SEC seeks enhanced disclosures regarding inflation impact
On December 8, 2022, Intelligize reported on the Securities and Exchange Commission's recent comment letters related to disclosures addressing the impacts of inflation on companies' operating results. The comments generally requested that companies' disclosures go deeper into the impacts of inflation on their business, as can be seen in the letter to FedEx – where staff asked FedEx to expand on "trends or uncertainties" caused by inflation that might weigh on operating metrics such as cash flows and liquidity – and in the letter to Eastman Chemical Company – where staff asked Eastman to update future risk factor disclosures to reveal "the extent to which recent inflationary pressures have materially impacted" its operations. In this regard, companies should identify the types of inflationary pressures they are facing more specifically and discuss their particular approaches to mitigate its impacts. For additional comment letters containing related correspondence, see these SEC exchanges with Costco and Xylem.
Nasdaq simplifies compliance deadlines for board diversity
On December 14, 2022, Nasdaq filed a proposed rule change with the SEC to amend the compliance deadlines for certain requirements in its board diversity rules. The rule change was declared effective immediately. As a reminder, the SEC approved Nasdaq listing rules in August 2021 relating to board diversity and disclosure. One of these rules – Nasdaq Listing Rule 5605(f) – requires that Nasdaq-listed companies either have an applicable number of diverse directors by specified dates or explain why they do not have such directors. Now, these dates have been amended to require companies to "comply or explain" by December 31 of the applicable year, as illustrated in the table below. The amendments also include certain technical changes to the relevant listing rules. For more information on the rules, refer to this PubCo post on the "comply or explain" proposal and this PubCo post on the Nasdaq Board Diversity Rule. For more information on the amendment, refer to this PubCo post on Nasdaq's simplification of board diversity rules.
| Covered companies | Compliance | Pre-amendment deadline | Post-amendment deadline |
| All Nasdaq-listed companies | At least one diverse director | The later of August 7, 2023, or the date the company files its proxy statement (or Form 10-K, if none) for its annual shareholders meeting during 2023 | December 31, 2023 |
| Nasdaq Global Select Market or Nasdaq Global Market companies (except those with a smaller board) | At least two diverse directors | The later of August 6, 2025, or the date the company files its proxy statement (or Form 10-K, if none) for its annual shareholders meeting during 2025 | December 31, 2025 |
| Nasdaq Capital Market companies (except those with a smaller board) | At least two diverse directors | The later of August 6, 2026, or the date the company files its proxy statement (or Form 10-K, if none) for its annual shareholders meeting during 2026 | December 31, 2026 |
SEC adopts Rule 10b5-1 amendments, effective date
Our December edition of One-Minute Reads discussed the SEC's adoption of amendments to impose new conditions on the availability of the Rule 10b5-1 affirmative defense, as well as to require enhanced disclosures regarding Rule 10b5-1 plans, option grants, and insider trading policies and procedures. On December 29, 2022, changes to rule 10b5-1 were published in the Federal Register. Consequently, the changes to Rule 10b5-1 will become effective on February 27, 2023.
SEC publishes fall 2022 agenda
The SEC recently published its Fall 2022 Reg-Flex Agenda, which is again jampacked with pending and new rulemakings. Some notable rules on the agenda, including in comparison to the spring 2022 agenda (where applicable), are specified below.
| Rulemaking topic | Agenda stage | Timing of next action |
| Climate change disclosure | Final rule stage (proposed rule) | April 2023 (pushed back from October 2022) |
| Cybersecurity risk governance (issuer disclosures) | Final rule stage (proposed rule) | April 2023 |
| Share repurchase disclosure | Final rule stage (proposed rule) | April 2023 (pushed back from October 2022) |
| Special purpose acquisition companies | Final rule stage (proposed rules) | April 2023 |
| Rule 14a-8 amendments | Final rule stage (proposed rules) | October 2023 (pushed back from April 2023) |
| Beneficial ownership reporting | Final rule stage (proposed rules) | April 2023 |
| Corporate board diversity | Proposed rule stage | October 2023 (pushed back from April 2023) |
| Rule 144 holding period | Proposed rule stage | October 2023 (pushed back from October 2022) |
| Human capital management disclosure | Proposed rule stage | April 2023 (pushed back from October 2022) |
| Reg D and Form D improvements | Proposed rule stage | April 2023 (pushed back from October 2022) |
| Revisions to the definition of securities held of record | Proposed rule stage | April 2023 (pushed back from October 2022) |
SEC charges McDonald's and former CEO
On January 9, 2023, the SEC announced that it had charged the former CEO of McDonald's, Stephen J. Easterbrook, with making false and misleading statements to investors about the circumstances leading to his termination in November 2019. More aggressively, the SEC charged McDonald's itself for shortcomings in its public disclosures related to the CEO's separation agreement, finding that the company's disclosures were deficient in not divulging that it "exercised discretion in terminating Easterbrook 'without cause,'" allowing Easterbrook to retain substantial equity compensation. The charges relate to McDonald's 2019 termination of Easterbrook after discovering he had "exercised poor judgment and engaged in an inappropriate personal relationship with a McDonald's employee in violation of corporate policy."
In a seemingly unusual step for an enforcement action, Commissioners Hester Peirce and Mark Uyeda dissented from the order charging McDonald's, contending that McDonald's was a victim of Easterbrook's deception – and that the order casts the company as a securities law violator through a novel and overly expansive interpretation of executive compensation disclosure requirements. This case serves as a reminder to carefully draft disclosures regarding executive agreements, including separation and termination agreements, and to consider whether all material terms of an agreement are adequately disclosed.
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