US Companies: Reminders for the 2023 Annual Report and Proxy Season

As public companies in the United States prepare their 2022 annual reports and 2023 proxy statements, they will need to contend with a host of new requirements and disclosure updates. Among other factors, these stem from the current geopolitical and economic environment, a bevy of Securities and Exchange Commission (SEC) regulatory activity and several revisions to the Delaware General Corporation Law (DGCL). This client alert provides an overview of these requirements and steps that public companies can take to navigate the upcoming Form 10-K and proxy season.

• Risk Factors (Form 10-K Item 1A; Item 105 of Regulation S-K):Public companies should carefully review their risk factors to ensure that all risks are up-to-date and adequately described, paying particular attention to situations where they previously described a risk in hypothetical terms and subsequently experienced such risk, an issue particularly prevalent in the cybersecurity area and which has been a focus of SEC enforcement activity.
• Pay-Versus-Performance (Item 402(v) of Regulation S-K): The SEC finally adopted the “pay-versus-performance” disclosure requirement called for under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act).
• Universal Proxy Rules (Schedule 14A Exchange Act): In November 2021, the SEC adopted universal proxy rules that are effective for the 2023 proxy season.
• Say-on-Frequency Vote (Rule 14a-21(b) Exchange Act):As a reminder, companies are required to conduct an advisory vote on the frequency of the say-on-pay vote at least once every six years.
• CEO Pay Ratio (Item 402(u) of Regulation S-K): For CEO pay ratio calculations, companies should consider the three-year limit on using the same median employee for comparison purposes, and assess whether their workforce compositions or compensation arrangements have materially changed.
• Glossy Annual Reports (Rule 14a-3(c) Exchange Act): Beginning January 11, 2023, companies must furnish “glossy” annual reports to the SEC via EDGAR in PDF format.
• D&O Questionnaire Updates: Consider updating director and officer questionnaires in advance of 2023 annual meetings to cover SEC disclosure requirements under the Iran Threat Reduction and Syria Human Rights Act of 2012, and any certifications required under advance notice bylaws, as well as consent to being named as a director in any proxy statement in which a director is to be elected (including a dissident’s proxy statement in light of universal proxy rules).
• Rule 10b5-1 Trading Plans and Related Disclosures (Rule 10b5-1; Items 402(x), 408 and 601(b)(19) of Regulation S-K; and Rule 16a-3(f)): The SEC recently adopted amendments to Rule 10b5-1, adding new conditions to the availability of the affirmative defense to insider trading liability. Rule 10b5-1 plans that are adopted by non-issuers on or after February 27, 2023, must comply with the new rules.
• Nasdaq Board Diversity (Nasdaq Rule 5605(f)): Beginning on December 31, 2023, Nasdaq companies must have at least one diverse director (and by later specified dates, two) or explain why the company does not meet this objective. Certain relief is provided for smaller reporting companies, as well as companies with five or fewer directors.
• Amendments under Delaware Law: Among other areas, these include amendments to requirements involving officer liability, stockholder lists and meeting notices.
• Non-GAAP Interpretations:On December 13, 2022, the SEC staff issued updated C&DIs to address certain questions regarding the calculation and presentation of non-GAAP measures.
• Clawback Rules (Rule 10D-1 Exchange Act): Listed companies will be required to adopt a clawback policy providing for recovery of incentive-based compensation erroneously received by current or former executive officers (based on the same definition used for determining which officers are subject to Section 16 reporting requirements) during the three completed fiscal years immediately preceding the year in which the company is required to prepare an accounting restatement due to material noncompliance with financial reporting requirements. The updated rules have implications for disclosures in annual reports and the triggering of restatements.
• Electronic Filing of Form 144:Beginning on April 13, 2023, certain Forms 144 must be filed electronically with the SEC via EDGAR.
• Reg Flex Agenda:According to the SEC Fall 2022 Reg-Flex Agenda, a number of rules are in the final rule stage and are set to be approved in the first few months of 2023. Agenda items involve major proposals, including climate disclosure, cybersecurity, share repurchases and amendments to Rule 14a-8, which, if approved, will likely impose substantial burdens on reporting companies.

For additional details and discussion regarding these new requirements, click here to read the original, full client alert by Heyward Armstrong, Alex Bowling and Olivia Jamrog of Ally Law member firm Smith Anderson.