Advocacy Action Items


Share Your Views on Proxy Advisors with the SEC

The U.S. Securities and Exchange Commission has announced that it plans to propose a rule on proxy advisors by April 2020, but it could act as early as Fall 2019. The details of the rule have not been announced, but NIRI encourages all public companies and NIRI chapters to share their concerns over proxy advisors with the SEC. 

The Shareholder Communications Coalition, which includes NIRI, has provided recommendations to the SEC on regulating proxy advisory firms. In an April 2019 letter to Commissioner Elad Roisman, who is overseeing proxy system reforms, the coalition outlines various recommendations to improve proxy advisor report accuracy and to increase transparency around conflicts of interest. The letter also urges the SEC to address the outsourcing of voting decisions by investment managers to the proxy firms.  (The coalition also wrote a separate letter to the SEC on proxy voting reforms.)  NIRI also submitted a separate comment letter to the SEC that emphasizes the importance of providing a draft review opportunity for all issuers.  

In February 2019, Nasdaq and 318 public companies signed a joint comment letter to express support for proxy system reforms. The letter urges the SEC to exercise greater oversight over proxy advisory firms and "require transparent processes and practices that allow ALL public companies, regardless of their market capitalization, to engage with proxy advisory firms on matters of mistakes, misstatements of fact and other significant disputes." The companies also call for raising the resubmission thresholds for shareholder proposals and repealing the SEC's OBO-NOBO rule to allow companies to communicate more easily with investors. This letter was submitted in response to the SEC's roundtable on proxy system reform in November 2018. In advance of that roundtable, NIRI submitted a comment letter that addressed both proxy advisors and proxy system reforms. 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 also wrote comment letters. 

 NIRI encourages members, public companies, and NIRI chapters to submit their own letters to the SEC via this link: https://www.sec.gov/cgi-bin/ruling-comments

For more information on these issues, please visit NIRI's Proxy Advisors and Proxy System Reforms page


Make Plans to Attend NIRI's 2019 Leadership Week 

NIRI invites all members to join us in Washington, D.C., on September 25-27 for NIRI's 2019 Leadership Week.  NIRI plans to host a legislative briefing and then take members to meet with House and Senate members and their staffers to share the views of IR professionals on key issues such as proxy advisors and improving equity ownership transparency (13F and 13D reform). NIRI also is organizing a meeting with senior SEC staffers, including representatives from the Corporation Finance, Investment Management, and Trading and Markets divisions. 

Please click here to read an IR Update magazine article that recaps NIRI's 2018 Leadership Week. To see photos from this event, please visit NIRI's Facebook page.  
 

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.      

 

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.  Currently, the SEC has permissive standards for the repeated filing of shareholder resolutions on the same topic at the same company. A resolution proponent only needs to win 3 percent support in year one, 6 percent in year two, and 10 percent in year three (or thereafter) to resubmit a proposal the following year. In a July 2017 letter, the business groups pointed 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 urged 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. 


In June 2019, Rep. Sean Duffy (R-WI) reintroduced a bill, HR 3088, that would direct the SEC to raise these thresholds to 6, 15, and 30 percent, respectively.  NIRI encourages companies and NIRI chapters to express support for Duffy's bill and the U.S. Chamber's rulemaking petition. 
 

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 Plans to Propose a Rule on Proxy Advisors

The Securities and Exchange Commission has disclosed in its Spring 2019 regulatory agenda that it plans to draft a proposed rule that would address proxy advisory firms. The SEC listed April 2020 as the deadline for this proposal, but the agency may act as early as Fall 2019.

NIRI welcomes this progress and urges chapters and individual issuers to submit comment letters to the SEC. NIRI has written a comment letter to the SEC that urges the agency to require proxy advisors to provide a draft review opportunity for all issuers. NIRI is part of a broad coalition of issuers and corporate organizations, including the Shareholder Communications Coalition, Nasdaq, the U.S. Chamber of Commerce, and the National Association of Manufacturers, that have asked the SEC to exercise closer oversight over proxy advisors.  
 

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.


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.

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. 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.