In Case You Missed It - Interesting Items for Corporate Counsel - March 2016

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  1. For those gearing up for the 2015 conflict minerals report, due June 1, 2016, note that nothing on the legal front has changed. The D.C. Circuit Court’s ruling that requiring a company to state whether its products are “DRC conflict free” violates free speech, and the SEC’s stay of that part of its rules, continues pending the SEC’s possible appeal to the U.S. Supreme Court, the deadline for which was recently extended to April 7, 2016, see here. The upshot: we expect conflict minerals disclosures to look remarkably similar to last year’s, with almost none making statements that would trigger the obligation to have an independent private sector audit of the conflict minerals report. Nonetheless, review of trends in last year’s disclosures suggest to some that more reports will include smelter lists, and some may begin to feel more pressure from customers and, possibly, non-governmental agencies, to more thoroughly investigate their supply chains.
  2. CalPERS announced, see here, its intent to engage its portfolio companies more on climate change issues (whatever that means). Similarly, the Financial Stability Board (whatever that is) announced, here, that it will establish an industry-led (whatever that means) task force on climate-related financial disclosure. In the meantime, the GAO issued a report, here, on the SEC’s plans to determine if additional action is needed on climate-related disclosure and on how these plans have evolved. Reading between the lines, “slowly.”
  3. The Financial Accounting Standards Board issued, see here, ASU 2016-02, Leases (Topic 842), late last month. The new standard will apply to public companies for fiscal years beginning after December 15, 2018 and to private companies for fiscal years beginning after December 15, 2019. The new standard requires that a company report its lease obligations and its use rights as offsetting liabilities and assets on its balance sheet. We’re no experts, but the rule requirements sound like no fun at all. Expert commentary is here, here, and here.
  4. On February 12, the SEC issued 18 no-action letters that suggest when it will consider a proxy access proposal “substantially implemented” and therefore excludable from a company’s proxy statement under SEC Rule 14a-8(i)(10). Generally, as long as a proposal does not provide a higher ownership threshold than that requested by the proponent (typically 3%), you are probably fine, according to analysts parsing the 15 successful no-action requests and the three unsuccessful requests. See here, here, and here. 14 of the 18 companies adopted proxy access bylaws after receiving a shareholder proposal and, one assumes, after failing to negotiate a rescission of the shareholder proposal. This may suggest companies are more likely taking the “prepare for peace” approach suggested here, particularly since the Vanguard Group recently announced its support for the standard 3-3-20 proxy access proposal, here. Time will tell whether Fidelity, the other mutual fund giant, will hop on the proxy access train (see here). An analysis of proxy access support by mutual funds in 2015, and a suggestion on how votes would have turned out with both Vanguard and Fidelity voting in favor, is here. A summary of companies that have adopted proxy access bylaws so far is here.
  5. In crowdfunding news, the first equity crowdfunding platform filed to register with the SEC, heralding the next wave of investment opportunities for entrepreneurs across America, which will stimulate the economy and create jobs, at least according to the platform’s CEO, here. (Ah Ron Miller, you optimistic old so and so—we knew we could count on you to save us!) The filing follows the effectiveness of FINRA rules regarding crowdfunding, here. An SEC guide on how to register your own funding portal is here, and an SEC investor bulletin to wave off investors from your portal is here.
  6. Somewhat related, kind of sort of, is a notice issued by the North American Securities Administrators Association requesting public comment on proposed model rules and uniform notice filing forms to facilitate Regulation A – Tier 2 offerings, here. Recall that “Tier 2” Regulation A offerings are exempt from state regulation, but states still may require filings and enforce anti-fraud laws in connection with Tier 2 offerings.
  7. The Delaware Court of Chancery revealed its disdain, in In re Trulia, here, for disclosure only settlements in shareholder derivative suits, at least in circumstances where the new disclosure isn’t meaningful and is, dare we suggest, merely window dressing to cover that these cases are really about legal fees for plaintiff firms. One might think this heralds the end of frivolous law suits in Delaware, and eventually, by influence, in the rest of the country. Time will tell whether what it really heralds is the end of a defendant’s ability to settle these lawsuits quickly and cheaply. Commentary on the case is here, here, here, and here.
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