Divided House Financial Services Committee Advances “Pay Raise” Ratio, ESG Disclosure, and Clawback Bills

September 27, 2019

In a lengthy and often testy markup, House Democrats advanced three separate bills that would require a bevy of new corporate disclosures, including a “pay raise” ratio and enhanced clawback disclosures on top of requiring the Securities and Exchange Commission to establish a disclosure framework for environmental, social, and governance metrics.

The 15-hour hearing was characterized by disagreement and procedural hoops.  Democrats and Republicans sparred over virtually all issues on the docket, with Republicans exercising nearly every procedural mechanism available to lengthen the hearing and create a clear voting record of those who supported each bill.

Over GOP objections, all three controversial disclosure bills passed along party-lines:

  • The ESG Disclosure Simplification Act, which would require companies to provide "a clear description" of their views on the link between ESG metrics and corporate strategy and how those views are determined.  Further, the bill would require the SEC to define which ESG metrics would be disclosed, with disclosure similar to audited financial information and allow the SEC to incorporate any “internationally recognized, independent multi-stakeholder environmental, social, and governance standard” as the US disclosure standard.

  • The Greater Accountability in Pay Act, which would require companies to disclose:

    • The percentage increase in the median pay of a company’s executive officers;

    • The percentage increase in the median pay of a company’s employees; and

    • A comparison of the two figures to each other as well as to the percentage change over the same period in the Consumer Price Index for All Urban Consumers.

  • The Corporate Management Accountability Act, which is aimed at holding executives accountable for corporate wrongdoing.  Written with the Wells Fargo and Equifax cases in mind, the bill would require companies to disclose whether they have a clawback policy and the amount the company has clawed back from NEOs during the last three years in response to a fine or penalty reported by the company to the SEC.  If a company has no clawback policy that covers corporate penalties or fines, it must explain why.

Outlook:  The Democratic majority could move the items though the House easily.  However, the impeachment efforts are going to slow down virtually every legislative initiative.  Moreover, the GOP-controlled Senate would be unlikely to take any action.  The bills do, however, set an important precedent as the starting point for any effort by Democrats in the future.