What’s going on at the SEC

Welcome to shareholder Primacy from free float media. A podcast about activist investing Securities Law and all the way is the financial legal world's intersect and Collide in real life. We have returned after a week off and Lipton and I are here to delve into a meaty subject for everybody. And of course there's a law professor at the University of Colorado, who teaches and research to Securities and business law, she holds up the legal and of this podcast. And that's Mike Levin an activist investor who lives and works in Chicago. He covers the financial side of our podcast. Yes, I make an effort to do that but as I started explaining I took on another job. This past. Yeah. So you're you're you're treading on to my turf. Now what are your teaching? What are you doing? I am. I am guessing. In a seminar on activist investing at the University of Chicago Law School. That's great for the next for the next eight weeks. So Professor Adrian, Robertson at who, you know, I think you worked with ya at the University of Chicago had me, guest lecture at her Security's law at her corporate finance, class last spring. And after that, she said, I'm supposed to teach a seminar in the spring. Meaning this right now. Yeah, would you care to do it? So we started, we started pulling together. So we spent the last several months kind of structuring this. And I went and read a bunch of syllabi, syllabi syllabus. Yeah. So bye from some friends of mine. Got some friends who teach at Columbia and NYU and we structured a class that was awesome, so we'll have to talk about it. The The we're teaching seven weeks of just seminar of discussion and then the eighth week is a presentation where we have I think 20 students and they're going to be in teams and they each come up with a case. They used to come up with a real life activist situation. So they actually find a company and they propose an activist intervention. Yeah. Exactly engagement engagement intervention. Yes. So so as this is past week was the very first class. So I don't get all nervous about a whole lot of stuff. I was really kind of nervous about that. I think it went pretty well. I mean, they were everyone hung on my every word and was eager to talk to Professor Levin. I never thought I'd be called that. So you have to so I hope you're used to it by now. But not professor of event. Professor. Yeah. So anyways pretty good. So we'll have to talk about that as this kind of unfolded and you know to followers here that have money to have dry powder, there may be a company or two we could talk about. Yeah, exactly. So anyway so that was kind of fun. Now, I have a good little idea about what you, what you have to experience each we each month. So now, I would just get you managing. So managing some money and then you can really, we can really share. Anyway, not for a while. Yeah, right. Let's um let's plunge into the subject of the day, which is the Securities, the US Securities and Exchange Commission the SEC. I think it's been a lot. Well we haven't actually I look back. We haven't devoted a single an entire single episode to just looking at the SEC. And again, we touch on it and all sorts of ways. We mentioned developments but there have been A lot. So yeah. Actually. Got a question. About General SCC development. So we figured good time to kind of summarize. What's happening there? Yes. And we'll look at some of the detail because even since the last time we looked at, I think 148, there's been some pretty interesting developments on that specific subject, but there's a bunch of other things that kind of came up. So we thought we'd talk about that and they may try to tie it together and sort of see what we think. So, go ahead just a reminder that since this was inspired by male, bear question. You again, anyone who wants to can email us with comments or other suggestions for topics at shareholder? Primacy at free float dot? LLC? Excellent. So, SEC. Develops. There are developments, there are suffering. Um, related to disclosures related to requirements for shareholder, proposals related to Ria's and so forth. Again, we've talked about these on and off to a greater or lesser extent, but here we thought we'd kind of tie it together. The first Biggie, that's got everybody's attention is the sec's policy on their rule. 1488 Which pertains to shareholder proposals, and what companies are obligated to do. I thought, we'd take two seconds and just recap. What the SEC did. What about three or three? Four months ago was late last year I think, right? So they sort of informally informally changed the policy about how they're going to handle change policy. They just didn't go through any formal rulemaking. They didn't actually change the rule in any way, they keep saying that they're going to actually make amendments to the rule, but so far nothing's been proposed. So, instead we even ask, you see that's fairly hostile to shareholder proposals, in general, and they've essentially taken a hands-off, we're just not going to get involved, kind of policy. It's a little more complicated than that, but traditionally the way, this is worked is shareholder. Gives a if Cheryl wants a proposal appear at the company on the company proxy ballot, they give it to the company, the company and then just include it, we're done. But the company may want to exclude it because it feels that it violates a rule, one of the restrictions on what you can put on the ones you like ordinary business, or it's already been implemented or whatever or the shareholder doesn't have sufficient Holdings, whatever it is right. And so the company it wants to exclude it. The rule requires requires that they Go to the Seas and say, hey, we're planning on. Excluding it on this basis. Now, what has traditionally happened after that? Is that the SEC would either say we agree with you? It's excludable or we don't agree with you. It's excludable. And if the SEC agreed with it, then the company was kind of safe and knowing that the SCC wasn't going to come out. They were going to pursue litigation and they're going to prove an enforcement action. So no action. Exactly. So they could the company could leave it off now, what? Really that what the company would be at risk for is even if the SEC said we're not going to sue you over a proposal over excluding a proposal, the shareholders still could say the SEC is just wrong, it's not excludable. I should be able to include it on the ballot and the Cheryl could bring an action. Now, that's happened a couple of times in history, right ever, really ever? Yeah, it's really very, very rare. The fact is that if the SEC said it's excludable, it would We disagree that it's excludable. We think it should be included that was sort of a warning shot to companies. If you exclude it you might risk an SEC enforcement action and they basically just went along with it. They would include the proposal. So yeah, the company wasn't going to sue the SEC over that. Exactly. So basically is a practical matter of the SEC was being the adjudicator of these things. And what happened the new policy is functionally. I mean, there are bells and whistles, but what comes down to is the SEC is just not gonna get involved anymore. They've been clear that they're not really going to evaluate whether a proposal is excludable or not and they've also made clear since they're pretty hostile to show their roles as they're certainly not going to sue the company for failing to include it. So what this means is a practical matter is that the company is going to either going to notify the SEC that it plans to exclude it or not. But then after that plays it or they'll just include it. But if they notify the SEC that it plans to exclude it, then if the shareholder disagrees with that, since the SEC isn't really taking action, the only option for the shareholder is to bring a lawsuit, which Has happened, which has happened? Yeah. What happened like several times in the past like month? My fear. Like, so right now, companies are mostly being fairly careful about this and a lot of the exclusions have been on the basis of the shareholder. Simply didn't qualify like they didn't have sufficient Holdings, procedurally, improper, late, things like that. Yeah, those have been most of them, but there have been a couple of aggressive moves to exclude and I'll just say my theory is that this is eventually going to settle into an equilibrium. We're companies do not want to go to court over this. So they're just going to deny when they want to deny and wait to see if a shareholder sues them. And maybe they'll just include the ones. Even if they have grounds to exclude them, they'll include the ones by shareholders who are obviously have the wherewithal to suit like the political organizations and so forth. But like, the major the major labor unions or something. Yeah, exactly. So that's what I think that I think they're going to settle into as a pattern but right now what's happened is companies actually seem to be including a lot of them because they just don't want to get into a fight. Over it, but a few have excluded them leading to some very public lawsuits, right? So there's actually there's there's three parts to this, that we should first. When we talked about this, you touching the second ago is the status of like companies acting on this new, I think. So, I saw somewhere. It's called like a non objection policy rather than no act, no action. It's no objection. Yeah, just not really taking just stepping. So the status at the second, let's we'll talk for a minute about all these different these and all these. There's probably half a dozen, lawsuits that file and third. There was a lawsuit filed, I think, last week about the rule out, this chain about the change of itself. Exactly. Whatever right. That's the base of, all right. Okay, good. So let's talk about the street. The status of the notice is is a lot of companies started taking advantage of this. No objection. Policy or position called position the number of shareholder proposals. Even just submitted a company's is down this year this policy. I think oh no. Alright, I'm just overall like, the denominator is kind of lower. Yeah. Um and I had sort of when we talked about this a couple. I think we potted about this two, three months ago. I kind of speculated that is nothing Burger companies are, you know, liked the cover of the sec's, no action stuff. And so they just kind of let these things and man was I wrong. There are dozens and dozens and dozens of these no objection letters that have been sent out. and, You know, companies are really availing themselves of this new, this new position. And yeah there's a few that have been kind of like we haven't seen. Exactly. But yeah, I think companies everybody's in a state of uncertainty now, but there are definitely some that are kind of testing the limits and some of them have gotten sued as a result of it. So let's talk about that. So they've been four or five years lawsuits go. Yes. So there, and, and so on, a lot of them proceeded the way I expected. So my view has been companies. Don't really want to litigate it. The proposals are not that important, they don't like them, but it's not that, right? So as soon as they follow a lawsuit, why are they seriously going to go to the as soon as someone falls off with, they're not going to go to the expense of Defending it they're just going to settle and include it. And that's happened in several cases, right? So New York, pension, public Pension funds. Put a proposal AT&T you say, the AT&T one is what was very emblematic. Yeah. One reports, which are basically reports on the diversity of AT&T's Workforce, they asked AT&T to voluntarily disclose these. They want to proposal to ask them to disclose these AT&T said, oh no, we're that is ordinary business, that's micro managing. We're not going to include it on our ballot and NYC public. Pension fund filed the lawsuit to force it on the ballot, in the AT&T, like, within eight days. So that and then the nature of the settlement was I think not we're going to put on the ballot. It was we're just going to disclose these reports. Oh, was that what they said? I believe, I believe it. I think it was yeah. So they basically just agreed to the policy, you know, because this is this was these eeo one and I don't I I know their workplace diversity things that AT&T all companies are required to send in. They had been disclosing these publicly and then they stopped. So I thought I saw that AT&T basically just okay well we'll go back. Yeah, I mean the idea that was ordinary business is very silly. I mean, if there's anything It that's pretty well established. So the next one was Peter and PepsiCo Peta wanted a report from pets PepsiCo yeah whether its supply chain was in college, right? Yeah and and once again PepsiCo said they were going to exclude it pedophile the lawsuit. It's settled immediately. PepsiCo agreed to include the proposal on the ballot, right? So that one they didn't agree to the policy but they just vote on this and I would guess PepsiCo Probably had a pretty good idea of how this, how many votes would get and they tend not to get all. Yeah, I mean, there are some that do get a lot but this is the kind of thing that tends not to, but was um, This one. Now, this one was a funny one. Nathan Cummings Foundation, which is a sort of social justice Foundation. Yes, nonprofit the investor. They're an investor. Yeah. They also donate to a lot of causes, like, I mean, all the foundations. They're all like, they need to do something with their money, so they put it in stocks, so the rest. Exactly, right. Okay. So they had an lawsuit, they filed a proposal for a company called axon, which I do not, I would actually exists axon to disclose political spending. That's a very routine. It's a regulatory proposal that's been out there for many years now. Constantly X on though. They said they were going to exclude. It was micromanaging. Their ballot and this one was funny because axon opposed, you know, they wanted Nathan Collins wanted this preliminary Junction to force it on the ballot and acts on opposed that on the grounds that it would be too burdensome for them to try to put together like a two micromanaging, their business to put together the details of their political spending. So the judge Said, all right. Well, if that's true, I want you axon to put a representative in my courtroom immediately so we can cross-examine them on just how difficult it is for them to put together a report on their political spending. And as soon as they got, that order acts on said, nevermind, I'll include the proposal. All right, thank you. No no no no. And there's a decent chance. That proposal will attract some material vote. Yeah, yeah, yeah. It's based on the history of those proposed. Yes. Right may not get a majority but you know, it might be enough for very, yeah, 30 or 40% tents to get some kind of compliance. And then, there are two cases that I know of still pending about this. So one again, New York State Common, retirement fund, they had a proposal at BJ's Wholesale, Club asking for a report on the risks of deforestation on their supply chain. How deforestation would affect their supply chain, DJ's, again, claims this is my groove managing and excluded it. So there's a case pending New York State Common retirement fund filed lawsuit to force it, onto the ballot. And then the last one and this was just funny, I mentioned this last week. So as you sell wanted a proposal at Chubb, the insurance company write about whether they should. Pursue compensation from essentially carbon emitters to offset the cost of insuring against climate change losses. So, I think, as I understand it, it's something like Chubb has to pay losses that are associated with climate change. So the proposal is should Chubb. Sue the oil companies for causing climates or somehow gets some recovery from them. Yeah, something like that. But Chubb X. Clustered over it. But here's the best part Chubbs argument is one of argument is that this is micromanaging, it's ordinary business, but there are other argument is that, when, as you sew sued them, they did not properly serve with the complaint. Because Chubb is claiming we are a Swiss organization. We have to be sued and compliance with the Hague convention procedures for suing, an art, whatever. And you just try to serve our American subsidiary or something. So anyway, all that's pending in court. We'll see how that goes. So, two of these. So, three of these Saddles set, three settled in two words. Two are and, and one of those two was really kind of the objection was on some really This is technically seizure. Okay, we'll see what happens. But now as you say there's this whole complete another lawsuit exactly where as you see, where as you so who we just mentioned in another group iccr the interface Center corporate responsibility. So they work together a lot. They submit a lot of proposals. They're very active in the Ian s and little bit cheap but more the ens world, you know, together, they account for dozens of proposals in a year. And they sued the SEC. I guess in federal court somewhere. Yeah over the policy making over the policy change itself, their claim that this was functionally amending 1488 that they have changed 14 AA. But the by essentially not enforcing it. They somewhere between amended it and repealed the rule as a practical matter without formally doing what you need to do. Like if the SEC wants to change the rule, they are procedures for changing. There's a whole law. Yeah. That pertains to rulemaking. Yeah, called the administrative procedure act, and that's what he's got. Yeah, exactly. And so, the claim here is that, by essentially adopting, a non-enforcement policy, the SEC has functionally amended rule 1488 without actually going through the proper procedure to do it. All right. You are a security. Expert. You are a scholar insecurities law and State corporate law, particularly Delaware though. You're gotten pretty good about Texas and Nevada, a few other states. You really know SEC rules a lot that 14, the 40 act, all that stuff. You. You were the first person I would call for a lot of that stuff. What do you know about the APA? Very little. Oh, this is the thing that like it's embarrassing to admit. But I mean, I know like, you know, there was a time when I knew a lot more about APA procedure, there was really oh, okay, but I I have forgotten a lot and my focus. These days is the substance of the law. Not the procedure. Like so what I'll say so I know idea how this lawsuit is gonna come out. I will say that. I mean I think they're right. If you look as a practical matter, the entire regime for 1488 has now been changed. If you shareholder, this has been a very huge and impactful change, whether that it whether that is sufficient to meet the standard that they need to meet to show. It is an improper A rulemaking. Yeah, that I have no idea. So I just I don't. So what do we think the other end of this then we can move on to some other SEC stuff besides 148. What do we think of the relief that like these two plaintiffs are looking for? They basically want to go back to the old 1488, what the SEC? But they want the SEC to weigh informally, of course, I'm not sure. The like how the right is that is that really what people want? Yeah, I mean, I mean. They're disappointed by the staffers the staffers don't change with the political win so unless Paul Atkins wants to like adjudicate every single. No action letter. At some point, every single request for exclusion at some point, is going to have to laugh. The staff do their thing and the staff, you know, they you know, I mean, everybody at the end of the day, they're gonna take a more straight line way of getting well but there was there was a significant dislike of, Under both, you know, Atkins and, you know, Democratic predecessors and so forth of how the SEC handled. As you see staff handled all this, no actions. I mean with every new Administration they move one way or another way in terms of no action letters and you can see differences, but I think at the end of the day, that's still going to be a better regime. One where. Okay, let's be a better regime for shareholders than this. You just or letting the companies essentially. Yeah, essentially the company gets to decide and shareholders have to bring a lawsuit and we have no idea how these lawsuits are going to come out. I mean, one of the more bizarre things is that there are so few lawsuits over this that right? The actual legal standards for how to interpret the the rule. Or there's there's no case law, there's nothing and because remember when the SEC ways in the SEC doesn't even have any legal reasoning and issues a letter that says we think we're just right or we think there's we don't think there's a basis but they don't really explain their reasoning. So when the couple of times, Fourths have had to decide this. They're kind of like, well, I've got all these SEC, no action letters, can I see a pattern, like, they don't? So, in fact, if we actually start getting decisions, we actually get more articulation of what the rule is supposed to mean. All right. All right, so there's there's some other SEC stuff going on and then we'll take a quick break and then we can talk about some more SEC stuff and then we'll keep talking about this. Good discuss what we think another interesting one that this ESG Community was very upset about how to do with how They can do these exemption from the solicitation rules, right? And just to recap real quickly, if you don't, if you're a, if you submit one of these predatory proposals You by definition, Aren't going to be soliciting proxy. Not hiring a proxies listening to me asking people for the price can be voting at your, letting the company do all that you can. Under this little exemption communicate with other shareholders? Yeah, I mean Actually yeah I mean it's not even just proposals it's sort of it's anything. Oh okay really so it's it works this way if you are trying to persuade someone to vote a proxy in a particular way you are engaged in proxy. Solicitation any attempt to persuade shareholders as to how they should vote. Is a proxy solicitation technically now normally, as you know, if you are engaged in proxy solicitation, you have to file a proxy statement which is a great big long, right document and okay so they thought well wait a minute. Not everybody should have to file that big long document and you know, who shouldn't have to file that big long document people who aren't seeking proxy authority. Meaning if you are looking at a pre-existing thing that shareholders are voting on and you just want to argue, they should vote one way or another. But here's what we think or here's how I think you should vote. Right. Exactly. So like if you're not the person who's saying give me proxy authority to vote your ballot at the meeting. If you're watching a different dispute like an activist dispute or anything else. You just want to basically communicate shareholders, I think you should vote This Way. Vote. No campaign on a direct election, right? You just want to communicate if you Just want to do that. You do not have to file the big long proxy statement which is important because otherwise it would really inhibit shareholders ability. Oh yeah, that's a hassle. I do. I that's what I that's what I do a lot and it's it's it's expensive and details and discloses all sorts of really information that sometimes I'd rather not have to disclose. Yeah. Alright. So the first principle here is that if you are engaged in a proxy solicitation and they're trying to persuade someone but you're not actually asking to be designated as their proxy at the shareholder meeting. Then for the most part with a few exceptions, you don't have to file approxi statement but what the rule did require that you file is that if you are a shareholder with more than five million dollars, In investment in the company. And You were using a written materials that are non-public, which is to say not newspaper. Advertisements. You know, just like you're handing out a letter. Yeah, letter, they wanted you to file that publicly with the SEC so that all shareholders could see it. So that rule has been around for a while that if you're you're doing proxy solicitations and you're not seeking proxy Authority but you are using non-public written materials. You should and you have five million dollars in assets. You should file those materials with the SEC, right? So there's end up on Edgar for everyone to see if for everyone to see a meaning that people who subscribe to get Alerts get alerted to that update. At which point several years ago, shareholders and figured out like smaller shareholders. They don't have a 5 million dollars figure out, right? I can just voluntarily file Solicitation materials and that way. It's a cheap way of Distributing them, right? They'll just because it doesn't matter whether I have five million dollars. If I just want to persuade shareholders to vote one way or another way I can just file them on Edgar, and then it's cheap and it distributes them to all the shareholders and it's sort of on some sort of a docket or record that this is out there. All right, good. So what happened was shareholders started doing this. Now, the first thing they started doing it for was, if they had a shareholder proposal that's going in the proxy materials but they're limited to 500 Words. So if they wanted to circulate extra materials in favor of their proposal, that go beyond the 500 word limit, right? It could file them this way even if they weren't required to because they didn't have five million dollars and they were not. Yeah. They were otherwise jet. So sending out solicitation materials and then She started filing well, to be fair, it really was abused. Like shareholders started like completely uninterested. Parties started filing, all kinds of things this way. So unfortunately, the docket was getting a little crowded, but what was all so true, there's actually a paper on this It's called, why does shareholder Community when to shareholder communication matter? Evidence from the proxy exam solicitation? And it's by like a bunch of authors whose names I will miss pronounce if I try, but it's a paper from its from a few years ago it's already. Yeah, when does shareholder communication matter evidence from proxy exam, solicitations. And what these authors found was that when shareholders filed these exempt, solicitations voluntarily or required, either way, they really were red. They were read by shareholders. They were downloaded. They were red and they tended to influence. How people voted including opposing management, proposals, opposing director, nominations say, on pay things like that. They were taking seriously, but in any event, This is what the SEC changed his role. They decided that there were too many of these voluntary filings people were using Edgar as a means to cheaply disseminate. Proxy solicitation material. And they said this is not with the rules for and we're going to object now. So now they only want you. They don't want they won't accept voluntary Solutions anymore. Now, they will only let you file this solicitation material on Edgar. If you meet, where it's required under the rule and where is it required? Under the rule? You have at least five million dollars and you are circulating yourself, not through, Edgar solicitation materials that are non-public then. You can file. I wonder why. I wonder on the latter point if you could forget the 5 million which is what has all the ESG proponents irate is because no one owns 5 million dollars worth of shares. I wonder if you can sort of meet that Sacrament like, putting on your website is that content as certainly remember, remember you have to require it, if it's not otherwise public. So I don't know if website isn't on the list of things they call public. I mean that's pretty public. But they were thinking more like newspaper ads but maybe that's borderline. I really don't know. But like The point is that this severely restricts what had become a useful form of Cheryl can communication and I can agree that it was being abused, but I don't think this was entirely just about the abuse, right? No, absolutely not. Yeah, wow. All right. So I this actually good. This is a pretty comprehensive, look at the status of what's going on with shareholder. Proposals, you know, the lawsuits and so forth, the rule and now, this example solicitation change. So, all right, there are several other developments in at the SEC. We can cover that. Why don't we take a quick break? We'll talk about those three or four things and then, let's sort of see what we think of it all. Is that makes sense? Sure, cool. Alright, let's take a break now here at shareholder Primacy. Shareholder Primacy is brought to you by free flow analytics.com. The only free database of corporate directors, their influence and their performance Fiona stock, are retirement plan go to freeflow analytics.com, and look up, which of your elected directors are performing well and which aren't use your vote in the alternative democracy and get your data at free flow. Analytics.com. Now, back to the show, And Legend with Michael Levin and we are talking about the latest SCC developments here. Yes we are. There's several others. That we should address. And we've talked about these two later. Yeah, before before, but because we're looking at the SEC kind of writ large. We thought we'd kind of bring him in, I don't know if there's been much in the Much developments in the mandatory arbitration in IPOs subjects that the subject of the Atkins speech last year or whatever, but what happened? What's what happened? Anything? Since then? Yeah, I just want to be. So what the SEC did was that under Paul Atkins, they said they would stop objecting to companies. Requiring arbitration of Security's claims when they went public now, as a practical matter. Um, any publicly traded company after going public, could have inserted, a bylaw. Requiring arbitration of Securities claims. They could have done that at any time. But it was clear. The SEC didn't. Now, whether that would be enforceable as a separate question. It's, let's just leave it as unsettled but they could have done it at any time. They had chosen not to because they knew the SEC hated these things and hated them so much that they were refusing to allow you to adopt them at the moment of going public hating these things mandatory arbitration. Exactly, so the fact that the SEC said they will no longer object, if you include them, when you go public, didn't just me and you could include them when you go public, it was all. So, something of a green light to add them if you wanted to even after you were public after right? At it. Now the big, but the big hold up. And this is something we said before. Is that under Delaware raw very recently. They passed a law that said you can't deny access to a courtroom for shareholder vacation. They didn't they weren't thinking about arbitration because they Were not expecting this change in SEC policy but they did put that in their law. So that now if you're a corporated outside of Delaware you can't you can try to do this. There are other questions, whether it's enforceable but you couldn't if you are in Delaware and so Atkins. He has made it very clear that he doesn't, he's not just lifting the policy against having mandatory arbitration at IPO stage. He is actively encouraging mandatory arbitration. So he made a speech before the Delaware. Glitter, that was the anniversary thing or whatever, right? The entire political establishment of Delaware, basically strongly suggesting that Delaware should change. Its law, to allow companies to adopt mandatory arbitration, provisions and all to change its law to make clear that shareholder proposals were illegal. And then he went to Texas and it texts he did the same thing. Texts, of course, we've talked about Texas, love Texas is law, but apparently it's not good enough because a Texas, he also encouraged their legislature to make clear that companies could choose mandatory arbitration and he encouraged their legislature to make clear that companies could adoption Provisions. So that if shareholders sued Texas, Is if they lost. So he was. So he basically Atkins is a lot of opinions of what state corporate law should look like. And he's going around to the different states to tell them how they should adopt the law that he thinks that they should have. And he's doing it in both Texas and Delaware. So, this is his speech, but this, and let's be really clear. The issue is an arbitration. The issue is that if you choose arbitration, you can then say that claims have to be brought individual, please, and not in a class right now. That is a class, right? Or is a group or is a master, right? Yeah. That's the point. For our patreon. People to bring class actions on the theory that if they can't bring class actions will just be fewer lawsuits because these are very expensive to adjudicate outside of the class action context. So Atkins is now giving a sort of green light. There are other kinds of legal challenges that people would bring if companies adopt them. But he's given a green light. He's made the SCC isn't going to pursue you and actually encourages the adoption not withstanding Atkins is Get real encouragement at this point at the state for state legislatures and companies to adopt mandatory arbitration exactly one company is done it so far. One publicly traded company, Zion oil and gas Incorporated in Texas. Zion markets its Securities to retail investors through televangelist broadcasts. And their their thesis is they use bible verses to search for oil, deposits and Israel. As far as I can tell. I don't think they've actually found any oil that sounds that sounds like and engineer and engineering challenge that My oil deposits in Israel and they sell through televangelism to retail investors. They are the only company that I know of, they're taking Paul at up on his challenge for mandatory arbitration and Security's and they did it so poorly counseled. So obviously without a lawyer that they forgot to include the part about individualized claims only. So under their arbitration Clause the erratically, you could still bring a class action. In other words, just the class action has to go to arbitration. Exactly have Not showing great eagerness to this, despite the fact that Paul Atkins is pushing it. Now, why is that? There are probably a lot of reasons, first of all, because companies have a lot of advantages in federal court, there are a lot of really high barriers procedural, barriers to shareholders bringing Securities claims in federal court, and companies, like those procedural, barriers and they won't have them in arbitration. And there's also, I heard a defense attorney actually, at a conference recently say that there are real concerns about how insurance would work in these scenarios. Like what insurance would cover, what it would cover when you like, do, you know, Insurance kind of thing? Exactly. So that they're just it's be a great idea. The fact is that Paul Atkins really wants to push this but companies are not slow on the uptake. Now it's possible. We may start seeing these mandatory arbitration Provisions in IPOs rather than existing companies because it IPOs, it is easier to bring shareholder lawsuits in IPOs because you don't if there's a lot more causes of action in the registration statement is false in an IPO. Then you consume even if you don't show intense. And that's not true outside the IPO context, so it's not impossible. That some companies will decide give in the risks of lawsuits without a showing of intent. It's worth, requiring arbitration for that. But there are other ways to defeat Those kinds of claims. So so far companies are just despite Paul Atkins bullying, Texas, bullying. Delaware, and just encouraging. This only Zion oil and gases has done this. All right, so that all right. Cool there's two or three other yeah things that we've referred to there hasn't been a whole lot as far as I can tell in any of this but let's bring them up just to make sure for completeness several months ago, the head of the Division at the SEC at overseas Ria's. And we talked about this in a podcast that essentially, right? Investors was encouraging or was suggesting that raas and more generally funds need not or there are all sorts of conditions under which they didn't necessarily have to vote proxies or vote for every matter on a proxy. This was the whole discussion around apathy. Yeah, exactly. He was basically encouraging, do you really need to vote your project, right? And this was this was in some sense a not an attack but criticism I suppose with proxy advisors and so forth. But He was just he was basically saying that all these investors, you know, contrary to Decades of policy and pressure where you really got to take these proxy seriously. maybe it's okay to not, yeah but right that The pot that the rule was never, you must vote all your proxies, right? You should have to take it, seriously, you know what was always, you can make a considered cost-benefit calculation, not to do it. Yeah. But he was so, depending on who Their proxy. Advisors it's going to be rare that it's too costly to vote your proxies. Exactly. And but this speed was basically like, you know what? I think baby. It's often too baby. It's right. Exactly. Right. So sorry. So there's that we have seen a little bit of action on the Potential. That regulation SK which requires quarterly financial reporting. There was some news in the past week or two that that's making progress. That there's going to be. I think some rulemaking or proposal making here. They are going to follow the APA really. Are they really are gonna go? Yeah, that's Still the existing they'd have to, there's no way to repeal the existing rules. So yes, there's so that's what's been reported that they're really gonna planning on moving ahead with requiring only semi-annual reporting rather than quarterly reporting, right? And so that's there have been some steps. It's based on news accounts rather than real SEC stuff, but Atkins, at some point I think gave another speech recently where I think he said something. Yeah, this is, this is, this is happening. This is gonna, this is going and then the last Point had to do with his Suggestion. And this is this, I think Texas speech from late last year that there's going to be a whole revamp at least a research project to look at all the requirements around exact comp. Reporting that you know right now you've got a report on the top five NEOS and you got to you know there's all sorts of detail about how pay for performance is reported and and so he gave a fairly detailed set of thesis about how this might change. And the hint was that this reporting on exec comp is a huge burden. And really delivers a lot of data and information and investors don't find particularly useful. And I would interrogate that I don't read, I just show them to my students and I leave it. Oh, I read this stuff. I know I studied well there there are Parts, not you mention it. There are parts of the except comp exec comp disclosures that I find not informative. The pay ratio analysis is there for you. Oh good. Who is it there for an it's interesting. Okay, so the pay. Oh, well, the reason there's a pay ratio is because Congress required. It right. You know, and it was it did well nothing to do with investors. It was about hoping to cap like that shame. It was hoping to shame executive. Well to deal with in Many quality. It'll like, shame CEOs into either raising work or pay or lowing their own pay. Yeah. There were badly mistaken that this is mistaken, but they're all Just Securities laws which are aimed at investors. So the SEC gets hold of this and like, what are we supposed to do with this? Where's this is not relevant to investors and they come up with their rules for how this is implemented. But not of course, that's not Good. I've never intended to be relevant to it. Right? Exactly. Sorry. Anyway so there's and there's there's some other aspects of exact comp reporting that our sometimes, a little Arcane and so forth. You know, part of the problem is that, you know, the way exact Camp works. There's so many tax considerations, and, you know, different ways of creating Equity based incentives. And so forth that creating sort of a uniform reporting tool or reporting system is tricky. But that doesn't mean that the SEC shouldn't like make an effort. You know, that doesn't mean that you just cut it back and I would expect So I would expect and hope for significant, pushback from the investor Community CII, all the big funds. If these exact comp, you know, if, if the result of this proposed research project, there was like a Roundtable last year. There was again, this isn't just like a speech. Um, were the result in a lot, less disclosure the type of disclosure in the amount. The detail would be interesting. But just saying that this is a big burden, which is kind of the thrust of his comments. Yeah, and I think I did wrong and I think investors are going to object when he tries to switch to semi-annual as well. I've already heard that some larger risers are like, no, we like quarterly. Yeah, yeah, exactly. There's there's, you know, and, and the sentiment is there's, you know, there's a few, you know, companies that are just, you know, too clever. That is okay, fine. We'll do it every half year, whatever, but most companies are so used to the cycle. And so you used to have having investors happy with this cycle and, you know, they'll be able to voluntarily to do Corey. But you reporting if you want there's no there's no restriction on it will voluntarily do it. I'm not sure how long that'll last. I mean for a while. Sure. But the new companies will go public would say. Yeah. And on it on. That's right, and that's and that's going to be a loss. the idea that there's, you know, semi-annual, As as infrequent as every six months is how we're going to find out officially how companies are doing well after. And all sorts of really weird ass kind of other sources that information. And that's for insider trading. It's a recipe for volatility. Yeah, right. So anyway, so this so To to look back and what we've sort of talked about here. We got all these changes in shareholder proposals, including, how they can talk about their proposals in, you know, using exemption and so forth and the arbitration stuff. The voting policies. What what's I have some views? Yeah, about about what is going on at the SEC and I'm kind of, it's all rowing in exactly One Direction and that's consolidate power of boards. Insulate them, from shareholder pressure of companies of companies, okay? Like okay, keep saying, it's like Pro. These guys are pro company, they're not, they're Pro boards, okay? Boards their company boards. It's consolidate power and boards, and remove levers of pressure from shareholders. It's rowing exactly in One Direction. Everything is moving in, exactly One Direction. There is no proposal anywhere to increase shareholder. Power is all towards elim. the levers of influence, the children have well and okay let's let's talk about that for a second because, you know, I have this long-standing view that again, boards are supposed to represent, you know, there are the elected and paid for representatives of shareholders and so On the one hand just to react superficially to your assertion here that it's concerning power and Boards as a show. That's great. Rather, you know, boards compared to Executives. Oh, okay, management. I don't mean poor, okay. I mean, okay, taking away the shareholder influence, okay, and what it's doing is it's it's not necessarily severing but diminishing the influence that shareholders have exactly over the over. Over possible way. They can't making it difficult for them to sue, making it difficult to then get shareholder proposals right j'king. A difficult for them to communicate with each other about voting. They can get encouraging them, not to vote in Carter diminishing, the information that's available. Every single let lever is being pushed in One Direction, right? And and some of the things we've talked about, I think our more and less important related to how shareholders can influence boards again. I've said this before I I'm not sure that the hole 1488 Changes are going to really influence. Significantly or changed, significantly the influence that you know all you know, index and shareholders have overboards, there are others that I think are much more important. Like the whole mandatory arbitration the ability to sue. And to hold boards to account through the court system. Yeah, I think is pretty critical. Well, yeah, go ahead. No, I mean, you could continue. Yeah, yeah. I was gonna say so in that and, you know, having robust information about what boards are paying Executives, yes, and being able to react to that, you know, there's a whole system of shareholder engagement that revolves aren't exact cop. okay, you know when companies and this was a point we made one or two pods ago about Proxy advisors having all these different Camp. That's really, you know, a company does poorly on a say, on pay relatively poorly on saying and they're out right away, you know, talking to top 25 Cheryl just because they want to improve that and you know, and so there's a huge amount of Engagement about exact composite turns out. That's, that's not quite as well known to a lot of show and and this information and it's all based on the information that's in these disclosures. And if we're going to have a lot less to work with, or we're going to have to rely only on what companies. Choose to disclose, and it's going to vary up, you know, from, you know, there's gonna be no rules around it. That's, that's, that's, that's a big problem. And it's not just that, like, I think we talked about this on a pod like that one of their got new guidance things is hinting that the large asset managers have be switched from being passive to active if they engage on these topics. Yeah. The DG the whole DG thing, right? Yeah, exactly. And That of course, is resulted in dramatically, less engagement from Vanguard and BlackRock on whatever it is thinking. It's I wouldn't say it's dramatically fewer last. Oh, okay. But the nature of the engagement that's being, they're being, they're being more circumspect but also like somebody actually. Clocked it like it's like 30% 40% fewer. Okay, so they so yeah, I mean, this is rowing in One Direction on multiple fronts and every single one of them is making it. So corporate managers do not have to answer to shareholders, right? And the last point I'd make about that is that a lot of these changes, you know, part of what happened in, you know, Administration change and Regulatory philosophy changes and so forth. Part of the problem is that stuff at the SEC changes pretty slowly. Because the SEC historically has been very in part on a necessity, but just because that's a, their, you know, their rulemaking goes, You Know, It with, with some deliberation. So, you know, let's suppose that shareholders, you know, immediately have an impact in 2028, there's a new SEC chair and they changing, it's going to be several years after that. Until there's any kind of change in what we're starting to see in this direction. That they haven't been. Acting through rulemaking yet. They've been doing this informal stuff like we're not going to respond to no action letters or we'll give guidance on 13th and they've had a lot of influence just by sort of jawboning now. Yeah. Oh interesting. If they actually do the rule change, they could if they wanted you act very quickly at the end of the lat, a trump won the SEC. Put a whole new package of rules about exempt. Offerings like very quickly. They're sloppy, they're poorly written, their their internally contradictory because they were in such a rush to get them out. So it's not impossible that this you see sushu will start to make actually make real rules. And if we get a new Administration, one thing that people are expecting. I don't know how true it is. Is that that Administration will just like without, you know, within like Gallop through repealing all of it. And then what we've got is, of course, a lack of Finance stability in the financial regulation, because like every time there's like it's bad. If the rules completely change every single time, there's a new administration, every four even every two years, yeah. So yeah. All right, wow. All right, this is I found I learned a few things here. This is great. Hopefully hopefully this is, this is helpful to all our followers here about what, what might be happening here at the SEC based on all these different examples of rulemaking or non rulemaking or changes in policy? So yeah. All right. Why don't we conclude and get on with the rest of our day? Would you like to do that? All right, cool. This is shareholder, Primacy hosted by Ann Lipton and me Mike Levin. I'm an independent activist investor and advisor to investors about their activist situations and is Professor of law and the Lawrence W demuth, chair of Business Law. At the University of Colorado, law school. You can find me Mike at the activist investor one word.com and you can find an at law dot Colorado. DOT edu. Our podcast is producing distributed by free flow media. Thanks for listening. We will talk again.