The proxy process and advisory companies. The Clayton-Hinman dialogue focused on the proxy system and disclosure program. Clayton said that shareholder engagement is strong, but he discovered three areas with room for improvement: the system itself, which he “antiquated” called; the engagement process;, and the real voting process. With this last issue, Clayton said that the SEC is reviewing the use of proxy advisory companies. Hinman said that the Division of Investment Management is very focused on these fiduciary responsibilities and will be putting out help with what the work actually means.
Hinman added that each year, CorpFin puts collectively a “SWAT team” to focus on the proxy season, this season lost a month or more to the government shutdown but. The lesson the Division took away from its leaner review is that perhaps not every no-action letter requires a formal response. Going forward, if CorpFin will not feel it is adding value, it might not issue a letter. Hinman posited that this may improve engagement: “We escape the way.” Clayton said he couldn’t concur more. The guidelines are made to assist in the engagement, so it’s not good if they are actually hindering dialogue.
However, he cautioned that stunning this balance is simple to say but difficult to do. Disclosure and engagement. Hinman and Clayton agreed that they would like to see more IPOs, and IPOs earlier in a company’s life cycle. Clayton said that as the “use of proceeds” portion of a prospectus used to focus on investments in flower, property, and research, today the use is liquidity.
Public investors today do not have as many opportunities to purchase an organization through its growth stage. Hinman said he encourages direct listings such as those conducted by Slack and Spotify without firm dedication underwriting. The Division is also reviewing the SEC’s rules to check out where the rules create burdens without a corresponding benefit to shareholder protection. Hinman said that stock buybacks are a great example of this process.
Despite the backlash against them, it isn’t up to the SEC to choose steps to make capital allocations. The agency focuses on the company’s disclosure: how compensation committees to disclose the way they take buybacks into consideration in compensation decisions, or what sort of liquidity section discusses why a buyback was chosen over other available choices. Clayton agreed. While the SEC has regulated buybacks beyond the technicians of the real transaction never, it does want the ongoing company to clarify its thought process.
Finally, to segue into the next -panel, the moderator asked for the officials’ views on board diversity. Clayton said that if he understood how far better enhance that goal, he would get the Nobel prize. At the agency Internally, however, he said that the SEC does a better job on gender-half of his direct reports are women-but must improve BLACK and Hispanic representation, at the senior level especially.
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When he looks at these metrics, Clayton asks if the agency is for some reason depriving people of opportunity. In conditions of disclosure, both Clayton and Hinman said they have spent a lot of time with this and are sensitive to the privacy of individual board members. Specifically, Hinman said that companies were reluctant to push directors to reveal demographic information if they didn’t proactively self-identify.
He added that the required disclosures under Items 401 and 407 of Reg S-K never have been very helpful because companies spoke generally terms, or would say that they had a variety policy but go no more. The recent C&DIto remind companies that if a board member self-identifies diversity characteristics and consents with their disclosure, the company must disclose.
Board variety legislation. Representatives Maloney and Meeks then had taken the stage to go over table diversity, particularly H.R. 1018, the Improving Corporate Governance Through Diversity Act of 2019, which approved from the Financial Services Committee recently. Meeks sponsored the bill and Maloney, who spearheaded the diversity effort by ordering a GAO study of the pressing issue, is a cosponsor.