Keith Halverstam, Maj Vaseghi, and Jenna Cooper are Partners at Latham & Watkins LLP. This post is based on a Latham memorandum by Mr. Halverstam, Ms. Vaseghi, Ms. Cooper, Joel Trotter, Holly Bauer, and Colleen Smith. Related research from the Program on Corporate Governance includes Rationalizing the Dodd-Frank Clawback (discussed on the Forum here) by Jesse Fried.
TheFAQsofferpracticaladviceforlistedcompaniesimplementingcompliantpolicies.
KeyPoints:
- By December 1, 2023, all companies listed on the NYSE or Nasdaq must adopt clawback policies that comply with listing standards mandated by the SEC (the SEC Clawback Rules).
- ThisrequirementtoadoptnewcompliantclawbackpoliciesappliestoallUS-listedcompanies, including listed foreign private issuers (FPIs).
Adopting a Clawback Policy
1. When will companies need to publicly disclose their policies?
Companies must file their policy as an exhibit to their first annual report filed on or after December 1, 2023 (Form 10-K for US domestic issuers, Form 20-F for FPIs, Form 40-F for filers under the multijurisdictional disclosure system (MJDS), and Form N-CSR for registered management investment companies).
The SEC Staff has clarified that companies need not provide checkbox and other clawback-related disclosure “until they are required to have a recovery policy under the applicable listing standard” — that is, December 1, 2023, even though the rules and forms already include checkboxes and other disclosure requirements. See Compliance and Disclosure Interpretation (C&DI) 121H.01 (emphasis added).
We believe the guidance in C&DI 121H.01 resolves any ambiguity potentially arising under the SEC releases approving the Nasdaq and NYSE listing standards, in which the SEC provided that listed issuers must provide “the required disclosures in the applicable Commission filings on or after the effective date of October 2, 2023” (emphasis added). In particular, C&DI 121H.01 clarifies that compliance with the required disclosures, including the exhibit filing, is not expected until December 1, 2023, when the recovery policy becomes mandatory under the listing standards.
