Corp Fin refuses to allow exclusion of new form of proxy access fix-it proposal – Cooley PubCo

We think the word they are searching for is “motivated.”

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. 

Source: Corp Fin refuses to allow exclusion of new form of proxy access fix-it proposal – Cooley PubCo

Shareholder Proposal Reform Rebutted – Corporate Governance

We strongly recommend James McRitchie’s point-by-point rebuttal to the Chamber of Commerce’s “fake news” plea to “protect” corporate executives from non-binding shareholder proposals. It is well worth reading in its entirety, but we particularly note his response to the Chamber’s claim that “social” proposals are not relevant and have no merit. That is a matter for shareholders to decide. The strong support from the broad range of the shareholder community for these proposals proves that they are relevant and the response by companies to that support shows that they can be effective. Indeed, that is the reason the Chamber wants to get rid of them. McRitchie says:

Rule 14-8 is not broken, many of the Chamber’s attestations are alternative facts and its recommendations are more likely to hurt our economy than help it.

Source: Shareholder Proposal Reform Rebutted – Corporate Governance

Rising Angst Among Defenders of Overpaid CEOs – Inequality.org

Getting rid of the new pay ratio disclosure requirement scheduled to take effect next proxy season may be harder than the Trump administration thought.  I was particularly heartened by this article’s reporting on the number of comments in favor of the proposal (and how that avalanche of comments makes it harder to rescind the rule).  And I was particularly amused by the Chamber of Commerce’s desperation ploy when it’s usual “burdensome” argument failed.  It’s next attempt was claiming that people might actually use those disclosures to make policy.  Uh, that’s the point of information and data, right?

Overpaid CEOs enjoyed a sweet victory in June when the House of Representatives took action to protect them from having to disclose how much more money they make than their workers.But the celebration didn’t last long. The odds of the Senate taking similar action any time soon were always long. Now, given the health care quagmire, these odds are even longer.

Source: Rising Angst Among Defenders of Overpaid CEOs – Inequality.org

SEC Faces Obstacles to Rolling Back Dodd-Frank Rules – WSJ

Litigation could stymie efforts by the Securities and Exchange Commission to comply with sweeping executive orders intended to roll back financial regulations.

President Donald Trump on Friday took the first step in expunging the 2010 Dodd-Frank financial overhaul act, which he said hinders business and economic growth.Mr. Trump signed an executive action requiring the U.S. Treasury Department to develop an outline for scaling back financial regulations.The SEC doesn’t have the authority to revoke Dodd-Frank, which is an act of Congress. Nearly 80% of rules under the law are already implemented. Instead, the commission can offer relief by amending its rules, or granting exemptions—a process that is open to judicial review.

Any legal objections could slow the SEC’s already lengthy amendment process, hindering the agency’s ability to execute the president’s executive order, legal experts and former SEC staff said.

“This is not going to be simple, fast or cheap,” said Joseph Grundfest, a Stanford professor of law and business who served as a Democrat SEC commissioner during the Reagan administration.

Source: SEC Faces Obstacles to Rolling Back Dodd-Frank Rules – WSJ

The Problem With Roger Lowenstein

Fund manager Roger Lowenstein demonstrates a breathtaking ignorance of government checks and balances in an op-ed for the New York Times, suggesting that Senator Elizabeth Warren does not have the right to ask President Obama to remove Mary Jo White as Chair of the SEC.

He sneers:

Last time I checked, the S.E.C. was a regulatory agency of the executive branch, in which Ms. Warren is not, in fact, employed.

Senator Warren is, on the other hand, a member of the United States Senate, which approves (or not, as Judge Merrick Garland can attest) Presidential appointees like Chair White. The terms “advise” and “consent” make clear the duty of the Senate to oversee Presidential appointees. The Senate is also responsible for the enabling legislation and budget for the Commission, and therefore it is entirely within its jurisdiction and indeed its obligation to review and comment on its activities. And a note: she did not call for Chair White to be “fired,” as Lowenstein claims. Commissioners cannot be fired. But the Chair designation is within the authority of the President to reassign and it is entirely within the authority of a Senator (or anyone else, for that matter) to suggest that he do so. (Does anyone remember Lowenstein objecting to the House considering impeachment of the Commissioner of the IRS? For some reason, that did not offend his sense of propriety.)

In fact, it is a provision imposed by Congress in the Commission’s budget that prevents it from issuing rules that would require companies to disclose their direct and indirect campaign contributions and lobbying expenditures.

Lowenstein writes:

Actually, dredging up the details of political spending has nothing to do with protecting investors, though it might fall into the category of “things corporations do that some people do not like.”

Actually, it falls into the category of “things the Supreme Court explicitly predicated the Citizens United decision on.”

In the majority decision, Justice Kennedy Anthony M. Kennedy said that corporate political spending depends on the ability of shareholders to ensure that the speech reflects their views rather than diverting corporate assets for the benefit of executives. He suggested that any abuse could be corrected by shareholders “through the procedures of corporate democracy.” He said this would happen because all political spending will be thoroughly disclosed online: “With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters.”

Justice Kennedy correctly notes that the expenditure of corporate assets for political purposes can only be legitimated by transparency and a robust market response.

Senator Warren’s comments on Chair White were accurate, appropriate, and civil. Lowenstein’s criticism of Senator Warren was not.

Source: The Problem With Elizabeth Warren – The New York Times

SEC Unveils Executive Pay Ratio Guidelines – WSJ

The controversial “pay ratio” rule has finally been approved, requiring companies to disclose the ratio between the pay for the top executives and the median employee. Company executives have argued that this number is hard to calculate and misleading. Investor groups have responded that if the company knows how many employees it has and how much it is paying them, it is not a difficult calculation, and that investors are sophisticated enough to understand the significance of the disclosures.

The Securities and Exchange Commission issued its first guidelines for calculating pay ratios that compare executive compensation to that of the company’s median employee.  Companies are required to report this information in their proxy, registration and information statements, as well as annual reports for the first fiscal year beginning January 1, 2017. The rule is mandated by the Dodd-Frank law and was adopted in August 2015.

Source: SEC Unveils Executive Pay Ratio Guidelines – WSJ

To Disclose or Not to Disclose? Wells Fargo Woes Shine Light on a Knotty Problem – WSJ

Wells Fargo didn’t disclose anything publicly about its “cross-selling” abuses or looming settlement with regulators before the pact was announced Sept. 8—including in its second-quarter Securities and Exchange Commission filing weeks earlier, on Aug. 3. Three Democratic senators who grilled the bank’s chief executive last week now have asked the SEC to investigate whether Wells Fargo misled investors by failing to disclose the issue sooner.

While the bank’s management had known since 2013 that some employees had created deposit and credit-card accounts for customers without their knowledge, the accounts were a tiny portion of Wells Fargo’s business. The settlement, which included a $185 million fine, was less than 1% of last year’s earnings. The matter was “not a material event,” Chief Executive John Stumpf told a Senate panel last week.

That is true in terms of the bank’s income statement. Not so its reputation or share price. The bank and Mr. Stumpf have faced a political and public furor and the stock has lost nearly 10% since the settlement, or about $23 billion.

Source: To Disclose or Not to Disclose? Wells Fargo Woes Shine Light on a Knotty Problem – WSJ

SEC to Companies: Come Clean on CEO vs. Worker Pay Gap

In a lagged and dilatory but thought-provoking move in the US corporate governance and transparency landscape, SEC approved Dodd-Frank’s requirement on disclosing CEO vs. Worker Pay Gap after five years of procrastination (Congress passed the Dodd-Frank financial reform bill in July 2010. Dodd-Frank created the disclosure requirement but left the SEC to determine exactly how the rule would be implemented).“The rule, which is mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, would provide investors with information to consider when assessing CEO compensation, while providing companies with substantial flexibility in calculating the ratio.”The SEC required companies to disclose the median compensation of all its employees, excluding the CEO, and release a ratio comparing that figure to the CEO’s total pay. Companies would have to report the pay ratio starting in 2017.

Source: SEC to Companies: Come Clean on CEO vs. Worker Pay Gap

The SEC approved Investor’s Exchange’s (IEX) bid to be a new US stock exchange and fight high-frequency traders — Quartz

Very important news — after brutal, highly politicized delays, IEX has finally been approved by the SEC.

The Securities and Exchange Commission (SEC) today voted to allow Investor’s Exchange (IEX) to operate as a public stock exchange. It will be the first public exchange to employ techniques specifically designed to thwart manipulative strategies used by high-frequency traders….Institutional investors, such as pension funds, might send their trades to the new exchange in an effort to circumvent high-frequency traders. That may not last long, however, as those other exchanges have reportedly flirted with speed-bump proposals of their own. The tricky problem for them will be to neutralize IEX’s advantage without forfeiting the lucrative business they’ve built selling speed-related services to traders, such as renting locations to traders in the exchange data centers so their trade instructions arrive faster. Alternatively, they might just sue the SEC to try to get IEX’s approval thrown out.

Source: The SEC approved Investor’s Exchange’s (IEX) bid to be a new US stock exchange and fight high-frequency traders — Quartz

SEC Will Only Target Directors in Egregious Cases | Bloomberg BNA

Securities and Exchange Commission enforcement cases alleging violative behavior by corporate directors are rare and will only be initiated in clear cases of misconduct or when obvious signs of violative behavior are ignored, Lara Shalov Mehraban, associate director in the agency's New York Regional Office, said.

Mehraban attempted to allay concerns voiced by corporations and their lawyers about the SEC enforcement cases against corporate directors and other gatekeepers, such as compliance officers, who may try to fix compliance problems and find themselves entangled in an agency investigation.

“Enforcement isn't second guessing good-faith decisions by the board, but rather bringing cases where directors have either taken affirmative steps to participate in fraud or enabled fraudulent conduct by unreasonably turning a blind eye to obvious red flags,” Mehraban said Feb. 10 at a Practising Law Institute conference in New York.

via SEC Will Only Target Directors in Egregious Cases | Bloomberg BNA.