waldryano
waldryano

I don’t know when Congress decided that every piece of legislation had to have a nifty acronym, but the House Financial Services Committee recently passed (on a partisan basis) what old-fashioned TV ads might have called the new, improved version of the “Financial CHOICE Act”.  The word “choice” is in solid caps because it stands for “Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs”.

Whether and for whom it creates hope, opportunity or something else entirely may depend upon your perspective, but whatever else can be said of the Act, it is long (though at 589 pages, it is slightly more than half as long as Dodd-Frank), and it addresses a very broad swath of issues.  Here’s what it has to say about some key issues in disclosure, governance and capital formation, along with some commentary.
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Internet Archive Book Images
Internet Archive Book Images

I’ve previously commented on the surprising governance initiatives of the Conservative (yes, Conservative) Prime Minister of the UK.  Well, our friends across the pond are at it again – or maybe it’s just more of the same.

Specifically, on April 5, Parliament’s Business Committee issued a series of recommendations contemplating the following:

  1. The Financial Reporting Council (FRC) should be empowered, among other things, to report publicly on board or individual director failings.
  2. The FRC should rate companies on governance practices. The ratings would be color-coded (red, yellow and green), and companies would be required to reference them in their annual reports.  If you’re thinking of Hester Prynne’s scarlet letter, you’re not alone.
  3. Companies would be subject to a slew of new rules on pay:


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SDASM Archives
SDASM Archives

Even as we speculate about the likelihood and potential impact of massive deregulation here in the US, the EU is going in the opposite direction.  Earlier this month, the European Parliament passed a Shareholder Rights Directive that contains some “interesting” provisions, including the following:

  • Say-on-Pay: Issuers would be required to hold prospective and retrospective say-on-pay votes (i.e., shareholders would have to approve pay plans in advance as well as how those plans worked out). These votes would be binding unless a member state opts out of this provision.
  • Director Pay: While director pay has generated more scrutiny here in the US, the EU proposes to do something about it – specifically, it appears that director pay would also be subject to shareholder approval, though it’s not clear whether the mechanics would be the same as those for executive compensation. Note that shareholder proposals seeking a say-on-pay vote on director compensation have fared poorly here in the past.
  • Related Party Transactions: “Material” related party transactions would be subject to shareholder approval.

While these items seem pretty scary, the Directive includes some features that companies are likely to approve:
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Cornell University Library
Cornell University Library

New York Surrogate Gideon Tucker (1826-1899) is credited with originating the maxim that “no man’s life, liberty or property are safe while the legislature is in session.”  Were Surrogate Tucker around today, he might have added boards of directors to those who should be wary of legislative action.

There are numerous weird bills rumbling around the hallowed halls of Washington these days, but one of the bills that is making me unhappy is the Cybersecurity Disclosure Act of 2017.  The good news is that the bill is very short.

The bad news is threefold.
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I recently attended the Winter Meeting of the Council of Institutional Investors and thought you would like to know what the Council and its members are thinking.

The British Library
The British Library

What was NOT discussed – proxy access

First, one dog that didn’t bark was proxy access.  There was virtually no mention of the subject. I can only assume that proxy access has been adopted by a sufficient number of companies that it is no longer controversial or even worth discussing.

Coming to a company near you – majority voting…

What was worth discussing was majority voting in uncontested director elections, and if you are a mid- or small-cap company, you’d be well advised to think about it.  Among other things, the Council sent a letter last year on the subject to the companies in the Russell 3000, and was not encouraged by the responses.  Most large-cap companies have it, and it seems to be inevitable that smaller companies will be pressured to adopt it as well.  Frankly, I don’t think it’s worth fighting over, and early adoption might give a company a leg up on other governance challenges.
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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.


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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.
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The morning after a surprising election outcome seems as good a time as any to bear in mind the old saw that the more things change the more they stay the same.

And so it goes with corporate governance trends.  Lost in the piles of paper and ink (real and virtual) expended on the Wells Fargo scandal is an article that appeared in The Wall Street Journal a few weeks ago suggesting that the beleaguered bank will benefit from its post-oops decision to separate the positions of CEO and Chairman of the Board.

I’ve studied this issue for several years, and I can state with confidence that there is no proof that separating the positions or having an independent Board Chair does anything to improve performance or to avoid problems.  The most that can be said is that the studies are inconclusive.


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The United Kingdom has a new Prime Minister.  Her name is Theresa May, and she’s a member of the

Photo by Scott P
Photo by Scott P

Conservative Party.  Remember that, because what you are about to read will probably lead you to think otherwise.

In a speech made a couple of days before Ms. May became Prime Minister, she said that she would pursue the following actions if she were to become Prime Minister:
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