Client Alert: Preparing for the 2025 10-K and Proxy Season Changes are Coming
January 6, 2025
It’s time to get ready for 10-K and Proxy Season again, but this time change is in the air. Though we summarize recent rules and developments below to get you ready for the upcoming filings, we expect 2025 to bring a significant shift in the regulatory landscape, brought on by the new Administration. SEC Chairman Gensler has already announced that he will step down in January, and we believe that the new Administration will make changes in other agency leadership as well as relax many disclosure rules, some of which are outlined below. Companies will need to be vigilant to balance company and stakeholder interests against SEC and other agency leadership “mission” changes. We will keep you posted on all significant changes as they occur.
- Recent Disclosure Requirements/Changes:
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- Fifth Circuit Tosses Nasdaq Diversity Disclosure Requirements
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- As we previously reported here, on December 11, 2024, the Fifth Circuit Court of Appeals (in a close 9-7 ruling), held that the Nasdaq Marketplace Rules for listed companies requiring disclosure of the racial, gender and sexual characteristics of their directors exceeded the authority of the U.S. Securities and Exchange Commission (“SEC”) to approve under the Securities Exchange Act of 1934, as amended. This ruling, effective immediately, removes the requirement that listed companies provide information in their proxy and information statements as to the above characteristics.
- What Should Affected Companies Do Now? To the extent that companies have complied with the rules solely because they were required to, they may going forward delete the disclosures and the required “Diversity Matrix” that have been included in their proxy and information statements. To the extent companies wish to continue to publicly promote diversity in their boards, they are now free to craft the narrative and disclosures as they see fit (subject, of course, to applicable Nasdaq Marketplace Rules). This ruling will provide companies in the second category with additional flexibility to communicate with shareholders and other constituencies in telling their diversity story.
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- Annual Insider Trading Policies
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- Under the December 2022 amendments to Rule 10b5-1, beginning in 2025, companies will be required to disclose whether they have adopted insider trading policies and procedures for directors, officers, employees, or the company itself, that are designed to promote compliance with insider trading laws.
- If they have not implemented insider trading policies, they will be required to disclose why not.
- These disclosures will be required in annual reports on Form 10-K pursuant to new Item 408(b) of Regulation S-K and, for Foreign Private Issuers, pursuant to a new Item 16J added to Form 20-F.
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- Equity Grant Policy Disclosures
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- The December 2022 amendments also added new Item 402(x) to Regulation S-K, which requires companies to include in their proxy and information statements a discussion of their policies and practices on the timing of awards of options, stock appreciation rights (“SARs”) or similar awards in relation to their disclosure of material nonpublic information (“MNPI”), including:
- how their board or compensation committee determines when to grant such awards (for example, whether awards are granted on a predetermined schedule);
- whether their board or compensation committee takes MNPI into account when determining the timing and terms of such awards (and, if so, how); and
- whether the company has timed the disclosure of MNPI for the purpose of affecting the value of executive compensation.
- The December 2022 amendments also added new Item 402(x) to Regulation S-K, which requires companies to include in their proxy and information statements a discussion of their policies and practices on the timing of awards of options, stock appreciation rights (“SARs”) or similar awards in relation to their disclosure of material nonpublic information (“MNPI”), including:
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- Cybersecurity
The SEC staff has not yet issued many comments on new cybersecurity disclosures, but here are a few things to keep in mind:
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- Inconsistent statements regarding use of third parties:
- the company does not engage third parties to support, manage or supplement cybersecurity processes; and
- the audit committee receives updates from management and third parties regarding cybersecurity threat risk management.
- In this regard, the SEC requested clarification whether companies engage assessors, consultants, auditors or other third parties in connection with their processes for assessing, identifying and managing material risks from cybersecurity threats as required by S-K Item 106(b)(1)(ii).
- Inadequate disclosure regarding relevant expertise of such persons or members in such detail as is necessary to fully describe the nature of the expertise as required by S-K Item 106(c)(2)(i).
- Inconsistent statements regarding use of third parties:
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- AI and Financial Crimes
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- AI Executive Order. In 2025, we anticipate repeal of the current AI Executive Order and the establishment of a new AI Executive Order focused on supporting AI innovation and growth.
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- Financial Crimes. We expect focus on financial crime regulation (sanctions, anti-corruption, KYC, anti-money laundering, beneficial ownership, etc.) to continue with heightened supervision/enforcement against financial crime risks, including illicit and terrorist finance and sanctions compliance amidst rapidly evolving technology innovations and increasingly sophisticated financial crime patterns.
Conclusion
We believe this is the beginning of a changing climate that will alter the regulatory, and therefore the disclosure landscape. It will be important for companies to be on the lookout for these changes as they occur and incorporate them into their disclosures and policies in a consistent manner.
For further information, consult your Croke Fairchild lawyer or:
Geoffrey Morgan, Partner
Alex Stern, Associate