Lively and informative panel discussions covering developments at the SEC, proxy access - past and future, executive compensation, and much, much more made for many key takeaways. Here are some of the highlights:
In the SEC Developments session, moderated by WSJ reporter Andrew Ackerman, panelists and former SEC veterans Brian Breheny, Dan Gallagher, and John White weighed in on - among other things - the composition, agenda and morale of the now 3-member Commission; the SEC's newly-released non-GAAP financial measures C&DIs; universal proxy rulemaking; short-termism and more. Among the educated guesses and predictions:
• As previously reported, confirmation of two SEC Commissioner nominees in the foreseeable future (if at all) now appears highly unlikely. That being the case, the Commission is unlikely to take up anything controversial (e.g., final rulemaking on Dodd-Frank executive compensation mandates), and is likely to attempt to tackle only the relatively more mundane topics.
• Staff is keenly focused on Q2 earnings releases for purposes of assessing compliance with the newly issued non-GAAP financial measures C&DIs (reported on here), so issuers should anticipate a high level of scrutiny as well as a number of comment letters that will provide further color on the guidance.
• The short-staffed Commission notwithstanding, universal proxy rulemaking efforts (which Chair White initially raised at the Society's June 2015 National Conference) appear to be unaffected and are moving forward, i.e., a rulemaking proposal may be issued relatively soon.
• Consistent with feedback we received last month at the Society Securities Law Committee's annual meeting with SEC Staff, Chair White is taking the board diversity disclosure issue very seriously; however, a proposal of any sort this year (before the election) appears highly unlikely.
• Per Dan Gallagher, Rule 14a-8 has been effectively gutted, and leads the "in need of reform" list.
In the Proxy Access: Now What? session, moderated by Davis Polk Partner & Society member Ning Chiu, Vanguard's Glenn Booraem, New York City Comptroller's Office Scott Zdrazil and Union Pacific Corporation's James Theisen reviewed the past, the present and predicted the future of proxy access. Among the key takeaways:
• Per the NYC Comptroller's Office, 36% of the S&P 500 now have "meaningful" proxy access bylaws.
• Vanguard thinks of proxy access as a tool of last resort. It will only sign on as a participant in a group to nominate a board candidate if the company has demonstrated significant governance issues and there has been a failure of engagement.
• Union Pacific was among the early adopters of proxy access - demonstrating a preference to focus its time and efforts on the substance of the business rather than a proxy access right that it doesn't sense to be problematic. However, all agreed that "the devil is in the details" - which, for Union Pacific, translated to 11 pages of bylaw terms.
TheCorporateCounsel.net Editor and Society member Broc Romanek moderated the popular Dodd-Frank Executive Compensation Rules and Disclosure session, with Compensia's Mark Borges, Cravath, Swaine & Moore's John White, and Norfolk Southern's Cynthia Earhart providing guidance and helpful tips on a number of recent and pending developments including the SEC's recently-issued non-GAAP financial measures C&DIs, clawbacks, and pay ratio. Among the key takeaways:
• The new non-GAAP C&DIs impact proxy statements - not just earnings releases, 10-Ks and 10-Qs - so be sure to re-evaluate your "standard" non-GAAP disclosures in the context of the new guidance before next proxy season to ensure adequate prep time.
• Identifying the median employee is a significant aspect of the challenge of the new Pay Ratio Disclosure Rule. In that regard, be thinking now about which workers need to be included in your employee population, as this could have a material impact on your ratio. If your workers include independent contractors, keep in mind that SEC Staff acknowledged receipt of - but has yet to weigh in on - the comment letter we submitted last October in response to the unexpected treatment of independent contractors in the final rule relative to the Proposed Rule. Our letter explains why independent contractors should not be deemed employees for purposes of the rule (specifically, calculation of the pay ratio) under any circumstances - contrary to the final rule's potential interpretation and issuers' expectations based on preceding SEC communications - and seeks a clarification from the SEC on this point. Based on feedback we received last month at the Society Securities Law Committee's annual meeting with SEC Staff, Staff recognizes that this is a legitimate issue and anticipates issuing some sort of guidance.