Securities Regulation and Corporate Governance


Developments Regarding Changes to SEC Staff’s Shareholder Proposal No-Action Responses

Several noteworthy developments have occurred following the September 6, 2019 announcement by the Division of Corporation Finance (the “Staff") of the Securities and Exchange Commission (“SEC") regarding two significant procedural changes for responding to Exchange Act Rule 14a-8 no-action requests that will be applicable to no-action requests regarding shareholder proposals submitted for annual meeting to be held in 2020.  That announcement indicated that the Staff may now respond orally instead of in writing to shareholder proposal no-action requests and that the Staff may now more frequently respond by declining to state a view on whether or not it concurs that a company may properly exclude a shareholder proposal under Rule 14a-8.

Following the Staff's announcement, a coalition of investor-related organizations sent William Hinman, Director of the SEC's Division of Corporation Finance, a letter on September 19, 2019 criticizing the change in process.[1]  The letter asked that the Staff “rescind this change in process" or, if it does not, at least take certain steps “to reduce the level of uncertainty and conflict resulting from the new approaches."  The steps requested in the letter include using the new response options sparingly “until the implications are better understood," describing the criteria for when the Staff will use the new response options, signaling early in the process if the Staff will use one of the new response options (and clarifying if the Staff will wait until after the proponent has responded to make that decision), and maintaining visibility when the Staff uses one of the new response options (for example, indicating on the SEC's website any oral decisions and providing the same information to both parties).    

Subsequent remarks by the Staff have begun to provide additional specificity regarding these shareholder proposal no-action request procedural changes and the Staff's rationale for implementing the changes.  For example, in late September, Mr. Hinman indicated that the changes were driven by the Staff trying to think of “a new and creative approach" in responding to no-action requests.[2] 

With respect to oral responses, he indicated that they generally will be used for more routine matters (such as failure to provide ownership proof) and confirmed that the Staff will reflect those responses on the SEC's website in “real time" showing whether or not the Staff concurs that a shareholder proposal may be excluded.  With respect to no-action requests where the Staff declines to state a view, he commented that the Staff may t...

EDGAR Updates Change Filer Password Requirements and Increase Character Length of Certain Cover Page Tags

​On September 30, 2019, the Securities and Exchange Commission (the “SEC") went live with EDGAR Release 19.3 (announcement available here) and made related changes to the EDGAR Filer Manual (announcement available here).  Two notable changes are summarized below. 

Change to EDGAR Password Requirements

Filers, including Section 16 filers, will now be requested to provide twelve character passwords instead of eight character passwords when logging into both the EDGAR Filing Website and the EDGAR Online Forms Management Website.  Current filers who do not update their password to twelve characters will be prompted to update it each time they log in.  We have confirmed with the staff of EDGAR Filer Support that current filers who do not update their password when prompted will not be prevented from logging in successfully.  However, EDGAR passwords expire annually and should be changed before the expiration date.  Any filers who have not already updated their password by the time they otherwise expire will be required to create a password that satisfies the new requirements before being permitted to log in to EDGAR.

To change their password, filers will need to be logged into the EDGAR Filing Website or the EDGAR Online Forms Management Website and follow the procedure described in Section 4.1.3 of Volume 1 of the EDGAR Filer Manual.  This procedure requires filers to enter their CIK number and Password Modification Authorization Code (“PMAC").  If filers do not know their PMAC, they must generate a new set of EDGAR access codes using the EDGAR Filer Management Website.

This update will not impact the requirements for other EDGAR access codes (e.g., the PMAC, passphrase, CIK Confirmation Code (“CCC")).[1]  

Update Allowing for More Characters in Security Titles

Companies subject to cover page tagging requirements must tag certain information relating to their securities that are registered pursuant to Sections 12(b) or 12(g) of the Securities Exchange Act of 1934, including the title of such securities.  When making their most recent Form 10-Q filings, many compan...

Everyone Jump In! All Issuers Will Be Allowed to “Test-the-Waters”

On September 26, 2019, the SEC announced (available here) that it has adopted a new rule, Rule 163B (available here) under the Securities Act of 1933, that allows all issuers to “test-the-waters." This accommodation, which had previously been available only to emerging growth companies (EGCs), allows issuers and authorized persons (e.g., underwriters) to engage in discussions with, and provide written offering material to, certain institutional investors prior to, or following, the filing of a registration statement, to determine market interest in potential registered securities offerings. Rule 163B will become effective 60 days after publication in the Federal Register.

In connection with the adoption of Rule 163B, SEC Chairman Jay Clayton noted in a public statement (available here) that Rule 163B will provide “both Main Street and institutional investors with more opportunities to invest in public companies." This is consistent with one of the tenets of the SEC's current Strategic Plan (discussed in our prior blog post available here) to increase the number of public companies for the benefit of Main Street investors.

The SEC initially proposed a new rule allowing all issuers to test-the-waters (the “Proposed Rule") on February 19, 2019 (available here, and discussed in our prior blog post available here). Rule 163B in the form adopted by the SEC is largely consistent with the Proposed Rule, with few exceptions.  

Among other things, the SEC noted the following:

  • All issuers – including non-reporting issuers, EGCs, non-EGCs, well-known seasoned issuers and investment companies (including registered investment companies and business development companies) – and “persons authorized to act on behalf of" the issuers – including issuers' investment bankers and other advisors – are eligible to engage in oral or written communications with potential investors that the issuers reasonably believe are qualified institutional buyers or institutional accredited investors.
  • 163B communications will be c...
SEC Staff Announces Significant Changes to Shareholder Proposal No-Action Letter Process

On September 6, 2019, the Division of Corporation Finance (the “Staff") of the Securities and Exchange Commission (“SEC") announced[1] two significant procedural changes for responding to Exchange Act Rule 14a-8 no-action requests that will be applicable beginning with the 2019-2020 shareholder proposal season:

  • Oral Response by Staff:  The Staff may now respond orally instead of in writing to shareholder proposal no‑action requests.  The Staff's oral response will inform both the company and the proponent of its position with respect to the company's asserted Rule 14a-8 basis for exclusion expressed in the no-action request.  The Staff stated that it intends to issue a written response letter to a no‑action request “where it believes doing so will provide value such as more broadly applicable guidance about complying with Rule 14a-8."
  • No Definitive Response by Staff:  The Staff may now more frequently decline to state a view on whether or not it concurs that a company may properly exclude a shareholder proposal under Rule 14a‑8.  Importantly, the Staff stated that if it declines to state a view on any particular no-action request, the interested parties should not interpret that position as indicating that the proposal must be included in the company's proxy statement.  Instead, the Staff stated that in these circumstances, the company requesting exclusion may have a valid legal basis to exclude the proposal under Rule 14a-8.

In the announcement, the Staff also reiterated that—in the situations described in prior Staff Legal Bulletins[2]—it continues to find an analysis by the board of directors useful when a company seeks to exclude a proposal on grounds of either ordinary business (Rule 14a-8(i)(7)) or economic relevance (Rule 14a-8(i)(5)).  The Staff also noted that parties continue to be able to seek formal, binding adjudication on the merits of Rule 14a-8 issues in...

SEC Issues New Guidance for Proxy Advisors and Investment Advisers Engaged in the Proxy Voting Process

​​On August 21, 2019, the Securities and Exchange Commission (the Commission) issued two releases (the Releases) regarding two elements of the proxy voting process that are influenced by proxy advisory firms: proxy voting advice issued by proxy advisors (available here) and proxy voting by investment advisers who use that proxy voting advice (available here).  The guidance, in the words of Commissioner Elad L. Roisman, “reiterate[s] longstanding Commission rules and positions that remain applicable and very relevant in today's marketplace."

In the Releases, the Commission provided:

  • a Commission interpretation that the provision of proxy voting advice by proxy advisory firms generally constitutes a “solicitation" under federal proxy rules and new Commission guidance about the availability of exemptions from the federal proxy rules and the applicability of the proxy anti-fraud rule to proxy voting advice; and

  • new Commission guidance intended to facilitate investment advisers' compliance with the fiduciary duties owed to each client in connection with the exercise of investment advisers' proxy voting responsibilities, including in connection with their use of proxy advisory firms.

​​​Notably, the Releases are not subject to notice and comment and will instead become effective upon publication in the Federal Register.

We discuss the Releases in greater detail in our client alert (available here).​

Thanks to associate Geoffrey Walter in Washington, D.C. for his assistance in preparing this summary and the related client update.

Desktop Calendar of SEC Deadlines for 2020 Now Available

​This is a smart time of year to confirm plans for SEC reporting and capital markets transactions in 2020. To assist public companies in keeping track of the various filing deadlines, we have prepared a desktop reference calendar that sets forth filing deadlines for many SEC reports. To assist companies with planning capital markets transactions, including IPOs, our calendar also provides the staleness dates (i.e., the last date financial statements may be used in a prospectus or proxy statement without being updated).

You can download a PDF of the 2020 SEC Filing Deadlines calendar at the link below.

Gibson Dunn provides a range of other helpful resources on our website, from a guidebook for companies considering their initial public offering to illustrative timelines for securities offerings by existing public companies. For access to these and other resources and publications, please see Gibson Dunn's Capital Markets Practice Center.

For more information about current developments and trends in securities regulation, corporate governance and executive compensation, sign up for Gibson Dunn's Securities Regulation and Corporate Governance Monitor.  

Special appreciation for the contributions of Monika Kluziak, associate in our Houston office, and Matthew Ross, summer associate in our Houston office.

SEC Issues Interpretations Clarifying Inline XBRL Rules

On August 20, 2019, the Division of Corporation Finance (the “Staff") of the Securities and Exchange Commission (“SEC") issued nine new Compliance and Disclosure Interpretations (“C&DIs") regarding Interactive Data (available here), addressing many of the technical compliance issues surrounding the Inline XBRL rules, particularly with respect to common questions related to the exhibit index and cover page tagging. The C&DIs also address compliance by early or voluntary filers and foreign private issuers. The Inline XBRL rules went into effect for calendar year-end large accelerated filers when filing their second quarter Form 10-Q.

Set forth below are key takeaways from the new Inline XBRL C&DIs related to the exhibit index and cover page tagging.

1.     The Exhibit Index

Question 101.01 addresses how registrants subject to Inline XBRL requirements should identify any Interactive Data File, including Cover Page Interactive Data Files, in their Forms 10-K, 10-Q, and 8-K:

  •  For Interactive Data Files submitted under Rule 405 of Regulation S-T (generally, files that contain financial statements, footnotes, and financial statement schedules tagged in XBRL), the description in the exhibit index should: (1) identify the exhibit as Exhibit 101; and (2) include the word “Inline." For example, the Exhibit 101 exhibit index description in a Form 10-Q might read, “The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Inline XBRL: (i) Consolidated Statements of Cash Flows, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Balance Sheets, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags."

  • Subject to an exception for certain Form 8-K filings described below, for Cover Page Interactive Data Files submitted under Rule 406 of Regulation S-T, the description in the exhibit index should: (1) identify the exhibit as Exhibit 104; (2) include the word “Inline"; and (3) cross-reference the Interactive Data File submitted under Exhibit 101.  For example, the Exhibit 104 exhibit index description in a Form 10-Q might read, “The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Inline XBRL (included as Exhibit 101)."

Question 101.04 states that the Staff will not object if a Form 8-K filing with no exhibit other than the Cover Page Interactive Data File omits the exhibit index under Item 9.01 to the Form 8-K. In other words, companies need not include an exhibit ind...

SEC August 21 Open Meeting To Address Issues Related To Proxy Advisory Firms

The SEC announced that it will hold an open meeting on Wednesday, August 21, 2019 at 10:00 AM eastern time.  There are two matters on the agenda, available here, which, although not specifically referring to proxy advisory firms, appear to address reliance on voting recommendations issued by such firms, and the conditions such firms must satisfy to rely on an exemption from the proxy rules. 

The first agenda item is a Division of Investment Management matter captioned “Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers.”  The SEC’s notice describes this matter as follows: 

The Commission will consider whether to publish guidance regarding the proxy voting responsibilities of investment advisers under Rule 206(4)-6 under the Investment Advisers Act of 1940, and Form N-1A, Form N-2, Form N-3, and Form N-CSR under the Investment Company Act of 1940.

The second agenda item is a Division of Corporation Finance matter captioned “Commission Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice.”  The notice describes this matter as follows: 

The Commission will consider whether to publish an interpretation and related guidance regarding the applicability of certain rules, which the Commission has promulgated under Section 14 of the Securities Exchange Act of 1934, to proxy voting advice.

This item appears related to the rulemaking addressed in the SEC’s most recent Reg Flex agenda, which stated that the Division of Corporation Finance “is considering recommending t...

SEC Proposes to Modernize Disclosures of Business, Legal Proceedings, and Risk Factors

​On August 8, 2019, the Securities and Exchange Commission (“SEC") announced that it voted to propose amendments to Regulation S-K (available here) seeking to modernize and simplify the required disclosures by public companies, investment advisors, and investment companies (the “Proposed Amendments").  The Proposed Amendments form part of the SEC's ongoing efforts to simplify disclosure requirements, and, with the exception of Legal Proceedings, emphasize a more flexible, principles-based approach as opposed to prescriptive requirements.  “The world economy and our markets have changed dramatically in the more than 30 years since the adoption of our rules for business disclosures by public companies.  Today's proposal reflects these significant changes, as well as the reality that there will be changes in the future," said Chairman Jay Clayton.  “I applaud the staff for their efforts to modernize and improve our disclosure framework, including recognizing that intangible assets, and in particular human capital, often are a significantly more important driver of value in today's global economy.  The proposals reflect a thoughtful mix of prescriptive and principles-based requirements that should result in improved disclosures and the elimination of unnecessary costs and burdens."

The Proposed Amendments include the following proposals:

  • Description of the general development of the business (Item 101(a))

    The Proposed Amendments would take a principles-based approach to the Business section disclosure by revising this Item to provide a non-exclusive list of the types of information a registrant may need to disclose, requiring disclosure of a topic only to the extent it is material to the understanding of a registrant's business, and eliminating the prescribed five-year timeframe for disclosure.  In addition, the Proposed Amendments would eliminate year-over-year redundancy in the Business section by permitting a registrant, in filings made after the registrant's initial filing, to provide only an update of the general development of the business that focuses on material developments in the reporting period, so long as the update is accompanied by an active hyperlink to the registrant's most recent filing that, together with the update, would contain the full discussion of the general development of the registrant's business.
  • Narrative description of the business (Item 101(c))

    The Proposed Amendments would revise this Item to include human capital resources as a disclosure topic, such as measures that address attraction, development and retention of personnel to the extent such objectives are material to the un...
Technical Points to Keep in Mind When Filing Upcoming Forms 10-K, 10-Q, and 8-K

​As we discussed in a prior client alert (available here), in March 2019, the Securities and Exchange Commission (the “SEC") adopted a number of changes to modernize and simplify disclosure requirements (the “Final Rules").  While many of these changes went into effect on May 2, 2019, the SEC adopted phased compliance dates for the requirements to tag data on the cover pages of Forms 10-K, 10-Q, 8-K, 20‑F, and 40-F in Inline XBRL.  The Final Rules set forth the following compliance dates (which mirror the compliance dates for operating companies to implement the general Inline XBRL requirements):

Operating CompaniesCompliance Date
Large accelerated filers that prepare their financial statements in accordance with U.S. GAAPReports for fiscal periods ending on or after June 15, 2019
Accelerated filers that prepare their financial statements in accordance with U.S. GAAPReports for fiscal periods ending on or after June 15, 2020
All other filersReports for fiscal periods ending on or after June 15, 2021

As companies implement the new data tagging requirements, there are a number of technical issues to bear in mind.

EDGAR Upgrade Fixes Entity Registrant Name “Warning" Message

For large accelerated filers with a calendar year-end, the first periodic report subject to Inline XBRL and cover page tagging is the Form 10-Q for the quarter ended June 30, 2019.  Many companies that already filed found that a warning message would pop up during the EDGAR submission process if the “Exact name of registrant as specified in its charter" on a company's Form 10-Q cover page did not mirror exactly the company's name as recorded in the EDGAR database.  Due to technical limitations and idiosyncrasies of EDGAR, many companies have a name in the EDGAR database that does not match the company's actual name.

On July 29, 2019, the SEC announced EDGAR Release 19.2.1, which provides that certain “Entity Registrant Name" tag mismatches no longer result in a warning.  For example, differences in spacing or punctuation (including hyphens) and EDGAR-imposed abbreviations (e.g., “CORPORATION&q...

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