September One-Minute Reads

SEC announces Section 6(b) filing fee rate advisory for fiscal year 2025

On August 20, 2024, the US Securities and Exchange Commission (SEC) announced that the fees public companies and other issuers pay to register their securities with the commission have increased from $147.60 per million dollars to $153.10 per million dollars, effective October 1, 2024. The new fee rate is applicable to the registration of securities under Section 6(b) of the Securities Act of 1933, the repurchase of securities under Section 13(e) of the Securities Exchange Act of 1934, and proxy solicitations and specified tender offers under Section 14(g) of the Securities Exchange Act of 1934. For further reading, see this August 22 Cooley PubCo blog post.

BlackRock releases annual voting report

BlackRock has published its 2024 Global Voting Spotlight report, capturing its proxy voting-focused stewardship activities for the 12 months ending June 30, 2024. Key takeaways:

• The report notes a rise in quantity and decrease in “quality” of proposals.
• BlackRock’s support for environmental and social shareholder proposals declined from 7% last season to 4%, with the report noting the overly prescriptive or economically meritless nature of many of the proposals brought to a vote, as well as BlackRock’s determination that many companies already had processes in place to address the risks underlying such proposals.
• BlackRock’s support for governance-related shareholder proposals globally (and in the US) increased this season to 21% (of 374 proposals voted), as compared to prior seasons.
• BlackRock supported 93% of directors in the Americas this season. Where BlackRock did not support, lack of support attributed primarily to concerns about board composition.

Spencer Stuart publishes 2024 S&P 500 New Director and Diversity Snapshot

Spencer Stuart has published its 2024 S&P 500 New Director and Diversity Snapshot, highlighting new director trends for the class of 2024. S&P 500 boards appointed 406 new independent directors in 2024, out of a total of 5,289 – a 5% increase from last year. More than half of these boards (58%) also appointed at least one new independent director, up from 53% in 2023. Even further, 20% of boards appointed more than one new independent director, up from 18% in 2023.

SEC approves Nasdaq corporate governance phase-in and cure period changes and clarifications

On August 26, the SEC approved Nasdaq’s proposed rule changes to amend Exchange Rules 5605, 5615 and 5810 regarding the phase-in schedules for certain corporate governance requirements and the applicability of certain cure periods. For further reading, see this August 28 Cooley PubCo blog post.

Schedule 13G accelerated deadline took effect September 30

On September 30, the new Schedule 13G accelerated deadline took effect, impacting all investors that use Schedule 13G to report their beneficial ownership. Key takeaways:

1. Initial filing due dates
• Qualified institutional investors – Within 45 calendar days after end of calendar quarter in which beneficial ownership exceeds 5% at quarter-end; or within five business days after the end of the first month in which beneficial ownership exceeds 10% at month-end.
• Passive investors – Within five business days after acquiring more than 5% beneficial ownership.
• Exempt investors – Within 45 calendar days after end of calendar quarter in which beneficial ownership exceeds 5% at quarter-end.
2. Interim amendment due dates
• Qualified institutional investors – Within five business days after the end of the first month in which beneficial ownership exceeds 10% at month-end; and thereafter, within five business days after the end of any month in which beneficial ownership increases or decreases by more than 5%.
• Passive investors – Within two business days after acquiring more than 10% beneficial ownership; and thereafter, within two business days after beneficial ownership increases or decreases by more than 5%.
3. Quarterly amendments for all filers
• Due within 45 calendar days after end of calendar quarter in which any material change occurred (not including changes in percentage ownership due to fluctuations in number of shares outstanding).

Also note this SEC comment letter on the timing of filing beneficial ownership reports. Industry members have speculated that an uptick in comments on beneficial ownership reports may be coming.

PwC reports on trends and examples in SEC comment letters

On August 12, PwC published its report on SEC comment letter trends for the period July 1, 2023, through June 30, 2024, identifying the frequency of topical areas addressed by the SEC staff and changes in focus areas over time. In addition to providing insights on the nature of SEC staff comments, the report provides sample text from the comments and links to information regarding the accounting and disclosure requirements addressed in each topical area, as well as the comments themselves in some cases.

The report discusses that the SEC staff continue to issue comments on non-GAAP (generally accepted accounting principles) financial measures regarding compliance with Item 10(e) of Regulation S-K and related compliance and disclosure interpretations, in addition to SEC staff requests to remove or substantially modify non-GAAP metrics in public company disclosures. These comments largely focus on the prominence of the non-GAAP financial measures when compared to the GAAP metric, reconciliation from the most comparable GAAP financial measure, the appropriateness of adjustments, the use of individually tailored accounting principles, and the lack of disclosure as to why management believes the non-GAAP financial measure provides useful information to investors. Comment examples by topic (such as non-GAAP measures) are accessible with one click, and you can view industry-specific comment letter trends for the same period by clicking on the specific industry.

SEC approves new PCAOB quality control standard

The SEC has approved the Public Company Accounting Oversight Board’s (PCAOB) new quality control (QC) standard and related amendments to its standards, rules, and forms. QC 1000, A Firm’s System of Quality Control, establishes an integrated, risk-based QC standard that will require all registered public accounting firms to identify specific risks to their practice and design a quality control system that includes appropriate responses to guard against those risks. Registered firms that perform engagements under PCAOB standards will be required to implement and operate the QC system. The new QC standard focuses on an audit firm’s accountability and continuous improvement of its audit practice and will require an annual evaluation of the firm’s QC system and related reporting to the PCAOB, certified by key firm personnel.

In addition, firms that annually issue audit reports for more than 100 issuers will be required to establish an external quality control function (EQCF) composed of one or more persons who can exercise independent judgment related to the firm’s QC system. QC 1000 and the related amendments to other PCAOB standards, rules, and forms will take effect on December 15, 2025. For further reading, see this Cooley PubCo blog post, this Governance Beat blog post and this Thomson Reuters article, all from September.

California climate disclosure status

California Gov. Gavin Newsom recently signed Senate Bill 219, a bill approved by the Legislature at the end of August that provides some technical amendments to the state’s climate disclosure regulations (SBs 253 and 261) but does not include any delays in reporting deadlines, as Newsom had earlier proposed. See this September 9 Cooley PubCo blog post for information on the status of the California disclosure laws. For further reading, see this September 11 Cooley alert.

Director’s Corner – Guidance from Beth Sasfai, leader of Cooley’s ESG and sustainability advisory practice

What are the top disclosures that directors should review ahead of proxy season?

As companies gear up for proxy season, directors and corporate secretaries should consider whether the disclosures in the proxy statement relating to board composition need a refresh. Board composition, leadership structure, and related policies are a focal point for activists. Below are five proxy statement disclosures that directors will want to review when preparing for potential activism.

1. Director biographies

While the board’s overall composition and effectiveness will always be important, the introduction of the universal proxy card rule turns the spotlight on the skill sets, experiences, and qualifications that individual directors bring to the board. Director biographies should highlight individual skills, accomplishments, and experiences with an eye toward explaining how these align with the current needs of the board and the company’s business strategy. Make sure to call out industry experience as well as other relevant experience, including financial expertise, risk management, cybersecurity, technology, marketing, etc.

2. Board tenure

How long have your directors been on the board, and what are the guidelines and recommendations of ISS, Glass Lewis and your largest shareholders? If you have a director who has served on the board for an extended period, have you explained why you believe that long-standing tenure is valuable?

3. Board diversity

How much diversity do you have on the board? Do you discuss how the nominating and governance committee considers diversity when evaluating director candidates?

4. Service on other boards and time commitments

How many other boards do your directors and CEO sit on? What about your audit committee members? What are the guidelines and recommendations of ISS, Glass Lewis, and your largest shareholders? Does your board have a process for evaluating time commitments for incumbent directors to make sure they have sufficient time to meet their individual responsibilities?

5. Board leadership structure

If you have a combined CEO/chair, have you explained why the board has determined that the company and its shareholders are best served by this structure? What would you say to an investor who asks you why it’s the right leadership structure? Your reasoning should be in the proxy statement.

To maintain independent oversight in a combined CEO/chair structure, your board should have an independent lead director with substantive responsibilities. Make sure to call out those key responsibilities to show that the lead director can act as a check and balance on the CEO/chair, including approval of board agendas and materials in consultation with the CEO/chair, chairing executive sessions, and the ability to call board meetings and executive sessions as needed. Many lead directors are responsible for a board’s annual self-evaluation and/or serve as the primary point of contact for board communication with major shareholders – call that out in the proxy statement too.

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