Earlier this month, Jay Clayton was sworn in as Chairman of the Securities and Exchange Commission (“SEC”). He has begun assembling his front office staff, and wasted no time in appointing William Hinman as director of the Division of Corporation Finance and Robert Stebbins as general counsel. Each of the three were previously partners at prominent corporate law firms, and each has substantial experience in corporate governance, capital markets transactions and mergers and acquisitions. Though Chairman Clayton has not yet fully publicized his regulatory agenda, there are several predictions for his term we are confident making:
- The SEC’s disclosure effectiveness project, which seeks to modernize the public company disclosure regime, will likely continue under Chairman Clayton and Director Hinman. Over the next several years, the SEC is likely to adopt amendments to Regulation S-K that will, on the one hand, eliminate antiquated and duplicative disclosure requirements but, on the other hand, will require enhanced disclosure on hot topics such as corporate governance, risk management and executive compensation.
- While the Financial CHOICE Act, which would roll back many provisions of the Dodd-Frank Act, will likely pass the House of Representatives in some form, its future in the Senate is far less certain. Retailers hoping for a legislative repeal of onerous Dodd-Frank provisions covering controversial topics such as conflict minerals and pay-ratio disclosure may be disappointed.
- Chairman Clayton will remain under Congressional pressure to finalize incomplete Dodd-Frank rules concerning clawbacks, hedging and pay for performance. While we are cautiously optimistic Chairman Clayton will tack in a different direction given the punitive nature of some facets of the proposed rules, we expect the SEC to adopt final rules on these topics during Clayton’s term.
- With legislative and SEC action to repeal pay-ratio disclosure uncertain, we encourage retailers to continue efforts to prepare for the first disclosures, which for most public companies will appear in the 2018 proxy statement or annual report. A number of our clients have experienced technical and administrative difficulties in collecting the required employee data that may reside in multiple human resources databases that are not linked with one another and were not designed with SEC reporting in mind. Likewise, absent SEC relief, under the current rules retailers subject to data privacy rules abroad must navigate a burdensome exemption process if local law prohibits exporting personal information of foreign workers to the U.S.
- Notwithstanding some media reports predicting a lighter touch to SEC enforcement, we expect the SEC’s enforcement regime under Chairman Clayton will continue apace. Although the SEC may pursue fewer “broken windows” cases under Chairman Clayton, we anticipate that enforcement actions targeting individuals, including officers of public companies, will increase.