1. The SEC has finally proposed clawback ruleshere, required by Section 954 of the Dodd-Frank Act. When adopted, the rules will require stock exchanges to propose and adopt listing standards that implement the requirements; which is to say, don’t stumble over yourself trying to adopt compliant policies now. (Although when they propose listing standards, we don’t expect the exchanges to ask their customers to do more than what is required by the SEC rules.) The proposed rules supplement Section 304 of the Sarbanes-Oxley Act, which allows the SEC to force a CEO and CFO to reimburse a public company for certain compensation and profit on stock sales if the company had a financial restatement due to misconduct. The rules also draw on experience with clawback provisions that applied to participants in the federal government’s Troubled Asset Recovery Program. 

The SEC’s proposed rules would implement the idea that if someone didn’t actually earn compensation, they shouldn’t get to keep it. Only AARP could controvert the underlying premise. As the 198-page length of the SEC’s release suggests, however, nothing is that simple. The rules would apply to Section 16 "executive officers" who received performance compensation based on financial measures in the past three completed fiscal years. The trigger for potential recovery is a restatement of financial statements due to "material errors," whatever that means, and the amount recoverable is the difference between what was paid and what should have been paid under the corrected financials. The rules prohibit indemnity, including through company-purchased insurance, to compensate an executive for recovered compensation. A company has some discretion to forgo seeking recovery if the cost exceeds the benefit, although rule limitations likely would make the exercise of that discretion itself costly and time-consuming. A company must describe its policy and any amounts clawed back, or not, following a financial restatement in its annual report or proxy statement. More detailed summaries of the proposed rules are hereherehere and here. Some additional resources about clawback policies are here (PWC review of 2014 clawback practices by 100 large public companies), here (Equilar review of 2013 clawback practices of the Fortune 100) and here (2011 presentation covering clawbacks and policy considerations).  

  1. Apropos of Dodd-Frank rulemaking, the SEC’s Division of Economic and Risk Analysis published additional cost/benefit analysis of its proposed pay ratio disclosure ruleshere, perhaps further bolstering its ability to fend off challenges to pending rules and suggesting these rules are coming soon.   
  2. The SEC also published a concept release for comment covering possible revisions to audit committee disclosures. A summary is here. At the same time, the PCAOB released a supplemental request for comment on rules that require public disclosure of audit quality indicators, available here.  
  3. In Regulation A+ news,   
    • the SEC published C&DIs on Regulation A+ rules, here;
    • the SEC posted six new or revised forms for the offerings, Form 1-A (offering statement), 1-K (annual report), 1-SA (semi-annual report), 1-U (current report), 1-Z (exit report) and 8-A (registration of securities), all available here; and
    • the SEC denied the State of Montana’s request to stay Regulation A+ rules, here.  
  4. As the 2015 proxy season winds down, some news on shareholder proxy proposals:   
    • The Third Circuit Court of Appeals issued its opinion in Trinity v. Wal-Marthere. Recall that the Third Circuit Court overruled a district court ruling that Wal-Mart must include a shareholder proposal in its proxy statement that would require Wal-Mart to consider and report on whether selling firearms made it look bad. In its published opinion, which trailed its order by four months, the Court clarified the test for excluding shareholder proxy proposals under the ordinary business exclusion, and emphasized that "a retailer’s approach to its product offerings is the bread and butter of its business." Some brief analysis is here and here.
    • A group of law firms submitted comments, here, calling for a return to the pre-Whole Foods rescinded no-action letter days, when a company could introduce a competing company proposal to delay, at least, consideration of a shareholder proposal.
    • Finally, summaries of recent "proxy access" results are here and here (the latter is particularly helpful, if we do say so ourselves).  
  5. For news on crowdfunding, including a suggestion that crowdfunding accounts for 20% of startup funding, see here. An updated summary of states that have adopted intrastate crowdfunding exemptions is here. And a reminder that, gasp, not everyone seeking small sums from unsophisticated investors is on the up-and-up is embodied in a recent FTC enforcement action and order here and here.   
  6. Delaware has now prohibited fee-shifting, or "loser pays," bylaws and expressly authorized exclusive forum bylaws. The amendments, which take effect August 1, 2015, are here.   
  7. And finally, same-sex couples are undoubtedly doubling up on celebrations after the SEC announced, here, that their unions are recognized for purposes of accredited investor calculations and other securities law purposes. Um, yay?