On August 18, 2015, following a panel rehearing, the U.S. Court of Appeals for the D.C. Circuit issued an opinion affirming its April 2014 decision in National Association of Manufacturers, et al. v. SEC, et al. (“NAM”) that the conflict minerals disclosure rule violates the First Amendment to the extent it requires companies to report that any of their products have “not been found to be ‘DRC conflict free.’” The NAM panel had granted a petition for rehearing in light of a July 2014 ruling in American Meat Institute v. U.S. Department of Agriculture (“AMI”), in which an en banc panel of the D.C. Circuit upheld the constitutionality of compelled speech in the form of Department of Agriculture rules requiring country-of-origin labeling for meat products and raised issues regarding the standard of review to be applied by the court in reviewing the First Amendment challenge in NAM. Because the opinion also addressed the appropriate standard of review to be applied by courts in reviewing compelled speech in the regulatory arena, the NAM panel saw fit to reconsider its decision in light of AMI.
Dodd Frank
Council of Institutional Investors Announces Its Views on Proxy Access Best Practices
Today the Council of Institutional Investors (“CII”), a nonprofit association of corporate, public and union employee benefit funds and endowments that seeks to promote effective corporate governance practices for U.S. companies and strong shareholder rights and protections, published a report titled “Proxy Access: Best Practices” that describes CII’s views on seven provisions that companies typically address when implementing proxy access. The CII report is available here.
SEC Proposes Rules Regarding Clawbacks
The Securities and Exchange Commission (the “SEC”) today voted, 3-2, to issue proposed rules implementing the mandate in Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) that the SEC require national securities exchanges and associations to adopt a listing standard that requires listed companies to adopt and enforce a clawback policy.
SEC Proposes Rules On “Pay Versus Performance” Disclosures
To Our Clients and Friends:
On April 29, 2015, the Securities and Exchange Commission ("SEC" or "Commission") voted, 3-2, to issue proposed rules implementing the pay-versus-performance disclosure requirement in Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). In summary, the proposed rules would require proxy statements or information statements setting forth executive compensation disclosure to include (1) a new compensation table setting forth for each of the five most recently completed fiscal years, the "executive compensation actually paid" (as defined in the proposed rules), total compensation as disclosed in the Summary Compensation Table, total shareholder return (TSR), and peer group TSR, and (2) based on the information set forth in the new table, a clear description of the relationship between executive compensation actually paid to the company’s named executive officers and the company’s TSR, and a comparison of the company’s TSR and the TSR of a peer group chosen by the company.
SEC Delays Action Date for Internal Pay Ratio Final Rules
In its most recently published regulatory rulemaking agenda, the SEC delayed its final action date for issuing rules to implement the internal pay ratio disclosure requirement in Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The rulemaking agenda previously provided that the SEC intended to issue final rules no later than October 2014, but now has rolled that date back to October 2015. The rulemaking agenda sets forth the SEC’s rulemaking priorities for the coming year, but does not establish deadlines and may not even reflect the order in which rulemaking will be undertaken, meaning that the Commission could still adopt final internal pay ratio rules prior to October 2015. Based on the proposed internal pay ratio rules, the final rules are projected to apply to the first full year following the effective date, meaning that if final rules become effective in 2015, the rules would first apply to 2016 compensation and the internal pay ratio disclosures would need to be included in companies’ 2017 proxy statements. However, the Commission could revise these provisions in its final rules to require earlier or allow for a later compliance date. The SEC likewise extended the final action dates for proposing rules under the other compensation-related provisions of the Dodd-Frank Act dealing with clawbacks, pay-for-performance disclosure, and director and employee hedging disclosure from October 2014 to October 2015.
House Financial Services Committee Approves Eight Bills Affecting Securities Regulation
Earlier this summer, on May 22, 2014, the Financial Services Committee of the House of Representatives approved eight bills relating to issuer disclosures, public and private capital raising, the liquidity of restricted securities and SEC regulations generally. These bills, if enacted into law, would incrementally ease the many burdens imposed by the current securities regulatory regime.
SEC Issues Second Set of FAQs on Conflict Minerals Rules
On April 7, 2014 the SEC’s Division of Corporation Finance issued a second set of Frequently Asked Questions (“FAQs”) on its conflict minerals rules (Exchange Act Section 13(p), Rule 13p-1 and Item 1.01 of Form SD). The full set of FAQs, including the nine new FAQs and the 12 FAQs issued in May 2013, is available at http://www.sec.gov/divisions/corpfin/guidance/conflictminerals-faq.htm. For more information about the conflict minerals rules, please see our client alert available at https://www.gibsondunn.com/publications/pages/ConflictMinerals-UnderstandingFinalSECRules.aspx, and for a discussion of the first set of FAQs, please see our client alert available at https://www.gibsondunn.com/publications/pages/SEC-Issues-FAQs-On-Conflict-Minerals.aspx.
U.S. Court of Appeals Hears Argument on SEC’s Conflict Minerals Rules
Yesterday the U.S. Court of Appeals for the D.C. Circuit heard oral argument in a suit challenging the SEC’s conflict minerals rules, which were mandated under the Dodd-Frank Act and issued by the SEC on August 22, 2012. The case came to the D.C. Circuit on appeal from a July 2013 district court decision upholding the SEC’s rules. The rules had been challenged by the National Association of Manufacturers, the U.S. Chamber of Commerce and the Business Roundtable (the “Appellants”).
SEC Corp Fin Staff Issues “Bad Actor” Rule Compliance and Disclosure Interpretations
On December 4, 2013, the Staff of the SEC’s Division of Corporation Finance issued new Compliance and Disclosure Interpretations (C&DIs) providing guidance on rules recently adopted by the SEC that prohibit certain felons and other “bad actors” from participating in private securities offerings that rely on Rule 506 of Regulation D under the Securities Act of 1933 (Securities Act). The rule generally applies to the issuer, certain third parties that participate in the offering, and certain controlling persons, officers and affiliates of the issuer and such third parties (covered persons).
SEC Proposes Rules Regarding Internal Pay Ratio Disclosure
The SEC today held an open meeting and voted, 3-2, to approve the issuance of proposed rules to implement the internal pay ratio disclosure requirement in Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). SEC Chair Mary Jo White and Commissioners Kara Stein and Luis Aguilar voted to propose the rules and Commissioners Daniel Gallagher and Michael Piwowar dissented. Statements made by the Commissioners today regarding the proposal are on the SEC website and available here. The comment period for the SEC’s proposed rules will be 60 days after the proposing release is published in the Federal Register; the proposing release is on the SEC website and available here.