. – 1:00 p.m. ET
Register here.

Please join us via webinar for a panel discussion on the current state of climate change and ESG-related regulations affecting corporate issuers, financial institutions and pension fund investors doing business in Canada and the US. Lawyers from Osler and Mayer Brown will discuss:

The SEC final climate change rules, the principal changes from the SEC’s proposed rules, and the status of the rules given the current stay, including: 

  • A brief overview of changes to Regulation S-K and Regulation S-X affecting non-financial statement disclosures
  • Scope and phase-in periods for the SEC’s final rules
  • Litigation challenges to the SEC final rules and the current status given the SEC stay
  • California climate change legislation and disclosure requirements
  • Litigation challenges to California legislation
  • An overview of other pending SEC ESG-related proposals, status and prospects

Current CSA disclosure requirements and developments, and the CSSB’s recent proposal, including: 

  • Existing CSA climate-related disclosure guidance from 2019
  • CSA consultation paper from 2021 – NI 51-107
  • The interplay of CSA and SEC rulemaking and treatment of MJDS issuers
  • Overview of CSSB’s proposed CSDS 2
  • CSA’s response and next steps for CSA – timing and decisions to make
  • Other areas of potential CSA ESG-related rule-making