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SEC’s Spring 2020 Reg Flex Agenda Indicates Universal Proxy Rule May Be Coming Soon

The SEC’s 2020 spring agenda of its rulemaking actions under the Regulatory Flexibility Act (RFA) has been posted. The agenda, commonly referred to as the “Reg Flex Agenda,” is published semiannually and reflects the actions the SEC Chairman anticipates the agency will complete in the short term (within a year and almost all items are listed in the “Proposed Stage” or “Final Rule Stage”) or the long term (longer than a year and the items are listed as “Long-Term Actions”). 
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SEC’s Fall 2019 Reg Flex Agenda

The SEC’s 2019 fall agenda of its rulemaking actions under the Regulatory Flexibility Act (RFA) has been posted. The agenda, commonly referred to as the “Reg Flex Agenda,” is published semiannually and reflects the actions the Chairman anticipates the SEC will complete in the short term (within a year) and the long term (longer than a year). 
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SEC Commissioners Testify Before House Financial Services Committee on ESG, Proxy and Other Topics

On Tuesday, September 24, 2019, SEC Chairman Jay Clayton, along with Commissioners Jackson, Lee, Peirce and Roisman, testified before the House Financial Services Committee (Committee) in a hearing titled “Oversight of the Securities and Exchange Commission, Wall Street’s Cop on the Block.” Chairwoman Maxine Waters observed that the last time all the SEC Commissioners had been before the Committee was over a decade ago, in 2007.
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First Wave of Pay Ratio Disclosures Filed

U.S. public companies recently began disclosing their CEO-to-median employee pay ratios, as required by the Dodd-Frank Act and Item 402(u) of Regulation S-K.  It is still too early to draw conclusions, but this memorandum outlines some preliminary observations based on our review of the pay ratio disclosure included in 35 SEC filings through February 2018, including the range of pay ratios and calculation methodologies disclosed.
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SEC Staff Examines Impact of Regulation on Capital Formation and Market Liquidity

In response to a statutory requirement, the SEC Staff of the Division of Economic and Risk Analysis (DERA) has issued a lengthy report to Congress on the combined impacts of the Dodd-Frank Act and other financial regulations on access to capital for consumers, investors and businesses and market liquidity.  DERA studied (a) capital raising in the primary markets by analyzing evidence on the evolution of the issuance of debt, equity and asset-backed securities across registered and exempt offerings and (b) secondary market liquidity by analyzing market activity and liquidity in corporate bonds and US treasuries, along with funds and investment companies that invest in those securities.
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Mr. Clayton Goes to Washington

SEC Chair nominee Jay Clayton’s March 23rd hearing before the Senate Banking Committee covered much of the expected ground. In a series of responses designed to avoid controversy, Clayton repeatedly returned to the three core mandates of the SEC – capital formation, investor protection and efficient markets – as touchstones for his future leadership of the Commission, should he be confirmed.
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Dodd-Frank Update: Incentive Compensation for Financial Institutions

On Monday, May 2, 2016, the Federal Reserve and, on Friday, May 6, 2016, the SEC issued their versions of a reproposed rule to regulate incentive compensation at the financial institutions under their purview, as required by Section 956 of the Dodd-Frank Act. These issuances follow the releases in the prior weeks of the proposed rule by the National Credit Union Administration, the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and the Federal Housing Finance Agency.
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Court Orders SEC to Issue Resource Extraction Rules

Oxfam America scored a recent victory when the U.S. District Court in the District of Massachusetts decided that the SEC must file with the Court an expedited schedule for promulgating a final rule on resource extraction disclosure within 30 days of the decision. The Court intends to monitor the schedule and ensure compliance. We previously discussed Oxfam’s complaint here and our memo on the original resource extraction rules is here.
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Congress Tries to Influence Timing of Pay Ratio Rule

The SEC’s proposed rules on pay ratio disclosure is again the focus of Congressional attention, as three members of the House, Congressional Progressive Caucus Co-Chairs Representatives Raúl Grijalva (D-AZ) and Keith Ellison (D-MN), joined by Financial Services Committee member Maxine Waters (D-CA), sent a letter to the SEC asking them to finalize those rules.

The letter states that as Dodd-Frank was enacted more than four years ago, the SEC should finalize the rule since boards, investors and others “need this information to better understand and assess CEO compensation” when casting say-on-pay votes, and also “whether company employees are fairly compensated.” 
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Using the Courts to Force the SEC to Act on Dodd-Frank Rulemaking

It has been nearly four years since April 17, 2011, the original deadline under Dodd-Frank for the SEC to adopt a resource extraction disclosure rule.  After the SEC adopted a rule 2012, the U.S. District Court for the District of Columbia vacated it the next year, which we previously discussed here.  The court remanded it to the SEC, and it has not been re-proposed since then.
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Another SOX Clawback from Executives Without Wrongdoing

A federal district court in Texas recently upheld the right of the SEC to seek clawbacks of bonus and other compensation under Section 304 of Sarbanes-Oxley from executives who have not been accused of any wrongdoing, by denying the executives’ motion for summary judgment. In the case, SEC v. Baker, the SEC is seeking reimbursement of bonuses, incentives and compensation from the CEO and CFO of Arthrocare in connection with the company’s restatement of its financial statements.
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NYSE Updates Its Rule Filing on Compensation Committees

The NYSE has published an updated rule filing submitted to the SEC on the recent proposed listing standards related to compensation committees. The rule filing notes that “Amendment No. 1 corrects a single error in the rule text in Exhibit 5 as originally filed. The error was in Section 303A.00 under the heading ‘Transition Periods for Compensation Committee Requirements.’”
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Nasdaq Proposed Standards on Compensation Committees Differs from NYSE Approach

We just discussed the NYSE’s proposed standards applicable to compensation committee members and their advisers, which closely follow the SEC final rules. Nasdaq has posted its proposed version, which contains some differences worth mentioning. Details will follow in a client memorandum, but headline items include:

Compensation Committee Requirement

Nasdaq currently permits CEO and executive officer compensation to be determined by an independent compensation committee or independent directors constituting a majority of the board’s independent directors, but has proposed to eliminate the latter alternative and to require companies to have a standing compensation committee, with a minimum of at least two members.
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NYSE Proposed Listing Standards Affecting Compensation Committees

The NYSE has posted its proposed filing with the SEC to implement the SEC rules for compensation committees and advisers. We are preparing a client memorandum to describe the standards in more detail shortly, but headline items include:

Compensation Committee Independence

The NYSE has not added any additional bright-line prohibitions to its independence standards.  Rather, it has followed the SEC final rules in giving a board discretion to determine how consulting, advisory and other compensatory fees and affiliate status may affect a compensation committee member’s independence.
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SEC Updates Its Dodd-Frank Governance Rulemaking Schedule

As we remarked back in August 2011, the SEC website with its rulemaking schedule on Dodd-Frank initiatives is changed with little notice, as it has been again.  Back in August 2011 we even speculated whether the corporate governance rules would apply to the 2012 proxy season, but the SEC did not meet most of its previously stated timeline with the exception of the rules on mine safety. 
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Controversy Over Methods to Determine Median Employee Pay for Dodd-Frank CEO Pay Ratio Disclosure

Although the SEC staff has publicly stated that the clawback provision is the most complex of the remaining Dodd-Frank governance rulemaking, the most controversial provision appears to be the requirement to disclose the ratio between the CEO total compensation and the employee median.  Given the specific and prescriptive nature of the legislation, interested parties have been struggling for some time to come up with a workable solution, while some continue to argue for outright repeal.
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Whistleblowers and Internal Certifications

We’ve been discussing with a number of clients whether it is appropriate to require employees to certify periodically that they are not aware of violations of the company’s code of conduct or, put another way, that they have reported to the company all violations of which they are aware.  Some companies believe that this requirement can be a useful complement to a compliance program in that it requires employees to focus on the issue. 
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Spotlight on Shareholder Proposals: Internal Pay Ratio Disclosure

Section 953(b) of Dodd-Frank requires companies to disclose the internal pay ratio between the total annual compensation of their CEO and the median total annual compensation of their employees.  Effectiveness of the requirement has been delayed until the SEC promulgates implementing rules.  Meanwhile, companies have complained that the calculations required to comply with the disclosure requirement are burdensome and unfeasible, and proposals for Section 953(b)’s repeal have been introduced in Congress.
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SEC Enforces SOX Clawback in Shadow of Dodd-Frank

Earlier this week, the SEC announced a settlement with the former CFO of Beazer Homes USA to clawback incentive compensation and profits from the sale of Beazer stock of more than $1.4 million pursuant to the Sarbanes-Oxley Act.  Neither the CFO nor Beazer’s CEO, who reached a similar settlement with the SEC earlier this year for almost $6.5 million, was charged with personal misconduct. 
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Reading the Tea Leaves on SEC Rulemaking Schedule

The SEC website contains a schedule of Dodd-Frank rulemaking, which has been helpful but at times confusing when the schedule is updated with little notice.  Currently, the schedule for the next five months of August – December includes:

Final rules:  (a) disclosure by institutional investor managers on how they voted on executive compensation; (b) listing standards on compensation committee independence and compensation advisers; (c) disclosure on conflict minerals, mine safety and by resource extraction issuers; and (d) end-user exception to mandatory clearing of security-based swaps.
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Proxy Access Strikedown Could Impact Other Dodd Frank Rulemaking Across Many Agencies

The DC Circuit’s vacating of the SEC’s proxy access rule has wider applications for the possible challenge of regulations under the Dodd Frank Act on the grounds that they fail to analyze the economic impact.  Even though we all know that the DC circuit is especially hard on the SEC,  other agencies could also find themselves in a similar position given the fact that the speed of deadlines under the Dodd Frank Act has essentially forced a very minimal economic review of hundreds of regulations.  
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SEC Adopts Rule on Beneficial Ownership of Security-Based Swaps

Earlier this month, the SEC readopted rules to ensure that its current definition of “beneficial ownership” would continue to apply to persons who purchase or sell security-based swaps (“SBS”) on and after July 16, 2011.  The reproposal was prompted by Dodd-Frank’s addition of Section 13(o) to the Exchange Act, which would have otherwise excluded security-based swaps from the disclosure and short-swing profit rules. 
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Whistleblowers and Corporate Compliance Programs

We presented a webcast today discussing the final Dodd-Frank whistleblower rules that the SEC adopted a couple of weeks ago.  It was a good discussion covering the range of challenges that companies are facing and expecting to face.  Based on questions raised by listeners both during and after the podcast it’s apparent that many are struggling with how to continue to motivate employees to submit information internally through existing compliance systems, such as hotlines, rather than starting with the government. 
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