Briefing: Governance

Current topics in corporate governance, securities law and executive compensation

Davis Polk has submitted a comment letter on the SEC’s Concept Release on Compensatory Securities Offerings under Rule 701 and Form S-8. Our comment letter focuses on expanding the scope of eligibility for Rule 701 to cover “gig economy” workers and making corresponding changes to the scope of eligibility for Form S-8; streamlining Rule 701 disclosure requirements for foreign private issuers; clarifying disclosure requirements for RSU and profits interests awards made under Rule 701; and…
SeaWorld and two of its former executives, including the CEO, agreed to pay more than $5 million to settle fraud charges.  The SEC alleged that the company failed to inform investors about the impact of the documentary film Blackfish on the company’s reputation, and ultimately its business. Released in July 2013, the film criticized SeaWorld’s treatment of killer whales.  In the complaint, the SEC alleged that the CEO failed numerous times to tell investors…
The SEC announced that the staff will host a roundtable on the proxy process on November 15.  The participants, time and the formal agenda has not yet been released. The roundtable is expected to focus on the U.S. proxy system, including proxy voting mechanics and technology, the shareholder proposal process, and the role and regulation of proxy advisory firms. Comments may be submitted electronically or on paper (one method only).  Comments will become public and…
ISS announced the results of its high-level policy survey. The results will inform the new and updated policies for the 2019 proxy season, which is usually released in November. Auditors and Audit Committee. ISS asked whether additional indicators of audit quality and independence would be useful in addition to considering non-audit services and fees when assessing auditor independence. Investors most often cited regulatory fines or other penalties on the auditor for weaknesses or errors…
The Climate Risk Disclosure Act, introduced by Senator Warren, would require the SEC to issue rules for every public company to disclose: Its direct and indirect greenhouse gas emissions The total amount of fossil-fuel related assets that it owns or manages How its valuation would be affected if climate change continues at its current pace or if policymakers successfully restrict greenhouse gas emissions to meet the Paris accord goal; and Its risk management strategies…
On the heels of the SEC staff rescinding the letters to proxy advisory firms, Commissioner Jackson decried the influence of “corporate lobbyists” on the issue in his statement. It is corporate lobbyists who have made regulating proxy advisors a top priority, as they complain that those advisors have too much power, he said.  Commissioner Jackson does not believe there is proof to that effect, citing academic studies, he said.  In his view, “rigorous review”…
Yesterday, Chairman Clayton released a statement that while the SEC staff might express their views in myriad ways, ultimately those staff statements are “nonbinding and create no enforceable legal rights or obligations of the Commission or other parties.” As he noted, the staff’s perspective may be provided in the form of written statements, compliance guides, letters, speeches, responses to frequently asked questions and responses to specific requests for assistance.  The staff may also provide companies…
The SEC issued a statement today announcing that its Division of Investment Management has rescinded the letters issued in 2004 to ISS and Egan-Jones, effective immediately. The letters have been criticized to have unintentionally resulted in the endorsement of investors using proxy advisory firms in making proxy voting recommendations, in order to address potential conflicts of interests by investment advisers exercising their fiduciary obligations when voting proxies.  In them, the SEC staff stated that the…
Yesterday Glass Lewis announced that its proxy voting reports will include guidance from the standards developed by the Sustainability Accounting Standards Board (SASB).  SASB has ties with the FSB’s Task Force on Climate-Related Financial Disclosure, among other ESG disclosure initiatives, and has been working for years on industry-specific disclosure standards for use in SEC filings. The reports will “display [SASB] content” and allow investors to “easily identify whether items are aligned with” SASB standards.  The…
The Office of the New York City Comptroller Scott M. Stringer (NYC Comptroller), as part of the Boardroom Accountability Project 2.0 initiative, has published examples of “best practices” in board matrices.  The matrices include companies that have disclosed, in chart form, individual director qualifications and either (a) individual self-identification of director gender and race/ethnicity or (b) aggregate board self-identification of director gender and race/ethnicity. These matrices were the outcome of letters sent in September 2017…