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SEC Chair White Opening Address Takeaways - SEC Chair Mary Jo White focused her opening remarks on four specific proxy issues. While she discussed potential rulemaking scenarios relevant to the issues, overall, the theme of her remarks was "self-help" - i.e., issuers assuming responsibility for resolving issues without having to resort to, or rely upon, SEC rulemaking. Issues and key takeaways include:
- Interim vote tallies - Chair White encouraged companies to consider "leveling the playing field" by voluntarily providing interim vote tallies to shareholder proponents (whether exempt solicitation or otherwise). She was supportive of the Society's efforts to craft a solution with CII and Broadridge.
- Universal proxy - Chair White suggested companies give meaningful consideration to the use of some form of a universal proxy ballot so that, at a minimum, shareholders have the same voting rights via a proxy ballot as they would have if they attended a meeting in person. She understands that there are implementation issues; however, she suggested that these are surmountable.
- "Unelected Directors" - Chair White urged companies to voluntarily disclose the board's rationale (e.g., director experience, expertise) for retaining directors who receive less than a majority vote regardless of the company's voting standard (e.g., plurality plus, majority). She believes that this type of disclosure reflects good governance and would be appreciated by investors.
- Shareholders Proposals/14a-8 - While not suggesting that companies should never oppose a shareholder proposal, Chair White encouraged companies to consider alternative responses to proposals other than exclusion. Similarly, she urged shareholder proponents to use the shareholder proposal process responsibly by considering the costs to companies associated with filing proposals and attempting engagement rather than opposition via the proposal process. Also noteworthy - Chair White suggested that the small sample of dueling proxy access proposals during the 2015 proxy season showed that shareholders are able to digest and choose among same subject matter alternatives without confusion.
SEC Developments - Key Takeaways - Former SEC Division of Corporation Finance Directors Alan Beller and Meredith Cross facilitated a discussion with current Director Keith Higgins about SEC developments. Key takeaways include:
1. Status of 14a-8(i)(9) review:
- Review underway. Comments letters still being accepted, and are welcome to inform Staff recommendations to Commission;
- Unsure what form (e.g., report) the output of the review will take;
- Believes November timeframe is realistic;
- Agrees with Chair White that the 2015 proxy season results illustrate a lack of investor confusion presented by dueling proxy access proposals.
2. Keith believes that the SEC Staff Rule 14a-8 stakeholder meeting (which the Society participated in) last week was successful. One issue discussed in particular was how to improve the process whereby issuers submit a request for no-action relief pending a "to come" action by the board that would make the exemption available once the board acts. One suggestion raised was to allow companies 30 days after the initial request to provide that supplemental information so as to provide Staff and shareholder proponents sufficient time to react/respond within the overall 14a-8 timeframe. If the company fails to provide the supplemental information within that timeframe, the no-action relief would not be available.
3. Compensation-related Rulemaking:
P4P Disclosure - Recently issued DERA guidance on the effect of exclusion of categories of employees is relevant and will be considered. With regard to concerns about the proposal's use of TSR to measure performance in the context of diverse company practices, Keith believes that if the rule is enacted as proposed, issuers would state that they are providing the required information per the rule, but would then explain how the company thinks about performance in the CD&A;
- Pay Ratio Disclosure - Actively working on and likely to see something in the very near future;
- Claw-backs - Actively working on. In related news, the SEC announced yesterday that it will hold an open meeting on July 1st to consider whether to propose the claw-back rules;
4. Disclosure Effectiveness - Actively working on, but product of review will be piecemeal. Encourages DIY approach, i.e., companies taking the initiative to make changes pending formal rulemaking.
Last Takeaway of the Day - David Axelrod gave a heartfelt address to members focusing on "the roots of... his devotion to politics and his faith in democratic change" eloquently written about in his best-selling book Believer.
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