On May 22, 2019 the SEC released its Spring 2019 Regulatory Flexibility Agenda (Reg Flex Agenda), available here. The Reg Flex Agenda identifies rulemaking projects that the SEC expects to address, and classifies those projects as being either in the “Proposed & Final Rule Stages," which reflects those that the SEC expects to propose over the coming year, and “Long-Term Actions," which includes those that the SEC is more likely to address over a longer timeframe.
Notably, the Reg Flex Agenda for the first time now identifies the following four rulemaking projects as among those that the SEC expects to address over the coming year:
- Proposing rule amendments regarding the thresholds for shareholder proposals under Rule 14a‑8;
- Proposing rule amendments to address certain advisors' reliance on the proxy solicitation exemptions in Rule 14a-2(b);
- Proposing rule amendments to modernize and simplify disclosures regarding Management's Discussion & Analysis (MD&A), Selected Financial Data and Supplementary Financial Information; and
- Proposing rule amendments to Securities Act Rule 701, the exemption from registration for securities issued by non-reporting companies pursuant to compensatory arrangements, and Form S-8, the registration statement for compensatory offerings by reporting companies (previously listed as a longer term project.).
As is typical, the SEC did not provide any additional guidance for these items, but it is generally expected that the SEC rule proposals will include increasing the ownership and resubmission thresholds for Rule 14a-8 shareholder proposals. The SEC's current ownership thresholds are (i) a holding period of one year and (ii) ownership of at least $2,000 in market value of a company's shares.[1] The SEC's current resubmission thresholds allow a company to exclude proposals that were voted on at the company in the past five years and most recently received less than 3% if voted on once, 6% if voted on twice, and 10% if voted on three times. Additionally, under Rule 14a-2(b)(3), proxy advisory firms have a conditional exemption from many of the SEC's proxy rules.
The Reg Flex Agenda indicates that rules related to the extension of testing the waters for non-emerging growth companies and amendments to the financial disclosures for registered debt security offerings are in the Final Rules Stage. More on these proposed rules are available in our alerts here and here.
Lastly, the Long-Term Actions part of the Reg Flex Agenda, available here, continues to reference the following items as long-term projects:
- listing standards for recovery of erroneously awarded compensation (i.e., clawbacks);
- pay versus performance disclosure;
- revisions to audit committee disclosures;
- universal proxy;
- Form 10-K summary;
- simplification of disclosure requirements for emerging growth companies and forward incorporation by reference on Form S-1 for smaller reporting companies;
- corporate board diversity;
- conflict minerals amendments;
- proxy process amendments (i.e., “proxy plumbing"); and
- earnings releases/quarterly reports.
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Special thanks to David Korvin for his contribution to this post.
[1] Shareholders may also meet this requirement by holding 1% of a company's outstanding share value, but given the large size of public companies, the vast majority of shareholders meet the ownership requirement by holding at least $2,000 in market value of a company's shares.