October 19, 2018

CEO & Investor Group Issues “Commonsense Governance Principles 2.0”

Yesterday, a group of heavy-hitter CEOs & institutional investors issued “Commonsense Governance Principles 2.0,” an updated version of the high-level list of principles that the group originally promulgated in 2016.

Like the prior version, the updated principles are intended to provide a basic framework for sound, long-term-oriented corporate governance for public companies, their boards & their institutional shareholders. According to this press release announcing the updated governance principles, changes from the prior version include:

– Board members should be prepared to serve for a minimum of three years.
– If board elections are not annual, companies should explain why.
– Companies and shareholders are encouraged to engage early on important proxy proposals.
– Companies should allow some form of proxy access.
– Poison pills and other anti-takeover defenses should be put to a shareholder vote and re-evaluated by the board on a periodic basis.
– Asset managers should disclose if they rely on proxy advisors to inform their decision making.
– Asset managers should disclose their conflict of interest policies in their proxy voting and shareholder engagement activities.
– Portfolio managers should be compensated based on performance over an appropriate term, given the strategy and investment time horizon for the portfolio.
– Asset owners should promote sound, long-term oriented governance in their direct interactions with both companies and asset managers.
– Asset owners should use benchmarks and performance reports consistent with their investment time horizon to affect governance outcomes with asset managers and evaluate the asset managers’ performance on both investment returns and governance.

Early returns indicate that the new principles are likely to be well-received by investor groups. For instance, the CII issued a press release “applauding” the updated version, which it says represents a “significant improvement” over the original. More information, including an “open letter” from the signatories, is available at the group’s website.

ISS Policy Survey: Pay-for-Performance & Board Gender Diversity

Yesterday, ISS opened its “Annual Policy Survey.” For the US, the two main areas open for comment are board gender diversity – and financial performance assessment methodology.

As always, this is the next step for ISS as it formulates its 2019 voting policies. Comments are due by November 1st. Final policy changes are expected in mid-November…

Blockchain & Beyond: SEC Introduces “FinHub” for FinTech 

Yesterday, the SEC announced the launch of “FinHub” – its new “strategic hub for innovation and financial technology.” According to the press release, FinHub will serve as a resource for public engagement on blockchain & other FinTech-related issues and initiatives.

In addition to blockchain and digital assets, issues & initiatives encompassed by FinHub include automated investment advice, digital marketplace financing, and artificial intelligence/machine learning. It’s intended to replace several existing SEC working groups that have focused on similar issues. According to the release, FinHub will:

– Provide a portal for industry and the public to engage directly with SEC staff on innovative ideas and technological developments;
– Publicize information regarding the SEC’s activities and initiatives involving FinTech on the FinHub page;
– Engage with the public through publications and events, including a FinTech Forum focusing on distributed ledger technology and digital assets planned for 2019;
– Act as a platform and clearinghouse for SEC staff to acquire and disseminate information and FinTech-related knowledge within the agency; and
– Serve as a liaison to other domestic and international regulators regarding emerging technologies in financial, regulatory, and supervisory systems.

FinHub also replaces the FinTech@secgov address established in connection with the SEC’s 21(a) Report on the status of digital assets under the Securities Act – and provides a form that may be used to contact the Staff to arrange a meeting or request assistance with FinTech issues.

John Jenkins