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A Proxy Season and Annual Report Guide to 2021
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This is a summary of the Annual Report. Click here to access the full guide.
There continues to be proxy disclosures implemented in 2019 that are not properly applied by companies, such companies forgetting to add Exhibit 4(v) which requires the description of securities to be filed as an exhibit four with Form 10-K. In terms of securities laws developments, the SEC adopted a plethora of principles-based rules, such as a rule that impacts the disclosure and procedural requirements of proxy voting advice businesses. More notably, the SEC adopted amendments to modernize its rules requiring disclosures about a company’s description of business, legal proceedings, and risk factors. Looking forward to the 2021 proxy season, we should not expect a top-down regulatory scheme regarding ESG issues anytime soon; however, as investors and other jurisdictions increase their focus on sustainability issues, and ESG reporting standards continue to converge, it would behoove public companies to reassess their current ESG business and disclosure practices. COVID-19 will likely increase the awareness and actions necessary to tackle high impact/high probability risks such as those related to climate change and biodiversity losses. Moreover, companies will likely face an onslaught of proposals related to prominent 2020 events and COVID-19, such as diversity and inclusion, racial justice, socioeconomic inequality, economic resiliency, and climate change. Companies must consider COVID-19 and its impact on disclosures in their annual reports filed on Form 10-K. Overall companies should consider the following:
Companies choosing to provide ESG disclosures, or who are adopting a framework for ESG should carefully consider the feasibility of such standards and commitments adopted to ensure they are able to meet such standards. Whatever the format, and as with any public disclosure, companies should ensure their ESG disclosures are subject to robust controls, procedures, and oversight, because ESG-related disclosures are subject to federal securities laws to the extent they are materially inaccurate or misleading, and consequently could have legal, regulatory, and reputational consequences to the extent such disclosures are inconsistent with company actions or industry standards. Finally, it’s expected that companies will continue to host virtual meetings in 2021 and beyond. Ensure that, to the extent there was a reliance on executive orders or temporary rules for the conduct of virtual meetings during 2020, there were no changes to such orders or rules. Shareholders should also be provided a “meaningful opportunity” to participate fully in the meeting, which could be helped by implementing telephonic or internet-based help lines for shareholder support during the meetings and explaining how to handle technical glitches that may occur during the meeting.
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