December 2, 2016

How Will the SEC Reach Quorum With Only Two Commissioners?

Recently, a member asked why doesn’t SEC Chair White cram in a bunch of rulemakings while she can. Putting aside how she likely would be sensitive to the optics of that, I reminded the member that Commissioner Piwowar can stop any rulemakings simply by not showing up – as the SEC’s rules require three Commissioners to be present to reach quorum (as noted in this blog).

The question then arises as to how will the SEC reach quorum when Chair White leaves on Inauguration Day. At that point, only Commissioners Piwowar & Stein will be on the Commission – and it likely will take the new Administration awhile to getting around to nominating new Commissioners (& then the Senate to confirming them).

No worries. Back in the 90s, President Clinton was slow to nominate new members to federal agencies and the SEC dropped down to a level of two Commissioners for a spell – Chair Levitt & Commissioner Wallman. In order to get business done, the SEC amended its rules to accommodate the Commission when it drops to such a low level. “The Rule of 2” – adopted in 1995 – is still on the books:

§200.41 Quorum of the Commission.

A quorum of the Commission shall consist of three members; provided, however, that if the number of Commissioners in office is less than three, a quorum shall consist of the number of members in office; and provided further that on any matter of business as to which the number of members in office, minus the number of members who either have disqualified themselves from consideration of such matter pursuant to §200.60 or are otherwise disqualified from such consideration, is two, two members shall constitute a quorum for purposes of such matter.

So the quorum rules are different when there are three sitting Commissioners as compared to two. Thanks to Hunton & Williams’ Scott Kimpel for the help finding this rule…

How Will Trump Approach Executive Pay?

Recently, a member asked: “How do you see the Presidential election influencing incentive compensation and corporate governance in 2017?” Here’s my response:

Although it is difficult to know in practice, on paper, there is a wide gulf in difference in how the markets would be regulated between a Trump Administration & a Clinton one. Whereas a Clinton Administration might have been widely influenced by Senator Elizabeth Warren and resulted in restraints on how Wall Street operated, a Trump Presidency might result in unprecedented deregulation at the behest of a GOP Congress. A Clinton Administration was rumored to pick an investor as the next SEC Chair – which would have been a first. It appears that Trump will tap someone who believes that minimal regulation is good regulation.

So I think it’s clear that restraints on how companies can govern themselves will become looser. However, executive compensation specifically could be another matter. Trump ran a populist campaign, often railing about excessive executive compensation. It’s unknown whether that was empty campaign fodder to generate votes – or whether he’ll follow through and do something concrete in this area. And I note that during a House hearing about Mylan’s controversial EpiPen pricing, some GOP reps really grilled Mylan’s CEO about her pay package…

Also see this note from entitled “How The Trump Presidency And Tax Reform May Affect Stock Compensation.” And this Bloomberg BNA article has quotes with experts giving mixed reactions to guessing whether pay ratio will disappear…

Poll: What’s the Future of Pay Ratio Disclosure?

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Broc Romanek