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Image by geralt from Pixabay

I suspect that many readers of this blog have read any number of blog posts, articles, and other materials on the SEC’s proposal to make quarterly reporting optional.  (I myself have previously written two posts – here and here – on the subject.)  Many of these materials point out the potential benefits and risks of switching to semiannual reporting, and the guidance they offer is generally sound.  However, to the extent that these materials urge companies to decide sooner rather than later which way to go, I beg to differ.  In fact, while thinking about what to do is fine, I think companies would be wise to hold off making any decisions until final rules are adopted. 

I base this recommendation on the many requests for comment and other “fine print” included in the proposing release, because the SEC’s decisions on the subjects raised in those items could significantly impact a company’s decision.  Some examples follow:

  • The release seems to afford companies a great deal of flexibility as to whether and how a company might voluntarily report quarterly financial information if it opts for semiannual reporting.  So far, so good.  However, footnote 86 points out that “[i]f the quarterly financial information is presented in the financial statements, [it] would be subject to review by an auditor.”  Perhaps not a big deal, but that’s one potential cost saving down the tube. 
  • A similar concern arises with respect to companies that opt for semiannual reporting but plan to continue to issue quarterly earnings announcements – which seems like something many companies may want to consider.  The release throws a potential major wrench into this approach when it asks whether the Form 8-K requirements should be amended “so that Item 2.02 Form 8-K submissions are ‘filed,’ not ‘furnished’, for semiannual filers thereby subjecting the earnings release to additional liability provisions, such as Exchange Act Section 18 (and Securities Act Section 11 if incorporated into a Securities Act registration statement)” (emphasis added)?  The flexibility that the release otherwise offers would be largely eliminated if this is how the rules come out.  Perhaps in recognition of this, the release asks whether the “requirements for semiannual filers to file (not furnish) earnings releases [would] discourage semiannual filers from issuing earnings releases” or “have an impact on companies’ decisions about whether to quarterly or semiannual reporting?”  Does the SEC really need to ask?
  • The release asks whether “…the option for semiannual reporting [should] be available only for Exchange Act reporting companies that satisfy certain criteria?  If so, what criteria should be imposed and why?”  My hunch is that the imposition of such criteria is unlikely, but if I’m wrong, any number of companies might have to change their minds.  Moreover, any such criteria could make it harder or even impossible for the companies most likely to opt for semiannual reporting to do so.
  • Another request for comment asks whether, “[a]s an alternative [to] semiannual reporting… should we instead revise the disclosure requirements of Form 10-Q to reduce the burden on reporting companies of filing this form”?  In other words, would all the thought given to switching to semiannual reporting turn out to have been a total waste of time?

As noted, these are just some of the issues that companies will need to consider in determining whether to switch to semiannual reporting, and I’m not sure how a company will be able to make that determination until the final rules are issued.  Hopefully, the SEC will provide for a lengthy transition period before the final rules take effect so that companies can take the time necessary to make the decision that’s right for them.

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The SpaceX IPO is now history, but Senator Elizabeth Warren may not be happy about it.  A few days before the IPO was completed, Senator Warren sent a letter to SEC Chair Paul Atkins about the IPO.  The letter is full of impassioned (some might say melodramatic) prose about the horrors that await those who purchase SpaceX shares in the IPO or the aftermarket.  The letter railed against the IPO price, the “non-traditional governance structure that will leave…Elon Musk…with an unprecedented level of power and investors with significantly fewer rights…”, the fact that “major stock index providers [are] rewriting their rules to fast track SpaceX’s entry into their indexes,” and Mr. Musk himself.  As a result of these concerns, the letter said that “[t]he net results could be disastrous,” that “[the SEC] must delay any…acceleration of the registration statement’s effectiveness accordingly,” and that “the SEC must investigate” a variety of issues before allowing the IPO to proceed.  (Senator Warren also demanded that SpaceX “abandon mandatory arbitration to provide shareholders whose rights are otherwise gutted…a minimum avenue for recourse.”  This is somewhat surprising because she surely knows – though she’s undoubtedly unhappy – that the SEC has dropped its opposition to mandatory arbitration of securities claims at companies seeking to go public.)

Of course, the Senator may be right.  Deciding to invest in SpaceX may prove to be an unwise mistake, if not the disaster that she predicts.  However, her plea to stop the deal from moving forward strikes me as coming perilously close to merit regulation – something that federal securities laws do not contemplate.  Our system is designed to permit a company, even an arguably bad one, to go public as long as it provides appropriate disclosure.  Phrased otherwise, provided that its disclosures are adequate, a company could go public even if it has “no more basis than so many feet of blue sky” (an interesting phrase given that we’re talking about SpaceX).

Of course, Senator Warren doesn’t explicitly say that the SEC should engage in merit regulation by killing a deal; instead, she “merely” questions the scrutiny that the SEC has given SpaceX’s registration statement.  However, stopping an offering that is on the verge of closing can have the same effect as killing it, particularly in markets as volatile as ours have been of late.  Moreover, having taken an admittedly brief look at the prospectus, there is quite a bit of cautionary language about all the things that could go wrong, including the extent to which Musk will be in control.  As a result, one can reasonably believe that there is no amount of negative disclosure that would satisfy her.

Of course, as we know and as noted above, the SEC did not do as Senator Warren asked; the IPO closed, and the rest is history.  So why do I care? Well, when a new administration comes into power (as it will), and Ms. Warren is once again able to determine who may or may not serve as the SEC Chair (as she may), I fear that we may once again have to deal with a Commission that fundamentally mistrusts companies and adopts rules and enforcement policies that treat companies dismissively or worse and seeks to impose merit regulation.  I sure hope not, but this is one instance where it’s reasonable to assume that the past is prologue.

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Several weeks ago, I received an email from someone who claimed to be conducting a search for an individual who would serve as a director and chair of the nominating and governance committee of the board of “a major enterprise client.”  Among (many) other things, the email stated that my profile “stands out as a strong match for the strategic governance, board leadership, and enterprise oversight required for this role.” It also said that the company in question was based in Florida (where I live) and that the compensation for the role would be as much as seven figures.

I was puzzled.  While I’d like to think I have the necessary governance chops, I was 78 years old at the time (I’m now 79), so I found it difficult to believe that a major company would want to bring on a first-time director of my age.  There were other puzzlements, including that the wording of the email was beyond formal and flowery (in other words, slightly non-human) and that the position description was very detailed, which seemed odd given the preliminary nature of the inquiry.  In addition, the individual (assuming it was an individual) who sent the email claimed to be with a search firm in Maryland – in fact, his email contained some graphics from the search firm’s website – but had been sent from a Gmail address rather than the firm’s email address.  His name was also similar, but not identical, to that of an individual with the Maryland search firm. 

To be clear, I love what I am doing and where I’m doing it, and for those and many other reasons I have no interest in seeking another position.  However, curiosity got the better of me, and I responded, noting that I doubted that a company of the size and stature he referred to would want me on its board and that pursuing the position seemed like a waste of time.

The responses and other communications I subsequently received were even more fulsome, flowery, and weird than the initial inquiry.  They identified the company and provided extensive additional details about the role and were even more rhapsodic about my expertise and accomplishments.  But that wasn’t all.  In fact, they began to take on an unpleasant aroma.  For example, in addition to the puzzlements referred to above:

  • The company in question was not in Florida.
  • A very quick check of the company’s most recent proxy statement demonstrated that the compensation discussed in the email was far more than the company actually paid.
  • While his initial email concluded with a reference to having “a discreet conversation” to pursue the matter further, he dodged my suggestion that we speak.
  • On a few occasions, he wrote me two or three times in a very short period of time, stressing how the window of opportunity was closing and how I therefore needed to move quickly.
  • He urged me to engage someone who, for a “modest fee,” could help me prepare an updated resume and a board bio. 

Then, the aroma became a stench.  Specifically, he provided the name and email address of the resume writer – again, a generic Gmail address – and referred to the writer as “he” several times even though “he” had a woman’s name.  And, not surprisingly, when I searched for the woman’s name online, I found a legitimate website, wrote to her at the email address on the website (i.e., not a Gmail address), and got a very prompt response that she had nothing to do with the matter and in fact had engaged professional help to track down the impostor and take other appropriate action.

But wait – there’s more.

A couple of weeks after receiving the initial inquiry described above, I received another Gmail from a presumably different person purporting to be conducting a very similar search for another company.  The same flowery language about my skills, the same detailed description of the position, the same suggested compensation levels I could expect, and the same assurances that my age would not be an issue given my background, etc.  This second individual (assuming it was actually a second individual) did not apply the same degree of time pressure, but in most respects the drill was pretty much a carbon copy of what I’d just experienced.

This time, the resume writer was identified as a male, also with a Gmail address (I was unable to find a website for him or anyone with a similar name), and he got to the point very quickly – his fee.  And at some point I received instructions for wiring the fee, which gave the name of an account owner that was different from his.  That and some other weirdnesses made me wonder if I was being solicited to send money to some sort of terrorist organization or money laundering operation.

At that point, I put a stop to things and advised all and sundry that I was not interested in moving forward.  The second resume writer pushed back a bit, but I did not hear from any of the others involved.

I am quite sure that the scam made extensive use of artificial intelligence, given the flowery and rather unnatural writing style, the over-the-top descriptions of the positions, the compensation involved, my skills, and so on.  Possibly AI was used to select me as a target.  Fortunately, it didn’t take a whole lot of intelligence – artificial or otherwise – to figure out that it was a scam. But it does give me pause to have personally experienced how AI, for all its many ballyhooed blessings, can be used as a tool for nefarious activities as well.  At the same time, it occurs to me that the perpetrator or perpetrators of the scams were lazy and/or stupid, in that they could and should have corrected some of the more obvious errors that first raised my suspicions (e.g., saying that the company was based in Florida and referring to the resume writer as a male when her name was not).  And that strikes me as a basis for some optimism that, at least on some occasions, human stupidity might just neutralize the negative impacts of AI without even trying.

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Image by Carlos Lincoln from Pixabay

In April, the SEC took one of its first steps to revise the rules governing public company disclosures and transactions, when it issued an exemptive order permitting certain all-cash tender offers for equity securities to close in as few as 10 business days, rather than the minimum of 20 business days specified in the rules.  (You can find out more about this exemptive order in our Alert on the subject.)

The change makes a lot of sense, and I don’t want to let the perfect be the enemy of the good, but the method by which the SEC effected this reform is somewhat troubling.  Specifically, I’d have preferred to see the change reflected in the rules themselves, rather than using the exemptive order process. 

You may ask “why do you care?”  It’s pretty simple (or, if you prefer, simple-minded).  One of the first things we do – or should do – when advising a client is to check the rules.  So if a client inquired how long an issuer tender offer has to stay open, we’d check the rules and find that the offer would have to stay open for 20 business days.  If we know about the exemptive order and remember it while we’re trying to get a million other things done, great. But if we missed reading about the order or just didn’t recall it at the time, the text of the rules wouldn’t give us a hint that they’d been modified by exemptive order, and we’d end up giving the client the wrong information. 

I understand that rulemaking is a pain in the neck.  It’s a very cumbersome process with lots of technical requirements, and plaintiffs have used mistakes – sometimes minor mistakes that are the regulatory equivalent of foot faults – to invalidate rules.  Rulemaking also means subjecting proposed rules and rule changes to public comment, and even in a case like this someone is bound to object, which makes the process even more cumbersome. 

But at the end of the day, incorporating reforms into the text of the rules themselves makes it easier for practitioners and others and minimizes the risk of inconsistencies along the way.  Moreover, given the stated goal of SEC Chair Atkins to make his regulatory reforms “future-proof,” it seems to me that requiring a future Commission to go through a cumbersome process to reverse reforms would help to achieve that goal.

I recognize that we live in an era of legislation by executive order and regulation by social media posting. However, that tends to create confusion or worse. So, even if the end in this case justifies the means, I wish it were otherwise.

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The SEC has indicated that it is fast-tracking President Trump’s “suggestion” that quarterly reporting be eliminated.  While it is unclear how the elimination of quarterly reporting will be implemented, one thing seems clear: unless the SEC increases the number of items that trigger an 8-K filing (or something close to that), there will likely be large gaps between filings.  Phrased otherwise, there may be lengthy periods during which material nonpublic information will remain nonpublic.  Since investors, like nature, abhor a vacuum, this strikes me as problematic. 

We’ve been told that getting rid of quarterly reports is no big deal and that, among other things, the U.K. eliminated quarterly reporting a while ago and the world has not come to an end.  That’s true, but it overlooks a critical distinction between the different approaches to disclosure that exist in the U.S. and the U.K.  Specifically, public companies in the U.S. are not subject to a general affirmative duty to disclose material information; the opposite is the case across the pond. To clarify, U.S. companies are only required to disclose material information in limited circumstances, such as when there is a specific form requirement (for example, entering into a definitive material agreement, which needs to be disclosed under Item 1.01 of Form 8-K) or when the company or its insiders are trading in the company’s shares.  And even when disclosure is mandated, the timing of disclosure is often left to the company’s discretion.

When I’ve advised companies of this approach, I’ve received many a puzzled stare from clients’ officers and board members.  Some have even asked “well, why do we disclose all the stuff we disclose?”  The answer to that question can be counterintuitive or downright confusing, but as a general matter that’s the law.

Thanks to my friend across the pond, Guy Jubb – a wise and good expert in corporate governance (and, incidentally, whose speech and diction are as impressive as or better than Richard Burton’s at his peak), I’ve been thinking about the U.K approach.  Specifically, the U.K Market Abuse Regulation imposes a general duty on issuers whose financial instruments are admitted to a regulated market (e.g., the London Stock Exchange) to publicly disclose as soon as possible any inside information which directly concerns the issuer.  Inside information is defined as information of a precise nature that has not been made public, directly relates to an issuer or financial instrument, and would likely have a significant effect on the price of the instrument if made public.  Moreover, publication of price-sensitive information is required “without delay.”  In other words, if you’ve got an important piece of price-sensitive information, you need to get it out there soonest, even if there is not a specific form requirement.

It seems to me that if there are to be long gaps between mandated disclosures, we need to switch to a process similar to that of the U.K.  It may not be perfect, but otherwise we will have failed to “mind the gap,” to the detriment of investors, issuers, and quite possibly the capital markets themselves.

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Once again it is time for our annual departure from all things SEC- and governance-ish so that I can let you know about my favorite reads of the year gone by.

In case you’re wondering about the title of this post, it reflects my view that book critics who tell us what they think were the 10 best books of the year gone by are arrogant and wrong – or, at a minimum, greatly out of touch with the reading public.  For example, none of the five works of fiction cited by the New York Times as the best of 2025 scored more than 55% of five-star ratings on Amazon.  (Of course, Amazon ratings are far from the be- and end-all, but let’s not even go there.)  The five works of non-fiction cited by the Gray Lady fared better against Amazon’s ratings, but some of them were highly esoteric (for example, with no slight intended, a 400-page biography of Paul Gauguin), which suggests that a much smaller group of non-fiction readers may have a disproportionate influence.

Anyway, the more I thought about it, the more I began to find the word “best” offensive or worse. 

As always, my favorite books are those I read during the year gone by, regardless of when they were published.  With that, here goes….

Fiction

Reports indicate that fewer people are reading books and, in particular, that men are reading fewer books and less fiction – especially historical fiction – than women.  Well, I’ve always loved historical fiction, and I doubt that will change.  That said, in 2025 I read a lot more non-fiction than fiction.  You can see the details further on.  For now, here are my favorite works of fiction for 2025.

  • Isola, by Allegra Goodman: This work of historical fiction is based on a very bizarre but true story of a 16th Century orphaned French heiress whose guardian abandons her on a small island.  It is beautifully written, and the story is incredible and gripping.
  • The Ogre’s Daughter, by Catherine Bardon: Another work of historical fiction, this one about the daughter of Rafael Trujillo, the dictator who ran the Dominican Republic with an iron fist for many years.  A fascinating character study and, again, beautifully written.
  • Florenzer, by Phil Melanson: Yes, more historical fiction.  This is about young (and gay) Leonardo da Vinci as an apprentice as he discovers his gift and who (and what) he is in 15th Century Italy.  The atmospherics of Renaissance Italy, the characters, and the story  are all well done.
  • There Are Rivers in the Sky and The Island of Missing Trees, by Elif Shafak:  Ms. Shafak is a prolific author whose books take us to far-away lands and times. (I previously selected her book, The Architect’s Apprentice, as one of my favorites.)  I’m not a fan of magical realism, but Ms. Shafak has an admirable talent for combining elements of that craft with history, great characterizations, and gripping tales.  There Are Rivers… is not perfect; the book veers off in some weird directions towards the end, but otherwise paints a great tale of Turkish history.  Missing Trees tells the sad tale of Greek and Turkish antagonisms in Cyprus.  Great novels both.

Non-Fiction

As noted, I read a lot more non-fiction in 2025.  So much so that it was difficult to narrow down my favorites to five.  So I didn’t (see “Honorable and Dishonorable Mentions” below).

  • The Wolves of K Street, by Brody and Luke Mullins.  This is a great history of lobbying in Washington.  It’s gripping and depressing, and very well done.
  • Henry V, by Dan Jones.  Jones, a highly regarded British historian who writes both fiction and non-fiction works about his nation, wrote this book with the goal of increasing the reputation of Henry V.  One of the most interesting aspects of the book is that it is written in the present tense.  Some have called this a gimmick, but for me it gave the book an immediacy that one rarely finds in history books.
  • Original Sin, by Jake Tapper and Alex Thompson.  I know – this is one of “those” books – a potboiler about the mental decline of Joe Biden, its cover-up, and, to a lesser extent, the impact of both on the 2024 presidential election.  Potboiler or not, I found the book well done and depressingly interesting.
  • Careless People, by Sarah Wynn-Williams.  A fascinating and upsetting expose about Facebook.  If, like me, you are not a fan of Facebook, you’ll relish it.
  • The Gods of New York, by Jonathan Mahler.  I generally feel about books the way one is supposed to feel about one’s children – no favorites.  But this book was far and away my favorite of 2025.  It’s a history of the Big Apple in the late 1980s, and features all the characters that everyone in NY knew about at the time.  I first moved from NY to Florida in 1991, so the years covered by this book were my last in NY until 2002 and were consequently very near and dear to me. I literally couldn’t put this one down.  Perhaps a more accessible comment is that it is the non-fiction version of Bonfire of the Vanities.  ‘Nuff said?

Honorable and Dishonorable Mentions

First, Joyride, by Susan Orlean.  Ms. Orlean is a fantastic writer of oddball non-fiction; among other things, she wrote The Orchid Thief, one of the great books about weird things in Florida.  Joyride is a memoir; despite Ms. Orlean’s wry sense of humor, the book comes across as very sincere, and a dividend is that it provides great insights into how a writer approaches her craft.  Joyride was also my favorite audiobook of the year.

Next, A Flower Traveled in My Blood.  This is a profoundly sad but well written book about the grandmothers – the abuelas – who confronted the junta in Argentina by searching for the grandchildren left behind when their parents (the abuelas’ children) were disappeared by the junta.

Finally, Mother Mary Comes to Me, by Arundhati Roy.  A remarkable memoir by the Indian writer and activist about her mother.  It’s a tale of two very strong and equally difficult women.  Also a good audiobook.

My dishonorable mention is, sadly, 1929, by Andrew Ross Sorkin.  Sorkin’s book about the financial crisis, Too Big to Fail, was brilliant; I remember taking it along on a one-day trip to San Francisco because I couldn’t bear to put it down, despite the fact that it weighed a ton.  Unfortunately, 1929 focuses on some of the prominent people involved in the crash rather than on the crash itself, the circumstances that led to it, and its impact on a generation.  By focusing on trees rather than the forest, Sorkin disappoints.

Happy reading!

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I’m not referring to the kind of proposal at the right; rather, I’m referring to shareholder proposals – one of the topics of a recent Executive Order signed by our fearless leader. (Yes, that is a reference to Rocky and Bullwinkle).

I’ve already commented on the possible impact of the Executive Order on proxy advisory firms, including my concern that it might result in draconian action against such firms.  When it comes to shareholder proposals, however, I believe that draconian action may be in order. 

Here goes.

I am a fervent advocate of shareholder engagement.  In my experience, serious, meaningful engagement gives shareholders and companies a wonderful opportunity to learn from each other, to see the folks on the other side as human beings, and to establish relationships, even when engagement doesn’t yield the results desired by either side.  The problem is that shareholder proposals rarely yield any of these benefits. Instead, they often result in a predictable ritual of procedural and/or substantive objections to proposals, the submission of no-action requests to an overburdened SEC staff, resulting in responses that are as cryptic as the pronouncements of the Oracle at Delphi, canned opposition statements that companies put in their proxy statements, and shareholder votes that are inconclusive.  Moreover, they usually generate legal fees for services that really don’t add value to anyone (other than the attorneys, of course).  (As an attorney, I staunchly support legal fees, but I’d much prefer to collect them for doing constructive work, like raising capital needed to grow a client’s business, than for dealing with the nuances of Rule 14a-8.)

At the same time, I believe that some investors ought to be able to solicit the views of other shareholders on matters of importance to their companies. 

So where does this lead?  Again, here goes:

  • When I say “some” investors, I refer to investors with a meaningful stake in the company.  The current eligibility thresholds for shareholder proposals are absurdly low and almost encourage proposals by unserious people who want nothing other than to have their names appear in the proxy statement. 
  • The current resubmission thresholds need to be substantially increased.  It’s not all that unusual for a company to have to include the same proposal in its proxy statement for several years running, even though the proposal has never generated anything close to a majority vote. 
  • The SEC should get out of the business of mediating disputes between companies and shareholders as to what is or is not a legitimate subject for a proposal.  I believe that increasing the eligibility and resubmission criteria would help a lot in this respect, in part by reducing the number of proposals to consider.  Another thing that might help a great deal would be to tighten up the exclusions under Rule 14a-8 so that they don’t leave a lot of wiggle room for debate.  Some examples might be excluding proposals that relate to social or political matters.  (I know I’m going to be criticized for that example, but there are other ways of achieving social or political goals at corporations.)

I’ll stop there in the interest of brevity.  However, as I was drafting this post, I did some checking and realized that I’d covered the same territory nine years ago.  That leads me to make one more suggestion: companies and shareholders alike need to behave like adults and drop the melodrama – sometimes approaching hysteria – surrounding shareholder proposals.  For example, the last time the SEC proposed increases in eligibility and resubmission thresholds, many in the investor community acted as though the increases would lead to the end of the world as we know it; that’s just not the case.  For their part, companies need to stop screeching about how disruptive and costly shareholder proposals are.  I’ll admit that they can be frustrating and wasteful, but In many cases no more than some things companies happily endorse and pay for. 

A very dear friend of mine who held a senior position in an investor organization once said to me that if companies and investors talked to each other more, instead of talking across each other or screaming at each other, they’d find that they agree on far more things than they think they disagree on.  Let’s give it a try.

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The good news is that the administration is reported to be working on an executive order to restrict proxy advisory firms.  The bad news is that the administration is reported to be working on an executive order to restrict proxy advisory firms. 

If the preceding paragraph seems contradictory, read on.

I am no fan of proxy advisory firms.  In my many years in-house, I dealt with ISS and, to a lesser extent, Glass Lewis far too much for my liking.  In many instances, I found their analyses and recommendations to be ill-conceived or worse, and getting them to correct even manifest errors often took far too much effort.  Even when I understood where they were coming from, their reports were often badly written and/or gratuitously snide.   In other words, in my view, the proxy advisory firms definitely need to be reined in and regulated.

So why do I oppose the anticipated government actions?  Here are some reasons:

  • Executive orders are not models of subtlety or nuance, and given the complexities of the proxy process (more on that below), they are likely to have any number of unintended consequences.  (Can you say “ready- fire-aim”?)
  • One such consequence may be the demise of the proxy advisory business.  Some may view that as a good thing, but one reason that the proxy advisory business continues to exist is that there is a market for it; many investors need it.  Simply stated, investors do not have the time to review proxy statements at all, much less review them carefully.  (For example, I once asked one of my company’s major investors how much time it spent reviewing our proxy statement.  The response was more or less as follows: “You are one of our major investments, so we devote more time to you than most companies – around 15 minutes.”)  When investors, even those that take voting obligations very seriously (though not all do), have to review hundreds of proxy statements in a very short time period, it’s no wonder that they want to lean on a third party, at least to some extent.  So if the proxy advisory industry is put down, it seems possible if not probable that some institutions won’t vote at all.  And if that happens, the difficulty that some companies experience getting a quorum for their meetings may increase geometrically or worse.  Or they may resort to just voting no, or voting by bot; the latter is already happening, and it’s not a pretty sight.
  • As noted above, a draconian approach to dealing with proxy advisors will not address the complexities and challenges that are built into our proxy system.  The time pressures also noted above are only part of the problem.  In my experience, very few proxy statements are easy to read; they are often incredibly dense (and sometimes written that way on purpose), and even those that are user-friendly can be inordinately complex.  Trying to determine how to vote on say-on-pay when a company takes 20 pages of fine print to explain its compensation program isn’t easy.  So it’s not surprising that proxy advisors come up with silly solutions. 

While the SEC hasn’t been very successful in regulating proxy advisory firms in the past – perhaps because of a pro-investor bias from time to time – I still believe that it has the expertise necessary to address this challenge.  SEC Chair Atkins has said that he is determined to engage in regulatory reform; why not make this one of the areas to be reformed?  At the same time, all industry players need to engage in serious thinking about how to address the proxy process. Companies need to understand that their owners need something like the proxy advisory industry to help, especially during the “silly season.”  Investors need to understand the frustrations that companies face when dealing with proxy advisors.  And the advisors themselves need to admit that they are, in fact, very influential and that they need to be far more transparent, candid about how they develop their recommendations, and more responsive to criticism.  Simply saying, as ISS has said since forever, that “we are only following our client’s views,” is not helpful.

As our Executive Orderer-in-Chief often says, “We’ll see what happens.”  But if it were up to me, I’d be careful what I wish for.

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A few months ago, I wrote a post addressing the use of artificial intelligence in the boardroom.  While the focus of the post was using AI (or not) to draft minutes, I also asked (with apologies for quoting myself), “whether a robot equipped with AI can serve as a director.”  At the time, I thought the question was highly speculative if not absurd, so you can imagine my surprise when I came across this article, in which a CEO is quoted as saying that she’s open to the possibility of having a bot on her board.

As the author of the article writes, “[o]f course, the idea of having an AI board member opens up a host of thorny ethical issues. What would happen if the AI recommended a strategy that goes south? Or relies on biased data to make a decision?”  I agree, but it also would raise fundamental questions about corporate governance.  For example:

  • One of the cornerstones of governance is that directors can be personally liable for certain misconduct.  That rarely happens, but experience suggests that the risk of having to shell out big bucks for not minding the store is something directors think about.  Could a bot be subjected to personal liability?  How?
  • Would a bot comprehend – fully or at all – what “fiduciary duty” means, or be able to evaluate the complexities involved in determining the best interests of the corporation?  I’m sure that someday – maybe even very soon – they answer to both questions may be “yes,” but are we there yet?
  • Could a bot understand the distinction between the board’s ultimate role – that of oversight – versus managing (or micromanaging)? 
  • How would having a bot on the board impact that prized commodity, collegiality?  Could a bot take “no” for answer?  What would a board discussion be like if the bot insists that it is right despite contrary views from other directors?

And so on.

More basic technological concerns also come to mind.  We have all heard, and many of us have actually experienced, that AI makes mistakes – sometimes big ones.  I also assume that bots can be hacked; aside from enabling outsiders to listen in on board matters or get access to confidential or even privileged information, could a bot be reprogrammed to make decisions that harm the company to the benefit of an outside party?

The article appropriately (if humorously) notes that “given that the average director of an S&P 500 company made $336,352 in total compensation last year…, adding a bot to a board may be a better deal than you think.”  I’m not sure what the going price of a bot and the cost of maintaining it may be, and you can call me a luddite, but at least for now I’ll take human directors.

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The new, improved SEC was just beginning to show its stuff when the federal government shut down on October 1.  In the weeks before the shutdown, the SEC had, among other things, approved ExxonMobil’s innovative program enabling retail investors to provide standing voting instructions (see our E-Alert on the subject) and dropped its opposition to mandatory arbitration provisions in the charters of IPO companies.  SEC Chair Atkins commented on the unfortunate “kitchen sink” approach to risk factors disclosure.  And the SEC’s latest RegFlex agenda contained some hints of additional disclosure reforms to come.  But the item that seemed to have generated the biggest buzz was the possible elimination of the 10-Q quarterly report.

Soon after President Trump suggested that public companies should report semiannually rather than quarterly, SEC Chair Atkins stated that the suggestion would be fast-tracked, possibly resulting in a rule proposal by late 2025 or early 2026.  Unless the shutdown ends a lot sooner than seems likely, that timetable may be doomed.  However, there’s little reason to believe that the proposal will go away. 

On its face, transitioning from quarterly to semiannual reporting may not seem like a big deal.  After all, quarterly reporting has only been the norm in the U.S. since the 1970s, and semiannual reporting has been in place in the U.K., among other places, for a while.  But the switch is not as simple as it may seem.  Let’s consider the benefits and risks of going to semiannual reporting, some possible alternatives, and some related concerns.

Why Switch to Semiannual Reporting?

The easy answer is that eliminating quarterly reporting will reduce costs and other burdens, particularly for smaller companies with more limited resources.  However, the size of the reductions is hard to predict and will depend upon the outcome of the SEC process and companies’ practices if the requirement goes away.  It’s been noted that some companies may opt to provide detailed quarterly reports, if not full-blown 10-Qs, to keep investors satisfied (if not happy); others may continue to issue quarterly earnings releases, conduct conference calls, or take other actions to keep investors informed.  And while smaller companies would benefit from the reduced costs and burdens, some of these companies may be sufficiently desperate to attract interest that they may feel they have no choice but to continue to engage in some type(s) of quarterly disclosure.  In any event, any of these approaches will involve costs, including those arising from consultation with auditors and counsel.  So lower costs may result, but how much lower is an open question.

In suggesting the elimination of quarterly reports, President Trump predicted that dropping quarterly reporting will reduce so-called “short-termism,” but that seems speculative, at best.  Among other things, changing the short term from three to six months doesn’t seem like that big a deal in a world where five years is considered very long-term.  The President also said that switching to a semiannual reporting schedule would enable management to focus more on the business.  I suppose, but my experience suggests that the benefits will be marginal.

What Are the Downsides?

This is easy – dropping quarterly reports will reduce transparency.  Investors hunger for information, and eliminating quarterly reporting will reduce the amount of information that’s out there.  That’s why some companies are likely to continue to put out quarterly information, even if not as robust or as detailed as now appears in 10-Qs. 

Some pundits have predicted that reduced disclosure will lead to increased volatility and thereby make U.S. markets less attractive.  Based on what I’ve read, that doesn’t seem to have happened in the U.K.  Moreover, it’s hard to know whether the impact on transparency will be significant or minor – again, depending upon what the SEC does and whether and to what extent companies seek to satisfy investors’ demands for quarterly information beyond the minimum legal requirements.

One article suggested that the elimination of quarterly reports will cause some companies to postpone or try to hide adverse developments.  Perhaps true, but I suspect that those companies are already engaging in such behaviors, though I suppose that reduced reporting may make it easier for them to get away with it.

What Are the Alternatives?

This is where it may get very interesting.  SEC Chair Atkins has indicated that he’s not a fan of a “one-size-fits-all” approach; for example, he noted that many companies provide monthly reports to management, and “so maybe a company might find that monthly reporting…might lead to a lower cost of capital…”.  I doubt that, but his comment suggests that the SEC may permit companies to pick from a smorgasbord of disclosure alternatives, possibly depending upon their size and other factors. 

One approach could be to replace the three 10-Qs with one report covering the first six months.  But would that semiannual report be similar to a 10-Q or would it be some sort of “mini” 10-K?  (If that’s what emerges, companies may end up preferring 10-Qs.)  Other alternatives could be to retain the quarterly reporting requirement but to skinny down the 10-Q.  Another suggestion is to treat quarterly earnings releases as sufficient.  For many companies, the quarterly earnings release is pretty comprehensive, frequently including  some explanation of the factors behind the results, thus arguably qualifying as a “mini-MD&A”.  The Society for Corporate Governance commented favorably on this approach when the SEC proposed relief from quarterly reporting in 2018 (you can find its comment letter here).  Notably, the Society was opposed to treating such releases as “filed” (vs. “furnished”), but it remains to be seen whether the Atkins Commission will be stuck on the point. 

Some commentators have already suggested that the elimination of quarterly reporting would be accompanied by the addition of various triggers for 8-K reporting. 

The upshot of all this may be that advocates of semiannual reporting may end up wishing that they’d been more careful what they wished for.

Other Complications

Which brings us to the many collateral impacts that may flow from eliminating quarterly reporting.  These range from the mildly annoying, such as how 13D and 13G filers would determine their percentage ownership in the absence of 10-Qs to how Reg FD would apply in a semiannual reporting world. 

While Reg FD wasn’t as novel as some people seemed to think, the SEC interpreted it in ways that were counterintuitive or sometimes just plain silly.  For example, if a company provided guidance in its first quarter earnings call, merely confirming such guidance at some uncertain point during the second quarter (e.g., “we’re sticking with our guidance”) could be viewed as a violation of FD.  Agonizing over questions like this could offset the benefits of eliminating 10-Qs.  Another problem with FD is that the SEC has frequently used it to second-guess whether a factoid was material, notwithstanding the company’s reasoned determination that it was not. 

Finally, companies and investors alike should be concerned that 10-Q relief today could be reversed tomorrow.  It’s no secret that, particularly in recent years, the SEC has reversed rules and policies following a change of administration.  For example, rules and policies relating to shareholder proposals adopted under the leadership of Gary Gensler were almost immediately reversed when President Trump took office in January 2025.  If the “Atkins Commission” eliminates quarterly reporting, who’s to say that a future Commission won’t reinstate it?  Aside from staffing implications, these reversals can greatly affect disclosure controls and procedures, which were the basis for several major actions brought by the Enforcement Division during the Biden administration.  Ongoing regulatory whipsawing doesn’t seem like a good thing for business.

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Intellectually and otherwise, it will be interesting to see what path the SEC takes on this matter.  For now, all we can do is “watch this space” and cross our fingers.