United States: SEC's Fall 2023 Reg-Flex Agenda Is Out—Climate Disclosure Rules Delayed Again

The SEC's Fall 2023 Reg-Flex Agenda—according to the preamble, compiled as of August 22, 2023, reflecting “only the priorities of the Chair”—has now been posted. And it's Groundhog Day  again. All of the Corp Fin agenda items made an appearance before on the last agenda and, in most cases, several agendas before that. Do I hear a sigh of relief? Of course, the new agenda is a bit shorter than the Spring 2023 agenda, given the absence of regulations that have since been adopted, including cybersecurity risk governance (see this PubCo post) and modernization of beneficial ownership reporting (see this PubCo post). At first glance, the biggest surprise—if it's on the mark, that is—is that the target date for final action on the SEC's controversial climate disclosure proposal has been pushed out untilApril 2024. Keep in mind that it is only a target date, and the SEC sometimes acts well in advance of the target. For example, the cybersecurity proposal had a target date on the last agenda of October 2023, but final rules were adopted much earlier in July. I confess that my hunch was that we would see final rules before the end of this year, but adoption this year looks increasingly unlikely (especially given that the posted agenda for this week's open meeting does not include climate). Not surprisingly, there's nothing on the agenda about a reproposal of the likely-to-be vacated (?) share repurchase rules, although, at the date that the agenda was compiled, the possibility of vacatur was not yet known. (See this PubCo post.) Describing the new agenda, SEC Chair Gary Gensler observed that “[w]e are blessed with the largest, most sophisticated, and most innovative capital markets in the world. But we cannot take this for granted. Even a gold medalist must keep training. That's why we're updating our rules for the technology and business models of the 2020s. We're updating our rules to promote the efficiency, integrity, and resiliency of the markets. We do so with an eye toward investors and issuers alike, to ensure the markets work for them and not the other way around.”

Here is the short-term agenda, reflecting items that the SEC expects to consider in the next 12 months. (See this PubCo post.) The agenda shows most Corp Fin agenda items targeted for action by April 2024, with only a few proposal-stage items targeted for October 2024. And here is the long-term (maybe never) agenda, same as it ever was. The short-term agenda includes a half dozen or so potential proposals, all of which were on the last agenda, but didn't quite make it out onto the dance floor, such as plans for disclosure regarding corporate board diversity and human capital. Same with proposals related to the private markets. 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.” 

According to Bloomberg, Gensler has faced much pushback from Republicans in Congress and elsewhere, as well as from some in the business community, about the scale of the SEC's jam-packed agenda, particularly in the absence of an express legislative mandate. While many of the rules adopted during Mary Schapiro's and Harvey Pitt's tenures, Bloomberg indicates, were expressly mandated by specific legislation—Dodd-Frank and SOX—Gensler cannot say the same, pointing instead to general authority under the securities laws and investor demand. (This article from the FT states that, while 59% of the 22 proposals issued during the first two years of the tenure of Mary Jo White were mandated by Dodd-Frank and other specific legislation, only 17% were so mandated under Gensler's tenure.) Bloomberg also points to a 2022 report from the SEC's then-acting inspector general, which “found Gensler's rulemaking approach was too rushed and could hurt the agency's health,” and to a warning from the Securities Industry and Financial Markets Association, SIFMA, about “Gensler's ‘far-ranging and aggressive rulemaking agenda,' projecting that he's on track to propose and finish 65 rules.” However, according to the president and CEO of investor advocacy group Healthy Markets Association, Gensler's strategy appears to be to identify a flurry of rulemakings to be proposed, but then to employ a more considered process for adoption of final rules. He told Bloomberg that he's hopeful that Gensler's cautious approach to adoption “will lead to stronger regulations.” While there are “risks with this strategy,” he said, “the reward is that they have a more informed rulemaking that's more likely to withstand legal challenge.”

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While Gensler has frequently come under fire for the torrid pace of rulemaking, in September this year, Bloomberg reported that the “SEC under Chair Gary Gensler is issuing regulations at its slowest pace in decades for a new presidential administration,” having adopted just 22 final rules since his tenure began in 2021. By comparison, over the same periods, the SEC under Jay Clayton had adopted 25 final rules, under Mary Schapiro, 28 rules, and under Harvey Pitt, a whopping 34 rules (many implementing the SOX mandate). So were all the complaints about the tsunami of rulemaking just misguided? Not exactly. As Bloomberg notes, “[d]espite trailing his recent predecessors on final rules, Gensler's proposal  tally of 49 exceeds Clayton's 28 and Pitt's 48, but is less than Schapiro's 65.” [Emphasis added.] 

According to Bloomberg, the current gulf between proposed and final rules risks leaving a number of agenda items unfinished. Potentially, Bloomberg reports, “Gensler has less than a year and a half before Republicans could take control of the SEC in a new administration, raising expectations the commission intends to finalize a flurry of environmental, social and governance regulations and other rules in the coming months….Legal and congressional threats to derail Gensler's plans for corporate greenhouse gas emissions reporting, workforce disclosures and other rules are growing as 2025 nears, with the possibility of a GOP-controlled government.” The clock could affect both the defense of any litigation challenging new rules and possible Congressional action to undo them. If climate disclosure rules are adopted next year, for example, any litigation that might be commenced shortly thereafter is unlikely to be resolved by 2025. If Republicans were to win the presidency in 2024 and take control of the SEC in January 2025, Bloomberg posits, a “Republican-led SEC would have the power to end its defense of the rule,” although environmental organizations could step in to defend the rule. 

Another challenge might arise with regard to the proposed climate disclosure regulation “if the SEC punts the regulation too far into next year. A federal law, the Congressional Review Act, would let a Republican-controlled House and Senate in the next Congress quickly revoke regulations the SEC and other agencies issued in late 2024, if they avoid a presidential veto.” Other possible rulemakings—especially those that have yet to make their way into proposals—could well be in jeopardy under the CRA, if the GOP were to win the White House and majorities in Congress, that is. (Successful use of the CRA requires a turnover in party control of the White House and majority control of both houses of Congress by the same party as the President.) Examples might include plans for human capital management disclosure and for disclosure regarding corporate board diversity. On the SEC's most recent agenda, the target date for issuance of these proposals is April 2024. (See this PubCo post.)

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 post, this 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).

New legislation in California could also have an impact. The new California laws will mandate disclosure of GHG emissions data—Scopes 1, 2 and 3—by all U.S. business entities (public or private) with total annual revenues in excess of a billion dollars that “do business in California.” (See this PubCo post and this PubCo post.) Gensler has said that the new California laws would change the economic baseline for purposes of the SEC's economic analysis because more public companies—estimated to be about 1,400 to 1,500—would already be required to provide climate disclosure under the California statutes. (See 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 seemed a bit questionable at the time. 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. At the end of April, with no action having yet been taken, 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. October came and went. Now, the target date has been moved to April 2024, according to the newest agenda. As noted above, however, the SEC has in the past taken action well in advance of the target set on the agenda. Why the delay? Just speculating, but, 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 diminished. (See this PubCo post.) And, having lost the case in the Fifth Circuit over the share repurchase rules for violating the Administrative Procedure Act, could the SEC, hoping to avoid a replay, be taking even more care with its analyses to make sure that the final rule can withstand the judicial challenges that await? Or perhaps the staff is still reviewing the 16,000 comment letters received on the proposal. (See this PubCo post.)

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 from its past frenzied pace, perhaps removing some of the urgency previously associated with this proposal. The last agenda identified October 2023 as the target date for final action; that target date now also moves to April 2024.

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 “substantial 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 delays the target date for final action from October 2023 to April 2024.

Proposed Rule Stage

Amendments to Requirements for Filer Validation and Access to the EDGAR Filing System—In September, the SEC proposed changes to the EDGAR system designed primarily to enhance EDGAR security, specifically related to EDGAR filer access and account management. The agenda does not indicate a date for further action. (See this PubCo post.)

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 was back on the Spring short-term agenda with a target date of April 2024 and, retains that target date in this new agenda.

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.) More recently, as part of ESG backlash, DEI has come under scrutiny by some conservative groups, with some submitting shareholder proposals, and even filing litigation, claiming that DEI efforts have a discriminatory impact. (See this PubCo post.) In addition, companies listed on Nasdaq are already subject to “comply or explain” rules regarding board diversity and disclosure. Those listing rules are currently in litigation. (See this PubCo post and this PubCo post.) The target date for this proposal has been moved back several times, first to April 2023, then to October 2023, and now October 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 SEC, 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, then April 2024 and now October 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.” 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 from October 2022 to October 2023 to April 2024 and now, in the latest agenda, to October 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-quarters 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.) In 2022, 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). Then, in 2023, the Committee approved a subcommittee recommendation regarding human capital management disclosure. The recommendation advocates enhancements to the human resources disclosure in the business description under Reg S-K Item 101(c) (number of workers, including contingent workers, turnover, cost of the workforce and demographic data) and enhancements to the narrative disclosure in MD&A. (See this PubCo post.) The FASB has also issued a proposed Accounting Standards Update that would provide 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.) Recommendations from Congress and from SEC advisory committees often hold some sway with the staff and the commissioners. Will the input from the two Senators and the SEC's Investor Advisory Committee affect the substance of the proposal? The agenda identifies April 2024 as the target date for issuance of a proposal, a delay from the previous target dates of April 2023, October 2022 and October 2023.

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.” 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 this proposal to amend Reg D and a plan to amend the definition of “holders of record,” discussed below.

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 speech earlier this year, 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 April 2024, a delay from the prior target dates of October 2022, April 2023 and October 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, then-SEC Commissioner Allison Herren 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.” 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 April 2024, a delay from October 2022, April 2023 and October 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 a 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.”

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In November, in remarks this week before PLI's 55th Annual Institute on Securities Regulation, SEC Commissioner Mark Uyeda shared his views about the disclosure rulemaking process. Among other issues, he advocated that the SEC consider the “importance of assessing the cumulative costs—both human and financial”—of SEC disclosure rules, as opposed to the current practice of assessing each proposal in a vacuum. He pointed to the enormity of the burden that companies will face in the near term to comply with pay versus performance, clawbacks, share repurchase rules (perhaps to be vacated), amendments to rule 10b5-1, and cybersecurity, all of which will go into effect between the 2023 proxy season and the 2025 proxy season. In addition, he said, the SEC tends to underestimate—to put it mildly—the additional hours and costs that the new requirements will impose. In addition, he contended that the SEC “may be overwhelming companies' ability to produce quality disclosure…by setting compliance dates for multiple new disclosure rules over the same one or two proxy seasons.” (See this PubCo post.)

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