For the avoidance of doubt, Acting Corp Fin Director confirms conflict minerals and pay-ratio disclsoure rules still in effect

by Cydney Posner

As reported by the WSJ, at the SEC Speaks conference today, to avoid any doubt on the matter, Acting Corp Fin Director Shelley Parratt reminded companies that, notwithstanding the two requests for public comment issued by Acting SEC Chair Michael Piwowar and all of the Executive Orders aimed at deregulation, the conflict minerals and pay-ratio disclosure rules continue in effect (until of course they don’t). The staff is, however, reviewing comments on these rules as they are received. Continue reading

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Corp Fin refines its position on proxy access fix-it proposals

by Cydney Posner

Corp Fin has refined its position with regard to exclusion of proposals to amend existing proxy access bylaws.  As you may recall, the line drawn so far by Corp Fin has been that, where the shareholder proposal related to initial adoption of proxy access, Corp Fin has continued to grant no-action relief and permit exclusion of proxy access proposals as “substantially implemented” under Rule 14a-8(i)(10), so long as the bylaw provisions adopted by the companies contained the same eligibility percentage and duration of ownership thresholds (3%/3 years) as in the proposal, even though the bylaws also included  a number of “procedural limitations or restrictions that were inconsistent with or not contemplated by the proposals.”  However, with regard to shareholder proposals to amend a company’s existing proxy access bylaw — so-called “fix-it” proposals — the staff had refused to grant no-action relief on that same basis. Meanwhile, both proponents and companies have been exploring the contours of those staff positions, trying to determine how best to advance their opposing arguments. (See this PubCo postthis PubCo post and this PubCo post.) In a series of no-action letters recently posted, Corp Fin has permitted exclusion of some fix-it proposals under Rule 14a-8(a)(i)(10) on the basis that the proposals have been “substantially implemented,” but denied relief for others. Although the staff’s rationale is far from exquisitely clear, nevertheless, companies seeking to exclude fix-it proposals at least now have some successful models on which to base their requests.  Continue reading

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Recent trends in proxy statements

by Cydney Posner

It just isn’t proxy season without some kind of account of the latest trends in proxy statements, so here’s one from CFO.com. Continue reading

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Shareholder proposals regarding lead director tenure: a harbinger of things to come?

by Cydney Posner

The topic of director tenure has increasingly become the focus of both academics and investors. Some argue that long-term directors contribute deep knowledge of the company and provide experience, historical memory and continuity to the board — along with the gravitas sometimes necessary to challenge management. Others contend that directors with long tenure are “stale” and rarely contribute fresh perspectives.  Moreover, they suggest, the independence of directors with long tenure may even be compromised — not in the technical sense of the NYSE or Nasdaq definitions of course, but rather more in the sense of “social independence,” meaning that the development over time of shared social connections might bias them or taint their objectivity. According to the WSJ, the head of a corporate governance center at the Conference Board has observed that “’[t]he tenure issue is one that is bubbling below the surface.’“ (See this PubCo post and this PubCo post.) Continue reading

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Corp Fin suggests it will take a look at non-GAAP disclosure practices in the pharmaceutical industry

by Cydney Posner

Even important industry players can sometimes run up against brick walls at Corp Fin. In a recent give-and-take with the SEC, Allergan was scolded for its use of certain non-GAAP financial measures in its press releases.  While in its responses to the staff, the company cogently explained its reasoning, the staff did not ultimately agree with company’s view, putting to the test one of the staff’s most recent CDIs regarding performance versus liquidity per-share measures. Moreover, in conversations with the staff, the company apparently conveyed the impression that the practice disfavored by the staff was widely followed in its industry group, leading the staff to caution that it plans to evaluate practices in the pharmaceutical industry. Companies in that industry may want to pay attention. Continue reading

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Proposed changes in the Financial CHOICE Act 2.0

by Cydney Posner

A just-released memo (subscription required) from Jeb Hensarling, Chair of the House Financial Services Committee, to the Committee’s Leadership Team outlines the proposed changes from the original Financial CHOICE Act, introduced last year (see this PubCo post), to be included in the Financial CHOICE Act 2.0. Of course, we won’t know precisely what the bill provides until it is actually made public.  While the vast majority of proposed changes identified in the memo relate to the banking provisions and the Consumer Financial Protection Bureau, some are related to compensation and corporate governance matters, such as the following: Continue reading

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Will the SEC be instructed to waive any or all of the conflict minerals requirements on the basis of national security interests? (Updated)

by Cydney Posner

Remember all the way back to last week when Acting SEC Chair Michael Piwowar issued two statements on the conflict minerals rules?  (See this PubCo post.) Remember too that the first statement directed the staff to revisit the 2014 guidance from the director of corp fin regarding conflict minerals, and that, in the additional statement, he talked about what he had learned in his recent trip to Africa? In that additional statement, he concluded that the rule was “misguided,” had led to “a de facto boycott of minerals from portions of Africa” and was putting legitimate mining operators out of business because of the onerous costs of compliance with the rules. Now here’s critical sentence: “Moreover, the withdrawal from the region may undermine U.S. national security interests by creating a vacuum filled by those with less benign interests.” Apparently, that sentence may well have sent a signal to the White House.

According to an exclusive report from Reuters, the President “is planning to issue an executive order targeting [the conflict minerals disclosure rule],” and while Reuters did not know the precise contents or timing of that order— including how broadly it might apply and whether or not it could implicate reporting due in May 2017— the suggestion is that it would be based on the national security waiver provision in Dodd-Frank.  That provision (Exchange Act Section 13(p)(3)) requires the SEC to revise or temporarily waive the basic requirements of the conflict minerals provisions “if the President transmits to the Commission a determination that—(A) such revision or waiver is in the national security interest of the United States and the President includes the reasons therefor….”  While the exemption would be limited by statute to two years, the conflict minerals provision in Dodd-Frank is one that was identified for repeal in the original Financial CHOICE Act and could be jettisoned under the Financial Choice Act 2.0 — if it passes through Congress unscathed that is. (See this PubCo post.)

As of now, conflict minerals filings are still due on May 31 and, until the timing and precise details of the reported executive order become known, it is still too soon— and too uncertain at this point— to say “pencils down” on conflict minerals disclosure. Nevertheless, companies that are subject to the conflict minerals requirements should stay tuned.

Update of February 9: Thecorporatecounsel.net blog has posted what purports to be  a draft of the executive order.  Is the draft real or is it fake news? That remains an open question for now. (He also links to an interesting piece in Mother Jones.)

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