Advocacy Action Items

Express Support for Proxy Advisor Reform 
NIRI encourages members and their companies to contact lawmakers and voice support for U.S. Rep. Sean Duffy's bill, H.R. 4015. The bill, known as the "Corporate Governance Reform and Transparency Act of 2017," would direct the Securities and Exchange Commission to regulate proxy advisory firms. On Nov. 15, the House Financial Services Committee voted 40-20 to approve this bipartisan legislation. A vote before the full House has not yet been scheduled.     

Please click here to see NIRI's letter 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, Nasdaq, the U.S. Chamber of Commerce, 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. 

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

If you have specific concerns about how your company (or a client) was treated by a proxy advisor during proxy season, please contact Raymond Be at the SEC. If you wish to share your experiences with the proxy firms but remain confidential, please contact Ted Allen, NIRI's vice president for strategic communications. 

 

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. 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.

 

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.

 

Urge 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.    

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.      

 

Thanks for Joining NIRI in Washington for Leadership Week
NIRI thanks the representatives from 13 chapters who attended NIRI's first-ever Leadership Week event in September 2017 to express support for improved equity ownership transparency, greater proxy advisor oversight, and other market reforms. NIRI hosted a legislative briefing that featured remarks from SEC Commissioner Michael S. Piwowar and Marliss McManus, deputy chief of staff for U.S. Rep. Bill Huizenga (R-Mich.), chair of the House Capital Markets Subcommittee. NIRI members also met with staffers for 12 House and Senate lawmakers and discussed the challenges that public companies face in today's regulatory environment. NIRI members also joined the NIRI Board for its annual meeting with the senior staff at the SEC. 

For a recap of 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.   

If you are interested in attending the 2018 Leadership Week, please contact Ted Allen, NIRI's vice president for strategic communications, at tallen@niri.org.
 

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. Here is an updated fact sheet on the advocacy ambassador position

 

Regulatory News

House Committee Approves Proxy Advisor Reform Bill
On November 15, the U.S. House Financial Services Committee voted 40-20 to approve legislation, H.R. 4015, which would direct the SEC to regulate proxy advisory firms. The bill, known as the "Corporate Governance Reform and Transparency Act of 2017," is supported by NIRI, Nasdaq, the U.S. Chamber of Commerce, and various corporate groups. Six Democrats joined with the committee's Republicans in supporting this bill, which is sponsored by Rep. Sean Duffy (R-WI). A vote before the full House has not yet been scheduled. Please click here to see NIRI's letter in support of this bill. Here is a NIRI briefing paper on the need for proxy advisor reform and H.R. 4015. 


SEC Chairman Calls for Review of Proxy System and Shareholder Proposals
In a speech on November 8, Chairman Jay Clayton of the Securities and Exchange Commission 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. 

Senate Committee Approves SEC Nominees
The SEC, which has been without its full complement of commissioners since October 2015, should be back to full strength by end of the year. On November 1, the Senate Banking Committee voted to approve Hester Peirce and Robert Jackson Jr. to serve on the SEC. Peirce, a senior research fellow at the Mercatus Center at George Mason University, is a former Republican legislative staffer and a critic of the Dodd-Frank Act. Jackson, who will fill the vacant Democratic seat on the SEC, is a professor at Columbia Law School and is a proponent of requiring companies to disclose their political spending. 


SEC Grants Reprieve to Brokers Over MiFID II Research Rules
On October 26, 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.  


SEC Releases Guidance on CEO Pay Ratio Rule 
The Securities and Exchange Commission has released interpretative guidance to help companies comply with the CEO pay ratio disclosure rule. Most U.S. issuers will have to report their first ratios during the 2018 proxy season. The guidance addresses concerns related to the determination of the median employee by companies. The guidance specifically endorses the use of reasonable estimates and statistical sampling, the use of internal data (such as payroll records) to determine the compensation of non-U.S. employees, and the use of widely recognized tests (such as guidance from the Internal Revenue Service) to determine whether a worker is an independent contractor or an employee. The SEC's Division of Corporation Finance released separate staff guidance on the rule. For more insights on complying with this rule, please see this IR Update article.  

 

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."   


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.
 

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
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.