On December 18, 2018, the Securities and Exchange Commission published a request for comment on earnings releases and quarterly reports, available here. The request was issued the day before, and in place of, the SEC’s previously scheduled open meeting to consider whether to issue such a request, as discussed here.
Topic: Corporate Governance
The Changes Keep Coming: SEC Updates C&DIs and NYSE Updates Rules for Revised “Smaller Reporting Company” Definition
On November 7, 2018, the Staff of the Division of Corporation Finance of the Securities and Exchange Commission (the “Staff") released four updated, and withdrew six, Compliance and Disclosure Interpretations (“C&DIs") in light of the June 2018 amendments to the definition of a smaller reporting company (“SRC"). We summarized the amendments to the SRC definition in our previous blog post here.
Desktop Calendar of SEC Deadlines for 2019 Now Available
November is a good time to confirm plans for SEC reporting and capital markets transactions in the next year. To assist public companies in keeping track of the various filing deadlines, we have prepared a desktop reference calendar that sets forth filing deadlines for many SEC reports. To assist companies with planning capital markets transactions, including IPOs, our calendar also provides the staleness dates for 2019 (i.e., the last date financial statements may be used in a prospectus or proxy statement without being updated).
Commonsense Principles 2.0 Released
On October 18, 2018, the Commonsense Principles 2.0 (the “Principles 2.0") were released. They are an update to the Commonsense Principles of Corporate Governance (the “Previous Principles") developed in 2016 by a group of 13 business and investment leaders, including representatives of Berkshire Hathaway, BlackRock and State Street and the chief executive officers of several large public companies, available here, and discussed in a previous client alert.
The SEC Adopts Strategic Plan for 2018-2022
On June 19, 2018, the Securities and Exchange Commission (the “SEC") published a draft strategic plan outlining the SEC’s priorities through 2022 (the “Plan Draft"). As previously reported, the Plan Draft comprised three broad goals: focusing on retail investors, increasing innovation, and strengthening performance.
California Requires Public Companies Headquartered in California to Have Minimum Number of Women Directors on Board
On September 30, 2018, Governor Jerry Brown signed SB 826 into law (effective January 1, 2019), requiring a minimum number of female directors on the boards of publicly traded corporations with principal executive offices in California. Under this new Section 301.3 to the California Corporation Code, the location of a corporation’s principal executive office will be determined by the corporations’ Annual Report on Form 10-K, and publicly traded corporation means any “corporation with outstanding shares listed on a major United States stock exchange."
SEC’s Division of Corporation Finance Issues Guidance Regarding the Voluntary Filing of Notices of Exempt Solicitation under Exchange Act Rule 14a-6(g)
As we first noted in our March 2018 blog post, available here, and further discussed in our July 2018 client alert discussing shareholder proposals submitted to public companies during the 2018 proxy season, available here, both institutional and individual investors increasingly have used Notices of Exempt Solicitations under Exchange Act Rule 14a-6(g) as a means of publicizing shareholder proposals or addressing other matters being voted on at annual meetings. Rule 14a-6(g) requires a person who owns more than $5 million of a company’s stock and who conducts an exempt solicitation of the company’s shareholders (in which the person does not seek to have proxies granted to them) to file with the Securities and Exchange Commission (the “Commission") all written materials used in the solicitation.
New Twist for Old Shareholder Proposal Tactic
Each year some public pension funds and other institutional shareholders voluntarily file with the U.S. Securities and Exchange Commission (SEC) a Notice of Exempt Solicitation under Exchange Act Rule 14a-6(g). This rule requires a person who owns more than $5 million of a company’s securities and who conducts an exempt solicitation of the company’s shareholders (in which the person does not seek to have proxies granted to them) to file with the SEC all written materials used in the solicitation. However, these funds also file these Notices, which appear on EDGAR as “PX14A6G” filings, typically to respond to a company’s statement in opposition to a shareholder proposal included in the proxy statement or to otherwise encourage (but not solicit proxies from) shareholders to vote a specific way on shareholder proposals, say on pay proposals and in “vote no” campaigns.
Going Public Without an IPO: New NYSE Rules that Expand Options for Direct Listings Create Opportunity and Raise Questions
On February 2, 2018, the Securities and Exchange Commission approved a change to the New York Stock Exchange’s (Exchange) listing rules that permit companies to use “direct listings” to list their shares on the Exchange based on having a minimum independent valuation of $250 million and without having completed an underwritten initial public offering (IPO) or having their shares first traded on a private market. Direct listing will continue to be at the NYSE’s discretion and require that the company have an effective resale registration statement on file with the SEC for at least some amount of its outstanding shares. Direct listings provide an option by which private companies can accomplish three goals without requiring an IPO: (a) make their shares a more attractive currency for merger and acquisition activity, (b) provide greater liquidity for existing shareholders, and (c) increase the value of their shares and employee stock options. The SEC approval comes in the wake of recent commentary by SEC Chairman Jay Clayton that he believes more IPOs are needed, noting they are generally beneficial to the retail investor community to the extent they provide investors with more investment alternatives, more opportunities to invest, and greater liquidity.
Federal Court Rejects Section 16(b) “Short-Swing Profits” Claim Challenging Share Withholding To Satisfy Taxes
A federal court in Oklahoma today issued a precedent-setting decision in favor of Gibson Dunn client WPX Energy, Inc., in Olagues v. Muncrief, No. 17-cv-153 (N.D. Okla. Jan. 26, 2018), ECF No. 42. In the decision, the court held that pre-approved tax withholding dispositions made in connection with the vesting of equity grants are exempt from Section 16(b)’s prohibition on short-swing profits under Exchange Act Rule 16b-3(e)—even when an employee otherwise subject to the short-swing trading restrictions purchased the company’s shares during the six-month period preceding or following the tax withholding disposition. This is the first time that a federal court has substantively addressed these types of short-swing trading claims, which have been serially raised by a small group of investors—first in the form of litigation demands and then, absent a payout to the investors, in litigation—during the last sixteen months. A number of companies have refused the investors’ settlement demands, which has resulted in Section 16(b) cases against the companies’ executives in federal courts in California, Colorado, Delaware, Florida, Massachusetts, North Carolina, Ohio, Oklahoma, Tennessee, Texas, and Washington state.