Trump and the SEC: A New Agenda for Corporate Governance and Enforcement Thursday, June 22, 2017 12:00 – 1:00 p.m. EDT
Introduction Margaret E. Hirce Associate, New York Member of the White Collar Defense and Corporate Investigations team Please email your questions to kgould@bakerlaw.com 2
Corporate Governance Robert A. Weible Suzanne K. Hanselman Partner, Cleveland Partner, Cleveland Leader of the Securities and Corporate Member of the Securities and Corporate Governance team Governance team rweible@bakerlaw.com shanselman@bakerlaw.com Please email your questions to kgould@bakerlaw.com 3
White House and Administrative Actions Please email your questions to kgould@bakerlaw.com 4
White House and Administrative Actions Deregulation Initiatives • Pay Ratio – Acting SEC Chairman Piwowar requested comments in February 2017 on whether to delay or reconsider the pay ratio rule – Reversing it would require a full SEC rule-making process, and effectively would require repeal of the Dodd- Frank statutory provision requiring the rule Please email your questions to kgould@bakerlaw.com 5
White House and Administrative Actions • Conflict Minerals Disclosure – Following a recent court ruling based on first amendment concerns, SEC Acting Chairman Piwowar issued a statement on April 7, 2017 to the effect that filing only the disclosure form, and not the related report if otherwise required, would not likely draw SEC enforcement – Commissioner Kara Stein blasted the statement as “defacto” rulemaking Please email your questions to kgould@bakerlaw.com 6
White House and Administrative Actions • Resource Extraction Disclosure – President Trump signed a resolution on February 14, 2017 (under the Congressional Review Act) rescinding the SEC’s rule requiring public company disclosure of payments to foreign governments for oil and natural gas extraction and mining – Congressional Democrats have called for reinstatement of the rule, noting that the Dodd- Frank Act required the SEC to enact one – The articulated rationale for the recent actions on the conflict minerals and resource extraction rules is that using the securities laws to promote a foreign political outcome is inappropriate Please email your questions to kgould@bakerlaw.com 7
White House and Administrative Actions • The Department of Labor’s Fiduciary Rule – The rule Requires investment advisers to suggest products in the best interests of retirement fund clients, as opposed to those that are merely suitable Creates a fiduciary, rather than arm’s -length, relationship between the adviser and the customer Mandates that investment advisers disclose potential conflicts of interest – A February 3, 2017 President Trump order delayed implementation of the rule from April 2017 to June 9, 2017, for an internal review – Full implementation of the rule is set for January 1, 2018, but DOL Chairman Alexander Acosta is seeking comment in the context of the regulatory review ordered by President Trump Acosta says the DOL will listen to concerns not heard by the Obama administration Please email your questions to kgould@bakerlaw.com 8
White House and Administrative Actions • The Department of Labor’s Fiduciary Rule (cont’d ) – New SEC Chairman Clayton has called for public input on SEC action on the same subject, and vows to work with the DOL as the SEC implements its standard Clayton calls for clarity, consistency and coordination between the agencies The SEC will try to assess costs and benefits and has asked for views on whether private remedies should be available for violations – Some experts say the SEC/DOL coordinated review increases the likelihood that the DOL will push full implementation of its rule past January 1, 2018 – One commentator observed that it would have been best to have had the fiduciary rule for one day, to trigger more client-friendly business models but not produce lawsuits and major compliance costs Please email your questions to kgould@bakerlaw.com 9
White House and Administrative Actions • Movement in the Opposite Direction – A House Financial Services Committee member has requested SEC Chair Clayton to continue efforts to improve corporate board diversity disclosure, to focus on racial, ethnic and gender composition – Ten Democratic senators have asked the SEC to reissue the resource extraction rule Please email your questions to kgould@bakerlaw.com 10
The Financial CHOICE Act Please email your questions to kgould@bakerlaw.com 11
The Financial CHOICE Act • A revised version of the Financial CHOICE Act was passed by the House on June 8, 2017, on pure party lines • The CHOICE Act would: – Substantially change the regulation of financial institutions through repeal and rollback of Dodd-Frank and related regulatory actions – Restructure and weaken the Consumer Financial Protection Bureau – Promote capital-raising by expanding registration exemptions – Ease financial reporting requirements for EGCs and small-cap issuers – Impact disclosure requirements and corporate governance in public companies • The Trump administration says it supports the CHOICE Act, but the Chair of the Senate Banking, Housing and Urban Affairs Committee has signaled he would prefer to pursue bipartisan bank regulatory reform in early 2018 Please email your questions to kgould@bakerlaw.com 12
The Financial CHOICE Act Repeal of Many Dodd-Frank Act Disclosure Provisions For public companies, CHOICE would eliminate several Dodd-Frank disclosure requirements: • pay ratio (median employee v. CEO) • employee and director hedging policies • whether same or different persons serve as chairman and CEO and why • conflict minerals disclosure • coal or other mine safety • foreign payments by resource extraction issuers Please email your questions to kgould@bakerlaw.com 13
The Financial CHOICE Act Modifications Of Dodd-Frank Provisions • Say-on-Pay – currently not less than once every 3 years – advisory vote on executive compensation would be required only “each year in which there has been a material change to the compensation of executives of an issuer from the previous year” – would eliminate the Say-on-Pay Frequency vote • Clawback Policies – Dodd-Frank rules are not yet effective, but proposed rule provides for the recovery of incentive compensation following a financial restatement regardless of fault – Under CHOICE, recovery of incentive compensation would be limited to executive officers who “had control or authority over the financial reporting that resulted in the accounting restatement” Please email your questions to kgould@bakerlaw.com 14
The Financial CHOICE Act Rule 14a-8 Shareholder Proposals CHOICE would raise the bar for shareholders eligible to submit a shareholder proposal and would require stronger shareholder support for proposals to be re-submitted • Eligibility - currently, the lesser of shares with $2,000 in market value or 1% of outstanding shares, and a 1 year holding period • CHOICE would eliminate the dollar amount and fix the minimum threshold at 1% of outstanding shares, and increase holding period from 1 to 3 years • CHOICE would increase the re-submission thresholds to require more shareholder support before a rejected proposal could be resubmitted in the future • CHOICE would prohibit inclusion of shareholder proposals submitted by a shareholder’s proxy , agent or representative Please email your questions to kgould@bakerlaw.com 15
The Financial CHOICE Act Prohibit SEC from Adopting Universal Ballot • In October 2016, the SEC proposed amendments to the proxy rules to require parties in a contested election to use universal proxy cards that would include the names of all board of director nominees, to provide shareholders the ability to vote for a combination of nominees from both the management slate and the opposition slate • CHOICE would prohibit the SEC from requiring the use of a universal proxy. It states “The Commission may not require that a solicitation of a proxy, consent, or authorization to vote a security of an issuer in an election of members of the board of directors of the issuer be made using a single ballot or card that lists both individuals nominated by (or on behalf of) the issuer and individuals nominated by (or on behalf of) other proponents” Please email your questions to kgould@bakerlaw.com 16
The Financial CHOICE Act Registration and Regulation of Proxy Advisory Firms • Proxy advisory firms would be required to submit a registration application that includes: – certification of adequate financial and managerial resources to consistently provide proxy advice based on accurate information – disclosure of procedures and methodologies that the applicant uses in developing proxy voting recommendations – disclosure of whether the applicant has in effect a code of ethics – disclosure of any potential or actual conflict of interest relating to the ownership structure of the applicant or the provision of proxy advisory services by the applicant, and the policies and procedures in place to manage such conflicts of interest • Applications would be granted or denied by the SEC and all information provided in applications would be publicly available Please email your questions to kgould@bakerlaw.com 17
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