The idea of regulating proxy advisory firms has been in the ether for quite some time, but it’s an idea that never quite comes to fruition. However, there seems to be a lot of chatter about this topic now, raising the question: is now the time? According to this paper, The Big Thumb on the Scale: An Overview of the Proxy Advisory Industry, from Stanford’s Rock Center for Corporate Governance, while proxy advisory firms influence institutional voting decisions and corporate governance choices to a material extent, it “is not clear that the recommendations of these firms are correct and generally lead to better outcomes for companies and their shareholders.” In that light, the paper suggests that some type of regulation of proxy advisory firms might be warranted to increase their transparency and improve the reliability of their recommendations.
Here’s some mighty fine reading: Cooley Alert: SEC Amends Rule 701(e) and Issues Concept Release Regarding Rule 701 and Form S-8.
Just under the wire to satisfy a Congressional mandate, the SEC today voted unanimously to adopt an amendment to Rule 701(e) to raise the threshold that triggers the requirement for delivery of additional disclosure to investors. The Commissioners also voted to issue a concept release soliciting comment on potential revisions to modernize Rule 701 and Form S-8, as Chair Jay Clayton observed, in light of “developments and innovations in labor markets and compensation practices.” The amendment to Rule 701(e) will become effective immediately on publication in the Federal Register. Companies that “have commenced an offering in the current 12-month period will be able to apply the new $10 million disclosure threshold immediately upon effectiveness of the amendment.” Here is the press release, here are the final rules, and here is the concept release.
This SEC Order, In the Matter of The Dow Chemical Company, is a great refresher—at Dow’s expense, unfortunately for Dow—on the analysis required to determine whether or not certain expenses and benefits are perquisites or personal benefits that must be disclosed in the Summary Comp Table in the proxy statement. As you probably know, the analysis for determining whether an item is a disclosable “perk” can be very tricky to apply, especially when it involves the use of corporate jets by executives and their friends and families. The SEC claims that Dow applied the wrong standard altogether in its analysis, failing to disclose over a five-year period $3M in CEO perks and understating the CEO’s disclosed perks by an average of 59%. Dow settled the charges for a fine of $1.75M and also undertook to engage an independent consultant that would perform a review of Dow’s policies, procedures and controls and conduct training related to the determination of perks.
Right after celebrating its second birthday, proposal to change the definition of “smaller reporting company” is adopted (updated)
[This post has been updated to reflect the adopting release, which has now been posted here, as well as posted statements from the Commissioners.] The pressure has been coming from all directions—the Congress, the Treasury—indeed, there’s been nary an advisory committee that hasn’t weighed in on this topic: time for the SEC to change the definition of “smaller reporting company.” After all, the proposal has just celebrated its second birthday—has it aged like a fine wine or is it moldy and stinky like an old piece of cheese? The verdict: moldy cheese that made no one happy, but they all ate it anyway.
In remarks Monday before the Center for American Progress, SEC Commissioner Robert Jackson discussed his recent research on corporate stock buybacks, in the light of the substantial increase in buybacks following the 2017 Tax Cuts and Jobs Act. His focus: to call on the SEC to update its buyback rules “to limit executives from using stock buybacks to cash out from America’s companies.” If executives are so convinced that “buybacks are best for the company, its workers, and its community,” Jackson suggested, “they should put their money where their mouth is.”
Besides shock and awe, did pay-ratio disclosure have any immediate practical consequences? Well, for one, if a company did business in Portland, Oregon, the answer could well be “yes.” You might remember that, at the end of 2016, the Portland City Council, piggybacking on the pay-ratio data that most public companies were required to begin disclosing this year, adopted a measure adding a 10% surcharge to the city’s existing business tax for each company that exceeded a 100-to-1 pay ratio and a 25% surcharge if the pay ratio exceeded 250 to 1. (See this PubCo post.) According to comp consultant Equilar, the median pay ratio for the Russell 3000 was 70:1 (see this PubCo post). So what were the consequences of the Portland surtax—in Portland and beyond?