Corporate Governance

2022 Corporate Governance and Executive Compensation Survey - 20th Annual

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Shearman & Sterling LLP 51 | Regulatory Round Up ENHANCEMENT AND STANDARDIZATION OF CLIMATE-RELATED DISCLOSURES In December 2021, the SEC proposed a dramatic overhaul of existing principles-based, climate-related disclosure requirements, modeled in part on the framework recommended by the Task force on Climate-Related Financial Disclosures. The proposed rules would require public companies to include extensive climate-related disclosures in periodic reports and other filings, including descriptions of climate-related governance processes and physical and transition risks, Scope 1, 2 and 3 greenhouse gas emissions and intensity metrics, financial statement line-item impacts in an audited footnote and detailed information on climate-related targets and goals. The proposed rules would also require accelerated filers and large accelerated filers to provide attestations on certain greenhouse gas emissions metrics. The proposed rules are largely prescriptive and represent a significant departure from the SEC's recent principles-based disclosure approach to rulemaking and guidance. The SEC has indicated final rules may be adopted as early as October of 2022. See our related article "After Years of Debate, Climate Change Impact Reporting Gets Real" at page 7. SHARE REPURCHASE DISCLOSURES In December 2021, the SEC proposed rule changes that would increase the disclosure required in connection with share buybacks by issuers and affiliated purchasers. The new rules would require companies to report share repurchases on a new Form SR one business day after any repurchase and to provide more extensive disclosure about share repurchases and programs under Item 703 of Regulation S-K, including the objectives and purpose of the program and whether insider sales were made around the time of announcement. The proposed rule, coupled with proposed changes to Rule 10b5-1 could, if adopted, dramatically impact issuer repurchase programs. See our related article "SEC Proposes Significant Changes to Share Repurchase Disclosure and Rule 10b5-1 Requirements and Disclosure" at page 33. RULE 10B5-1 PLANS AND INSIDER TRADING In December 2021, the SEC proposed amendments to Rule 10b5-1 that would alter how Rule 10b5-1 plans are currently operated and used. Under the proposal, Rule 10b5-1 would modify the components of a plan that qualifies for an affirmative defense by, among other things, imposing significant cooling off periods for new plans, including issuer share repurchase plans using Rule 10b5-1, prohibiting multiple overlapping plans and limiting single trade plans to one within any 12-month period. The proposing release also calls for increased disclosure in several related areas, including quarterly disclosures on Rule 10b5-1 plans or other trading arrangements by a company, directors or officers relating to the company's securities, option grant timing disclosures and disclosure of a company's insider trading policies. The release states that its intention is to curb perceived abuses of loopholes in the current rule that allow insiders to capitalize on material non-public information while benefiting from the affirmative defense that Rule 10b5-1 affords. See our related article "SEC Proposes Significant Changes to Share Repurchase Disclosure and Rule 10b5-1 Requirements and Disclosure" at page 33. BENEFICIAL OWNERSHIP REPORTING In February 2022, the SEC proposed changes to the rules that require a beneficial owner of more than 5% of a public company report on Form 13D or 13G. The proposed rules shorten the filing deadlines for initial filings and amendments, expand the reporting requirements to the deemed beneficial ownership of securities underlying cash settled derivatives if held for the purpose or effect of changing of influencing control of the company, require reporting of options and other derivatives held by reporting persons and update group formation requirements. These proposals if adopted should be welcomed by companies as they provide earlier disclosure with respect to accumulations of their stock for purposes of activist campaigns or takeover efforts. Regulatory Round Up Richard B. Alsop Insights 20 YEARS

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