Our preliminary list of important planning considerations for the 2022 proxy season is set forth below.
Directors’ and Officers’ Questionnaires; Committee Charters
We have identified only a few possible changes to date for D&O questionnaires and committee charters for the 2022 proxy season.
The NYSE amended the first paragraph of Section 314.00 (which was subsequently revised) of the listed company manual by stating that, for purposes of Section 314.00, the term “related party transaction” refers to transactions required to be disclosed pursuant to Item 404 of Regulation S-K under the Exchange Act, and, in the case of foreign private issuers, the term “related party transaction” refers to transactions required to be disclosed pursuant to Form 20-F, Item 7.B.
NYSE listed issuers who have detailed questions in their D&O questionnaires which reflect the current version of Item 404 of Regulation S-K should not need to update their D&O questionnaires. It may be worthwhile for NYSE listed issuers to double check their audit committee charters to make sure the charters reflect other changes made by the rule amendments.
As noted in previous years, the Tax Cuts and Jobs Act eliminated the exception to IRC §162(m) for performance-based compensation, subject to a transition or “grandfather” rule. While likely few compensation arrangements are still grandfathered, this should be confirmed before eliminating questions in directors’ and officers’ questionnaires related to §162(m) for compensation committee members or references to §162(m) in compensation committee charters.
Nasdaq issuers may wish to begin modifying their D&O questionnaires to prepare for disclosures for the Board Diversity Matrix which is discussed below.
Nasdaq Diversity Rules
While the Nasdaq Board Diversity rules are not effective for the upcoming proxy season, the rules requiring disclosure of the Board Diversity Matrix become effective during 2022. Nasdaq has published FAQS regarding the Board Diversity Rules, which contain information regarding publication of the Board Diversity Matrix:
“Companies must disclose the initial matrix in 2022.
- If a company files its 2022 proxy BEFORE August 8, 2022 and DOES NOT include the Matrix, then the company has until August 8, 2022 to provide the Matrix.
- If a company files its 2022 proxy ON or AFTER August 8, 2022, then it must either include the Matrix in its proxy or post the Matrix on its website within one business day of filing its proxy.
- If a company does not intend to file a 2022 proxy, then the company has until August 8, 2022 to provide the Matrix on its website.
Companies that elect to provide the Matrix on its website must also complete a short form through the Listing Center that includes the URL link to the disclosure.”
Physical or Virtual Annual Meeting
Public companies will again need to determine whether to hold a physical or virtual annual meeting in the upcoming year.
Determine Your Status as an Issuer
Issuers should verify whether they are a large accelerated filer, accelerated filer, smaller reporting company (“SRC”) or emerging growth company (“EGC”).
Changes to Form 10-K: Holding Foreign Companies Accountable Act
The SEC has adopted interim final amendments to Form 10-K, Form 20-F, Form 40-F, and Form N-CSR to implement the disclosure and submission requirements of the Holding Foreign Companies Accountable Act, or the HFCA Act. The HFCA Act became law on December 18, 2020. Among other things the HFCA Act requires the SEC to identify each “covered issuer” that has retained a registered public accounting firm to issue an audit report where that registered public accounting firm has a branch or office that:
- Is located in a foreign jurisdiction; and
- The PCAOB has determined that it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction.
We do not expect the HFCAA to affect the issuers we work with. We do note however that the SEC interim amendments requires companies subject to the interim rules to make certain disclosures in new Item 9C to Form 10-K captioned “Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.” As such issuers should include the Item and caption in their Form 10-K and indicate the item is not applicable where appropriate.
Say-on-Pay Frequency Vote
Rule 14a-21(b) requires a say-on-pay frequency vote every six years. Issuers should review their own particular facts and circumstances to determine if they are required to hold a say-on-pay frequency vote. We note that issuers that formerly qualified as EGCs should also remain mindful of say-on-pay requirements as issuers that no longer qualify as EGCs lose their exemption from the requirements under Exchange Act Sections 14A(a) and (b). Such former EGCs are required to begin providing say-on-pay votes within one year of losing EGC status (or no later than three years after selling securities under an effective registration statement if an issuer was an EGC for less than two years). Typically, such companies will also hold say-on-pay frequency votes when they hold their first say-on-pay vote as a non-EGC.
If you include a frequency vote, consider the related Form 8-K filing obligations.
MD&A
The SEC adopted wide ranging final rules affecting MD&A and other matters in a release captioned “Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information.” Registrants are required to comply with the rule beginning with the first fiscal year ending on or after August 9, 2021.
Climate Change
In 2010 the SEC issued an interpretive release on registrant’s disclosures related to climate change. Public pronouncements indicate the SEC s in the process of formulating updated rules. In all likelihood any new rule would not be effective for the upcoming proxy season.
Registrant disclosures under the existing interpretation have been under review by the SEC. Compliance with the interpretation has also attracted the attention of the Division of Enforcement. As such, public companies may want to ensure compliance with the 2010 interpretation where applicable.
You can find our analysis here.
SEC Adopts Final Rules Regarding Proxy Advisors
In September 2019, the Commission issued an interpretation and guidance addressing the application of the proxy rules to proxy voting advice businesses. In July2020, the Commission adopted amendments to Rules 14a-1(l), 14a-2(b), and 14a-9 concerning proxy voting advice.
Gary Gensler, Chair of the SEC directed the staff to consider whether to recommend further regulatory action regarding proxy voting advice. In particular, the staff was directed to consider whether to recommend that the Commission revisit its July 2020 codification of the definition of solicitation as encompassing proxy voting advice, the 2019 Interpretation and Guidance regarding that definition, and the conditions on exemptions from the information and filing requirements in the 2020 Rule Amendments, among other matters.
In light of Chair Gensler’s direction, the Division of Corporation Finance determined that it will not recommend enforcement action to the Commission based on the 2019 Interpretation and Guidance or the 2020 Rule Amendments during the period in which the Commission is considering further regulatory action in this area.
As a result, these rules and interpretations are not expected to play a role in the upcoming proxy season.
Modernization of Property Disclosures for Mining Registrants
The SEC adopted amendments to modernize the property disclosure requirements for mining registrants, and related guidance, previously set forth in Item 102 of Regulation S-K and in Industry Guide 7. The amendments are intended to provide investors with a more comprehensive understanding of a registrant’s mining properties, which should help them make more informed investment decisions. The SEC’s revised mining property disclosure requirements now appear in Subpart 1300 of Regulation S-K.
Registrants engaged in mining operations must comply with the final rule amendments for the first fiscal year beginning on or after January 1, 2021. Industry Guide 7 will remain effective until all registrants are required to comply with the final rules, at which time Industry Guide 7 will be rescinded.
ISS Proxy Voting Policies
ISS is in the process of formulating changes to its voting recommendation policies. Earlier it released its benchmark policy survey which generally is the first public step in the process. We recommend that issuers monitor ISS’s new and updated policies, including ISS’s official proxy voting guidelines, which are typically issued in December for the upcoming proxy season.
Inline XBRL
All other filers (basically anyone other than an accelerated filer that has not already been phased in) are required to use Inline XBRL with their first Form 10-Q filing for the fiscal period ending on or after June 15, 2021. Further information can be found here.
Shareholder Proposals
The Commission adopted rules altering the shareholder proposals submission framework under Rule 14a-8 of the Exchange Act for the first time in over twenty years.
The share ownership thresholds for eligibility to submit an initial shareholder proposal were revised to employ a sliding scale based on the amounts of securities owned.
The Commission’s revised rules also modified the resubmission thresholds under Rule 14a-8 to increase the required support necessary to resubmit a proposal.
The new thresholds became effective January 4, 2021 and will apply to any proposal submitted for an annual or special meeting to be held on or after January 1, 2022. The amendments also include a transition rule permitting shareholders to submit proposals in reliance on the prior initial submission threshold for meetings held prior to January 1, 2023.
Our expanded analysis of the changes is available here.
Resource Extraction Issuers
In December 2020, the SEC adopted final rules that will require resource extraction issuers that are required to file reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 to disclose payments made to the U.S. federal government or foreign governments for the commercial development of oil, natural gas, or minerals. The rules implement Section 13(q) of the Exchange Act, which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).
The SEC adopted a two-year transition period so that a resource extraction issuer will be required to comply with Rule 13q-1 and Form SD for fiscal years ending no earlier than two years after the effective date of the final rules. The final rules were effective March 16, 2021. Accordingly, the compliance date for an issuer with a December 31 fiscal yearend would be Monday, September 30, 2024 (i.e., 270 days after its fiscal year end of December 31, 2023).
Other Regulatory Initiatives
Proposed rules have also been issued on the following topics in prior years, but final rules have not been adopted:
