Decline in IPOs—blame Dodd-Frank?
A frequent lament these days is the decline in the number of IPOs and public companies generally, with much of the discussion—particularly at the agency and Congressional levels—focused on the adverse impact of increased regulatory burden. (See this PubCo post.) In December 2015, Congress directed the SEC’s Division of Economic and Risk Analysis to assess the impact of Dodd-Frank and other financial regulations on access to capital for consumers, investors and businesses and market liquidity, including U.S. Treasury and corporate debt markets. The staff of DERA has now issued its report to Congress on Access to Capital and Market Liquidity. The report begins with a gigantic caveat: it’s really challenging to determine the effects of changes in regulations. At the end of the day, DERA did not pinpoint any “causal relationship” between Dodd-Frank and developments in the capital markets, emphasizing instead that the volume of IPOs has historically ebbed and flowed, with many contributing factors influencing IPO dynamics.
Asset managers support shareholder proposals for board diversity—will it make a difference?
There’s been chatter about board gender diversity for a long time and, while there has been some modest progress, we have yet to see any dramatic breakthroughs. Now some of the largest asset managers are not just talking the talk, they are also walking the walk. Will it make a difference? Time will tell.
Corp Fin refuses to allow exclusion of new form of proxy access fix-it proposal
It ain’t over till it’s over, as they say. You may have thought that, after the series of staff no-action positions allowing exclusion of so-called “fix-it” proposals during the last proxy season, we had seen the last of them. If so, you would be forgetting how persistent (or relentless, depending on your point of view) these proponents are. And this time, the staff has rejected the no-action request of H&R Block—once again the unfortunate trailblazer— which had sought exclusion of another proxy access fix-it proposal—this time to eliminate the cap on shareholder aggregation to achieve the 3% eligibility threshold—from the prolific John Chevedden et al. Given the result, you can expect to see more of this form of fix-it proposal next proxy season.
Conflict minerals benchmarking study analyzes filings for 2016—was there any progress?
Development International has posted its most recent Conflict Minerals Benchmarking Study, analyzing the results of filings for the 2016 filing period. The study looked at filings submitted by the 1,153 issuers that had filed conflict minerals disclosures as of July 10, 2017. The number of issuers filing disclosures for 2016 reflected a decline of 5.6% compared to 2015. Most interesting, however, is that, notwithstanding statements from Corp Fin, echoed by the Acting SEC Chair at the time, advising companies that they would not face enforcement if they filed only a Form SD and did not include a conflict minerals report, the vast majority of companies continued to file conflict minerals reports.
Is the noose tightening around the shareholder proposal rules?
In remarks this week before the Chamber of Commerce, new SEC Chair Jay Clayton indicated that the SEC will be taking a hard look at the shareholder proposal rules. As reported in thedeal.com, Clayton advised that it is “very important to ask ourselves how much of a cost there is….how much costs should the quiet shareholder, the ordinary shareholder, bear for idiosyncratic interests of other [investors].” Clayton was certainly speaking to a receptive audience—the Chamber has also recently voiced criticism of the shareholder proposal process (see this PubCo post) and, on the same day as Clayton’s remarks, issued its own report proposing changes to staunch the flow of proposals (discussed below). As you may recall, in the Financial CHOICE Act of 2017, the House also proposed to raise the eligibility and resubmission thresholds for shareholder proposals to levels that would have effectively curtailed the process altogether for all but the very largest holders. Although that Act is currently foundering in the Senate, at the same Chamber presentation, Commissioner Michael Piwowar commented to reporters that the SEC could certainly act on its own without any impetus from Congress, observing that the “chairman sets the agenda, but I’m going to be meeting with folks at public companies to talk about their experiences with proxy season.” With both the House and the Chamber having weighed in, if the SEC now takes up the cause on its own, the question is: just how far will it push?
Framework developed by the Investor Stewardship Group establishes common set of investor expectations for corporate governance
The Investor Stewardship Group—a group of the largest, most prominent institutional investors and global asset managers investing, in the aggregate, over $20 trillion in the U.S. equity markets—has developed the Framework for U.S. Stewardship and Governance, a “framework of basic standards of investment stewardship and corporate governance for U.S. institutional investor and boardroom conduct.” The stewardship framework identifies fundamental responsibilities for institutional investors, and the corporate governance framework identifies six fundamental principles that “are designed to establish a foundational set of investor expectations about corporate governance practices in U.S. public companies. Generally, the principles “reflect the common corporate governance beliefs embedded in each member’s proxy voting and engagement guidelines,” although each ISG member may differ somewhat on specifics. The ISG encourages company directors to apply these basic principles—while acknowledging that they are not designed to be “prescriptive or comprehensive” and can be applied in various ways—and indicates that it will “evaluate companies’ alignment with these principles, as well as any discussion of alternative approaches that directors maintain are in a company’s best interests.” The framework does not go “into effect” until January 1, 2018, so that companies will have “time to adjust to these standards in advance of the 2018 proxy season,” the implication being that failure to “comply or explain” by that point could ultimately lead to shareholder opposition during proxy season. Check out the countdown clock at the link above!
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?
You must be logged in to post a comment.