June 16, 2016

House’s “Financial Choice Act”: Enough to Choke a Horse

No sooner do I blog about a House bill that would make it challenging for the SEC to conduct any rulemaking, than Cooley’s Cydney Posner blogs about an executive summary of the “Financial Choice Act” – which would require the SEC to conduct rulemaking to dismantle nearly all of the corporate governance rules that the SEC has adopted under Dodd-Frank over the last six years.

The kicker is that all of this repealing isn’t in the executive summary (and the full bill isn’t public yet); rather the executive summary just says “repeal non-material specialized disclosures.” You can’t make this stuff up! But Cydney’s blog notes that Cooley’s “Government Analytics Practice Group” dug in to uncover what is behind the bill’s executive summary:

– Repeal specialized public company disclosures for conflict minerals, extractive industries and mine safety (Dodd-Frank Title XV)
– Expand the Sarbanes-Oxley Act Section 404(b) exemption for non-accelerated filers to include issuers with up to $250 million in market capitalization (up from the current threshold of $75 million) or $1 billion in assets for banks (Dodd-Frank Section 989G).
– Repeal the burdensome mandate that publicly traded companies disclose the ratio of median vs. CEO pay (Dodd-Frank Section 953(b))
– Repeal the SEC’s authority to further restrict the ability to engage in legitimate securities short selling (Dodd-Frank Section 929X)
– Amend the mandate on public companies to provide shareholders with a vote on executive compensation to occur only when the company has made a material change to the executive compensation package (Dodd-Frank Section 951).
– In the event of certain financial restatements, hold bad actors responsible by limiting ‘clawbacks’ of compensation to the current or former executive officers of a public company who had control or authority over the company’s financial reporting (Dodd-Frank Section 954).
– To reduce the burdens on emerging growth and smaller reporting companies, repeal the reporting requirement for public companies regarding employee or board member hedging of equity securities granted as compensation (Dodd-Frank Section 955).
– Repeal federal financial regulators’ ability to prohibit types and features of incentive-based compensation arrangements (Dodd-Frank Section 956).
– Repeal the SEC’s authority to issue rules on proxy access (Dodd-Frank Section 971).
– Repeal the SEC’s authority to issue rules to require disclosures regarding Chairman and CEO structures (Dodd-Frank Section 972).

As Cydney notes in her blog, it wouldn’t quite repeal all of Dodd-Frank’s corporate governance provisions – pay-for-performance would still be on the books. The bill would also incorporate about a dozen bills that are floating around in the House these days – and would “streamline” the SEC’s Enforcement Division process so that individuals received “fair treatment.” Cydney writes:

According to the NYT, the bill “has little chance of passing Congress this year.” And, even if it did, President Obama still holds the veto pen, at least until January. Nevertheless, Speaker Ryan has encouraged his Republican brethren to develop affirmative policies and programs, and, as the NYT suggests, this bill “may influence the presidential debate and help shape the Republican agenda in the next term.”

FASB’s New Lease Accounting: Most Companies Not Ready Yet

As noted in this memo, a webcast poll by Deloitte indicates that fewer than 10% of accounting professionals say their companies are ready for the FASB’s new lease accounting standards. They cited the top two challenges as collecting the necessary data in all organizational leases in a centralized, electronic repository – and instituting reporting processes to evaluate quarterly adjustments for the balance sheet. Of the 5,400 respondents, only 15% said they expect compliance to be easy.

Gender Pay Gap Becomes a Proxy Season Issue

Here’s an excerpt from this blog by Davis Polk’s Ning Chiu:

The White House recently announced an initiative by 28 companies that have pledged to conduct annual gender pay analysis, similar to a shareholder proposal this proxy season that received a fair amount of press attention. Arjuna Capital sent proposals to nine major technology companies, including Apple, Alphabet, Facebook, Intel and Microsoft, asking them to prepare reports on their policies and goals to reduce the gender pay gap. This was defined as the difference between male and female earnings expressed as a percentage of male earnings. According to the proposal, the median income for working women is 78% that of their male counterparts.

The SEC staff denied several companies’ initial efforts to exclude the proposal on the basis of vagueness. At one company where the proposal went to a vote, it received 51% support in favor, highly unusual for a social proposal. Nearly all of the other companies got the proposal withdrawn by the proponent after they agreed to provide information on their gender pay differences. Those that already reported stated that there is no pay gap, or a very negligible gap, between men and women who work at the same job-grade level. Some companies included salary and stock while others excluded stock. Exact methodologies were generally not provided. Two companies released their information to coincide with National Equal Pay Day (April 12).

Although almost all of the press has been favorable in light of the results, some in the media criticized the companies for obscuring the types of jobs women tend to work, finding that men are more likely to hold higher-paying tech positions. In addition, women make up around a quarter or less of the senior leadership at these companies.

Broc Romanek