CII’s Monthly Governance and Capital Market Regulation Update (July 2 - 30)

This episode features CII General Counsel Jeff Mahoney covering the top 10 important events affecting institutional investors from July 2-30, 2026. Some of the topics addressed include:

1. CII’s comment letter to the U.S. Securities and Exchange Commission (SEC or Commission) opposing the Commission’s May 2026 proposal to re-write filer-status categories for public companies
2. Representative Sean Casten (Illinois-6) introduced legislation endorsed by the Council of Institutional Investors and 14 CII members that would require, consistent with CII membership approved policies, companies with two or more classes of stock to disclose vote tallies that include a breakdown of results by class
3. CII’s comment letter to the SEC opposing the Commission’s May 2026 proposal to rescind the SEC’s 2024 climate disclosure rules 
   
   

Transcript

SPEAKER_00 0:12

Thank you for listening to the Council of Institutional Investors Voice of Corporate Governance, the number one corporate governance podcast in the U.S. as determined by million podcasts. I'm your host, Jeff Mahoney, General Counsel 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 the period from July 2nd to July 30th, 2026. The following is my top 10 list of events over that period. Number 10. On July 7th, Better Markets co-founder, president, and CEO Dennis Kelliher issued a press release. In that press release, Kelliher says that New York Senator Chuck Schumer's reported nominee for a Democratic seat on the U.S. Securities Exchange Commission is, quote, unqualified and untrustworthy. The reported nominee, Christy Goldsmith Romero, served as a commissioner at the Commodity Futures Trading Commission from 2022 to 2025. Before that, she was chair and board member of the Federal Deposit Insurance Corporation. From 2009 to 2022, she served at the U.S. Treasury Department, including as Special Inspector General of the Troubled Asset Relief Program, which oversaw the government's response to the financial crisis. Goldsmith Romero also served at the U.S. Securities Exchange Commission as a counsel, the two SEC chairs, Christopher Cox and Mary Shapiro. Kelliher said Goldsmith Romero was the deciding vote at the CFTC to unleash unregulated nationwide gambling via prediction markets by dropping a lawsuit against Kalshi. Worse, she voted to do that in secret without any notice and contrary to months of coordinated advocacy. Better Markets also points out that Goldsmith Romero voluntarily left the agency months before her successor was confirmed, enabling then CFTC acting chair, Caroline Pam, to deliver a host of favorable actions to the crypto industry and others, while she was riddled with conflicts of interest or the appearance of conflicts of interest by seeking and reportedly accepting employment with the crypto industry at the same time she was acting chair and taking these actions. Better Markets is a nonprofit, nonpartisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets and support the financial reform of Wall Street. Number nine, on July 23rd, a collection of concerned market participants that included the New York State Comptroller Thomas DeNapoli for the long-term series, ICCR, U.S. CIF, and the Shareholder Rights Group jointly submitted a rulemaking petition to the U.S. Securities and Exchange Commission. The petition addressed SEC Rule 1488, the shareholder proposal rule. The petition includes provisions designed to create more breathing room for the SEC to perform its analysis of shareholder proposals in advance of a company's proxy filing, as well as establishing a mandatory two-week engagement period intended to facilitate negotiation toward withdrawal prior to SEC review. The petition also proposes giving the SEC staff a clear 30-day period for responding to substantive arguments for exclusion instead of the current as soon as possible expectation in the current rule. In a related call on July 23rd, Illinois State Treasurer Michael Freericks described experience with shareholder resolutions that either through negotiated settlements or critical levels of shareholder support led to enhancements in child safety as a social media company, strengthening of worker safety and airline companies, and board committee oversight of severe staffing shortages at healthcare companies. The absence of an SEC no action process would disproportionately impact retail proponents as well as novel proposals, as they have shorter histories of SEC review, paving a smoother path to exclusion by companies. An example of such newer proposals include increased monitoring of risks from artificial intelligence. On July 28th, Senators Elizabeth Warren of Massachusetts, ranking member of the Senate Banking Committee, and Adam Schiff of California, sent a letter to U.S. Securities Exchange Commission Chairman Paul Atkins. Letter urges Chairman Atkins to investigate whether President Donald Trump is violating securities laws by offering subscribers who pay tens of thousands of dollars faster access to Trump's social media posts. The posts, along with others that reportedly will be offered as part of Trump Media's Truth API data feed, contain what the company's own representatives advertise as, quote, market moving information, unquote. The Truth API feed, according to some reports, will be offered for between $60,000 and $100,000 for a monthly subscription. President holds a 41% stake in Truth Social, which means he stands to profit from the launch of the service. Letter points out that President Trump has used Truth Social to announce major news events that shift the markets. These events include changes to tariff policy and updates on the war in Iran. President Trump has also used the platform to endorse specific stocks. The senators write in the letter that because of this service, social media posts about the president's opinion or public intent will not be available to the public or ordinary investors at the same speed as the Wall Street firms and wealthy insiders paying for access. The senators add, furthermore, early access to President Trump's social media posts for Wall Street firms, wealthy insiders, and high frequency traders will erode investor confidence in basic fairness of the markets. Letter also questions if Trump media's plan to disseminate market-moving information through the president's own company is an ethics violation. Letter asserts charging insiders for access ahead of the public for the benefit of his company and to the detriment of the investing public represents a shocking abuse of the office of the president and the trust of the American public for his personal gain. Number seven, in a July 9th speech at the Society for Corporate Governance Conference, U.S. Securities Exchange Commission Chairman Paul Atkins offered an assessment of the Commission's new approach to no action requests in the 2026 proxy season and offered a glimpse at potential reforms to Rule 14A8. Chairman Atkins noted that after the SEC's November 2025 announcement that it would no longer be weighing in on most no action requests for companies, skeptics predicted that companies might systematically exclude most or all proposals that were received, or firms might include proposals they believed were excludable as a result of the threat of litigation or adverse recommendations from proxy advisors. Chairman Atkins said nearly eight months later, it is clear that neither of these dire predictions materialized, and I am happy to report that the world did not end simply because the Commission staff stopped responding to no action requests. Chairman Atkins acknowledged that six lawsuits were filed against companies that excluded proposals, but said they represent a small fraction of the overall proposals excluded. Chairman Atkins said his greatest takeaway is that the Commission staff's interposition between companies and shareholder proponents is unnecessary to effectively and efficiently resolve whether shareholder proposals should be included in proxy statements. Chairman Atkins said the markets, including the market for corporate covenants, are resilient and self-correcting, and the system, when left to function without regulators calling balls and strikes, function as it should, impelling companies and shareholders to engage with one another directly. Ultimately, this season proved both a turning point and a proof of concept. The SEC chairman said the Commission staff is holistically evaluating Rule 1488 and once again raised the question of whether the rule inappropriately infringes on state laws. Chairman Atkins implored all those with a role in the shareholder proposal process to not let the rule be weaponized by those who represent fringe interests. Chairman Atkins also called on companies to fight for themselves and encouraged states that are competing for corporate charters to ensure that their corporate laws do not enable the politicization of shareholder meetings. The Council of Institutional Investors Interim Executive Director Glenn Davis commented on Chairman Atkins' speech, noting that for decades, Rule 14A8 has helped boards understand broadly held shareholder preferences. This year has been no exception. Twenty-eight shareholder proposals introduced through Rule 14A8 received majority support. An additional 45 received at least 40% support but fell short of a majority. And finally, that the shareholder proposal process can be improved without being abandoned. Number six. On July 21st, U.S. Securities and Exchange Commission Chairman Paul Atkins addressed the SEC's Small Business Capital Formation Advisory Committee. In that address, Chairman Atkins discussed the Commission's efforts to incentivize more companies, especially those small and growing, to go and remain public. Chairman Atkins noted that there were approximately 4,000 initial public offerings during the 1990s, compared to only 3,200 in the 25 years since. Chairman Atkins highlighted several recent rulemaking initiatives to revitalize the IPO market, including the following four SEC rulemaking projects. Number one, amendments to allow public companies the option to file one semiannual report each year in lieu of three coral reports. Two, registered offering reform, which would expand access to the SEC's shelf registration process to nearly all public companies, including the newest and the smallest, increasing the number of eligible companies by over 60%. Three, file air status reform, which would recalibrate disclosure and other requirements based on the company's size and maturity, and extend the length of time that companies can potentially remain on the IPO on ramp while remaining exempt from the auditor attestation requirements. And four, a proposal to rescind the climate disclosure rules, which exceeded the Commission's statutory authority and abandoned the foundational principle that our disclosure rules should be rooted in materiality. Number five, on July 9th, the Council of Institutional Investors sent a letter to the Public Company Accounting Oversight Board opposing the board's proposed amendments to QC1000, the standard governing audit firm systems of quality control. Letter explains that CII has long supported strengthening audit firm quality control and previously urged the PCAOB to adopt three related reforms. One, independent quality control committee for larger firms, two, use of quantitative performance metrics in monitoring and remediation, and three, public reporting on quality control matters. CI letter notes that the supplemental request does not address two of those prior recommendations. And for the third recommendation, the supplemental request proposes eliminating QC 1000's requirement for an independent external quality control function. CI strongly opposes that change, arguing that independent oversight is essential to effective audit firm quality control. CI Letter concludes that without a requirement for an independent external quality control function, CI cannot support the proposed amendments as a whole. Number four, on July 15th, the Depository Trust and Clearing Corporation announced that it successfully converted securities held at the depository trust company into tokens that were then used in live production trades, which the announcement described as the largest tokenization production initiative to date in breadth of use cases, asset classes, and participants. The exercise sets the stage for the launch of the Depository Trust in Clearing Corporation tokenization service in October 2026. The service issues tokenized representations or digital twins of securities already custodied at the depository trust company, which participants can convert between traditional and tokenized form. Unlike prior blockchain pilots, the July 15th transactions occurred in a live production environment in spanned collateral transfers, repo, margin movements, and equity trades involving tokenized equities, exchange traded funds, and U.S. treasuries. More than 30 firms participated, including JP Morgan Chase, Goldman Sachs, BlackRock, Vanguard, State Street Investment Management, NASDAQ, and the New York Stock Exchange. The digital conversions occurred on Hyperledger, BASU, the depository trust in Clearing Corporation's private network, and Canton, a public network, as part of what DTCC described as a multi-chain strategy. NASDAQ Stock Market served as the marketplace for the exercise. Trades executed on the exchange were converted into tokens held in a digital control account and corresponding member firm wallets, according to a Nasdaq newsroom post. Brian Steele, president of Clearing and Security Services at the Depository Trust and Clearing Corporation, said NASDAQ was a key partner across several use cases. NASDAQ is separately developing a framework for companies to issue blockchain-based shares with a potential launch as early as 2027. The current exercise comes seven months after the Depository Trust and Clearing Corporation received a no-action letter from the U.S. Securities and Exchange Commission authorizing it to operate a tokenization service for assets it custodies. Depository Trust and Clearing Corporation says DTC tokenized assets maintain the same investor protections, entitlements, and ownership rights as traditional securities. Tokenization of equities has drawn scrutiny from investor advocates. A March recommendation approved by the SEC's Investor Advisory Commission cautioned that holders of some tokenized instruments, particularly third-party wrapped tokens issued without company involvement, may not receive the voting, dividend, and bankruptcy rights of traditional shareholders, and that tokenized trading could enable anonymous accumulation of undisclosed ownership stakes. The SEC IAC recommended that intermediaries handling tokenized equities be subject to the same principles as other regulated market participants, including beneficial ownership record keeping. How tokenized holdings are recorded also bears on proxy voting. Council of Institutional Investors membership approved policies call for a proxy voting system with end-to-end confirmation, enabling companies and shareholders alike to verify that votes were counted as cast, and CII co-leads, a working group with the Society of Corporate Governance, to bring that confirmation to contested director elections. Whether tokenized share records simplify the chain of voting intermediaries or as a new layer to it will shape how the technology intersects with those long-standing priorities. Number three, in a July 30th letter to the U.S. Securities and Exchange Commission, the Council of Institution Investors reiterated its general support for the SEC's 2024 climate disclosure rules. The current letter was in response to the SEC's May 2026 proposal to rescind the 2024 rules. CI's letter references a letter that CI sent to the SEC in 2022, commenting on the original proposed climate disclosure rules. In that letter, CI generally supported the proposed rules, but also recommended changes, including to the proposed initial compliance dates and to the threshold for the proposed footnote disclosure on climate-related metrics and impacts. CI letter also included a reference to the discussion of CI's prior and current views on the SEC's authority and definition of materiality in connection with the 2022 proposed climate disclosure rules. Number two, on July 16th, Representative Sean Caston of Illinois introduced legislation endorsed by the Council of Institutional Investors and 14 CIA members that would require companies with two or more classes of stock to provide vote tallies that include a breakdown of results by class. Current U.S. Securities Exchange Commission rules require that all public companies disclose the aggregate vote tallies for each shareholder proposal and whether each proposal passed or failed. But the Multi-class stock company voting transparency act, introduced by Representative Caston, would require multi-class companies to disclose the total number of votes cast for, against, or withheld, disaggregated by voting class, as well as the total number of abstentions and broker nonvotes disaggregated by voting class. Glad Davis, CII interim executive director, said disclosure at the class level is reasonable, implementable, and material to investors. Whether investor believes significant divergence in support between classes is a signal of risk or opportunity, this bill would give investors the necessary data to fully understand those gaps. Representative Kasten said the bill would help American retirement savers, pension funds, and university endowments better understand exactly how multi-class stock structures are impacting the rights as shareholders. Representative Kasten also said investors deserve to know whether the board's response to the outcome of a proposal reflects the preferences of the majority of shareholders, or whether super vote shareholders swayed the results. CI members that to date have publicly endorsed Representative Kasten's bill include Bailey Gifford, California State Teachers Retirement System, Colorado Public Employee's Retirement Association, Miller Howard Investments Inc., New York State Common Retirement Fund, New York State Teachers Retirement System, Northern Trust Asset Management, Office of the Illinois State Treasurer, Ohio Public Employees Retirement System, Rail Pen, Schroeder's, Seattle City Employees Retirement System, Trillium Asset Management LLC, and the Washington State Investment Board. CI encourages other investors and market participants to come forward and publicly support Representative Caston's bill. And my number one most significant development in U.S. corporate governance capital markets regulation for the period from July 2nd to July 30th, 2026 occurred on July 16th when the Council of Institutional Ventures submitted a comment letter to the U.S. Securities and Exchange Commission. That letter opposes the Commission's May 2026 proposal to rewrite filer status categories for public companies and extend to many more companies' exemptions from say and pay votes, certain executive compensation disclosures, and requirements for external auditors to attest to management assessments of internal controls over financial reporting. The CI letter does not oppose scaled requirements for genuinely small companies, but asserts that the proposal would reduce disclosure and assurance too broadly. In particular, the CI Letter objects to raising the large accelerated filer threshold to $2 billion in public float and extending smaller reporting company and emerging growth company exemptions. Instead, CI Letter urges the SEC to revise the proposal so filer status better reflects a company's actual size, complexity, and stage of development rather than relying entirely on the amount of public float. CI's letter points out that by the SEC's own estimate, approximately 1,721 companies would be newly reclassified as non accelerated filers and so become eligible to eliminate their say on pay votes and to scale back their executive compensation disclosures. Additionally, roughly 1,590. Of those companies would no longer be required to provide auditor attestations. CI letter asserts that for the investors in those companies, this is not a marginal reduction in burden. It is the loss across a broad swath of the market of the information and assurance that investors need and use in making investment or voting decisions. CIA emphasizes that SAM pay votes and related compensation disclosures are central to shareholder oversight executive pay, especially for institutional investors such as pension funds. CI's letter explains that eliminating these requirements would not eliminate vestor concerns about executive compensation and would likely redirect scrutiny toward executive compensation to compensation committee members in director elections. CI also maintains that compensation disclosure, such as management's compensation discussion, analysis, pay versus performance information, and disclosures about metrics, targets, and discretion, is necessary for investors to evaluate whether executive pay is aligned with long-term performance. CI's letter also strongly defends the Sarbanes Oxley Act Section 404B, auditor at testation requirement for management's internal control over financial reporting. CI argues that auditory testation provides independent assurance that management's internal control assessments alone cannot replace. CI cites SEC data and other research showing higher rates of ineffective controls and material restatements among companies without auditory testation, as well as evidence linking at testation to a lower cost of capital and better financial reporting reliability. Finally, CI Letter opposes the proposed flat 60-month seasoning period for all newly public companies, arguing that large initial public offering companies should become subject to full disclosure in a testation once they meet size-based thresholds. CI Letter warns that restarting the seasoning period for DSPAC companies, exempting broader non-accelerated fathers from compensation committee independence requirements, and exempting small non-accelerated fathers from XBRL requirements would provide investors with less information and fewer safeguards. CI's common letter was drafted by Blake Broadnecks, a rising 2L at NYU Law School, who spent his summer working with CII. Thank you, Blake, for your excellent work. That completes my monthly update on significant developments, corporate governance, capital markets, regulation. If you have any questions regarding any of the issues discussed, please feel free to email me at Jeff JEFF at CII.org. Until next time up, Jeff Mahoney, thanks again for listening to the voice of corporate governance.

SPEAKER_01 25:07

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 on corporate governance, please visit our website at www.cii.org.