In yesterday’s blog. I highlighted the Trump Administration’s imposition of tariffs on Canada, Mexico and China, only to learn later in the day that the tariffs had been suspended for Canada and Mexico for a period of thirty days to facilitate negotiations. The 10% tariff on goods from China was not suspended, and as this Reuters article notes, China announced that it would impose tariffs of 15% on imports of U.S. coal and liquefied natural gas, and 10% on crude oil, farm equipment and some automobiles, beginning on February 10.
It is only fitting that, in this year in which we mark the 50th anniversary of the premier of Saturday Night Live, I have made two Emily Litellareferences within a span of three months. For the uninitiated, Emily Litella was a Saturday Night Live character played by the iconic Gilda Radner. The bit with Emily Litella was always the same, in that she would get spun up responding to a fictional editorial, and then the news anchor would point out the error underlying her response, and she would say “Nevermind!” It seems weird that this passed for comedy in the 1970s, but that was the magic of those first few seasons of Saturday Night Live. I was only eight years old when SNL premiered, but for some reason my parents would let me stay up late and watch the program and it certainly left a lasting impression on me!
The question inevitably arises now as to whether impacted public companies should take a different approach to their disclosures now that the immediate crisis of the tariffs on products from Mexico and Canada has been averted. In my opinion, it is still appropriate to analyze the potential impact of the tariffs and include appropriate risk factors and MD&A disclosure in upcoming filings, because there can be no assurance that the dispute will be resolved within the 30-day negotiating period. Further, the imposition of the tariffs is emblematic of a larger international trade policy of the Trump Administration that will clearly utilize trade wars to achieve policy objectives. So while I may say “nevermind!” with respect to the immediate threat, the longer term risks should still be accounted for in upcoming disclosures.
A recent report published by SAR, a data analytics company focused on the securities litigation risk of U.S. public companies, notes that the market capitalization losses related to high-risk adverse corporate events studied by SAR amount to approximately $10 trillion, an increase of $1.1 trillion relative to the two-year period ending September 2024. The announcement of the report includes a quote from SAR’s CEO noting:
The frequency and severity of adverse corporate events are the dominant drivers that foment securities litigation risks for directors and officers of U.S. public companies. As of the fourth quarter, issuers now face an increase of about $1 trillion in market capitalization losses linked to high-risk adverse corporate events that materially impacted stock price during the preceding two years. The securities plaintiffs’ bar will take advantage of increasing complexity around risk factor disclosures after the Supreme Court punted on the high-severity securities class action against Meta last quarter. As a result, the securities litigation risks for issuers will be greater in 2025.
SAR quantifies the securities litigation risk footprint of public companies by analyzing the economic impact of adverse corporate events, together with the change in market capitalization of constituent companies within each of the eleven industry sectors. The firm calculates a “SAR Risk Score,” which is a proprietary score assigned to each company listed on the NYSE or Nasdaq based on the frequency and severity of high-risk adverse corporate events during a two-year period. The SAR Risk Score is calculated by dividing the market capitalization losses observed on high-risk adverse corporate events by the issuer’s market capitalization on the preceding trading day.
In the study, SAR notes that the sector with the highest median SAR Risk Score is Health Care with a median score of 29.11%, followed by Information Technology and Consumer Discretionary with 25.44% and 24.21%, respectively.
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In case you missed it, over the weekend President Trump issued three executive orders directing the United States to impose new tariffs on imports from Canada, Mexico, and China. These tariffs will take effect tomorrow. A White House Fact Sheet notes that the tariffs were imposed under the authority of the International Emergency Economic Powers Act to address “[t]he extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl,” which constitutes a national emergency. No US president has ever used the International Emergency Economic Powers Act to impose tariffs.
As this White & Case alert notes, the tariffs impose an additional 25% ad valorem rate of duty on imports from Canada and Mexico and 10% on imports from China. The tariffs will apply to all imports except Canadian energy resources exports, which will be subject to a 10% tariff. The alert states:
The tariffs apply to products that are entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. Eastern Standard Time on February 4, 2025. Goods already in transit to the United States before to 12:01 a.m. on February 1, 2025 (the day Trump issued the executive orders) are exempt from the tariffs. The executive orders also suspend access to the Section 321 customs de minimis entry process, subjecting shipments below US$800 (which are often e-commerce retail shipments) to the tariffs.
The tariffs will remain in effect indefinitely, until the president decides to remove them. Further tariff increases – by the United States and the target countries – are possible over the next few weeks. The orders state that the president may raise the tariffs further if Canada, Mexico, and China retaliate. All three countries have signaled their intention to retaliate.
As this WSJ article indicates, Canadian Prime Minister Justin Trudeau announced retaliatory 25% tariffs on more than $105 billion of U.S. goods. An announcement regarding retaliatory tariffs is expected from Mexico today.
I highlighted back in October that public companies were contemplating potential risks arising from a change in the Presidential administration, including the potential risks arising from the imposition of tariffs on U.S. trading partners. In the months since then, disclosures have been getting more specific as the outcome of the election became known and the scope of the policy actions came into more focus. Now, as the largest calendar year-end companies are getting ready to file their annual reports on Form 10-K, an analysis must be undertaken to determine how significant tariffs with large US trading partners could impact their business and the economy. Some key considerations include:
– Whether the new US tariffs or new tariffs to be imposed by the other countries will be collected on the company’s goods or goods that are utilized in production of the company’s goods.
– How the tariffs will impact the price that is charged for the company’s goods.
– How the tariffs will impact the cost of goods utilized in producing the company’s goods.
– Whether the imposition of tariffs may impact the availability of goods, including goods in the company’s supply chain.
– Whether the imposition of tariffs will impact the demand for goods that are subject to the tariffs.
– Whether the imposition of tariffs will cause inflationary pressures in the economy and will otherwise have negative economic impacts that could in turn impact the demand for a company’s goods and services.
– Whether mitigation strategies could increase costs that a company may not be able to recover.
Companies should consider these and other relevant risks and uncertainties in the context of preparing their Risk Factors, Business and Management’s Discussion and Analysis sections of their upcoming annual reports on Form 10-K and quarterly reports on Form 10-Q. Some companies are also considering whether the impact of tariffs is so significant that they must provide more current disclosure concerning the situation in a Form 8-K or press release.
As further proof that “what is old is new again,” we covered trending trade war disclosures in this blog way back in 2018.
On Friday, Vanguard published its updated Proxy Voting Policy for U.S. Portfolio Companies for Vanguard-advised funds. The policy was effective on February 1, 2025 and is applicable to 2025 annual meetings.
Consistent with changes we have seen with the proxy voting policies of other investors, Vanguard appears to have revisited its approach to environmental and social shareholder proposals, eliminating guidance regarding specific types of proposals in favor of the following more general statement of the funds’ approach:
It is not the funds’ role as passive investors to dictate company strategy or interfere with a company’s day-to-day management. That said, we believe that a company’s fulsome disclosure of material risks to its long-term shareholder returns is beneficial to the public markets to inform the company’s valuation. Clear, comparable, consistent, and accurate disclosure enables shareholders to understand the strength of a board’s risk oversight. Because sustainability disclosure is an evolving and complex topic, a fund’s analysis of related proposals aims to strike a balance in avoiding prescriptiveness and providing a long term perspective. As such, the funds are more likely to support proposals seeking disclosure of such risks and/or the company’s policies and practices to manage them over time. Finally, shareholders typically do not have sufficient information about specific business strategies to propose specific targets or environmental or social policies for a company, which is a responsibility that resides with management and the board.
As a result, a fund may support a shareholder proposal that:
– Addresses a shortcoming in the company’s current disclosure relative to market norms or to widely accepted investor-oriented frameworks endorsed or referenced by Vanguard’s Investment Stewardship program (e.g., the International Sustainability Standards Board (ISSB));
– Reflects an industry-specific, materiality-driven approach; and
– Is not overly prescriptive, such as by dictating company strategy or day-to-day operations, time frame, cost, or other matters.
Yet another hot topic this year is how investors will be addressing the topic of board composition, and for 2025 Vanguard notes the following approach:
The funds look for boards to be fit for purpose by reflecting sufficient breadth of skills, experience, perspective, and personal characteristics (such as age, gender, and/or race/ethnicity) resulting in cognitive diversity that enables effective, independent oversight on behalf of all shareholders. The funds believe that the appropriate mix of skills, experience, perspectives, and personal characteristics is unique to each board and should reflect expertise related to the company’s strategy and material risks from a variety of vantage points.
To this end, the funds seek fulsome disclosure of a board’s process for building, assessing, and maintaining an effective board well-suited to supporting the company’s strategy, long-term performance, and shareholder returns. This disclosure should include the range of skills, background, and experience that each board member provides and their alignment with the company’s strategy (typically presented as a skills matrix); additionally, the funds look for such disclosure to provide an understanding of the directors’ personal characteristics to enable shareholders to understand the breadth of a board’s composition. The funds also look for disclosure regarding the board’s process for evaluating the composition and effectiveness of their board on a regular basis, the identification of gaps and opportunities to be addressed through board refreshment and evolution, and a robust nomination (and renomination) process to ensure the right mix of skills, experience, perspective, and personal characteristics in the future.
The funds look for a board’s composition to comply with requirements set by relevant market-specific governance frameworks (e.g., listing standards, governance codes, laws, regulations, etc.) and to be consistent with market norms in the markets in which the company is listed. To the extent that a board’s composition is inconsistent with such requirements or differs from prevailing market norms, the funds look for the board’s rationale for such differences (and any anticipated actions) to be explained in the company’s public disclosures.
A fund may vote against the nomination/governance committee chair if, based on research and/or engagement, a company’s board composition and/or related disclosure is inconsistent with relevant market-specific governance frameworks or market norms.
Now we await the updated proxy voting policy of State Street Global Advisors, which usually is not published until March.
I am thrilled to be participating in a new podcast series with Liz on the very important topic of mentorship. In the “Mentorship Matters with Dave & Liz” podcast, Liz and I share our perspectives on mentorship and career development, which we hope can help those looking for guidance on their own career path, as well as those who are looking for ideas on how to support people who are newer to the field.
4. How to create opportunities that align with your skills.
This podcast is available to members of TheCorporateCounsel.net. Be on the lookout for future episodes and be sure to check out The Mentor Blog here on TheCorporateCounsel.net.
Allianz’s 2025 Risk Barometer identifies the following as the top five risks facing global business in 2025: cyber incidents, business interruption, natural catastrophes, changes in legislation and regulation, and climate change. Here’s what Allianz has to say about business interruption:
Business interruption ranks #2 in the Allianz Risk Barometer, meaning it has appeared in the top two risks for the past 10 years. It is the top risk in the Asia Pacificregion (new) and in 12 countries / territories – Austria (new), Canada, China (new), Hong Kong (new), Indonesia (new), Malaysia, Mexico (new), Netherlands, Philippines (new), Singapore, South Korea and Sweden (new).
It is also the top risk in (11) industries: Consumer goods (new), entertainment, food and beverages, heavy industry, hospitality (new), manufacturing (both automotive and other), oil and gas, power and utilities, renewable energy, and transportation and logistics (new).
The impact of a cyber incident or a natural catastrophe are the business interruption exposures companies fear most. The most important actions that companies are taking to de-risk their supply chains and make them more resilient, according to respondents are: Developing alternative/multiple suppliers; Broadening geographical diversification of supplier networks in response to geopolitical trends; and Initiating/improving business continuity management.
Allianz says that the top risks for large companies mirror its top global risks, with cyber incidents, business interruption and natural catastrophes leading the way. For smaller companies, the risks of changes in legislation and regulation have become more significant, and risks like climate change and political violence that were in the past concerns for larger businesses have become more prominent for smaller companies.
Amid the rumblings and grumblings about companies leaving Delaware as a result of a handful of controversial 2024 Chancery Court decisions, two states have emerged as potential contenders for Delaware emigres. The first, Nevada, has long been touted as an alternative to Delaware. More recently, Elon Musk’s decision to move Tesla to Texas, together with the state’s decision to establish a dedicated Business Court, have had more companies eyeing The Lone Star State as a possible new home.
Companies thinking about reincorporating in Texas should read this recent CLS Blue Sky Blog post, which suggests that Texas has a long way to go to before its Business Court provides companies with anything comparable to the Delaware Court of Chancery:
Delaware’s Court of Chancery is celebrated for rapid and efficient decisions. Complex disputes, including merger-related injunctions, are often resolved within weeks. The absence of juries is a big reason for this speed, which helps, maintain stability for litigants and financial markets. The availability of jury trials in the Business Court, however, introduces unique considerations for complex corporate litigation and could lead to substantial delays and unpredictability. Jury selection, deliberation, and the potential for appeals based on jury decisions prolong case resolution and can create outcome inconsistencies.
The 1985 Pennzoil v. Texaco case in Texas serves as a cautionary tale. It resulted in an unprecedented $10.53 billion verdict against Texaco and highlighted the potential for unpredictable outcomes in high-stakes corporate litigation. To address these challenges while maintaining the constitutional right to a jury trial, Texas should consider a specialized jury selection process, which would provide enhanced jury education, encourage bench trials for complex cases, implement bifurcated trials, and use special masters or neutral experts.
Delaware’s streamlined processes enhance its reputation for efficiency. Procedural rules in the Court of Chancery are designed to expedite high-stakes corporate litigation, with mechanisms like summary judgments and injunction hearings conducted on tight schedules. The Business Court, by contrast, must develop similar procedural innovations to ensure it can meet the time-sensitive demands of corporate litigants.
The blog also notes that the right to a jury trial and the two-year terms of Business Court judges may impede Texas’s ability to develop the kind of deep body of opinion precedent necessary to compete with Delaware’s.
I ran into our friend & former colleague Broc Romanek at SRI this week and we had a chance to grab lunch together. It was great to see him, and it reminded me to check out his latest post on Cooley’s “Governance Beat” blog. As usual, it’s worth sharing. In his post, Broc discussed the rapid growth in the length of corporate sustainability reports, which have apparently grown by nearly 20% on average since 2021. He cites a few factors driving their increasing length:
– Alignment with more reporting frameworks, creating many pages of SASB and GRI tables.
– More sophisticated and granular quantitative – particularly, climate – reporting, with a more detailed discussion of methodology.
– Attempts to focus reporting more on company-specific initiatives and issues, rather than broad generic topics, resulting in multipage discussions – with plenty of marketing gloss – about company programs, including case studies.
Broc doesn’t necessarily endorse this trend, noting that there’s frequently unnecessary fluff in longer reports and their length makes quality control more difficult. Also, the longer the report, the more plaintiffs have to shoot at. Broc sums up his general approach to sustainability reports & life in general in the blog’s first paragraph:
As I get older, my motto has been “less is more.” That certainly works for a mindful lifestyle. And it also works for pickleball, as one learns to hit the ball softly and place it cleanly rather than banging away at it to earn points.
Broc plays a lot of pickleball, so I know his advice about the game is sound. I’ve played only a little pickleball, but I have also some advice for you if you’re thinking of giving the game a try. My advice is this – pickleball was invented by malevolent orthopedic surgeons, and this deceptively gentle-looking game carries a not insignificant risk of injury for Boomers & Gen Xers who take it up. As I will now explain, I know this from experience.
Last year, my wife signed us up for pickleball lessons at a local tennis club. All went well until the final class, when I was playing doubles, and my partner missed the ball. Since I firmly believe that I’m 62 going on 22, I determined that I would race across the court and attempt a daring save of the point. I failed miserably, lost my balance, and grabbed the tennis net behind me in an effort to break my fall. My hand got tangled in the net and, to make a long story short, I was soon on my way to the emergency room with the two middle fingers on my right hand pointed at a 45-degree angle.
This was unpleasant, although the folks at the emergency room seemed to enjoy the story of how I ended up there. Between giggles, the nurses told me they see a lot of pickleball injuries from geriatrics like me who refuse to go gentle into the good night. They also said that there is a widely held hypothesis among ER professionals that the game was invented by orthopedic surgeons to drum up business.
Fortunately, my fingers weren’t broken, just badly dislocated. The doctor popped my fingers back in and The Cleveland Clinic sent me a bill for $3,000. Because I didn’t cry about either of these events, my wife bought me McDonald’s for being such a brave little guy.
The bottom line is that I’ve played hockey ineptly for over 20 years without a scratch, but it only took me three weeks of pickleball to end up in the emergency room. So, based on my own experiences as I get older, my spin on Broc’s motto is that for me, when it comes to pickleball, “less is more.”
In case you’ve forgotten, EDGARNext goes live on March 24, 2025 (okay, I know that’s not exactly the Ides of March but indulge me). Filers will be able to use the current platform until September 15, 2025. At that point, existing filer codes will be deactivated, and filers will need to enroll in EDGARNext in order to make future filings. This Hogan Lovells memo outlines what filers need to do in order to transition to EDGARNext, and this excerpt addresses the actions companies should take in preparation for the new filing regime:
– Obtain Login.gov credentials. All individuals who make submissions on behalf of a company or Section 16 filers, or who manage the EDGAR accounts/access codes of those filers, including anyone who will be in charge of enrolling filers in EDGAR Next, should obtain Login.gov account credentials. Login.gov account credentials may be obtained now.
– Take advantage of the EDGAR Next beta. Become familiar with the new dashboard. Login.gov credentials are required for access.
– Collect current EDGAR access codes. Maintain a running list of all current CIKs, CCCs, and passphrases to ensure smooth enrollment. Check to make sure you have the codes of the company and any Section 16 filers for which the company is responsible for, and confirm that the codes work.
– Identify individuals who will serve in various roles. Decide who will serve as Account Administrators and Users for the company and any Section 16 filers for which the company provides filing support. Companies commonly manage EDGAR submissions for Section 16 filers who are directors of more than one public company, so those companies and the Section 16 filer will need to coordinate to determine who is going to enroll the filer in EDGAR Next once it goes live and who will serve as Account Administrator(s).
– Annual Confirmation. Determine which Account Administrator will be responsible for the annual confirmation discussed above.
– Coordinate with filing agents. Coordinate with any filing agents you use to ensure that the filing agent is implementing appropriate processes in connection with the EDGAR Next transition.
– Update onboarding process to account for Form ID. After March 24, 2025, any new Section 16 filers that need EDGAR codes will need to designate who will serve as Account Administrator(s) and provide certain other information (e.g., information regarding history of past securities law violations and good standing) via the new Form ID.
Also, be sure to check out the EDGARNext page on the SEC’s website. The EDGAR Business Office has done several informative webinars addressing EDGARNext and the enrollment process for issuers and individual filers. Replays of those presentations (together with downloadable slide decks) are available on that page.