As noted in TheCorporateCounsel.net blog, this week, the SEC posted notices that it is extending the time period for approval of the NYSE and Nasdaq proposed listing standards for clawback policies for listed issuers. Originally, the SEC was expected to approve (or disapprove or institute proceedings to determine whether to disapprove) the proposed new standards by April 27, 2023; the approval date is now extended to June 11. The SEC is extending the time period to allow “sufficient time to consider the proposed rule change and the comments received.” What does that time delay mean for companies? Under the SEC final rules and the proposed listing standards, each listed issuer must adopt the required clawback policy no later than 60 days following the effective date of rule, which, under the exchange proposals, is the approval date. That approval date now moves to June 11, which looks to be a Sunday, allowing companies a brief extension of time until around August 10 or so (depending on the date of the actual approval) to get their policies together.
In November last year, the SEC finally adopted rules to implement Section 954 of Dodd-Frank, the clawback provision. The new rules directed the national securities exchanges to establish listing standards requiring listed issuers to adopt and comply with clawback policies and to provide disclosure about their policies and implementation. Under the rules, the clawback policy must provide that, in the event the listed issuer is required to prepare an accounting restatement—including a “little r” restatement—the issuer must recover the incentive-based compensation that was erroneously paid to its current or former executive officers based on the misstated financial reporting measure. (See this PubCo post.) The final rules required any covered exchanges to file proposed listing standards with the SEC no later than February 27, with the listing standards to be effective no later than one year after publication of the final rules in the Federal Register. Nasdaq and the NYSE both filed proposed listing standards in March—largely the same, with some differences, both tracking the SEC requirements closely. Under the final rules and the exchange proposals, listed issuers must adopt the required clawback policy no later than 60 days following the effective date of the listing standard, which the exchange proposals indicate as the date of SEC approval. (See this PubCo post.)
In April, a group of law firms, including Cooley, submitted a comment letter to the SEC requesting that the SEC not approve the adoption and effectiveness of the Listing Standards before November 28, 2023 (the date one year from publication of the final rules in the Federal Register) in order “to give issuers adequate time to develop and adopt a compensation recovery policy, along with the necessary controls and procedures to administer the policy.” Among other things, they cited the complexity involved in implementing a compliant clawback policy, with each issuer having its own unique challenges. To illustrate, the letter highlights the issues involved where issuers already have an existing clawback policy, including whether to maintain separate stand-alone policies or to integrate the two policies, and if so, how. In addition, individual agreements or plans may require modification, and controls and procedures will likely be affected. Moreover, the letter contended, the challenges of compliance are compounded by the need for nearly contemporaneous compliance with the SEC’s new 10b5-1 and pay-for-performance rules.
Sounds pretty persuasive to me but it was to little avail. It might have taken the SEC 12 years to finally adopt clawback rules to implement Section 954 of Dodd-Frank, but, as it stands, companies are getting only an extra 45 days to implement their own clawback policies. As TheCorporateCounsel.net blog suggests, perhaps the exchanges might amend their proposals to change the effective date?
Next week: the SEC takes up stock repurchase disclosure.