Regulatory News

SEC Delays Action on Executive Pay Rules
The U.S. Securities and Exchange Commission has delayed action on several draft Dodd-Frank rules that relate to executive compensation. In the SEC's latest regulatory agenda, the "proposed rule" section no longer includes a draft regulation on "pay versus performance" disclosure, a rule on hedging policies that apply to directors and employees, or a draft listing standard to require companies to adopt more expansive clawback policies. The draft universal proxy ballot rule, which was a priority of former Chair Mary Jo White, also was removed from the proposed rule list. Those four rules were moved to the SEC's long-term rulemaking agenda, which means these regulations could be revived in the future. However, the controversial CEO pay ratio rule, which was finalized in 2015, still is in place and would require most companies to make their first disclosures during the 2018 proxy season. 
 

Lawmakers Hear Testimony on the Burdens Faced by Public Companies
On July 18, 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.   

President Trump Plans to Nominate Peirce to the SEC
On July 18, the White House announced that President Trump plans to nominate Hester M. Peirce to fill a Republican vacancy on the U.S. Securities and Exchange Commission. Peirce, a former staffer on the Senate Banking Committee, is director of the Financial Markets Working Group at the Mercatus Center at George Mason University. Trump has not yet announced a nominee for a vacant Democratic seat on the five-member commission. The Senate traditionally considers SEC nominees in pairs, so it would be unlikely to confirm Peirce until Trump names a candidate for the Democratic seat.   

 

SEC Chair Clayton Outlines Regulatory Priorities 
On July 12, 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.

 

U.S. House Panel Holds Hearing on Market Structure
On June 27, 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."
 

U.S. House Approves Financial CHOICE Act
On June 8, the U.S. House of Representatives approved the Financial CHOICE Act, a wide-ranging bill that would repeal portions of the Dodd-Frank Act, including the CEO pay ratio disclosure mandate. While most of the bill seeks to ease restrictions on the financial sector, the legislation includes various provisions that would impact the corporate governance and disclosure practices of public companies. Most notably, the bill would roll back the Dodd-Frank disclosure mandates on conflict minerals and resource extraction payments, impose significant restrictions on shareholder resolutions, and direct the Securities and Exchange Commission to regulate proxy advisors. 


The Republican-sponsored CHOICE Act was approved 233-186 without any House Democratic votes. The bill faces an uphill fight in the U.S. Senate, where Republicans, who hold 52 seats, would need to attract support from eight Democrats to overcome an expected filibuster. For more details on the CHOICE Act, please see this NIRI Executive Alert and Wall Street Journal article. U.S. Senator Mike Crapo (R-Idaho), chair of the Senate Banking Committee, has said he will seek to advance narrower bills that can attract bipartisan support.

 

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 an op-ed in The Wall Street Journal that summarizes Nasdaq's Project Revitalize recommendations. 
 

Advocacy Action Items

Make Plans to Join NIRI in Washington on September 27
NIRI is organizing a legislative fly-in and summit in Washington, D.C., on September 27 to mobilize support for improved equity ownership transparency, greater proxy advisor oversight, and other market reforms. NIRI will organize visits by chapter advocacy ambassadors and other NIRI members to key House and Senate offices on Sept. 27 so IR professionals can share their experiences about the many challenges that public companies face in today's regulatory environment. If you are interested in attending this event, please contact Ted Allen, NIRI's vice president for strategic communications, at tallen@niri.org

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 are asking 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.
 

Ask Your Lawmakers to Improve Transparency Around Hedge Fund Activism
U.S. Senator Tammy Baldwin of Wisconsin is seeking bipartisan support for her "Brokaw Act" bill, which seeks 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. Baldwin's legislation would reduce this reporting period to two days and broaden 13(d) disclosure to include derivatives, short positions, and other instruments. In a May 2016 NIRI survey, 92 percent of U.S. IR practitioners said they support these reforms.

NIRI encourages members, especially those in Georgia and South Carolina, to contact their home state senators and express support for the Brokaw Act. For a listing of U.S. senators and their office addresses, please visit this link.

      

Express Your Views on the CEO Pay Ratio Rule
The SEC has asked issuers to submit comments on the challenges and costs they face in preparing for the agency's CEO pay ratio rule and whether this mandate should be delayed. This Dodd-Frank rule would require most U.S. public companies to disclose the ratio between the total compensation received by their CEO and that earned by the issuer's median employee. Companies with December 31 fiscal years would have to make their first disclosures in the spring of 2018.

NIRI, which has urged the SEC to reduce the compliance burdens of this rule, encourages members to ask their companies to express their views on this mandate. Here are links to some of the comment letters that have been submitted to the SEC by issuers with NIRI members:

In addition, the Society for Corporate Governance and the Corporate Governance Coalition for Investor Value have submitted letters that ask for relief from this burdensome mandate.

The Financial CHOICE Act includes language that would repeal this mandate. 

 

Urge the SEC to Take Action to Improve Short-Selling Disclosure
In October 2015, NIRI joined with the NYSE Group in a rulemaking petition that asks the SEC to require 13(f) institutions to publicly report their short positions. In December 2015, Nasdaq submitted a similar rulemaking petition, which has been endorsed by the Biotechnology Innovation Organization, a trade association that represents biotech companies. In a May 2016 NIRI survey, 95 percent of U.S. IR practitioners said they agree that the SEC should adopt new rules to improve short-position disclosure.    

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 letters from a growing list of companies can be found on NIRI's Short Selling page

NIRI, the NYSE, and the Society also 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.      

 

Write Your Lawmakers in Support of Proxy Advisor Oversight Legislation
NIRI is asking members to write their U.S. House and Senate lawmakers in support of the Corporate Governance Reform and Transparency Act, which would direct the SEC to regulate proxy advisory firms. This bill was approved by the House Financial Services Committee with bipartisan support in June 2016, and this legislation is included in the 2017 version of the Financial CHOICE Act.

The Society for Corporate Governance, Nasdaq, the U.S. Chamber of Commerce, and the Business Roundtable all have expressed support for this proxy advisor 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 May 2016, 87 percent of U.S. IR practitioners agreed that proxy firms should be required to provide proxy report drafts to all issuers. 

To find the name of the U.S. House member who represents your area, please visit this link. For a listing of U.S. senators and their office addresses, please visit this link. A formal letter is not required; members and their companies are welcome to e-mail or call to voice their concerns.     
 

Read IR Weekly and IR Update to Follow New Developments
NIRI's IR 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 strategic communications, 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.


Need Help?
If you have any questions on these issues or other advocacy matters, please contact Ted Allen, NIRI's vice president for strategic communications, at tallen@niri.org.