Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

Our preliminary list of important planning considerations for the 2021 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 2020 proxy season.

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 rule. We continue to urge caution in eliminating questions in directors’ and officers’ questionnaires related to §162(m) for compensation committee members unless it is clear the compensation committee is not required to administer any compensation arrangements under the transition rule. The same can be said for eliminating references to §162(m) in compensation committee charters.

In February 2020, the SEC approved a Nasdaq proposal to amend the definition of “Family Member” used in its corporate governance rules, which is incorporated into the definition of “Independent Director.” The definition will no longer include step-children and will include a carve out for domestic employees who share a director’s home. The issuer’s board must still affirmatively determine that no relationship exists that would interfere with a director’s ability to exercise independent judgment.

Physical or Virtual Annual Meeting

Public companies will need to determine whether to hold a physical or virtual annual meeting in the upcoming year.  Many may wish to initially defer the issue until there is additional clarity from proxy advisors and key shareholders on preferences and formats.  The status of the pandemic may also influence the decision.  Public companies may wish to proceed on a dual path, analyzing the requirements for a physical and virtual meeting in tandem, to provide clarity on timing requirements and the like.

Determine Your Status as an Issuer

While not new this year, the SEC adopted final rules, effective September 10, 2018, to expand the availability of scaled disclosure requirements for a company qualifying as a smaller reporting company, or SRC, by allowing companies with a public float of less than $250 million to qualify as an SRC, as compared to the $75 million threshold under the prior definition. In addition, companies that either do not have a public float or have a public float of less than $700 million are now permitted to provide scaled disclosures if annual revenues are less than $100 million, as compared to the prior threshold of less than $50 million in annual revenues. A reporting company must determine whether it qualifies as a SRC annually as of the last business day of its second fiscal quarter. If it qualifies as a SRC on that date based on public float, it may elect to reflect that determination and use the SRC scaled disclosure accommodations in its subsequent filings, beginning with its second quarter Form 10-Q. Otherwise the new status is reflected on Form 10-Q for the first fiscal quarter of the next year.

On March 12, 2020, the Securities and Exchange Commission adopted long-awaited amendments to the accelerated filer and large accelerated filer definitions with the stated goal of “reduc[ing] unnecessary burdens for certain smaller issuers while maintaining investor protections.”

Among other things, the final rules:

  • Exclude from the accelerated and large accelerated filer definitions an issuer that is eligible to be a smaller reporting company (“SRC”) and that has annual revenue of less than $100 million in the most recent fiscal year for which audited financial statements are available (“SRC revenue test”);
  • Exempt issuers meeting the SRC revenue test from the requirements applicable to an accelerated or large accelerated filer including, most notably, the required auditor attestation of management’s assessment of internal controls over financial reporting (“ICFR”); and
  • Add a new check box to annual filings on Form 10-K, 20-F and 40-F to indicate the inclusion of an auditor attestation over ICFR. These amendments exclude from the definitions of accelerated filer and large accelerated an issuer that is eligible to be an SRC and has annual revenue of less than $100 million in the most recent fiscal year thereby meeting the SRC revenue test. The most notable effect of the amendments would be that an issuer that is eligible to be an SRC and that meets the SRC revenue test would not be subject to the requirements of SOX Section 404(b). The amendments also allow business development companies (“BDCs”) to qualify for this exclusion if they meet the requirements of the SRC revenue test using their annual investment income as the measure of annual revenue, although BDCs would continue to be ineligible for the other scaled disclosures available to SRCs.

The final amendments include a requirement for an issuer to prominently disclose in its filing whether an ICFR auditor attestation is included. As such, issuers must include a new check box will be added to the cover pages of Forms 10-K, 20-F, and 40-F to indicate whether an ICFR auditor attestation is included in an annual report filing. Once issuers are required to tag the cover page disclosure data using Inline XBRL, they are also be required to tag this cover page check box disclosure pursuant to Item 406 of Regulation S-T.

Many public companies experienced fluctuations in market capitalization as a result of the COVID-19 pandemic so it may be worthwhile to review qualifications for scaled disclosures. Issuers that rely on emerging growth company status, or EGCs, should also determine if they remain eligible as an EGC. Among other tests, an issuer is only allowed to retain EGC status for five years after its IPO, and the five-year window continues to close for some.

As in prior years, issuers should verify whether or not they are transitioning from status as a non-accelerated filer, accelerated filer, or large accelerated filer.

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.

COVID-19 Disclosures

Public companies should review SEC guidance on matters related to COVID-19.  Principal guidance includes:



In January 2020, the SEC published guidance on the disclosure of financial metrics in MD&A. Given the timing of issuance, some issuers considered this guidance when preparing their last Form 10-K and perhaps others did not.

The SEC said it would generally expect, based on the facts and circumstances, the following disclosures to accompany any metric presented:

  • A clear definition of the metric and how it is calculated;
  • A statement indicating the reasons why the metric provides useful information to investors; and
  • A statement indicating how management uses the metric in managing or monitoring the performance of the business.


In January 2020, the SEC also proposed to eliminate Item 301 of Regulation S-K, Selected Financial Data and Item 302 of Regulation S-K, Supplementary Financial Information because they are largely duplicative of other requirements and to amend Item 303 of Regulation S-K, Management’s Discussion & Analysis of Financial Condition and Results of Operations (“MD&A”) to modernize and enhance MD&A disclosures. These proposed rules have not been adopted.

Intellectual Property and Technology Risks Associated with International Business Operations

In January 2020, the SEC published Disclosure Topic No. 8 which provides guidance on intellectual property and technology risks associated with international business operations. Given the timing of issuance, some issuers considered this guidance when preparing their last Form 10-K and perhaps others did not.

Modernization of Business, Human Capital, Legal Proceedings, and Risk Factors Disclosures

The SEC adopted amendments to modernize the description of business, legal proceedings, and risk factor disclosures that registrants are required to make pursuant to Regulation S-K. These disclosure items have not undergone significant revisions in over 30 years.  The final amendments:

  • Revise the requirements to discuss the general development of the business to be largely principles-based, requiring disclosure of information material to an understanding of the general development of the business.
  • Adopt as a disclosure topic material changes to a registrant’s previously disclosed business strategy.
  • Include, as a disclosure topic, a description of the registrant’s human capital resources to the extent such disclosures would be material to an understanding of the registrant’s business.
  • Require summary risk factor disclosure of no more than two pages if the risk factor section exceeds 15 pages.

 SEC Adopts Final Rules Regarding Proxy Advisors

The SEC has adopted final rules regarding proxy voting advice businesses, or PVABs, like ISS and Glass Lewis.  The final principle-based rules adopted by the SEC require PVABs to take certain actions to maintain a statutory exemption from the information and filing requirements of the Federal proxy rules. Specifically, PVABs must comply with certain disclosure and procedural requirements, including disclosure of material conflicts of interest in their proxy advice, and adopt and publicly disclose certain written policies and procedures.

The final rules include a non-exclusive safe harbor provision that, if followed, will give assurance to a PVAB that it has met certain principles-based requirements of the new rules. In accordance with this safe harbor, a PVAB will be deemed to satisfy the final rules discussed above if it has written policies and procedures that are reasonably designed to provide registrants with a copy of its proxy voting advice, at no charge, no later than the time it is disseminated to the business’s clients. Such policies and procedures may include conditions requiring that such registrants have (i) filed their definitive proxy statement at least 40 calendar days before the shareholder meeting, and (ii) expressly acknowledged that they will only use the proxy voting advice for their internal purposes and/or in connection with the solicitation and it will not be published or otherwise shared except with the registrant’s employees or advisers.

The final rules include an additional safe harbor pursuant to which a proxy voting advice business must have written policies and procedures reasonably designed to inform clients who have received proxy voting advice about a particular registrant in the event that such registrant notifies the proxy voting advice business that the registrant either intends to file or has filed additional soliciting materials with the SEC setting forth its views regarding such advice.

PVABs are not required to comply with the final rules discussed above until December 1, 2021.  At this point it is unclear what effect these rules will have on the upcoming proxy season.

Hedging Disclosures

The SEC approved final rules on hedging that require companies to disclose practices or policies related to the ability of employees or directors to engage in hedging transactions with respect to a company’s equity securities. Companies that do not maintain a hedging policy are required to disclose this fact and note, if accurate, that hedging transactions are generally permitted.

All public companies are now required to include the hedging disclosures in proxy and information statements..

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.

Critical Audit Matters

The Public Company Accounting Oversight Board previously adopted a new auditor reporting standard that requires information about critical audit matters, or CAMs. The new standard was approved by the SEC and was required for large accelerated filers for audits for fiscal years ending on or after June 30, 2019.  Audit reports for all other issuers are required to address critical audit matters, if any, for fiscal years ending on or after December 15, 2020.

ISS Proxy Voting Policies

ISS is in the process of formulating changes to its voting recommendation policies.  ISS recently released the results of its global policy survey. The survey generally foreshadows changes to policies for the upcoming proxy season.  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

In 2018 year the SEC also adopted final rules to require the use of Inline XBRL. Previously, data in XBRL format was attached as an exhibit to SEC filings. Inline XBRL allows filers to embed XBRL data directly into the body of the SEC filing, eliminating most of the need to tag a copy of the information in a separate XBRL exhibit. Inline XBRL will still require exhibits to be used to provide contextual information about the XBRL tags embedded in the filing.

Large accelerated filers have already been required to fully transition Inline XBRL. Accelerated filers that prepare their financial statements in accordance with U.S. GAAP are required to use Inline XBRL with their first Form 10-Q filing for the fiscal period ending on or after June 15, 2020 and this requirement will apply to Form 10-Ks. Other filers are required to use Inline XBRL with their first Form 10-Q filing for the fiscal period ending on or after June 15, 2021.

Shareholder Proposals

The Commission recently 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 have been revised to employ a sliding scale based on the amounts of securities owned as follows:

  • Holders of at least $2,000 worth of company securities must have held those securities for an extended period of three years (instead of one year, as under the current formulation of the rule).
  • Holders of at least $15,000 worth of company securities must have held those securities for at least two years, and
  • Holders of at least $25,000 worth of company securities must have held those securities for at least one year.

The Commission’s revised rules also modified the resubmission thresholds under Rule 14a-8 to increase the required support necessary to resubmit a proposal.  Under the amendments, a shareholder proposal would be excludable from a company’s proxy materials if it addressed substantially the same subject matter as a proposal, or proposals, previously included in the company’s proxy materials within the preceding five calendar years if the most recent vote occurred within the preceding three calendar years and the most recent vote in favor of the proposal was:

  • Less than 5 percent of the votes cast if previously voted on once;
  • Less than 15 percent of the votes cast if previously voted on twice; or
  • Less than 25 percent of the votes cast if previously voted on three or more times.

The amendments also adopted modifications to Rule 14a-8 consistent with the proposing release to:

  • Require certain documentation to be provided when a proposal is submitted on behalf of a shareholder proponent;
  • Require shareholder proponents to identify specific dates and times they can meet with the company in person or via teleconference to engage with the company with respect to the proposal; and
  • Provide that a person may submit no more than one proposal, directly or indirectly, for the same shareholders’ meeting.

The new thresholds become effective 60 days after being published in the Federal Register 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 transitions rules 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.

Description of Registrant’s Securities Exhibit

In connection with the SEC’s modernization and simplification of rules pursuant to The Fixing America’s Surface Transportation Act, or FAST Act, registrants were required by new Item 601(b)(4)(vi) of Regulation S-K to file a new exhibit to last year’s Form 10-K to provide certain information about their registered capital stock, debt securities, warrants, rights, American Depositary Receipts, and other securities as specified under Item 202(a)-(d) and (f)).

For this year’s Form 10-K (and any subsequent annual filings), issuers may incorporate by reference to the previously filed “Description of Securities”, so long as there has not been any change to the information since the filing date of the linked filing. However, any modifications and amendments to the Item 202 disclosure during a fiscal year must also be reflected in an exhibit to the registrant’s annual report for such year.  Issuers should take note that there is no “materiality” threshold for changes to the rights and privileges of its securities.  In other words, if any changes are made to the items of information in Item 202, a registrant would be required to update the description of securities in the exhibit filed with its Form 10-K.

Confidential Treatment Requests

In March 2019, the Commission modified its confidential treatment rules with respect to the filing of exhibits to permit companies to omit immaterial, competitively harmful information without having to provide the omitted information to the SEC or request staff approval of the omission. Most companies appear to now rely on these provisions to avoid the technical requirements of the confidential treatment process.

However, for those companies that do not choose to rely on the new rules, the Division of Corporation Finance also issued CF Disclosure Guidance Topic No. 7, which outlines the procedures for submitting a “traditional” confidential treatment request.

In September 2020, Corporation Finance updated that guidance to provide the following options for expiring confidential treatment requests:

  • Refile an unredacted copy of the exhibit;
  • Extend the confidential period pursuant to Rules 406 or 24b-2; or
  • Transition to the new rules governing the filing of redacted exhibits under Regulation S-K Item 601.

Other Regulatory Initiatives

Proposed rules have also been issued on the following topics in prior years, but final rules have not been adopted:

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