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It has been a couple of years since California enacted a statute requiring listed companies headquartered in the Golden State to have women on their boards. That statute was controversial and questions about its legality remain, but is it working? According to a recent study from the California Partners Project, the answer seems to be yes, although many companies still have work to do to reach the levels of female board representation required by the end of 2021. Here are some of the highlights:

– Of the 650 California-headquartered companies subject to the legislation, 29% did not have a single female director in 2018. Today, only about 2% lack female board representation.

– The number of California public company board seats held by women has grown from 766 in 2018 to 1,275 today – an increase of 67%

– 28% of California companies subject to the legislation currently meet the requirement for female board membership that will apply effective 12/31/21, while 72% need one or more additional female directors to come into compliance.

The law required all companies to have at least one female director by the end of 2019. By the end of 2021, companies with six or more directors must have at least three female directors, companies with five or more directors must have at least two, and companies with four or fewer directors must have at least one.

S-K Modernization: The Questions Just Keep Coming. . .

We continue to get a lot of questions on the SEC’s recent amendments to Item 101, 103 & 105 of Regulation S-K. As Liz blogged last month, some of these questions have focused on potential disconnects between the amended language of Item 101 of S-K & the language of Item 1 of Form 10-K. More recently though, we’ve been getting some interesting questions on our Q&A Forum on how the rules apply to Securities Act filings – and Form S-3 registration statements in particular. Here’s one question that we received:

Any thoughts on how the amendments will apply to outstanding shelf registration statements? If after November 9, 2020, a prospectus supplement incorporates by reference the risk factor discussion from a previously filed Form 10-K and that risk factor discussion does not comply with the amended rule (e.g., because it fails to include headings), must the prospectus supplement restate all risk factors in compliance with the amended rule?

Although Form S-3 does not specifically require disclosure of Items 101 and 103, Form S-3 incorporates prior disclosure of these items because of the required incorporation by reference if the Form 10-K. Must the Form 10-K disclosures be updated to conform to the rule changes?

Here was my response:

That’s an interesting question. For what it’s worth, here are my two cents: In the case of an already effective S-3, I don’t think that updating to address the new requirements would be required. That’s because the registration statement contained everything “required to be stated therein” under the rules applicable at the effective time, and that’s when Section 11 speaks. The fact that information incorporated by reference into that registration statement no longer complies with the amended requirements of Item 105 wouldn’t implicate Section 11.

I think the obligation to update the prospectus would instead be governed by the obligations imposed by the undertakings in Item 512 of S-K, Rule 10b-5, and Section 12(a)(2) of the Securities Act. My guess is that in most instances, issuers would likely conclude that the existing disclosure incorporated by reference into the filing doesn’t need to be updated to conform to the requirements of amended Item 105 in order to comply with any of these potential updating obligations.

There have been follow-up questions addressing situations involving Form S-3s filed before the new rules went into effect, but declared effective afterward, as well as whether existing 10-K language addressing Item 101 would need to be updated in the case of a Form S-3 filed after the S-K amendments. If you’d like to check those out, they’re all in Topic #10475.

I’ve taken a stab at answering these questions, but who cares what I think?  The bottom line is that there are a lot of questions about the application of the S-K amendments, and with the effective date just around the corner, guidance from Corp Fin would be very helpful.

Political Spending: Transparency & Accountability on the Rise

According to the latest CPA-Zicklin Index, corporate disclosure of and accountability for political spending is on the rise. Here are some of the stats:

– In 2020, 228 (over 60% of the 378 “core” companies that have been in the S&P 500 since 2015) had policies for general board oversight of political spending. Meanwhile, core companies with specific committee review of different types of political spending increased between 32% and 48% depending on the recipient type between 2016 and 2020.

– 240 companies, or nearly two-thirds of core companies, had policies in 2020 for fully disclosing or prohibiting donations to candidates, political parties and committees; 224 companies had them for donations to 527 groups; and 211 companies had them for independent expenditures.

– The biggest increase in any category – 50% to 135 companies from 90 in 2016 – came in disclosure or prohibition of donations to tax-exempt 501(c)(4) groups also known as “social welfare” organizations, often a focus of scrutiny over their “dark money” spending.

– The average score evaluating overall political disclosure and accountability for the core companies has risen steadily from 46% in 2016 to 57% in 2020, an increase of nearly 25%. In 2020, 144 core companies placed in the first Index tier (scoring from 80% to 100%) a dramatic increase of almost 80% compared to 79% of core companies in 2016.

The report says that the Trump years (2016-2020) have proven to be a boom time for corporate political disclosure and accountability, and that increases in adoption of board oversight and more detailed committee review of political spending are “especially striking.”

– John Jenkins