Category: Corporate Governance
What’s happening with those SEC proposals for Dodd-Frank clawbacks and disclosure of pay for performance and hedging? Apparently, not much.
As noted in this article from Law360, the SEC’s latest Regulatory Flexibility Agenda, which identifies those regs that the SEC intends to propose or adopt in the coming year— and those deferred for a later time—has now been posted. The Agenda shifts to the category of long-term actions most of the Dodd-Frank compensation-related items that had previously been on the short-term agenda—not really a big surprise given the deregulatory bent of the new administration. Keep in mind, however, that the Agenda has no binding effect and, in this case, could be even less prophetic than usual; the Preamble to the SEC’s Agenda indicates that it reflects “only the priorities of the Acting Chairman [Michael Piwowar], and [does] not necessarily reflect the view and priorities of any individual Commissioner.” It also indicates that information in the Agenda was accurate as of March 29, 2017. As a result, it does not necessarily reflect the views of the new SEC Chair, Jay Clayton, who was not confirmed in that post until May.
You want mandatory arbitration in your charter? Hey, just ask!
This is the opening paragraph from Tuesday’s column by Alison Frankel, one of my favorite legal columnists/bloggers:
“This could be the start of something huge: Securities and Exchange Commissioner Michael Piwowar said in a speech Monday to the Heritage Foundation that the SEC is open to the idea of allowing companies contemplating initial public offerings to include mandatory shareholder arbitration provisions in corporate charters. If Piwowar’s statements…mark a new SEC policy on mandatory arbitration, they could be the beginning of the end of securities fraud class actions.”
Will the House now try to undo SOX?
What’s next for the House after taking on Dodd-Frank in the Financial CHOICE Act? Apparently, it’s time to revisit SOX. The Subcommittee on Capital Markets, Securities, and Investment of the House Financial Services Committee held a hearing earlier this week entitled “The Cost of Being a Public Company in Light of Sarbanes-Oxley and the Federalization of Corporate Governance.” During the hearing, all subcommittee members continued bemoaning the decline in IPOs and in public companies, with the majority of the subcommittee attributing the decline largely to regulatory overload. A number of the witnesses trained their sights on, among other things, the internal control auditor attestation requirement of SOX 404(b). Is auditor attestation, for all but the very largest companies, about to hit the dust?
SEC Chair Jay Clayton discusses principles guiding his tenure at the SEC
In his first public speech as SEC Chair, Jay Clayton outlined for the Economic Club of New York eight principles that he aims to guide his tenure as Chair. In discussing these principles and some ways in which he plans to put them into practice, Clayton seemed to stress the need to focus more intently on the various costs of regulatory compliance—in dollars, in time, in effort, in complexity and in economic impact. In particular, Clayton drew attention to a reduction in the number of public companies in recent years—a “roughly 50% decline in the total number of U.S.-listed public companies over the last two decades”—attributing the decline at least in part to the expansion of disclosure requirements, in some cases beyond materiality. To address this issue, he asserted, the SEC “should review its rules retrospectively” from the perspective of the cumulative effect of required disclosure, not just each incremental slice. Finally, he noted that the SEC “has several initiatives underway to improve the disclosure available to investors, “ including implementation of recommendations contained in the SEC staff’s Report on Modernization and Simplification of Regulation S-K (see this PubCo post). According to Clayton, the staff “is making good progress on preparing rulemaking proposals based on this report….”
Will pay-ratio disclosure benefit investors?
One of the arguments that has often been used to oppose the Dodd-Frank pay-ratio provision is that the rule does not really provide information that benefits investors; instead, the argument goes, the real animus for the rule is a political effort to focus attention on inequality. Now, an analysis of governance ratings from Bank of America Merrill Lynch, reported in the WSJ, suggests that pay-ratio information just could provide some warning signs that investors may find valuable.
Form what? CAQ offers help for audit committees in understanding and using Form AP
Remember Form AP? That’s the form that the PCAOB is now requiring audit firms to use to name individual audit engagement partners. The form will also disclose the names and Firm IDs, locations and extent of participation of any other accounting firms, outside of the principal auditor, that participated in the audit, if their work constituted 5% or more of the total audit hours. (See this PubCo post.) Should companies care? Yes, says the Center for Audit Quality: the disclosures made in Form AP can help audit committee members in satisfying their responsibilities to oversee the engagement audit firm as well as other audit participants.
What’s up with the declining number of IPOs?
At a meeting on Thursday of the SEC’s Investor Advisory Committee, a panel discussed the declining number of IPOs, a topic that seems to be top of mind for many in the securities arena. Of course, there’s a reason for that; according to a panelist from EY, there were about 8,000 public companies in 1996, but only about 4,000 now. What happened?
Does the health of the economy depend on getting the role of shareholders right?
Are shareholders really the “owners” of corporations? Even though shareholders have no responsibilities to the corporations they “own”? Should corporations be managed for the sole purpose of maximizing shareholder value? Are shareholders even unanimous in that objective? Is shareholder centricity really the right model for good governance of corporations? What changes in corporate governance have been fueled by the shareholder primacy model? Do those changes make sense? What has been the adverse fallout from the current fastidious devotion to shareholder preeminence? These are just some of the issues addressed in this terrific piece by two Harvard Business School professors, Joseph L. Bower and Lynn S. Paine, in the Harvard Business Review. In their view, the “health of the economic system depends on getting the role of shareholders right.” Highly recommend.
Will dual-class structures torpedo the business judgment rule?
While there has certainly been a lot of debate about the merits and demerits of dual-class stock, one interesting angle was raised by Charles Elson, director of the University of Delaware’s John L. Weinberg Center for Corporate Governance Delaware Law. In an interview reported in Bloomberg BNA, Elson predicts that expanded use of dual-class corporate structures will lead the Delaware courts to reconsider the business judgment rule. For companies with no- or low-vote classes of shares, is the business judgment rule in jeopardy?
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