Regulatory News


CEO Pay Ratio Rule Unlikely to Be Delayed
U.S. companies should be prepared to disclose their CEO pay ratios during the 2018 proxy season and should not count on getting relief from the Securities and Exchange Commission. During remarks at an American Bar Association conference in Chicago on Sept. 15, William Hinman, director of the SEC's Corporation Finance Division, said the agency staff has no plans to delay implementation of the pay ratio rule, according to TheCorporateCounsel.net blog and Cooley LLP's PubCo blog.  Hinman said the SEC would issue additional guidance on the rule in a few weeks. However, it's possible that Congress could repeal this mandate before 2018, but that appears unlikely, given the other legislative matters (e.g., a debt ceiling increase, spending bills, tax reform, relief for hurricane victims, and immigration) that lawmakers hope to address this fall.

 

President Trump Nominates Jackson to the SEC
On Sept. 2, President Donald Trump announced that he will nominate Columbia University Law Professor Robert Jackson to fill the vacant Democratic seat on the SEC. Jackson’s academic work has focused "on corporate governance and the use of advanced data science techniques to improve transparency in securities markets," according to a White House press release. Jackson also was part of a group of law professors who petitioned the SEC in 2011 to adopt a rule to require companies to disclose their political activities. Trump previously announced that he would nominate Hester Peirce to fill the Republican vacancy on the SEC. The SEC has been without its full complement of five commissioners since October 2015. 


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 22 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."   


U.S. Chamber and NIRI Voice Concern Over the PCAOB's Proposed Audit Report Rule
The U.S. Chamber of Commerce, NIRI, and 26 business groups and companies have submitted a joint letter to the Securities and Exchange Commission that voices concern over the audit report rule proposed by the Public Company Accounting Oversight Board. The letter warns that a new requirement to disclose "critical audit matters" will "result in the disclosure of immaterial information, replace management as the source of original information, create a chilling effect on the audit committee-auditor relationship, create liability for businesses and auditors, and impose additional expenses" on companies.  


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. 

 

NIRI Asks the SEC to Review Automated Proxy Voting
In an August 3 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. 
 

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.   

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 SEC 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 to Washington, D.C., on September 27 to mobilize issuer support for improved equity ownership transparency, greater proxy advisor oversight, and other market reforms. NIRI is hosting a legislative briefing at 11 a.m. that will feature remarks from U.S. Rep. Bill Huizenga (R-Mich.), chair of the House Capital Markets Subcommittee. NIRI will organize visits by chapter advocacy ambassadors and other NIRI members to key House and Senate offices 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, by Sept. 5.
 

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 a May 2016 NIRI survey, 92 percent of U.S. IR practitioners said they would support 13(d) reform legislation.

NIRI encourages members to contact their home state senators and express support for this bill. For a listing of U.S. senators and their office addresses, please visit this link.

      

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.

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.     

Express Your Views on Proxy Advisors
The U.S. Chamber of Commerce and Nasdaq are surveying companies on their experiences during the 2017 proxy season, including their interactions with proxy advisory firms. The Chamber and Nasdaq plan to present the survey findings to the SEC. To access the survey, please click here. The survey will remain open until August 25.

Participate in the ISS Proxy Voting Policy Survey 
Proxy advisor ISS is asking issuers, investors, and other financial market participants to complete a policy survey on corporate governance issues. The questions address a number of topics, such as dual-class share structures, pay ratio disclosures, the use of virtual meetings, and board gender diversity. ISS will consider the responses as it drafts voting policy updates for the 2018 proxy season. The deadline for responses is Aug. 31. Please click here to access the ISS survey. 
 

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.