In this article from the Center for Political Accountability, the authors tout the recent “banner proxy season” for disclosure of political spending, both in terms of the uptick in shareholder support for disclosure proposals submitted by CPA (and its “shareholder partners”) and the number of shareholder proposals withdrawn as a result of agreements reached with companies for disclosure of political spending and board oversight. According to the authors, these results reinforce “earlier findings about ‘private ordering’ making political disclosure and accountability the new norm for companies.” Is there a new “eagerness by companies to adopt or strengthen political disclosure and accountability policies”? Is it now viewed as a key element of good governance? What is the impact of today’s highly politicized environment?
At a meeting on Thursday of the SEC’s Investor Advisory Committee, a subcommittee reported on its recommendations addressing the “proxy plumbing” conundrum—not the Roto Rooter variety, but rather the panoply of problems associated with the infrastructure supporting the proxy voting system. Shareholder voting is viewed as fundamental to keeping boards and managements accountable, and according to the recommendations, every year, over 600 billion shares are voted at more than 13,000 shareholder meetings. However, there is broad agreement that the current system of proxy plumbing is inefficient, opaque and, all too often, inaccurate. As the recommendations observe, under the current system, shareholders “cannot determine if their votes were cast as they intended; issuers cannot rapidly determine the outcome of close votes; and the legitimacy of corporate elections, which depend on accurate, reliable, and transparent vote counts, is routinely called into doubt.” 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. (See this Cooley News Brief.) However, in the last year or so, proxy plumbing has reemerged as a serious problem to be addressed. The Committee took up this issue almost a year ago and, at the SEC’s proxy process roundtable last year, proxy voting mechanics was actually a hot topic—described by one panelist as “the most boring, least partisan and, honestly, the most important” of the roundtable topics.
In this article from Directors & Boards, SEC Chair Jay Clayton talks again about short-termism and discusses his views on ESG disclosure, particularly disclosure regarding human capital management.
As noted in thecorporatecounsel.net blog, last week, the Center for Capital Markets Competitiveness of the U.S. Chamber of Commerce held an event discussing corporate governance and possible reforms. Both SEC Chair Jay Clayton and Corp Fin Director Bill Hinman were interviewed on stage and previewed a number of potentially important developments regarding, among other topics, proxy advisory firms and shareholder proposals.
Corp Fin has recently focused on the issue of corporate reporting and short-termism. At the end of last year, the SEC posted a “request for comment soliciting input on the nature, content, and timing of earnings releases and quarterly reports made by reporting companies.” (See this PubCo post.) Following up, Corp Fin then organized a roundtable, held last week, to discuss the issues surrounding short-termism. The roundtable consisted of two panels: the first explored “the causes and impact of a short-term focus on our capital markets,” with the goal of identifying potential market practices and regulatory changes that could promote long-term thinking and investment. In part, this panel developed into a debate about whether short-termism was actually creating a problem for the economy at all. In that regard, several of these panelists were quick to cite the oft-cited academic study revealing that “three quarters of senior American corporate officials would not make an investment that would benefit a company over the long run if it would derail even one quarterly earnings report.” (See this PubCo post and this article in The Atlantic.) Could the reason be a misalignment of incentives? The second panel was centered on the periodic reporting system and potential regulatory changes that might encourage a longer-term focus in that system. Does the current periodic reporting system, along with the practice of issuing quarterly earnings releases and, in some cases, quarterly earnings guidance contribute to or encourage an overly short-term focus by managers and other market participants? On this panel, the headline topic notwithstanding, the discussion barely touched on short-termism; rather, the focus was almost entirely on regulatory burden. At the end of the day, is the SEC seriously considering making changes to periodic reporting?
In this new paper from the Rock Center for Corporate Governance at Stanford, “Stakeholders and Shareholders: Are Executives Really ‘Penny Wise and Pound Foolish’ About ESG?,” the authors examined survey data from CEOs and CFOs of companies in the S&P 1500 to understand the extent to which the respondents believed that, in business planning and long-term strategy development, they took into account and attributed importance to the needs of non-investor stakeholders, such as employees, unions, customers, suppliers, local communities, government and regulatory agencies and the public at large.
You may recall that, at the end of last year, SEC Chair Jay Clayton and Corp Fin Chief Accountant Kyle Moffatt were warning at various conferences about some of the risks the SEC was monitoring, among them the LIBOR phase-out, which is expected to occur in 2021. LIBOR, the London Interbank Offered Rate, is calculated based on estimates submitted by banks of their own borrowing costs. In 2012, the revelation of LIBOR rigging scandals made clear that the benchmark was susceptible to manipulation, and British regulators decided to phase it out. In one speech, Clayton reported that, according to the Fed, “in the cash and derivatives markets, there are approximately $200 trillion in notional transactions referencing U.S. Dollar LIBOR and… more than $35 trillion will not mature by the end of 2021.” Clayton indicated that an alternative reference rate, the Secured Overnight Financing Rate, or “SOFR,” has been proposed by the Alternative Reference Rates Committee; nevertheless, there remain significant uncertainties surrounding the transition. (See this PubCo post.) And those uncertainties surrounding LIBOR and SOFR may be leading companies and others to delay addressing the issue until everything is finally settled. Perhaps with that in mind, on Friday evening, the SEC staff published a Statement that “encourages market participants to proactively manage their transition away from LIBOR.” And, in the press release announcing the publication, Clayton drew “particular attention to the staff’s observation: ‘For many market participants, waiting until all open questions have been answered to begin this important work likely could prove to be too late to accomplish the challenging task required.’”