As evidenced by Corp Fin’s most recent Roundtable, short-termism is a major concern of SEC officials, both in terms of its potential impact on Main Street investors—who are investing for the long term to fund their retirements and other long-term needs—and its potential to deter companies with a long-term focus from becoming public companies, instead driving them to seek funding in the private markets, where short-termism is less of a factor. (See e.g., this PubCo post and this PubCo post.) As SEC Chair Jay Clayton commented during the Roundtable, with so many companies delaying their IPOs or avoiding them altogether, at the end of the day, he was concerned that, in 10 years, the general public would not be able to participate in 70% of the economy because those companies would be privately held. (See this PubCo post.) Will the Long-Term Stock Exchange, a novel concept for a stock exchange that was approved by the SEC in May (see this PubCo post), come to the rescue?
As discussed in this PubCo post from February, a California bill, SB 826, addressing the issue of board gender diversity, has been making its way through the California legislature. On Sunday, Governor Jerry Brown signed that bill into law. Interestingly, one factor apparently influential in his decision to sign the bill was the recent hearing in Washington. As you may have heard, the legislation requires, as Brown phrases it, a “representative number” of women on boards of public companies, including foreign corporations with principal executive offices located in California. Will other states now follow suit? Will corporations incorporated in other states observe its provisions or challenge the application of this California law?
Many have recently lamented the decline in the number of IPOs and public companies generally (about half the number since the boom in 1996), and numerous reasons have been offered in explanation, from regulatory burden to hedge-fund activism. (See this PubCo post and this PubCo post.) In response, some companies are exploring different approaches to going public, leading to a resurgence in SPACs and the launch of IPOs as “direct listings,” which avoid the underwritten IPO process altogether. At the same time, companies are seeking ways to address some of the perceived drawbacks associated with being public companies—including the pressures of short-termism, the risks of activist attacks and potential loss of control of companies’ fundamental mission—through dual-class structures and other approaches. Even the SEC is currently planning a roundtable to address the causes of and potential solutions to short-termism. (See this PubCo post.) Changing dynamics are not, however, limited to the IPO process itself. And one of the most interesting concepts designed to address these issues on completely different turf was just approved by the SEC this month—a novel concept for a stock exchange located in San Francisco, the Long-Term Stock Exchange. The concept has been in the works for a couple of years now and is backed by some heavy-hitting investors. According to the LTSE’s founder and CEO, the “IPO is like a wedding. The IPO process is, what kind of wedding planner do you hire? What kind of wedding do you want to have? But being a public company is you’re now married to the public markets for the rest of your life. People have mostly focused on the IPO process — it’s like making the wedding more efficient….That’s not the problem. The problem is we have to live like this forever.” How will the new Exchange seek to improve this “married life” going forward?
At last week’s proxy process roundtable, three panels, each moderated by SEC staff, addressed three topics:
proxy voting mechanics and technology—how can the accuracy, transparency and efficiency of the proxy voting and solicitation system be improved?
shareholder proposals—exploring effective shareholder engagement, experience with the shareholder proposal process, and related rules and SEC guidance
proxy advisory firms—can the role of proxy advisors and their relationship to companies and institutional investors be improved?
The first panel, on proxy plumbing, was characterized by the panelist who began the discussion as “the most boring, least partisan and, honestly, the most important” of the three topics. (But it was surprisingly not boring.) The last panel, on proxy advisory firms, was characterized by Commissioner Roisman as the “most anticipated,” but the expected fireworks were notably absent—except, perhaps, for the novel take on the subject offered by former Senator Phil Gramm. Here are the Commissioners’ opening statements: Chair Clayton, Stein and Roisman
by Cydney Posner In this paper from the Rock Center for Corporate Governance at Stanford University, Board Evaluations and Boardroom Dynamics, the authors suggest that board self-evaluations aren’t all they’re cracked up to be. While, based on a recent study, 89% of directors believe their boards have the skills and […]
by Cydney Posner In a speech last week to the International Corporate Governance Network Annual Conference, the last agenda item discussed by SEC Chair Mary Jo White was the current state of sustainability reporting. The bottom line: the “issue has our attention.”