As reported by Bloomberglaw.com, during an interview in February on “Balance of Power” on Bloomberg Television, SEC Chair Gary Gensler said that he does not intend to “rush” the SEC’s agenda “to get ahead of possible political changes in Washington,” that is, in anticipation of the November elections. According to Bloomberg, Gensler insisted that he’s “‘not doing this against the clock….It’s about getting it right and allowing staff to work their part.’” The SEC has just posted the new Spring 2024 Agenda and, looking at the target dates indicated on the agenda, it appears that Gensler is a man true to his word. The only new item (relevant to our interests here) slated for possible adoption this year is a distinctly apolitical proposal about EDGAR Filer Access and Account Management. And, while a few proposals are targeted for launch (or relaunch) this year—two related to financial institutions and, notably, a proposal for human capital disclosure—most are also put off until April next year—post-election, that is, when the agenda might look entirely different. (Of course, the SEC sometimes acts well in advance of the target.) According to the SEC’s preamble, the items listed in the Regulatory Flexibility Agenda for Spring 2024 “reflect only the priorities of the Chair.”  In addition, information on the agenda was accurate as of May 1, 2024, the date on which the SEC staff completed compilation of the data.  In his statement on the agenda, Gensler said that “[i]n every generation since the SEC’s founding 90 years ago, our Commission has updated rules to meet the markets and technologies of the times. We work to promote the efficiency, integrity, and resiliency of the markets. We do so to ensure the markets work for investors and issuers alike, not the other way around. We benefit in all of our work from robust public input regarding proposed rule changes.”

Here is the short-term agenda, reflecting items that the SEC expects to consider in the next 12 months. Not much new, and, of course, this agenda is a bit shorter than the Fall 2023 agenda, given the absence of regulations that have since been adopted, including rules regarding SPACs (see this PubCo post) and climate disclosure (see this PubCo post, this PubCo post, this PubCo post and this PubCo post). The short-term agenda includes a number of potential proposals, all of which have been invited to the dance before—often many dances—but didn’t quite make it out onto the dance floor, such as plans for disclosure regarding corporate board diversity and human capital.  Interestingly, there’s nothing on the agenda about a reproposal of the recently vacated share repurchase rules. Here is the long-term (maybe never) agenda, same as it ever was.  

On the Short-Term Agenda:

Final Rule Stage

Amendments to Requirements for Filer Validation and Access to the EDGAR Filing System—In September 2023, 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 targets October 2024 as a date for final action.  (See this PubCo post.)

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 Robert 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. Data from this past proxy season suggests, however, that, after a substantial dip, the proportion of grants of no-action in response to requests to exclude proposals has increased. (See this PubCo post.) 

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.) As noted above, NAM 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 to October 2025.

Proposed Rule Stage

Financial Data Transparency Act Joint Rulemaking—The SEC, together with the Department of the Treasury, Federal Reserve Board and other agencies “are coordinating efforts on a proposed rule establishing data standards for the collections of information reported to each agency by financial entities under their jurisdiction, and the data collected from the agencies on behalf of the Financial Stability Oversight Council (FSOC).” If finalized, the proposed rule would implement requirements of the Financial Stability Act of 2010. The National Defense Authorization Act for Fiscal Year 2023 (NDAA) “requires the agencies to jointly issue proposed rules within 18 months of the NDAA’s enactment, and final rules within two years of enactment.” This item is relatively new; it was on the Fall 2023 agenda with a target date of  April 2024, now delayed until October 2024.

Incentive-Based Compensation Arrangements—In another group effort related to financial institutions, 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 last year, that is.  Why was it restored to 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 2023 short-term agenda with a target date of April 2024 and has now been delayed to October 2024 in the 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. 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.) Georgeson reports that the volume of anti-ESG proposals has increased by more than 90% since 2022, from 57 in 2022 to 94 in 2023 to 112 in 2024. 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, but, as noted above, the outlook in the en banc Fifth Circuit was not auspicious.  (See this PubCo post, 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, April 2024, October 2024 and now, April 2025.  (If ever….)

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.  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, October 2024 and now April 2025.

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 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, then to April 2024, October 2024 and now to April 2025.

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 had “more than tripled between 2021 and 2022, from 11% to 34%,” and that nearly three-quarters of companies in the Russell 1000 disclosed some form of race and ethnicity data. Progress, but apparently not enough to deter Corp Fin, which is still considering recommending a proposal to enhance company disclosures regarding human capital management.

In June 2022, 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 advocated 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.) In December 2023, the pair once again submitted a letter to Gensler, this time to make known that they “were disappointed to see that the SEC’s recently released fall 2023 regulatory agenda suggests the release of a proposed rule on ‘Human Capital Management Disclosure’ is likely to be delayed.”  In this second attempt, they pressed the SEC “to act expeditiously to bring an improved human capital management disclosure proposal to a vote before the full Commission.” (See this PubCo post.)  Will this letter goad the SEC into taking action on this rulemaking?  Will the new expression of “disappointment” from the two Senators have an impact? Maybe so—the agenda identifies October 2024 as the target date for issuance of a proposal. That date, however, represents a delay from the previous target dates of October 2022, October 2023, April 2023 and April 2024.

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.” In December 2023, an SEC staff report was issued on the accredited investor definition, a review directed by Dodd-Frank to occur every four years with the objective of assessing “whether the requirements of the definition should be adjusted or modified for the protection of investors, in the public interest, and in light of the economy.” Interestingly, however, particularly in light of Corp Fin’s expressed intent to propose amendments to Reg D, this report did not make any recommendations regarding changes to the definition and instead simply welcomed public input.  (See this PubCo post.)

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/years if this proposal to amend Reg D and a plan to amend the definition of “holders of record,” discussed below, are issued. 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 in 2023, 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 new target date for a proposal is April 2025, a delay from the prior target dates of October 2022, April 2023, October 2023 and April 2024.

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 2025, a delay from October 2022, April 2023, October 2023 and April 2024.

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 was 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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