SEC Requests Comments on Subpart 400 of Regulation S-K, Including Governance and Executive Compensation Disclosures

The SEC released an 8-page request for comments to ask for input on Subpart 400 of Regulation S-K, including Item 401 (director and officer information), Item 402 (executive compensation), Item 404 (related person transactions) and Item 407 (corporate governance disclosures).

In contrast to the over 300-page Regulation S-K concept release issued earlier this year (see Davis Polk’s comment letter here), which contained detailed discussions and alternative proposals, this simple release reiterates the requirement under the FAST Act for the SEC to examine Regulation S-K generally and (a) determine how best to modernize and simplify the disclosure in a way that provides material information while reducing costs for issuers; (b) figure out how to permit a company-specific approach that still allows comparability of information across issuers and avoids boilerplate and (c) evaluate how disclosure is presented to discourage repetition and immaterial information. Continue Reading

Why Individual Investors File Shareholder Resolutions

A new report from the Rock Center for Corporate Governance with the provocative title “Gadflies at the Gate” tries to answer the question so many companies have asked themselves:  Why do individual investors submit shareholder proposals?

Individual investors can represent up to 25% of the total number of shareholder proposals annually, with over 1,100 submissions in a ten-year time span.  Although those proposals received only 29% support on average, and only a handful of subject matters brought forth by individual investors had any kind of meaningful, favorable vote tallies, the report notes that individual investors can have influence.  The first individual shareholder activism, which dates back to the 1930s, focused on topics that were then viewed as highly controversial, including elimination of classified boards and allowing shareholders to ratify the selection of auditors. Continue Reading

SEC Charges Two Companies’ Severance Agreements Violate Commission’s Whistleblower Program

The SEC this month has brought two actions for violation of whistleblower rules. According to a SEC cease-and-desist order released on August 10, at one company in 2011 to the present the vast majority of non-management employees who received severance payments signed agreements that prohibited an employee from sharing with anyone confidential information that the employee had learned during his employment, unless compelled otherwise by law. If required by law, the confidentiality provisions dictated that employees must either provide written notice to the company or obtain written consent from the legal department before providing such information. The SEC order alleged that the agreements did not contain any exemptions permitting an employee to provide information voluntarily to the SEC or other regulatory or law enforcement agencies, and between September 2011 and mid-2013, approximately 18 employees signed agreements that included one of these provisions. Continue Reading

ISS Issues Policy Survey for 2017 Season

ISS has issued its policy survey for the 2017 proxy season. The responses to the survey questions from interested parties inform the firm’s changes to its policies in making voting recommendations at meetings. Not all questions in the survey become new policies. In addition, new policies are sometimes created without related questions first being asked in the survey, but that has not been the case in several years for major policy amendments.

Compared to prior years, the questions in this survey that portend possible changes to ISS voting policy generally suggest more muted updates and less dramatic overhauls. U.S. public companies should be aware of the following survey questions that may become future voting policies:

Board Refreshment and Tenure. Continue Reading

SEC Staff Rejects No-Action Letter Request on Proposal to Revise Existing Proxy Access Bylaw

In what appears to be the first of its kind, the SEC staff has determined that a company cannot exclude a proposal that a board amend its existing proxy access bylaw on the basis of substantial implementation.

The company adopted a proxy access bylaw in July 2015 with fairly common terms permitting shareholders owning 3% or more of shares for at least three years to make nominations, and received a proposal to revise that bylaw in March 2016. The key points in the proposal and the company’s rebuttal were:

  • One shareholder or an unrestricted number of shareholders should be able to form a group.
Continue Reading

MSCI Pay Report Finds Misalignment Between Reported Pay and Shareholder Returns

A new MSCI report reviewed 429 large-cap U.S. companies from 2006 to 2015 and found that, on a 10-year cumulative basis, total shareholder returns of those companies whose compensation was below their sector median outperformed those companies where pay exceeded the sector median by 39%. The conclusion was reported in the WSJ. SEC disclosure rules focused on annual pay were criticized for obscuring these trends.

The report aggregates its data to arrive at its conclusions. The underlying data for individual company results are not provided. The largest company in the study was Apple ($591 billion market capitalization) and the smallest company was PPL Corp. Continue Reading

Commonsense Corporate Governance Principles Issued

A group of twelve CEOs, including JPM, Berkshire Hathaway, GE, GM, Verizon and those from major institutional investors such as Capital Group, BlackRock, Vanguard, StateStreet, T. Rowe Price and ValueAct, have developed a set of “Commonsense Corporate Governance Principles.”  Their open letter states that the purpose of the group was to try to reach consensus on what “good corporate governance” means in the real world.  While the group recognizes that there is significant variation among public companies, they want the principles to serve as a catalyst for discussion.

Some of the recommendations regarding governance practices include:

Composition of boards of directorsContinue Reading

SEC to Propose Rules to Eliminate Duplicative and Redundant Disclosure

At an SEC open meeting today, the Staff of the SEC recommended to the Commission what Chair White characterized as part of its “modest but important work” toward the disclosure effectiveness project.

This post is based solely on the remarks made at the open meeting. The SEC has not yet issued a press release or the proposal. Commissioner Stein agreed with the objective of the proposal but criticized the Staff for the proposal’s 500-page length and “hyper-technical nature,” noting her concern that this means the proposal is not accessible to the ordinary public and would therefore limit the nature and type of comments. Continue Reading

House Attempts to Prevent Efforts by SEC to Propose Universal Ballots

The House voted 243-180 yesterday to add language to a fiscal year spending bill that would bar the SEC from writing rules to require universal ballots in proxy contests. The spending bill passed late Thursday.

Introduced by Representative Scott Garrett (R–N.J.), the text of the amendment states that none of the funds may be used by the SEC to propose, issue, implement, administer, or enforce any requirement that a proxy solicitation or other authorization to vote in a director election can be made using a single ballot that lists both candidates nominated by the company and those nominated by other proponents and would permit shareholders to select among the individuals listed. Continue Reading