Webinar | November 7, 2024
1:00 p.m. – 2:00 p.m. EST
Register here.

Although it may seem early, it is already time to start preparing for the 2025 proxy and annual report season.

During this session, join Mayer Brown partners Ryan Liebl, David Schuette, and Jennifer Zepralka, as well as Kilian Moote, Managing Director, ESG Advisory at Georgeson, as they discuss key issues companies should consider while preparing for the upcoming 2025 proxy and annual report season. Themes to be discussed include, among others:

  • Recent proxy statement and annual report developments
  • Pay versus performance, cybersecurity, and insider trading policy disclosures
  • Proxy voting matters and trends in shareholder proposals
  • Environmental and social matters

At Northwestern Law’s 44th Annual Ray Garrett Jr. Corporate & Securities Law Institute, Erik Gerding, Director of the SEC’s Division of Corporation Finance, discussed the Securities and Exchange Commission’s final rules relating to cybersecurity risk management, strategy, governance, and incident disclosure (the “Final Rules”). The Final Rules require public companies to timely report material cybersecurity incidents and provide annual disclosures  about their cybersecurity risk management processes. Specific details regarding the information required, along with the timing and method of disclosure, are summarized in our Legal Update.   

In his remarks, Director Gerding acknowledged that the SEC staff is undertaking targeted selective reviews of public companies’ disclosures under the Final Rules and provided some initial observations on such disclosures. In particular, he noted some companies’ reliance on overly generic or boilerplate language in their cybersecurity disclosures. The SEC expects companies to provide detailed, company-specific information that helps investors understand the actual risks and incidents being reported. This approach supports the SEC’s broader goal of promoting meaningful disclosures that investors can rely on to make informed decisions.

Director Gerding also emphasized that the Final Rules are not aimed at changing corporate behavior or prescribing particular cybersecurity defenses, risk management practices, or governance. Rather, they are focused on improving the quality of the information companies provide, ensuring that investors receive accurate, comparable, and comprehensive disclosures about cybersecurity.

Director Gerding recapped some of the recent guidance issued by the Division of Corporation Finance with respect to compliance with the Final Rules, including the May 2024 statement on reporting cybersecurity incidents that a company either has not yet determined to be material or has determined was not material. The SEC staff had concerns that some of the early Form 8-K filings under Item 1.05 of the new rules used ambiguous disclosure language that potentially could leave investors uncertain as to whether a company had determined the materiality of a cybersecurity incident. The staff guidance was intended to address this concern, and recommends that voluntary filings on incidents not (or not yet) deemed material should be disclosed under Item 8.01, rather than Item 1.05. This distinction is important because it helps allow investors to distinguish between material and non-material incidents and factor that information in to their investment and voting decisions.

In his discussion of the staff’s guidance on the Final Rules, Director Gerding also reiterated that companies assessing the materiality of a cybersecurity incident should go beyond considering only quantitative factors and the impact on financial condition and results of operations. Rather, companies must consider factors such as reputational harm, the impact on customer relationships, and litigation or regulatory risk when determining whether an event is material. By focusing on these broader aspects of materiality, companies can provide disclosures that offer a more complete picture of their risks and vulnerabilities.

On October 10, 2024, the Federal Trade Commission (FTC) published its Final Rule enacting changes to the Hart-Scott-Rodino Act (HSR Act) premerger notification rules. The Final Rule will usher in the most significant changes to HSR reporting requirements in the program’s 45-year history.

The HSR Act requires parties to a merger or acquisition that meets certain dollar thresholds to file premerger notification reports with the FTC and the Department of Justice (DOJ) (the “Agencies”) and to wait statutorily prescribed periods before consummating the transaction.

The changes to the HSR rules do not alter substantive antitrust doctrine; in order to block a transaction, the government still must prove in court that a transaction is likely to result in a substantial lessening of competition. Nor does the Final Rule modify FTC and DOJ authority to issue Requests for Additional Documentary Information and Materials (Second Requests) or their scope. However, the changes will make the merger control process more burdensome to parties by significantly expanding the information that must be provided to the government in the HSR Form.

Read our Legal Update for additional information.

How does in-house counsel help in preparing directors for board meetings? In our latest MB Sounding Board MicroTalk, Christine McDevitt, Director & Deputy General Counsel, SEC Reporting & Disclosure, at Ferguson and Julia Tallarico Spinelli, Former Assistant General Counsel, SEC Reporting & Disclosure, at Ferguson (and now current Senior Corporate Counsel at Diebold Nixdorf) discuss the role Ferguson’s Legal-Corporate group plays in working with the corporate secretary and with the broader team in preparing for effective board meetings.

Watch the Sounding Board MicroTalk.

The Financial Accounting Standards Board (the “FASB”) recently completed an update to its Conceptual Framework for Financial Reporting (the “Framework”).  The Framework is a body of interrelated objectives and fundamentals that provides the FASB with guidance as it sets standards for financial accounting and reporting. The update marks the end of a significant project that began with the first concepts statement in 1978 and culminates with the issuance of a new chapter to the FASB’s Framework in July 2024.  The new Chapter 6, Measurement, provides objectives and concepts for FASB to consider when choosing a measurement system for an asset or a liability recognized in general purpose financial statements. It describes:

  1. Two relevant and representationally faithful measurement systems: the entry price system and the exit price system, and
  2. Considerations when selecting a measurement system.

In a statement released on August 12, 2024, Paul Munter, the Chief Accountant for the Securities and Exchange Commission’s Office of the Chief Accountant, emphasized the importance of the updated Framework in shaping FASB’s standard-setting activities to guide the FASB in developing improved accounting principles to enhance the accuracy and effectiveness of financial reporting and the protection of investors in the public interest.

The Chief Accountant underscored that the updated Framework will be a critically important component of the FASB’s standard-setting agenda, including by assisting the FASB in determining which projects to prioritize and how to scope and evaluate those projects. The Framework will assist the FASB in deciding whether to focus on disclosure requirements or address more fundamental issues related to the recognition and measurement of financial elements. By assessing whether each project is consistent with the principles laid out in the Framework, the FASB can develop standards that result in financial reporting that best serves the needs of investors and protects the public interest.

The Chief Accountant also highlighted that the updated Framework offers significant benefits to stakeholders by promoting transparency and understanding in the standard-setting process. The FASB’s application of the updated Framework in public deliberations will allow it to more clearly articulate the reasoning behind its decisions, facilitating greater understanding and feedback from stakeholders.

Given the importance of quality in financial reporting for the strength of the capital markets, the completion of the updated Framework underscores the FASB’s focus and commitment to developing and maintaining high-quality accounting standards that meet investor needs and serve the public interest.

Mayer Brown is a sponsor of this year’s Northwestern Pritzker School of Law’s Ray Garrett Jr. Corporate and Securities Law Institute. Delivering a timely analysis of critical corporate and securities law issues and developments confronting public corporations, the Garrett Institute provides both private practitioners and corporate counsel an opportunity to hear from SEC officials and Delaware judges and network with the corporate and securities law community. Mayer Brown partner Bill Kucera will participate as Session Chair on the “Rights and Duties of Controlling Shareholders: Recent Developments” panel.

For more information, visit the conference website. For Mayer Brown clients and friends, we are offering courtesy registration for the in-person and on-demand sessions.  Reach out to your Mayer Brown contact or ckaplan@mayerbrown.com.   

Several federal financial regulators (the “Agencies”) have approved and published an interagency proposal to establish data standards that promote interoperability of financial regulatory data across these agencies (the “Proposal”). The Agencies issued the Proposal as required by the Financial Data Transparency Act of 2022 (FDTA) and have requested comment on their jointly established data standards.

Comments on the Proposal are due 60 days after it is published in the Federal Register, which is expected shortly. In this Legal Update, we provide background regarding the FDTA and summarize key aspects of the Proposal. Continue reading.

On July 15, 2024, Governor Gavin Newsom proposed amendments that would, among other things, delay initial reporting deadlines for two of California’s recently enacted climate-related disclosure laws by two years.

Governor Newsom signed the two bills, Climate Corporate Data Accountability Act (California Senate Bill 253 (SB-253)), relating to greenhouse gas (GHG) emissions disclosures, and the Climate-Related Financial Risk Act (California Senate Bill 261 (SB-261)), relating to climate-related financial risk disclosures, into law in October 2023.  See our Legal Update discussing the two bills.  The first-of-their-kind state laws apply to all US companies doing business in California that meet certain annual revenue thresholds: more than $1 billion for SB-253 and more than $500 million for SB-261.  The California laws go beyond the SEC’s final climate-related disclosure rules, which have been stayed due to legal challenges.  See our blog post discussing the SEC’s stay. The California laws are similarly subject to challenge, but have not yet been stayed.  See our Legal Update discussing this challenge.

Under Governor Newsom’s proposal, companies subject to SB-253 would not have to disclose Scope 1 and Scope 2 GHG emissions until 2028, and Scope 3 GHG emissions until 2029.  The proposal would not require companies subject to SB-261 to report climate-related financial risks until 2028.  Like EU climate change disclosure rules, California will require disclosure of Scope 3 GHG emissions, which are defined as emissions that result from activities from assets not owned or controlled by the reporting organization, but that the organization indirectly affects in its value chain, according to the US Environmental Protection Agency. While initially proposed by the SEC, Scope 3 GHG emissions disclosure requirements were removed from the SEC’s final climate-related disclosure rule.

At the time of signing SB-253 into law, Governor Newsom noted, in his Governor’s Message, his concerns about the bill, saying “The implementation deadlines in this bill are likely infeasible, and the reporting protocol specified could result in inconsistent reporting across businesses subject to the measure.

Learn more about the different climate change-related disclosure requirements across the globe.

The Latest in the Saga of the SEC’s Regulation of Proxy Advisory Firms

On June 26, 2024, the Fifth Circuit Court of Appeals vacated a significant part of a 2022 Securities and Exchange Commission (SEC) rulemaking, which itself was a reversal of the agency’s 2020 amendments to the rules relating to proxy voting advice produced and disseminated by proxy advisory firms. This is the latest chapter in the long, and as yet unfinished, story of SEC regulation of proxy advisory firms.

Continue reading this Legal Update.

Webinar | July 22, 2024
1:00 p.m. – 2:00 p.m. EDT
Register here.

Disclosures by public companies about their human capital management continue to be a focus of investors, regulators, and other stakeholders. In 2020, the SEC adopted a requirement for registrants to discuss their human capital resources to the extent material to an understanding of the registrant’s business taken as a whole. The principles-based nature of this requirement has led to some variation in disclosures, which has in turn led to calls for more prescriptive requirements. In addition, there is continued interest in disclosures about corporate board diversity, particularly in light of NASDAQ’s adoption of a new diversity listing rule and similar state legislation.

During this session expert faculty will discuss:

  • The SEC’s human capital and diversity disclosure requirements
  • Trends in public companies’ human capital management disclosures since the 2020 amendments
  • Possible amendments to the SEC’s human capital management disclosure requirements
  • NASDAQ board diversity listing rule, similar state legislation and related litigation
  • Key takeaways and practical considerations