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Last week, the SEC’s Advisory Committee on Smaller Public Companies met for the first time. The members were sworn in and other administrative and organizational matters were taken care of, such as the approval of by-laws and a determination of a master schedule for the Advisory Committee. Unlike past SEC Advisory Committees (ie. pre-Information Age), it appears that we will be able to closely follow the developments of this Advisory Committee and that they will be moving quickly to fulfill their mandate.

Check out the Committee’s webpage on the SEC’s website, which provides access to the charter, webcast archive of its first meeting and written statements received in advance of its first meeting.

CII Favors Majority Voting

The Council of Institutional Investors (CII) unanimously approved a new policy at its annual Spring Meeting last week in favor of majority voting for director elections. The new policy reads:

“Director Elections: When permissible under state law, companies’ charters and by-laws should provide that directors are to be elected by a majority of the votes cast. If state law requires plurality voting (or prohibits majority voting) for directors, boards should adopt policies asking that directors tender their resignations if the number of votes withheld from the candidate exceeds the votes for the candidate, and providing that such directors will not be re-nominated after expiration of their current term in the event they fail to tender such resignation.”

Also last week, shareholders of Gannett Co. and Caterpillar Inc. rejected majority voting proposals at their annual meetings; however, the proposals did receive 48% and 38% of the votes cast, respectively – a huge level of support considering past levels! For more on the Majority Vote Movement, see Broc’s April 14th blog and the new “Majority Vote Movement” Practice Area.

Broker-Dealers vs. Investment Advisers

Last week, the SEC decided that brokers do not have to register as advisers, upholding an exemption Congress originally included in the Investment Advisers Act. While the SEC didn’t change the existing law, it adopted a rule that addresses the application of the Advisers Act to broker-dealers offering certain types of brokerage programs. Under the rule, a broker-dealer providing nondiscretionary advice that is solely incidental to its brokerage services is excepted from the Advisers Act regardless of whether it charges an asset-based or fixed fee (rather than commissions, mark-ups, or mark-downs) for its services.

The new rule also provides that broker-dealers are not subject to the Advisers Act solely because they offer full-service brokerage and discount brokerage services, including execution-only brokerage, for reduced commission rates. The rule addresses the question of when a broker-dealer’s advisory activities are subject to the Advisers Act because they are not “solely incidental to” the broker’s business. The rule identifies three circumstances when a broker-dealer’s advice would not be solely incidental.

In the adopting release, the Commission stated its concern about the difficulty, on the part of investors, of differentiating between a broker and an investment adviser. The Commission said that it believes that those concerns may more appropriately fall under broker-dealer/Exchange Act regulation, and will receive a report from the Staff within 90 days addressing the options for most effectively responding to these issues and recommending a course of action.

-Posted by Julie Hoffman