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

SEC Approves NASDAQ Rules to Report Third-Party Director Compensation

On Friday, the SEC approved NASDAQ rules that require its listed companies to publicly disclose compensation or other payments by third parties to board members or nominees.

NASDAQ made two amendments to the original rule proposal. We previously discussed the first amendment here. On June 30, 2016, NASDAQ filed a second amendment to the proposal, which replaced the proposal in its entirety and contains the version of the rules that the SEC approved.

Unfortunately, Amendment No. 2, which made several clarifying changes and is dated June 30, is not yet available on NASDAQ’s site for rule filings and is not part of the SEC approval order, so that the full text of the changed rules cannot be examined. Continue Reading

Chair White Speaks on the SEC’s Role in Corporate Governance, Focusing on Board Diversity, Non-GAAP Measures and Sustainability Reporting

Chair White’s speech before the International Corporate Governance Network (ICGN) discussed the SEC’s role in U.S. public company governance and focused on the agency’s efforts on board diversity, non-GAAP reporting and sustainability disclosure.

Contrary to shareholders in many European companies, the state law-based governance framework for U.S. companies makes it more challenging for investors to play a large role in corporate governance, according to Chair White. Shareholders outside the U.S. may be surprised to discover that corporate governance in the U.S. is a “patchwork” driven by state law and supplemented by federal law, including SEC regulations.

Investors have a range of private ordering options that they can exercise, such as directly engaging with boards, using shareholder proposals or voting against directors. Continue Reading

State Street Stewardship Report Highlights the Investor’s Approach to Targeted Engagement

In its annual stewardship report covering 2015, State Street Global Advisors (SSGA) indicated that it had voted at 15,471 meetings in 81 countries.  The investor voted against management proposals 12% of the time and in favor of shareholder proposals 14% of the time.

In light of the difficulty for passive index managers that are invested in thousands of companies globally to actively oversee their holdings, SSGA develops an annual stewardship program based on its strategic priorities by focusing on specific sectors and environmental, social and governance (ESG) themes.  For 2015, SSGA’s sector focus led them to engage with 48 pharmaceuticals and 95 consumer discretionary companies.  Continue Reading

Senators Criticize Chair White on Disclosure Effectiveness and Political Spending Disclosure

A hearing on SEC oversight held by the Senate Banking, Housing and Urban Affairs Committee where Chair White testified and took questions covered a range of topics, but two senators turned the proceedings into a forum for their complaints on the SEC’s efforts to reform disclosure and the absence of mandatory disclosure of political contributions.

Senator Warren criticized the SEC’s disclosure effectiveness project through a series of what appeared to be questions to Chair White, but were instead a stream of quotable accusatory statements. She admonished that “the SEC’s job is to look out for investors not for big companies,” and in her view, instead of completing the mandatory Dodd-Frank rulemaking, “you’ve headed in the opposite direction” by dedicating SEC resources to “a project you invented and called the Disclosure Effectiveness Initiative” which is intended to fix “something you call ‘information overload.’”

Senator Warren berated Chair White, “What evidence [do] you have that this is a real problem that investors have come to you and said, we’re worried about getting too much information,” and ultimately challenged that “I cannot find, and you have not produced, a single investor who has complained to the SEC about receiving too much information.”

Without giving Chair White much an opportunity to respond, Senator Warren concluded that “Investors don’t want less information about the companies where they put their money. Continue Reading

Gender Pay Gap Becomes a Proxy Season Issue

The White House recently announced an initiative by 28 companies that have pledged to conduct annual gender pay analysis, similar to a shareholder proposal this proxy season that received a fair amount of press attention.

Arjuna Capital sent proposals to nine major technology companies, including Apple, Alphabet, Facebook, Intel and Microsoft, asking them to prepare reports on their policies and goals to reduce the gender pay gap. This was defined as the difference between male and female earnings expressed as a percentage of male earnings. According to the proposal, the median income for working women is 78% that of their male counterparts. Continue Reading

Ten Things to Know About the SEC’s Rules on the Form 10-K Summary

  1. New Item 16 in the Form 10-K would expressly allow issuers to do something that is already permissible – provide a summary in the Form 10-K.
  1. Each summary topic must be hyperlinked (a footnote or cross-reference is not sufficient) to the related detailed disclosure in the Form 10-K.
  1. The only specific requirements are that the summary must be brief and must present the information fairly and accurately.
  1. There is no prescribed length to the summary, no requirement as to what should be covered (issuers can decide which 10-K items to include) or even where the summary must appear in the Form 10-K.
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