NYSE again extends temporary waiver of shareholder approval requirements for certain equity issuances
In early April, the SEC approved and declared immediately effective an NYSE rule change to waive, through June 30, 2020 and subject to compliance with conditions, application of certain of the shareholder approval requirements in Section 312.03 of the NYSE Listed Company Manual. That waiver was extended through September 30. Now, the SEC has proposed to extend the waiver through December 31, 2020, and the SEC has declared the proposal immediately effective.
In this new study, Equilar and the Rock Center for Corporate Governance at Stanford examine how COVID-19 has affected CEO compensation. Are boards focused more on making sure that CEOs have the right incentives to continue their jobs under trying circumstances? After all, in the case of the pandemic, the trying circumstances are not of their own making. Or are boards more inclined to focus on showing the public and other stakeholders, especially employees, that CEOs are “sharing the pain”? CEO pay attracts a lot of attention in ordinary times, but in times of severe economic distress when corporate performance and stock prices plummet and companies engage in substantial layoffs, furloughs and pay cuts for employees—who likewise are not responsible for the economic crisis—CEO pay can attract intense scrutiny. In those circumstances, paying the same or greater levels of CEO comp can seem unfair to the employees and invite shareholder and public criticism. How have boards addressed this issue?
In a recent survey of over 70 nominating/governance committee chairs of S&P 500 and Fortune 500 companies, consultant SpencerStuart asked respondents about how their boards responded to COVID-19 and the nature of any long-term governance changes they anticipated post-pandemic. Somewhat surprisingly, given the issues COVID-19 has created or highlighted for companies, committee chairs do not appear to be in any kind of rush to institute changes—in fact, quite the opposite seems to be the prevailing perspective. Is it just too soon to be thinking about structural or other adjustments to the board? Or, does “stay at home” also mean “stay the course”?
Temporary secure file transfer process for electronic submission of supplemental materials and Rule 83 CTRs
In light of ongoing health and safety concerns arising out of the COVID-19 pandemic, Corp Fin has issued a statement regarding implementation of a new temporary secure file transfer process for the electronic submission of supplemental materials under Rule 418 and Rule 12b-4 and of information subject to Rule 83 confidential treatment requests.
In December 2019, as part of its strategy of enhancing transparency and accessibility through proactive stakeholder engagement, the PCAOB conducted conversations with almost 400 audit committee chairs, focused on audit committee perspectives on topics such as audit quality assessment and improvement and auditor communications, and reported on those conversations. (See this PubCo post.) As noted by PCAOB Chair William Duhnke in this PCAOB webinar for audit committees, the PCAOB prioritized this engagement, viewing informed and engaged audit committees as “force multipliers.” In addition, he noted, the PCAOB had heard criticism early in the process that the PCAOB did not play well with others and was not receptive to feedback—the conversations also represented an effort to address that problem. The PCAOB has continued this same outreach to audit committee chairs during 2020, focused this time on the unprecedented challenges created by COVID-19 and its effect on the chairs’ oversight of financial reporting and the audit. The responses regarding the impact of the pandemic varied widely, depending on the industry and company. The chairs identified a number of new or increased risks, including cybersecurity, employee safety and mental health, going concern, accounting estimates, impairments, international operations and accounting implications of the CARES Act. The PCAOB’s recent report summarizes two of the common themes the PCAOB regularly heard from audit committee chairs across industries and highlights some of the helpful questions and considerations that the chairs identified.
In mid-June, a large group of nonprofits, socially responsible investors, labor unions and others submitted a letter to SEC Chair Jay Clayton, stating that, while the guidance related to COVID-19 disclosure that he and Corp Fin Director Bill Hinman provided in April exhorting companies “to provide as much information as practicable” was a “step in the right direction” (see this PubCo post), it really did not go far enough in mandating the necessary transparency. They urged the SEC to impose new requirements for disclosure about how “companies are acting to protect workers, prevent the spread of the virus, and responsibly use any federal aid they receive.” With the SEC’s current propensity for principles-based disclosure, will it be persuaded to adopt these mandates?
In early April, the SEC approved and declared immediately effective an NYSE rule change to waive, through June 30, 2020 and subject to compliance with conditions, application of certain of the shareholder approval requirements in Section 312.03 of the NYSE Listed Company Manual. The waiver was designed to address the concern that, as a result of the impact of COVID-19, many listed companies with urgent liquidity needs had to access additional capital from insiders, but the NYSE’s shareholder approval requirements could have created impediments to quickly satisfying those capital needs. Since the implementation of the original waiver in April, the NYSE notes, “a number of listed companies have completed capital raising transactions that would not have been possible without the flexibility provided by the Waiver.” While equity markets have generally recovered from their initial precipitous declines, the NYSE observes, many listed companies are continuing to experience difficulty. Accordingly, the NYSE has now proposed to extend this temporary relief through September 30, 2020, and the SEC has declared the proposal immediately effective.
Tuesday afternoon, SEC Chair Jay Clayton moderated a virtual roundtable, with Corp Fin Director Bill Hinman alongside, to hear how investors viewed current disclosure in connection with COVID-19 and, given that Q2 reporting is around the corner, what they would like to see. Participants on the panel included Gary Cohn, Former Director of the National Economic Council; Glenn Hutchins, Chair of North Island; Tracy Maitland, President and CIO of Advent Capital; and Barbara Novick, Vice Chair and Co-Founder of BlackRock. While it was entirely predictable that forward-looking information about liquidity would be a key concern, the call by all the participating investors for disclosure about social issues—particularly human capital and diversity—was something of a revelation.
For those interested in a summary and update of the SEC’s and its staff’s targeted relief to address COVID-19, you may want to look at this updated statement issued today by SEC Chair Jay Clayton and the Directors of Corp Fin, Investment Management and Trading and Markets. The statement summarizes the current temporary relief and indicates the staff’s views on whether the relief should be extended or otherwise adjusted: “It is clear that the need for certain relief remains, such as relief to ensure continued remote operations and to provide flexibility in light of continued market volatility. Other forms of current relief, however, are unlikely to be extended.”
In March and April, the Corp Fin staff issued three statements providing temporary relief to address various logistical issues and other complications resulting from the COVID-19-related shutdowns. The relief related to authentication document retention requirements under Rule 302(b) of Reg S-T, submission of Forms 144 in paper and submission of a variety of other paper forms outside of Form 144. In two cases, the staff statements had provided relief only through June 30. Unfortunately, that turned out to be much too optimistic. Today, the staff extended the time frames for all three statements for an indeterminate period. The new statements can be found here, here and here. In each case, the temporary relief applies “until the staff provides public notice that it no longer will be in effect; that notice will be published at least two weeks before the announced termination date.”