The Council of Institutional Investors ("CII") provided the SEC with feedback on its semiannual regulatory agenda with a focus on investor protection, corporate disclosure, and market systems and structure.

In the comment letter, CII advocated the following views:

  • Investor Rights and Protections. CII expressed support for the adoption of the SEC's 2015 proposed "Listing Standards for Recovery of Erroneously Awarded Compensation," explaining that some companies (i) have executive clawback policies that require proof of misconduct or (ii) do not yet have clawback policies at all. CII further expressed its belief that the finalization of the 2015 proposal would address current deficiencies in clawback policies by creating a minimum standard for listed companies, thus improving corporate governance.
  • Corporate Disclosure. CII advocated for the proposal of a clear rule requiring diversity disclosures of corporate boards, executive officers and related nominees. CII also asked that the SEC (i) amend SEA Rule 10b5-1 ("Trading 'on the Basis of' Material Nonpublic Information in Insider Trading Cases") to tighten requirements for insiders' stock trading plans and (ii) require compensation, discussion and analysis (or "CD&A") reports to include a quantitative reconciliation between the non-GAAP and GAAP metrics used to disclose executive compensation.
  • Market Systems and Structure. CII expressed support for (i) the finalization of a 2016 proposal to amend proxy voting rules to enable shareholders voting by proxy to "choose among duly-nominated candidates in a contested election of directors" and (ii) amendments to improve the mechanics of the proxy voting process to confirm that shareholder votes are counted accurately.

CII acknowledged that the semiannual agenda reflects the priorities of former SEC Chair Jay Clayton. CII stated it was "optimistic" that future agendas under the leadership of Chair Gary Gensler will "align with the needs and demands of long-term investors and our capital markets generally."

In a separate letter, CII welcomed Mr. Gensler and requested that he consider appointing a qualified investor or investor representative to lead the Office of the Chief Accountant to give "preeminence" to investor perspectives, consistent with the 2008 recommendation by the SEC's Advisory Committee on Improvements to Financial Reporting.

Commentary

One of the interesting aspects of the CII letter is that while it may be said to fit broadly within the environmental, social and corporate governance (or "ESG") umbrella, the CII's focus is much more on the "G" than it is on the "E."  As a practical matter, many of the companies that score highly on "E" are technology companies that score poorly on "G." To some extent this reflects how broad, or amorphous, the ESG concept is.

Primary Sources

  1. CII Comment Letter: On SEC Agenda
  2. CII Comment Letter: SEC Chair Gary Gensler

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