On June 8, 2022, the US Securities and Exchange Commission ("SEC") issued a release ("New Reopening Release"), reopening the comment period on the clawback listing standard rules that it proposed in 2015 ("2015 Proposal"). At the same time, the SEC made available a memorandum prepared by the staff of the SEC's Division of Economic and Risk Analysis ("Staff Memorandum") that discusses the increase in voluntary adoption of compensation recovery policies by issuers and provides estimates of the number of additional restatements that would trigger a compensation recovery analysis if the rules were extended to include all required restatements made to correct an error in previously issued financial statements, including "little r" restatements. The Staff Memorandum also addresses some potential costs and benefits of the proposed rules. The SEC reopened the comment period to allow interested persons to consider and comment on the analyses and data set forth in the Staff Memorandum.
The New Reopening Release represents the second time in less than a year that the SEC reopened the comment period on the 2015 Proposal. In October 2021, the SEC reopened the comment period on the 2015 Proposal ("Original Reopening Release"), which closed on November 22, 2021.
The 2015 Proposal requested comments on more than 100 specific questions. The Original Reopening Release raised additional requests for comment in 10 multifacted areas. While the New Reopening Release is designed to allow comment on the Staff Memorandum, interested parties may also submit comments on any aspect of the 2015 Proposal, including on the additional requests for comments raised in the Original Reopening Release.
The new comment period closes 30 days after publication of the New Reopening Release in the Federal Register.
Background
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) added Section 10D to the Securities Exchange Act of 1934, requiring the SEC to direct national securities exchanges and associations to establish listing standards that prohibit the listing of any security of a company that does not adopt and implement a written policy requiring the recovery, or "clawback," of certain incentive-based executive compensation payments. For additional information on the SEC's 2015 Proposal, see our Legal Update, "US SEC Proposes Compensation Clawback Listing Standards Requirement," dated July 16, 2015. For additional information on the SEC's 2015 Proposal, see our Legal Update, "SEC Reopens Comment Period for Clawback Listing Standards," dated October 18, 2021.
Practical Considerations
The New Reopening Release provides interested parties with another chance to provide input on, and perhaps influence, the SEC's clawback listing standard rules before they are finalized. The Staff Memorandum provides data and analyses that the SEC will likely rely on as it develops its final clawback listing standard. Specifically, the Staff Memorandum is expected to inform the economic analysis that would serve as the justification for any final rule. Having this opportunity to review, consider and respond to this presentation at this time can be very helpful to interested parties that may be impacted by the clawback listing standard rules.
Because the new comment period will close 30 days after publication in the Federal Register, interested persons should start reviewing the Staff Memorandum and thinking about possible comments right way.
Previously-submitted comments do not have to be re-submitted.
Because many investors and proxy advisory firms view clawback policies as an important corporate governance practice, many listed companies have already adopted corporate clawback policies and others may adopt them before the listing standards envisioned by Dodd-Frank are effective. However, since this is an evolving regulatory area, listed companies need to monitor all clawback developments closely to determine whether amendments to their policies become necessary or advisable as this rulemaking proceeds.
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Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe - Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
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