The SEC has released the bi-annual update to their rule agenda. Cooley LLP provides a detailed overview of the SEC’s short-term and long-term agendas. Here are their highlights on the long-term agenda items:
- Listing Standards for Recovery of Erroneously Awarded Compensation—The SEC has proposed rules to implement the clawback provisions of Section 954 of Dodd-Frank. Section 954 required the SEC to direct the national securities exchanges to adopt listing standards requiring each listed company to develop and implement a policy for recouping executive compensation that was paid on the basis of erroneous financial information, the theory being that it is compensation to which the executives were never really entitled in the first place. Under Dodd-Frank, the policy would apply in the event the company had to prepare an accounting restatement due to the company’s material noncompliance with any financial reporting requirement under the securities laws. These rules were proposed in 2015 and relegated again to the long-term agenda. So much for legislative mandates. (See this PubCo post.)
- Pay Versus Performance—Another oldie but goodie, these rules were also proposed in 2015 to implement Section 953(a) of Dodd-Frank, which required companies to disclose executive pay for performance. The proposal would amend Reg S-K Section 402 to add Section (v), which would require tabular disclosure of compensation “actually paid” to the principal executive officer and an average of the compensation actually paid to the other named executive officers for a phased-in five-year period. The new section would also require companies to describe, in narrative or graphic form or both, the relationship of the compensation actually paid to the company’s financial performance as reflected in its TSR and to describe the relationship of the company’s TSR to the TSR of a peer group. (See this PubCo post.)
- Universal Proxy—It may sound anodyne, but it’s still quite a hot potato. A universal proxy is a proxy card that, when used in a contested election, includes a complete list of board candidates, thus allowing shareholders to vote for their preferred combination of dissident and management nominees using a single proxy card. In the absence of universal proxy, in contested director elections, shareholders can choose from both slates of nominees only if they attend the meeting in person. In 2016, the SEC proposed amendments to the proxy rules that would have mandated the use of universal proxy cards in contested elections. And there it sat. And, notwithstanding development of something of a consensus at a 2018 meeting of the SEC’s Investor Advisory Committee that there could well be value in universal proxy cards (even though concerns remained that it could favor one party over the other), it continues to sit on the long-term agenda. (See this PubCo post.)
- Simplification of Disclosure Requirements for Emerging Growth Companies and Forward Incorporation by Reference on Form S-1 for Smaller Reporting Companies—The SEC adopted interim final rules in 2016 that revised Forms S-1 and F-1 as required under the FAST Act to permit EGCs to omit financial information for certain historical periods and revised Form S-1 to permit forward incorporation by reference for smaller reporting companies. The idea here would be to make final the interim final rules. (See this PubCo post.)
- Form 10-K Summary—Remember this one? In 2016, the SEC adopted an interim final rule implementing a provision of the FAST Act that expressly allowed a company, at its option, to include a summary in its Form 10–K, provided that each item in the summary included a hyperlink cross-reference to the related material in the Form 10–K. Not that companies couldn’t have included a summary before. Again, the idea would be to make the interim final rule finally final. (See this PubCo post.)
- Corporate Board Diversity—Corp Fin may recommend amendments to the proxy rules to require additional disclosure about the diversity of board members and nominees. This idea was championed by former SEC Chair Mary Jo White, who announced in 2016 that the Corp Fin staff was preparing a proposal to require “more meaningful” disclosure in proxy statements about board members and nominees where the directors elect to report that information. The current rule, she believed, just did not cut it: “[o]ur lens of board diversity disclosure needs to be re-focused in order to better serve and inform investors.” (See this PubCo post.) The proposal never seems to have materialized—at least not in public. All I’ve seen from the SEC on the topic is a 2019 CDI on board diversity disclosure. (See this PubCo post.)
- Conflict Minerals Amendments—Way too long a saga to go through here. But know that the federal courts held that the statute and rules violated the First Amendment to the extent they required reporting that any of their products “have not been found to be ‘DRC conflict free.’” (For background on the case, see this PubCo post.) Corp Fin guidance issued in 2014, and currently in effect, requires companies to make the mandated filing without including a statement as to the conflict-free status of the products that could be deemed to violate the First Amendment. (See this PubCo post.) In 2017, Corp Fin issued an Updated Statement on the Effect of the Court of Appeals Decision on the Conflict Minerals Rule that provided that Corp Fin would not recommend that companies face enforcement if they filed only a Form SD and did not prepare and file a conflict minerals report. (See this PubCo post.) Nevertheless, companies have continued to file CMRs at about the same rate as prior to the Updated Statement. As a long-term item, Corp Fin is considering recommending rules that would address the effect of the court decision.
- Mandated Electronic Filings—Corp Fin may recommend amendments to Reg S-T that would mandate additional electronic filings.
- Proxy Process Amendments—Corp Fin may recommend amendments to the proxy rules, perhaps to address some of the proxy plumbing issues—particularly the current byzantine system of share ownership and intermediaries that has accreted over time. Proxy plumbing was discussed at length at the proxy process roundtable. Unlikely that the proposal would reinvent the system, but would more likely address some of the low-hanging fruit. (See this PubCo post.)
- Accredited Investor Definition—Corp Fin may recommend amending the definition of “accredited investor” under Reg D. Note the SEC could take up revisions to the definition as part of a future proposal to harmonize the private placement exemptions. The related concept release is on the short-term agenda. As discussed above, the staff is looking at whether to revise the current binary definition in favor of a more complex, but nuanced definition. (See this PubCo post.)
- Earnings Releases/Quarterly Reports—In December 2018, the SEC posted a “request for comment soliciting input on the nature, content, and timing of earnings releases and quarterly reports made by reporting companies.” As Chair Clayton noted, the request highlighted questions regarding “mandated quarterly reporting and the prevalence of optional quarterly guidance. The request also asked for comments on whether and how our reporting system may be causing companies to disproportionally focus their time and resources on short-term results.” (See this PubCo post.) This Corp Fin item may be contemplating a proposal arising out of the Request and perhaps also asd a result of the planned roundtable on the “impact of short-termism on our capital markets and whether our reporting system, or other aspects of our regulations, should be modified to address these concerns.” (See this PubCo post.)
- Revisions To Audit Committee Disclosures—In 2015, the SEC published this concept release regarding possible revisions to the requirements for audit committee disclosures in Item 407 of Reg S-K. The concept release related primarily to disclosures related to the audit committee’s responsibilities with respect to its oversight of the independent auditor. (See this PubCo post.)
