Category Archives: Boards of Directors

A Whole New National Security Ballgame: Key Practical Takeaways for Export Control Compliance from the 2024 BIS Update Conference

by Brent Carlson and Michael Huneke

From left to right: Brent Carlson and Michael Huneke (Photos courtesy of authors)

On March 27–29, 2024, the U.S. Department of Commerce’s Bureau of Industry & Security (“BIS”) hosted an Update Conference on Export Controls & Policy. The event was a major outreach effort by the U.S. government. Nearly 100 BIS and other U.S. agency officials engaged with 1,200 attendees over three days.

As was appropriate for an event coinciding with Opening Day of the U.S. Major League Baseball season, BIS officials emphasized that they—and those they regulate—are playing a whole new national security ballgame. This theme ran through every topic. It also drives the key practical takeaways that we highlight below for in-house compliance professionals assessing evasion and diversion risks and responding to reports of the same—particularly reports that some U.S. companies recently received directly from the U.S. government. Continue reading →

Monitoring What Matters: A Fresh Look Proposal to Government and Industry for How Post-Resolution Oversight Can Best Deny Hostile Actors the Means to Cause Deadly Harm

by Brent Carlson and Michael Huneke

From left to right: Brent Carlson and Michael Huneke (Photos courtesy of authors)

U.S. economic sanctions and export controls serve a wide range of national security interests. When hostile actors rely on U.S.-designed or -manufactured components in weapons used in fatal attacks on U.S. and coalition military personnel and civilian populations, there is an acute need to quickly identify the illicit trade flows and stop those components from reaching the battlefield. Continue reading →

Amid Storm of Controversy, SEC Adopts Final Climate Disclosure Rules

by Stephen A. Byeff, Ning Chiu, Joseph A. Hall, Margaret E. Tahyar, Ida Araya-Brumskine, Loyti Cheng, Michael Comstock, and David A. Zilberberg

Top from left to right: Stephen A. Byeff, Ning Chiu, Joseph A. Hall, Margaret E. Tahyar.
Bottom left to right: Ida Araya-Brumskine, Loyti Cheng, Michael Comstock, and David A. Zilberberg. (Photos courtesy of Davis Polk & Wardwell LLP).

Changes from the proposal include elimination of Scope 3 disclosures, scaled back attestation requirements, additional materiality qualifiers and narrower financial statement triggers. Given the lack of explicit congressional authorization for this new sweeping disclosure regime, its political sensitivity, complexity, cost and the substantial challenges already underway in federal courts, we anticipate rapid developments and possibly confusing stops and starts to unfold over the coming weeks.

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AI in the 2024 Proxy Season: Managing Investor and Regulatory Scrutiny

by William Savitt, Mark F. Veblen, Kevin S. Schwartz, Noah B. Yavitz, Carmen X. W. Lu, and Courtney D. Hauck

Top from left to right: William Savitt, Mark F. Veblen, and Kevin S. Schwartz.
Bottom left to right: Noah B. Yavitz, Carmen X. W. Lu, and Courtney D. Hauck. (Photos courtesy of Wachtell, Lipton, Rosen & Katz)

Corporate disclosures concerning artificial intelligence have increased dramatically in the past year, with Bloomberg reporting that nearly half of S&P 500 companies referenced AI in their most recent annual reports. And some investors are clamoring for even more, using shareholder proposals to press public companies for detailed disclosures concerning AI initiatives, policies, and practices — including, most recently, an Apple shareholder proposal that attracted significant support at a meeting last week. Regulators, meanwhile, have signaled increasing scrutiny of AI-related corporate disclosures, including in a February speech by SEC Chair Gensler cautioning against “AI washing” — the practice of overstating or misstating corporate AI activity. For the 2024 proxy season and beyond, public companies will need to balance the competing demands of regulators and investors, in order to craft effective, responsive strategies for engaging with their stockholders on AI topics.

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SEC Issues Long-Awaited Climate-Related Disclosure Rule

by Eric T. Juergens, Benjamin R. Pedersen, Paul M. Rodel, Kristin A. Snyder, Caroline N. Swett, Ulysses Smith, Michael Keene, Mie Morikubo, Michael Pan, Amy Pereira, and Maayan G. Stein

Top left to right: Eric T. Juergens, Benjamin R. Pedersen, Paul M. Rodel, Kristin A. Snyder, Caroline N. Swett, and Ulysses Smith. Bottom left to right: Michael Keene, Mie Morikubo, Michael Pan, Amy Pereira, and Maayan G. Stein. (Photos courtesy of Debevoise & Plimpton LLP).

On March 6, 2024, the U.S. Securities and Exchange Commission (“SEC”) adopted a long-awaited final rule, The Enhancement and Standardization of Climate-Related Disclosures for Investors, which will require registrants, including foreign private issuers (“FPIs”),[1] to disclose extensive climate-related information in their registration statements and periodic reports (the “Final Rule”). The Final Rule is intended to facilitate the disclosure of “complete and decision-useful information about the impacts of climate-related risks on registrants” and to improve “the consistency, comparability, and reliability of climate-related information for investors.” The Final Rule constitutes one of the most significant changes ever to SEC disclosure requirements, and is expected to face legal challenges. The Final Rule is available here and the accompanying fact sheet is available here.

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“Expect Some Illumination”: A Fresh Look at U.S. Congressional Hearings in the Era of Sanctions and Export Controls as the New FCPA

by Brent Carlson and Michael Huneke

From left to right: Brent Carlson and Michael Huneke (Photos courtesy of authors)

The 118th U.S. Congress has taken an active and bipartisan interest in U.S. sanctions and export controls. With reports that U.S. executives have been asked to testify before the U.S. House Select Committee on the Chinese Communist Party[1] and recent hearings before a U.S. Senate subcommittee previewing further questions for both companies and regulators,[2] U.S. companies whose products might require a license for export to China or that might be found in Russian or Iranian weapons should prepare for congressional scrutiny—and congressional pressure on the U.S. Executive Branch departments to deliver enforcement results. Continue reading →

The Future of ESG: Thoughts for Boards and Management in 2024

by Martin Lipton, Steven A. Rosenblum, Adam. O. Emmerich, Karessa L. Cain, Kevin S. Schwartz, and Carmen X. W. Lu

Top left to right: Martin Lipton, Steven A. Rosenblum, and Adam. O. Emmerich.
Bottom left to right: Karessa L. Cain, Kevin S. Schwartz, and Carmen X. W. Lu. (Photos courtesy of Wachtell, Lipton, Rosen & Katz).

The term “ESG” has steadily faded from the investor and corporate lexicon over the past year in the wake of cultural and political clashes over its meaning and purpose. “Anti-ESG” legislation adopted by several states has created legal and financial hurdles around the term. Institutional investors have gone quiet on ESG amid public criticism and congressional subpoenas. BlackRock has publicly disavowed the term for having become too politicized. The use of “ESG” in earnings calls has dropped precipitously.

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Crossing a New Threshold for Material Cybersecurity Incident Reporting

by Helena K. Grannis, Rahul Mukhi, Jonathan S. Kolodner, Tom Bednar, Nina E. Bell, and James P. Abate

Helena K. Grannis, Rahul Mukhi, Jonathan S. Kolodner, Tom Bednar, Nina E. Bell, and James P. Abate (photos courtesy of Cleary Gottlieb Steen & Hamilton LLP)

In July 2023, the U.S. Securities and Exchange Commission (SEC) adopted ﬁnal rules to enhance and standardize disclosure requirements related to cybersecurity. In order to comply with the new reporting requirements of the rules, companies will need to make ongoing materiality determinations with respect to cybersecurity incidents and series of related incidents. The inherent nature of cybersecurity incidents, which are often initially characterized by a high degree of uncertainty around scope and impact, and an SEC that is laser- focused on cybersecurity from both a disclosure and enforcement perspective, combine to present registrants and their boards of directors with a novel set of challenges heading into 2024. Continue reading →

Boards of Directors Lovin’ It after McDonald’s? A Fresh Look at Directors’ Duty of Oversight in the New Era of Sanctions & Export Control Corporate Enforcement

by Brent Carlson and Michael Huneke

From left to right: Brent Carlson and Michael Huneke (Photos courtesy of authors)

In this era of heightened geopolitical tensions with a renewed focus on national security, a perfect storm of liability risk is brewing for boards of directors.

Sanctions and export controls violations can be costly and dangerous, with multi-billion-dollar fines and jail sentences imposed in 2023.

For companies engaged in international trade, these events engage directors’ fiduciary duties. Looking to bellwether Delaware corporate law, Delaware’s Chancery Court recently reiterated in the McDonald’s shareholder litigation that directors’ Caremark duty of oversight is a function of their duty of loyalty. As such, this reinforces the limits of the protections directors would otherwise have if it were instead a function of the duty of care—under both the business judgment rule and “exculpation,” i.e., the option corporations have to excuse in their certificates of incorporation directors’ liability for breaches of their duty of care (but not of loyalty).[1] Directors’ duty of oversight further requires ensuring that they receive information regarding any “central compliance risks,” not just “mission critical” risks, and that there is an appropriate response to red flags. Continue reading →

Looking Back at Fall 2023 PCCE Events: 3rd Annual Directors’ Academy

As we begin to prepare for a full schedule of events in 2024, starting with an event on Voluntary Self-Disclosure Policy for Export Controls Violations on January 16, 2024, the NYU School of Law Program on Corporate Compliance and Enforcement (PCCE) is taking a moment to reflect on our busy Fall 2023 program. In this post: our third annual PCCE Directors’ Academy on September 21-22, 2023.

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