The U.S. Securities and Exchange Commission (SEC) is intensifying its focus on transparency. The agency has its lens trained on insider trading policies, cybersecurity and AI disclosures, and other high-risk enforcement areas.
Fenwick’s Aman Singh and Merritt Steele reviewed the latest SEC rulemaking in their “Corporate and Securities Law Developments” CLE session, and provide key takeaways below for public companies to meet the latest compliance expectations:
Publicly file your insider trading policies with the SEC. In a bid to increase transparency around how sensitive trading activities are managed, public companies must now clearly state whether they have adopted an insider trading policy and procedures, and if not, explain why. Public companies must also publicly file their insider trading policy as an exhibit to their Form 10-K.
Give new disclosures about option grants and similar instruments. Companies that grant stock options, stock appreciation rights or similar instruments with option-like features must now explain how the board considers material non-public information when timing these grants. These new requirements are intended to provide information about company practices regarding spring-loaded or bullet-dodging option grants for investors as they consider their say-on-pay votes and director elections.
Assess your risk in enforcement priority areas. The SEC has been actively enforcing compliance in high-risk areas like beneficial ownership reporting, whistleblower protections, and corporate governance. With the SEC closely monitoring Schedule 13D and 13G filings, ensure that you are complying with the new accelerated reporting deadlines. Review your employment and separation agreements along with related policies for provisions that could impede potential whistleblowers. Finally, make sure that directors and officers are accurately disclosing information necessary for the company’s corporate governance disclosures, including any perks and relationships that could interfere with independence.
Address climate-related disclosures. While the SEC's proposed climate rules have been stayed, existing guidance mandates companies to disclose climate impacts and risks. Even without new SEC rules, other regulations like the Corporate Sustainability Reporting Directive in Europe and California's climate requirements are already in effect. Public companies, especially those with international operations, must consider the impact of these mandates on their business.
Prioritize SEC scrutiny on cybersecurity and AI. For cybersecurity, ensure your disclosures are consistent, covering risk management, third-party assessments, and material cyber threats. Avoid "AI washing" by clearly defining AI, explaining its use in your company, and disclosing associated risks and how the company manages such risks. Insufficient disclosure in these areas can attract SEC enforcement actions.
Anticipate fewer E&S proposals. In 2024, support for environmental and social proposals (E&S proposals) decreased to 16.4% and only three proposals received majority support. Further, the SEC rescinded Staff Legal Bulletin No. 14L and issued updated guidance on the exclusion of shareholder proposals under Rule 14a-8, making it easier for companies to exclude broad E&S proposals under the economic relevance and ordinary business exclusions. In light of this updated SEC guidance and decreased support for such proposals, companies may receive fewer E&S proposals in 2025. may receive fewer E&S proposals in 2025.
