Where will you find an impressive list of keynote speakers (Mary Jo White, David Axelrod, Cokie Roberts), subject matter experts (Former Chief Justice Myron Steele, Richard Clarke) and governance peers (700+ and counting) with whom you can Connect, Communicate and Collaborate?  Where else but at the Society's 69th National Conference in Chicago next week - June 24 - 27, 2015. This is your prime time for learning and networking.

Check out the agenda to see all the conference offerings, including ethics workshops and breakout sessions, to meet the needs of attendees from Small-, Mid-, Large-Caps and Private Companies.
 
Registration for the 69th National Conference will remain open, but don't hold off any longer.

SEC Commissioners Press for Modernization of Transfer Agent Rules

Last week, SEC Commissioners Aguilar and Gallagher issued this joint Statement (Commissioners Piwowar and Stein thereafter concurred) regarding the need to modernize the Commissioner's transfer agent rules, which reportedly haven't been updated in almost 30 years. The statement acknowledges but deems insufficient a pending SEC Concept Release - citing the need for near-term "critical reforms" warranting rulemaking. The Statement notes that Aguilar and Gallagher have presented Chair White with joint recommendations for rule updates that would help ensure that transfer agents, among other things:

• Safeguard investor assets, in part by requiring transfer agents to be appropriately insured or bonded;
• Establish written agreements with their issuer clients, so that both parties fully understand their rights and obligations;
• Prevent fraud, particularly with regard to microcap securities; and
• Avoid or properly disclose and manage conflicts of interest.

House Appropriations Committee Proposes Flat SEC Budget 

The House Appropriations Committee released the 2016 Financial Services and General Government Appropriations bill last week. The bill, which provides annual funding for the SEC and several other agencies, budgets $1.5 billion for the SEC, which is flat with the enacted level for 2015 and $222 million below the President's budget request. The bill reportedly (i) targets funding towards critical IT initiatives, (ii) prohibits the SEC from spending any money from its reserve fund without congressional oversight, (iii) requires the Administration to report to Congress on Dodd-Frank costs and regulatory burdens, and (iv) prohibits the SEC from requiring corporate political spending disclosure, as noted here:
 

SEC. 625. None of the funds made available by this Act shall be used by the Securities and Exchange Commission to finalize, issue, or implement any rule, regulation, or order regarding the disclosure of political contributions, contributions to tax exempt organizations, or dues paid to trade associations.
 

A full committee markup session is scheduled for today.  

Obama Asked to Appoint Corporate Political Spending Disclosure Backers at SEC 

In related news, over 20 financial reform group advocates - including Public Citizen, Voices for Progress and Common Cause, reportedly sent a letter to President Obama last week requesting he fill upcoming Commissioner vacancies at the SEC with candidates who support corporate political spending disclosure rulemaking.  

House Appropriations Funding Bill Would Halt DOL Fiduciary Proposal 

Yesterday, the House Appropriations Committee released its draft Labor, Health and Human Services funding bill for 2016, which is being considered in subcommittee today. Among other things, the bill reportedly includes several provisions aimed at job creation and economic growth via reduction/elimination of burdensome regulations - including a provision prohibiting funding for the DOL's fiduciary standard proposal.  

See also this INN Alert discussing the perceived impediments to the SEC's development of its own uniform fiduciary standard, based in part on remarks by Commissioner Kara Stein at a recent Brookings Institution event.  

Financial Services Subcommittee Continues Focus on Capital Formation 

On Tuesday, the Committee on Financial Services Capital Markets and Government Sponsored Enterprises Subcommittee held a hearing to review legislative proposals aimed at modernizing the regulation of business development companies and expanding the available pool of accredited investors. Further to that objective, the Subcommittee considered these targeted proposals:

• [H.R. ____]: Small Business Credit Availability Act
• H.R. 2187: Fair Investment Opportunities for Professional Experts Act

Additional capital formation-related bills to watch include:

• H.R. 1023: Small Business Investment Company Capital Act of 2015 - sent to the House or Senate as a whole for consideration on June 10; S. 552: Small Business Investment Capital Company Act of 2015 as reported by Senate Committee June 10
• S. 958: Small Business Fairness Act as reported by Senate Committee June 10
• S. 1000: SCORE for Small Business Act of 2015 as reported by Senate Committee June 10
• S. 1001: Small Business Lending Reauthorization Act of 2015 as reported by Senate Committee June 10
• S. 999: Small Business Development Centers Improvement Act of 2015 as reported by Senate Committee June 10
• Senator Orrin Hatch (R-UT) reportedly plans to reintroduce the Searching for and Cutting Regulations That Are Unnecessarily Burdensome ("SCRUB") Act, which would create a BRAC (Base Realignment and Closure)-style commission to review and determine if rules should be repealed to eliminate or reduce the costs of regulation to the economy.

OTC Graduates Request Venture Exchanges Include Alternative Trading Systems

Seven public company "graduates" of the OTCQX Best and/or OTCQB Venture marketplaces operated by OTC Markets Group that are now listed on a national securities exchange sent this letter to House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises Chair Scott Garrett and Ranking Member Carolyn Maloney requesting that any venture marketplace legislation be inclusive of organized over-the-counter (OTC) markets and Alternative Trading Systems, as well as national securities exchanges. The companies, which believe they are well-positioned to address key issues facing smaller reporting companies, suggested Congress have the SEC study the potential impact of a number of specifically enumerated proposals and examine the impact of lifting other restrictions on capital-raising for smaller companies.

DGCL Fee-Shifting Bylaw and Forum Selection Amendments Pass in House 

Senate Bill No. 75 passed in the Delaware House last week, after passing in the Senate in May. As reported previously, the legislation would prohibit adoption of fee-shifting provisions and validate forum selection provisions in corporate charters and bylaws. The bill now goes to Delaware Governor Jack Markel for signature. If enacted, the amendments would become effective August 1st.

NYSE Proposes to Make Pilot Programs Permanent

Last week, the SEC published this notice to solicit comments on a proposed rule change recently filed by the NYSE to make permanent the rules of the New Market Model Pilot and the Supplemental Liquidity Providers Pilot, both of which are currently scheduled to expire upon the earlier of July 31, 2015 or SEC approval to make them permanent. Both Pilots are summarized in the SEC's notice.

BRT and Law Firm Coalition Submit Comments for Staff Review of 14a-8(i)(9) 

Last week, the Business Roundtable and a law firm coalition comprised of Gibson Dunn, Sidley Austin, Wilmer Cutler, Morrison & Foerster and Skadden Arps each submitted a comment letter to the SEC in connection with Staff's review of Rule 14a-8(i)(9) concerning conflicting proposals. The BRT's letter explains why the rule and Staff's longstanding interpretation remain appropriate in light of: (a) the purpose of the rule; (b) the role of the board of directors in corporate governance; and (c) the current proxy system. The law firm coalition letter discusses the origin and purpose, and Staff's historical application, of Rule 14a-8(i)(9) and why it should be maintained, and the necessity for formal rulemaking in the event any meaningful changes in administration of the rule are contemplated.  

Among other things, both letters discuss and illustrate the potential for confusion arising from the inclusion of dueling proposals on the ballot in the absence of the availability of Rule 14a-8(i)(9) as historically interpreted and applied. In addition, both letters discuss why limiting the availability of Rule 14a-8(i)(9) to those situations where a management proposal appears to be raised independently rather than in response to a shareholder proposal isn't warranted or realistically feasible.  

Issues to Consider for the Audit Committee Agenda  

In this new Harvard Law School Forum post, Society member and SLC Chair, Chevron Assistant Corporate Secretary and Managing Counsel Rick Hansen discusses the numerous issues of interest to audit committees in the context of the ever-evolving environment within which companies are operating. Among the hot topics covered are initiatives relating to enhanced audit committee and auditor reporting, new auditing standards that expand the scope of the audit committee's oversight responsibilities, and financial activism.  

Survey Captures Implications of Board Gender Diversity 

PwC's recently released gender edition of its 2014 annual corporate directors survey identifies differences in perspective between male and female directors and different board practices for boards with female director representation.
Specific survey findings include:  

• Women are far more likely to consider board diversity important.
• Women see more obstacles to replacing an underperforming director and are more likely to believe their board evaluation process could be enhanced.
• Women say their boards have adopted more of the governance structures or practices viewed as "leading" by certain stakeholders.
• Both men and women are concerned about director-shareholder communications, but male director concerns are deeper.
• Women want to spend more time on IT despite higher levels of engagement, and are more concerned about the digital skills of today's boards.
• Women expect more when it comes to board materials.

The survey reflects the input of 863 public company directors in 2014, 70% of which serve on the boards of companies with more than $1 billion in annual revenue. Respondents were 86% male and 14% female- purportedly closely aligning with gender distribution averages of Fortune 500 public company directors.

UK Directors Association Launches New Governance Assessment Framework

The UK's Institute of Directors launched a new corporate governance assessment framework yesterday with the publication of this report, "The Great Governance Debate: Towards a good governance index for listed companies." The new framework purportedly responds to the alleged limitations of corporate governance code compliance, with a focus instead on corporate behaviors and culture as measured by perceptions and objective factors deemed indicative of governance risk.

The report includes survey results on how business practitioners perceive the governance of major UK companies and 53 factors to assess companies' corporate governance and business environment. The factors relate to these six equally weighted areas of governance: (i) board effectiveness, (ii) audit and risk/external accountability, (iii) shareholder relations, (iv) stakeholder relations, (v) remuneration and reward, and (vi) business environment. See also this Forbes article.

Proxy Access

• Stockholder proposals to adopt proxy access were reportedly approved at Freeport-McMoRan and Netflix.
• Stockholder proposals to adopt proxy access were reportedly not approved at Amazon and FleetCor Technologies.
• Visteon reported approval of consideration of a stockholder proxy access proposal and failure of the company's non-binding stockholder proxy access proposal.

Other Proposals

• Amazon reported that stockholder proposals regarding reports concerning political contributions, sustainability, and human rights were not approved.
• Caterpillar reported that none of its stockholder proposals, including those regarding adoption of an independent board chair policy and shareholder action by written consent, were approved.
• Facebook reported that its stockholder proposals concerning a change in stockholder voting (one-share, one-vote), annual sustainability reporting, and a human rights risk assessment, were not approved.
• Netflix reported that stockholder proposals to eliminate supermajority voting requirements and to declassify the board were approved.

CII Seeks SEC Guidance & Rulemaking on Proxy and Vote Tally Disclosures 

Last week, CII sent this letter to SEC Division of Corporation Finance Director Keith Higgins requesting Staff guidance and rulemaking associated with proxy statement and proxy card disclosures and reporting of annual meeting voting results. Specifically, the letter requests:

• Staff guidance regarding proxy statement disclosure of voting requirements for items on the ballot and the presentation of voting options on proxy cards;
• Staff guidance regarding the descriptions of proposals on the proxy card;
• Rulemaking to enhance the report on submission of matters to a vote of security holders.

Among other things, CII's letter requests that the voting requirements for each ballot item be in "plain English" and not require shareholders to look to external sources; alleges confusion about how companies characterize voting standards for directors (e.g., majority vs. "plurality plus"); and seeks disclosure of additional vote tally-related information under Item 5.07 of Form 8-K.  

SBA Study Measures the Impact on Portfolio Value of Proxy Contest Voting  

This new Florida State Board of Administration (SBA) study discusses the impact of SBA's proxy voting in contested elections on its portfolio value. The study is based on 107 proxy contests between January 1, 2006 and December 31, 2014, wherein SBA backed at least one dissident candidate 65% of the time. Among other things, the Executive Summary notes:

• Among SBA votes to support one or more dissident nominees where the dissident won seats, the company's subsequent 1, 3, and 5-year relative cumulative stock performance was positive, at levels of 12%, 21%, and 26%, respectively. The same returns for cases where SBA supported the dissident but management won all seats were negative, at -14%, -16%, and -15%.
• SBA votes supporting management in initial contests when management subsequently won all seats were associated with a positive economic portfolio gain equal to $137 million over the study's time frame. When SBA supported the dissidents but management won all seats, SBA experienced an aggregate loss of $259 million over the study's time frame.
• SBA votes supporting dissident nominees where the dissident won in initial contests were associated with a positive economic portfolio gain equal to $51 million in the five years after a contest is announced, over the study's time frame from 2006 to 2014.

The study purportedly demonstrates that the fund's equity value linked to proxy contest holdings increased by $572 million (or $5.3 million per vote) in the five years after a proxy context was announced. 

CII's Ann Yerger Joins EY Center for Board Matters

The EY Center for Board Matters announced last week that Ann Yerger is joining EY as an executive director effective July 7 after nearly 20 years with CII as executive director and director of research. The release notes: "As a leader of the EY Center for Board Matters, she will guide the Center's team in advancing EY's engagement with investors and strengthening relationships among EY, investors, and boards. EY will also utilize her broad experience to inform and shape viewpoints and policy around corporate governance."

Plains All American Pipeline Sues Delaware Over Unclaimed Property Law

Delaware-incorporated Plains All American Pipeline filed a suit in federal court earlier this month against the State of Delaware and private audit firm Kelmar Associates challenging the constitutionality of Delaware's controversial unclaimed property law, which requires Delaware companies to relinquish to the state unclaimed property or its equivalent value if they can't locate the owner. Unlike previous challenges to the law, Plains All American Pipeline is reportedly the first to sue before the audit. As previously reported, International Paper subsidiary Temple-Inland sued the state in March based on an alleged "unfair" $1.4 million assessment of uncashed acounts payable and payroll checks from 1986.

This week's highlighted question from the Huddle is:

I would be interested in hearing what board committee(s) are responsible for reviewing and establishing executive stock ownership guidelines, particularly if companies give that responsibility to a committee other than the compensation committee.

This question generated a lot of activity and many excellent answers (too many to note here) including: 

In my experience, this responsibility goes to whichever committee oversees director compensation. Of course, the stock ownership guidelines for directors need to be reasonable in comparison to those for executive officers, so if a different committee is handling officer guidelines, the two need to coordinate. 

Check out the Society Huddle.