Deal Diary

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.

Editor’s Note: Akin Gump is pleased to publish the first in a series of blog posts covering significant issues U.S. boards of directors may expect to face in 2022. In addition to ongoing pressures on the part of boards of directors of private and public companies to continue embracing environmental, social and governance (ESG) principles in connection with developing both short- and long-term growth strategies, directors in the U.S. (and, by extension, overseas) are facing any number of challenges that will need to be navigated in a thoughtful and transparent manner. We expect to publish this series of posts over the next few weeks, as well as updated materials and content as and when events warrant.  

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.

As noted in our blogpost last week, Gary Gensler, Chair of the U.S. Securities Exchange Commission, has asked the Commission staff to consider updates to Rule 10b5-1 in an effort to “address cracks” in the current insider trading regime and otherwise “freshen up” the rule. In prepared remarks given to the Commissions’ Investor Advisory Committee (IAC) on June 10, Gensler reiterated his concerns about 10b5-1 trading plans.

On March 31, 2021, the Securities and Exchange Commission (SEC) provided public statements from Acting Chief Accountant Paul Munter and from the Division of Corporation Finance addressing Special Purpose Acquisition Companies (SPACs). Although each of the statements were distinct and addressed different issues, the primary focus of both was to raise awareness of critical accounting, financial reporting and governance considerations that a private operating company should carefully consider and address prior to consummating a business combination with a SPAC.

The world has changed a lot since our 2020 report. A global pandemic; a reckoning on race, inequality and social justice; a climate crisis; an economic shock; and increased political polarization have created challenging dynamics for companies and boards globally. The role of the board in managing risk and charting the course ahead is more critical today than ever before. This report delves into these wide-ranging and interlocking issues and offers insight on how directors and management must proactively embrace their stewardship roles in this brave new world.