March 28, 2013

The Crystal Ball: What Might Top the SEC’s Agenda?

Mary Jo White’s nomination to be the 31st Chair of the SEC was approved last week by the Senate Banking Committee, in a vote of 21 to 1, and as noted in this article, her nomination goes on to the full Senate for consideration at some point soon after the Easter recess. With the possibility of a new Chair arriving soon, the question inevitably arises as to what will (or should) top the Corp Fin rulemaking agenda? In her testimony before the Senate Banking Committee earlier this month, Mary Jo White said that she would work with the staff and the Commissioners “to finish, in as timely and smart a way as possible, the rulemaking mandates contained in the Dodd-Frank Act and JOBS Act.” This pledge may be no easy task to carry out, given the stalemate that has developed over many of these rules in the past couple of years. Nonetheless, here is my assessment of what the priorities might (or should) be for the “first 100 days”:

1. Title II of the JOBS Act – As the first example of why the SEC’s priorities shouldn’t necessarily follow a “first in, first out” order, it seems that the Commission should try to resolve its differences over the implementation of Title II of the JOBS Act and permit general solicitation and general advertising in Rule 506 and Rule 144A offerings. With the first anniversary of the JOBS Act coming up next Friday, we have already see a significant amount of the momentum from the enactment of that legislation slip away, and some bold steps to move the rulemaking forward might help to reignite the excitement around the potential of the JOBS Act and demonstrate that the SEC is interested in advancing capital formation with appropriate protections. I don’t think anyone could have guessed that Title II, given its straight-forward, bi-partisan directive, would still be sitting unimplemented over one year after the enactment of the JOBS Act. (See our January-February 2013 issue of The Corporate Counsel for some of the issues standing in the way of Title II’s implementation).

2. Section 926 of the Dodd-Frank Act – Section 926 directed the SEC to adopt bad actor disqualification provisions for Rule 506 offerings, and this rulemaking has become inextricably linked to the Title II of the JOBS Act rulemaking (and rightfully so). The SEC proposed the rules back in May 2011, and while there are certainly some considerable implementation issues as highlighted in the comments received on the proposal, it is high time to get this rulemaking done so the Title II rulemaking can now proceed.

3. Titles III and IV of the JOBS Act – At this stage, it is unlikely that the SEC could adopt rules for the crowdfunding and Regulation A+ exemptions contemplated by the JOBS Act during 2013, but it would be important to at least propose these rulemakings with the hope of adopting rules by early in 2014. The need for creative efforts to spur capital formation is no less now than when the JOBS Act was enacted last year, so moving these forward (even if Title IV doesn’t have a missed implementation deadline) is critical to rebuilding some of the lost JOBS Act momentum.

4. Other Dodd-Frank Compensation Rules – The “final four” Dodd-Frank rulemakings – CEO pay ratio, hedging, pay versus performance and clawback – should remain on the agenda (to the extent still required as legislative efforts unfold), but not with the same sense of urgency as the three priorities identified above. As we have noted in a number of publications recently, the world is moving on without the need for these rules to compel action or disclosure about such action. ISS’s 2013 policy focus on hedging and pledging is prompting issuers to revisit this issue, and disclosure is abounding in proxy statements this year about anti-pledging policies. Issuers have come up with “actually paid” measures to better demonstrate pay for performance, and clawbacks have become a fixture at many companies over the past several years as a result of shareholder expectations. On the topic of CEO pay ratio, is anyone really asking for this now?

5. Other Important Areas – The press of the Congressionally-mandated business of the Commission shouldn’t completely overshadow some important initiatives that the Corp Fin Staff has been looking at for some time, including proxy plumbing (particularly the role of proxy advisory firms), disclosure reform, Securities Offering Reform 2.0, Regulation AB II, beneficial ownership reporting, and countless other projects. These projects need to get the support and respect that they deserve, and progress toward proposals needs to be made even if the JOBS Act and Dodd-Frank rulemakings also must be completed in short order.

– Dave Lynn