It remains to be seen whether the new administration will actually drain the swamp or do away with political correctness, but one hope that some of us have – regardless of our views on the election – is that the SEC may finally get around to some issues that have been on the back burner for years.
One such issue is a long-overdue overhaul of the rules surrounding shareholder proposals, including the submission and resubmission thresholds for proposals under SEC Rule 14a-8. Many organizations, including the Society for Corporate Governance, have repeatedly urged the SEC to update these rules, which have been in place for many years. However, the SEC has been reluctant to plunge into the area due to the likely political firestorm that would result.
Now, another organization has jumped in. At the end of October, the Business Roundtable published “Modernizing the Shareholder Proposal Process”, a rational and well thought-out series of suggestions for bringing shareholder proposals into the 21st Century.
In 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Conflict Minerals: It’s too soon to tell whether Dodd-Frank will be repealed in its entirety, if it will die the death of 1,000 cuts, or if it will stay pretty much as is.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. Continue Reading
A week or two ago I was asked to speak at a meeting of the Small- and Mid-Cap Companies Committee of the Society of Corporate Secretaries and Governance Professionals. That’s not unusual or even noteworthy, as I’m a long-time, active member of the Society and often speak at Society functions.
What was unusual and perhaps noteworthy is the topic on which I was asked to speak and the reason I was asked to speak on it. Specifically, one of the Committee members had asked the Chair if someone could give a general primer on shareholder proposals, because his/her company had received its first shareholder proposal ever.
The SEC has issued its much-anticipated Staff Legal Bulletin on two rules impacting shareholder proposals. You can find the SLB here. The SLB looks a bit more benign than some had feared; in other words, it’s got some bad news, but the good news is that it’s not as bad as some feared. Rule 14a-8(i)(9)… Continue Reading
Last week I attended the National Conference of the Society of Corporate Secretaries and Governance Professionals in Chicago. It was a great conference – wonderful, substantive programs and a chance to catch up with many friends and colleagues.
With some exceptions.
One exception was the opening speech by SEC Chair Mary Jo White. Now don’t get me wrong – I’m a fan (particularly when Senator Warren and others go after her – as in my last post). Among other things, I love the fact that she speaks clearly; unlike so many others in Washington, whose statements make me think I know what it must have been like to visit the Delphic Oracle, she’s perfectly straightforward about her views. It was her views – or at least most of them – that I didn’t like.
Chair White addressed four topics, and on all but one of them she basically told the corporate community to give up. Her topics and views can be summarized as follows:
Something shocking happened at the SEC yesterday. SEC Chair Mary Jo White directed the SEC Staff to review its long-standing position on when a shareholder proposal conflicts with a company proposal and may be excluded from the proxy statement. As a result, the SEC’s Division of Corporation Finance withdrew a no-action letter that had given Whole Foods the green light to exclude a shareholder proposal on proxy access by including its own (less shareholder-friendly) proposal on the subject. Corp Fin also said that it would not be issuing any additional no-action letters under the rule in question. It’s worth noting that these actions were taken at a sensitive time, as calendar-year companies approach peak proxy season and a major investor campaign is under way to impose proxy access upon companies that have been resisting it.
The SEC’s shareholder proposal rules are very complex, and I won’t go into details here. However, as a general matter, the rules lay out the process by which eligible shareholders can submit proposals for inclusion in a company’s proxy statement. Relevant here is that (1) the rules provide certain conditions under which a company can exclude a proposal and (2) companies can avail themselves of a “no-action” process to get the SEC’s permission to exclude a proposal if the conditions are satisfied. It’s worth noting that the no-action process isn’t dispositive; the proponent or the company can take the matter to court, and there are usually a couple of cases each year in which that happens.