I have often said that the SEC is an outstanding agency – for example, see here. I still believe that, although my belief has been tested in the last couple of years by the “regulatory rampage” in which the SEC has engaged.
But there is always room for improvement, and in a November speech
We’ve all heard the expression “hard cases make bad law.” But sometimes bad law is the result of bad cases – i.e., cases that should never have been brought in the first place. That’s the case with the SEC’s prosecution of Ray Dirks, who died on December 9 at age 89. I suspect that many
Background
On October 26, 2022, the SEC adopted final clawback rules consistent with the requirements of the Dodd-Frank Act. The new rules direct the national securities exchanges to establish listing standards requiring companies to adopt, disclose, and enforce policies to recoup, or “clawback,” incentive-based compensation erroneously awarded to executive officers. Based upon recent SEC action, listed companies will have until December 1, 2023 to adopt compliant clawback policies. The following summarizes some key provisions of the final rules and the decisions that companies will have to make as they finalize their policies by the deadline.
Adopting Compliant Policies
Companies that do not have existing clawback provisions in place must adopt policies that comply with the standards established by the exchanges. Companies that have clawback provisions in place must determine if and how those policies differ from what is required and either modify their existing policies or adopt a new compliant policy on a stand-alone basis. Questions to help integrate or create compliant policies include:
Continue Reading The SEC’s New Clawback Rules: The Devil’s in the Details (and There Are Lots of Details)
Once again, it’s time for my annual departure from the nerdy world of securities law and corporate governance to discuss my favorite 10 books of 2022 – five each of fiction and non-fiction. For those unfamiliar with what follows, the books are those I read in 2022, not necessarily those that were published last year.
I recently read an article suggesting that companies need to consider appointing a chief resilience officer. That got me thinking about all the other “chief” positions that pundits may be encouraging companies to create. Here’s a partial list:
| Chief Analytics Officer | Chief Happiness Officer |
| Chief Automation Officer | Chief Inclusion Officer |
| Chief Behavioral Officer | Chief Information Officer |
| Chief |
Spoiler alert – despite the title and the creepy photo, this is not about zombies, vampires, or anything else of a spooky nature. Rather, it’s how we can hopefully make some of the deadwood in our proxy statements meaningful.
I realize that the upcoming
Boards of directors have a lot – maybe too much – to do. Subjects long believed to be the province of management are now viewed as being in the board’s wheelhouse, and when a problem arises with respect to any of those subjects, the first question asked by investors, regulators, the media, and others is often “where was the board?” So it is with a degree of reluctance that I am writing to suggest another subject that I believe boards need to address.
Some background may be in order. A few weeks ago, I attended a meeting of the American Bar Association International Law Section in Madrid. (How a US-centric lawyer ended up at that meeting is a tale for another day.) The trip, the city, and the conference were wonderful; I met some extraordinary people and was beyond grateful that I was able to go. I also learned a lot, mostly on things like international trade and customs law, cross-border discovery, and other topics that I don’t often encounter in my practice.
Another panel that I thought had little to do with my practice turned out to be the most compelling panel of them all, and it definitely is relevant to my practice and to the observation above about the ever-growing responsibilities of the board. The title of the panel was “Recognizing Human Trafficking as a Common Occurrence During Conflict, and Building Protection and Anti-Trafficking Strategies into Global Responses”. I suppose the title of the panel could have been more succinct, but – as the moderator of the panel suggested – a more helpful change might have been to give a trigger warning before the panel got underway.
Continue Reading Yet another thing for boards to consider
Since the 1980s, Section 102(b)(7) of the Delaware General Corporation Law (the “DGCL”) has enabled Delaware corporations to provide exculpation from breaches of the fiduciary duty of care to directors – but not officers – in certain circumstances. Officers can now come in from the cold, as Section 102(b)(7) has now been amended to provide similar protection for certain officers. Specifically, the amendments, which became effective on August 1, 2022, allow Delaware corporations to provide exculpation from breaches of the duty of care to specified officers in certain circumstances. The new provisions allow a qualifying officer to be exculpated from such claims made directly by stockholders but do not provide relief in connection with other fiduciary duties, derivative actions, or actions brought by a corporation’s board against its officers.
We view this amendment as a major forward step. If your company (or any subsidiary) is a Delaware corporation, you should seriously consider amending its certificate of incorporation to provide this protection. And if you are an officer of a Delaware corporation, you should make sure your board of directors is aware that this protection is available and urge your board to take the steps needed to provide the protection..
I have long thought that the SEC is among the best, if not the best, government agency. Over the years, I’ve worked with and gotten to know many folks on the SEC’s staff, who have consistently impressed me as bright, hard-working, serious about the SEC’s mission, and very nice people. I am sure that most people on the staff continue to possess these and other great attributes.
However.
As with most organizations, the tone at the top is critical. And, at least from outward appearances, the tone at the top of the SEC is at best dismissive, if not hostile, towards business, and disingenuous. I’m not saying that the SEC should bow to corporate America’s wishes and do its bidding. But it’s in the interest of our capital markets and the participants in those markets that the SEC consider a wide range of views and engage in thorough and thoughtful deliberation (part of what is known in the corporate world as the fiduciary duty of due care) before making decisions.
That does not seem to be the case. In the last year or so, the SEC has repeatedly demonstrated fealty to the institutional investor community by such things as announcing, early in Chair Gensler’s tenure, that the SEC would not enforce rules providing for a more level playing field between companies and proxy advisory firms, adopted by the SEC barely two years earlier, and then formally rescinding those rules (see here). I’m not saying those rules were perfect – far from it; in fact, they met the classic definition of compromise, in that all sides were dissatisfied with the outcome. However, they were a start, and instead of getting rid of them the SEC could and, IMHO, should have worked to improve them.
Continue Reading Rooting for the other guys?
Hating lawyers may not have started with Shakespeare, but he didn’t help things when he wrote “The first thing we do, let’s kill all the lawyers” in Henry VI. Any lawyer who’s been practicing law for more than a couple of weeks knows that part of the price of bar admission is having to endure lawyer jokes (most of which aren’t very good) and experiences like having a client say to you at the outset of your first meeting, “just so you know, I don’t like lawyers” or words to that effect.
It’s particularly painful, however, when an attack on our profession comes from one of our own, who also happens to be a member of the Securities and Exchange Commission. I refer to a March 4 speech by Commissioner Allison Herren Lee in which she notes her “deep regard for the ideals of public service that our profession represents” and that her “belief in the ideals of the profession – ideals I know you all share – has only grown stronger with time” but then goes on to castigate corporate lawyers for failing to fulfill our “role…as gatekeepers in the capital markets.” She distinguishes corporate lawyers from litigators – a dubious distinction that suggests we should be less zealous in representing our clients than our litigation colleagues – and says that in passing Section 307 of the Sarbanes-Oxley Act (more on that below) “Congress was concerned…that counsel often acted in the interests of the executives who hired them rather than the company and its shareholders to whom their duty and responsibility is [sic] owed.”
Continue Reading Who needs Shakespeare when you’ve got the SEC?