Corporate Governance

Shearman & Sterling LLP Regulatory Round Up | 52 CYBERSECURITY DISCLOSURES In March 2022, the SEC proposed new rules that would require companies to report material cybersecurity incidents on Form 8-K within four business days of a determination that an incident is material and to provide material updates on cyber incidents in periodic reports. The proposed rules would also require periodic disclosures about a company's policies and procedures to identify and manage cybersecurity risks, management's role in implementing cybersecurity policies and procedures, the board's oversight of cybersecurity risk and the expertise of board members in cybersecurity, if any. SPACS AND PROJECTIONS In March 2022, the SEC released proposed rules for transactions involving special purpose acquisition companies (SPACs). If adopted in their current form, these rules would make wide-ranging changes to the disclosure and liability landscape applicable to SPACs and de-SPAC transactions. Among other changes, the SEC seeks to make SPAC IPO underwriters liable for de-SPAC disclosures by deeming them "statutory underwriters" if they take steps to facilitate the de-SPAC transaction, or any related financing transaction, or otherwise participate (directly or indirectly) in the de-SPAC transaction. Rather than creating regulatory parity between de-SPACs and IPOs, this would represent a significant departure from long-established views and practices that carefully calibrate liability for investment banks based on transaction type and task performed. The proposed rules would also introduce a "merit" element into the regulation of going public transactions by requiring statements about the fairness to public investors, something not seen in IPOs. The rules would also move projections made in connection with de-SPACs outside the safe harbor of the Private Securities Litigation Reform Act of 1995. SHAREHOLDER PROPOSALS In July 2022, the SEC proposed revisions to Rule 14a-8 under the Securities Exchange Act of 1934 to amend certain substantive bases on which U.S. public companies can exclude shareholder proposals from their proxy statements. The proposals would impact the circumstances under which companies can exclude a proposal that it has already implemented (Rule 14a-8(i)(10)), a proposal that is the same as one from another proponent (Rule 14a-8(i)(11)) and a proposal that is the same as one previously submitted but failing to meet a minimum favorable vote (Rule 14a-8(i)(12). While the changes are technical in nature, if adopted as proposed, they are likely to make it more challenging for a company to exclude shareholder proposals from proxy statements on these substantive grounds. The amendments reflect a belief on the part of the majority of the current SEC commissioners that there are benefits of presenting shareholders with more shareholder-sponsored proposals, even if those proposals are similar to existing company policies, are similar to each other, or are similar to other proposals that were recently voted on, and that those benefits outweigh the costs for companies and shareholders of including, analyzing or voting on those proposals. PAY VERSUS PERFORMANCE In August 2022, the SEC adopted final rules implementing the pay versus performance requirement required under the Dodd-Frank Act. New Item 402(v) of Regulation S-K will require companies to disclose specified executive compensation and financial performance measures for the company's five most recently completed fiscal years. These must be provided in a tabular format for the company's principal executive officer and, as an average, for the other name executive officers. The table will include total compensation, as well as a measure reflecting "executive compensation actually paid"; details to calculate that measure are provided in the new rule. Companies must also provide a list of three to seven of its most important financial performance measures that link the compensation "actually paid" to performance.

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