All items from Davis Polk Briefing: Governance

According to several news outlets, Chairman White declared during her testimony before the House Financial Services Committee on Thursday that "no one is working on a proposed rule," in response to questions about whether the SEC will require companies to disclose political contributions. The Chairman indicated that the SEC's review of the rulemaking petition soliciting this disclosure is "not completed."
The Washington Post reports that House Republicans were disturbed to learn that the SEC is considering such a petition, believing the initiative to be "highly partisan" in light of the controversy surrounding the IRS' examination of certain groups. Representative Scott Garrett of New Jersey pressed Chairman White to commit that the SEC will not be "bullied by these outside radical groups." However, Chairman White declined to take a position. The petition has gained more than 500,000 comments, largely in support, much of which are signed form letters.
Chairman White has also responded to an April letter from Senate Commerce Committee Chairman Jay Rockefeller about cybersecurity disclosure.

The resignation of Occidental’s chairman at the company’s annual meeting, which has been widely reported, was subject to an unusual majority vote provision. 76% of the votes cast opposed Mr. Irani’s election to the board. As is fairly common with majority voting, the company’s bylaws require any nominee who receives a greater number of votes against his election than in support of such election to tender his resignation. However, rather than having the board consider whether to accept the director’s resignation and publicly announce its decision within 90 days, Occidental’s bylaws provide that the resignation becomes effective upon the earlier of acceptance by the board or October 31 in the year of election. In other words, the bylaws do not allow the board to reject the resignation, for any reason.

The majority vote bylaw was adopted in 2011 following the outcry over the compensation paid to Mr. Irani, who was then CEO of the company. As a result of the most recent controversy, Occidental made additional governance changes. Some of the more unconventional reforms the board adopted include the rotation of the positions of independent chairman and committee chairs every five years, prohibiting former CEOs of the company from sitting on its board and having the mandatory retirement age for CEOs set at 68. Both executive and director compensation, which had been subject to criticism, were also decreased, with the CEO promising to forego any bonus and certain other compensation during his remaining tenure.

A key question under the new standards taking effect July 1 (described in our client memo here) is whether a particular firm or person should be deemed to be serving as an “adviser to the compensation committee” and therefore subject to the requirement that the committee make a prior determination as to independence. Advisers retained directly by the committee are of course covered by this term, but what about advisers to the company who also provide advice to the committee? We think that a company adviser who regularly presents to the committee should be deemed an adviser to the committee, and therefore should be subject to an independence determination now. Companies should also consider making a predetermination as to other advisers who have been retained by the company and who may be called on to provide advice to the committee. The reason to consider predetermining independence now is that the determination should be made prior to the committee receiving the advice. If you would like company advisers to be able to provide advice to the committee if an unplanned situation develops during the year, predetermining independence now could avoid a scramble later.
Remember that the new rules merely require compensation committees to consider the independence of their advisers.

Recently, we reminded companies of the upcoming deadlines related to the new listing exchanges' rules on compensation committees in this client alert. In two separate posts, we talk about the required changes to committee charters.  Kyoko Takahashi Lin addresses questions in Part I of this post, which focuses specifically on NYSE listed companies. We will turn our attention to Nasdaq companies in Part II.

• Can you summarize the amendments to the committee charters that are required by July 1?
  
  NYSE listed companies must provide in their compensation committee charters the authorization for the committees to engage their own advisers and be directly responsible for the appointment, compensation and oversight of their work. The committees must have appropriate funding to pay the advisers. Before engaging these advisers directly, or even receiving advice from any other advisers, the committees must take into account specific independence factors.
  
  
  
• How do the authorizations available for compensation committees differ from the authorizations available for audit committees?
  
  Rule 10A-3 gives audit committees the authority to engage advisers and requires companies to provide for appropriate funding for the advisers and compensation to the outside auditors, as well as administrative expenses of the committee.