Monthly Archives: February 2022

SPAC Law and Myths

John C. Coates is the John F. Cogan, Jr. Professor of Law and Economics at Harvard Law School. This post is based on his recent paper.

Special purpose acquisition companies (SPACs) were the financial-legal hit of 2021, before they weren’t. SPACs broke records and displaced to an extent conventional initial public offerings (C-IPOs), even as C-IPOs also boomed.

SPACs spiked, in part, because of myths about their financial attributes, which others have debunked.

(See Michael Klausner, Michael Ohlrogge and Emily Ruan, A Sober Look at SPACs, Yale J. on Reg (forthcoming 2022, discussed on the Forum here); Minmo Gahng, Jay R. Ritter, Donghang Zhang, SPACs (January 29, 2021))

But SPACs also benefited from widespread and persistent circulation of several myths about SPAC law and its uncertainties. SPAC promoters falsely claimed—and continue to claim—that:

  1. securities regulations ban projections from being used in conventional IPOs,
  2. liability related to projections was lower and more certain in SPACs than it was (and is),
  3. the Securities and Exchange Commission (SEC) registration process makes C-IPOs slower than SPACs,
  4. the SEC changed SPAC accounting rules in early 2021,
  5. this “change” was the sole or primary reason the SPAC wave slowed, and
  6. the Investment Company Act clearly does not apply to SPACs.

In a paper available here, each of these myths is shown to be false.


Corporate Governance Trends in 2022 and Beyond

Dorothy Flynn is President of Corporate Issuer Solutions and Keir Gumbs is Corporate Vice President and Chief Legal Officer at Broadridge. This post is based on their Broadridge memorandum.

On December 14, 2021, Broadridge hosted its annual Corporate Governance Outlook event. The purpose of the event was to bring together corporate governance industry experts and thought leaders to discuss regulatory trends poised to shape the landscape in 2022 and beyond.

Below is a summary of the topics and insights they shared.

Universal Proxy Rulemaking

Adopted in 2021, the Universal Proxy is designed to replicate the same voting options that are available to shareholders at in-person meetings. Before the rule, shareholders who voted by proxy could only vote for a slate of board nominees (either management or dissident). Once effective, they will be able to vote for any combination of nominees they believe serve their interests (just like at an in-person meeting). It’s unclear how this will ultimately impact proxy contests, but it looks like a clear win for shareholder access and democracy from the perspective of many retail and institutional investors.

At the same time, there are concerns that have been expressed by corporate issuers and proxy soliciting firms that the new rules may result in an increase in proxy contests. This is something that we’ll monitor as the rules become effective in the Fall of 2022.


Asset Management Industry Confronts the Challenges Presented by Climate Change Transition

Jason Halper is partner and Sara Bussiere and Timbre Shriver are associates at Cadwalader, Wickersham & Taft LLP. This post is based on a Cadwalader memorandum by Mr. Halper, Ms. Bussiere, Ms. Shriver, and Elizabeth Moore. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); Companies Should Maximize Shareholder Welfare Not Market Value by Oliver Hart and Luigi Zingales (discussed on the Forum here); and Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee by Max M. Schanzenbach and Robert H. Sitkoff (discussed on the Forum here).

I. Introduction

The asset management industry has been sounding the alarm for some time about the risks and opportunities posed by climate change. While private equity giant, Carlyle, is the most recent financial institution to hit the headlines for its pledge to reach net zero greenhouse gas emissions by 2050, it is not the first and certainly will not be the last. As detailed in our previous article, Investors and Regulators Turning up the Heat on Climate-Change Disclosures: Attempting to Make Sense of the State of Play in the US, EU, and UK, asset managers have been signaling the importance of issuers disclosing environmental impacts for more than a decade—creating focus groups to study sustainability-related risks, pushing for guidance from regulators concerning climate-related disclosures, and publicly supporting shareholder efforts for increased transparency concerning climate-related risks. Our previous article also highlighted how the regulatory and public company responses to these calls for improved climate-related disclosures have been slow to arrive and inconsistent in substance—issuers are disclosing different amounts and types of information, and using different methodologies and metrics to measure, for example, greenhouse gas emissions, with little guidance from regulators. Because sustainability-related disclosures made at the fund level necessarily depend on issuer disclosure, the lack of standardized and consistent disclosures has posed significant challenges for the asset management industry.


SEC Proposed Amendments to Private Fund Manager Reporting

Norm Champ is partner at Kirkland & Ellis LLP. This post is based on a Kirkland & Ellis memorandum by Mr. Champ, Scott Moehrke, Alpa Patel, John Westerholm, Matthew Cohen, and Jamie Walter.

On January 26, 2022, the SEC voted to propose significant amendments to Form PF. Form PF, which was adopted in 2011 in connection with the Dodd-Frank Act, requires large registered investment advisers to file reports with the SEC regarding private funds managed by such advisers and to allow the Financial Stability Oversight Council to assess systemic financial risk to the U.S. financial system. Currently, reports on Form PF for large private equity fund managers (usually including real estate and private credit within this category) are filed annually and for hedge funds quarterly. Unlike many other SEC filings, Form PF filings are not public.

The SEC proposed amendments include:

  • new current reporting (i.e., within one (1) business day) requirement for certain significant events involving large private equity fund advisers and hedge fund advisers;
  • lowering AUM reporting thresholds for large private equity fund advisers from $2.0 billion to $1.5 billion; and
  • the addition of new categories of information collected from large private equity fund advisers on fund strategies, leverage, controlled portfolio companies and portfolio company restructurings and recapitalizations.

A short 30-day public comment period will open after the date of formal publication of the proposed amendments in the Federal Register, which can often occur well after the SEC announcement of the proposal.


SEC’s Role in Cybersecurity

Charles D. Riely, Shoba Pillay, and Gregory M. Boyle are partners at Jenner & Block LLP. This post is based on a Jenner & Block memorandum by Mr. Riely, Ms. Pillay, Mr. Boyle, and Karolina L. Bartosik.

In a speech to the Securities Regulation Institute conference last week, Chair Gary Gensler signaled the SEC may implement more stringent cybersecurity regulations, and in the meantime, would work to enforce existing requirements. Since taking office in 2021, Mr. Gensler has often referred to the need for the SEC to be a “cop on the beat” to root out misconduct and address potential risk to investors. [1] It has become increasingly clear that Mr. Gensler views addressing cybersecurity risk and misconduct as an important part of this work. In 2021, the SEC brought several actions against financial services firms or public companies that allegedly failed to heed their obligations under the federal securities law. [2] Mr. Gensler focused on the role the SEC should play in a collaborative effort across federal agencies and the private sector to promote robust cybersecurity. Here are some key takeaways from Mr. Gensler’s comments.

Defining the SEC’s Role in “Team Cyber”

Mr. Gensler framed cybersecurity as critical to a strong financial system and overall economic stability, especially as the financial sector has “become increasingly embedded with society’s critical infrastructure.“ [3] He described a technological landscape that includes “the interconnectedness of our networks, the use of predictive data analytics, and the insatiable desire for data.” [4] The SEC’s role within this context is to “improve the overall cybersecurity posture and resiliency of the financial sector” in collaboration with other government entities Mr. Gensler named, including the Federal Bureau of Investigation and the Cybersecurity and Infrastructure Security Agency. [5] However, the private sector has a significant role to play in strengthening cybersecurity. To make this point, Mr. Gensler quoted President Biden’s August 2021 remarks on cybersecurity that “most of our critical infrastructure is owned and operated by the private sector, and the federal government can’t meet this challenge alone.” [6] Mr. Gensler emphasized that the SEC was an important part of “Team Cyber” and has “a key role as the regulator of the capital markets with regard to SEC registrants—ranging from exchanges and brokers to advisers and public issuers” and used his speech to outline potential changes.


ESG: 2021 Trends and Expectations for 2022

Greg Norman and Simon Toms are partners at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden memorandum by Mr. Norman, Mr. Toms, Adam M. Howard and Caroline S. Kim. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and Will Corporations Deliver Value to All Stakeholders?, both by Lucian A. Bebchuk and Roberto Tallarita; For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock by Leo E. Strine, Jr. (discussed on the Forum here).

Throughout 2021, the importance of environmental, social and governance (ESG) matters proved to be even greater than many had expected, with ESG becoming a key area of focus for a range of stakeholders, particularly in the boardroom. The rise and rise of ESG that we have seen over the past few years is likely to continue in 2022, as ESG remains a priority in the corporate sphere. In our 1 September 2021 client alert “ESG in 2021 So Far: An Update,” we discussed the trends we had predicted for the year as well as the emerging developments in ESG. In this article, we look back at our predictions for 2021 and assess factors that will likely shape 2022.

Looking Back: What We Saw in 2021

Continued Inflows Into ESG Funds [1]

Inflows into ESG funds continued to grow in 2021, surpassing 2020’s total inflows of $51.1 billion before the end of Q3 in 2021. Current assessments estimate that there are more than $330 billion in assets under management in ESG funds, with the creation of more ESG funds expected in 2022. However, some funds have experienced difficulty adapting to comply with ESG standards. Passive funds such as ETFs have struggled to respond to new “green regulations,” such as the introduction of the EU’s Sustainable Finance Disclosure Regulation (SFDR). Without mandates to effect short-term changes to their fund’s strategies, conforming to rapidly evolving green standards will be a key challenge faced by passive managers.

Additionally, “greenwashing” became a priority concern to regulators in 2021. Regulatory scrutiny intensified in September 2021 when BaFin, the German financial regulator, and the U.S. Securities and Exchange Commission (SEC) initiated an investigation into allegations that Deutsche Bank’s asset management arm had been misstating the environmental credentials of some of its green-labelled products.


SEC Proposes Substantial Increases to Form PF Reporting

Marc E. Elovitz is partner at Schulte, Roth & Zabel LLP. This post is based on his SRZ memorandum.

The Securities and Exchange Commission is proposing significant increases to reporting by hedge and PE fund advisers on Form PF. More details and analysis to come, but the key points identified by the SEC in voting to make the proposal are as follows:

Current Reporting of Certain Events by Large Hedge Fund Advisers. Large hedge fund advisers would be required to file current reports within one business day of the occurrence of one or more reporting events with respect to their qualifying hedge funds:

  • 20% or more losses
  • Significant margin and counterparty default events
  • Material changes in prime brokerage relationships
  • Changes in unencumbered cash, operations events and events associated with withdrawals and redemptions

Current Reporting of Certain Events by Private Equity Fund Advisers. Private equity fund advisers would be required to file current reports within one business day of the occurrence of one or more reporting events pertaining to:


Weekly Roundup: February 18-24, 2022

More from:

This roundup contains a collection of the posts published on the Forum during the week of February 18-24, 2022.

SEC Re-Opens Comment Period for Pay vs. Performance Proposed Rules

Converting to a Delaware Public Benefit Corporation: Lessons from Experience

SEC Enforcement: Year in Review

2021 Trends in Shareholder Activism

Annual Global CEO Survey

Diversity Disclosure Ratings

Audit Committee Practices Report

The Supreme Court and the Pro-Business Paradox

2022 Global and Regional Trends in Corporate Governance

SEC’s Proposed Buyback Disclosure Rules: Actions Companies Should Consider Taking

Stakeholder Capitalism in the Time of Covid

SEC Revisits Pay-for-Performance Proposal

Monetization is the Key to Measuring Corporate Environmental Performance

Overseeing Cyber Risk

Amendments to the DGCL Permit Captive D&O Insurance

No More Blue or Gold Cards

No More Blue or Gold Cards

Michael R. Levin is founder and editor of The Activist Investor. Related research from the Program on Corporate Governance includes Universal Proxies by Scott Hirst (discussed on the Forum here).

Negotiating about who gets which color on a proxy card is always an odd highlight of a proxy contest. Company counsel, activist investors, proxy solicitors, and corp gov aficionados understand this, while others just puzzle over different colored scraps of coded paper. Thanks to new SEC regulations mandating a universal proxy card (UPC), this nominally interesting artifact of a baroque, obsolete proxy plumbing system will go away starting later in 2022.

UPCs will change how activist investors solicit proxies for director elections and likely lead to both more proxy contests and more activist directors. Activist investors will need to decide how to comply with some specific rules about how many proxies to solicit, and how much they wish to streamline the solicitation process by relying on the company UPC.

Here, we explain the nature of the change, identify specific highlights that companies and investors should know about the new regulations, and explore some of the implications and decisions for companies and investors.

Who has the blue card?

In November 2021, the SEC adopted long-awaited rules about UPCs. The SEC worked on this for many years, and first proposed these regulations in 2016 (we wrote about UPCs in 2015). Essentially, companies and activist investors will each include identical content in proxy cards. Specifically, both company and activist proxy cards will list all director nominees from the company and activist.

Until now, a company and an activist each send their own proxy card, listing only their director nominees. This confuses shareholders greatly. Individual and even institutional shareholders can’t keep straight the company and activist nominees. Among other weird consequences, each proxy card has a specific color, like blue or gold, so shareholders know which one belongs to the company and to the activist.


Amendments to the DGCL Permit Captive D&O Insurance

John Mark Zeberkiewicz is partner at Richards, Layton & Finger, P.A. This post is based on his Richards Layton memorandum, and is part of the Delaware law series; links to other posts in the series are available here. Related research from the Program on Corporate Governance includes Monetary Liability for Breach of the Duty of Care? by Holger Spamann (discussed on the Forum here).

The Delaware General Assembly has approved legislation amending Section 145 of the Delaware General Corporation Law (the “DGCL”) to authorize a Delaware corporation to use captive insurance, which is generally defined as insurance provided by or through a wholly-owned subsidiary funded by the corporation, to protect its current and former directors, officers and other indemnifiable persons (“covered persons”). The captive insurance may be used to protect covered persons against liability even if the corporation would not be empowered to indemnify them, subject to a limited set of minimum exclusions. The amendments, which are expected to be enacted in the near term, will afford Delaware corporations the opportunity to take advantage of captive insurance arrangements when designing their D&O insurance programs.


In recent years, the market for D&O insurance has hardened significantly, with substantial increases in premiums for diminishing levels of coverage. The changes in the market for D&O insurance cannot be traced to a single source but are instead the result of a confluence of factors, including:

  • The rise of litigation finance firms;
  • The United States Supreme Court’s decision in Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S.Ct. 1061, 200 L.Ed.2d 332, which allowed plaintiffs to bring claims under Section 11 of the Securities Act of 1933 in state court venues where these claims tend to survive motions to dismiss more often and are otherwise more costly to litigate (and are sometimes concurrently litigated in federal court);
  • An increase in event-driven litigation (including cybersecurity claims, claims premised on calamitous events like the California wildfires, and oversight claims following the Delaware Supreme Court’s opinion in Marchand v. Barnhill, 212 A.3d 805 (Del. 2019));
  • An increase in social-justice related litigation; and
  • Litigation related to the COVID-19 pandemic.


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