On January 30 2020, the World Health Organization (WHO) declared that the coronavirus (officially named COVID-19) outbreak constituted a public health emergency of international concern. The full impact of the outbreak and the resulting precautionary measures around the world remains to be seen but will likely have several implications on business operations, particularly for the travel, financial services and professional services industries, manufacturing facilities and supply chains. Companies will need to consider their obligations in response to government announcements, the level of business disruption, and other commercial risks arising from the coronavirus.

In this article, Baker McKenzie lawyers consider the immediate impact on capital markets, including contractual implications for securities offerings, ongoing disclosure requirements, practical effects, and the approaches of stock exchanges and regulators around the world.

You can also stay up to date with further developments at our Coronavirus Resource Center.

DOWNLOAD PDF

The post Coronavirus Under the Capital Markets Microscope appeared first on Global Compliance News.

Source

Welcome to the first of our series of year-end analyses of the year in securities regulation and enforcement.

First, we will consider the past year “by the numbers,” the statistics that the Securities and Exchange Commission (SEC), or more specifically, its component Divisions and Offices, release annually. Later parts of the series will consider some of the specific areas of focus for the SEC Enforcement Division in bringing enforcement actions in the past year, and how that informs our future expectations.

This analysis will take a look at enforcement actions, penalties and disgorgement, examination statistics, as well as the data issued by the Office of Whistleblower. As you will see, the SEC is canny in how these numbers are released and any careful review will generally require resort to several SEC reports, issued over months, in several documents, to make actual sense of what the statistics mean for considering the past conduct and for the evaluating the future. Some of that material is not yet available, but we will update this document as the data is released. Further, the Commission routinely changes whether and how certain data is released from year to year, so comparing performance is complicated.

The post US: Looking Back & Looking Ahead: Financial Regulation and Enforcement 2019/2020 appeared first on Global Compliance News.

Source

As the 2019 Novel Coronavirus (COVID-19) spreads into the broader economy, human resource professionals are finding that grappling with the consequences are more complicated in union-represented workforces. In a union workforce, the employer must determine what it has already agreed it will do, the extent of its freedom to address the scenarios created by COVID-19, and the legal framework within which it must act. Below we offer several considerations for employers to adopt.

First, examine the collective bargaining agreement. This will allow you to determine the extent of the company’s freedom to act independently and expeditiously. The place to start is to determine management’s right to schedule work, to idle the plant, to send workers home and to lay-off employees. Determine the restrictions, if any, in these rights, such as call-in pay or weekly guarantees.

  • Examine the lay-off and recall procedures in the event some, but not all, employees will be sent home. Determine when the company must follow these methods and when the company has the right to pick and choose affected employees.
  • Examine the temporary vacancy provisions to determine when and how the company must fill short term vacancies.
  • Review leave of absence provisions including Family and Medical Leave, paid sick leave, and personal absences to determine eligibility criteria and scheduling limitations.
  • Review paid time-off entitlements eligibility and scheduling limitations.
  • Review the short-term disability welfare plan to determine eligibility, duration, and rate of pay.
  • Review policies or contract provisions regarding disability, accommodations, fitness for duty examinations, and return to work policies.
  • Review the work rules (discipline policy) and the health and safety policy to determine employees obligations to report medical diagnosis which pose a threat to coworkers.
  • If the workplace has a mixed workforce, review the project labor agreement or subcontracting/services agreement to determine which entity controls the operation of the worksite.

Second, consider discussions with responsible union officials. While the company may be free to act unilaterally under the NLRB’s recent decision in MV Transport, it should prepare a written policy to address:

  • An employee exposed to COVID-19
  • An employee who is symptomatic while at work
  • An employee who contracts COVID-19
  • Co-workers of employees in the above categories
  • Return-to-work criteria and process
  • The shutdown of operation by public health officials
  • The shutdown of operations by management
  • The shutdown of operation due to lack of materials or supplies
  • The recall, reinstatement or restarting of operations in phases if desired

Even if bargaining with the employees’ representative is not required, employers may find it beneficial to review its COVID-19 response policy with responsible union officials before implementing it. Employers should avoid negotiating the policy and should make clear to the union that the review is not bargaining.

Finally, the company should review the legal requirements that govern the workplace. Many cities have enacted paid leave ordinances in the absence of state laws. Local district judges may have addressed fitness for duty and return to work examinations when employees have communicable diseases. And, while it is still over the horizon, the company should consider how it will address the administration of vaccinations should one be developed.

The post Managing COVID-19 in a Union Workforce in the US appeared first on Global Compliance News.

Source

This alert covers the following governing laws: English, PRC, New York, Australian, Hong Kong, Singaporean and South African

Since the COVID-19 coronavirus was first reported in Wuhan, China, in December last year, countries around the world have sought to impose travel bans, quarantine citizens and isolate the infected in an attempt to stop the spread of the new virus. The outbreak has developed into a global threat and on 30 January 2020, the World Health Organization declared that the outbreak constituted a public health emergency of international concern.

Worldwide, the full impact of the outbreak and the resulting emergency measures on international trade remains to be seen but our clients have reported substantial business and operational disruptions, including closures of workplaces and ports, disruptions to supply and distribution channels, shortage of labor and weakened regional demand.

Given the unexpected nature of the outbreak, attention has focused on the prospect that parties to affected commercial contracts may invoke force majeure provisions in those contracts in order to excuse delay or non-performance.

This alert discusses force majeure and the coronavirus from the perspective of PRC law and several of the more frequently adopted common law systems governing international commercial contracts, focusing on the main differences in the latter.1 We also outline several alternative remedies that may apply depending on the governing law of the relevant contracts.

Affected contracts

Numerous force majeure claims involving a Chinese buyer or supplier have already been reported in the world media2 and it seems likely that claims with a wider ambit will follow as the ripple effects of the outbreak spread globally.

Any contract with a specific force majeure clause may be the subject of a claim. Contracts governed by a civil law framework which grants force majeure remedies, whether or not they are written into the contract, may also be the subject of the claim. This includes the PRC.

Force majeure claims are particularly relevant for contracts with a long-term or ongoing supply and in the following markets:

  • Commodity contracts (including iron ore, coal and copper);
  • LNG contracts;
  • Ship building contracts;
  • Supply contracts for textiles, foodstuffs and mechanical equipment;
  • Contracts for electrical equipment and electronic components;
  • Medical equipment manufacturing contracts.

The effect of the outbreak on suppliers is perhaps most obvious. With emergency measures impacting on goods, workers and logistics, many suppliers appear unable to fulfil their contracts within the prescribed time or at all. But invoking force majeure may also be of interest to buyers, either because taking delivery under the contract has been impacted or due to disruptions in downstream markets.

The PRC government has acted on force majeure specifically, with the quasi-governmental China Council for the Promotion of International Trade (CCPIT) announcing on 30 January that it would offer “force majeure certificates” to help companies deal with disputes with foreign trading partners arising from government control measures. To date, it has been reported3 that thousands of certificates have been issued purporting to shield Chinese companies against liabilities for non-performance. We discuss the effects of these certificates on contracts with different governing laws below.

What is force majeure?

The concept of force majeure (FM) derives from French civil law and has been carried across to several other civil law jurisdictions. It’s also of wide application in common law jurisdictions and is frequently used in commercial contracts governed by such common law systems because of the limited remedies otherwise available to the parties when the contract becomes impossible, difficult or onerous to perform due to events outside the affected party’s control.

Whether the source of FM rights is legislation or the terms of the contract, FM regimes typically operate by excusing non-performance by a party of its contractual obligations where non-performance is caused by a defined FM event.

Determining whether an event is a FM event normally involves applying the objective test found in the relevant law or written in the contract. However, most FM regimes are “open” or inclusive in the sense that the event does not need to be specifically listed as a FM event, provided it meets the requirements of the objective test.

Civil and contractual FM regimes often differ in practise. Contractual FM can be, in scope and remedies, either wider or narrower than the more inflexible civil law schemes, depending on the bargaining power of the parties at the time the contract was entered into and how that translated into the drafting of the particular contract.

For example, many contractual FM provisions will include a list of examples of FM events. Generally it will be easier to bring a FM claim if the event is listed (although typically the other requirements of the objective test must still be met). While epidemics are uncommon in modern times, recent memory includes SARS, Ebola and various severe flu outbreaks. Epidemics arise frequently enough though that the parties may have specifically included “epidemic” or “pandemic” as listed FM events or they may be subsumed within more general terms such as “disease” or “illness”. Similarly, emergency measures to address or contain an outbreak may be listed or covered under general terms such as “government action,” “government order,” “national or regional emergency” or “quarantine.”

It’s also common, particularly in certain markets, to include in contractual FM a (potentially long) list of excluded FM events. Depending on the drafting, if the event, or potentially one of multiple events, causing the non-performance is excluded, FM remedies may be precluded. Both buyers and suppliers will often use this type of drafting to allocate risk to the affected party of events which are outside their control and might otherwise technically meet the definition of a FM event but are generally seen as attendant risks of doing business in that market, such as economic downturns and other financial hardships.

Below we consider FM under PRC law, the most likely applicable civil law jurisdiction and from the common law perspective.

PRC law perspective

FM exists as a doctrine under Article 180 of the General Rules on the Civil Law and Articles 117 and 118 of the PRC Contract Law. The regime applies automatically to commercial contracts governed by PRC law where the contract contains no FM provisions.

Test/Causation

A FM event is an objective event or situation which is (1) unforeseeable (at the time of entering into the contract), (2) unavoidable in terms of occurrence or impact and (3) impossible to overcome.4

There must be a causal link between the FM event and the affected party’s failure to perform (i.e., the affected party must establish that the FM event must have caused the non-performance). It’s not necessarily required that the FM event must be the direct cause immediately resulting in the non-performance. If there are too many steps between the FM event and the non-performance it will be difficult for the affected party to satisfy causation.

Requirements for claim

The affected party must notify the counterparty of the FM event promptly or in a timely manner stating their claim for an exemption of liability and providing proof of the existence of the FM event and the impact of the event on the affected party’s non-performance. There remains some uncertainty under PRC law as to whether such notice must be given before non-performance actually materialises. Accordingly, it’s advisable to do this where possible.

Where such prompt or timely notice is not given the affected party may become liable for losses suffered by the counterparty which could have been avoided had such notice been given.

Mitigation

The affected party’s obligation to mitigate the effects of the FM event has been expressed as a “best efforts” obligation implied under the third limb of the above test. If the affected party fails to utilise its best efforts to overcome the impact of the FM event on its non-performance it may not invoke FM.

Exemptions

Under the Contract Law, FM does not apply (1) where the contract is entered into after the FM event, (2) to non-performance of monetary payment obligations; or (3) if the FM event occurs after the affected party delays performance.

Remedies

FM remedies under the Contract Law are (1) the affected party is excused from civil liability, including damages, in relation to its non-performance (or delay); and (2) either party may terminate the contract where the essential purpose of the contract cannot be realised as a result of the event of FM.

While not expressed in the Contract Law, decisions of the PRC courts in the wake of the 2003 SARS outbreak demonstrate a willingness by the courts to also grant modification of the contract terms, though under a different doctrine – see alternate remedies below.

“Force Majeure” Certificates

These have been issued by the CCPIT to numerous Chinese companies in relation to the coronavirus outbreak as above. Typically, to obtain such a certificate, the affected party must provide the CCPIT with documents evidencing the occurrence of the relevant event. Typically, CCPIT issued certificates will only certify the occurrence of the event, which may qualify as an FM event under general circumstances but would usually refrain from certifying it as an FM event.

The purpose of these certificates is to facilitate the invoking of FM remedies where the contract requires the provision of such a certificate issued by a relevant government authority as a prerequisite to the bringing of the FM claim. Such certificates will not be binding on PRC courts either as to the existence of the relevant FM event or the effect of the event on the affected party’s non-performance.

So are they of any practical use where not required by a contract? Perhaps only to add a level of authenticity when accompanying FM claims submitted to foreign counterparties. Certainly we do not recommend relying on them alone as a virtual shield against liability as implied in several media reports.

Common law perspective

FM is a creation of the contract in common law jurisdictions. Where the contract is governed by a common law system the relevant courts will generally recognise the parties’ freedom to agree wide or narrow FM relief. Generally, FM provisions are interpreted by focusing on the actual language used with the result that each particular case rests on its own contractual language and set of facts. Another complication is that the term “force majeure” is also sometimes used to refer to other provisions frequently applying to exceptional supervening events such as “hardship” clauses and those creating a framework for making amendments to the contract for material changes in circumstances.5

Test/Causation

What constitutes an FM event and the precise objective test depends on the specific wording of the provision. As noted above, the definition of FM is generally inclusive but some clauses are exhaustive instead. If the contract provides that a FM event must “prevent” performance, the affected party must generally demonstrate that its performance has become legally or physically impossible and not merely more difficult or more expensive. By contrast, if the provision refers to the event “hindering” or delaying” performance then the threshold will generally be lower and FM may be satisfied if performance remains possible but has become substantially more onerous.

While common law systems generally take a consistent approach, variations (some subtle) persist and it’s important to approach interpretation of each FM provision with regard to the corresponding case law.

Until fairly recently, English courts applied a test of unforeseeability to FM events and while there is authority that this is no longer the case, other common law courts may still impose such a requirement. Hong Kong and Singapore courts have tended to follow the English courts’ approach. Conversely, English courts have found that the affected party must also generally have been “ready, willing and able” to perform the contract but for the FM event. English courts have also tended to take a dim view of claims that a change in economic or market circumstances affecting the profitability of a contract may be a FM event.

Certain New York courts have tended to interpret FM provisions narrowly, reflecting the terms of the agreement and the intent of the parties, though there is also authority that “known practices within the industry” is important, particularly in specialist industries like oil and gas. This may, depending on the drafting, place additional emphasis on the specific list of FM events as a whole as a New York court might decline relief if an unlisted event is not of the same kind or nature. Some New York courts have interpreted FM provisions even more narrowly by requiring that the event be listed and that the event be unforeseeable, although authorities to the later proposition appear mixed.

Requirements for claim

FM provisions commonly contain a notification requirement, which can operate as a “condition precedent” precluding relief if the relevant notice is not given in the necessary timeframe. Such provisions are generally enforceable, and so complying fully with all notice requirements will be important for parties seeking to declare FM.

Mitigation

FM provisions commonly requires the claiming party to show that is has taken all reasonable endeavors to avoid or mitigate the event and its effects (a highly fact sensitive enquiry).

Exemptions

These are a matter of drafting and can doom an otherwise valid claim.

In some markets, it’s common practise to exclude changes in the relevant market or demand. This can increase the challenge for a buyer who wishes to claim FM but cannot show it was unable to accept delivery of the supply, particularly if it has taken advantage of falling prices and already sourced the supply from elsewhere.

Remedies

These are a matter of drafting and need to be sufficiently certain to be enforceable. Typically, the affected party is excused from relevant non-performance while the FM event (or its effects) persist. Again, depending on the drafting, this can take effect as an extension of time or general suspension of the affected party’s obligations.

If non-performance caused by the FM event is prolonged (or permanent) then the drafting may provide for termination of the contract with the financial consequences for the parties set out in the provision. Where such termination right is mutual, the affected party may need to consider carefully whether to invoke FM at all, especially if preserving the economic benefit of the contract is more valuable than losing the contract.

Long-term supply contracts may provide for more complex scenarios, with some contracts requiring supplies to be made at a later date to maintain total quantities while others effectively cancel the affected supply (leaving the supplier with the headache of a quantity it may be unable to sell in circumstances where prices have fallen).

Alternate remedies to FM

Aside from the typical FM provisions outlined above, the affected party may have alternate remedies, depending on the governing law of the contract.

Some examples:

  • For English law contracts, the affected party might claim relief under the doctrine of frustration, which permits parties to cease performing contractual obligations where it becomes impossible to do so in circumstances entirely beyond the remit of the parties. While frustration tends to have limited application and is even more difficult to establish where the contract does contain FM provisions, this could be a potential avenue for relief where emergency measures have made the supply permanently unavailable or the necessary skilled labor to perform a contract became unavailable due to travel restrictions or illness.
  • For PRC law contracts, the doctrine of “change of circumstances [situation]” may apply where a FM remedy is not available.6 The doctrine operates where (1) there is an unforeseeable and material adverse change to the fundamental assumptions upon which the parties relied when they entered into the contract, (2) the change is outside the sphere of regular commercial risks, and (3) such change would make continued performance of the contract on its original terms egregiously inequitable to the affected party. While the judicial process is more complex than for a FM claim, the affected party may apply for the contract to either be terminated or modified (something not generally available for a FM claim based on the civil law).

Recommended actions

If, whether as buyer or supplier, you have entered into commercial contracts that have or may be affected by the outbreak, we recommend the following actions:

  • Review each contract carefully, with particular regard to the governing law and FM provisions, including any time bars or other procedural requirements.
  • Form a preliminary view on whether any FM provision is “open” or exhaustive in relation to the list of FM events and whether the outbreak and/or resulting government crisis measures are covered/excluded.
  • If you may need to invoke a claim, consider your obligation to mitigate the effect on non-performance and what steps you can take. Starting a mindful dialogue with the counterparty may be an important part of the process.
  • Consider any potential flow on effects from the invoking of a claim such as termination of the contract.

Aside from your legal position, there are generally going to be several other important matters of concern:

  • For a counterparty who receives a FM claim they do not think is valid, there is the issue of enforcement of the contract, particularly if it does not provide for international arbitration.
  • There are the reputational risks and potential damage to long-term supply relationships with foreign buyers and suppliers. Even where there is no legal basis for FM relief, parties who receive FM claims may wish to be flexible about amending or restructuring (e.g. by postponing deliveries) the contract to accommodate the affected party.
  • Declaring FM or receiving a FM claim may impact on insurance arrangements.
  • Buyers who are part of a chain of supply contracts may themselves need to declare FM in response to a supplier’s declaration in order to avoid being in breach. Each contract in the chain may of course be on different terms or subject to entirely different governing laws and this can create substantial challenges for the buyer, especially where their downstream contract has less favourable (or no) FM provisions. There may also be separate time bars or other procedural requirements as above.

Clearly if you are entering into new contracts during this period you should consider the FM provisions with particular care.

Conclusion

With the full impact of the coronavirus likely to play out for some months yet and the potential for the outbreak to spread into new regions, this is an issue seemingly becoming more important by the week.

If you would like to discuss any of the issues raised in this alert please contact us. Further news, regional law perspectives and other information can be viewed at Baker McKenzie’s Coronavirus Resource Center.


1 This alert covers commercial contracts governed by the following common law legal systems: New York law, English law, Australian law, Singapore law and Hong Kong law.

2 https://www.ft.com/content/e3d6b116-4975-11ea-aeb3-955839e06441; https://www.wsj.com/articles/coronavirus-toll-on-shipping-reaches-350-million-a-week-11581366671; https://www.reuters.com/article/us-china-health-lng-prices/free-falling-lng-prices-wreak-havoc-on-trade-amid-coronavirus-fears-idUSKBN2010P9

3 https://www.chinadaily.com.cn/a/202002/17/WS5e4a38eaa31012821727818d.html

4 不能预见、不能避免、不能克服的客观情况(事件)

5 These are also sometimes referred to as Material Adverse Effect (MAE) clauses in certain jurisdictions.

6 Some commentators have argued that the remedies are reconcilable particularly following Supreme People’s Court decisions in relation to the 2003 SARS outbreak.

The post Coronavirus Outbreak: Global Guide to Force Majeure and International Commercial Contracts appeared first on Global Compliance News.

Source

Companies should give thoughtful consideration to their disclosure of human capital management, or HCM, topics as more companies trend toward increased disclosure of environmental, social and governance matters in their annual proxy statements and other public disclosures.

HCM is increasingly becoming a key area of focus for stockholders and proxy advisory firms, as well as the US Securities and Exchange Commission, which proposed a new disclosure requirement for human capital measures last year as part of its ongoing effectiveness review and modernization project for corporate reporting and disclosure.

Although there is no requirement to provide HCM disclosure at this time, companies have begun to provide voluntary disclosure in response to growing demands from stockholders and proxy advisory firms for more information on human capital issues. Now is a good time for companies to understand and consider HCM disclosure and governance trends and how they may impact practices going forward.

Importance of HCM

Companies have long recognized the importance of human capital as key to creating value. HCM generally refers to the manner in which a company manages its workforce in a variety of areas — such as recruitment, retention, talent development, training, health and safety, productivity, diversity and inclusion, and culture — which together form an integral part of a company’s competitive strategy driving long-term value and risk mitigation.

In recent years, shareholders, proxy advisory firms and regulators have paid more attention to the value of human capital as an intangible asset combined with the link between effective HCM and lower employee turnover, higher productivity and improved long-term company performance.

Investors have historically lacked the data needed to assess HCM performance, which has prompted calls for increased disclosure by companies as to how this highly valuable intangible asset should be measured and assessed.

SEC Proposal for Required HCM Disclosure

On Aug. 8, 2019, the SEC proposed amendments to certain disclosure requirements under Regulation S-K, including Item 101 on the description of the business, as part of the regulator’s project to update and modernize corporate reporting and disclosure requirements.1

The proposed amendment would require companies to include, as a disclosure topic, a description of the company’s human capital resources, including any human capital measures that management focuses on in managing the business, to the extent such disclosures would be material to an understanding of the company’s business. These human capital measures might include, depending on the nature of the company’s business and workforce, measures or objectives that address the attraction, development and retention of personnel.

Currently, Item 101(c)(1)(xiii) requires disclosure of the number of people employed by the company, which dates back to a time when companies relied significantly on plant, property and equipment to drive value.

The proposed amendment reflects a principles-based approach, understanding that the human capital measures and objectives considered material for any particular company should depend on the nature of the company’s business and workforce, while the exact measures or objectives included in a company’s disclosure may evolve over time and depend on the industry.

The SEC has solicited comments on the proposed human capital disclosure, including specific questions, such as:

  • How to define human capital, and

Whether to provide other nonexhaustive examples of measures or objectives that may be material, such as:

  • The number of full-time, part-time, seasonal and temporary workers;
  • Stability of the workforce (e.g., voluntary and involuntary turnover rates);
  • Average hours of training per employee per year;
  • Human capital trends (e.g., competitive conditions and internal rates of hiring and promotion);
  • Worker productivity; and
  • Progress that management has made with respect to any established objectives regarding human capital resources.

Calls for HCM Disclosure by Investors

In addition, companies have been faced with calls from institutional investors for HCM disclosure in recent years. In 2017, a group of institutional investors sent a letter to the SEC urging companies to disclose additional information about their HCM policies, practices and performance, including categories of information regarding workforce demographics, stability, composition, skills and capabilities, culture and empowerment, health and safety, productivity, human rights, compensation and incentives.2

Since then, institutional investors continue to identify HCM as a key issue to discuss during shareholder engagement and are asking companies for more information around their HCM strategy and process. In particular, BlackRock Inc. views HCM as “a potential competitive advantage” and expects “disclosure around a company’s approach to ensuring the adoption of the sound business practices likely to support an engaged and stable workforce.”3

The California Public Employees’ Retirement System states that “proper management of human capital is vital to the success of companies we invest in,” and “we seek to understand their strategies surrounding workforce, diversity, culture, and organizational decision-making.”4

Similarly, proxy advisory firms Institutional Shareholder Services Inc. and Glass Lewis & Co. LLC have incorporated ESG issues into their proxy voting guidelines, in addition to separately assessing board gender diversity and gender pay gap.

The particular methodologies for how ISS and Glass Lewis intend to take into account individual measures and objectives for HCM when making voting recommendations to investors remains to be seen as the framework for HCM disclosure continues to evolve.

Impact of HCM Disclosure on Directors

With an increased emphasis on HCM reporting and disclosure, directors are being asked to exercise more oversight over HCM matters. This is in stark contrast to several years ago when directors were focused on the oversight of executive compensation and succession planning while relying on management to be responsible for issues affecting the employee population generally.

Today directors need to be prepared to answer questions from institutional investors on HCM matters as frequent topics include demographic data of the employee population, retention, talent management, organizational culture, diversity and inclusion, health and safety, productivity and compensation.

Companies should consider having the full board provide general oversight of HCM matters and allocating specific oversight responsibilities to the compensation committee or other appropriate committee as needed.

The compensation committee is often best suited to oversee HCM strategy and implementation but this will typically involve an expansion of the traditional role and duties of the compensation committee which may require changes to the compensation committee charter to reflect such duties.

To further demonstrate a broader role of HCM oversight, some companies have changed the title of the compensation committee to the “compensation and human resources committee” or “compensation and management development committee” or similar variation.

As a general framework for expanding HCM oversight by compensation committees, the compensation committee should work with management to identify the HCM components and key performance indicators that create value for the company while giving consideration to any particular HCM issues that are important to the company’s investors which can be gathered through shareholder engagement.

Once those key HCM components are identified, the compensation committee should coordinate with management to establish goals for each component, including identifying areas of risk, and determine how to measure and periodically assess the company’s achievement of those goals.

It is important to maintain the committee’s role as one of oversight and monitoring rather than day-to-day management. Compensation committees may also wish to engage independent advisers to further ensure that the appropriate components of HCM for the company are properly being considered. The compensation committee should provide periodic reports to the full board on the status of HCM initiatives.

Ultimately the board will need to formulate responses to requests and comments from institutional investors as part of shareholder engagement and determine the extent to which HCM measures should be disclosed in the annual proxy statement, annual report or other public disclosures.

Growing Trend of HCM Disclosure in Proxy Statements

In response to growing pressures to provide more information on HCM to investors, many companies are taking action to voluntarily provide HCM disclosure in their annual proxy statements as a way to stay ahead of the issue as disclosure practices and requirements continue to evolve.

One of the most frequent topics of disclosure is a company’s description of the board’s oversight of HCM, as well as corporate culture. It appears that the boards at many companies are retaining general oversight responsibility while assigning certain responsibilities to the compensation committee or other committees as appropriate.

Some companies disclose specific components of HCM that are subject to board or compensation committee oversight, which can be helpful to give investors an idea of those HCM matters that are important to directors. At this stage, many companies are not disclosing details as to how the board or committee exercises its oversight over HCM matters.

In addition, many companies are starting to provide disclosure of a general commitment to HCM matters, with some companies identifying key performance indicators in certain areas but not necessarily quantifying them or providing a sense of the extent to which the company is making progress in achieving its goals.

Without mandated disclosure by the SEC, companies are taking varying approaches to the disclosure of HCM in proxy statements in areas that are important to investors, such as retention, talent management, organizational culture, diversity and inclusion, health and safety, productivity and compensation, as well as demographic data of the employee population.

In a recent study, EY reviewed the human capital disclosures contained in the proxy statements of 82 companies in the Fortune 100 as of Sept. 5, 2019.5 Approximately 40% of the companies surveyed included general disclosure of board or committee oversight of HCM matters.

With respect to the type of HCM information disclosed, the following percentages of companies surveyed included disclosure in the following areas:

  • 50% included workforce diversity disclosures, with under one-third of those companies providing some measure of workforce diversity;
  • 34% included workforce compensation disclosures, with most of those companies discussing pay equity and efforts to eliminate gender and diversity pay gaps, while 40% disclosed measurement data of pay equity, such as gender pay ratio and minority pay ratio;
  • 22% disclosed culture initiatives;22% included workforce health and safety disclosures, with less than half of those companies disclosing any key performance indicators;
  • 22% included workforce skills and capabilities disclosures, with half of those companies providing at least one quantified key performance indicator; and
  • 6% included workforce stability disclosures, with most of those companies disclosing key performance indicators, and only a few companies quantifying them.

While more companies are providing HCM disclosure in their proxy statements, some companies have started incorporating HCM-related performance metrics into their executive compensation programs. HCM, together with other ESG measures, are most commonly found as a metric under short-term incentive plans provided to executive officers and, to a lesser extent, long-term incentive plans.

HCM metrics as key performance indicators are typically weighted at very small percentages in incentive programs or may be combined with other nonfinancial performance metrics while this practice continues to evolve.

As a further sign of boards becoming more involved in HCM matters, many companies are highlighting the HCM experience of directors in their proxy statements. EY found that 44% of the companies surveyed disclosed human capital-related experience in at least one director biography, with some referring to diversity and inclusion, culture initiatives or background in human resources.

Moving Forward

With investors calling for more information on how HCM is measured and assessed, and the SEC considering a proposed amendment to add human capital measures as a disclosure requirement, many companies are proactively addressing these issues by providing voluntary HCM disclosure in their annual proxy statements, which can be one of the most effective tools to communicate with investors and demonstrate a company’s commitment to HCM.

Now is the time for companies to revisit their HCM disclosure or consider adding HCM disclosure for the first time as they prepare their proxy statements for the 2020 proxy season.

Article first published in Law360 on 24 February 2020.


1 SEC Proposed Rule No. 33-10668, “Modernization of Regulation S-K Items 101, 103, and 105,” Aug. 8, 2019, https://www.sec.gov/rules/proposed/2019/33-10668.pdf.

2 Human Capital Management Coalition SEC petition for rulemaking, July 6, 2017, https://www.sec.gov/rules/petitions/2017/petn4-711.pdf.

3 BlackRock, Investment Stewardship, Protecting and enhancing our clients’ assets for the long term, https://www.blackrock.com/corporate/about-us/investment-stewardship#engagement-priorities.

4CalPERS, Human Capital, https://www.calpers.ca.gov/page/investments/sustainable-investments-program/human-capital.

5 EY, How and Why Human Capital Disclosures are Evolving, Nov. 15, 2019 https://corpgov.law.harvard.edu/2019/11/15/how-and-why-human-capital-disclosures-are-evolving/.

The post US: Considering Human Capital Management In Proxy Disclosures appeared first on Global Compliance News.

Source

Baker McKenzie is pleased to present the 2020 edition of the Global Employer: Focus on US Immigration & Mobility.

Whether you need information about a specific US visa type, or are looking for a high-level overview of employer obligations related to the movement of foreign nationals under US immigration and employment law, this handbook covers a wide range of topics and serves as a go-to desk-side guide for US employers.

Order your complimentary copy or download a PDF version.

ORDER NOW

The post The Global Employer: Focus on US Immigration & Mobility (2020 Edition) appeared first on Global Compliance News.

Source

Schrems II case – the data importer perspective

Following our previous analysis of the consequences of the opinion of the advocate general Hendrik Saugmandsgaard Øe (a.g.) in the Schrems II case, from the data exporter perspective (available here), we now focus on the implications of the same with respect to the position of the data importer.

Indeed, in the following paragraphs, we will turn our attention to the content of the Controller to Processor Standard Contractual Clauses (SCC) and, in particular, to some of the obligations imposed on the data importer, notably, Clauses 4(d); 5(a); 5(b) and 5(d). We will consider these obligations in light of the a.g.’s opinion in order to explain their ‘new’ meaning and scope.

Appropriate Security Measures – Clause 4(d)

Although the content of the obligation under Clause 4(d) is directed to the data exporter, its text has an impact on the activities of the data importer as well. Indeed, the exporter is required to agree and warrant that “after assessment of the requirements of the applicable data protection law, the security measures [put in place by the data importer] are appropriate” to protect the data that the latter is processing on its behalf. The clause, therefore, implies that (following a periodical request from the data exporter) the data importer regularly supplies a report indicating all the security measures that the importer has in place, in order for the exporter to be able to assess whether said measures are appropriate to its purposes. In light of the principle of transparent and accurate processing, in fact, the analysis on the importer/processor shall be performed or at least reviewed on a regular basis.

Moreover, the data importer has a number of additional information requirements towards the data exporter, including:

Non-Compliance – Clause 5(a)

The main obligation of the importer is enshrined under Clause 5(a) that requires the same to agree and warrant that it will process personal data only on behalf of the exporter and in compliance with its instructions and the Clauses. Clause 5(a), quite frankly also considers the possibility that the importer may not be able to comply with its obligations: indeed if “for whatever reasons” the importer cannot honour its obligations, Clause 5(a) requires it to inform promptly the data exporter. It is indeed not an easy task for the importer. In line with the principle of good faith in contractual relationship, the importer shall make the exporter aware of any and all circumstances that may hinder the protection of personal data in the course of the processing activities it performs. Clause 5(a) is a prerequisite for the accountability of the exporter/controller, which, following the receipt of said information, can decide the consequent actions. The range of said actions is the widest possible, up to the termination of the contract.

Changes in Legislation – Clause 5(b)

This clause is structurally similar to the one just mentioned and imposes an obligation on the data importer to notify the data exporter when a change in the applicable legislation is likely to negatively affect the capacity of the importer to comply with its obligations. Again, the consequences of said notification are for the exporter to define, being the data controller the one in charge of deciding purposes and modalities of data processing (including data transfers). What is relevant in all those circumstances is that the exporter is made aware of such changes, so that it can act accordingly and in a timely fashion.

Requests for Disclosure – Clause 5(d)

Another similar obligation is the one included in Clause 5(d), according to which the importer has a duty to inform the exporter, without undue delay, on all those circumstances where it is the addressee of specific requests or actions – i.e. a legally binding request for disclosure by a law enforcement authority; any accidental or unauthorised access; a data subject request. The idea behind this Clause is for the exporter to be in control of what happens on the importer side; indeed, it is relevant to remember that the importer is a data processor and the exporter/controller is responsible before data subjects for its compliance with the data protection laws.

Finally …

In conclusion, the a.g. suggests increasing the exporter’s scrutiny on the importers data processing activities. It is indeed the importer’s obligation to facilitate the data exporter in performing its analysis of the importer’s factual compliance. Following this line of thoughts, the importer will be expected to provide all necessary information to support the exporter in this effort.

It is of paramount importance, for the data importer, to make sure to set up an assessment and reporting process, to enable a timely identification of all non-compliance situations, and to become aware of circumstances relating not only to the data processing itself, but also to external factors. For example, the disclosure of requests from national security agencies, or changes in national legal regime. In parallel, the data importer should also make sure to open and maintain proper communication channels with its exporters and effectively comply with its duties under the SCC.

The post International Data Transfer Solutions Under GDPR appeared first on Global Compliance News.

Source

Read publication

We are pleased to enclose the February issue of Tax News and Developments, a publication of Baker McKenzie’s North America Tax Practice Group. This month’s edition features a discussion on three Tax Court opinions under section 6751 (b), final withholding regulations, a review of final and proposed BEAT regulations and more!

In this Issue

  • Transformation of “Initial Determination” to “Definite Decision” in Penalty Approval Case
  • Final Withholding Regulations Provide Some Taxpayer Relief
  • A Review of the Final and Proposed BEAT Regulations
  • IRS BEATs on Partnerships with Final Section 59A Regulations
  • Proposed Section 162(m) Regulations: A Due Diligence Disaster
  • The Illinois Appellate Court Shuts the Door on the Secretary of State’s Aggressive Attempt to Subject An Out-of State Corporation to Double Taxation
  • Passing-through the SALT Deduction Cap: New Jersey Edition
  • DAC6: The EU’s Mandatory Disclosure Regime
  • Getting Better All the Time…Baker McKenzie Adds New Talent to its Miami Office

The post North America Tax News and Developments – February 2020 appeared first on Global Compliance News.

Source

HITRUST Announces Availability of Shared Responsibility Matrix

FRISCO, Texas – March 4, 2020 – HITRUST, a leading data protection, standards development, and certification organization, announces the general availability of the HITRUST Shared Responsibility Program and Matrix™ Version 1.0. The Matrix is the first ever common model for communicating and assigning security and privacy responsibility between cloud service providers (CSPs) and their tenants or customers.

The Matrix is part of the HITRUST Shared Responsibility Program, which was established to address the growing misunderstandings, risks, and complexities when leveraging service providers. The Shared Responsibility Program clarifies the roles and responsibilities regarding ownership and operation of security controls while automating and streamlining the assurance process when privacy and security controls are shared or inherited. Organizations will benefit from streamlined communication processes as well as reduced inefficiencies and burdens of compliance when leveraging services from cloud providers.

The Shared Responsibility Program is led by Becky Swain, Director of Standards Development at HITRUST, and supported by a Working Group comprised of representatives of leading cloud service providers, including Armor, AWS, Google, Microsoft Azure and Salesforce, as well as enterprise cloud customers, cloud professional services firms, and solution providers. “With the continued adoption of cloud services, being able to understand and accurately inherit controls from service providers in an automated manner will be key to an organization’s information risk management and assurance process,” said Swain. “The next milestone will be HITRUST continuing to work with leading CSPs to ensure they provide the Matrix to their customers.”

“As PDHI collaborates with cloud service providers, we will leverage the HITRUST Shared Responsibility Matrix in understanding, documenting, and inheriting privacy and security control responsibility,” explains Lee Penn, the Chief Financial Officer and Chief Compliance Officer for PDHI and Shared Responsibility Working Group Member. “The Matrix simplifies providing evidence to our auditors and other interested parties that what we deliver, together with services we contract from Microsoft Azure cloud, meets the HITRUST guidelines and certification requirements—from end-to-end.”

HITRUST will continue to collaborate with leading CSPs as they provide the Matrix to their customers to further streamline security control ownership and responsibility. The Matrix offers many benefits, including:

  • A standard set of core principles and common language for all cloud service model types (e.g., SaaS, PaaS, IaaS, and Colo).
  • Helping organizations navigate an agreed-upon shared security and privacy responsibility in a way that is transparent, traceable, and accountable.
  • The ability to be tailored by CSPs in a completely customizable template to support their proprietary products and services.
  • Supporting an Assess Once, Inherit Many™

Businesses around the globe spent $107 billion in 2019 for cloud computing infrastructure services, fueled by 37% growth in Q4. With the proliferation of enterprise cloud computing, HITRUST continues its commitment to provide industry-leading risk management and vendor risk solutions for global organizations across all industries.

David Houlding, Director of Healthcare Experiences, Microsoft Azure: Healthcare Cloud and Shared Responsibility Working Group Member said, “The continued growth and strategic reliance on cloud computing, coupled with the ever-growing risk and compliance landscape, make communicating control responsibility and assurances more complex and intricate. The HITRUST Shared Responsibility Program addresses the need for a common language around security risks and responsibilities between the customer and cloud service provider, and to have confidence that nothing will fall through the cracks.”

“When control responsibility is shared, organizations must have these discussions with their cloud service providers to ensure everyone is on the same page,” says HITRUST Shared Responsibility Working Group Member Bob Smith, Senior Manager of Security Compliance at Salesforce. “The HITRUST Shared Responsibility Matrix will make those conversations much easier and serve as a guide to ensure every party knows what is required of them as well as that all reasonable steps are taken to protect information entrusted to their cloud service providers.”

IDC reported that 48% of organizations have applications in one public cloud that communicate regularly with applications in a different public cloud. The Matrix will help organizations more easily come to agreements with their CSPs as to which party is responsible for individual security and privacy controls, in turn ensuring that all applicable controls are properly addressed.

For more information on the HITRUST Shared Responsibility Program and how to access the HITRUST Shared Responsibility Matrix, visit the HITRUST Shared Responsibility Program webpage.

Join us on Tuesday, March 17th at 12 pm CT for the HITRUST Shared Responsibility Program Webinar; register here.

The post HITRUST Delivers on Commitment to Reduce Supply Chain Risk and Streamline Compliance Management in the Cloud appeared first on HITRUST.

Source

The Treasury Department (“Treasury”) and the Internal Revenue Service (“IRS”) issued the highly anticipated final regulations (the “Final Regulations”) implementing the base erosion and anti-avoidance tax (the “BEAT”) on December 2, 2019.  Treasury and the IRS simultaneously issued proposed regulations (the “Proposed Regulations” and with the Final Regulations, the “Regulations”). The Regulations resolve several areas of uncertainty in the statute in a taxpayer-favorable manner.

This column focuses on certain important changes Treasury and the IRS made to the proposed BEAT regulations introduced December 13, 2018 (the “2018 Proposed Regulations”), and provides some updates to our column on the 2018 Proposed Regulations. This column also notes some key requests that Treasury and the Service did not adopt. Among other items, we will cover:

  • Clarifications to the Aggregation Rules;
  • Treasury’s refusal to exempt certain “pass-through,” middleman, or global services payments;
  • Modifications to the rules with respect to tax free transactions;
  • The interaction between the BEAT, ECI, Subpart F and GILTI; and
  • The proposed election to forgo deductions.

DOWNLOAD PDF

The post US: The Final Proposed Base Erosion and Anti-avoidance Tax Regulations: A Favorable Turn appeared first on Global Compliance News.

Source