Briefing: Governance

Current topics in corporate governance, securities law and executive compensation

CII has published an update to its analysis of disclosure on board evaluations in proxy statements, highlighting as “Seven Indicators of Strength” a wish list of information. The report contains multiple qualifications and statements designed to reassure companies, including that they are not expected to reveal any specific details about the results of the evaluations, but instead the disclosure should focus on the process for continued improvement.  In addition, the seven benchmarks selected in the…
Fitch Ratings announced on Monday that it has launched a new integrated scoring system that shows how environmental, social and governance (ESG) factors, such as climate change, human rights and labor issues, impact individual credit rating decisions. Its ESG Relevance Scores are sector-based and entity-specific. Fitch has started with over 1,400 non-financial corporate ratings, which it is initially making publicly available at www.fitchratings.com/site/esg.  In contrast to other third-party ESG ratings available in the market…
At the very end of the year, the SEC announced the entry of an administrative order instituting cease-and-desist proceedings in connection with financial reporting at a major rental car company, including earnings guidance. According to the order, “under persistent pressure to meet budgets, and to generate opportunities to help close company-wide budget gaps or revenue shortfalls,” the company did not comply with GAAP in 2012 in accounting for contingencies, particularly in determining when to increase…
The SEC instituted a cease-and-desist proceeding in a fairly straightforward enforcement action that nonetheless emphasizes the importance of the requirement that GAAP measures must be provided with “equal or greater prominence” when a company discloses non-GAAP measures. The SEC found that a company provided non-GAAP financial measures, such as adjusted EBITDA, adjusted net income and free cash flow before special items, without giving equal or greater prominence to the comparable GAAP measures. In the headline…
The SEC yesterday announced that it has adopted the Dodd-Frank hedging policy disclosure rules and issued a request for comment on quarterly reporting.  We will provide additional information in the form of client memos, but preliminary information based on the fact sheets published includes: Hedging Rules.  Compliance is required in proxy statements during fiscal years beginning on or after July 1, 2019.  Companies must disclose any practices or policies it has adopted about the ability…
The SEC’s solicitation of comments on the proxy process has led to more than 150 public letters.  While almost no companies sent in letters under their own names, investors have submitted the bulk of the commentary, including nearly all of the familiar groups of shareholder proponents.  Insight from a few major institutional investors follows, with diverging views about shareholder proposals and oversight of proxy advisory firms. Don’t change, or do change, ownership or resubmission thresholds…
In a wide ranging speech yesterday on SEC rulemaking, Chairman Clayton stated that after disregarding the more “aspirational” approach of past administrations, the SEC’s changed its approach to tailoring the 2018 Regulatory Agenda to the initiatives that the agency could reasonably complete in the next 12 months.  This led to the Commission advancing 23 of the 26 rules cited in the 2018 agenda. Among the many significant initiatives for 2019 that the Chairman listed as…
With funding from the Investor Responsibility Research Institute (IRR), the Sustainable Investment Institute (Si2) reviewed the current state of companies’ sustainability reporting and found that although most S&P companies gave sustainability information, they followed a wide range of practices.  The websites of 92% of S&P 500 companies included disclosure on sustainability, but only 395 companies (78%) issued reports.  Within those reports, 357 companies provide environmental metrics and 320, social data.  Other findings include: Most reports…
The SEC issued a Sunshine Act Notice for an open meeting next Wednesday, December 5, where they will consider whether to issue a Request for Comment on the nature and content of quarterly reports and earnings releases issued by reporting companies.  The open meeting will start at 10:00 a.m. (ET) and will be webcast. As reported by media, President Trump asked the SEC in August to study the possibility of requiring less frequent earnings…
The proxy season is just around the corner for calendar year public companies. Ahead of the season, two major proxy advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis, recently released their 2019 policy updates to provide guidance on how they will make recommendations on companies’ “say-on-pay” vote. Although a non-binding vote, performing poorly on a say-on-pay vote is not only disheartening, but can impact shareholder votes on election of directors (particularly compensation committee members),…