Recent Developments for Directors — January 2025

New SEC Chair Expected to Take Agency Back to Basics

President Trump’s nominee for SEC Chair, Paul Atkins, advocates a business-friendly, light-touch regulatory philosophy and is expected to lead the agency to retether its rulemaking to the SEC’s three-part statutory mission — facilitating capital formation; protecting investors; and maintaining fair, orderly, and efficient markets. Atkins previously served on the SEC Staff from 1990 to 1994 and as an SEC Commissioner from 2002 to 2008. In recent years, the SEC has faced legal challenges to sweeping and ambitious rulemaking efforts — covering subjects from climate change to daily share repurchase activity to board diversity mandates — that courts have paused or invalidated in response to claims that the SEC exceeded its statutory authority. In the coming years, companies can expect the SEC to concentrate its efforts on more traditional areas of disclosure regulation, limited by what is material to investors, in contrast to the agency’s more expansive regulatory approach in recent years.

Companies Take Strategic Steps to Defend Against Short Sellers

Attacks by short sellers betting against a company’s stock continue to proliferate, despite the abrupt end of the high-flying short seller known as Hindenburg Research. Short attacks exploit market volatility and the widespread use of digital platforms to amplify allegations of fraud, overvaluation, or governance failures, particularly for companies in the technology or biotech sectors. Short sellers often release exaggerated negative allegations before or after companies’ earnings announcements to drive stock price declines from 5% to 50% or more. In anticipation of short attacks, companies are taking defensive steps that include conducting board and management tabletop exercises, reviewing crisis management plans, preparing communications toolkits, and building relationships through proactive and consistent stockholder engagement.

DEI Pushback Generates Diversity of Responses

The rise of anti-DEI efforts reflects growing resistance to corporate diversity initiatives amid political and legal challenges. Underscoring this trend, recent developments include the invalidation of Nasdaq’s board diversity rules by the Fifth Circuit United States Court of Appeals, and a large institutional investor’s shift away from its 30% board diversity target. These moves signal a change in the corporate governance landscape, with some stakeholders questioning the role of mandated diversity in driving stockholder value. Companies are responding with a diversity of approaches to evolving DEI initiatives. These approaches range from a wholesale reversal of DEI efforts to more nuanced approaches that balance stakeholder expectations, ensure compliance with changing regulations, and demonstrate the business case for diversity as a driver of innovation and long-term performance. Companies are also taking a careful look at their public disclosures and moderating these disclosures to avoid becoming targets of anti-DEI attacks.

Director Resignation Provisions Under Attack

Director resignation provisions face ongoing challenges from plaintiffs’ firms claiming that these provisions violate Delaware law by allowing boards to remove directors without a stockholder vote. For many years, bylaws and governance policies have included mechanisms for director removal in a variety of contexts. One common approach, for example, requires new directors to provide an irrevocable resignation letter conditioned on a future event, such as the director’s failure to receive a majority vote, the director’s change of employment or other circumstances, or the company’s discovery of misleading information in the director’s nomination materials. Conversely, companies continue to receive stockholder proposals urging adoption of these types of resignation provisions. Companies are reviewing director resignation bylaws and governance policies in light of these developments. For more information, contact a member of Latham’s Public Company Representation team.