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Chair White Identifies Near-Term Rulemaking Agenda

As detailed yesterday on Rants to Riches, responding directly to an earlier letter from current and future Senate Banking Committee Chairs Richard Shelby (R-AL) and Mike Crapo (R-ID), respectively, that reportedly urged SEC Chair White to cease any Dodd-Frank rule-making activity pending the start of the new administration, Chair White set forth in this letter on Monday a series of proposed rules and other items that she characterized as ready for current consideration by the Commission either via open meeting or seriatim vote, and which - consistent with the independence of the agency and historical post-election periods - she planned to pursue during the balance of her tenure, provided the Commission has a quorum to act.

Based on the current Commission composition (including Chair White), all three sitting commissioners would need to be present for the SEC to act - which (given the current composition) is deemed to be a not insignificant hurdle for any matters that may be perceived as potentially controversial.

See also these articles from Reuters, the WSJ, and InvestmentNews; House Financial Services Committee Chair Hensarling's responsive statement; our prior reports concerning efforts to forestall rule-making activity for the balance of the current administration, post-election regulatory reform here and here, and additional relevant Commission composition issues associated with White's departure; and Davis Polk's "Predictions on Possible Changes to and Timing of the Dodd-Frank Executive Compensation Provisions."

House Passes Economic Growth Bill With Strong Bi-Partisan Support

Last week, the House passed by a 391-2 vote six previously discrete pro-economic growth measures in the form of the Creating Financial Prosperity for Businesses and Investors Act (H.R. 6427). All of the measures - which include the Small Business Capital Formation Enhancement Act, the SEC Small Business Advocate Act (which passed Congress on a stand-alone basis December 10th, and is en route to the President for signature), and the Fix Crowdfunding Act - had previously passed the House with bipartisan support. See the Financial Services Committee's release summarizing each of these measures, this Crowdfund Insider article, and this summary of the SEC Small Business Advocate Act.

SEC Advisory Committee: Board Diversity Disclosure

Further to our report last week, the SEC's Advisory Committee on Small & Emerging Companies deferred making a board diversity disclosure recommendation pending consideration of a future redraft to take into account specific concerns about its draft recommendation expressed in last week's meeting. According to this post from Jim Hamilton's World of Securities Regulation, members expressed concern about the draft recommendation's potential breadth and meaning of "ethnicity," and a desire to make the disclosure mandatory subject to the ability of companies to opt out, as opposed to the opt-in approach contemplated by the draft. A webcast archive of the meeting will be posted here.  

SEC Investor Advisory Committee: CII Identifies Priorities & Concerns

In his remarks last week before the SEC's Investor Advisory Committee, CII Executive Director Ken Bertsch addressed investor protection priorities for 2017 in the context of (among other things): (i) desired SEC follow-through on certain pending initiatives such as the proposed Universal Proxy rule and expanded auditor's report, (ii) perceived regulatory threats such as the SEC Regulatory Accountability Act and various proposed 14a-8 shareholder proposal reforms, and (iii) high priority concerns - namely, certain trending IPO governance frameworks such as dual class share structures - perceived by investors as thwarting management accountability to shareholders, and majority vote standards for directors that encompass board discretion. See also Chair White's remarks. A webcast archive of the meeting will be posted here.

SEC Enforcement Director Leaving by Year-End

As reported last week on Rants to Riches, the SEC announced that Enforcement Director Andrew Ceresney is leaving by year-end. Deputy Director of the Division Stephanie Avakian will become the Acting Director upon his departure. Last week we reported on Corporation Finance Director Keith Higgins' near-term departure. See this WSJ article.

SEC Approves PCAOB Budget on 2-1 Vote

The SEC approved today on a 2-1 vote the PCAOB's 2017 budget and related annual accounting support fee as proposed. See these Statements from SEC Chair White and Commissioner Stein, Commissioner Piwowar's dissent, and our prior report on the PCAOB's approval of its budget and 5-year strategic plan - including PCAOB Board Member Hanson's noteworthy dissent. 

NY State Cyber Proposal Triggers Significant Opposition

The New York Law Journal reported on significant opposition to the New York State Department of Financial Services' proposed Cybersecurity Requirements For Financial Services Companies (previously reported on here) vocalized by numerous regulated banking and insurance industry organizations via these comment letters voluntarily provided to the Journal by: (i) an 8-member financial services coalition including SIFMA, the American Bankers Association and the Financial Services Roundtable; (ii) a coalition of 13 big-name banking and insurance trade associations; and (iii) the New York Insurance Association.

The public comment period on the proposal ended November 14th, and the proposed effective date is January 1, 2017.  According to the article, the Department said it won't release the public comments until they are reviewed "to see if they inadvertently contain any "proprietary" financial industry information."

Relatedly (in view of the above-referenced comment letters), on December 1st, the federal nonpartisan Commission on Enhancing National Cybersecurity issued this final report, which recommends (among many other things) that regulatory agencies "harmonize existing and future regulations" with NIST's Cybersecurity Framework (Framework for Improving Critical Infrastructure) "to focus on risk management—reducing industry’s cost of complying with prescriptive or conflicting regulations that may not aid cybersecurity and may unintentionally discourage rather than incentivize innovation" (short-term Action Item 1.4.3). The Commission was charged by Executive Order in February with making "detailed recommendations to strengthen cybersecurity in both the public and private sectors while protecting privacy, ensuring public safety and economic and national security, fostering discovery and development of new technical solutions, and bolstering partnerships between Federal, State, and local government and the private sector in the development, promotion, and use of cybersecurity technologies, policies, and best practices." See WilmerHale's memo.

See also this Simpson Thacher article in the New York Law Journal: "Demand Requirement Under Exchange Act §14(a)," discussing the recent dismissal by a federal district court applying Delaware law of a shareholder derivative claim under Section 14(a) of the Securities Exchange Act arising out of the well-publicized Home Depot data breach.

City of Portland Surtax Penalizes CEO/Median Worker Pay Gap

In the face of opposition by the Portland Business Alliance, the City of Portland reportedly adopted last week the imposition of a surtax on local public companies subject to the SEC's pay ratio disclosure rule whose CEO pay exceeds 100x the pay of their median worker. The tax equates to 10% or 25% of the local business tax liability for companies whose disclosed pay ratio exceeds 100:1 or 250:1, respectively, and is slated to take effect next year after the SEC's pay ratio disclosure kicks in. 

According to the analysis conducted by the City's Bureau of Revenue and Financial Services Office of Management and Finance as of April 2016, there were at least 545 companies subject to and paying the City of Portland Business License tax that would be subject to the then-proposed pay ratio surtax. See also Cooley's post.

UK Regulator Calls for Corporate Director Code of Conduct

In response to the UK government's pending corporate governance consultation (previously reported on here), the Financial Reporting Council (FRC) sent this letter to the division that launched the consultation offering to take the lead on developing a director code of conduct that would allow the FRC to take action against ordinary course directors (i.e., in addition to those already under the purview of the FRC who serve as auditors, accountants or actuaries) for their "breach of regulations." 

Specifically, the FRC seeks (among other things) the right to take action against directors on "questions of integrity and a failure to report properly to shareholders" in the context of the Corporate Governance Code's comply-or-explain framework via a new enforceable director code that would include ethical standards. Comments on the consultation are due February 17, 2017. See also this Manifest article.

SEC Comment Letter Trends

Courtesy of Audit Analytics, this table identifies the top Form 10-K, 10-Q and 8-K comment letter topics for the first half of 2016 compared to the same period for the prior two years. Not surprisingly, non-GAAP measures ranked #1 this year, included in 16.42% of the total 2,491 comment letters (1,452 SEC-originated letters to filers plus 1,039 filer response letters) and over 25% of the conversations filed by 808 registrants - followed by Fair Value Measurement, estimates, and use (FVM) at 13,65%; Results of Operations (MD&A) at 11.88%; and tax expense at 10.20%. In 2015 and 2014, MD&A ranked #1, followed by FVM.

Also noteworthy is the ongoing trend toward increasing SEC Staff review of corporate earnings transcripts, presentation materials, and corporate websites - and associated Staff comments and communications. By way of example, the post notes that 47 distinct companies received earnings call comments for the 2016 half-year period.

See also these articles from the WSJ: "CFA Institute Calls Out Use of Non-GAAP Metrics" and Vintage: "91% of institutional investors listen to earnings call (no surprise here)," and numerous additional resources on our Financial Reporting topical page.

Small-, Mid- & Large-Cap Director Compensation Benchmarking

FW Cook's 2016 Director Compensation Report provides current director compensation benchmarking data and trends for small-, mid-, and large-cap companies based on a sampling of 300 US public companies (100 companies in each size category) across industries - 93% of which were included in last year's report allowing for YoY comparisons. The report's Executive Summary (also set forth in this post) summarizes key findings for multiple aspects of compensation including cash and equity compensation, meeting fees, pay mix/structure, committee member and chair compensation, board leadership (non-executive chair and lead director) compensation, stock ownership & retention guidelines, and director compensation limits.

See also Compensia's "Employee Stock Plan Proposals at the Tech 120" - noting (among other things) that, of the 31 companies in the 120 largest publicly-traded tech companies that submitted employee stock plan proposals to their shareholders between June 1, 2015 and May 31, 2016, 71% included an express annual limit on director compensation in their stock plan provisions - split equally between limiting both cash and equity and equity-only provisions.

Access additional resources on our Director Compensation topical page.    

Business Roundtable Names JPMorgan's Jamie Dimon as New Chair

As reported last week on Rants to Riches, the Business Roundtable announced that JPMorgan Chase Chair & CEO Jamie Dimon has been named Chair of the association for a 2-year term beginning January 1st. As previously reported, the Business Roundtable recently released a series of proposed shareholder proposal reforms, which followed its release in August of progressive, updated Corporate Governance Principles that - among other things - emphasize investors' responsibility and accountability for long-term value creation coincident with their quest for increasing influence on corporate decision-making, and oppose their use of the proxy process to pursue social and political agendas (reported on here). 

Dimon/JPMorgan was among the signatories to the widely-publicized company/institutional investor Commonsense Principles of Corporate Governance released in July that aim to promote long-term-oriented governance (reported on here). And last week we reported that Dimon was among the approximately 15 CEOs and other business leaders appointed to the President-Elect's new Strategic & Policy Forum, which reportedly will meet with the new President frequently to provide input on how government policy impacts economic growth, job creation, and productivity.

See these articles from The Hill and The Washington Post.

ISS Publishes Peer Selection FAQs

ISS released today these updated US Peer Group Selection Methodology and Issuer Submission Process FAQs that cover the basics such as: "What is the methodology?" and "What are GICS codes?" - as well as the nitty-gritty such as how to deal with the use of multiple peer groups, and peers that are no longer relevant but have not yet been formally removed from the company's peer group. Access additional resources on our Proxy Advisors topical page.

S&P 500 Corporate Governance Disclosure Trends & Examples

Equilar's newly-released Executive Compensation & Governance Outlook 2017 reveals these key findings based on its analysis of S&P 500 proxy statement compensation and corporate governance disclosures over the past five years:

• Only one company disclosed its CEO-to-median employee pay ratio in 2016, compared to nearly one-third of companies disclosing a discussion of internal pay equity within the executive team.
• About 92% of companies disclosed a clawback policy in 2016, up over 20% since 2012. More than half of companies disclosed that a financial restatement may trigger their clawback policy.
• About 96% of companies discussed P4P in their executive compensation programs in 2016 - up 9.7% since 2012.
• Disclosure of shareholder engagement more than tripled since 2012 to 66.1% of companies in 2016.
• Most companies will again hold say-on-frequency votes in 2017. In 2011, over 90% of companies adopted annual SoP votes - with the remainder almost entirely comprising triennial votes.
• About 13% of companies disclosed a board skills matrix in 2016, and roughly the same percentage of companies disclosed the ethnic or racial composition of their boards of directors.
• Only 3.3% of companies disclosed a comprehensive discussion of their board’s CEO succession planning process.

In addition to insightful color and context shared by Hogan Lovells and Labrador throughout the report, noteworthy disclosure practices (e.g., say-on-frequency, P4P, shareholder engagement/outreach, board composition, peer group selection) are illustrated by instructive examples from past filings that companies can tap to better inform their 2017 drafting efforts.     

"Executive Compensation & Governance Outlook 2017" is complimentary to Equilar subscribers, who can access the report by logging into their accounts, or by completing the form here. Non-subscriber Society members may contact Equilar through the form to request a complimentary report for their own use. 

S&P 500 Board Skills Matrices Reveal Top 20 Skill Sets

Relatedly, Equilar's new post includes this list of the most frequently cited director skills disclosed in S&P 500 proxy statement board skills matrices for the 2016 proxy season:

While not a robust number relative to the Index group as a whole, the number of S&P 500 companies that included a board skills matrix in their proxy statements increased from 32 in 2015 to 63 in 2016. Note that disclosure of a board skills matrix is but one potential approach to addressing board composition-related matters in the proxy statement.

Access additional resources on our Annual Meeting, Disclosure Reform, Board Composition, Board Practices/Governance Practices, and Board Succession/Refreshment topical pages. 

Guide to Effective Proxies: Samples Galore

Donnelley's newly-released latest edition of its "Guide to Effective Proxies" is a searchable, interactive guide designed to help companies improve their proxy statement's visual appeal, clarity, and navigability, as well as select a company-specific appropriate style and format. The guide includes numerous sample disclosures on the most commonly addressed proxy topics, as well as the ability to access full proxies (for contextual purposes) with one easy click. See also Donnelley Director of Corporate Governance Services Ron Schneider's "Taking Your Proxy Statement from Good to Great."

Ready, Set, Go! 2017 Proxy Advisor Policies & Shareholder Proposals Are In

In preparation for the upcoming proxy season, Alliance Advisors' latest newsletter summarizes recent policy updates from ISS and Glass Lewis (which we previously reported on here), and discusses proxy access proposal developments and other shareholder initiatives to watch for 2017 - including an expected record number of climate change resolutions prompted by the election-triggered anticipated change in regulatory outlook, as well as expanded diversity campaigns. Table 1 conveniently identifies 2017 shareholder proposals by company, proponent, proposal type, and meeting date.

Access additional resources on our Proxy Season 2017 and Shareholder Proposals topical pages.

Florida SBA Management Support Trails Other Investors

The Florida State Board of Administration (SBA) recently issued this Corporate Governance Annual Summary that encompasses - among other things - its proxy voting decision-making process and 2016 worldwide proxy voting records in the aggregate, as well as by country and proposal type. Among the noteworthy US statistics:

• Director Elections: In uncontested director elections among all Russell 3000 companies, over 16,000 nominees received 96.1% average support from investors in 2016. This compares to the SBA's support of just 78.5% of director nominees. According to the report, the SBA voted against the other 21.5% primarily due to its concerns about director independence, qualifications, attendance, or overall board performance. The report notes: "The SBA’s policy is to withhold support from directors who fail to observe good corporate governance practices or demonstrate a disregard for the interests of investors."
• Say-on-Pay (SoP) - The SBA voted for just 52.1% of US SoP proposals - compared to its support of 76.2% of UK remuneration reports, and compared to these levels of support for US SoP proposals by other major institutional investors: BlackRock: 96.5%, Fidelity: 71.9%; Goldman Sachs: 94.4%; Norges bank 95.8%; and T. Rowe Price: 89.7%. 
• Equity/Incentive Plans - Investor support for equity plan proposals for all US companies in 2016 averaged approximately 88%, and less than 1% of equity plans failed. This compares to the SBA's support of just 51.2% of all non-salary (equity) compensation items, 60.8% of executive incentive bonus plans, and 25.2% of management proposals to approve omnibus stock plans in which company executives would participate and which typically include ratification of more than one equity plan beyond a company’s long-term incentive plan (and 19.3% support for the amendment of such plans).

Most Investment Professionals Say Securities Market is Over-Regulated

Investment professional association CFA Institute revealed these noteworthy results from a recent member survey on regulation of the US financial markets:

• 51% of respondents said that the current amount of regulation in the securities market is too much - reportedly often citing the proliferation of Dodd-Frank regulations. 18% said the current amount is too little, and 31% think it is about right.
• Respondents said that in order to best accomplish its mission, the SEC should concentrate its efforts on regulating fraud (51%), followed by enforcing the laws and regulations that already exist (39%), and then cybersecurity (24%).
• Asked what they considered to be the greatest threat to the US financial markets, a combination of over-regulation and governmental intervention came in first, with comments noting how the number and focus of regulations - coupled with central bank policies and US Congressional policymaking - undermine capital formation and innovation.  

Sustainability: Corporate Secretary's Role

For those who were unable to attend Monday's excellent webinar: "The Role of the Corporate Secretary in Sustainability," the archived recording is accessible here, and the PPT presentation is here. 

You can find these and numerous additional ESG-related resources - including the complimentary 15-page excerpt of SASB's newly-released inaugural Annual State of Disclosure Report (full report available for purchase from SASB with $120 Full Access Pass) - on our Sustainability/ESG topical page

Does anyone have a list of Director Education Programs that they can share? 

Editor responded:

On our Board/Director Education & Orientation topical page, we have this list of programs: 2017 Director Education Programs (updated November 2016, as well as numerous Providers & Programs.

Check out the Society Huddle.

• Trump's Pledge to Loosen Regulations on Businesses is a Heavy Lift, WSJ, December 14, 2016
• OECD, International Bar to Develop Anti-Corruption Guidance, WSJ, December 13, 2016
• How a Woman CEO Affects Sales and Salaries, WSJ, December 13, 2016
• U.K.'s Hammond Favors Adjustment Phase with EU After Brexit, WSJ, December 13, 2016
• GOP Prepared to go it Alone on Tax Reform, The Hill, December 12, 2016
• New Approach to Corporate Tax Law Has House GOP Support, NYT, December 12, 2016
• Big Four Accounting Firms Show Fewer Problem Audits, WSJ, December 12, 2016
• CalPERS Sues Barry Diller Over IAC/Interactive Stock Plan, WSJ, December 12, 2016
• Chipolte Drops Dual-CEO Model, WSJ, December 12, 2016
• Chamber's CEO: 'Already Working' with Trump to Kill DOL Fiduciary Rule, ThinkAdvisor, December 12, 2016
• At Estée Lauder’s Annual Meeting, Shareholders Still Expect to be Pampered, WSJ, December 12, 2016
• As Companies Gear up for New Accounting Rules, It's Time to Tell Investors More, WSJ, December 12, 2016
• Trump's Punitive Power Over Companies Appears Hedged, WSJ, December 12, 2016
• Trump Steps up Criticism of Corporate America, WSJ, December 12, 2016
• Trump's Way of Saving U.S. Jobs has Companies on Edge, LA Times, December 12, 2016
• May Faces new Legal Case Over Post-Brexit Single Market Plan, Bloomberg, December 11, 2016
• U.S. Limits on Wall Street Bonuses Appear Doomed Ahead of Trump, Bloomberg, December 9, 2016
• Why Women Are Not Landing on Boards, Directors & Boards, December 9, 2016
• SEC Issues Nearly $1 Million Award to Whistleblower, WSJ, December 9, 2016
• How Canadian Companies Can Diversity Their Boards, Catalyst, December 9, 2016
• Trump Emerging as Financial Risk for Companies, Documents Show, Chicago Tribune, December 8, 2016
• EU Sees Limits to Bespoke Post Brexit Deal with U.K., WSJ, December 8, 2016
• CEOs and CFOs See Greater 2017 Risks than Other Executives, WSJ, December 8, 2016
• Short-Term Incentive Pay Criteria are Shifting, CFO, December 8, 2016
• Banks to Donald Trump: Don't Kill Dodd-Frank, WSJ, December 8, 2016
• As a Businessman, Trump Mixed Pragatism and Protest in Dealing with Regulators, WSJ, December 8, 2016
• Republicans Explore Budget Maneuver to Chip Away at Dodd-Frank, WSJ, December 8, 2016
• Financial Reporting Council Could See Significant Expansion of Remit, WSJ, December 8, 2016
• The Time has (Finally) Come for a Single Regulator, American Banker, December 7, 2016
• Forecasting SEC Enforcement in the Trump Administration, Reuters, December 7, 2016
• Portland Adopts Surcharge on CEO Pay in Move vs. Income Inequality, NYT, December 7, 2016
• Wary Corporate Chiefs Keep an Ear Turned to Trump's Message, NYT, December 7, 2016
• 7 Keys for Auditors' Success in a Changing Environment, Journal of Accountancy, December 7, 2017
• SEC Allows Some Adjusted Revenue Metrics Under "Unusual Circumstances", WSJ, December 7, 2016