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Preparing for the 2024 Proxy Season
Alerts
February 12, 2024

As we enter the 2024 proxy season, public companies should consider a number of key disclosure and governance matters. Below is a high-level summary of applicable rule changes, guidance, and disclosure considerations for the 2024 proxy season, as well as some reminders for what is on the horizon for public company governance and disclosure. For updates relating to annual reports on Form 10-K (Form 10-K), please see our recent alert, Reminders for Preparing the Annual Report on Form 10-K.

This client alert includes discussions on the following topics:

I. Disclosure and Governance Considerations
     A. New Clawback Disclosure
     B. Second Year of Pay Versus Performance Disclosure
     C. Advance Notice Bylaws
     D. Officer Exculpation Charter Amendment
     E. Board Leadership and Risk Oversight Disclosure
     F. Board Diversity
     G. Director Overboarding
     H. ESG Disclosure
     I. Regulation 14A and Universal Proxy Card CDIs
     J. Nasdaq Code of Conduct Waivers

II. Proxy Advisor Voting Guidelines

III. Shareholder Proposals and Shareholder Engagement
     A. Review of Rule 14a-8 Proposal Trends in the 2023 Proxy Season
     B. Shareholder Engagement

IV. Compliance Reminders
     A. Mandatory Electronic Submission of Glossy Annual Reports
     B. New Beneficial Ownership Reporting Rules
     C. Equity Plan Checkup

V. On the Horizon
     A. New Close-In Time Option Grant Disclosures
     B. SEC Rulemaking Agenda

I. Disclosure and Governance Considerations

  1. New Clawback Disclosure. On October 26, 2022, the U.S. Securities and Exchange Commission (SEC) approved final rules directing the national securities exchanges and associations to establish listing standards requiring each listed company to develop, implement, and disclose a policy to recover (or “clawback”) excess incentive-based compensation from current and former executive officers in the event of an accounting restatement, whether or not the executive officer was at fault for the restatement. The final rules also added new disclosure requirements for Forms 10-K and proxy statements,1 including:

    • new Item 601(b)(97) of Regulation S-K requiring the filing of the clawback policy as an exhibit to Form 10-K;

    • two new checkboxes to the cover page of Form 10-K indicating whether the filing contains the correction of an error to previously issued financial statements and whether any of those error corrections resulted in a restatement that triggered a clawback analysis; and

    • new Item 402(w) of Regulation S-K requiring certain disclosures in Forms 10-K and proxy statements2 if there was a restatement that triggered a clawback during the last fiscal year, or if there was an outstanding balance of excess incentive-based compensation from a prior restatement.

    On June 9, 2023, the SEC approved the clawback-related listing standards proposed by the New York Stock Exchange (NYSE) and The Nasdaq Stock Market LLC (Nasdaq). These new listing standards became effective as of October 2, 2023, and each listed company was required to adopt a clawback policy that complies with the relevant listing standards no later than December 1, 2023. As discussed in our recent client alert, this clawback policy is required to be filed as new Exhibit 97.1 to Form 10-K, and the two new check boxes should be added to the cover page of the Form 10-K (and one or both of the boxes should be checked, if applicable).

    In addition, if there was a restatement that triggered a clawback under the clawback policy during the last fiscal year, or if there was an outstanding balance of excess incentive-based compensation from a prior restatement, companies will need to provide disclosure under new Item 402(w) of Regulation S-K, as well as adjust any amounts reflected in their summary compensation table disclosure for the fiscal year in which the amount recovered was reported as compensation. This disclosure, if and when provided, will need to be provided in Inline XBRL format. Regardless of whether companies have any required disclosures under Item 402(w), they should consider adding (or updating) their disclosure in their proxy statements to include a discussion of their newly adopted clawback policy, as well as any other existing clawback policy(ies) that they may continue to have in place. Proxy advisory firms and many investors are focused on governance practices of public companies including executive clawback policies.

    For a detailed discussion of the clawback rules, please refer to our previous client alert, and for a discussion of the SEC’s approval of the NYSE and Nasdaq listing standards, please refer to our previous Known Trends post.

  2. Second Year of Pay Versus Performance Disclosure. On August 25, 2022, the SEC approved final rules requiring certain disclosures on the relationship between executive pay and company performance (pay versus performance). The final rules added new Item 402(v) to Regulation S-K requiring a company’s proxy statement to include:

    • a table of up to five years of specified executive compensation and company financial performance measures (three years for smaller reporting companies (SRCs));

    • a description of the relationship between executive compensation and company performance, using the information shown in the table; and

    • a list of the three to seven most important performance measures used by the company to link compensation actually paid to company performance (not required for SRCs).

    As a reminder, foreign private issuers, registered investment companies, and emerging growth companies are not subject to the pay versus performance disclosure requirement. In addition to the accommodations noted above, SRCs have certain other scaled disclosure accommodations.

    For many companies, 2024 will be the second year of pay versus performance disclosure. As companies prepare for their second year of pay versus performance disclosure, they should:

    1. Ensure that all three years of tabular disclosure from the prior year’s proxy statement are included in this year’s proxy statement, for a total of four years reflected in the table in this year’s proxy statement (or a total of three years for SRCs). Next year, companies (other than SRCs) will need to include a total of five years of disclosures, assuming it is their third year of pay versus performance disclosure.

    2. Review carefully the three sets of Compliance and Disclosure Interpretations (CDIs) published by the SEC’s Division of Corporation Finance in February, September, and November 2023, which are available here. For a detailed discussion of the February 2023 and September 2023 CDIs, please see our Known Trends posts here and here.

    3. Work with their accountants and professional service firms to calculate the information required to be reported in the pay versus performance table in this year’s proxy statement.

    In our recently published 2023 Silicon Valley 150 Corporate Governance Report (2023 SV150 Report), we reviewed the pay versus performance disclosures made by companies within the Silicon Valley 150 (SV150). Companies (other than SRCs) are required to include a company-selected financial performance measure in their tabular disclosure (other than the measures already required in the pay versus performance table) that, in the company’s assessment, represents the most important financial performance measure used by the company to link compensation actually paid to company performance. Of the SV150 companies providing pay versus performance disclosure, a majority (55.9 percent) included a revenue-based measure, such as total GAAP or non-GAAP revenue, as their company-selected measure, while 26.4 percent used an earnings-based measure, such as non-GAAP operating income or adjusted EBITDA, 9.3 percent used a stock-based measure, such as stock price or relative total shareholder return, and 8.5 percent used a separate financial measure, such as annual recurring revenue or bookings.

    In addition, as discussed above, companies (other than SRCs) are required to disclose a list of their three to seven most important performance measures to link compensation actually paid to company performance, including the company-selected measure. Of the SV150 companies providing pay versus performance disclosure, most (63.6 percent) included three or four financial performance measures (including the company-selected measure) in their list. Other than the company-selected measure, earnings metrics (37.2 percent), stock price metrics (22.8 percent), and revenue metrics (18.3 percent) were the three most prevalent types of performance measures listed.

    For a detailed discussion of the pay versus performance rules, please refer to our previous client alert.

  3. Advance Notice Bylaws. The 2023 proxy season was the first proxy season following the adoption of the universal proxy rules, including Rule 14a-19 of the Securities Exchange Act of 1934 (Exchange Act). Following the adoption of Rule 14a-19, many companies amended their advance notice bylaws to account for the universal proxy rules as well as other amendments to enhance and modernize their advance notice bylaws.3 Our previous client alert highlights several of the types of amendments that companies made to their advance notice bylaws, as well as three recent cases from the Delaware Court of Chancery involving challenges to the adoption and enforcement of advance notice bylaws. In another more recent decision addressing advance notice bylaws, the Court of Chancery determined that certain advance notice bylaw provisions adopted by a company in the face of an impending proxy contest were overbroad and unenforceable.4 These cases highlight that, while the court will generally afford directors broad discretion in the adoption and enforcement of advance notice bylaws, companies may come under fire for adopting bylaws that are perceived to be preclusive, particularly when adopted in response to an activist threat, and also provide valuable insight for corporations faced with an activist threat or otherwise considering amending their advance notice bylaws.

  4. Officer Exculpation Charter Amendment. As companies consider whether to include an officer exculpation proposal in this year’s proxy statement, there are several matters that may weigh in their decision-making. Amending a corporate charter comes with certain procedural hurdles such as obtaining the requisite shareholder approval (generally much higher than routine proposals) and the need, generally speaking, to file a preliminary proxy statement (which, on the whole, accelerates the timeline for the overall preparation of the proxy statement). In addition, both ISS Governance (ISS) and Glass Lewis & Co. (Glass Lewis) have issued voting guidelines on this topic. ISS’s voting guidelines indicate that ISS will review and make recommendations on officer exculpation proposals on a case-by-case basis. ISS generally supported these proposals in 2023. Glass Lewis’s voting guidelines similarly indicate that Glass Lewis will review and make recommendations on officer exculpation proposals on a case-by-case basis, but that Glass Lewis will “generally recommend against” the adoption of such provisions absent a “compelling rationale” provided by the board. Unlike ISS, Glass Lewis generally did not support these proposals in 2023. Finally, a recent decision from the Delaware Supreme Court provides helpful certainty regarding class voting rights under the DGCL for multi-class corporations considering adopting officer exculpation. As discussed in our previous client alert, in response to challenges from shareholders of two multi-class corporations, the Delaware Court of Chancery ruled that the corporations were not required, under Section 242(b)(2) of the DGCL, to obtain separate class votes to amend their charters to adopt officer exculpation provisions because the amendments did not adversely affect the powers, preferences, or special rights of the shares of any class. In January 2024, the Delaware Supreme Court unanimously affirmed this decision, rejecting the plaintiffs’ argument that “powers” in Section 242(b)(2) included the ability to sue. For a detailed discussion of this decision, please refer to our previous client alert.

  5. Board Leadership and Risk Oversight Disclosure. Item 407(h) of Regulation S-K requires disclosure in proxy statements of the board’s leadership structure, including why its leadership structure is appropriate, and “the extent of the board’s role in risk oversight, such as how it administers its oversight function and the effect that [it] has on the board’s leadership structure.” As discussed in last year’s proxy season client alert, SEC Division of Corporation Finance staff were carefully reviewing disclosures relating to board leadership structure and the board’s role in risk oversight and issuing comment letters requesting expanded disclosure in future filings. In these comment letters, staff generally requested that companies bolster their disclosure about the board’s leadership structure, including how the experience of the lead independent director bears on the board’s role in risk oversight (if applicable), the board chair’s or lead independent director’s responsibilities, and certain board risk oversight practices.

    In addition to continuing to review and evolve, if needed, these disclosures generally, companies should consider reviewing this disclosure in parallel with their new cybersecurity governance disclosure in their Forms 10-K. As discussed in our recent client alert, companies are now required to comply with new Item 106 of Regulation S-K, which requires, among other things, a description of the board of directors’ oversight of risks from cybersecurity threats in Forms 10-K. Similar to this disclosure requirement, in the SEC’s 2018 Statement and Guidance on Public Company Cybersecurity Disclosure, the SEC advises that, to the extent cybersecurity risks are material to a company’s business, the SEC believes the discussion required under Item 407(h) should include the nature of the board’s role in overseeing the management of that risk. The recent cybersecurity disclosure rules did not supersede previous SEC or staff guidance. In addition, in the adopting release for the cybersecurity disclosure rules, the SEC stated that the disclosure requirements in Items 407(h) and 106 “serve distinct purposes and should not be combined, as suggested by some commenters—the former requires description of the board’s leadership structure and administration of risk oversight generally, while the latter requires detail of the board’s oversight of specific cybersecurity risk.” Although these disclosures may serve separate purposes, companies should ensure that, to the extent applicable, they remain consistent.

  6. Board Diversity. As in previous years, board diversity remains an area of focus to many investors and to the SEC; however, 2023 saw some headwinds. As discussed further below, the anticipated timing for SEC board diversity disclosure rules continue to slip; Nasdaq’s board diversity listing rules survived an initial challenge in federal court, but the petitioners are seeking review en banc in the historically conservative U.S. Court of Appeals for the Fifth Circuit; and the appeals from the California state court’s decisions striking down California’s board diversity laws remain stayed pending a separate decision in a California Supreme Court case.

    1. SEC Disclosure Rules. In December 2023, the SEC published its latest rulemaking agenda, which indicated it is still considering proposing rule amendments to enhance director diversity disclosures; however, the anticipated timeline moved from Spring 2024 to Fall 2024.

    2. Nasdaq Requirements. In August 2021, the SEC approved new board diversity listing standards for companies listed on Nasdaq. Nasdaq-listed companies are now required to include a board diversity matrix in their proxy statement or on their website and to either have one diverse director on their board or explain why they do not. Looking forward, companies listed on The Nasdaq Global Select Market or The Nasdaq Global Market must have, or explain why they do not have, at least two diverse directors by December 31, 2025 (and companies listed on The Nasdaq Capital Market have until December 31, 2026), if applicable.5

      As in 2023, if a company does not have at least one diverse director in 2024, then it will need to provide an explanation as to why it has not satisfied this diversity objective either in its proxy statement for its 2024 annual meeting (or Form 10-K or 20-F if it does not file a proxy statement) or on its website by December 31, 2024. If a company opts to make this disclosure on its website, then it must notify Nasdaq in a Company Notification Form via the Nasdaq Listing Center or email a URL link to the disclosure to drivingdiversity@nasdaq.com, in either case within one business day of posting. For more information on the Nasdaq board diversity listing standards, please refer to our previous client alert.

      In our 2023 SV150 Report, we took a deeper dive into the diversity disclosures of Nasdaq-listed companies within the SV150. Nearly 94 percent of the Nasdaq-listed companies included their board diversity disclosure in their proxy statement rather than on their website. In addition, on average, the board demographics of the Nasdaq-listed SV150 companies are approximately two-thirds male and one-third female and comprised of nearly 30 percent of individuals from underrepresented minorities, but only 2.6 percent of individuals from the LGBTQ+ community.

      Shortly following the SEC’s approval of Nasdaq’s board diversity listing standards, two conservative groups filed a petition for review of the SEC’s approval, contending that the board diversity listing standards violate the First and Fourteenth Amendments of the U.S. Constitution and the SEC’s statutory authority under the Exchange Act and the Administrative Procedure Act. On October 18, 2023, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit ruled in favor of the SEC and Nasdaq. The petitioners have filed a petition requesting a rehearing en banc by the full court; however, as of the date of this alert, Nasdaq’s board diversity listing standards remain in effect. We are continuing to monitor developments.

      Although the NYSE has no corresponding board diversity disclosure requirement, our 2023 SV150 Report showed that more than 80 percent of the NYSE-listed companies in the SV150 voluntarily included some form of board diversity disclosure in their proxy statements, up from 75 percent in our 2022 Silicon Valley 150 Corporate Governance Report.

    3. California Board Diversity Rules. In April and May 2022, the Los Angeles Superior Court struck down both of California’s board diversity laws. Under these two state laws, publicly held companies with principal executive offices in California (regardless of their jurisdiction of incorporation), as disclosed on the cover of their Form 10-K, were required to have a certain minimum number of female directors and directors from underrepresented communities, and report compliance with these diversity mandates by completing and filing the California Corporate Disclosure Statement with the California Secretary of State. For a detailed discussion of the state court decisions, please refer to our previous client alert. While the Secretary of State of the State of California is appealing both decisions, an injunction on implementation and enforcement of these laws is currently in effect pending disposition of the appeals. Accordingly, no disclosure under California law is required at this time. As of the date of this alert, both of the appeals have been stayed pending the decision of the California Supreme Court in Taking Offense v. State of California, Case No. S270535. This case relates to Senate Bill 219, the LGBT Long-Term Care Facility Residents’ Bill of Rights, enacted in 2017, and one of the issues on appeal to the California Supreme Court is whether California recognizes taxpayer standing to bring actions against state officials. We are continuing to monitor developments in these cases.

    4. Proxy Advisors. Both Glass Lewis and ISS have voting policies relating to board composition including, in particular, director diversity. Last year, Glass Lewis transitioned to a percentage-based requirement for gender diversity for companies in the Russell 3000 Index and will generally withhold or vote against the chair of the nominating committee if the board is not at least 30 percent gender diverse; for all other companies, Glass Lewis’s policy requires one gender diverse director. In addition, Glass Lewis will generally withhold or vote against the nominating committee chair if the board of a company in the Russell 1000 Index does not include at least one director who self-identifies as belonging to an underrepresented community.6 7 ISS will generally withhold or vote against the nominating committee chair of all companies where no women serve on the board. In addition, ISS will generally withhold or vote against the nominating committee chair of companies in the Russell 3000 or S&P 1500 Indices where the board has no apparent racially or ethnically diverse members.8

  7. Director Overboarding. Institutional investors and proxy advisors continue to be concerned about the number of public company boards on which directors serve, often referred to as director overboarding. Both ISS and Glass Lewis have director overboarding policies, and many large investors have implemented their own voting policies. Companies should review their corporate governance guidelines against any overboarding policies of their significant shareholders. A sampling of some of these policies is set forth below but is limited to only those firms that have published updated voting guidelines for the 2024 proxy season. The numbers in the table below are the maximum number of boards on which the individual may serve (including the individual’s home board or the board for which the individual is a nominee).

    Firm Name

    General Standard

    CEO Director

    Additional Standard

    ISS

    5 total

    3 total

    —

    Glass Lewis1

    5 total

    2 total2 3

    3 total for executive chairs

    BlackRock

    4 total

    2 total2

    —

    Fidelity

    6 total

    3 total

    —

    Vanguard

    4 total

    2 total2 4

    —


    1 Glass Lewis will consider recommending a vote against an audit committee member who sits on four or more public company audit committees, unless the audit committee member is a retired CPA, CFO, controller, or has similar experience, in which case the limit shall be four committees.

    2 Applies to named executive officers (Vanguard), named executive officers and executive chairs (BlackRock), or executive officers (Glass Lewis), not just CEOs.

    3 Due to the limited business operations of SPACs, when a director’s only executive role is at a SPAC, Glass Lewis will generally apply a higher limit of five public company boards.

    4 The two boards could comprise either the named executive officer’s “home board” (i.e., a company where the individual serves as an executive officer) plus one outside board, or two outside boards if the individual does not serve on their home board.

  8. ESG Disclosure. The SEC’s long-awaited climate disclosure rules still have not been finalized, but companies continue to disclose greenhouse gas emissions as well as other ESG information, both in proxy statements and in standalone ESG and sustainability reports. Our 2023 SV150 Report provides helpful information regarding board and committee oversight of ESG matters, as well as information contained in ESG reports, including third-party framework reporting and greenhouse gas emissions reporting.9

  9. Regulation 14A and Universal Proxy Card CDIs. On November 17, 2023, the staff issued one revised and five new CDIs relating to Regulation 14A and universal proxy cards. These CDIs include guidance relating to the calculation of the 10-calendar day period under Rule 14a-6 for determining when the definitive proxy statement can be mailed following the filing of a preliminary proxy statement, the legend required in solicitations made before furnishing the proxy statement under Rule 14a-12, and clarification that a proposal “involves” another matter for purposes of Note A of Schedule 14A when information about the other matter is material to the stockholder’s voting decision on the proposal under consideration. The remaining three CDIs relate to universal proxy cards and the use of discretionary authority under Rule 14a-4 to vote shares represented by an overvoted proxy card, an undervoted proxy card, or a signed but not marked proxy card. Companies filing preliminary proxy statements or involved in contested director elections should review these CDIs carefully.

  10. Nasdaq Code of Conduct Waivers. On September 5, 2023, the SEC approved Nasdaq’s proposal to amend its listing standards relating to waivers of the code of conduct in Nasdaq Rules 5610 and IM-5610. Under the amended listing rules, waivers of the code of conduct for directors or executives may be approved by the board or by a board committee. Nasdaq-listed companies may want to review their relevant committee charter and code of conduct and consider whether to allow for the delegation of waivers of the code of conduct to a specified board committee.

II. Proxy Advisor Voting Guidelines

In late 2023, Glass Lewis and ISS released their updated U.S. voting policy guidelines for 2024 shareholder meetings, effective for meetings held on or after January 1, 2024, and February 1, 2024, respectively. Glass Lewis’s updates covered a wide range of issues, including with respect to cyber risk oversight, board oversight of environmental and social issues, board accountability for climate-related issues, and standards for assessing the audit committee—material weaknesses, as well as with respect to clawback provisions and executive ownership guidelines. Unlike Glass Lewis, ISS did not add any policies and only updated one of its voting policies—severance agreements for executives/golden parachutes. For a detailed discussion on Glass Lewis and ISS updates, please refer to our previous Known Trends posts here and here.

III. Shareholder Proposals and Shareholder Engagement

  1. Review of Rule 14a-8 Proposal Trends in the 2023 Proxy Season. The 2023 proxy season was the second proxy season following the publication of Staff Legal Bulletin No. 14L (SLB 14L). SLB 14L rescinded previous guidance on excluding shareholder proposals and significantly reduced the availability of the ordinary business and economic relevance exceptions to including shareholder proposals in a company’s proxy statement. Under SLB 14L, the Staff “focus[es] on the social policy significance” and considers whether the shareholder proposal “raises issues with a broad societal impact” in deciding whether to grant no-action requests to exclude shareholder proposals from a company proxy statement rather than just looking at the impact on the company alone.

    As expected, this realigned approach resulted in continued high numbers of social and environmental proposals included in 2023 proxy statements, but with far lower support than in proxy seasons prior to the publication of SLB 14L. According to Georgeson’s annual survey, a total of 947 shareholders proposals were submitted in 2023 compared to 941 in 2022, with 612 voted upon in 2023 compared to 562 in 2022. Average support for environmental proposals fell from 38 percent in 2022 to 23 percent in 2023, and average support for social proposals fell from 26 percent in 2022 to 19 percent in 2023. Moreover, the percentage of environmental and social proposals receiving majority support continued to decline, with only 4.4 percent of environmental proposals and 1.9 percent of social proposals receiving majority support in 2023, compared to 25 percent and 10 percent, respectively, in 2022.

    As noted in our 2023 SV150 Report, 67 shareholder proposals were included in the 2023 proxy statements of the SV150 companies, which is a slight decrease from the high of 71 in the prior year; however, only two proposals received majority support in 2023, down from 10 proposals in the prior year. The two proposals that received majority support in 2023 were related to special meetings, with no environmental or social proposals receiving majority support.

  2. Shareholder Engagement. We recently published a client alert discussing perspectives on shareholder engagement for 2024. Among other things, the alert discusses the importance to companies of clearly and continuously articulating the company’s strategy for value creation, examining the business the way an activist does and looking for opportunities to boost value, understanding their shareholder base and tailoring their message to it, focusing on board composition and refreshment, and keeping director bios updated including with specifics about how each director contributes value to the board.

IV. Compliance Reminders

  1. Mandatory Electronic Submission of Glossy Annual Reports. Starting last year, Rule 101 of Regulation S-T required companies to submit their glossy annual reports electronically on EDGAR in a PDF format no later than the date on which the report is first sent to shareholders. The submission will not be deemed “filed” unless the company explicitly incorporates the annual report by reference into an SEC filing. The PDF of the annual report cannot be reformatted or otherwise redesigned from the original format.

  2. New Beneficial Ownership Reporting Rules. On October 17, 2023, the SEC approved final rules amending the beneficial ownership reporting requirements under Sections 13(d) and 13(g) of the Exchange Act to, among other things, accelerate many of the deadlines for Schedule 13D and Schedule 13G filings. The final rules were effective February 5, 2024; however, compliance with the new Schedule 13G filing deadlines is not required until September 30, 2024.

    Initial Schedules 13D must now be filed within five business days (rather than 10 calendar days) after acquiring beneficial ownership of more than five percent or loss of eligibility to file on Schedule 13G, and amendments must be filed within two business days (rather than “promptly”) after the triggering event.

    Initial Schedules 13G for qualified institutional investors (QIIs) and exempt investors will be required to be filed 45 days after calendar quarter-end (rather than 45 days after calendar-year end) in which beneficial ownership exceeds five percent, or, for QIIs, five business days (rather than 10 calendar days) after month-end in which beneficial ownership exceeds 10 percent. For passive investors, initial Schedules 13G will need to be filed within five business days (rather than within 10 days) after acquiring beneficial ownership of more than five percent. Amendments will need to be filed 45 days after the calendar quarter-end in which any material change occurred, rather than 45 days after the calendar year-end in which any change occurred. QIIs will need to file amendments five business days (rather than 10 days) after month-end in which beneficial ownership exceeds 10 percent or a five percent increase or decrease in beneficial ownership, and passive investors will need to file amendments two business days (rather than “promptly”) after exceeding 10 percent beneficial ownership or a five percent increase or decrease in beneficial ownership.

    The final rules also amended Rule 13 of Regulation S-T to extend the deadline for Schedule 13D and 13G filings to receive the same business-day filing date from 5:30 p.m. Eastern Time to 10:00 p.m. Eastern Time.

    For a detailed discussion of the amendments to the beneficial ownership reporting rules, please refer to our previous client alert.

  3. Equity Plan Checkup.

    Companies should ensure that:

    1. There are sufficient shares in your equity plans for planned grants in 2024.

    2. Your equity plans are not expiring soon.

    3. All necessary equity plan shares have been registered on a Form S-8 registration statement and, for NYSE-listed companies, that appropriate filings have been made with the applicable stock exchange.

    4. All forms of award agreements have been filed.

V. On the Horizon

  1. New Close-In Time Option Grant Disclosures. In December 2022, the SEC approved final rules adding, among other things, new Item 402(x) of Regulation S-K. New Item 402(x) of Regulation S-K requires companies to:

    • discuss their policies and practices on the timing of awards of options in relation to the disclosure of material nonpublic information, including specified information relating to these policies and practices;10 and

    • if, during the last completed fiscal year, the company awarded options to one or more named executive officers in the period beginning four business days before the filing or furnishing of a Form 10-K, Form 10-Q, or Form 8-K (other than a Form 8-K that discloses a material new option award grant under Item 5.02(e)), and ending one business day after the filing or furnishing of any such report, then the company must provide specified information relating to each such award in the tabular format set forth in Item 402(x)(2).

    Companies will be required to comply with new Item 402(x) of Regulation S-K in their first annual reports that cover the first full fiscal year that begins on or after April 1, 2023 (or October 1, 2023, for SRCs) or, if companies forward incorporate this disclosure by reference from their definitive proxy statement, in the proxy statement for the first annual meeting for the election of directors after completion of the foregoing fiscal year. Although calendar-year companies will not be required to provide these disclosures, if applicable, until their Form 10-K for the fiscal year ending December 31, 2024 (or proxy statement for their 2025 annual meeting), the tabular disclosure will relate to this 2024 fiscal year. It is also worth noting that, given the compliance timing, companies with June 30 fiscal year-ends (other than SRCs) will be required to include this disclosure, if applicable, in their Forms 10-K filed in 2024 (or in their proxy statements for this year’s annual meeting if they are forwarding incorporating this disclosure by reference).

    For more detailed information on these disclosure requirements, please refer to our previous client alert.

  2. SEC Rulemaking Agenda.

    On December 6, 2023, the SEC’s Fall 2023 Regulatory Agenda was made publicly available, and provided an update on the agency’s anticipated final and proposed rulemaking schedule for the upcoming year. The SEC anticipates proposing 14 new rules in 2024 and finalizing 29 previously proposed rules. Although actual timing may vary, the agenda provides a useful glimpse into the SEC’s near-term priorities. In its latest Regulatory Agenda, among other changes, the SEC has moved the target date for finalizing the following two rulemakings from October 2023 to April 2024:

    • Climate change disclosure (anticipated action date by April): would require enhanced disclosure regarding climate-related risks and opportunities. For more information on the rule proposal, please refer to our previous client alert.

    • Rule 14a-8 amendments (anticipated action date by April): would amend Rule 14a-8 to update certain bases for excluding shareholder proposals (including the substantial implication exclusion, the duplication exclusion, and the resubmission exclusion).

    The SEC has also moved the target date for proposing certain rules, including the rulemakings listed below, from April 2024 to October 2024 (corporate board diversity and the Rule 144 holding period), and from October 2023 to April 2024 (human capital management disclosure):

    • Human capital management disclosure (anticipated action date by April): would aim to enhance disclosures regarding human capital management. This has become a topic of significant interest to institutional investors and other shareholders. Our 2023 Silicon Valley 150 Corporate Governance Report found that voluntary disclosure of human capital management in proxy statements continued to increase, from almost 73 percent in 2022 to nearly 75 percent in 2023. Most companies in the report described human capital management qualitatively, although 38 percent of companies provided quantitative measures.

    • Corporate board diversity (anticipated action date by October): would aim to enhance company disclosures about the diversity of board members and nominees.

    • Rule 144 holding period (anticipated action date by October): would repropose amendments to Rule 144, a nonexclusive safe harbor that permits the public resale of restricted or control securities if the conditions of the rule are met.

For more information on proxy season matters, please contact any member of the firm's public company representation, employee benefits and compensation, environmental, social, and governance, or shareholder engagement and activism practices.

[1] Foreign private issuers are subject to similar disclosure requirements in annual reports on Form 20-F.

[2] This disclosure is required in Item 11, Part III of the Form 10-K. Therefore, pursuant to Instruction G(3) of Form 10-K, a company may forward incorporate this disclosure by reference from its definitive proxy statement which involves the election of directors, if the definitive proxy statement is filed with the SEC not later than 120 days after the end of the fiscal year covered by the Form 10-K.

Item 402 disclosure is required in proxy statements if action is to be taken with regard to: 1) the election of directors; 2) any bonus, profit sharing or other compensation plan, contract or arrangement in which any director, nominee for election as a director, or executive officer of the company will participate; 3) any pension or retirement plan in which any such person will participate; or 4) the granting or extension to any such person of any options, warrants or rights to purchase any securities, other than warrants or rights issued to security holders as such, on a pro rata basis. See Item 8 of Schedule 14A.

Item 402(w)(3) provides that Item 402(w) disclosure must appear with, and in the same format as, the rest of the disclosure required to be provided by Item 402.

[3] Effective August 1, 2022, Section 102(b)(7) of the Delaware General Corporation Law (DGCL) was amended to authorize Delaware corporations to adopt charter provisions to eliminate or limit the personal liability of certain officers for direct claims of their fiduciary duty of care. According to Deal Point Data, through December 31, 2023, 273 companies have sought to amend their charters to include officer exculpation, of which 226 passed, 41 failed, five remain pending, and one was not included in the definitive proxy statement.

[4] Kellner v. AIM ImmunoTech Inc., 2023 WL 9002424 (Del. Ch. Dec. 28, 2023).

[5] If a Nasdaq-listed company has five or fewer directors, then it is not required to have two diverse directors. See Nasdaq Rule 5605(f)(2)(D). In addition, Nasdaq Rule 5605(f)(4) includes a list of the types of companies that are exempt from the board diversity listing standards.

[6] Glass Lewis defines “underrepresented community director” as an individual who self-identifies as Black, African American, North African, Middle Eastern, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaskan Native, or who self-identifies as a member of the LGBTQIA+ community.

[7]Glass Lewis may refrain an adverse voting recommendation relating lack of board diversity if a board has provided sufficient rationale for the lack of diversity or a plan to address the lack of diversity, including a timeline of when the boards intend to appoint additional gender diverse directors or additional directors from an underrepresented community, as applicable, generally by the next annual meeting or as soon as reasonably practicable. In addition, Glass Lewis may extend its voting recommendation beyond the chair of the nominating committee in cases where the chair is not standing for reelection due to a classified board, or based on other factors, such as the company’s size and industry, applicable state laws in the company’s state of headquarters, and the company’s overall governance profile.

[8] ISS will make an exception to its voting policies relating to a lack of board diversity if there was at least one woman on the board at the preceding annual meeting or if there was racial and/or ethnic diversity on the board at the preceding annual meeting, as applicable, and the board makes a firm commitment to return to a gender-diverse status or to appoint at least one racial and/or ethnic diverse member within a year, as applicable.

[9] To stay up to date on ESG reporting and other matters, refer to our monthly Sustainability and ESG Advisory Practice Update.

[10] It is currently unclear whether the requirement under Item 402(x)(1) to discuss certain policies and practices applies only to executive officers or to all employees. Although the language of the adopting release, available here, appears to indicate that the requirement is intended to only apply to policies and practices pertaining to executive officers, the SEC may issue further guidance on this issue.

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