CII’s Monthly Governance and Capital Market Regulation Update (May 28 - July 2)

This episode features CII General Counsel Jeff Mahoney covering the top 10 important events affecting institutional investors from May 28 to July 2, 2026. Some of the topics addressed include: leadership vacancies at the SEC, FDIC, and Export-Import Bank, CII's letter to SpaceX on its IPO, and the CII's letters to the SEC on the Commission's Draft Strategic Plan, proposal to replace quarterly reporting with semi-annual reporting, and Nasdaq's proposal for additional listing criteria for Chinese companies. CII's letters can be found here.

Transcript

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Thank you for listening to the Council of Institutional Investors Voice of Corporate Governance, the number one best corporate governance podcast in the U.S., as determined by Million Podcasts. I'm your host, Jeff Mahoney, General Council of CII. The purpose of these monthly episodes is to update CI members and the general public on significant developments in corporate governance and capital markets regulation and CII's related advocacy activities. This update covers a period from May 28th to July 2, 2026. The following is my top 10 list of events over that period. Number 10. On May 29th, the U.S. Securities and Exchange Commission proposed rescinding the climate-related disclosure rules previously passed by the Commission. The action comes after the rules were placed on hold almost immediately following their approval by the Commission in March of 2024. The rules would have required you as public companies and certain foreign private issuers to significantly expand the climate-related disclosures in their registration statements and annual reports. In April 2024, the Commission stayed the climate disclosure rules pending completion of litigation in the U.S. Court of Appeals for the Eighth Circuit. In March 2025, the SEC voted to end its defense of the final rules. In September 2025, the Eighth Circuit issued an order placing the legal case on hold until the Commission reconsidered the challenge rules by notice and comment rulemaking or renewed its defense of the rules. The SEC explained it was now rescinding the rules because they exceed the scope of the agency's statutory authority. It also said even if it did possess the authority to adopt the rules, the following four independent, compelling reasons were enough to rescind them. One, they are unnecessary and inconsistent with a registrant specific materiality-based approach to disclosure that best serves the interests of registrants and investors. Two, they stray well beyond the policy concerns of the federal securities laws. Three, they impose substantial costs on public companies and their shareholders that are not justified by the informational benefits they may provide to some investors. And four, they are at odds with the Commission's policy objectives of facilitating capital formation and promoting public company status. The comment deadline for the proposal is August 3rd. CI currently plans to submit a comment letter in response to the proposal. On June 2nd, the U.S. Securities and Exchange Commission published a draft strategic plan for fiscal 2026 to 2030, setting out broad goals and objectives for the agency. Included among the goals and the related objectives are the following nine items. One, modernizing the regulatory framework to support innovation by adapting to developments in digital assets, distributed ledger technologies, and alternative trading platforms. Two, clarifying the boundaries of securities law as it applies to digital assets, tokenized offerings, and the development of on-chain financial infrastructure. Three, grounding rules in rigorous, unbiased assessments of costs and benefits with a focus on outcomes that enhance market efficiency and investor confidence. Four, modernizing outdated rules that inhibit early stage fundraising, streamlining disclosure requirements, updating shelf registration processes, and enhancing Regulation A to better serve smaller companies. Five, focusing on clear violations of established law, particularly fraud and manipulation, rather than expanding regulatory reach through ad hoc enforcement actions. Six, reviewing rules related to foreign private issuers, executive compensation, and private fund reporting to ensure they continue to serve their intended purposes. Seven, assessing the SEC's administrative law framework to focus on ways to enhance public trust, reduce litigation risk, and align the agency's practices with evolving legal standards. Eight, streamlining management layers and consolidating duplicative offices. And nine, comprehensively reviewing the EGR system and advancing the responsible use of artificial intelligence across the commission. The comment deadline for the draft strategic plan ended on July 2nd. CII submitted a comment letter, which I rank as number three for this top 10 list. Number eight, at a June 4th meeting of the U.S. Securities and Exchange Commission's Investor Advisory Committee, the committee voted against the Commission's proposal to end the longstanding requirement that public companies provide quarterly disclosure reports to investors. In addition, the committee discussed the merits of mirror voting. In its recommendation that the SEC retain quarterly reporting requirements for public companies, the committee argued that costs of companies would not be significantly reduced by the voluntary adoption of semi-annual reporting. The committee said, on the contrary, the evidence indicates that a shift to a semi-annual disclosure mandate would reduce the ability of investors to make informed decisions, increase trading costs, and increase the cost of capital for public companies. Four members of the committee abstained from voting on the recommendation. Several said they thought the recommendation should have proposed alternative disclosure regimes andor recommendations on how to scale back disclosures in other areas. The committee's discussion about mirror voting included Jill Fish, the Saul A. Fox Distinguished Professor of Law at the Pen Carry Law School, and Lindsay Kelcho, managing director, head of asset management group, and associate general counsel at SIFMA. Fish said mirror voting takes away individual investors' votes and has the effect of fragmenting the power of institutional investors. Fish also noted that index funds are informed active voters who are well qualified to cast proxy votes. Kaljo agreed, pointing out that index funds have stewardship teams that cast informed diversified votes. Both Fish and Kaljo said pass-through voting arrangements were a better alternative to mirror voting. Andrew Friedman, co-managing partner and chair of the shareholder activism practice, and Olsham From Walinsky, who represents activist fund investors, said mirror voting is needed as the influence of index funds continues to grow. Friedman said the current voting system places enormous unaccountable power in the hands of a few. Two academics presented different views on the impact that mirror voting would have on the outcome of items voted on. Robert Bishop, associate professor at Duke Law School, presented results from a study that re tabulated historical votes to show how the outcomes would change if mirror voting were in place. That study showed that over a span of 20 years, only 12 votes would have flipped. Another study, presented by Nathan Atkinson, assistant professor at University of Wisconsin-Madison School of Law, showed mirror voting could present procedural problems that could produce unintended voting results and lower the threshold for passing fundamental changes. Number seven, on June 9th, the U.S. Senate Banking Committee Democrats, led by Senators Raphael Warnock of Georgia and Chris Van Hollen of Maryland, sent a letter to the White House presidential personnel office. The letter expressed concern that two seats remain open on each of several federal agencies, including the U.S. Securities Exchange Commission, the Board of Directors of the Federal Deposit Insurance Corporation, and the Board of Directors of the Export Import Bank. They also noted that President Trump announced intentions to fire the Democratic members of the Board of the National Credit Union Administration. They write that as the SEC, FDIC, NCUA, and EXIM now pursue consequential reforms across the economy and financial system, we are concerned that their lack of Democratic voices thwarts congressional intent. The lawmakers explain that under long-standing precedent, the White House Presidential Personnel Office has requested Democratic nominees for open seats at bipartisan agencies from Senate Democrats, but the PPO has not solicited candidates for roles within the committee's jurisdiction. Focusing specifically on the SEC, the letter notes that the administration is preparing to nominate a new Republican SEC commissioner to replace Hester Peirce, despite the fact that the Securities Exchange Act of 1934 mandates that the Commission's nominations alternate between parties as nearly as may be practicable. And Chair Paul Atkins, a Republican, was the most recently appointed commissioner. The letter adds: if the president nominated a Republican to replace Commissioner Peirce without also nominating a Democrat to the SEC, he would violate the Securities Exchange Act. Lawmakers asked the White House Presidential Personnel Office to send a description of their work to nominate Democrats to these positions by June 23rd. Letter concludes that ultimately our markets, banking system, and economic competitiveness rely on the bipartisan leadership Congress intended for the Securities and Exchange Commission, the Board of Directors of the Federal Deposit Insurance Corporation, and the Board of Directors of the Export Import Bank. Number six. On July 9th, Senator Elizabeth Warren of Massachusetts, ranking member of the Senate Banking Committee, sent the letter to Securities Exchange Commission Chairman Paul Atkins. Letter raises serious concerns about SpaceX's proposed initial public offering, urging the Commission to delay the IPO until steps are taken to protect investors and market integrity. The Senator wrote, The massive size of the SpaceX IPO alone under normal circumstances would justify careful SEC review and attention to investor needs. But these are not normal circumstances. A number of additional factors exacerbate concerns and require action by the SEC to meet its investor protection and market integrity mandates by delaying the IPO. Senator Warren noted that market analysts have called SpaceX target valuation nonsensical, smoke and mirrors accounting, and truly out of this world. Senator also said Elon Musk and other insiders would have control of SpaceX through a combination of super voting shares, mandatory arbitration, stricter rules on shareholder proposals, and Texas corporate law. Senator stated that publicly traded companies are meant to be accountable to their shareholders. The Senator asserted the SpaceX IPO will flip this model on its head, with shareholders providing billions of dollars in new capital with no accountability measures for Mr. Musk for company leadership. Senator warned SpaceX's significant risks are especially concerning given the millions of investors in passive index funds who will be forced to invest in the company. On June 1st, in a related editorial that was published in the Times and written by Caroline Escott, chair of the Investor Coalition for Equal Votes and head of investment stewardship at RailPen, Escott urged the United Kingdom not to weaken its reputation for shareholder protections and high corporate governance standards by chasing moonshot IPOs such as SpaceX. Escott wrote, with an economy seeking growth and calls to make the London stock exchange more attractive here in the UK, we must resist the temptation to undermine the governance standards that distinguish our financial markets. Council of Institutional Investors was a founding member of the Investor Coalition for Equal Votes, which now represents $4 trillion in assets and supports one share, one vote structures, but also supports dual class shares with a mandatory sunset clause of seven years or less after public listing. Number five, on June 30th, U.S. Securities and Exchange Commission Chairman Paul Atkins delivered remarks on the SEC's approach to regulation at the Economic Club of New York City. On the topic of digital assets, Chair Atkins said that after years of obscurity, we have delivered long called for certainty to digital asset issuers so that investors and entrepreneurs today can know before they act whether a digital asset is considered a security and therefore subject to SEC oversight. Chair Atkins added that to be clear, this is not a favor to industry. It is what markets require to function. Clear rules of the road, applied without preference. On the topic of the SEC's proposed rescision of the climate disclosure rule referenced earlier, Chair Atkins stated last month we proposed to rescind the prior administration's ill-advised climate disclosure rule, re-tethering our rulebook to the simple principle that the SEC exists to serve all investors, not to advance an agenda of the politicized few or the business models of those who pander to them. Number four. On June 9th, the Council of Institutional Investors submitted a comment letter to the Securities Exchange Commission. In the letter, CI expressed support for NASDAQ's proposal to adopt additional initial listing criteria for companies primarily operating in China, including the Hong Kong and Macau Special Administrative Regions. Letter points out that nearly 70% of the matters NASDAQ referred to the SEC or FINRA between August 2022 and April 2025 related to trading in Chinese companies, even though such companies represented less than 10% of all NASDAQ listings. CI's letter says this evidence reinforces our view that heightened initial listing standards for these companies are warranted to protect investors and to support fair and orderly trading. Specifically, CII supports NASDAQ plans that include the following four provisions. One, they heighten initial listing standards and in particular the minimum equity issuance requirements for Chinese companies. Two, they place restrictions on Chinese direct listings. Three, they apply the rules principal administrative analysis to look through structures such as fareable interest entity that can obscure a company's true ties to China. And four, they preserve the investor protections associated with direct listings, including under Section 11 of the Securities Act of 1933. Beyond what the NASDAQ is proposing, CII encourages the Commission and NASDAQ to extend comparable protections to the smallest microCAP companies and other jurisdictions that present heightened risk to U.S. investors, including companies incorporated in the Cayman Islands. CI's letter explains certain jurisdictions that supply corporate law to U.S. listed companies, including the Cayman Islands, have curtailed the doctrines that enable shareholder suits against directors and officers, and empirical research associates lax law jurisdictions with a higher instance of financial restate. Number three, on July 2nd, the Council of Institutional Investors submitted a comment letter to the U.S. Securities Exchange Commission in response to the Commission's draft strategic plan for fiscal years 2026 to 2030. In response to the Commission's draft objective to provide a firm regulatory foundation for digital assets and distributed ledger technologies through a rational, coherent, and principled approach, CII respectfully requested that in connection with the pursuit of that objective, the SEC should allocate resources to consider how distributed ledger technologies may be utilized to improve the proxy voting system. In response to the Commission's draft objective to perform retroactive reviews of regulatory policies and practices to ensure that they meet current objectives, CII respectfully requested that the objective be revised to provide that periodic reviews of existing rules should be undertaken only when there is substantial evidence of a problem. Number two, on June 9th, the Council of Institutional Investors submitted a letter co-signed by 17 member organizations to SpaceX. Letter outlined significant concerns regarding the corporate governance provisions disclosed in the company's proposed initial public offering. Letter reflects priorities consistently raised by CI members and found in CI membership approved corporate governance best practices. Correspondence underscores the importance of accountability, investor rights, and protections, as well as the long-term stewardship of newly public companies. Several areas concerned highlighted in the letter include the following five items. One, lack of accountability to the company's owners. SpaceX proposes a structure in which public Class A shareholders would have minimal voting power, while Class B holders, primarily Elon Musk, would control board elections and major decisions. Two, absence of a time-based sunset. The unequal voting rights would persist indefinitely, contrary to the growing market practice of adopting sunsets that transition to one share or one vote. Three, board independence and leadership structure. As a controlled company, SpaceX intends to rely on exemptions from requirements under Nasdaq and NASDAQ Texas listing rules, that it maintain a maturity, independent board, and fully independent nominating and compensation committees. And number five, forced arbitration and exclusive form provisions. Post bylaws would require that essentially all shareholder disputes, including claims under the federal securities laws, be brought exclusively in the Texas Business Court, and failing that be resolved through mandatory arbitration while barring shareholders from proceeding on a class or other collective basis and waiving the right to a jury trial. All of the above five provisions are contrary to long-standing CII policy. Other corporate governance-related issues with SpaceX include the following three items. One, diminished shareholder rights for medium-sized and small shareholders. The company's move in 2024 from Delaware to Texas enabled the company to impose in 2026 a 3% ownership threshold for any shareholder to bring a derivative suit and to require a shareholder to hold at least 3% of voting shares for six months to file a shareholder proposal. Two, conflicts of interest and related party dealings. Broad corporate opportunity waivers and ongoing transactions with Musk affiliated companies raise oversight concerns. And three, lockup structure and erosion of Section 11 protections. Early release of restricted shares could quickly commingle registered and unregistered shares, limiting investors' ability to trace their shares and pursue remedies for material misstatements. The CII letter urges SpaceX to reconsider all of the corporate governance-related provisions discussed in the letter before completing its offering. Subsequent to the issuance of the letter, the offering occurred on June 12th, and CII has yet to receive a response to its letter. And my number one most significant development in U.S. corporate governance and capital markets regulation for the period from May 28th to July 2nd, 2026, occurred on June 25th when the Council of Institutional Investors submitted a comment letter to the Securities and Exchange Commission, opposing the Commission's proposal to let companies replace quarterly Form 10Q reports with semi-annual Form 10S reports. CIA argues that mandating quarterly reporting provides timely, comparable, and reliable information that supports investor decision making, market efficiency, accountability, and confidence in the U.S. capital markets. CIA warns that permitting semiannual reporting would reduce transparency and impair investors' ability to compare companies' performance over time and across peers. Letter also says less frequent disclosure could increase stock price volatility, reduce analyst coverage, weaken price discovery, and make smaller or emerging growth companies less attractive to investors. CIA argues that the SEC's assumption that semi-annual reporting would meaningfully reduce costs and thereby encourage more companies to go or stay public lacks evidence. Any savings resulting from the proposal are uncertain and likely modest because companies adopting semiannual reporting must still maintain accurate financial information and reports internally, and the letter urges the SEC to gather more evidence on this issue before moving forward. CIA also cautions that potentially replacing Form 10Q reports with quarterly earnings releases would weaken investor protections because of the absence of auditor reviews, management certification, legal accountability, and data tagging. CIA stated that it does not oppose considering whether Form 10 Q requirements can be streamlined, but CII does strongly support maintaining quarterly reporting requirements for all public companies. That completes my monthly update on significant developments in corporate governance and capital markets regulation. If you have any questions regarding any of the issues discussed, please feel free to email me at Jeff. That's J-E-F-F at CII.org. Until next time, I'm Jeff Mahoney. Thanks again for listening to the voice of corporate governance. And happy 250th birthday to the United States of America.

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Thank you for listening to this episode of The Voice of Corporate Governance, brought to you by the Council of Institutional Investors. The Voice of Corporate Governance is a free, non-sponsored podcast that highlights critical developments in corporate governance and other important issues affecting institutional investors. The views expressed by those interviewed on the podcast do not necessarily reflect the views of CII or its members. For more information on CII and its policies of corporate governance, please visit our website at www.cii.org.