Advocacy Action Items


Write Comment Letters in Support of Proxy Reform by Feb. 3

In November, the U.S. Securities and Exchange Commission proposed new rules on proxy advisory firms and shareholder proposals. The SEC's proposals, which are supported by NIRI, Nasdaq, and other business organizations, would significantly help issuers and IR teams during proxy season. Please see this Executive Alert for more details. 

The proxy advisor proposal includes a new draft review process for all issuers, a safeguard that NIRI has long sought. Issuers that file their definitive proxy materials at least 25 days before their annual meeting would receive a three-day period to review proxy advisor report drafts. If an issuer files its proxy materials more than 45 days in advance of the meeting, it would receive a five-day review period. In addition, the issuer would have the opportunity to provide a written response that would be hyperlinked to the proxy advisor’s final report.

The proposed rule changes on shareholder resolutions call for a new economic requirements based on ownership duration. An investor who holds a company’s shares for at least a year would have to own at least a $25,000 stake to file a proposal, while an investor holding shares for at least two years would have to own a $15,000 stake. The current $2,000 ownership threshold would be maintained, but only for investors who could show that they held their shares continuously for at least three years.

The SEC proposal also would increase the thresholds for the resubmission of proposals at the same company. A proponent would have to earn at least 5 percent support the first time that his or her resolution appeared on a company’s ballot in order to resubmit it the following year. That threshold would rise to 15 percent support in year two and 25 percent in year three and thereafter. The current resubmission thresholds, which are 3, 6, and 10 percent, respectively, have not been updated since 1954.

NIRI encourages public companies, IR practitioners, and NIRI chapters to write comment letters to the SEC in support of these draft rules during the 60-day public comment period, which ends on Feb. 3, 2020.  Please use this link to submit a comment letter on proxy advisors (File No. S7-22-19) and/or shareholder proposal reform (File No. S7-23-19)

In comment letters on the proposed proxy advisor rule, issuers are encouraged to share specific examples on the problems and additional costs they have experienced as a result of mistakes by the proxy advisors. In particular, NIRI asks issuers to comment on the following questions:

  • What has your company’s experience been in communicating with proxy advisory firms on draft vote recommendations?
  • How would a draft review mechanism improve the information received by your shareholders on various matters that come up for a vote?
  • Have you encountered factual errors or flaws in analysis that should have been addressed so that investors could have made better informed decisions?
  • Is three days a sufficient amount of time to submit feedback? 

Companies also are asked to provide evidence of automatic "robovoting" by investors following the release of proxy advisor recommendations. Issuers should consult with their proxy solicitor to gather data on instances of robovoting within their own shareholder bases (e.g., “30% of our shares automatically voted in line with an ISS vote recommendation 24 hours after it was released”).  

Here are links to recent comment letters in support of proxy reforms: 

NIRI, Letter re Roundtable on the Proxy Voting Process, April 30, 2019 (highlights the need for a draft review process)

Shareholder Communications Coalition, Letter to Commissioner Elad Roisman, Recommendations on Oversight of Proxy Advisory Firms, April 8, 2019.  

Nasdaq (with 318 issuers), Letter on the Roundtable on the Proxy Voting Process, February 4, 2019

NIRI, Letter on SEC Staff Roundtable on the Proxy Process,  November 13, 2018

U.S. Chamber of Commerce, Letter re Roundtable on the U.S. Proxy Process; November 12, 2018.

Business Roundtable, November 9, 2018.  

Biotechnology Innovation Organization, November 5, 2018

National Association of Manufacturers, Letter re SEC Staff Roundtable on the Proxy Process, October 30, 2018.


Please contact NIRI if you need any assistance with preparing a comment letter.  

 

Thanks for Attending NIRI's 2019 Leadership Week 

NIRI expresses our sincere gratitude to the more than 60 members who attended our third-annual Leadership Week event in Washington, D.C., on September 25-27.  NIRI hosted a regulatory briefing with SEC Commissioner Elad Roisman and took members to 23 House and Senate offices to share the views of IR professionals on key issues such as improving equity ownership transparency (13F and 13D modernization).  NIRI's delegation also met with senior SEC staffers and discussed proxy reforms, ESG disclosure, and the impact of MiFID II. 

Here are links to NIRI's briefing papers for Leadership Week 2019:

 

Ask Lawmakers to Improve Transparency Around Hedge Fund Activism

In 2017, U.S. Senator Tammy Baldwin (D-Wisconsin) introduced bi-partisan legislation (S. 1744) to modernize the 13D disclosure rules that apply to activist investors who obtain more than a 5 percent stake in a public company. Under current 13D 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 and other instruments. In an August 2018 NIRI survey, 95 percent of respondents agreed that the 13D rules need to be updated.

NIRI encourages all members and NIRI chapters to contact their home state senators and express support for 13D modernization. Here is a link to a July 2018 NIRI statement that urges the Senate to support 13D reform. The NIRI Houston chapter 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 13D reform can be found here. A list of suggested talking points on 13D 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 2017 and 2018 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. 

In addition, Nasdaq and BIO wrote a commentary in May 2019 that makes a strong case for short-position disclosure.  

 

Ask the SEC to Modernize Long-Position Reporting

NIRI and NYSE 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.      

 

Learn More About NIRI's Advocacy Agenda 

NIRI encourages members to review its updated Financial Regulatory Reform Issues agenda, which was approved by NIRI's Board of Directors in June 2019. 

Members also are encouraged to read NIRI's IR Update Weekly newsletter, which 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 "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 Seeks Public Input on Short-Termism

In July 2019, the SEC held a roundtable on short-termism in the capital markets and whether regulatory changes need to be made to promote a longer-term focus by investors and issuers. In kicking off the roundtable, Chairman Jay Clayton said the SEC would examine the the macro forces that drive short-term behavior in our markets, including earnings guidance. He said the SEC would also look at its disclosure framework to determine if it allows companies to focus on long-term performance. For news coverage of this roundtable, please see these law firm blog posts from Cooley LP and Davis Polk.

NIRI plans to submit a comment letter on these topics. If you have any input for NIRI's letter, please email Ted Allen, NIRI's vice president for communications and engagement, at tallen@niri.org.

 

SEC Panel Calls for Human Capital Management Disclosure Rule

In March 2019, the Securities and Exchange Commission's Investor Advisory Committee voted 14-6 in favor of a recommendation that the SEC adopt a human capital management disclosure rule. A coalition of 25 institutional investors with more than $2.8 trillion in assets under management has petitioned the SEC to adopt rules requiring “issuers to disclose information about their human capital management policies, practices, and performance.” For more on this topic, please see this Cooley LLP @PubCo blog post.

 

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. 

Tom Quaadman, executive vice president of the U.S. Chamber's Center for Capital Markets Competitiveness, also testified in favor of H.R. 4015. 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 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.  
 

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.   

 

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.