SEC Schedules November 15 for Proxy Process Roundtable

The SEC announced that the staff will host a roundtable on the proxy process on November 15.  The participants, time and the formal agenda has not yet been released.

The roundtable is expected to focus on the U.S. proxy system, including proxy voting mechanics and technology, the shareholder proposal process, and the role and regulation of proxy advisory firms.

Comments may be submitted electronically or on paper (one method only).  Comments will become public and posted on the SEC’s website without change.

Use the SEC’s Internet submission form or send an email to Continue Reading

ISS Releases Responses to Policy Survey

ISS announced the results of its high-level policy survey. The results will inform the new and updated policies for the 2019 proxy season, which is usually released in November.

Auditors and Audit Committee. ISS asked whether additional indicators of audit quality and independence would be useful in addition to considering non-audit services and fees when assessing auditor independence. Investors most often cited regulatory fines or other penalties on the auditor for weaknesses or errors in audit practices, or significant audit controversies, as important matters of interest.  The third most favored factor was the identity of the audit partner and any links to the company or its management. Continue Reading

Senator Warren Introduces Bill to Mandate Disclosure of Climate Risk in SEC Filings

The Climate Risk Disclosure Act, introduced by Senator Warren, would require the SEC to issue rules for every public company to disclose:

  • Its direct and indirect greenhouse gas emissions
  • The total amount of fossil-fuel related assets that it owns or manages
  • How its valuation would be affected if climate change continues at its current pace or if policymakers successfully restrict greenhouse gas emissions to meet the Paris accord goal; and
  • Its risk management strategies related to the physical risks and transition risks posed by climate change

The SEC can tailor the rules to different industries, and impose additional requirements on companies in the fossil fuel industry. Continue Reading

Commissioner Jackson Defends Proxy Advisory Firms

On the heels of the SEC staff rescinding the letters to proxy advisory firms, Commissioner Jackson decried the influence of “corporate lobbyists” on the issue in his statement.

It is corporate lobbyists who have made regulating proxy advisors a top priority, as they complain that those advisors have too much power, he said.  Commissioner Jackson does not believe there is proof to that effect, citing academic studies, he said.  In his view, “rigorous review” of the evidence shows that lobbyists are mistaking causation by observing the correlation between recommendations and vote outcomes.

He is concerned that the “corporate lobbyists’ priorities” will “sidetrack” the Commission’s work of “fixing the American system of corporate voting.”  He blames “entrenched interests” in the voting systems for the Commission’s failure to take any action, eight years after the proxy plumbing concept release. Continue Reading

SEC Chairman Clarifies the Role of SEC Staff Views and Statements, Reinforced in Other Remarks and Statements on the Same Day

Yesterday, Chairman Clayton released a statement that while the SEC staff might express their views in myriad ways, ultimately those staff statements are “nonbinding and create no enforceable legal rights or obligations of the Commission or other parties.”

As he noted, the staff’s perspective may be provided in the form of written statements, compliance guides, letters, speeches, responses to frequently asked questions and responses to specific requests for assistance.  The staff may also provide companies and others with their interpretation about how Commission rules or regulations may apply in specific situations.

Chairman Clayton believes that it is important for the Commission to be mindful about the role of staff views and guidance, and he has instructed the directors in the Division of Enforcement and the Office of Compliance Inspections and Examinations to emphasize the distinction to their staff.  Continue Reading

In Advance of Roundtable, SEC Withdraws Letters on Investment Advisers’ Reliance on Proxy Advisory Firms for Voting Recommendations

The SEC issued a statement today announcing that its Division of Investment Management has rescinded the letters issued in 2004 to ISS and Egan-Jones, effective immediately.

The letters have been criticized to have unintentionally resulted in the endorsement of investors using proxy advisory firms in making proxy voting recommendations, in order to address potential conflicts of interests by investment advisers exercising their fiduciary obligations when voting proxies.  In them, the SEC staff stated that the recommendations of a third party, independent of an investment adviser, may “cleanse” the adviser’s vote from conflict, as we explained in a post more than five years ago. Continue Reading

Glass Lewis Reports to Incorporate SASB Standards

Yesterday Glass Lewis announced that its proxy voting reports will include guidance from the standards developed by the Sustainability Accounting Standards Board (SASB).  SASB has ties with the FSB’s Task Force on Climate-Related Financial Disclosure, among other ESG disclosure initiatives, and has been working for years on industry-specific disclosure standards for use in SEC filings.

The reports will “display [SASB] content” and allow investors to “easily identify whether items are aligned with” SASB standards.  The information will be incorporated in advance of the 2019 season after the SASB standards are codified.  The codification is not yet complete. Continue Reading

The New York City Comptroller’s Office Continues Focus on Board Matrices and Enhanced Disclosures on Board Recruitment and Board Evaluations

The Office of the New York City Comptroller Scott M. Stringer (NYC Comptroller), as part of the Boardroom Accountability Project 2.0 initiative, has published examples of “best practices” in board matrices.  The matrices include companies that have disclosed, in chart form, individual director qualifications and either (a) individual self-identification of director gender and race/ethnicity or (b) aggregate board self-identification of director gender and race/ethnicity.

These matrices were the outcome of letters sent in September 2017 to more than 150 companies that are part of the “focus list.”  NYC Comptroller sought to have companies provide, in a snapshot, not only the skills and attributes of each director, but also information about the board’s gender and racial/ethnic diversity, so that investors would not have to “make assumptions about how their directors self-identify based on photographs or the spelling of their names.”  As we previously reported, 80% of companies responded. Continue Reading

SEC Consider Capital Raising Enhancements, Including Concept Release on Exemptive Offerings

In a recent speech, SEC Chairman Jay Clayton said “To sum up my remarks in a sentence, we have taken a lot of steps intended to promote capital formation, and we have an ambitious capital formation agenda ahead of us.”  Here’s what may be next:

Thresholds for SOX 404 reporting.  The SEC has heard that the costs associated with providing auditor attestation reports on internal control over financial reporting can be a burden for smaller companies.  Currently, companies with a public float of less than $75 million or no public float have relief from these auditor attestation requirements.  Clayton has directed the Commission staff to formulate recommendations for possible amendments that would reduce the number of companies that need to provide the auditor attestation report. Continue Reading

Vanguard Investment Stewardship Report Highlights the Investor’s Focus on the Major Components of ESG

Vanguard’s Investment Stewardship Report for the year ended June 2018 reinforces its commitment to the four pillars: board composition, executive compensation, risk and oversight, and governance structures.

First, the data.  Vanguard engaged with 721 companies, a 63% increase from 2014.  These companies represented $1.6 trillion, or 47%, of total fund equity assets under management.   The fund voted on 168,786 proposals at 19,357 company meetings across the world.  76% of its equity fund assets under management are invested in the US, and 86% of the assets with which it engaged were US-based.

Independent directors were included in 40% of its engagements, and board composition and compensation were part of the discussions half the time.  Continue Reading