As we
previously reported, Gary Gensler will be nominated by President Biden to lead the SEC. Overall, the market expects Mr. Gensler to be less business-friendly than the previous administration and pursue tougher regulation and enforcement. A
recent article from law firm Olshan Frome Wolosky examines what the market can expect on several shareholder-specific topics. Highlights include:
Proxy Advisor Regulation
- It is believed that the SEC will seek to minimize the negative impact of regulation on proxy advisors and given that compliance is not required until 2022, there is time for the committee to address concerns. Specifically, DC US District Court is expected to rule on ISS’s lawsuit alleging the SEC’s rulemaking was improper. If the SEC settles the lawsuit, it will offer a preview of how the SEC will address the existing rule going forward.
- There has been some speculation that Democratic leadership in Congress may use the Congressional Review Act to overturn shareholder proposal eligibility rules, but the proxy advisor regulations have not been similarly mentioned.
ESG and D&I
- The Biden administration has made it clear they intend to address climate change as well as racial and gender diversity concerns. The SEC is likely to have a significant part to play, including scrutinizing how ESG metrics are being used and disclosed or requiring more prescriptive disclosures of specific data. Mr. Gensler may look to build on the existing principles-based human capital metrics rules through additional rules or guidance about specific metrics the SEC will consider material risks. Companies that have resisted ESG or D&I disclosures and risk mitigation plans may find themselves behind the curve very quickly in 2021.
Mr. Gensler led the CFTC out of the 2008/09 financial crisis and developed a reputation as ruthlessly efficient. The market was impressed with his efficiency in getting new rules implemented. There is no reason to expect that he would not pursue a similar pace at the SEC.
