SEC Spring 2023 Reg-Flex Agenda — Not Much New But Lots Left To Do

Cydney S. Posner is Special Counsel at Cooley LLP. This post is based on her Cooley memorandum.

The SEC’s Spring 2023 Reg-Flex Agenda—according to the preamble, compiled as of April 10, 2023, reflecting “only the priorities of the Chair”—has now been posted. Here is the short-term agenda, which shows most Corp Fin agenda items targeted for action by October 2023, potentially making the next four months an especially frenetic period, with only a few proposal-stage items targeted for April 2024.  And here is the long-term (maybe never) agenda. Describing the new agenda, SEC Chair Gary Gensler observed that “[t]echnology, markets, and business models constantly change. Thus, the nature of the SEC’s work must evolve as the markets we oversee evolve. In every generation since President Franklin Roosevelt’s, our Commission has updated its ruleset to meet the challenges of a new hour. Consistent with our legal mandate, guided by economic analysis, and informed by public comment, this agenda reflects the latest step in that long tradition.”

The short-term agenda includes a half dozen or so potential proposals that were on the Fall 2022 agenda, but didn’t quite make it out of the starting gate, such as plans for disclosure regarding corporate board diversity and human capital. Similarly, issues related to the private markets are still awaiting proposals.  The question of why and how to address the decline in the number of public companies has, in the recent past, been a point of contention among the commissioners: is excessive regulation of public companies a deterrent to going public or has deregulation of the private markets juiced their appeal, but sacrificed investor protection in the bargain? That debate may play out in the coming months with two new proposals targeted for October this year: a plan to amend the definition of “holders of record” and a proposal to amend Reg D, including updates to the accredited investor definition.  And the behemoth proposal regarding climate change disclosure—identified on the last agenda as targeted for final action but not considered for adoption on the schedule as planned—reappears on the current calendar with a later target date. Will that new target be met? Notably, political spending disclosure is, once again, not identified on the agenda. That’s because Section 633 of the Appropriations Act once again prohibits the SEC from using any of the funds appropriated “to finalize, issue, or implement any rule, regulation, or order regarding the disclosure of  political contributions, contributions to tax exempt organizations, or dues paid to trade associations.”

On the Short-Term Agenda:

Final Rule Stage

Climate Change Disclosure—After many months of hyperventilating in anticipation of the SEC’s new climate disclosure proposal, we finally got a chance to set eyes on the behemoth in March 2022. The WSJ called it “the biggest potential expansion in corporate disclosure since the creation of the Depression-era rules over financial disclosures that underpin modern corporate statements,” and Fortune said it “could be the biggest change to corporate disclosures in the U.S. in decades.” The proposal was designed to require disclosure of “consistent, comparable, and reliable—and therefore decision-useful—information to investors to enable them to make informed judgments about the impact of climate-related risks on current and potential investments.” The proposal is certainly thoughtful, comprehensive and stunningly detailed—some might say overwhelmingly so. At over 500 pages, the proposal would add an entire new subpart to Reg S-K and a new article to Reg S-X. Based on the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol, the proposed new rules would require public companies to disclose information about any material climate-related impacts on strategy, business model, and outlook; governance of climate-related risks; climate-related risk management; greenhouse gas metrics in financial statements; and climate-related targets and goals, if any. The proposal would also mandate disclosure of a company’s Scopes 1 and 2 GHG emissions, and, for larger companies, Scope 3 GHG emissions if material (or included in the company’s emissions reduction target), with a phased-in attestation requirement for Scopes 1 and 2 for large accelerated filers and accelerated filers. The disclosures would be required under a separate caption, “Climate-Related Disclosure,” in registration statements and Exchange Act annual reports (with material updates in Forms 10-Q)  Compliance would be phased in. (See this PubCo postthis PubCo post and this PubCo post.)

Of course, we’ll have to wait to see what survives in the final rule. Since introduction of the proposal, provisions such as the Scope 3 mandate  and the 1% materiality threshold for financial statement disclosure have received a fair amount of pushback, with one House member contending that the climate proposal was a reflection of the “weaponization” of the SEC (see this PubCo post and this PubCo post). Opponents of the proposal have long been plotting their litigation strategies, and there is really no question that the rules will be challenged in court. Among other things, some contend that the proposal is beyond the SEC’s authority, especially in light of SCOTUS’s decision in West Virginia v EPA, which, although not directly addressing the SEC’s climate proposal, sure seemed to put a bull’s eye on it. (See this PubCo post.).  A previous agenda originally targeted October 2022 as the date for final action, which I characterized at the time as a “hmmm.”  Then, faced with “investor demands for more transparency, tech glitches and a tough Republican legal threat,” as Bloomberg expressed it, the SEC moved the target date for final action to April 2023. However, April came and went, and finally, S&P Global Market Intelligence reported that, based on a scoop from former SEC Commissioner Robert Jackson, the climate disclosure rulemaking that was targeted for adoption in April 2023 had now been pushed back to the fall—more specifically, October 2023, according to the newest agenda. Why? For one thing, the SEC is faced with the need to provide a nuanced balance of the substantive goals and requirements of the proposal taking into account comments received.  What’s more, as noted above, the SEC is likely preparing to face extraordinary legal and political challenges from Congress and the business community over the controversial climate proposal. Those challenges have not disappeared.  (See this PubCo post.) Now, what’s the over/under on October 2023?

Cybersecurity Risk Governance—In 2018, the SEC adopted guidance on cybersecurity disclosure. (See this PubCo post.) But not all of the commissioners were entirely satisfied that the guidance was adequate under the circumstances. Given the continuing consternation over hacks and ransomware, in March last year, the SEC proposed rule amendments to enhance issuer disclosures regarding cybersecurity risk governance. According to then-Corp Fin Director Renee Jones, the SEC approached the rulemaking from two perspectives: first, incident reporting and second, periodic disclosure regarding cybersecurity risk management, strategy and governance. Under the proposal, companies would be required to disclose material cybersecurity incidents on Form 8-K within four business days after they have determined that they have experienced a material cybersecurity incident. In addition, the proposal would require disclosure in periodic reports of policies and procedures to identify and manage cybersecurity risk, including the impact of cybersecurity risks on strategy; management’s role and expertise in implementing the company’s cybersecurity policies, procedures and strategies; and the board’s oversight role and cybersecurity expertise, if any. (See this PubCo post.) On the last agenda, final action on the proposal was targeted for April 2023; that target date has now been delayed until October 2023.

Special Purpose Acquisition Companies—In remarks in 2021 before the Healthy Markets Association, SEC Chair Gary Gensler emphasized the need to treat like cases alike, contending that a de-SPAC transaction is functionally “akin to a traditional IPO.” He pointed to the need to level out information asymmetries, guard against misleading information and fraud and mitigate conflicts among parties that may have different incentives.  If we are going to treat like cases alike, he said, then “investors deserve the protections they receive from traditional IPOs.”  (See this PubCo post.) In March 2022, the SEC proposed new rules and amendments regarding SPACs, shell companies, the use of projections in SEC filings and a rule addressing the status of SPACs under the Investment Company Act of 1940. The proposal would add new Subpart 1600 of Reg S-K setting forth specialized disclosure requirements for SPAC IPOs and de-SPAC transactions. In particular, the proposal would impose additional disclosure requirements regarding SPAC sponsors, conflicts of interest, dilution and financial statements, among other things; standards around marketing practices, such as the use of financial projections; and gatekeeper and issuer obligations, including expanded potential underwriter liability and potential liability by the target company and its signing persons for a de-SPAC registration statement.  In addition, under the proposal, the safe harbor for forward-looking statements under the PSLRA would not be available to SPACs. The proposal also includes a new safe harbor from the obligation to register under the Investment Company Act of 1940 for SPACs that meet the safe harbor’s requirements. (See this PubCo post.) In May 2022, the SEC’s Small Business Capital Formation Advisory Committee discussed the SPAC proposal, with one presenter contending that aspects of the proposal have had a chilling effect, leading market participants to question whether the SPAC alternative should still be considered viable. (See this PubCo post.) Whatever the reason, some have observed that the SPAC market has indeed cooled a bit recently from its prior frenzied pace. The last agenda identified April 2023 as the target date for final action; that target date now also moves to October 2023.

Rule 14a-8 Amendments—To provide some context, let’s start with a brief history of the tug of war shaping recent changes to this rule and its interpretations. In October 2020, the SEC adopted amendments to Rule 14a-8 to modify the eligibility criteria for submission of shareholder proposals, as well as the resubmission thresholds; provide that a person may submit only one proposal per meeting, whether as a shareholder or acting as a representative; prohibit aggregation of holdings for purposes of satisfying the ownership thresholds; facilitate engagement with the proponent; and update other procedural requirements. The rulemaking generated an energetic—some might say heated—discussion among the commissioners in the course of the long meeting, as well as substantial pushback through the public comment process, discussed in more detail in this PubCo post and this PubCo post. Then-SEC Chair Jay Clayton observed that a “system in which five individuals accounted for 78% of all the proposals submitted by individual shareholders” needed some work, and former Commissioner Jackson characterized the proposal as swatting “a gadfly with a sledgehammer.” (See this PubCo post.) Then, in November 2021, with a new SEC majority in place, Corp Fin issued new SLB 14L, which outlined Corp Fin’s most recent interpretations of the ordinary business and the economic relevance exceptions under Rule 14a-8, and rescinded three earlier SLBs—SLBs 14I, 14J and 14K. Generally, new SLB 14L presented its approach as a return to the perspective that historically prevailed prior to the issuance of the three rescinded SLBs. (See this PubCo post.)  The effect of SLB 14L was to make exclusion of shareholder proposals—particularly proposals related to environmental and social issues—more of a challenge for companies, smoothing the glide path for inclusion of proposals submitted by climate and other activists, both pro- and anti-ESG.

In July 2022, the SEC proposed amendments to Rule 14a-8 designed to “promote more consistency and predictability in application.” The proposal would revise three of the substantive bases for excluding a shareholder proposal under the rule: substantial implementation, specifying that a proposal may be excluded as substantially implemented if “the company has already implemented the essential elements of the proposal”; duplication, providing that a proposal constitutes a “substantially duplication” if it “addresses the same subject matter and seeks the same objective by the same means”; and resubmission, providing that a shareholder proposal would constitute a “resubmission”—and therefore could be excluded if, among other things, the proposal did not reach specified minimum vote thresholds—if it “substantially duplicates” a prior proposal by “address[ing] the same subject matter and seek[ing] the same objective by the same means.” (See this PubCo post.) It’s worth noting that the National Association of Manufacturers is now challenging the SEC’s use of Rule 14a-8 altogether, claiming that neither the First Amendment nor the federal securities laws allow the SEC to use Rule 14a-8 to compel a company to speak about contentious political or social issues, such as abortion, climate change, diversity or gun control, that are “unrelated to its core business or the creation of shareholder value.” (See this PubCo post.) The new agenda retains a target date for final action of October 2023.

Modernization of Beneficial Ownership Reporting—In February 2022, the SEC proposed to amend the complex beneficial ownership reporting rules.  Gensler described the amendments as an update designed to modernize reporting requirements for today’s markets, including reducing “information asymmetries,” and addressing “the timeliness of Schedule 13D and 13G filings.” The proposal would accelerate the filing deadlines for Schedule 13D beneficial ownership reports from 10 days to five days and require amendments to be filed within one business day (as opposed to “promptly”). For Schedules 13G, the filing deadline would be accelerated to five business days after the end of the month for qualified institutional investors and exempt investors, and would allow five days for passive investors to file.  The proposal would also expand the application of Reg 13D-G to certain derivative securities and clarify the definition of “group.” (See this PubCo post.) In April of this year, the SEC announced that it had reopened the comment period for this proposal in light of a new memorandum from the Division of Economic and Risk Analysis, which, the SEC suggested, provided information that “has the potential to be informative for purposes of further evaluating the Proposed Amendments.” In particular, the memorandum investigated potential effects on activism that could result from the proposed change to the initial Schedule 13D filing deadline and provided additional analysis of “potential harms to certain selling shareholders under the existing filing deadline.” (See this PubCo post.) Will the memorandum have an impact on the final rule? Time will tell. The agenda moves the target date for final action on the proposal to October 2023.

Proposed Rule Stage

Amendments to Requirements for Filer Validation and Access to the EDGAR Filing System—The EDGAR Business Office is considering recommending that the SEC propose rules and amendments to modernize and enhance access to EDGAR, including new validation requirements for EDGAR filers and their representatives. The agenda retains October 2023 as the target date for a proposal.

Incentive-Based Compensation Arrangements—The SEC (along with the Treasury, FDIC and other bank regulators) is considering reproposing “regulations and guidelines with respect to incentive-based compensation practices at certain financial institutions that have $1 billion or more in total assets as required by the Dodd Frank Act.” Section 956 of Dodd Frank required these regulators to adopt rules “prohibiting incentive-based payment arrangements, or any feature of any such arrangement, at a covered financial institution that the Agencies determine encourages inappropriate risks by a financial institution by providing excessive compensation or that could lead to a material financial loss.  Under the Act, a covered financial institution also must disclose to its appropriate Federal regulator the structure of its incentive-based compensation arrangements sufficient to determine whether the structure provides ‘excessive compensation, fees, or benefits’ or ‘could lead to material financial loss’ to the institution.”

A proposal to implement this section of Dodd-Frank was required by that Act to be adopted in 2011, but, although rules were proposed at the time, no action was taken, and the proposal was ultimately banished to the long-term agenda. The rules were reproposed in 2016, but again wound up on the long-term agenda in 2017 without any action taken.  With a new administration in D.C., the idea of a reproposal was once again dusted off and restored to the 2021 agenda with a target date for issuance of April 2022, but ended up—you guessed it—on the long-term agenda.  Until now, that is.  Why is it back on the short-term agenda?  Perhaps the failure of a few banks, along with pressure from political interest groups and Congress had something to do with it? This third reproposal is now back on the short-term agenda with a target date of April 2024.

Corporate Board Diversity—Corp Fin may recommend amendments to the proxy rules to enhance company disclosures about the diversity of board members and nominees. This idea was championed at one point by former SEC Chair Mary Jo White, who announced in 2016 that the Corp Fin staff was preparing a proposal to require “more meaningful” disclosure in proxy statements about board members and nominees where the directors elect to report that information. The current rule, she believed, just did not cut it: “[o]ur lens of board diversity disclosure needs to be re-focused in order to better serve and inform investors.” (See this PubCo post.)  The proposal seems to have never materialized—at least not in public. In 2019, the staff issued a CDI calling for some enhanced board diversity disclosure. (See this PubCo post.)  But, as the focus on achieving diversity and racial equity intensified, this topic was identified on the short-term agenda with a target date for a proposal of April 2022. That obviously didn’t happen. (See this PubCo post for a discussion of a study by ISS examining racial and ethnic diversity on boards and this PubCo post for a discussion of a study of board diversity by The Conference Board.) Then, last year, the target date was moved to April 2023, then to October 2023 and now to April 2024.

Disclosure of Payments by Resource Extraction Issuers—You might recall that Section 1504 of Dodd-Frank, which mandates disclosure of payments by resource extraction issuers, has had a long and troubled history. Originally adopted in 2012 at the same time as the conflict minerals rules, the resource extraction rules faced an immediate court challenge and, in a fairly scathing opinion, were vacated by the U.S. District Court. New rules were again adopted, but were subsequently tossed out under the Congressional Review Act. In December 2020, the SEC adopted, for the third time, final Rule 13q-1 and an amendment to Form SD to implement Section 1504.   As adopted, the rule requires public reporting companies that engage in the commercial development of oil, natural gas or minerals to disclose company-specific, project-level payments made (by the company, its subs or controlled entities) to a foreign government or the U.S. federal government. When the rules were adopted in 2020, then-SEC Commissioner Allison Herren Lee dissented because the final rules permitted “payment information to be aggregated to such a degree that the resulting disclosures will obscure information crucial to anti-corruption efforts and material to investment analysis. As a result, today’s rule, by the Commission’s own determination, will severely restrict the transparency and anti-corruption benefits that the disclosures might provide, and thus fails to advance the statute’s goals.” (See this PubCo post.)  But was the third time the charm?  Apparently not.  In light of changes on the Commission, Corp Fin is considering whether to recommend that the SEC review the rules to determine if additional amendments might be appropriate. The agenda previously identified April 2023 as the target date for issuance of a proposal, then October 2023 and now April 2024.

Rule 144 Holding Period—In December 2020, the SEC proposed amendments to Rule 144 to revise the method for determining the holding period—essentially eliminating tacking—for securities “acquired upon the conversion or exchange of certain ‘market-adjustable securities.’” The proposed amendments “would not affect the use of Rule 144 for most convertible or variable-rate securities transactions.” Essentially, the amendments were intended to apply to “floating priced” or “floating rate” convertibles, often referred to as “death-spiral” converts, issued by companies that do not have securities listed, or approved for listing, on a national securities exchange. The proposed amendments would have mandated electronic filing of Form 144 notices related to the resale of securities of Exchange Act reporting companies; eliminated the Form 144 filing requirement for non-reporting companies; changed the filing deadline for Form 144 to coincide with the filing deadline for Form 4; and amended Forms 4 and 5 to add a check box to permit filers to indicate that a sale or purchase reported on the form was made pursuant to a transaction that satisfied Rule 10b5-1(c).  (See this PubCo post.)   In June 2022, the SEC separately adopted amendments mandating electronic submission of a number of forms, including Forms 144, but indicated that it was not taking any action concerning the remaining aspects of the proposal in the Rule 144 proposing release, and, in particular, it was not adopting the proposal to eliminate the Form 144 filing requirement for the sale of securities of companies that are not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. (See this PubCo post and this PubCo post.)  (The new amendments to Rule 10b5-1 require checkboxes on Forms 4 and 5 stating that a reported transaction is pursuant to a plan that is “intended to satisfy the affirmative defense conditions” of Rule 10b5-1(c). See this PubCo post.) Now, Corp Fin is considering recommending that the SEC repropose amendments to Rule 144. The target date for this proposal has been moved back in the latest agenda from October 2022 to October 2023 to April 2024.

Human Capital Management Disclosure—When, in August 2020, the SEC adopted a new requirement to discuss human capital as part of an overhaul of Reg S-K, the debate centered largely on whether the rule should be principles-based or prescriptive.  In that instance, notwithstanding a rulemaking petition and clamor from numerous institutional and other investors for transparency regarding workforce composition, health and safety, living wages and other specifics, the “principles-based” team carried the day; the SEC limited the requirement to a “description of the registrant’s human capital resources, including the number of persons employed by the registrant, and any human capital measures or objectives that the registrant focuses on in managing the business (such as, depending on the nature of the registrant’s business and workforce, measures or objectives that address the development, attraction and retention of personnel).” (See this PubCo post.)  Early subsequent reporting suggested that companies “capitalized on the fact that the new rule does not call for specific metrics,” as “[r]elatively few issuers provided meaningful numbers about their human capital, even when they had those numbers at hand,” such as workforce diversity data submitted to the EEOC. (See this PubCo post.) More recent studies do indicate some expansion of disclosure about human capital.  For example, one study showed that the number of companies disclosing their EEO-1 data “has more than tripled between 2021 and 2022, from 11% to 34%,” and that nearly three-quarter of companies in the Russell 1000 disclose some form of race and ethnicity data. Progress, but apparently not enough to deter Corp Fin, which is considering recommending a proposal to enhance company disclosures regarding human capital management.

In June last year, a rulemaking petition was submitted by a group of academics requesting that the SEC require more qualitative and quantitative disclosure of financial information about human capital. (See this PubCo post.) And subsequently, the SEC’s Investor Advisory Committee held two meetings addressing the issues of accounting standards for human capital disclosure (see this PubCo post) and labor-related performance data metrics (see this PubCo post). The FASB also moved forward with a proposal for disaggregation of some specific costs related to human capital.  (See this PubCo post.) In addition, in February 2022, Senators Sherrod Brown and Mark Warner, the Chair and a member, respectively, of the Senate Committee on Banking, Housing, and Urban Affairs, submitted a letter to Gensler, calling on the SEC to include in its proposal a requirement that companies report about—not just employees—but also the number of workers who are not classified as full-time employees, including “gig” workers and other independent contractors. (See this PubCo post.)  Will the input from the two Senators and the SEC’s Investor Advisory Committee affect the substance of the proposal? The agenda identifies October 2023 as the target date for issuance of a proposal, a delay from the previous target dates of April 2023 and October 2022.

Reg D and Form D Improvements—Corp Fin is considering recommending that the SEC propose amendments to Reg D, including updates to the accredited investor definition and to Form D, “to improve protections for investors.” In light of the rapid growth of the private markets in recent years, Reg D has been a topic of some discussion among the commissioners. In a recent speech, Commissioner Caroline Crenshaw, pointing to the vast growth in the number of “unicorns,” contended that  “unfettered access to capital through Rule 506 has had a bloating effect on private issuers,” and expressed concern about inadequate investor protection. She suggested a number of reforms to Reg D, including adoption of a two-tier system that would impose greater disclosure obligations on larger private issuers and issuances. (See this PubCo post.) On the other hand, Commissioner Mark Uyeda was critical of any effort to “overregulate the private markets through prescriptive disclosure and governance requirements,” and instead expressed concern that, as IPOs have become a vehicle more often for mature companies to provide liquidity events for their insiders, “the pool of potential growth-stage investments available to Main Street investors” has declined, with the result that “Main Street investors—but not wealthy investors or venture funds—lose out on the ability to participate in the potential upside associated with some growth-stage companies and the diversification that investments in such companies can provide.” He advocated that the SEC revisit “the binary ‘all or nothing’ approach to accredited investors,” by, for example, “allowing an individual to invest a certain percentage of his or her income or net worth in one or more private companies during a year.” (See this PubCo post.) Could be an interesting debate. The target date for a proposal is October 2023, a delay from the prior target date of October 2022 and April 2023.

Revisions to the Definition of Securities Held of Record—Corp Fin is considering recommending that the SEC propose amendments to the definition of “held of record” for purposes of Section 12(g) of the Exchange Act.  In a presentation in 2021, Lee had raised concerns about the “explosive growth of private markets.”  In her view, the vast amount of capital that piled into these markets was “attributable in part to policy choices made by the Commission over the past few decades,” as Congress and the SEC have “steadily relaxed restrictions around private markets in a manner that has spurred their dramatic growth.” Like Crenshaw, she contended that one of the significant consequences has been that “companies can remain in the private markets nearly indefinitely, with some growing large enough to exceed the GDPs of all but the top sector of the world’s national economies.” Currently, under the Exchange Act, a company that reaches either 2,000 holders of record or 500 holders of record that are not accredited investors, whichever first occurs, is required to register under the Exchange Act. (And persons are also excluded from the definition of “held of record” if they hold only securities issued to them pursuant to an employee compensation plan in exempt transactions.) Currently, Lee pointed out, most shares in U.S. markets are held in street name, with the result that “record ownership has plummeted and in most cases has no meaningful relationship to the number of actual investors.” According to Lee, “[e]ven some of the largest and most widely traded issuers do not have enough record owners (as that term is currently defined) to meet the requirements of Section 12(g). Under current guidance, in counting holders, companies look through record ownership only to banks and brokers, not to beneficial owners.  Should that still be the case? Lee advocated that “we should consider whether to recalibrate the way issuers must count shareholders of record under Section 12(g) (and Rule 12g5-1) in order to hew more closely to the intent of Congress and the Commission in requiring issuers to count shareholders to begin with. In other words, it’s time for us to reassess what it means to be a holder of record under Section 12(g).” (See this PubCo post.) In the new agenda, the target date for a proposal is October 2023, a delay from October 2022 and April 2023.

On the Long-Term (Maybe Never) Agenda: 

Conflict Minerals Amendments—Way too long a saga to go through here.  But know that the federal courts held that the statute and rules violated the First Amendment to the extent they required companies to report that any of their products “have not been found to be ‘DRC conflict free.’”  (For background on the case, see this PubCo post.) Corp Fin guidance issued in 2014, and currently in effect, requires companies to make the mandated filing without including a statement as to the conflict-free status of the products that could be deemed to violate the First Amendment. (See this PubCo post.) In 2017, Corp Fin issued an Updated Statement on the Effect of the Court of Appeals Decision on the Conflict Minerals Rule providing that Corp Fin would not recommend that companies face enforcement if they filed only a Form SD and did not prepare and file a conflict minerals report. (See this PubCo post.)  Nevertheless, for a variety of reasons, companies have continued to file CMRs at about the same rate as prior to the Updated Statement. As a long-term item, Corp Fin is considering recommendations that would update the Conflict Minerals rules. However, the agenda indicates that the next action on this rulemaking is “undetermined.”

Proxy Process Amendments—Corp Fin may recommend—some day—that the SEC propose amendments to the proxy rules to facilitate improvements in the proxy system with respect to the distribution of proxy materials, pre-voting reconcilement, processing of shareholder votes (including proxy vote confirmation) and shareholder communications, otherwise referred to as proxy plumbing issues. There has long been substantial criticism of the current byzantine system of share ownership and intermediaries that has accreted over time. Shareholder voting is viewed as fundamental to keeping boards and managements accountable, and the current system of proxy plumbing has been criticized as inefficient, opaque and, all too often, inaccurate.  Proxy plumbing was discussed at length at a 2018 meeting of the Investor Advisory Committee and then at the proxy process roundtable. (See this PubCo post and this PubCo post.) In this Bloomberg article, Gensler is quoted at a Society for Corporate Governance conference in 2022 as advising companies that are “unhappy with the shareholder voting mechanics” to “suggest fixes to the SEC.” The SEC apparently hadn’t finished proposals related to proxy plumbing and “would benefit from hearing from companies about how to improve proxy plumbing, even if the agency isn’t ready to propose changes.” According to the article, Gensler urged companies not to “wait for the proposal,” but rather to “engage.” Whenever the SEC does get around to a proxy plumbing proposal, the question is whether it will undertake the comprehensive analysis and overhaul that appears to be required or settle for grabbing only the low-hanging fruit?  My bet is on the low-hanging fruit—if anything. Next action “undetermined.”


So does it feel a little like Groundhog Day?  All of these Corp Fin agenda items seem to have made an appearance before—on the last agenda and, in many cases, one or more agendas before that. Of course, the absence of a slew of brand new rulemaking proposals and “pre-rule” stage proposals (of which there are none on this agenda) will be a welcome breather—of sorts—as the scale of the SEC’s jam-packed agendas have induced substantial angst for many. To be sure, the current agenda still remains laden with ambitious major proposals, and many of these proposals—climate disclosure, cybersecurity, SPACs—are apparently at the final rule stage. Implementing all of these proposals, if adopted, would likely represent a significant challenge for many companies; whether overwhelmingly so remains to be seen.  In any event, based on this new agenda, things promise to heat up in the months around October, when a number of major rulemakings now have new target dates for final adoption.  Don’t plan any October vacations.

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