In remarks given last week before the 49th Practicing Law Institute's conference on Securities Regulation, SEC Chairman Jay Clayton focused on the SEC's near and long-term agenda, noting that workload for the past several years has been dominated by Dodd-Frank and JOBS Act mandated rulemakings. However, with most of the mandated rulemakings done or at least proposed, Mr. Clayton detailed other areas in need of reform - including shareholder engagement and the proxy process - which the SEC could consider revisiting as part of the its longer term agenda.
- Shareholder Engagement and the Proxy Process: Noting that the area was not on the near-term rulemaking priority list, but still was worthy of discussion, Mr. Clayton discussed potential SEC evaluation of the proxy process as well as how investors participate in the corporate governance of public companies. Mr. Clayton noted that given the role of the proxy process in public company governance that "the Commission should be 'lifting the hood' and taking a hard look at whether the needs of shareholders and companies are being met". This would include an evaluation of the disclosure system to see how and what types of information shareholders are getting and whether that information allows effective participation in the voting process as well as the costs and burdens of the system. To accomplish this, Mr. Clayton floated re-opening the comment process on the SEC's 2010 "Proxy Plumbing" concept release which solicited feedback on the positives and negatives about the proxy system. The 2010 SEC Proxy Plumbing release addressed proxy advisory firms and would provide an official SEC examination of the proxy advisory firm status quo after seven years of say on pay and three years after the Commission's last staff interpretation on the subject.
- Shareholder Proposals: Noting the positives of the shareholder process as well as the recent discussions about what the proper ownership requirements should be to submit shareholder proposals, Mr. Clayton noted the concerns of both setting the thresholds too low as well as too high. He continued, noting "we have to consider whether our rules are serving the long-term interests of Main Street investors. We need to make sure that those investors have a seat at the table as we examine the proxy process." The SEC has already issued updated staff guidance on some of the exclusionary rules for excluding shareholder proposals which offer company boards more authority in determining whether or not certain proposals are appropriate. Changes to the shareholder proposal process, including ownership and resubmission thresholds have been key points of change sought by Republicans.