Deal Diary

On September 19, 2022, amendments to the Securities and Exchange Commission (SEC) rules governing proxy solicitations became effective. The amendments, proposed on November 17, 2021, seek to address concerns by investors and others that the current rules may impede and impair the timeliness and independence of proxy voting advice and subject proxy voting advice businesses (PVABs) to undue litigation risks and compliance costs.

Effective September 20, 2022, the Securities and Exchange Commission (SEC) increased the annual gross revenue threshold to qualify for emerging growth company (EGC) status from $1.07 billion to $1.235 billion.

Recent rulings underscore the attention boards of directors and management must continue to pay to the risks faced by companies across all sectors of the economy and their potential impact on business operations. Last year’s decision in In re Boeing Co. Derivative Litigation¹ only serves as the most recent reminder of the potential exposures (including personal liability) companies, boards of directors and management may face.

Like the preceding year, 2021 was full of unparalleled challenges for corporate directors, including new COVID-19 variants, supply chain disruptions, increased competition for talent and inflation. In this atmosphere, investors and other stakeholders remained focused on driving companies to increase the gender and racial/ethnic diversity of their boards, which has been shown to benefit companies in numerous ways. Recent data shows that while some progress has been made, there is much room for improvement. Boards should expect pressure from investors to demonstrate sustained improvement in board diversity.

On December 15, 2021, the SEC proposed amendments regarding Rule 10b5-1 trading plans and share repurchase programs. The SEC proposed rules are intended to diminish information asymmetry between public companies and investors by closing perceived gaps in the current insider trading regime and increasing disclosure on share buybacks. If adopted, these rules could significantly impact the manner in which insiders manage transactions in public company securities and public companies conduct share repurchase programs.

The New Year Brings a New Enforcement Focus on Emerging Technology

• In 2021, newly confirmed members of the Biden administration set the stage for increased enforcement activity, surging resources to investigations and announcing new policies aimed at curbing a wide range of violations. Much of this activity may focus on emerging technologies and risks, with law enforcement agencies staking out aggressive positions on cybersecurity and cryptocurrency. In detailing their priorities, enforcement agencies have frequently referenced national security concerns, and it should come as no surprise that they have emphasized violations with a China nexus. For corporate boards, the possible consequences of rising enforcement levels include fines and penalties, reputational damage, increased exposure to civil litigation and even jail time. Board members should therefore take steps to help ensure that their company’s compliance programs are strong, and that its disclosures relating to the Biden administration’s enforcement priorities receive enhanced scrutiny.

The U.S. House of Representatives has approved a bill backed by President Biden supporting the Corporate Governance Improvement and Investor Protection Act, which supports the Securities and Exchange Commission’s (SEC) efforts to require every public company to disclose climate-specific metrics in public financial statements. Currently, companies must only include climate disclosures in securities filings if they deem them to be “material” risks according to the SEC’s 2010 guidance. In an effort to increase transparency and standardize comprehensive environmental, social and governance (ESG) disclosures, the Act gives the SEC discretion to amend securities laws to incorporate ESG disclosure standards.

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