Advocacy Action Items

 

Share Your Views on Proxy Advisors and the Proxy System 

The U.S. Securities and Exchange Commission held a roundtable in November 2018 on a variety of proxy system-related topics, including proxy advisors, shareholder proposals, and proxy voting. NIRI has called on the SEC to exercise greater oversight over proxy advisory firms, modernize the resubmission thresholds for shareholder proposals, and remove barriers to issuer-investor communications. NIRI, which has submitted a comment letter, encourages members, chapters, and public companies to submit comment letters to the SEC that express support for proxy advisor reform and raise other proxy system concerns via this link.

NIRI also encourages members to review the thoughtful comment letters written by the Business Roundtable, the National Association of Manufacturers, the U.S. Chamber of Commerce, the American Council for Capital Formation, and the Biotechnology Innovation Organization.

 

Thanks for Attending NIRI's 2018 Leadership Week 

NIRI thanks the more than 50 members who participated in NIRI's second annual Leadership Week gathering in Washington, D.C. in September 2018. NIRI also thanks our five sponsors: Corbin Advisors, EQS Group, Equilar, Nasdaq, and UBS. NIRI members shared their views on proxy advisors, short-position disclosure, and 13D reform during visits to 17 Senate and House offices. The group had a private Q&A session with SEC Commissioner Hester Peirce and met with William Hinman, director of the Corporation Finance Division, and senior SEC staffers in the Investment Management and Trading and Markets divisions. 

Please click here to read an IR Update magazine article that recaps Leadership Week. To see photos from this event, please visit NIRI's Facebook page. Please make plans to join us in Washington for the next Leadership Week gathering in late September 2019. 

 

Urge the Senate to Support Proxy Advisor Reform 

In December 2017, the U.S. House of Representatives voted 238-182 to approve H.R. 4015, the "Corporate Governance Reform and Transparency Act," which would direct the Securities and Exchange Commission to regulate proxy advisory firms. The bill, sponsored by Rep. Sean Duffy (R-WI) and Rep. Gregory Meeks (D-NY), passed with bipartisan support, with 12 Democrats joining almost all the House Republicans to vote for the legislation. For more details, please see this NIRI Executive Alert.  

Please click here to see NIRI's July 2018 statement in support of this bill. Here is a NIRI briefing paper  on the need for proxy advisor reform and H.R. 4015. Nasdaq, the U.S. Chamber of Commerce's Corporate Governance Coalition for Investor Value, and the Business Roundtable all have expressed support for this legislation, which would mandate a draft review process and require proxy firms to improve disclosure of their conflicts of interest. In a NIRI survey in August 2018, 96 percent of IR practitioner respondents agreed that proxy firms should be required to provide proxy report drafts to all issuers. 

The U.S. Senate also is considering this issue. NIRI encourages members and their companies to contact their home state senators and share their views on proxy advisors. For a listing of senators and their office addresses, please visit this link

 

Ask Lawmakers to Improve Transparency Around Hedge Fund Activism

U.S. Senators Tammy Baldwin (D-Wisconsin) and Senator David Perdue (R-Georgia) have introduced bi-partisan legislation to modernize the 13(d) disclosure rules that apply to activist hedge funds that obtain more than a 5 percent stake in a public company. Under current 13(d) rules, which have not been substantially updated in more than 40 years, activist funds don't have to disclose their stakes and intentions until 10 days until after they cross the 5 percent threshold, which allows these funds and their allies to continue to accumulate shares in secret. This legislation would reduce this reporting period to four days and broaden 13(d) disclosure to include derivatives, short positions, and other instruments. In an August 2018 NIRI survey, 95 percent of respondents agreed that the 13(d) rules need to be updated.

NIRI encourages all members and NIRI chapters to contact their home state senators and express support for this bill. Here is a link to a July 2018 NIRI statement that urges the Senate to support the Brokaw Act. The NIRI Houston chapter has submitted letters in support of S. 1744 to Senators Ted Cruz and John Cornyn. A letter template for public companies that wish to write in support of S. 1744 can be found here. A list of suggested talking points on 13(d) can be found here. For a listing of U.S. senators and their office addresses, please visit this link


Ask the SEC to Take Action to Improve Short-Selling Disclosure

NIRI and the NYSE Group have filed a rulemaking petition that asks the SEC to require 13(f) institutions to publicly report their short positions. Nasdaq has submitted a similar rulemaking petition, which has been endorsed by the Biotechnology Innovation Organization, a trade association that represents biotech companies. In an August 2018 NIRI survey, 94 percent of IR practitioner respondents said they agree that the SEC should adopt new rules to improve short-position disclosure. 

In its two most recent reports, the SEC’s Government Business Forum on Small Business Capital Formation urged the Commission adopt a short disclosure mandate; this recommendation was a top priority for smaller reporting companies. In April 2018, a coalition of eight business organizations, including the U.S. Chamber of Commerce, Sifma, and TechNet, voiced concern about the impact of “short and distort” campaigns on newly public companies and said the SEC needs to ensure “there is sufficient public information about potential market manipulation.”   

NIRI encourages members to ask their companies (or clients) to write comment letters to the SEC that support this much-needed reform to improve equity ownership transparency. A briefing paper, comment letter templates, and links to letters from public companies can be found on NIRI's Short Selling page. More than 15 companies have submitted letters so far.  In addition, the NIRI Capital Area chapter has submitted a letter in August 2018 on behalf of its members who include IR officers at 20 public companies. The NIRI DFW chapter also has submitted a letter of behalf of its members, who include IR officers at 14 companies.

 

Ask the SEC to Modernize Long-Position Reporting

NIRI, the NYSE, and the Society for Corporate Governance have asked the SEC to modernize the outdated 13(f) rules that govern long-position reporting. The current rules, which have not been updated since 1979, require institutions to report their long positions 45 days after the end of each quarter. NIRI and the NYSE have called for a monthly reporting regime with a 15-day filing period that would generate more timely information about institutional holdings while accommodating investment managers' concerns about protecting their trading strategies. In an August 2018 NIRI survey, 97 percent of respondents agreed that the 13(f) reporting period should be shortened, while 87 percent expressed support for monthly reporting.      

 

Urge the SEC to Modernize the Shareholder Proposal Rules
NIRI, the U.S. Chamber of Commerce, the National Association of Corporate Directors, and 10 other associations have asked the SEC to modernize the resubmission rules for shareholder resolutions. In a July 17 letter, the groups point out that "the shareholder proposal rules under Rule 14a-8 have devolved into a vehicle that a micro-minority of special interests uses to advance their own parochial agendas at the expense of investors as a whole." The letter urges the SEC to act on a 2014 Chamber rulemaking petition that seeks an increase in the resubmission thresholds to curb the fringe-issue resolutions that appear on corporate proxy ballots each year.

Rep. Sean Duffy (R-Wisc.) has introduced a bill that would direct the SEC to increase the resubmission thresholds. NIRI has joined a U.S. Chamber letter that supports this bill. On June 7, the U.S. House Financial Services Committee approved this bill by a 34-22 vote.  

 

Read IR Update Weekly and IR Update to Follow New Developments
NIRI's IR Update Weekly newsletter includes a "Regulatory Update" section with summaries and links to new SEC rules and guidance, as well as news about legislative developments in Congress. IR Update has a new "Spotlight on Advocacy" section where you can find articles on regulatory trends that impact IR professionals.   

 

Reach Out to Your Chapter Advocacy Ambassador
If you are interested in learning more about NIRI's advocacy priorities, please contact your chapter's advocacy ambassador, and/or Ted Allen, NIRI's vice president for communications and member engagement, at tallen@niri.org. If your chapter doesn't yet have an advocacy ambassador and you would like to take on that role, please contact the president of your chapter. Here is an updated fact sheet on the advocacy ambassador position

 

Regulatory News


SEC Chair Pledges to Act on Proxy Advisors, Proxy Reforms in 2019
In a speech in December 2018, SEC Chair Jay Clayton said his agency would act in 2019 to address proxy advisory firms and the proxy voting system. "For proxy advisory firms, I believe there is growing agreement that some changes are warranted," Clayton said. "For example, there should be greater clarity regarding the division of labor, responsibility and authority between proxy advisors and the investment advisers they serve. We also need clarity regarding the analytical and decision-making processes advisers employ, including the extent to which those analytics are company- or industry-specific." Clayton also said the SEC should ensure "that investors have effective access to issuer responses to information in certain reports from proxy advisory firms," which suggests that he may be open to mandating a draft review process. Clayton made similar remarks during testimony to the Senate Banking Committee.

Clayton also indicated that the SEC staff would take a look at the agency's rules for shareholder proposals. NIRI, the U.S. Chamber of Commerce, and other business organizations have urged the SEC to increase the resubmission thresholds to reduce the number of fringe-issue shareholder resolutions that appear on corporate proxy statements year after year.

In addition, the Senate Banking Committee held a December 2018 hearing on proxy advisors, the proxy system, and shareholder proposals. Tom Quaadman, an executive vice president with the U.S. Chamber, and former SEC Commissioner Daniel Gallagher testified about the need for legislative reform. 

 

SEC Holds Roundtable on Proxy Reforms

In November 2018, the SEC held a roundtable on proxy advisors, proxy voting, and shareholder proposals. NIRI has submitted a comment letter with suggestions on how to improve the quality of proxy advisor reports and ensure that all issuers, regardless of their market cap, are treated fairly. NIRI is urging the SEC to require proxy advisors to allow public companies to review draft reports for factual accuracy before investors start voting. NIRI also encourages members to review the comment letters written by the Business Roundtable, the National Association of Manufacturers, the U.S. Chamber of Commerce, the American Council for Capital Formation, and the Biotechnology Innovation Organization. In addition, BlackRock has submitted a letter that expresses support for a draft review process.


U.S. House Approves Bipartisan Package of Capital Markets Bills

In July 2018, the U.S. House of Representatives voted 406-4 to approve the “JOBS and Investor Confidence Act of 2018,” a legislative package of 32 capital markets bills that address initial public offerings, 10-Q filings, equity research, and other regulatory issues. For more details, please see this NIRI Executive Alert.


 

U.S. Senate Considers Proxy Advisors, 13D Reform

In June 2018, the U.S. Senate Banking Committee held a hearing to consider a variety of corporate governance issues, including proxy advisors and 13D modernization. NIRI has submitted a statement that urges the Senate to support  H.R. 4015, a U.S. House-passed bill that would direct the Securities and Exchange Commission to regulate proxy advisory firms. NIRI also supports the Brokaw Act (S. 1744), which would shorten the 13D reporting period for hedge funds and other activists who obtain significant stakes in public companies. The bill would also expand the definition of beneficial ownership under 13D to include derivatives and short positions. 

Darla Stuckey, President and CEO of the Society for Corporate Governance, and Tom Quaadman, executive vice president of the U.S. Chamber's Center for Capital Markets Competitiveness, also testified in favor of H.R. 4015, Stuckey also testified in favor of the Brokaw Act. Two other witnesses, Damon Silvers, policy director at the AFL-CIO, and Harvard Law Professor John C. Coates, also voiced support for modernizing the 13D rules. 

NIRI supports both H.R. 4015 and S. 1744 and encourages IR professionals and public companies to contact their home state senators and express support for these bipartisan bills.

 

Business Coalition Calls for Proxy Reform, Short-Selling Disclosure
In April 2018, the U.S. Chamber of Commerce released a report, "Expanding the On-Ramp: Recommendations to Help More Companies Go and Stay Public," that includes various recommendations to foster more IPOs and to reduce the burdens on existing public companies. NIRI was part of a broad coalition of business groups that contributed policy suggestions that made it into the final report. 

Notably, the 36-page report includes recommendations for proxy advisor reform (p. 17) and a short-selling disclosure rule (pp. 22-23), which are two of NIRI's major advocacy priorities. The report has several recommendations (pp. 13-15) to promote more sell-side research on smaller companies. On page 18, the report also includes a request for the Securities and Exchange Commission to increase the resubmission thresholds for shareholder proposals, which would reduce the number of special-interest proposals on proxy ballots. 
 

SEC Chairman Calls for Review of Proxy System and Shareholder Proposals
In a speech in November 2017, SEC Chairman Jay Clayton called on the SEC to examine the U.S. proxy system and shareholder proposals. Citing concerns raised by issuers and investors, Clayton said "it is clear there are still opportunities for improvement," and urged the agency to reopen the comment file for its 2010 Concept Release on the U.S. proxy system. The chairman also noted the rising institutional ownership of companies and said, "I have become increasingly concerned that the voices of long-term retail investors may be underrepresented or selectively represented in corporate governance." Clayton also mentioned the divergent corporate and investor views on shareholder proposal reforms and challenge of finding middle ground. 

 

SEC Grants Reprieve to Brokers Over MiFID II Research Rules
In October 2017, the SEC issued a trio of no-action letters that will provide a 30-month delay in the implementation of the European Union's MiFID II's research rules by U.S.-based sell-side firms. This regulatory relief, which was requested by groups representing sell-side firms and mutual funds, should help U.S. companies and their IR teams by reducing the likelihood that sell-side firms would abruptly cut back their analyst coverage of small and mid-cap issuers. "Today's no-action relief was designed with input from a range of market participants to reduce confusion and operational difficulties that might arise in the transition to MiFID II's research provisions," SEC Chairman Jay Clayton said in a press release. "These steps should preserve investor access to research in the near term, during which the Commission can assess the need for any further action." NIRI has submitted a comment letter that thanks the SEC for this relief and encourages the Commission to work with industry participants to develop recommendations to promote equity research coverage of small- and mid-cap issuers.  
 

Exchanges and Chamber Call for Reforms to Promote IPOs
Nasdaq, Intercontinental Exchange (which owns NYSE), the U.S. Chamber of Commerce, and the Equity Dealers of America have outlined a series of reforms to promote more corporate listings. In an August 2017 letter to the Treasury Department, the organizations call for extending the five-year period for "emerging growth company" (ECG) status (during which those issuers are exempt from various disclosure rules) to ten years. The letter also calls for promoting "an equity market structure that enhances liquidity for EGCs and other small capitalization companies" and incentivizing "both pre-IPO and post-IPO research of companies."   

 

NIRI Asks the SEC to Review Automated Proxy Voting
In an August 2017 comment letter, NIRI expressed concern over the automated proxy voting systems used by Institutional Shareholder Services and Glass Lewis & Co. and asked the SEC to investigate whether those systems are consistent with agency guidance. 

In November 2018, the American Council for Capital Formation (ACCF) published a report that documents the widespread prevalence of "robo-voting" by investment managers through automated voting platforms managed by proxy advisory firms. This report found that a significant number of Institutional Shareholder Services (ISS) clients vote in line with ISS recommendations soon after ISS reports are published. According to ACCF, there are 82 asset managers, with more than $1.3 trillion in assets under management, who vote with ISS more than 99 percent of the time.

 

Lawmakers Hear Testimony on the Burdens Faced by Public Companies
In July 2017, the House Subcommittee on Capital Markets held a hearing on “The Cost of Being a Public Company in Light of Sarbanes-Oxley and the Federalization of Corporate Governance.” The panelists, which included representatives from the NYSE and the U.S. Chamber of Commerce, provided recommendations on how to ease some of the costly disclosure burdens faced by companies. A representative from the Biotechnology Innovation Organization testified about the need for greater transparency around short positions.   

 

SEC Chair Clayton Outlines Regulatory Priorities 
In July 2017, SEC Chair Jay Clayton gave a speech outlining his regulatory priorities. He voiced concern about the 50 percent decline in the number of listed companies over the past 20 years and said the agency should assess the cumulative impact of its disclosure rules. "[S]tudies show the median word-count for SEC filings has more than doubled, yet readability of those documents is at an all-time low," Clayton noted.
 

Nasdaq Outlines Regulatory Reform Plan 
Nasdaq has published a blueprint for market reform that includes a number of recommendations that are consistent with NIRI's views. Here is a link to an IR Update Q&A with Nasdaq CEO Adena Friedman on the exchange's Project Revitalize recommendations.  


U.S. House Panel Holds Hearing on Market Structure
In June 2017, the House Subcommittee on Capital Markets held a hearing on “U.S. Equity Market Structure: A Review of the Evolution of Today’s Equity Market Structure and How We Got Here.” More information on this hearing, including links to written testimony from representatives from the New York Stock Exchange, Nasdaq, and IEX, can be found at this link. Tim Quast, president of ModernIR, also submitted written testimony and recommendations for reform. His requests include amending Section 13(f) to require institutional investment managers to report long and short positions every month. He also calls for the SEC to appoint an Issuer Advisory Committee that would include representatives from public companies "so they may have a voice and oversight in the market for their shares."