CURRENT MONTH (November 2021)

Securities Regulation

SEC Staff Issues Accounting Guidance for “Spring-Loaded” Compensation Awards

By Alan J. Wilson, WilmerHale

On November 29, 2021, the Securities and Exchange Commission (SEC) Staff announced the issuance of Staff Accounting Bulletin No. 120 (SAB 120), which was jointly prepared by the SEC’s Office of the Chief Accountant and the Division of Corporation Finance. SAB 120 outlines the SEC staff’s views regarding estimating the fair value of share-based payment transactions in accordance with ASC 718, Compensation—Stock Compensation, when a company is in possession of material non-public information. SAB 120 also makes other modifications to previous guidance to make the guidance consistent with current guidance under ASC Topic 718.

SAB 120 applies particular scrutiny to non-routine spring-loaded grants and makes clear that “companies should not grant spring-loaded awards under any mistaken belief that they do not have to reflect any of the additional value conveyed to the recipients from the anticipated announcement of material information when recognizing compensation cost for the awards.” While SAB 120 does not prohibit spring-loaded compensation awards, it sets forth a number of expectations regarding accounting considerations and disclosures when such awards are made, including specific disclosures in the financial statement footnotes, MD&A and elsewhere.

SAB 120 goes effective immediately upon publication in the Federal Register.

SEC Proposes to Rescind Portions of 2020 Amendments to Proxy Rules Governing Proxy Voting Advice

By Madeline Moore, Charles River Laboratories

On November 17, 2021, the SEC announced proposed amendments to its rules governing proxy voting advice. The proposed amendments would rescind two rules adopted by the SEC in 2020 that apply to proxy voting advice businesses by (1) removing certain conditions from the proxy rule exemptions for informational and filing requirements on which proxy voting advice businesses often rely; and (2) clarifying the scope of liability that proxy advisory businesses are subject to for their advice.

Specifically, the proposed amendments would remove the following conditions to exemption:

  • registrants that are the subject of proxy voting advice have such advice made available to them in a timely manner, and
  • clients of proxy voting advice businesses are provided with a means of becoming aware of any written responses by registrants to proxy voting advice.

The proposed amendments would also rescind the 2020 changes made to Rule 14a-9, which prohibits false or misleading statements. The proposed amendments would remove Note (e), which sets forth examples of material misstatements or omissions related to proxy voting advice and was originally intended to make clear that proxy voting advice is definitively subject to liability under the proxy rules. Importantly, the SEC noted that the treatment of proxy voting advice as a solicitation subject to the proxy rules would remain in effect.

The proposed amendments are a direct result of criticism and concerns expressed by investors and others that the current proxy voting advice rules may subject proxy voting advice businesses to untimeliness, increased compliance costs, undue litigation risks, and impaired independence of proxy voting advice.

The proposed amendments will be subject to public comments for a thirty-day period following publication in the Federal Register.

SEC Adopts New Rules for Universal Proxy Cards in Contested Director Elections

By Bella Zaslavsky, K&L Gates LLP

On November 17, 2021, the SEC announced that it had adopted final rules requiring the use of universal proxy cards in contested elections. Previously, shareholders were only presented with proxy cards that included either directors nominated by the company and or the nominees of any dissident shareholders. If shareholders intended to vote for a mix of company and dissident nominees, they would need to attend the meeting and vote in person. Under the new rules, companies and dissident shareholders are required to provide shareholders with a universal proxy card containing the names of all director nominees on one ballot. As a result, shareholders will now be able to vote by proxy for their preferred director candidates, including voting in favor of both company and dissident nominees. The new rules also include certain notice, deadline, solicitation, and presentation requirements and prescriptions. Registered investment companies, business development companies, and certain types of solicitations are exempted from the new rules.

Compliance with the new rules will be required for any shareholder meeting held after August 31, 2022.

Corp Fin Publishes New Staff Legal Bulletin 14L

By Alan J. Wilson, WilmerHale

Ahead of the upcoming 2022 proxy season, on November 3, 2021, the SEC Division of Corporation Finance published Staff Legal Bulletin 14L (SLB 14L). SLB 14L rescinds Staff Legal Bulletins 14I, 14J, and 14K and makes clear that “to the extent the views expressed in any other prior Division staff legal bulletin could be viewed as contrary to those expressed herein, [SLB 14L] controls.” Subject to some technical, conforming changes, SLB 14L republishes the guidance contained in Staff Legal Bulletins 14I and 14K regarding the use of graphics and images and proof of ownership letters.

Most notably, SLB 14L sets forth the Division of Corporation Finance’s latest views regarding the Rule 14a-8(i)(7) ordinary business exception and Rule 14a-8(i)(5) economic relevance exception. With respect to the ordinary business exception, SLB 14L makes two important changes:

  • Significant Social Policy Exception. The SEC staff will now focus on the social policy significance of the issue that is the subject of the shareholder proposal and not consider the nexus between a policy issue and the company. Under this new approach, the SEC staff will consider whether the proposal raises issues with a “broad societal impact, such that they transcend the ordinary business of the company.” As a result, the SEC staff no longer expects a board analysis, but proposals previously viewed as excludable because of a company’s particular circumstances may no longer be excludable.
  • Micromanagement. The SEC staff will apply a “measured approach” to evaluating micromanagement arguments, focusing on the level of granularity sought and whether and to what extent the proposal inappropriately limits discretion of the board or management. Pointing to a number of prior no-action requests involving climate change, going forward, the SEC staff noted that it “would not concur in the exclusion of similar proposals that suggest targets or timelines so long as the proposals afford discretion to management as to how to achieve such goals.”

With respect to the economic relevance exception, and similar to the significant social policy exception changes noted above, the SEC staff is returning to its pre-SLB 14I approach, meaning that going forward, “proposals that raise issues of broad social or ethical concern related to the company’s business may not be excluded, even if the relevant business falls below the economic thresholds of Rule 14a-8(i)(5).”

SLB 14L also provides guidance on email communications, including that to prove delivery of an email for purposes of Rule 14a-8, “the sender should seek a reply e-mail from the recipient in which the recipient acknowledges receipt of the e-mail. The staff also encourages both companies and shareholder proponents to acknowledge receipt of emails when requested.”

SEC Appoints New PCAOB Members

By Thomas W. White, Retired Partner, WilmerHale

On November 8, 2021, the SEC announced the appointment of a new chairperson and members of the Public Company Accounting Oversight Board. The action follows the Commission’s removal in June of then-Chairman William D. Duhnke III and announcement that it would seek candidates to fill all five board positions on the PCAOB. In the end, the SEC appointed four new members and retained one current member.

As reconstituted, the Board members will be:

  • Erica Y. Williams, the new chairperson, is a former SEC staff member who served in various roles, including as Deputy Chief of Staff to three former SEC Chairs and Assistant Chief Litigation Counsel in the SEC’s Division of Enforcement. She also served as Special Assistant and Associate Counsel to President Obama and, prior to her appointment to the PCAOB, was a litigation partner in private practice.
  • Duane M. DesParte has served as a member of the Board since 2018 and as acting chairperson since June 2021. Previously, he served in various financial roles at Exelon Corporation, following an 18-year career in the auditing profession.
  • Christina Ho was Vice President of Government Analytics and Innovation at Elder Research. She previously held positions in the Treasury Department and the University of Maryland and was a senior manager with Deloitte.
  • Kara M. Stein is a former Commissioner of the SEC who, until her appointment to the Board, was associated with the University of Pennsylvania Carey and University of California Hastings Law Schools. Prior to her tenure at the SEC, she was a senior staff in the U.S. Senate.
  • Anthony (Tony) C. Thompson is currently Executive Director and Chief Administrative Officer of the Commodities Futures Trading Commission. Previously, he held senior positions at the Department of Agriculture and in the U.S. Air Force.

SEC Commissioners Hester M. Peirce and Elad L. Roisman, while stating that they “remain[ed] concerned” about the SEC’s removal of Mr. Duhnke and other members in June, nevertheless expressed their support for the new Board.

To date, Msses. Ho and Stein have been sworn in and joined Mr. DesParte on the Board.


Rani Doyle

Rani Doyle

Managing Editor, Securities Law

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