July 19, 2019
Securities and Exchange Commission Chairman Jay Clayton forecasted the agency’s intent to issue both guidance and rulemakings aimed at answering the question of whether the outsourcing of shareholder votes “has gone too far” by addressing proxy advisory firms and the use of their services by institutional investors.
In his remarks, Mr. Clayton addressed the SEC’s nearly year-long initiative to tackle problems with the U.S.’s antiquated proxy process, including a focus on proxy advisory firms. According to Mr. Clayton, the SEC has sought to examine how asset managers are using proxy advisory firms as fiduciaries in voting proxies.
“[The SEC] will be doing rulemaking and guidance [addressing proxy advisory firms],” echoed Bill Hinman, head of the SEC’s Division of Corporation Finance, which writes rules dealing with corporate disclosures and the proxy statement. Mr. Hinman joined Chairman Clayton at the event.
Current shareholder proposal resubmission thresholds are “too low” and will be increased, stated Mr. Hinman, referring to the rules governing how much support a proposal needs to be offered again the following year. He also noted that the agency would seek to ensure that shareholder proponents owned a “meaningful stake” in a company in order to be able to submit proposals in the first place. Current rules allow anyone owning $2,000 of stock for one year to submit a proposal.
Buybacks disclosure foreshadowed by Chairman Clayton: Reflecting ongoing criticism of stock buybacks, both Clayton and Hinman noted that it is not the SEC's role to dictate company capital allocation strategies. However, according to Mr. Clayton, the SEC would consider a disclosure where companies would explain why buybacks were chosen as opposed to other approaches, which may include input from the Compensation Committee Chair on how the buybacks were considered in setting executive pay.