Category: Corporate Governance
California Secretary of State publishes “report” about SB 826, California’s new board gender diversity mandate
As reported on thecorporatecounsel.net blog, the California Secretary of State has published on its website two spreadsheets, dated July 1, 2019, which apparently together constitute its mandated “report” under SB 826, California’s new board gender diversity mandate. The first spreadsheet identifies 537 companies that the Secretary’s office views as subject to SB 826. The next spreadsheet identifies 184 companies that were apparently in compliance as of that date. According to the “methodology,” this data was based on information available for the period from January 1 to June 30, 2019 in California and SEC filings, as well as information from the NYSE, Nasdaq and miscellaneous other online resources. An updated report will be published on March 1, 2020. My own extremely brief spotcheck, however, revealed that these lists are not exactly, um, accurate. (But see this update.)
Rulemaking petition seeks to rein in stock buybacks
Almost 20 organizations, including the AFL-CIO and Public Citizen, have filed a rulemaking petition with SEC “to revise Rule 10b-18 to curb manipulative practices by firms and encourage corporations to fairly compensate American workers.” In essence, the petition seeks to repeal Rule 10b-18 and requests that the SEC “undertake a rulemaking to develop a more comprehensive framework for regulating stock repurchase programs that would deter manipulation and protect American workers.” In light of the almost—dare I say it—“bipartisan” interest in reviewing the practice of stock buybacks, will the SEC decide that it’s worth taking a look?
Corp Fin roundtable on short-termism scheduled for July 18
The SEC has just announced that the planned Corp Fin roundtable on short-termism will be held on July 18, 2019. In originally announcing the roundtable in May, SEC Chair Jay Clayton observed that the needs of “Main Street investors” have changed; they now have a longer life expectancy, and, in light of the shift from the security of company pensions to 401(k)s and IRAs, they now have greater responsibility for their own retirements. As a result, “Main Street investors are more than ever focused on long-term results.” However, from time to time, they also “need liquidity. In other words, at some point, long-term investors do become sellers. The SEC’s disclosure rules should reflect and foster these needs—long-term perspective and liquidity when needed.” To that end, the goal of the roundtable is not just to discuss the problems associated with short-termism, but also to promote “further dialogue on the causes of and potential solutions to the issue.”
Tips on CAMs at PLI panel
An article in the Federal Securities Law Reporter reports on some tips gleaned from a discussion of, what else, “critical audit matters” on a PCAOB panel at PLI’s 34th Midyear SEC Reporting and FASB Forum. The new auditing standard for the auditor’s report (AS 3101), which requires CAM disclosure, will be effective for audits of large accelerated filers for fiscal years ending on or after June 30, 2019.
Commissioner Peirce condemns ESG-shaming as the new “scarlet letters”
In a recent speech to the American Enterprise Institute, SEC Commissioner Hester Peirce continued her rebuke of the practice of “public shaming” of companies that do not adequately satisfy environmental, social and governance (ESG) standards—hence the title of her speech, “Scarlet Letters.” According to Peirce, in today’s “modern, but no less flawed world,” there is “labeling based on incomplete information, public shaming, and shunning wrapped in moral rhetoric preached with cold-hearted, self-righteous oblivion to the consequences, which ultimately fall on real people. In our purportedly enlightened era, we pin scarlet letters on allegedly offending corporations without bothering much about facts and circumstances and seemingly without caring about the unwarranted harm such labeling can engender. After all, naming and shaming corporate villains is fun, trendy, and profitable.” Message delivered.
Spot survey shows use of ESG metrics in incentive comp plans
In May 2019, comp consultant Mercer conducted a spot survey of 135 companies, looking at the prevalence and types of ESG (environmental, social and governance) metrics used in incentive compensation plans, including metrics related to the environment, employee engagement and culture, and diversity and inclusion. The survey found that 30% of respondents used ESG metrics in their incentive plans and 21% were considering using them. Mercer observes that with the “growing expectations for organizations to operate in an environmentally and socially conscious way, [ESG] incentive plan metrics are increasingly being considered as effective tools to reinforce positive actions.”
Use of non-GAAP financial metrics increases in executive comp—will the SEC increase its scrutiny?
You might recall that, in April of this year, SEC Commissioner Robert Jackson co-authored an op-ed (with Robert Pozen, MIT senior lecturer and former president of Fidelity) that lambasted the use of non-GAAP financial metrics in determining executive pay, absent more transparent disclosure. The pair argued that, although historically, performance targets were based on GAAP, in recent years, there has been a shift to using non-GAAP pay targets, sometimes involving significant adjustments that can “be used to justify outsize compensation for disappointing results.” On the heels of that op-ed came a rulemaking petition submitted by the Council of Institutional Investors requesting, in light of this increased prevalence, that the SEC amend the rules and guidance to provide that all non-GAAP financial measures (NGFMs) used in the CD&A of proxy statements be subject to the reconciliation and other requirements of Reg G and Item 10(e) of Reg S-K. But how pervasive is the use of NGFMs in executive comp? This article from Audit Analytics puts some additional data behind the brewing controversy about the use of non-GAAP financial measures in executive comp—and the level of increase is substantial.
ISS takes an early look at the 2019 proxy season
With 70% of the annual meetings for the Russell 3000 having now taken place (1,812 companies), in this article, ISS takes an early look at the 2019 proxy season. In brief, ISS found increases in opposition to director elections and to say-on-pay proposals, as well as increases in the number of, and withdrawal rates for, environmental and social (E&S) proposals relative to governance (the “G” in ESG) proposals. In addition, the disparity in the levels of support for E&S proposals relative to the historically more popular governance proposals has narrowed dramatically.
Exams for directors—will it be a thing?
Oh, I kid the directors! Who would think of such a thing?
Time to catch up on recent proposals at the Exchanges
Time to catch up on some of the recent proposals at the Exchanges.
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