SEC Securities & Exchange Commission

As the SEC returns to work after the shutdown, Commission chairman, Jay Clayton has started to lay out his departments work for the coming year. During a conference call with the Investor Advisory Committee, (Thurs 6 Feb 19) Clayton announced that fellow Commissioner Elad L Roisman has agreed to take on the proxy plumbing brief.

Commenting on the announcement, Roisman said: “I  am excited to take a lead on the Commission’s efforts to improve the proxy voting process and infrastructure. As you know, the SEC staff held a roundtable on this topic last November. One thing was clear to me: the proxy voting system is ripe for review. Voting is a fundamental tool shareholders use to hold directors and officers accountable for their oversight and management of public companies. Yet, the current system of proxy plumbing has been cast as inefficient, opaque, and unreliable in its accuracy.”

A lawyer by training, Commissioner Roisman was appointed in September 2018. He previously served as Counsel to SEC Commissioner Daniel M. Gallagher. Prior to joining the SEC, Roisman held positions as a Chief Counsel at NYSE Euronext, the home of many of the US’ proxy voting regulations.

Long term followers of the proxy plumbing debate will recognise that former Commissioner Gallagher has been a vocal critic of proxy advisors and pro-shareholder regulations for many years. Gallagher is now chief legal counsel for Mylan Inc. Mylan, as with Gallagher, has an interesting track record of public clashes with proxy advisors, as noted by The Street.

Proxy voting responsibilities

Speaking about proxy advisors, Roisman noted that: “concerns have been raised about other aspects of the proxy voting ecosystem, such as proxy advisors’ recommendations and asset managers’ voting practices. It is important for us to study and address these issues, as appropriate. Investors and our public companies deserve nothing less.

Surprisingly, neither Clayton or Roisman mentioned shareholder proposal process which has also been the subject of prominent criticism by corporate groups, most recently in a letter from NASDAQ published two days day before the Investor Advisory Committee meeting. Instead, Clayton led his remarks with a call for a review of human capital management (HCM) reporting with a focus on materiality which would help investors better understand firm-level approaches.

HCR – Principles not Rules Disclosure?

Noting that he was “wary of jumping in with rules or guidance that would mandate rigid standards or metrics for all public companies,” Clayton reflected that current disclosures dated back to a time when companies relied significantly on plant, property and equipment to drive value. Rather than seeing human capital as a cost, he noted that “today, human capital and intellectual property often represent an essential resource and driver of performance for many companies”.

Chairman Clayton’s call to review HCM reporting will no doubt be welcomed by the The Human Capital Management Coalition, a global group of 25 institutional investors representing over $2.8 trillion in assets, who in July 2017 petitioned the SEC to adopt new rules, or amend existing rules, to require issuers to disclose information about their human capital management policies, practices and performance.

Commission Roisman Statement at the Proxy Plumbing Roundtable Nov-18 >>

NASDAQ Letter on Proxy Reform >>

Last Updated: 10 February 2019
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