2024 U.S. Proxy Season: Proxy Voting, Governance, and ESG Matters

Laura D. Richman is a Counsel at Mayer Brown LLP. This post is based on a Mayer Brown memorandum by Ms. Richman, Jennifer J. CarlsonLawrence A. CunninghamAnna T. Pinedo, and David A. Schuette.

Proxy Voting Matters


Shareholder Proposals in the 2023 Proxy Season. In November 2021, the staff of the Division of Corporation Finance (the “Staff”) of the SEC issued Staff Legal Bulletin No. 14L (“SLB 14L”),[1] rescinding Staff Legal Bulletins Nos. 14I, 14J and 14K. This action reversed positions the Staff had taken since 2017, with respect to the ordinary business grounds for excluding shareholder proposals from company proxy statements pursuant to Rule 14a-8(i)(7) and the economic relevance grounds for excluding shareholder proposals pursuant to Rule 14a-8(i)(5).

Specifically, SLB 14L announced that when evaluating whether a proposal may be excluded pursuant to Rule 14a-8(i)(7), the Staff “will no longer focus on determining the nexus between a policy issue and the company, but will instead focus on the social policy significance of the issue that is the subject of the shareholder proposal.” SLB 14L also applied a “measured approach to evaluating companies’ micromanagement arguments for exclusion pursuant to Rule 14a-8(i)(7), recognizing that proposals seeking detail or seeking to promote timeframes or methods do not per se constitute micromanagement.”

In addition, SLB 14L specified that proposals raising issues of broad social or ethical concern related to the company’s business may not be excluded under the economic relevance tests set forth in Rule 14a-8(i)(5), even if the relevant business falls below the “economic thresholds” specified by that ground for exclusion. SLB 14L has made it much more difficult for companies to exclude proposals under Rule 14a-8(i)(7) or Rule 14a-8(i)(5), particularly shareholder proposals addressing climate change or other environmental, social and governance (“ESG”) issues. For additional information regarding SLB 14L, see our Legal Update, “SEC Staff Issues Legal Bulletin Announcing Shift in Shareholder Proposal Review Process Ahead of 2022 Proxy Season,” dated November 8, 2021.[2]

SLB 14L had a significant impact on the shareholder proposal process, both in terms of proposals permitted to be excluded from proxy statements and number of shareholder proposals submitted. For example, during the 2021 proxy season, the Staff concurred with company no-action requests to exclude shareholder proposals 40 percent of the time, while during the 2022 proxy season, the Staff concurred with exclusion only 23 percent of the time. The number of shareholder proposals submitted to companies during the 2023 proxy season increased 18 percent over the 2021 proxy season totals, with proposals on social and environmental topics leading the increase in both proposals submitted and proposals voted upon.[3]

Shareholder proposals submitted to companies for inclusion in their 2023 proxy statements spanned a wide range of topics. For example, shareholder proposals addressed independent board chairs, climate change (including greenhouse gas emissions and fossil fuel financing), severance pay, special shareholder meetings, workplace matters (such as diversity, harassment and safety), lobbying, advance notice bylaws, racial equity audits, reproductive rights and freedom of association. In addition, there were anti-ESG shareholder proposals.

According to Morrow Sodali, there were fewer no-action requests during the 2023 proxy season than there were during the 2022 proxy season. Nevertheless, the rate at which the Staff concurred with requests to exclude shareholder proposals from proxy statement, as well as the number of proposals permitted to be excluded, increased during the 2023 proxy season compared to the 2022 proxy season.[4] The reduction in the number of no-action requests may reflect companies being more selective about submitting no-action requests in light of SLB 14L and the Staff’s denial of many no-action requests during the 2022 proxy season. Companies receiving shareholder proposals may be devoting more attention instead to negotiations with proponents, shareholder engagement generally and development of actions and disclosures responsive to the subject of shareholder proposals.

In some cases, companies submitting Rule 14a-8 no-action requests were successful in excluding shareholder proposals even if they touched on ESG topics, for example, where the company was able to effectively articulate how a proposal seeks to micromanage the company or to establish that the proposal contained a technical defect. It remains worthwhile for companies to carefully analyze any shareholder proposals for the 2024 proxy season promptly upon receipt to preserve their options as to how to best respond, including whether a notice of defects is appropriate and whether submission of a no-action request to the Staff has potential to be effective.

Voting support for shareholder proposals has declined sharply in the past two proxy seasons, with average percentage of shares voting in favor of shareholder proposals falling from 36 percent in the 2021 proxy season to 24 percent in the 2023 proxy season, with the portion of proposals receiving majority support dropping from 19 percent to 5 percent in those years. The drop during this period was even more dramatic for social and environmental proposals, with the average favorable votes dropping from 37 percent to 20 percent, with majority approval for social and environmental proposals plummeting from 23 percent to 3 percent.[5] As ISS observed, the 2023 proxy season witnessed a drop in average shareholder support levels for environmental and social shareholder proposal resolutions, a low number of majority-supported resolutions and an uptick in “anti-ESG” proposals.[6]

According to Alliance Advisors, 28 shareholder proposals on topics addressing governance, environmental, social and compensation issues received majority support during first half of 2023, compared to 80 during 2022, and 94 during 2021.[7] Among the topics garnering shareholder approval in 2023 were proposals involving supermajority voting, special shareholder meetings, pay equity, lobbying, severance pay, workplace matters, fugitive methane and climate aligned lobbying. However, prescriptive climate change proposals, such as those relating to fossil fuels, did not receive majority approval during the first half of 2023. Although 80 independent chair proposals were voted on through June 2023, none attained majority approval.

Proposed Amendments to Rule 14a-8. In July 2022, the SEC proposed amendments to revise three of the substantive bases for exclusion of shareholder proposals under Rule 14a-8 of the Exchange Act that may make it even more difficult to exclude shareholder proposals from proxy statements. The proposal would amend the substantial implementation exclusion set forth in Rule 14a-8(i)(10) by specifying the “essential elements” of the proposal must have been substantially implemented. The proposal would also modify the duplication exclusion contained in Rule 14a-8(i)(11) by specifying that “substantially duplicates” means a proposal “addresses the same subject matter and seeks the same objective by the same means” as a previously submitted proposal. Consistent with the proposed standard for Rule 14a- 8(i)(11), the proposal would revise the Rule 14a-8(i)(12) exclusion for resubmissions by changing the “addresses substantially” standard to “substantially duplicates,” specifying that “substantially duplicates” means addressing the same subject matter and seeking the same objective by the same means as a proposal, or proposals, previously included in the company’s proxy materials.

The proposing release provides examples of how the applications of the proposed rules would differ from the current application of Rule 14a-8. In addition, the proposing release also “reaffirmed” the standards of the ordinary business exclusion contained in Rule 14a-8(i)(7) relating to significant social policy issues and micromanagement. If the proposed amendments are adopted substantially as proposed, there may be an increase in shareholder proposals submitted for inclusion in proxy statements, with companies receiving multiple proposals on similar topics containing sufficiently different details so that the objective and means can be readily distinguished from each other. According to the SEC’s Spring 2023 regulatory agenda (“SEC Regulatory Agenda”), the SEC is targeting October 2023 for amendments to Rule 14a-8. However, it is not clear as of the date of this Legal Update when the SEC intends to adopt the amendments to Rule 14a-8 and whether any such amendments will be in effect for the 2024proxy season. For additional information regarding the Rule 14a-8 proposal, see our Legal Update, “SEC Votes on Changes to Shareholder Proposal and Proxy Solicitation Rules,” dated July 18, 2022.[8]

There have also been legislative initiatives in the shareholder proposal area. For example, H.R. 4640 was introduced in the Republican-controlled U.S. House of Representatives to authorize the exclusion of shareholder proposals from proxy or consent solicitation material if the subject matter of the shareholder proposal is environmental, social, or political. H.R.4657 would clarify that issuers may exclude a shareholder proposal pursuant to Rule 14a-8 without regard to whether it related to a significant social policy issue. H.R. 4655 would amend the Exchange Act to prohibit the SEC from compelling the inclusion or discussion of shareholder proposals in proxy or consent solicitation material. H.R. 4640 would authorize the exclusion of shareholder proposals from proxy or consent solicitation material if such proposals substantially implement, substantially duplicate, or are substantially similar to previously included proposals. While these measures may not have the bipartisan support necessary to become law, they reflect that shareholder proposals have increasingly become a political issue.


As usually happens, the say-on-pay proposal at most companies received majority approval during the 2023 proxy season. According to Semler Brossy, only 2.1 percent of Russell 3000 companies and 2.3 percent of S&P 500 companies had a failed say-on-pay vote in the 2023 proxy season. Misalignment between the relation of pay and performance, problematic pay practices, rigor of performance goals, shareholder outreach and disclosures, non-performance based equity awards and special awards and particularly large grants were among the factors likely contributing to a failed say-on-pay vote. The average vote results were 80.9 percent approval for Russell 3000 companies and 88.6 percent approval for S&P 500 companies.[9]

An “against” recommendation from a proxy advisory firm does not always result in a failed say-on-pay vote, but it will likely cause shareholder support to decline, which may influence the ongoing level and tone of shareholder engagement on compensation matters and director nominees in the coming year, as well as future votes on say-on-pay and director elections. If a company receives a negative proxy voting recommendation from a proxy advisory firm, it often (but not always) prepares additional material in support of its executive compensation program. In order to use such newly prepared materials, companies must file them with the SEC as definitive additional soliciting material not later than the date first distributed or used to solicit shareholders.


The universal proxy rules became effective for shareholder meetings held after August 31, 2022, providing for mandatory use of a universal proxy card for all proxy solicitations in connection with contested elections for directors that are not exempt under Rule 14a-2(b). Each party in a contested election distributes its own universal proxy card including the names of all nominees for director for whom proxies are solicited, either by the company or by dissident shareholders. This enables shareholders voting by proxy to pick and choose among the different slates of candidates, similar to the manner in which they would be able to vote for directors in person at a contested shareholders meeting.

Within each group on a universal proxy card, the nominees must be listed in alphabetical order by last name and must be presented in the same font type, style and size. The proxy card must prominently disclose the maximum number of nominees for which voting authority can be granted. It must also prominently disclose the treatment and effect of a proxy that is executed in a manner which grants authority to vote for fewer or more nominees than the number of directors being elected or which does not grant authority to vote with respect to any nominees.

A dissident that intends to solicit proxies for its own nominees in a contested election for directors must give the company notice of the names of its nominees at least 60 calendar days prior to the anniversary of the previous year’s annual meeting date. This notice requirement is in addition to any advance notice requirements set forth in the company’s governing documents, which frequently provide for earlier notice of director nominations by dissidents.

The dissident engaging in a contested director election must file its definitive proxy statement with the SEC by the later of 25 calendar days prior to the meeting date or five calendar days after the company files its definitive proxy statement. The dissident is required to solicit the holders of shares representing at least 67 percent of the voting power for the election of directors in order to trigger the universal proxy card requirements. The universal proxy rules require the company to disclose in its proxy statement how it intends to treat proxies granted in favor of a dissident’s nominees if the dissident abandons its solicitation or if it fails to comply with the universal proxy rules.

For more information, see our Legal Update, “SEC Adopts Universal Proxy Rules,” dated November 23, 2021.[10]

Governance Matters


Nasdaq-listed companies are required to have, or explain why they do not have, at least two diverse directors, including (1) at least one director who self-identifies as female (regardless of gender designation at birth) and (2) at least one director who self-identifies as either an “Underrepresented Minority,” as defined in Nasdaq Rule 5605(f), or as LGBTQ+ and to annually disclose directors’ self-identified gender, race and ethnicity in a standardized board diversity matrix.[11] There are transition periods based on the company’s listing tier and board size. For example, Nasdaq Global Select Market and Nasdaq Global Market companies must already have, or explain why they do not have, one diverse director by December 31, 2023, with this requirement increasing to two diverse directors by December 31, 2025. Nasdaq already requires board diversity matrix disclosure, either in a company’s proxy statement or on a company’s website. For more information, see our Legal Update, “SEC Approves Nasdaq Board Diversity Rule,” dated August 10, 2021.[12] Additionally, some investors have advocated for board matrix disclosure more generally (rather than just for Nasdaq companies).

The SEC Regulatory Agenda targets April 2024 for proposed rule amendments to enhance company disclosures about the diversity of board members and nominees, but that timing means such board diversity amendments will not be in effect for the 2024 proxy season. However, there are other drivers of board diversity, such as voting policies established by proxy advisory firms, voting policies and engagement priorities of large institutional investors and public perception. In addition, a few states have adopted or considered board diversity legislation, in the form of mandates, disclosure or reporting requirements or non-binding resolutions, although California’s two board diversity statutes have each been held to violate the California Constitution by the Superior Court of California. Litigation is also pending challenging the legality of Nasdaq Rule 5605(f). National Center for Public Policy Research v. SEC (oral argument in the Fifth Circuit Court of Appeals was held in August 2022).

There are board composition matters in addition to diversity that companies may want to take into consideration when recruiting director nominees. Nominating and governance committees may have areas of focus for board candidates specific to their companies. In addition, company, investor and other stakeholder recognition of the potential impact of climate change and cybersecurity may prompt recruiting nominees and training of directors in these areas.


Last year, the Staff issued comments to a cross section of companies, seeking expanded proxy statement disclosures regarding board leadership structure, duties of lead directors and board oversight of risk, generally seeking expanded disclosure on these topics during the 2023 proxy season. The Staff undertook this disclosure review project because it believed disclosures required by Item 407(h) of Regulation S-K had become increasingly standardized and were not sufficiently tailored to how board leadership structure and risk oversight reflects the particular circumstances of a company and its unique challenges. It would be worthwhile for companies to review expanded board leadership structure and board risk oversight disclosures, and to consider the disclosures being made by their peer companies, to assess whether such descriptions suggest ways in which the company could provide more detailed insights on these topics.

In recent years, the SEC also has been focused on director independence issues. In preparing proxy statement disclosures, companies should consider any interlocking board of director relationships that may exist, as well as any other relationships that may impede independence.


Companies should regularly evaluate their controls and procedures for effectiveness, which is subject to quarterly certification by their respective chief executive officers and chief financial officers. Given recent SEC developments, as well as learning from SEC enforcement actions, it is important to be sure disclosure controls and procedures and internal control over financial reporting are adequate to cover new requirements. As examples:

  • Companies need an appropriate disclosure control to determine whether any director or officer adopted or terminated any Rule 10b5-1 or other trading arrangement so companies can accurately fulfill their quarterly disclosure obligations.
  • With respect to the new buyback disclosure requirements, companies should develop a process to gather and maintain buyback information to be presented in the required tabular daily buyback disclosure. Companies also need a process to assess the narrative buyback disclosure, keeping in mind that objectives and rationales may change from filing to filing based on circumstances impacting the period.
  • There should be disclosure controls in place with respect to the checkbox for director and officer trades within four business days before or after the announcement of a share repurchase program or an increase to a share repurchase agreement.
  • It may be appropriate for companies to consider the timing of stock-based compensation grants, particularly options and stock appreciation rights, in relation to the handling of MNPI.
  • Companies should consider updating their disclosure controls and procedures to reflect both the new current reporting requirements for cyber incidents, including the potential need for amendments, and the annual disclosure requirements regarding cybersecurity risk management

These suggestions represent just some of the types of new disclosure controls and procedures that may be appropriate to develop.

In addition to new requirements, companies should evaluate whether their disclosure controls and procedures and internal control over financial reporting need updating with respect to existing proxy and annual report requirements. The SEC continues to be focused on perquisite disclosures and has brought enforcement proceedings in this area over the last few years, including this year. As discussed further below, given the SEC’s focus, including that of the Enforcement Division’s Enforcement Task Force Focused on Climate and ESG Issues, on ESG-related disclosures, it would be prudent to ensure companies have appropriate disclosure controls and procedures in place related to all sustainability disclosures in order to vet these for accuracy. Also, as discussed further below, companies should assess their disclosure controls and procedures related to the use of non-GAAP financial measures and their use of key performance indicators (“KPIs”). For example, companies should focus on consistency (both in preparation and usage) calculation accuracy and evaluation of the source of data for their non-GAAP financial measures and KPIs. If a metric is customized, there should be a process to document its calculation so it can be performed consistently.

The SEC Chief Accountant has commented frequently on the importance of maintaining effective internal control over financial reporting. In a recent statement, the Chief Accountant noted the importance of the role of the audit committee and management in risk oversight and in remaining “alert to new or changing business risks to identify changes that could significantly impact [a company’s] system of internal control,” and “design[ing] and implement[ing] responses that support issuers’ ability to appropriately disclose information in its periodic filings.” The Chief Accountant identified a number of business risks, “such as a company’s loss of financing, customer concentrations, or declining conditions affecting the company’s industry, could affect issuers’ ability to settle their obligations when due, and affect the risks of material misstatements in financial statements not being identified on a timely basis. Likewise, risks related to changes in technology could impact the effectiveness of controls around processing of transactions.”[13]

Therefore, in connection with preparing their annual reports and proxy statements, companies should confirm their existing controls and procedures are sufficiently robust to identify and evaluate matters that may need to be disclosed.


Because companies now must disclose whether during their last fiscal quarter any director or Section 16 reporting officer adopted or terminated a Rule 10b5-1 plan or similar trading arrangement, they need a disclosure control and procedure to gather this information, including for their upcoming Form 10-K filings. While a company may already receive some of this information in connection with pre-clearance of trades in company securities or Form 4 filings, that information may not be complete. Therefore, companies may find it helpful to include a question in their annual director and officer questionnaires responsive to Item 408(a) of Regulation S-K with respect to fourth quarter trading arrangements. Subsequently, a company may extract this question and separately send it to the directors and officers prior to each quarterly report on Form 10-Q.

If companies include self-identified diversity characteristics in their proxy statements or on their websites, they may need to develop or expand questions for their director and officer questionnaires to elicit such information or otherwise develop a mechanism to gather this information. In addition, if companies need to provide diversity data on directors and officers for other purposes, such as a state law requirement, adding one or more questions to the director and officer questionnaire process may be the best vehicle for gathering such information. The questionnaires or other procedures should include obtaining the director’s or nominee’s consent to disclosure or should limit the collection of this information to the extent restricted by applicable data privacy law.

Companies might also want to consider adding or expanding questions about director expertise in areas such as cybersecurity, climate change or any other areas they might disclose as reasons why individuals are being nominated or renominated.

In light of universal proxy requirements, companies should review the consent language in their director and officer questionnaires to assess whether it is clear that the consent to be named as a nominee for director is sufficiently broad to cover not only the company’s proxy statement but any proxy card of a dissident which triggered the universal proxy requirement.


Section 102(b)(7) of the Delaware General Corporation Law (“DGCL”) was amended in 2022 to permit Delaware corporations to exculpate certain senior officers from personal liability for monetary damages in connection with breaches of fiduciary duty of care, similar to what the DGCL has long provided with respect to directors. Existing Delaware corporations have to amend their certificate of incorporation to permit this officer exculpation, which amendment must be approved by directors and stockholders. Some public Delaware corporations submitted officer exculpation amendments for stockholder approval during the 2023 proxy season. Others, while interested in officer exculpation, decided to see how investors and proxy advisory firms reacted to company proposals to amend their certificates of incorporation to provide for officer exculpation.

During the 2023 proxy season, ISS announced it would evaluate officer exculpation proposals on a case by case basis and frequently supported such proposals. Glass Lewis, on the other hand, generally recommended voting against officer exculpation unless the board of directors provided a compelling rationale. Officer exculpation management proposals that were voted during the 2023 proxy season frequently received the requisite stockholder approval and some which failed were subject to supermajority voting requirements.

In light of voting recommendations and results in 2023, Delaware corporations waiting to see how the initial round of officer exculpation provisions fared may want to consider whether it would be beneficial to recommend that their stockholders approve an officer exculpation amendment to their certificates of incorporation. This involves drafting the amendment for discussion with their governance committees, and, ultimately, with their full boards. As part of the process, companies should develop the rationale for why officer exculpation is appropriate for their circumstances. Careful preparation can take time, so companies in this position should start the decision-making process soon to be in a position to move forward if they decide to add officer exculpation to the 2024 annual meetings’ agendas.

Environmental and Social Matters


The SEC proposed extensive climate change disclosure rules in March 2022. According to the SEC Regulatory Agenda, the SEC is now targeting October 2023 for consideration of final rules, but as of the date of this Legal Update, final rules have not been adopted. It is therefore not clear what the scope of any final climate change disclosure rules will be or when they will be effective. For more detail on the SEC’s climate change proposal, see our Legal Update, “SEC Proposes Climate Change Disclosure Rules Applicable to Public Companies,” dated March 24, 2022.[14]

Even if no specific climate change disclosure rules are in effect for the 2024 proxy season, as the SEC explained in its 2010 “Commission Guidance Regarding Disclosure Related to Climate Change,” [15] many existing SEC rules require climate change disclosure. In September 2021, the SEC’s Division of Corporation Finance published a sample letter [16] containing comments to public companies regarding their climate change disclosures—or lack thereof—in SEC filings. The sample comments requesting analysis, as well as disclosure, to the extent material, could apply to many companies. Companies should pay close attention to this SEC guidance.

Increased focus on climate change among investors and other constituencies, as well as companies themselves, has prompted a growing number of companies to include sustainability initiatives in distinct sections of their proxy statements in addition to disclosures in annual reports. The approach of adding voluntary climate change and other ESG disclosure in the proxy statement may provide an opportunity for companies to control their message and provide a basis to direct shareholder engagement in this area.

When preparing climate change disclosure for the proxy statement or annual report, companies should be cognizant of the securities laws and other legal ramifications of such disclosure. As alluded to above, misleading climate change disclosures can give rise to SEC or state enforcement proceedings and hefty monetary penalties. From a liability perspective, it may be prudent to describe corporate climate change initiatives in aspirational terms rather than as commitments to achieve specific results, unless the company is actively working towards reaching those goals within a designated time frame and is prepared for increased follow-up disclosure in subsequent years.

As noted above, companies may need to expand their disclosure controls and procedures, and possibly their internal control procedures, to take climate change disclosures into account. The team involved in drafting and approving climate change disclosure should develop a process to fact-check disclosures. Board oversight and review of climate change disclosure may help to confirm alignment with company initiatives. There should be consistency between a company’s climate change disclosures in its SEC filings and the company’s disclosures in any sustainability report it publishes and other climate change disclosures it makes on its website or in public statements. It is important that public companies draft climate change disclosure in a manner that is not susceptible to a characterization that it is inaccurate or misleading.

Companies also need to pay attention to potential climate change reporting requirements beyond the SEC’ rules. The European Union (“EU”) Corporate Sustainability Reporting Directive (“CSRD”) and the associated European Sustainability Reporting Standards create detailed sustainability reporting requirements that will apply to a significant number of EU and non-EU companies and substantially increase the scope of their sustainability reporting. For further information on these sustainability

reporting requirements, see our Legal Update, “The EU Corporate Sustainability Reporting Directive is upon us – what non-EU companies should know and do,” dated September 2023.[17] There also may be applicable state law requirements to be considered. For example, the California legislature has approved a bill, which Governor Newsom has announced he intends to sign, requiring U.S.-based businesses with annual revenues exceeding $1 billion that do business in California to annually disclose the greenhouse gas emissions attributable to the business.[18]


Companies must discuss their human capital resources, including the number of employees, as well as any human capital measures or objectives that the company focuses on in managing its business in the business section of their annual reports on Form 10-K, to the extent material. This requirement, set forth in Item 101(c) of Regulation S-K, is principles-based, although it specifies the types of information that may be material to certain companies. For example, the regulation identifies measures or objectives addressing the development, attraction and retention of personnel as types of disclosures that may be appropriate to discuss, depending on the nature of a company’s business and workforce.

There has been wide variation in how companies implemented the human capital management disclosure in their annual reports on Form 10-K, including with respect to the amount of detail given and the human capital measures discussed. Some companies also included human capital management disclosure in their proxy statements. Many investors now identify human capital management as an important topic of engagement.

Institutional investors have increasingly made human capital management disclosure and engagement a priority. In addition, shareholder proposal initiatives have requested companies to disclose workforce data by race/ethnicity and gender that they submitted to the US Equal Opportunity Commission on EEO-1 reports, and some companies have agreed to make such data public. And, because human capital management is important to employee relations, companies should consider the points of view of various employees when drafting human capital management discussions.

In light of these developments, many companies supplement their Form 10-K human capital management disclosure with additional proxy statement discussion. While the Form 10-K requirement is qualified by a materiality standard, voluntary proxy statement disclosure on human capital topics can be drafted in a way that communicates the information to interested shareholders without implying that it is important to how management runs the business. The proxy statement platform provides companies with the opportunity to focus their corporate messaging in a reader-friendly manner, often enhanced with graphics, on key human capital topics they chose to highlight, such as diversity, equity and inclusion, employee development and retention and workplace culture.

Human capital management continues to evolve as a disclosure topic. The SEC Regulatory Agenda indicates the SEC is now targeting October 2023 for proposed amendments to enhance human capital disclosures. Although it is unlikely any final amendment would be adopted in time to require compliance during the 2024 proxy season, companies should monitor that potential rulemaking to consider if it makes sense to voluntarily adopt any aspects of what is voluntarily in their next annual report or proxy statement.

Additional Annual Report and Proxy Statement Matters


Risk factor disclosure is an important feature of an annual report. It must focus on the material factors that make an investment in a company speculative or risky, tailored to the specific reporting company. It is important to take a fresh look at risk factor disclosures each year to consider whether any risks need to be updated, whether any new risks should be added and whether it would be appropriate to delete any prior risk factors.

Companies should be particularly sensitive to situations where they previously described a risk in hypothetical terms and subsequently an actual event of that nature occurred. In these circumstances an update to the risk factors may be needed to avoid securities law liability for misleading risk factors. This has become an issue in the cybersecurity area, both for SEC and private litigation, where a prior risk factor discussed the potential of a data breach or ransomware attack and thereafter the company suffered a cyber incident, but it may also be a relevant consideration for risk factors on other topics.

Topics companies should consider when updating their annual report risk factors include inflation, and/or rising interest rates, tailored to the company’s specific circumstances. For example, the Staff has issued a risk factor comment this year specifying that if inflationary pressures have materially impacted operations, the company should identify the types of inflationary pressure it is facing and how its business has been affected.

Companies should assess whether the Russian/Ukrainian war, related sanctions and escalations (potential or actual) should be discussed in their risk factors, even if they have not been previously. According to a recent sample comment letter issued by the Staff, [19] companies based in or with a majority of their operations in the People’s Republic of China (“PRC”) should disclose in their risk factors any material impact that intervention or control by the PRC government has or may have on their business or on the value of their securities. Whether or not a company is based in China, if policies or actions involving China pose a material risk to the company, that should be discussed in risk factors.

Given the ongoing focus on climate change, companies should consider whether they need to add or expand or otherwise update climate change risk factor disclosure. Cybersecurity and data privacy continue to be risks that many companies need to address in their annual reports. Some companies may have risks related to return to office mandates and hybrid work environment policies. Companies that develop or use generative or other artificial intelligence products (“AI”) may consider including risk factors addressing potential issues in that area either on a stand-alone basis or as component of other risk factors. For example, a company’s AI risks might include violation of existing and future laws regulating development and use of AI, lack of data science skills, limited access to training data, biased or inaccurate results, price pressure from competitors using lower-cost AI systems, or failure to secure IP rights. Companies that have been impacted by banking disruptions should reflect whether they have new and evolving material risks from either their direct exposure to operational or liquidity concerns or their indirect exposure through their vendors, suppliers, customers and lenders that should be addressed in a risk factor. Companies in the banking sector should reflect whether they have new and evolving material risks from regulatory proposals that may impose additional capital and other requirements on them that may impact their business and operations. For further information, see our Legal Update, “SEC Disclosure Considerations Following Banking Disruptions,” dated March 27, 2023.[20]

Because risks for a company may change from year to year, and because material risks can arise from various aspects of a company’s business, it is important from a disclosure control perspective that the full set of risk factors contained in an annual report be reviewed by the appropriate departments within the company to determine whether any new risks need to be added or any existing risk factor disclosure needs to be revised.


As expressly stated in Regulation S-K, the objective of management’s discussion and analysis (“MD&A”) “is to provide material information relevant to an assessment of the financial condition and results of operations of the registrant,” focusing “specifically on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition,” including “descriptions and amounts of matters that have had a material impact on reported operations, as well as matters that are reasonably likely based on management’s assessment to have a material impact on future operations.” Accordingly, MD&A disclosures are very company-specific.

To achieve the MD&A’s objective, companies should approach the MD&A section of their annual reports on Form 10-K from a fresh perspective each year. While the MD&A discussion may need to update prior year strategies and discuss how results and financial condition changed from the prior period, it should also provide insight into the company’s current operations and trends likely to materially affect the company. The MD&A is a key element of the Form 10-K and it should be thoughtfully drafted and carefully reviewed.

If inflation (and potential recession as a known uncertainty) has had, or is reasonably likely to have, a material impact on net sales or revenue, companies need to discuss these matters in the MD&A, even though there is no longer a prescribed disclosure item for inflation. For example, the Staff issued an MD&A comment this year to a company that included a risk factor identifying inflation as a potential adverse economic condition. The Staff requested that the company’s MD&A identify the principal factors contributing to the inflation pressures the company experienced, clarify the resulting impact of inflation on the company, if material, and identify mitigating actions the company planned or had taken with respect to inflationary pressures. In another situation where inflationary factors such as price increases and wage increases were cited as factors impacting results, the Staff indicated that if such factors can be quantified as either a percentage change or total dollar impact, such quantification should be provided.

If cost or availability of credit impacts a company’s results, financial position or liquidity, that should be addressed. Companies should focus on aspects of the MD&A that are the subject of frequent SEC comment, such as providing detail on quantification of period to period changes where there are multiple causes and around period to period variations. Companies should also assess their segment disclosures as well as their tax disclosures. In addition, companies may want to consider addressing topics that are of particular interest to investors in their MD&A, including ESG matters, such as climate change and human capital, even if pending rulemaking in those areas is not yet in effect.


Non-GAAP financial measures continue to be a focus of SEC attention. In December 2022, the Staff issued new and updated C&DIs on non-GAAP financial measures.[21] For example, C&DI 100.01, which addresses how presentation of a non-GAAP performance measure that excludes normal, recurring necessary cash operating expenses could be misleading, was updated to clarify that when evaluating what is a normal operating expense, the Staff considers the nature and effect of the non-GAAP adjustment and how it relates to the company’s operations, revenue generating activities, business strategy, industry and regulatory environment. The Staff would view an operating expense that occurs repeatedly or occasionally, including at irregular intervals, as recurring.

Updated C&DI 100.04 provides additional non-exclusive examples of how non-GAAP measures could be misleading when they use adjustments that have the effect of changing the recognition and measurement principles required by GAAP. New C&DI 100.05 describes how non-GAAP measures can be misleading if not appropriately labeled and clearly described. As described in new C&DI 100.06, a non-GAAP measure may be misleading even if accompanied by disclosure about the nature and effect of each adjustment. C&DI 102.10(a) provides updated examples of non-GAAP measures that are more prominent than comparable GAAP measures. New C&DI 102.10(b) gives examples of disclosures that would cause the non-GAAP reconciliations to give undue prominence to a non-GAAP measure, and new C&DI 102.10(c) explains that an income statement which is comprised of non-GAAP measures and includes all or most of the line items and subtotals found in a GAAP income statement is considered a “non-GAAP income statement” which, by itself or as part of the required non-GAAP reconciliation, gives undue prominence to non-GAAP measures.

In addition to C&DIs, the Staff has issued comments on company disclosures containing non-GAAP financial measures. Also, the SEC has brought enforcement proceedings relating to the use of non-GAAP financial measures. Many of these enforcement proceedings also have cited that the companies lacked appropriate disclosure controls and procedures and internal accounting controls related to the non-GAAP financial measures. Accordingly, companies using non-GAAP financial measures should confirm that their presentations satisfy the parameters set forth in SEC guidance. The same observations can be made for KPIs. The Staff continues to issue comments related to the use of KPIs in company disclosures, as well as to raise questions concerning KPIs used in earnings presentations and investor presentations and how these compare to information presented by the company in its periodic filings.


In September 2023, the Staff released a sample comment letter to companies regarding compliance with XBRL disclosures.[22] The illustrative comments provided in the sample letter, which do not represent an exhaustive list of potential comments, address the following topics:

  • Compliance with Inline XBRL presentation requirements;
  • Outstanding shares reported on the cover page and balance sheet that are tagged with materially different values (i.e., where one value is presented in a whole amount and the other value is presented in thousands);
  • Inline XBRL tagging requirements for pay versus performance disclosures;
  • Separate Inline XBRL tags for each required data point in pay versus performance relationship disclosure presentations under Regulation S-K Item 402(v)(5), even if combined in one graph, table or other format;
  • Different XBRL elements used to tag the same reported line item on the income statement from period to period; and
  • Using a custom tag instead of an XBRL element consistent with current S. GAAP in the income statement.

Companies should take the necessary steps when preparing the required XBRL data to ensure they are including all required information.


The Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”) continues to require Form 10-K and Form 10-Q disclosure if, during the period covered by the report, the company or any affiliate knowingly engaged in certain sanctionable activities, regardless of whether those actions violate US law and without any materiality threshold. If a company is required to report this activity in its annual or quarterly report, it must also separately file with the SEC, at the same time it files its annual or quarterly report, a notice that such disclosure is contained in the report. The ITRA disclosure requirement is statutory and is not referenced in the instructions for SEC annual or quarterly report forms.

Although ITRA disclosure requirements are typically framed in terms of Iran, some of the statutory provisions are broader, such as Section 13(r)(1)(d) of the Exchange Act that requires reporting if the issuer or an affiliate:

(D) knowingly conducted any transaction or dealing with
. . .
(ii) any person the property and interests in property of which are blocked pursuant to Executive
Order No. 13382 (70 Fed. Reg. 38567; relating to blocking of property of weapons of mass
destruction proliferators and their supporters).

Entities and individuals in several jurisdictions, including but not limited to Russia and China, have been designated as subject to Executive Order No. 13382, including the Federal Security Service of the Russian Federation (“FSB”). Companies dealing with Russian or other entities or individuals sanctioned under EO 13382 should consider whether they need to make any modifications to their disclosure controls and procedures with respect to ITRA to assess whether such sanctioned party involvement gives rise to required disclosure and notice requirements.


1https://www.sec.gov/corpfin/staff-legal-bulletin-14l-shareholder-proposals?(go back)

2https://www.mayerbrown.com/en/perspectives-events/publications/2021/11/sec-staff-issues-legal-bulletin-announcing-shift-in-shareholder-proposal-review-process-ahead-of-2022-proxy-season(go back)

3See Cunningham, Lawrence A., “Shareholder Proposals, Index Fund Voting, Proxy Advisors,” Testimony before the U.S. House Committee on Financial Services, July 12, 2023, available at https://docs.house.gov/meetings/BA/BA00/20230712/116194/HHRG-118-BA00-WstateCunninghamL-20230712.pdf(go back)

4See McCarthy, Neil, “Challenges under Rule 14a-8: 2023 season-end summary”, available at https://higherlogicdownload.s3.amazonaws.com/GOVERNANCEPROFESSIONALS/a8892c7c-6297-4149-b9fc378577d0b150/UploadedImages/Morrow_Advertorial.pdf(go back)

5Cunningham, supra.(go back)

6See ISS Insights, “In Focus: Shareholder Proposals in the 2023 U.S. Proxy Season, dated July 20, 2023, available at https://insights.issgovernance.com/posts/in-focus-shareholder-proposal-in-the-2023-us-proxy-season/(go back)

7See Alliance Advisors, “2023 U.S. Proxy Season Review,” available at https://allianceadvisors.com/2023-u-s-proxy-season-review/(go back)

8https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2022/07/sec-votes-on-changes-to-shareholder-proposal-andproxy-solicitation-rules.pdf(go back)

9See Semler Brossy “2023 Say On Pay & Proxy Results Report,” dated August 17, 2023, available at https://semlerbrossy.com/wpcontent/uploads/2023/06/SBCG-2023-SOP-Report-2023-08-17_FINAL.pdf(go back)

10https://www.mayerbrown.com/en/perspectives-events/publications/2021/11/sec-adopts-universal-proxy-rules(go back)

11https://listingcenter.nasdaq.com/assets/Board%20Diversity%20Disclosure%20Five%20Things.pdf(go back)

12https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2021/08/sec-approves-nasdaq-board-diversity-rule.pdf(go back)

13https://www.sec.gov/news/statement/munter-importance-risk-assessment-082523(go back)

14https://www.mayerbrown.com/en/perspectives-events/publications/2022/03/sec-proposes-climate-change-disclosure-rules-applicable-topublic-companies(go back)

15https://www.sec.gov/rules/interp/2010/33-9106.pdf(go back)

16https://www.sec.gov/corpfin/sample-letter-climate-change-disclosures?utm_medium=email&utm_source=govdelivery(go back)

17https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2023/09/the-eu-corporate-sustainability-reporting-directiveis-upon-us–what-noneu-companies-should-know-and-do_legal-update.pdf?rev=85fbd96f81b74e89b21fa04d63315f3d(go back)

18https//leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240SB253&utm_medium=email&utm_source=blast&utm_campaign=20230908-amer-generalpolicy_newsletter&utm_content=&mkt_tok=MjE0LUJURC0xMDMAAAGOFRre_Da5CopWHF0UMj8cBQ3I2cI9evbzNToXlldIXjtbFBHPY0Is4T3CtoIgyoYuqfZwmutS0zn3iuiFU3RcimFreWczeseSCMOThtGhD1hJGnwFSTyblcS(go back)

19https://www.sec.gov/corpfin/sample-letter-companies-regarding-china-specific-disclosures(go back)

20https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2023/03/sec-disclosure-considerations-following-bank-sector-disruptions.pdf?rev=fdc0040f1f014aa0bc4047ec92dc2ea3(go back)

21https://www.sec.gov/corpfin/non-gaap-financial-measures.htm(go back)

22https://www.sec.gov/corpfin/sample-letter-companies-regarding-their-xbrl-disclosures(go back)

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