Advocacy Action Items

Make Plans to Join NIRI on Sept. 13-14 in Washington

As part of Leadership Week 2018, NIRI will host a legislative briefing and arrange for members to meet with Capitol Hill lawmakers and the staff of the Securities and Exchange Commission on Sept. 13-14. If you are interested in attending, please visit this registration page, which includes hotel information.

For a recap of the 2017 Leadership Week, please see this IR Update article. Don Allen, NIRI Fellow and an officer with the NIRI Kansas City chapter, also shared his impressions of Leadership Week in this article.   


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. The Society for Corporate Governance, NYSE, 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 May 2016, 87 percent of U.S. IR practitioners agreed that proxy firms should be required to provide proxy report drafts to all issuers. 

A companion bill is expected to be introduced this year in the U.S. Senate. 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. Nasdaq also is asking companies to sign a letter to express support for proxy advisor reform,


Share Your Concerns Over Proxy Advisors
NIRI, NYSE, the Society for Corporate Governance are gathering examples of proxy report errors and other problems that issuers have experienced with proxy advisors. NIRI members are encouraged to send details on their concerns to Ted Allen, NIRI's vice president for communications and member engagement, at tallen@niri.org. If you wish to bring your concerns directly to the SEC staff, please contact Raymond Be at the SEC.  



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 all members 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. A letter template for public companies that wish to support 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 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. 

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.  

 

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.      

 

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


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

On July 17, 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. The broad bipartisan support for this package should increase the chances that the Senate will consider these bills this year. For more details, please see this NIRI Executive Alert.


 

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

On June 28, 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 actively 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
On April 26, 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. 


Proposed SEC Transaction Fee Pilot Program Sparks Concern

The Securities and Exchange Commission has proposed a transaction fee pilot program to gather data on the use of access fees and rebates in the financial markets. The program, which would last two years, would divide all publicly listed stocks (including ETFs) into three test groups of 1,000 stocks each, with each group having differing limits on access fees and rebates. The remaining 5,200 stocks would be placed in a control group that would be subject to existing rules.

NYSE, Nasdaq, and Cboe Global Markets have raised a number of objections about the program. Specifically, they complain that: 1) issuers were not included in the SEC advisory group that developed the pilot; 2) the pilot program is too large as it includes 3,000 stocks; 3) the issuers in the program’s test groups will be at a competitive disadvantage versus companies in the control group, and thus should be allowed to opt out; and 4) the pilot should have included trades in alternative trading systems (dark pools). About two dozen issuers have submitted letters that object to the program; most of them have asked to opt out of the pilot. IEX, the Council of Institutional Investors, and several academics have expressed support for the SEC pilot program. T. Rowe Price, MFS, Capital Group, and Wellington also support the pilot proposal. TD Ameritrade’s letter voices general support, but urges the SEC to make revisions to the pilot.

To review comment letters submitted to the SEC, please click on this link.
 

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. 

 

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."