In a virtual “fireside chat”—is that an oxymoron?—hosted by NYU law, SEC Chair Gary Gensler was interviewed by former SEC Commissioner and current NYU professor Robert Jackson. Much of the discussion involved topics that Gensler has already addressed in the past, such as gamification and digital engagement practices (see e.g., this PubCo post and this PubCo post). Gensler was also quite reluctant to “get ahead of the rest of the SEC” on some issues and purposefully avoided discussion of actions by specific companies, such as Glass-Lewis’s recent announcement that it would offer equity plan advisory services—will that present a conflict?—and BlackRock’s recent decision to pass-through certain voting rights to institutional clients (see this PubCo post). However, he did offer some updates on various projects at the SEC.
(Based on my notes, so standard caveats apply.)
Universal proxy. Gensler said that the Commissioners are currently reviewing a draft on universal proxy presented by the staff this week. Universal proxy has long been a hot potato. A universal proxy is a proxy card that, when used in a contested election, includes a complete list of board candidates, thus allowing shareholders to vote for their preferred combination of dissident and management nominees using a single proxy card. In the absence of universal proxy, in contested director elections, shareholders can choose from both slates of nominees only if they attend the meeting in person. You might recall that, in 2016, the SEC proposed amendments to the proxy rules that would have mandated the use of universal proxy cards in contested elections. But the proposal went no further. And, notwithstanding development of something of a consensus at a 2018 meeting of the SEC’s Investor Advisory Committee that there could well be value in universal proxy cards (even though concerns remained that it could favor one party over the other), the topic continued to molder on the long-term agenda. Last year, it was suddenly moved up to the short-term agenda, but no action was taken. However, in April 2021, the SEC announced that it had voted to reopen the comment period for the universal proxy proposal. The reopening release included a long list of questions for commenters to consider, focusing in particular on the impact of developments since the publication of the proposal in 2016. (See this PubCo post and this PubCo post.)
Climate disclosure. Climate is another topic that Gensler has often addressed (see e.g., this PubCo post). In this conversation, when asked about the possibility of cooperation on uniform standards that apply internationally, Gensler responded that the SEC would be inspired by international standards, such as TCFD, but that the rules would be written in the U.S. to make sense for the U.S. Gensler was unwilling, however, to get ahead of the SEC on issues such as how prescriptive the rules might be, the location of climate disclosure in or outside of the 10-K (although he appeared to be leaning toward the 10-K because of its control environment) or whether there will be an independent attestation or assurance requirement in connection with any new climate disclosure rules.
13D window. Jackson asked Gensler whether he favored accelerating the deadline for 13D beneficial ownership disclosure and whether the rule should cover derivatives. Gensler replied that he believes the rules should be updated as the deadline hasn’t been updated in over 50 years. The current timeframe might have been appropriate for the 1970s, but technology has changed a lot since then. Dodd-Frank authorized the SEC to shorten the window, and he had asked the staff to look at the issue. The current long window means that the market is trading without material information, while some have an asymmetric information advantage. He noted that application to derivatives was also under consideration to improve transparency.
Political spending. Disclosure about political spending is a favorite topic of Jackson’s given that he is a co-author of the 2011 rulemaking petition filed with the SEC requesting that the SEC propose rules to require disclosure of the use of corporate resources for political activities. The petition ultimately received over 1.2 million letters in support. Jackson noted that, at least so far, the new appropriations bill does not include the provision from the past several years that prohibited the SEC from spending funds on political spending disclosure regulations. (See this PubCo post.) Gensler remarked that, if investors want to see political spending disclosure, then it’s something the SEC should consider.
Cybersecurity disclosure. Cybersecurity disclosure is definitely among the topics that is high on the SEC’s agenda, given the recent problems with hacks and ransomware. But, Jackson asked, when a breach occurs, when does a company have to disclose on a Form 8-K? It’s a tricky question. Would the SEC consider requiring disclosure about board expertise on cybersecurity? Gensler said that the SEC has two projects in the works: the first is about enhancing company disclosure and the second concerns “cyber hygiene” and appropriate security measures to protect confidential information in the investment management space.
Diversity. Jackson asked whether the SEC would consider adopting a “comply or explain” proposal on board diversity like the one that Nasdaq has adopted. Notwithstanding the great pains taken by Nasdaq to frame its proposal as principally “a disclosure-based framework and not a mandate,” Gensler seemed to object that the SEC is focused only on disclosure. Note, however, that a proposal for enhanced disclosure is on the SEC’s short-term agenda. (See this PubCo post.)
Short and distort, share lending. When asked about the practice of “short and distort,” Gensler said that attempts to use fraud to manipulate the market were illegal. With regard to short sales, Dodd-Frank had mandated that the SEC enhance disclosure requirements, and Gensler intended to fulfill the congressional mandate. The same was true with regard to share lending and borrowing.