I don’t claim to know a whole lot about ERISA, but one thing I do know is that being deemed a plan fiduciary is a pretty onerous prospect. This Sidley memo summarizes key takeaways from the new guidance:

– Proxy Advisory Firms May Be Functional Fiduciaries. The DOL cautions that proxy advisory firms may be considered “functional fiduciaries” under ERISA sections 3(21)(A)(i) and (ii) if they exercise authority or control of the exercise of shareholder rights attributable to shares that constitute “plan assets” under ERISA or provide advice on how to exercise proxy rights attributable to shares owned by ERISA plans.

– Proxy Advisory Firms That Exercise Control or Authority Over the Exercise of Shareholder Rights Will Be Functional Fiduciaries. The DOL confirmed that proxy advisory firms that have discretion or control over shareholder rights attributable to ERISA plans (e.g., proxy advisory firms that control voting policies or the casting of votes) will be considered functional fiduciaries under ERISA section 3(21)(A)(i).

– Proxy Advisory Firms Generally Are Investment Advice Fiduciaries Under the Five-Part Test. The DOL confirmed that proxy advisory firms will likely be considered investment advice fiduciaries under the DOL’s five-part test (discussed in more detail in our prior Update). Under the five-part test, a person is a fiduciary only if (1) they render advice to a plan as to the value of securities or other property or make recommendations as to investing in, purchasing, or selling securities or other property; (2) on a regular basis; (3) pursuant to a mutual agreement, arrangement, or understanding with the plan that (4) the advice will serve as a primary basis for investment decisions with respect to the plan’s assets; and (5) the advice will be individualized based on the particular needs of the plan. With the caveat that the ultimate analysis depends on the specific facts and circumstances, the DOL takes the position that proxy advisory firms that provide individualized advice to ERISA plans as to how to exercise shareholder rights on a regular basis will generally satisfy the five-part test.

– State Law Preemption. In light of a number of recent state laws seeking to regulate proxy advisory firms, the DOL provided guidance on the application of ERISA’s preemption clause to state laws mandating disclosure by proxy advisory firms when they make recommendations for reasons other than maximizing returns. The release provides that a requirement that proxy advisory firms disclose when their research or recommendations take nonfinancial factors into consideration would not sufficiently affect ERISA plan administration because proxy advisors are already precluded from taking actions with respect to ERISA plans that would require such disclosures. As such, the DOL concludes that such a law would not be preempted.

This Ropes & Gray memo is recommending that asset managers and ERISA plan fiduciaries consider taking the following steps:

1. Audit existing proxy advisor arrangements against each prong of the DOL’s five-part investment advice test as interpreted under TR 2026-01 to determine whether the arrangement may create an inadvertent fiduciary relationship — and whether restructuring to avoid fiduciary status is appropriate;

2. Assess potential exposure under ERISA § 405 (as a co-fiduciary) where the proxy advisor may be deemed to be a fiduciary; and

3. Monitor for future rulemakings that may amend the regulations to take a harderline on the use of non-pecuniary factors and the tiebreaker test.

I can’t say whether this will cause investment managers to rely less on proxy advisors or affect the broader voting advice ecosystem – but it does seem like another instance of tightening the screws. The Ropes & Gray memo notes that the guidance could be a prelude to a rule proposal.

– Liz Dunshee

The dispute will shape a panoply of SEC cases in which victims aren’t easy to pinpoint, from low-profile record-keeping violations to major insider trading allegations. The SEC used disgorgement to secure orders for more than $6 billion in fiscal 2024 and almost $11 billion last year.

This O’Melveny memo summarizes the lead-up to the case and notes it’s the third time in the past decade that SCOTUS has addressed the SEC’s equitable remedies. According to the Bloomberg article, the Court seemed skeptical about taking disgorgement off the table, even though tracking down specific victims of securities fraud is challenging (if not impossible). Here’s an excerpt:

But even Justice Clarence Thomas, who had voted to bar the use of disgorgement altogether in 2020, indicated he isn’t a sure bet this time around. Thomas told a lawyer arguing for new restrictions that “the world has changed in this area” because of a statute Congress passed in the aftermath of the 2020 ruling.

Although Monday’s session wasn’t definitive, the court spent less than a half hour questioning the Justice Department lawyer representing the SEC in its bid for broad disgorgement powers. That’s potentially a positive sign for the government from a court that often spends more than an hour peppering government lawyers with skeptical queries.

We’ll stay tuned for the opinion…

– Liz Dunshee

As our readers may recall, Cicely retired from the SEC in December after 24 years of service. During her time at the agency, Cicely served in many senior leadership roles, including as Acting Director of Corp Fin. Listen to this 24-minute episode to hear:

1. Cicely’s leadership experiences at the SEC, including favorite memories.

2. The role of mentorship in Cicely’s career trajectory and achievements.

3. How mentorship dynamics evolve as your career advances, and how to keep growing through these changes.

4. Maintaining positive relationships as practitioners move between the public and private sectors.

5. Valuable mentorship advice for anyone looking to progress in the corporate and securities compliance field.

Thank you to everyone who has been listening to the podcast! If you have a topic that you think we should cover or guest who you think would be great for the podcast, feel free to contact Dave or me by LinkedIn or email.

– Liz Dunshee

The SEC has received over 100 comments so far! These include letters from individual investors, researchers, and many other key market participants and trade groups, such as:

– Business Roundtable

– Center for Audit Quality

– Council of Institutional Investors

– International Corporate Governance Network

– Nasdaq – Also see Nasdaq’s blog with 5 key takeaways from their letter

– Society for Corporate Governance

– US Chamber of Commerce

One thing that struck me when scanning through the letters is that there is not much across-the-board consensus on what the SEC should do and how onerous and detailed the disclosure requirements should be. That’s not too surprising given the diverse perspectives of the groups submitting comments – the corporate issuer crowd tends to want to go one way and the investor crowd tends to want to go the other way. But it does underscore why the SEC is trying to check all the procedural and informational boxes during its current rulemaking endeavors.

This Goodwin blog highlights topics that many of the letters address and the divergent views that are presented. Here are selected excerpts (check out the entire blog, co-authored by our very own Dave Lynn, for more details):

1. Principles Based Disclosure Versus Prescriptive Disclosure – Some commenters advocate for grounding disclosure requirements in materiality and urge the SEC to adopt a principles-based approach that would allow companies to determine, based on their specific facts and circumstances, whether particular information is material to investors.

Commenters who oppose a shift to the principles-based approach counter that increased company discretion creates a risk of under-disclosure.

Several commenters support a hybrid approach, proposing the elimination of clearly immaterial or redundant disclosure requirements while maintaining specified disclosure requirements in key areas.

2. Specific Line-Item Recommendations – The disclosure framework debate is also found in comments regarding specific line-item disclosure requirements under Regulation S-K, where views of commenters diverge on whether particular requirements should be reduced, eliminated, or expanded. The divide is sharpest between those advocating for a streamlined, materiality-focused disclosure framework and those emphasizing the importance of maintaining or enhancing standardized requirements to support comparability and investor protection.

3. Safe Harbors and Liability Reform – Commenters expressed differing viewpoints on whether securities law liability drives the prevalence of boilerplate and immaterial disclosure.

Some commenters argue that litigation risk is a primary driver of defensive disclosure practices, contending that the risk of securities fraud claims encourages companies to include generic, overly broad or immaterial information to mitigate liability exposure. As a result, disclosure is often drafted to satisfy legal requirements rather than to communicate material information. To address these concerns, these commenters advocate for expanded safe harbors and interpretive guidance, including protections for omission of widely known or non-company-specific risks; enhanced coverage for forward-looking statements; and broader, materiality based safe harbors.

Other commenters oppose the creation or expansion of safe harbors from anti-fraud liability, arguing that such liability is fundamental to the integrity of the disclosure regime.

4. ESG and Governance Disclosures – Several comment letters raise the concern that certain Regulation S-K requirements function as indirect regulation rather than as a means for providing material disclosure to investors. This tension is particularly acute with respect to ESG-related disclosures, in which commenters expressed differing views as to the purpose of these disclosure requirements.

5. Scaling and Differentiation by Company Size and Industry – A recurring theme in the comments is whether Regulation S-K should apply uniformly to all companies or whether the disclosure requirements should be scaled to a company’s size, stage of development, or industry.

Several commenters argue that smaller and newly public companies face disproportionate compliance burdens under the current disclosure requirements. These commenters call for scaling the disclosure framework based on company size, with specific proposals including raising filer thresholds, exempting smaller issuers from certain rules (e.g., executive compensation, cybersecurity, and climate-related disclosures), and reducing reporting frequency.

Other commenters express concern that scaled or industry-specific disclosure requirements can negatively affect comparability and investor protection. . . . These commenters recommend streamlining disclosure requirements for all companies to avoid information asymmetry and loss of comparability.

6. Modernization of Disclosure Format – Commenters also addressed the format and delivery of public company disclosures, particularly regarding whether the SEC should expand, maintain, or scale back requirements for structured, machine-readable data such as XBRL.

Some commenters express concerns about the cost and complexity of structured data, recommending substantially scaling back or eliminating XBRL tagging. Proposals include limiting Inline XBRL to primary financial statement line items, eliminating narrative block tagging, and exempting small reporting companies and nonaccelerated filers entirely.

Other commenters emphasize the importance of structured, machine‑readable data for enabling comparability, automation, and AI‑driven analysis. They recommend expanding XBRL to currently untagged narrative sections, including MD&A, risk factors, and qualitative proxy disclosures, arguing that limiting XBRL would increase reliance on manual data extraction and reduce comparability and reliability.

I know a lot of people in our community are investing many hours and brain cells in making suggestions, so it really will be interesting to see how the SEC’s proposal – if and when it’s issued – reflects the feedback. I’m pleased to have worked with my Cooley teammates on this letter – see this blog for a summary of the recommendations – and I am also pleased that it’s now in the SEC’s court!

– Liz Dunshee

– Adopting a regulatory IPO “on-ramp” that supplements the concept that Congress designed in the JOBS Act, and

– Providing nearly all public companies with an easier path to “shelf registration,” which allows them to access the public markets quickly and when market conditions are ideal.

Hat tip to Meredith for taking a deep dive into what this could look like – *could* being a key term since nothing has been proposed, let alone adopted. She found this 2015 interview with former SEC Commissioner Steven Wallman where he discusses the “company registration model” – and how the JOBS Act got us only part of the way to what could be a much simpler system. Here’s an excerpt:

On priorities, as an example, I thought it was very important to work on capital formation issues. And so I ended up chairing the Commission’s first ever Advisory Committee on Capital Formation. I’m proud and pleased that some of its core recommendations and much of the direction it suggested for evolution of the securities laws has been implemented since the last decade-and-a-half. Some of the recommendations, like full S-3 shelf registration for global issuers has developed over time to mimic what we had proposed in terms of a “company registration” concept.

The current law is still more complex and tortured in some respects than what’s needed if we simply implemented company registration, but in result it still arrives at almost the same place – just through a more maze-like process. We had proposed a concept of registering companies, not securities, — a Copernican shift from the current model — that would eliminate some of the transaction-based complexity of the current structure and make it much more streamlined and simplified. But the current
law, within at least an order of magnitude, has directionally moved to the same place we had suggested.

Some of the regulations that have now been implemented as part of the JOBS Act were among other concepts that we had reviewed and promoted. So I feel quite proud about all that, that we’ve moved in the direction that that the Advisory Committee suggested, albeit under different names, with other kinds of nomenclature and semantics, and over a timeframe that is overly long compared to what could have been done had we just moved forward in a timely manner then. But sometimes big ideas and novel approaches take time to acclimate and actually move through the process, especially when you have
regulatory systems that almost by definition are primarily backwards looking and influenced heavily by incumbents as the ones with a current stake in the process. It takes a bold staff and thoughtful regulatory body leadership to be what some would — perhaps even attempting to be disparaging in these circumstances — call “adventurous.” But I have always thought the Commission up to it.

In the interview, Steven also discusses his efforts to modernize SEC rules to reflect new technologies – proving that the more things change, the more they stay the same! Check out these resources for more about the ideas that were floated on the company registration model back around “the turn of the century” (i.e., the late 90s and early 2000s):

– Private placement exemptions in a company registration model

– Letter from the Committee on Securities Regulation of The Association of the Bar of the City of New York in response to the SEC’s Release Nos. 33-7606A and 34-40632A, dated November 13, 1998, which requested comments on proposed rules for the registration of securities offerings under the Securities Act of 1933 and related provisions of the Securities Exchange Act of 1934.

– Liz Dunshee

The exhibits to this Guide include sample charters, policies and procedures. All of these exhibits are to some extent useful in assisting the audit committee in performing its functions and in monitoring compliance. However, it would be a mistake to simply copy published models. The creation of charters and written policies and procedures is an art that requires experience and careful thought. In order to be “state of the art” in its governance practices, it is not necessary that a company have everything another company has. When taken too far, a tendency to expand the scope of charters, procedures and policies can be counterproductive.

For example, if an audit committee charter or procedure requires review or other action to be taken and the audit committee has not made that review or taken that action, the failure may be considered evidence of lack of due care. Each company should tailor its own audit committee materials, limiting audit committee charters and written procedures to what is truly necessary and what is feasible to accomplish in actual practice. These materials should be carefully reviewed each year to prune unnecessary items and to add only those items that will in fact help directors in discharging their duties.

Among other updates, this year’s guide discusses the decline in SEC and PCAOB enforcement activity and the heightened expectations for AI oversight. Here’s an excerpt on that:

Given this emerging technology that comes with both new risks and heightened attention from many different stakeholders, it is important for boards and relevant committees to engage in active oversight of artificial intelligence risk management and to stay apprised of updates in the rapidly-evolving space. In addition to maintaining oversight over AI use internally (if tasked with such oversight), audit committees should consider how third parties, including external auditors, use and govern AI in their practices.

Members can access this guide and lots of other resources in our “Audit Committee” Practice Area.

– Liz Dunshee

The answer to that is what I am calling our “A-C-T” strategy, which rests on three distinct, but interlocking pillars to: advance our regulatory frameworks into the modern era – A, clarify our jurisdictional lines – C, and transform the SEC rulebook by returning it to first principles – T.

Every initiative toward which the SEC is working—every rule that we propose, every interpretation that we release, and every institutional reform that we undertake—largely falls into at least one of those three categories.

Chair Atkins goes on to explain his view that disclosure reform falls under the “transform” prong (and helps “Make IPOs Great Again”). Here’s an excerpt:

More than a corporate milestone, I believe that every IPO is also an invitation for workers and savers to participate in the prosperity of the next generation of American enterprise. When fewer companies extend that invitation, fewer Americans receive it.

So, as I have indicated on several occasions, we are working to reverse the precipitous decline in public companies. A central objective for this goal is to rationalize disclosure requirements by delivering the minimum dose of regulation, again with materiality as our north star. Further, as a disclosure agency and not a merit regulator, the SEC should not use its rules to indirectly regulate matters—or put its thumb on the scale for issues—that should be left to the States, including corporate governance.

Looking ahead, I am eager for the Commission to propose rules that execute my Make IPOs Great Again agenda. For proposals in the near term, I have instructed the Commission staff to evaluate the following ideas: (1) adopting a regulatory IPO “on-ramp” that supplements the concept that Congress designed in the JOBS Act; (2) expanding the existing accommodations that are currently available only for emerging and smaller companies to more businesses; (3) providing nearly all public companies with an easier path to “shelf registration,” which allows them to access the public markets quickly and when market conditions are ideal; and (4) giving companies the optionality for a quarterly or semiannual regulatory filing cadence.

If you want to hear more from Chair Atkins, don’t miss the podcast he launched last week! The series is aimed at giving an “inside look” at the SEC’s work and will feature guests from inside and outside the agency.

– Liz Dunshee

Here are a few “do’s” & “don’ts” that I gleaned – also see this memo co-authored by Christine O’Brien of Edelman Smithfield, who was part of our NACD panel.

PREPAREDNESS:

DON’T over-rely on stock surveillance tools. Surveillance is a useful input, but it may not detect activists building positions through derivatives that fall below reporting thresholds. The stronger defense is maintaining ongoing dialogue with key stockholders – with IR and governance teams actively listening, identifying concerns, and escalating potential vulnerabilities to management and the board.

DO be prepared – before the call comes. By the time an activist contacts you, they have likely already accumulated a position and spoken with your stockholders. If you are only now identifying your advisors, assigning roles, and developing a response strategy, you are already behind. At a minimum, engage a proxy solicitor on retainer (so they’re on your team before an activist gets to them), and prepare a templated press release you can quickly tailor and issue. The press release should affirm that the company values input from all stockholders – signaling responsiveness while preserving time to assess your options carefully.

RESPONSIVENESS:

DON’T neglect internal and external stakeholders. Your response to an activist must address more than investor communications. Employees, business partners, customers, and other stakeholders are watching – and uncertainty can be damaging. Communicate early, set clear expectations about what the company can and cannot disclose, and ensure all communications are reviewed for consistency. Every employee should know to direct media inquiries to a single designated spokesperson.

DO listen first – then communicate deliberately. If you have the opportunity, consider adopting defensive governance structures proactively, before any threat emerges (often called a “clear day” adoption). But once an activist is at the table, defensiveness is often counterproductive. Listen openly, take their concerns seriously, and work with advisors to craft a response that is measured, consistent with your public messaging, and protective of the company’s long-term position.

DO approach settlements strategically. Settlement is currently the most common resolution to activist campaigns, due to the cost, distraction, and reputational risk of a contested proxy fight. But settling is not inherently the right outcome, and companies shouldn’t jump to accept an activist’s initial terms. Key settlement provisions – including board seat composition, standstill periods, committee assignments, and information rights – are all negotiable. Engage skilled advisors early to understand your leverage and protect the company’s interests throughout the process.

– Liz Dunshee

Here are the updated facts that led the staff to extend relief to TSEM:

…TSEM’s headquarters, management, parent company and largest fabrication facility (Fab 2) are all located less than 20 miles away from the Israel-Lebanon border, which continues to suffer rocket fires, missile strikes and air raid sirens from Lebanon. In addition, the wartime restrictions in Israel, especially in the northern part of Israel where TSEM’s headquarters, management and Fab 2 are located, remain ongoing, and TSEM employees, directors, vendors and other stakeholders located in Israel continue to be subject to shelter-in-place orders from time to time. Several parts of Israel continue to experience intermittent loss of power, internet and telecommunications services, as Israel continues to endure severe disruptions to communications and infrastructure.

As a result, these war conditions have continued to meaningfully impair TSEM’s ability to collect, verify and assist its directors and officers in reporting the security ownership information required under Section 16(a). In addition, these restrictions impact access to company records and legal and compliance services, including notary services, that are necessary to complete the reports.

For example, certain TSEM directors and officers had to reschedule notary appointments for Form ID preparations multiple times, with some of those appointments still pending as of the date of this letter, due to rocket strikes and other collateral consequences of military operations in the region.re-run S16.net blog

– Liz Dunshee

Weil recently published this voting guide to show where things stand with the “Big 3” – BlackRock, State Street Investment Management and Vanguard – with a special focus on environmental, social, and governance topics. It focuses on the policies that apply to the index funds managed by these institutions (i.e., not the active funds, which are a smaller portion of the holdings and may be voted differently).

The guide has two handy charts that are good as a quick reference tool. One shows year-over-year changes by topic, the other summarizes the current policies of each of the Big 3 on each of these topics:

– Board Diversity

– Director Time Commitments / Overboarding

– Independent Board Leadership

– Board Oversight of ESG Risks & Opportunities

– Use of ESG Disclosure Frameworks

– Climate Risk-Related Disclosure

– Human Capital Management / Workforce Diversity, Equity & Inclusion

– Human Rights

– Political Contributions, Lobbying & Trade Association Memberships

– ESG Metrics in Compensation

As we head into the home stretch of “proxy season” for many companies, remember that we’re posting lots of helpful resources for members in our “Proxy Season” Practice Area.

– Liz Dunshee