At the onset of every new proxy season, it’s the prime time to review new laws and regulations that signal a change to your D&O questionnaires. Most corporate secretaries find that it’s wise to start early so they can do their due diligence research, prepare the questionnaires and receive them back for timely reporting. There are plenty of things secretaries can do in the off-season to prepare for the 2018 proxy season.

New Rules for Nasdaq

Nasdaq recently established a new rule to ensure that performance-based metrics don’t lead to a conflict of interest. The new rule, which has been dubbed the “golden leash” rule, requires all companies listed on their exchange to publicly disclose compensation or other payments by third parties to board directors and board director nominees. The disclosures apply to all material terms of all agreements and arrangements between directors or director nominees that directly relate to board service.

Nasdaq prompted the change because they wanted to make sure that director incentives didn’t interfere with their fiduciary duties, and to make sure that they were looking at long-term growth, as well as short-term gains. The golden leash rule requires corporations to share the information publicly on their websites or in their proxy statements.

The new law doesn’t apply to companies listed on the New York Stock Exchange; however, legal firms encourage all corporations to follow this rule as a legal safeguard.

Of course, the new rule signals a change to the D&O questionnaires to make sure that secretaries are receiving and reporting accurate information.

Using Off-Season to Prepare for the Proxy Season

As proxy season approaches, corporate secretaries won’t be so harried if they spend some time preparing during the off-season. The prior autumn is the best time to get started. Global law firm Vinson & Elkins shares 10 things that corporate secretaries can do ahead of time:

  1. Prepare for the new GAAP and CEO pay ratio
  2. Review non-GAAP metrics and how to use and disclose them
  3. Benchmark peer voluntary disclosures
  4. Benchmark peer shareholder proposals
  5. Identify risk factors and potential areas of investor concern
  6. Review whistle-blower policies
  7. Review and update board evaluation procedures
  8. Review sustainability disclosures in case of potential litigation issues
  9. Review all key governance documents
  10. Refresh and revise the proxy statement and the annual report

Preparing for 2018 Proxy Season

Every new proxy season brings its own updates and challenges. Here is a short summary of some specific issues to review as you plan for 2018 reporting. Be sure to review the exact rules and details of each issue.

Say-on-Pay Frequency Vote

Corporations must comply with rule 14a-21(b) requiring them to hold a vote on say-on-pay every six years. Corporations need to review when they are required to have their say-on-pay frequency vote. This is particularly important for EGCs that formerly qualified under the Jobs Act because their say-on-pay frequency voting requirement changes after they lose EGC status. Corporations that hold frequency votes also need to amend Form 8-K within 150 calendar days after the meeting where they held their frequency vote.

Pay Ratio Disclosure

The pay-ratio disclosure rule applies to all companies that issue proxy statements after January 1, 2017. It requires public companies to disclose the ratio of the median of the total compensation of all employees to the annual total compensation of the CEO. The Financial Choice Act, which is currently being debated in Congress, could repeal this rule.

ISS Proxy Voting Policies

Institutional Shareholder Services (ISS) surveys policies and makes voting recommendations. Corporations should review the 2018 policy survey in December 2017.

Hyperlinking of Exhibits

The SEC now requires public companies to use hyperlinks to exhibits that they list in their exhibit index, including Form 10-K. The rule also requires companies to correct inaccuracies in links as they are identified. The rules are slightly different for small-cap companies.

Form 10-K Cover Page

The SEC now requires EGCs to check boxes on the cover page of Form 10-K to indicate whether they are an EGC. Corporations also have to check a box that shows if they will use an extended transition period with new or revised financial accounting standards to meet compliance.

Inflation-Adjusted Threshold for EGCs

Note and consider that the maximum inflation-adjusted threshold for EGC revenues is $1,070,000,00.

Resource Extraction Rules

Companies doing business in the oil, natural gas and mineral extraction industries no longer have to disclose payments they make to governments. The Congressional Review Act in February 2017 eliminated the disclosures.

Conflict Minerals Rules

SEC staff issued no-action guidance relative to rule 1.01(c) of Form SD for companies reporting about conflict minerals used in their products. Many issuers continue to respond to item 1.01(c), which is no longer necessary when they receive staff guidance.

Providing Paper Copies of Annual Reports to SEC

SEC rules require companies to mail seven copies of their annual reports to security holders and the commission. Form 10-K requires certain registrants to supply four copies of the annual report to security holders. The SEC advised in an explanatory interpretation document that it won’t object to companies posting electronic versions of annual reports on the company website by certain dates in lieu of paper copies, as long as the report is accessible for one year.

Inline XBRL

The SEC is proposing new rules to allow financial statements to be provided in the Inline XBRL format for ease of access. The SEC permits the use of Inline XBRL but has not yet finalized rules. Until the rules are finalized, corporations may want to defer to the formats recommended by their auditors.

PCAOB’s Changes to Audit Report

The Public Company Accounting Oversight Board adopted new reporting standards. The new standards require a description of critical accounting matters revealed during the audit and the auditor’s response. The rule also requires the company to note when no critical accounting matters came to light during the audit.

Revenue Recognition and Lease Accounting

Companies must provide transition disclosures of the impact that accounting standards will have on their financial statements when they adopt standards in a future period. Revenue recognition and lease accounting standards apply after December 15, 2017, and application of the standards applies to fiscal years that begin after December 15, 2018.

T+2 Settlement

Effective September 5, 2017, the SEC requires companies to settle securities transactions on a T+2 basis rather than a T+3 basis.

NYSE Dividend Notification Requirements

The SEC approved a change to the NYSE rules that requires listed companies to provide the NYSE with dividend notifications at least 10 minutes before issuing them publicly when they issue them outside of normal NYSE trading hours. NYSE wants to give companies time to comply, so they expect final implementation to be completed by February 1, 2018.

Rule 14a-8 Shareholder Proposals

Companies should prepare for shareholder proposals. Companies that have not yet adopted proxy access should prepare for shareholder proposals requesting to allow it.

Board Portal Software Streamlines Compliance Tasks

Keeping up on all of the new laws and regulations can be labor intensive. Board portal software lets you record notes all year long about pending rules and laws that may affect your D&O questionnaires. A quick review of your notes will help you update your D&O questionnaires quickly, accurately and efficiently.

With the Diligent D&O Questionnaires module, you can turn yearly director and officer reporting into a pain-free, productive process. By moving your D&O process online, you can eliminate the time and resource-intensive process of assembling binders, mailing information that may require last minute updates and waiting for days or weeks for the return of signed packets. See how you can enhance the performance of your board and streamline your D&O process.