The specter of the possible imposition of mandatory universal proxy has long been with us. The SEC apparently considered requiring universal proxies back in 1992 and, in 2014, the Council of Institutional Investors filed a rulemaking petition asking the SEC to reform the proxy rules to facilitate the use of universal proxies in proxy contests. Then, in 2016, the SEC proposed amendments to the proxy rules that would have mandated the use of universal proxy cards in contested elections. And there it sat. With the change of administrations in the White House, followed by the change of administrations at the SEC, the proposal for universal proxy fell off the SEC’s near-term agenda and was relegated to the long-term agenda. Moreover, disfavored by House Republicans, universal proxy would have been prohibited by various bills, including the Financial Choice Act of 2017 (which passed the House but not the Senate). (See this PubCo post.) Then, in July of this year, “several people familiar with the matter” advised Reuters that SEC Chair Jay Clayton “has in fact shelved the proposal.” (See this PubCo post.) The specter of mandatory universal proxy had been transfigured into more of a spectral presence.
The SEC has now provided relief for companies and persons directly or indirectly affected by Hurricane Florence and its aftermath. Here is the Order and the related press release (as well as interim final temporary rules related to Reg Crowdfunding and Reg A).
ISS has posted the results of its most recent Governance Principles Survey, which can sometimes guide future ISS policies. The key areas of focus were auditors and audit committees, director accountability and track records, board gender diversity and the principle of one-share one-vote.
At a meeting last week of the SEC’s Investor Advisory Committee, the primary focus of the discussion was the panoply of problems associated with the infrastructure supporting the proxy voting system, so-called “proxy plumbing.” Shareholder voting is viewed as fundamental to keeping boards and managements accountable, and the current system of proxy plumbing has been criticized as inefficient, opaque and, all too often, inaccurate. 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. Perhaps the task was too daunting. However, at the end of his brief appearance at the committee meeting, SEC Chair Jay Clayton observed that it was clear that there was room for improvement in the voting system—enough room for improvement that the SEC should do something. SEC Commissioner Robert Jackson was decidedly more emphatic. In a statement posted on the SEC website on Friday, he characterized as “urgent” the need “to fix the basic mechanics of modern corporate democracy.” He indicated that “there is broad agreement that the Byzantine system that makes it impossible to know whether investors’ votes are being counted must be fixed. Over the last decade, while voting technology has made enormous leaps forward, retail investor participation in corporate elections has declined: today, fewer than one in three investors have their vote counted in those contests. The Commission has known this for years—we issued an impressively thorough concept release on the subject in 2010—and it is time to act. Investors should not have to wait any longer for their votes to be counted in corporate elections.” But the question remains: will the SEC undertake the comprehensive analysis and overhaul that appears to be required or settle for grabbing only the low-hanging fruit?
You may recall that, in July, SEC Chair Jay Clayton announced that the SEC will be holding a Roundtable to discuss the proxy process, currently expected to be held in November. (See this PubCo post.) Among the potential topics identified was the role of proxy advisory firms and the question of whether investment advisers and others rely excessively on proxy advisory firms for information aggregation and voting recommendations. In anticipation of that roundtable, the staff of the Division of Investment Management has today issued a statement announcing that, in light of subsequent developments, the staff has withdrawn two frequently disparaged no-action letters, Egan-Jones Proxy Services (May 27, 2004) and Institutional Shareholder Services, Inc. (Sept. 15, 2004), which provided staff guidance about investment advisers’ responsibilities in voting client proxies and retaining proxy advisory firms.
Today, SEC Chair Jay Clayton issued a statement intended to make clear the importance of the distinction between SEC rules and regulations—which are adopted in accordance with the APA, have the effect of law and are enforceable by the SEC—and staff guidance, such as the CDIs and various letters and speeches, which is nonbinding and not enforceable by the SEC or others. What was the impetus for his statement?
Here’s some news (thanks to compensationstandards.com and Compensia): the structure of the GICS code is changing. “Who cares?” you say. Yep, that’s what I said when I first heard about these changes. (Well, that’s what I said once I figured out that the “Global Industry Classification Standard” (GICS) code is not the same thing as the “Standard Industrial Classification” (SIC) code, a four-digit classification system developed in the 1930s that the SEC uses to classify companies; the SEC requires each company to identify its primary SIC code on the facing page of registration statements. No, SIC codes are not changing.) However, it turns out that the GICS code, a 10-digit classification system developed by MSCI and S&P for use by the global financial community, is employed not only for creating financial indices, but is also critical to the development by proxy advisor ISS of its compensation peer groups and other compensation-related analyses. So, GICS codes matter: for those companies affected, the structural changes could have a significant impact on assessments by ISS of their executive compensation programs. The changes will be effective on September 28, 2018.