At a meeting last week of the SEC’s Investor Advisory Committee, the primary focus of the discussion was the panoply of problems associated with the infrastructure supporting the proxy voting system, so-called “proxy plumbing.” Shareholder voting is viewed as fundamental to keeping boards and managements accountable, and the current system of proxy plumbing has been criticized as inefficient, opaque and, all too often, inaccurate. In 2010, the SEC issued a concept release soliciting public comment on whether the SEC should propose revisions to its proxy rules to address these issues, but to no avail. Perhaps the task was too daunting. However, at the end of his brief appearance at the committee meeting, SEC Chair Jay Clayton observed that it was clear that there was room for improvement in the voting system—enough room for improvement that the SEC should do something. SEC Commissioner Robert Jackson was decidedly more emphatic. In a statement posted on the SEC website on Friday, he characterized as “urgent” the need “to fix the basic mechanics of modern corporate democracy.” He indicated that “there is broad agreement that the Byzantine system that makes it impossible to know whether investors’ votes are being counted must be fixed. Over the last decade, while voting technology has made enormous leaps forward, retail investor participation in corporate elections has declined: today, fewer than one in three investors have their vote counted in those contests. The Commission has known this for years—we issued an impressively thorough concept release on the subject in 2010—and it is time to act. Investors should not have to wait any longer for their votes to be counted in corporate elections.” But the question remains: will the SEC undertake the comprehensive analysis and overhaul that appears to be required or settle for grabbing only the low-hanging fruit?
You may recall that, in July, SEC Chair Jay Clayton announced that the SEC will be holding a Roundtable to discuss the proxy process, currently expected to be held in November. (See this PubCo post.) Among the potential topics identified was the role of proxy advisory firms and the question of whether investment advisers and others rely excessively on proxy advisory firms for information aggregation and voting recommendations. In anticipation of that roundtable, the staff of the Division of Investment Management has today issued a statement announcing that, in light of subsequent developments, the staff has withdrawn two frequently disparaged no-action letters, Egan-Jones Proxy Services (May 27, 2004) and Institutional Shareholder Services, Inc. (Sept. 15, 2004), which provided staff guidance about investment advisers’ responsibilities in voting client proxies and retaining proxy advisory firms.
Today, SEC Chair Jay Clayton issued a statement intended to make clear the importance of the distinction between SEC rules and regulations—which are adopted in accordance with the APA, have the effect of law and are enforceable by the SEC—and staff guidance, such as the CDIs and various letters and speeches, which is nonbinding and not enforceable by the SEC or others. What was the impetus for his statement?
Here’s some news (thanks to compensationstandards.com and Compensia): the structure of the GICS code is changing. “Who cares?” you say. Yep, that’s what I said when I first heard about these changes. (Well, that’s what I said once I figured out that the “Global Industry Classification Standard” (GICS) code is not the same thing as the “Standard Industrial Classification” (SIC) code, a four-digit classification system developed in the 1930s that the SEC uses to classify companies; the SEC requires each company to identify its primary SIC code on the facing page of registration statements. No, SIC codes are not changing.) However, it turns out that the GICS code, a 10-digit classification system developed by MSCI and S&P for use by the global financial community, is employed not only for creating financial indices, but is also critical to the development by proxy advisor ISS of its compensation peer groups and other compensation-related analyses. So, GICS codes matter: for those companies affected, the structural changes could have a significant impact on assessments by ISS of their executive compensation programs. The changes will be effective on September 28, 2018.
You remember, of course, that last month, the president, on his way out of town for the weekend, tossed out to reporters the idea of eliminating quarterly reporting. (See this PubCo post.) The president said that, in his discussions with leaders of the business community regarding ways to improve the business environment, Indra Nooyi, the outgoing CEO of Pepsico, had suggested that one way to help business would be to trim the periodic reporting requirements from quarterly to semiannually. The argument is that the change would not only save time and money, but would also help to deter “short-termism,” as companies would not need to focus on meeting analysts’ expectations on a quarterly basis at the expense of longer term thinking. “We are not thinking far enough out,” he added. (For more on saving time and money through semiannual reporting, see this PubCo post.) But how much impact would a shift to semiannual reporting really have on short-termism?
You remember, of course, that last month, the president, on his way out of town for the weekend, tossed out to reporters the idea of eliminating quarterly reporting. (See this PubCo post.) The argument is that the change would not only help to deter “short-termism,” it would also save all public companies substantial time and money. But how meritorious is that idea? According to this article in the WSJ, if a change from quarterly reporting to semiannual reporting were actually implemented, smaller companies could experience significant cost savings, but large companies—not so much.
The Senate has confirmed the appointment of Elad Roisman as SEC Commissioner, replacing Republican Commissioner Michael Piwowar. He hails from that pipeline to the SEC, the Senate Banking Committee, where, according to Investment News, he served as Chief Counsel. Prior to that position, he served as counsel to SEC Republican Commissioner Daniel Gallagher.