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The SEC’s brave new (Trump) world

Posted in Bob's Upticks, Corporate Governance, investor empowerment, SEC, Shareholder proposals

3102056181_031bf572a9_zIn the wake of the election of Donald Trump as the next President, there has been a lot of speculation about the effect of a Trump administration on securities law and corporate governance.  Looking into a crystal ball is always risky, but here are some observations.

Conflict Minerals:  It’s too soon to tell whether Dodd-Frank will be repealed in its entirety, if it will die the death of 1,000 cuts, or if it will stay pretty much as is.  What I will say is that few will cry if the conflict minerals provisions are eliminated (and I will not be among those few).  Complying with the conflict minerals rules is time-consuming  (and therefore costly), and it’s questionable whether many people care.  Perhaps of equal or greater importance is that there is some evidence that the conflict minerals requirements are actually hurting the people they were supposed to help.

Pay Ratio: More of the same here.  There is some support for pay ratio disclosure among labor pension funds, but that’s about it.  Companies don’t like it (duh…), and mainstream investors have no use for it.  Given how the Democrats seem to have fared in the industrial states, it’s not clear that they would fall on their collective sword to save this one.

Say on Pay:  I’ll go out on a limb here and say that some form of say on pay will be around, even if Dodd-Frank vanishes completely.  Investors like it, it was gaining traction even before Dodd-Frank mandated it, and empowered investors won’t go away even if Dodd-Frank does.  Also, the major impact of say on pay has been enhanced shareholder engagement, which – again – investors like and increasingly seems to be the norm.  Perhaps more important, if  investors cannot cast an advisory vote on executive compensation, they may be more likely to vote against compensation committee members and other director nominees.  Given how many companies have shifted to majority voting in uncontested director elections, this could mean trouble.   Conceivably, some companies may switch to biennial or triennial say on pay votes, but I’m not sure how likely that would be.

Disclosure Effectiveness:  This is an interesting one.  Elizabeth Warren is staunchly opposed to it, though I strongly question her judgment (see my prior post), so does that mean that the Republican-controlled House and Senate might support it?  I would like to think that, Senator Warren aside, this could turn into a bipartisan (or non-partisan) effort to make our disclosures better, but it’s hard to imagine anything being bi- or non-partisan these days.

Universal Proxy: To paraphrase Rhett Butler, frankly I don’t give a damn.  I’ve never understood why some institutions – and SEC Commissioner Stein – seem to think this is the most important item on the regulatory agenda.  For most corporate issuers, it’s a non-event, and given how few proxy contests take place each year plus the availability of proxy access, it’s not clear to me why anyone cares.

Other Items: If the new administration and Congress live up to their promises to reduce regulation, and if they can manage to stop telling the SEC what to do, the SEC might have an opportunity to do some really meaningful work in areas that have gone by the wayside for the last few years.  For example, proxy plumbing – which, by the way, is an issue in which Delaware Vice Chancellor Laster is intensely interested – and perhaps engaging in some sort of sunset review of various disclosure requirements (separate and apart from disclosure effectiveness due to the latter’s hot potato status).

Last and not least (at least for now), it would be great if the SEC could finally act on adjusting the submission and resubmission thresholds for shareholder proposals.  However, that’s getting into wish lists and I’m not going to hold my breath to see if and when that happens.

I’d love to hear your thoughts and wishes for what’s on the come in this brave new world.

Bob