by T. GormanPosted on Posted in SECActions

Acting Chair Allison Herren Lee directed the staff of the Division of Corporation Finance to “enhance its focus on climate-related disclosure in public company filings.” Presumably this directive is to focus on updating the Commission’s only existing disclosure requirements regarding climate change. Those were, as the Acting Chair stated, passed in 2010 (here).

The directive is an important step. As a leading setter of disclosure standards, it is critical that the SEC update its requirements which the CFTC labeled ineffective last year in its report on the impact of climate change. As the Acting Chair stated “Now more than ever, investors are considering climate-related issues when making their investment decisions. It is our responsibility to ensure that they have access to material information when planning for their financial future.”

Last year when the agency updated key portions of Regulation S-K which governs the applicable disclosure requirements, both Ms. Lee and Commissioner Crenshaw decried the failure to update the Commission’s decade old standards. Despite enacting amendments to Regulation S-K, there was no mention of climate change in the new provisions. Indeed, none of the rule making initiatives launched last year or in the last several years have addressed the critical issue of climate change. Yet securities and other regulators around the world are moving forward with new standards that will require business enterprises and investment advisers to disclosure the climate information they use when making critical business and investment decisions. Ashley Asher, Chair of the International Organization of Securities Regulator, made this point clear in a recent speech discussed in an article posted on Monday of this week.

In undertaking its task, the Division of Corporation Finance need not wade back a decade to 2010. In 2016 the Commission published a Concept Release centered on the question of climate change. It posed questions regarding sustainability reporting. Although the agency did not follow-up with rule proposals, the comments and information obtained should afford the Commission a base from which to move forward. In view of that information, and Mr. Asher’s analysis of trends among regulators, there should be little doubt that executives are analyzing the impact of climate on business and investments. Given the importance of the issue, and the long-stated goal of MD&A to put the investor in the seat of the corporate executive, it is time that the Commission required that current climate information be disclosed to investors.

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by T. GormanPosted on Posted in SECActions

Nasdaq filed a proposal with the Securities and Exchange Commission on December 1, 2020 to modify its listing standards to embrace diversity (here). Specifically, the exchange proposed to require companies listed on Nasdaq Global Select Market and Nasdaq Global Market to have two diverse directors within four years of the time the Commission approves the proposed rule. Firms listed on Nasdaq Capital Market would be expected to have two diverse directors within five years of the approval by the agency.

The purpose of the proposed rule is to “champion inclusive growth and prosperity to power stronger economies,” according to Nasdaq CEO Adena Friedman. To facilitate the goals of the proposal Nasdaq has entered into a partnership with Equilar, a leading provider of corporate leadership; data solutions. The platform afforded by Equilar will “enable Nasdaq-listed companies that have not yet met the proposed diversity objectives to access a larger community of highly-qualified, diverse board-ready candidates to amplify director search efforts,” according to a release by the exchange.

With this proposal and others, Nasdaq is attempting to strengthen corporate governance. There are numerous studies demonstrating that greater diversity improves decision making and governance. As Nasdaq President Nelson Griggs stated “Corporate diversity, at all levels, opens up a clear path to innovation and growth. We are inspired by the support from our issuers and the financial community . . .”

Not everyone is pleased with the proposal by the exchange. The Republican members of the Senate Banking Committee urged the SEC in a February 12, 2021 letter to reject the “proposed rule from Nasdaq that requires publicly traded corporations adopt new racial and gender diversity standards for boards of directors,” according to a press release posted on the Committee website (here). In a letter directed to SEC Acting Chair Allison Herren Lee, the Senators detailed multiple concerns about the proposal, noting that it “interferes with a board’s duty to follow its legal obligations to govern in the best interest of the corporation and its shareholders.”

Comment

The proposal of Nasdaq is not only consistent with the current initiatives of many companies, but is also supported by recent studies demonstrating that diversity improves decision making. The Senators’ claim that mandating diversity interferes with the duty of the board while seemingly consistent with the idea that the board must act in the best interest of the enterprise is actually an out of step bromide that ignores current best practices in governance.

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