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This memorandum outlines certain considerations for US public companies in preparation for the 2018 annual reporting and proxy season. Part I of this memorandum discusses new developments and practical action items for the 2018 reporting season; Part II sets forth an overview of recent corporate governance and regulatory developments and trends; and Part III includes a brief discussion relating to upcoming regulatory developments and pending rulemaking initiatives.
On December 22, 2017, tax reform (the "Tax Act")1 was signed into law. The Tax Act will have significant implications for companies, including on their accounting and associated disclosure, as discussed below. The SEC’s Office of the Chief Accountant and the Division of Corporation Finance ("Corp Fin") have each issued guidance to aid companies in their disclosures addressing the accounting impact of the Tax Act.
On November 16, 2017, Institutional Shareholder Services ("ISS") published updates to its benchmark proxy voting policy applicable to shareholder meetings held on or after February 1, 2018. The policy updates are the culmination of ISS' policy development process, which includes consideration of the results of ISS' 2017-2018 Global Policy Survey (the "Survey") as well as feedback received during various roundtable and group discussions with investors and corporate directors. For US companies, there are key updates in the areas of non-employee director pay, poison pills, shareholder proposals on gender pay gap and board gender diversity, pay-for-performance evaluation, board responsiveness to say-on-pay and pledging.
House Committee Approves Bills that Would Repeal Conflict Minerals and Mine Safety Disclosure Requirements
On November 15, 2017, the House Financial Services Committee (the "Committee") approved two pieces of legislation that would repeal the conflict minerals and mine safety and health disclosure requirements promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act")
On November 1, 2017, the staff (the "Staff") of the Division of Corporation Finance of the Securities and Exchange Commission (the "SEC") released Staff Legal Bulletin No. 14I (the "Guidance"), providing guidance on the excludability of certain shareholder proposals under the "ordinary business" and the "economic relevance" bases provided in Rule 14a-8 of the Securities Exchange Act of 1934 ("Rule 14a-8") and on certain other aspects of the shareholder proposal submission process.
On October 26, 2017, Institutional Shareholder Services ("ISS") issued draft proposed policy changes for the 2018 proxy season (the "Draft Changes"). The Draft Changes for US companies are grouped in three categories: director elections (non-employee director pay); gender pay gap proposals; and director elections (poison pills). If adopted, the changes will take effect for shareholder meetings on or after February 1, 2018. ISS is accepting comments via email through 5:00 p.m. EST on November 9, 2017.
SEC Approves PCAOB's New Audit Report Standard to Enhance the Relevance of the Auditor’s Report to Investors and Other Market Participants
On October 23, 2017, the Securities and Exchange Commission ("SEC") unanimously approved the Public Company Accounting Oversight Board's ("PCAOB") proposal to adopt a new auditing standard, AS 3101, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, and related amendments to other auditing standards (collectively, the "New Standard").
On October 11, 2017, the Securities and Exchange Commission (the "SEC") proposed technical amendments to modernize and simplify certain public company disclosure requirements in Regulation S-K and related rules and forms (the "Proposed Amendments"), which implement Section 72003 of the Fixing America's Surface Transportation Act (the "FAST Act") and are based on recommendations included in the SEC staff's report on modernization and simplification of Regulation S-K published on November 23, 2016 (the "Report").
On September 21, 2017, the Securities and Exchange Commission ("SEC") issued an interpretive release and the staff of the Division of Corporation Finance (the "Staff") published separate guidance and revised Compliance and Disclosure Interpretations ("C&DIs") to assist companies in preparing the pay ratio disclosure required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). Overall, the new interpretive guidance provides companies with additional flexibility in complying with the requirements, as well as reassurance that the SEC will not pursue enforcement action related to such disclosure as long as a company acts in good faith and has a reasonable basis for its disclosure.
The Delaware Supreme Court recently reversed a Delaware Chancery Court's finding that a private equity buyer had underpaid in connection with its acquisition of payday lending firm DFC Global Corporation.
On April 3, 2017, the US District Court for the District of Columbia (the "Court") entered a final judgment in National Association of Manufacturers, et al. v. Securities and Exchange Commission, ruling that Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Rule 13p-1 under the Securities Exchange Act of 1934 (the "Exchange Act") and Form SD violate the First Amendment of the US Constitution to the extent that the statute and the rule require companies to report to the Securities and Exchange Commission (the "SEC") and state on their websites if any of their products "have not been found to be 'DRC conflict free.'"
Technical Amendments Under the JOBS Act Result in Changes to Cover Pages of Many Securities Act and Exchange Act Forms
On March 31, 2017, the Securities and Exchange Commission ("SEC") made a number of technical amendments to existing rules and certain Securities Act of 1933 ("Securities Act") and Securities Exchange Act of 1934 ("Exchange Act") forms to conform them to certain provisions of the Jumpstart Our Business Startups Act of 2012 ("JOBS Act") and related SEC guidance.
Virtual annual shareholder meetings are gradually increasing year-over-year, but the absolute number is still small and investor resistance to the "virtual-only" format persists. Nevertheless, additional companies continue to switch to the virtual-only format every year, and many more are incorporating virtual components to supplement their in-person meetings.
Recent Regulatory Developments and the New US Presidential Administration's Actions Affecting Public Companies
There have been several recent developments and proposed initiatives related to deregulation impacting US public companies and foreign private issuers ("FPIs"). Below is a brief summary of regulatory changes that have been implemented and the current status of certain proposals aimed at changing or eliminating existing or pending regulations.
Delaware Supreme Court Affirms Energy Transfer’s Termination of Merger Agreement for Lack of Tax Opinion
Resolving a dispute surrounding one of the largest M&A deals of 2015, the Delaware Supreme Court affirmed the Delaware Chancery Court's decision allowing Energy Transfer Equity, L.P. to terminate its proposed acquisition of The Williams Companies, Inc. due to the inability of Energy Transfer's tax counsel to deliver a necessary tax opinion.
This memorandum outlines certain considerations for foreign private issuers (FPIs) in preparation for the 2017 annual reporting season.
This memorandum outlines certain considerations for US public companies in preparation for the 2017 annual reporting and proxy season. Part I of this memorandum discusses new developments and practical action items for the 2017 reporting season; Part II provides a brief overview of recent corporate governance and regulatory developments and trends; and Part III includes a discussion of expected regulatory developments and pending rulemaking initiatives.
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