The mission of the SEC is to facilitate capital formation; protect investors; and maintain fair, orderly and efficient markets.1 During President Barack Obama’s Administration, the SEC emphasized investor protection, implementing rules in response to the financial crisis, the 2010 Dodd-Frank Act financial regulatory reform law, as well

as the Jumpstart Our Business Startups (JOBS) Act of 2012 that was intended to encourage IPOs and capital formation by private companies. Some of the SEC rules mandated by Dodd-Frank remain pending — while 67 mandatory rules have been completed, 15 remain in proposal form and 4 have not yet been proposed,

including certain rules on capital and margin requirements for derivatives and corporate governance.2 The SEC has pursued enforcement under its “broken windows” approach, resulting in a record number of enforcement actions for the agency over a three-year period.3

SEC Outlook

SEC Outlook 2017What public companies should expect

President Donald Trump has nominated Jay Clayton to be the new chairman of the Securities and Exchange Commission (SEC). Clayton has indicated that encouraging companies to enter the public capital markets will be a priority for him. As chairman, he will have the authority to set the SEC’s rule-making agenda, including whether to continue to pursue existing SEC projects relating to capital formation and the public capital markets. This document examines eight key policy areas affecting public companies that could be on the SEC’s agenda going forward.

1. “What We Do,” U.S. Securities and Exchange Commission (SEC) website, https://www.sec.gov/about/whatwedo.shtml, accessed March 2017.2. “Implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act,” SEC website, https://www.sec.gov/spotlight/implementation-of-dodd-frank-act.shtml, accessed March 2017.3. “SEC Chair Mary Jo White Announces Departure Plans,” SEC, 14 November 2016, https://www.sec.gov/news/pressrelease/2016-238.html, accessed March 2017.

Background

2 | SEC Outlook 2017

New leadershipThe policy direction of the SEC is established by the chair. Clayton provided insight during his 23 March confirmation hearing before the Senate Banking, Housing and Urban Affairs Committee as to his likely priorities, which included capital formation and SEC enforcement. Clayton, a registered independent, is widely expected to be confirmed. Clayton is a partner with the law firm Sullivan & Cromwell, whose practice has included public and private M&A transactions, capital markets offerings, and regulatory and enforcement proceedings. He also has worked on high-profile IPOs.4

While the SEC is an independent agency, President Trump will have the opportunity to determine the commission’s composition, which in turn influences its policy agenda. In addition to the SEC chair position, the Trump Administration can fill two more seats on the commission that are currently vacant. All would need to be confirmed by the Senate before joining Acting Chairman Michael Piwowar (Republican) and Commissioner Kara Stein (Democrat) on the five-seat commission. Stein’s current term expires in June 2017, although she is eligible to be nominated for another five-year term. According to the Securities and Exchange Act, “Not more than three … commissioners shall be members of the same political party,

and in making appointments members of different political parties shall be appointed alternately as nearly as may be practicable.”5 Some observers have suggested that, because Clayton is an independent, Trump will have greater latitude in selecting commissioner candidates.6

Current SEC activitiesDespite not currently having a full commission or permanent chair, the SEC under Piwowar already is taking action to change the direction of its agenda in certain areas. For example, Piwowar has sought public comment on the costs of implementation of two SEC rules mandated under the Dodd-Frank Act that he believes are constraining businesses. These rules require disclosures regarding the use of conflict minerals in products and the ratio of CEO pay to that of the median company employee.7 This input could eventually be used as a basis for providing relief from such rules. In addition, Piwowar has indicated that the SEC will not proceed with unfinished rules mandated by the Dodd-Frank Act while Congress considers legislation to roll back parts of the law.8

Other types of rule-making are continuing, however; Piwowar has indicated that during his time as acting chairman, he will seek to advance technical rules that are not controversial but are “good governance.” He and Stein have already approved several proposed and final rules that would fit in this category, such as finalizing a rule to make it easier for EDGAR users to find and access exhibits in registration statements and periodic reports.9

While the chair has the authority to decide whether and when rule-making actions will be put to a vote, it is important to keep in mind that no SEC chair can create new or eliminate existing rules without the agreement of at least some other commissioners, so their views must be factored into SEC rule-making. In addition, until the commission has at least four commissioners, each of the commissioners must agree to be present in order to have a quorum to take formal action (such as proposing or passing rules). This essentially gives each commissioner a veto over consideration of specific items on the rule-making agenda when there are three or fewer commissioners.

4. “Trump’s SEC pick Clayton points to capital formation, not enforcement,” Reuters, 4 January 2017, http://www.reuters.com/article/usa-trump-sec-idUSL1N1EU1P3, accessed March 2017.5. 15 U.S. Code §78d(a). President Trump also could nominate someone unaffiliated with either the Republican or Democratic parties to one or more of the vacant commission seats, as he has done with his

selection for chairman.6. “Trump Could Surprise With SEC Picks,” Barron’s, 22 March 2017, http://www.barrons.com/articles/trump-could-surprise-with-sec-picks-1490212867, accessed March 2017.7. “Reconsideration of Pay Ratio Rule Implementation” and “Reconsideration of Conflict Minerals Rule Implementation,” statements by SEC Acting Chairman Michael S. Piwowar (6 February 2017 and 31

January 2017, respectively), SEC website, https://www.sec.gov/news/statement/reconsideration-of-pay-ratio-rule-implementation.html (accessed March 2017) and https://www.sec.gov/news/statement/ reconsideration-of-conflict-minerals-rule-implementation.html (accessed March 2017).

8. “Acting SEC Chief Explains Campaign to Jumpstart Trump Financial Deregulation,” The Wall Street Journal website, 15 February 2017, https://www.wsj.com/articles/acting-sec-chief-explains-campaign-to- jumpstart-trump-financial-deregulation-1487106153, accessed March 2017.

9. See, e.g., https://www.sec.gov/news/pressrelease/2017-55.html and https://www.sec.gov/news/pressrelease/2017-56.html.

While the SEC is an independent agency, President Trump will have the opportunity to determine the commission’s composition, which in turn influences its policy agenda.

3SEC Outlook 2017 |

1. Capital formation As noted above, the SEC is expected to take up a greater focus on the “capital formation” piece of the SEC’s three-pronged mission. At Clayton’s confirmation hearing, senators asked him questions about what he would do to revitalize the US capital market. Clayton responded that making it easier for medium-sized companies to conduct IPOs should be a priority. “… [I]t is clear that our public capital markets are less attractive to business than in the past. As a result, investment opportunities for Main Street investors are more limited. Here, I see meaningful room for improvement.”10

He praised the emerging growth company (EGC) designation created by the JOBS Act, which reduced regulatory requirements for certain companies that go public, observing that “[m]aking it less costly, upfront, to become a public company has had an effect on the market.” He further stated that “[i]n my experience, a number of factors may discourage a private company from becoming a public company, including but not limited to various immediate one-time costs and ongoing incremental costs compared with remaining a private company. … In connection with efforts

to encourage more well-run companies to access the public capital markets, as an example, an avenue I would consider exploring is comparing the reporting and control environments at respected private companies with public company requirements and practices.” 11

2. Disclosure effectiveness An SEC priority under previous Chair Mary Jo White that may fit well into a capital formation agenda is the disclosure

effectiveness project. As explained by White, “[t]he goal of [this] initiative is to make disclosure more effective, which is not only about reducing volume and complexity, but also considering whether investors need more information in certain areas.”12 The SEC has issued a series of concept releases, rule proposals and studies regarding how to improve different aspects of the SEC’s disclosure regime.13 Congress also required the SEC to study potential reforms of its disclosure rules and take action based on its findings.14 Although not directly addressed at Clayton’s confirmation hearing, disclosure effectiveness appears likely to move forward under the new regime.15

3. Dodd-Frank rule-makingRegulatory reform is on the agenda of both the Trump Administration and Congress, and the President has issued several executive orders and presidential

Eight key SEC policy areas impacting public companies

10. “Opening Statement of Jay Clayton Nominee for Chairman, Securities and Exchange Commission Senate Committee on Banking, Housing and Urban Affairs,” 23 March 2017, Senate Committee on Banking, Housing and Urban Affairs website, http://www.banking.senate.gov/public/_cache/files/640c2f54-9c7d-47c2-8dc7-7d4debd6a13d/559D4F50EF7D195B8291094DA7490CA4.clayton- testimony-3-23-17.pdf, accessed March 2017.

11. Jay Clayton’s response to “Questions for the Nomination of Mr. Jay Clayton to be a Member of the Securities and Exchange Commission, from Ranking Member Sherrod Brown,” March 2017.12. “Maintaining High-Quality, Reliable Financial Reporting: A Shared and Weighty Responsibility,” keynote address by SEC Chair Mary Jo White at the 2015 AICPA National Conference, 9 December 2015,

SEC website, https://www.sec.gov/news/speech/keynote-2015-aicpa-white.html, accessed March 2017.13. “SEC Spotlight: Disclosure Effectiveness,” SEC website, https://www.sec.gov/spotlight/disclosure-effectiveness.shtml; also see “To the Point: SEC proposes eliminating redundant and outdated

disclosures,” Ernst & Young LLP, 14 July 2016, http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_02048-161US_RedundantDisclosures_14July2016/$FILE/TothePoint_02048-161US_ RedundantDisclosures_14July2016.pdf?OpenElement, accessed March 2017.

14. Jumpstart Our Business Startups Act, 2012, U.S. Government Publishing Office website, https://www.gpo.gov/fdsys/pkg/BILLS-112hr3606enr/pdf/BILLS-112hr3606enr.pdf (accessed March 2017) and Fixing America’s Surface Transportation Act, 2015, https://www.gpo.gov/fdsys/pkg/BILLS-114hr22enr/pdf/BILLS-114hr22enr.pdf, accessed March 2017.

15. “SEC Approves Rules to Ease Investor Access to Exhibits in Company Filings,” SEC, 1 March 2017, https://www.sec.gov/news/pressrelease/2017-55.html, accessed March 2017.

Disclosure effectiveness appears likely to move forward under the new regime

“… [I]t is clear that our public capital markets are less attractive to business than in the past. As a result, investment opportunities for Main Street investors are more limited.”Jay Clayton, Nominee for SEC Chairman

4 | SEC Outlook 2017

memoranda on the topic since taking office. Congress and the Administration are also focused on the Dodd-Frank Act, which critics have said is stifling economic activity through over-regulation. While legislative change may prove elusive, President Trump and Congressional leaders have indicated their intention to overturn at least portions of the Act, including certain SEC rules required by it.

The SEC is obligated to carry out rule-making required by the Dodd-Frank Act until the legislation is overturned. That said, it is not clear yet how the SEC will proceed with rule-making related to the Act. In response to questions about the Dodd-Frank Act at his hearing, Clayton stated that the SEC should implement rules required by legislation, but he did not provide details about priorities. At the same time, he expressed his belief that the SEC should conduct cost-benefit analyses of rules when drafting them, as well as post-implementation reviews regarding rules’ effectiveness, including those mandated by the Dodd-Frank Act. “I believe economic analysis — including assessing the expected relevant costs as well as the relevant benefits of a proposed regulation — is an integral part of the rule-making process …. As the market changes, which it inevitably does … a rule that may have seemed reasonable from an economic perspective at the time it was adopted may later be viewed differently. For

this reason, I believe retrospective review can be appropriate and important … .”16 Since January, the SEC and Congress have taken action on three Dodd-Frank Act rules:

• Conflict minerals: One of the Dodd-Frank rules on which Acting Chairman Piwowar sought comment requires companies to disclose information about their use of “conflict minerals” from mining operations in the Democratic Republic of the Congo and adjoining countries because of concerns about human rights abuses in those countries.17 The rule was finalized in 2012. The SEC had partially halted compliance with the rule since May 2014, after a federal court found that one part of the rule violated free-speech protections.18 In April 2017, the court remanded the rule to the SEC for reconsideration. In response to the decision, Piwowar issued a statement indicating he has directed the staff to consider whether and how the rule can be changed to avoid the “constitutional defect identified by the court.”19 In the meantime, the SEC staff has indicated that it would not recommend enforcement action against companies that decide not to file a Conflict Minerals report as an exhibit to their annual Form SD.20

Even prior to the court’s remand of the rule, Piwowar had directed the SEC staff to reconsider the conflict minerals rule and solicited public comment on “all aspects of the rule and guidance.” In a prior statement, Piwowar called the rule “misguided,” saying that it resulted in a “de facto boycott of minerals from portions of Africa, with effects far beyond the Congo-adjacent region.”21 Commenters have expressed mixed views: one major automotive supplier wrote that the rule has resulted in “an onerous and costly process to survey our hundreds of relevant suppliers,” while a human rights advocate wrote that creating transparent mining supply chains “means that the people doing the work of extracting minerals will be paid for their work. Smugglers and armed groups will not.”22

• Pay ratio: Another rule on which Piwowar has sought comment since becoming Acting SEC Chairman is the SEC’s pay ratio rule, which was finalized in August 2015.23 This rule requires public companies to disclose the ratio of the median of the annual total compensation of all employees to the annual total compensation of the CEO. The first disclosure is due in 2018 regarding companies’ fiscal years that begin in 2017.

16. Jay Clayton’s response to “Questions for the Nomination of Mr. Jay Clayton to be a Member of the Securities and Exchange Commission, from Ranking Member Sherrod Brown,” March 2017.17. “Fact sheet: Disclosing the Use of Conflict Materials,” SEC website, 22 August 2012, https://www.sec.gov/News/Article/Detail/Article/1365171562058, accessed March 2017.18. “SEC Issues Partial Stay of Conflict Minerals Rules,” SEC, 2 May 2014, https://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541720516, accessed March 2017. In August 2015, the US Court

of Appeals for the District of Columbia Circuit upheld the federal court’s ruling. For more information, see http://www.ey.com/Publication/vwLUAssets/EY_CnflictMinerals/$FILE/EY_ConflictMinerals.pdf.19. “Statement of Acting Chairman Piwowar on the Court of Appeals Decision on the Conflict Minerals Rule,” statement by SEC Acting Chairman Michael S. Piwowar, April 2017, SEC website, https://www.sec.

gov/news/public-statement/piwowar-statement-court-decision-conflict-minerals-rule, accessed April 2017.20. “Updated Statement on the Effect of the Court of Appeals Decision on the Conflict Minerals Rule,” SEC staff statement, April 2017, SEC website, https://www.sec.gov/news/public-statement/corpfin-

updated-statement-court-decision-conflict-minerals-rule, accessed April 2017.21. “Reconsideration of Conflict Minerals Rule Implementation,” statement by SEC Acting Chairman Michael S. Piwowar, 31 January 2017, SEC website, https://www.sec.gov/news/statement/reconsideration-

of-conflict-minerals-rule-implementation.html, accessed March 2017.22. “Comments on the Statement on the Commission’s Conflict Minerals Rule,” 2017, SEC website, https://www.sec.gov/comments/statement-013117/statement013117.htm, accessed March 2017.23. “Pay Ratio Disclosure,” SEC, 5 August 2015, https://www.sec.gov/rules/final/2015/33-9877.pdf (accessed March 2017); for more information, see http://www.ey.com/publication/vwluassetsdld/

tothepoint_cc0415_payratio_6august2015/$file/tothepoint_cc0415_payratio_6august2015.pdf?OpenElement.

5SEC Outlook 2017 |

On 6 February, in addition to asking for comments, Piwowar stated that he has directed the SEC staff to reconsider implementation of this rule, citing compliance difficulties that may hinder companies’ ability to meet the SEC’s reporting deadline and suggesting that further relief may be needed.24 In their responses to Piwowar’s call for comments, investors have generally supported the rule, indicating that it will provide them with useful, material information, while companies have been critical because of the costs of making the required calculation.25 Companies also have expressed concern that it will oversimplify compensation practices and question whether it will ultimately be a useful metric for shareholders.

• Resource extraction: On 14 February, President Trump signed a measure repealing the SEC resource extraction rule under the Congressional Review Act, which allows Congress to overturn final regulations within a specified time period by a simple majority vote. The rule required public energy companies to make annual disclosure of payments to foreign governments for the right to extract oil, gas and minerals.26 It is unclear how the SEC will take steps to establish a new rule on resource

extraction payment disclosures, which the SEC is still required to do by the Dodd-Frank Act. In a speech, Piwowar said, “I have asked the staff to take a fresh look at the rule mandate to determine how we can comply with our statutory obligations in a manner that better aligns with our core mission.”27

4. Non-GAAP reportingThe SEC staff has scrutinized companies’ use of earnings and liquidity measures that do not follow US generally accepted accounting principles (GAAP). Guidance issued in May 2016 reflected SEC officials’ concerns about potential violations of SEC rules that prohibit the use of these alternative measures in ways that are misleading or overly prominent.28

While some companies and financial statement users say these metrics can more accurately measure performance because they can take into account business- or industry-specific factors, critics say they can be used to inflate perceptions of a company’s health.

The SEC focus on non-GAAP financial measures has required some companies to substantially overhaul their earnings releases to comply, and some companies have chosen to discontinue disclosure of

some non-GAAP financial measures.29 SEC officials have said they are pleased with the changes made by companies but that, while they don’t intend to eradicate the disclosure of non-GAAP financial measures, “there is more progress for companies to make.”30 In addition, SEC staff in the Division of Corporation Finance recently stated in a comment letter that it planned to “consider whether additional comprehensive non-GAAP staff guidance is appropriate.”31

5. EnforcementThe arrival of a new SEC chair and related staff changes often brings about a shift in the priorities and direction of the Division of Enforcement, even if not a significant change in the level of enforcement activity. An acting director currently leads this division, so Clayton is likely to select a permanent director in one of his first major actions. The background of the director may indicate the policy direction Clayton will pursue. During his confirmation hearing, Clayton indicated he would oversee a

24. “Reconsideration of Pay Ratio Rule Implementation,” statement by SEC Acting Chairman Michael S. Piwowar, 31 January 2017, SEC website, https://www.sec.gov/news/statement/reconsideration- of-pay-ratio-rule-implementation.html, accessed March 2017.

25. “Comments on the Statement on the Commission’s Pay Ratio Rule,” 2017, SEC website, https://www.sec.gov/comments/pay-ratio-statement/payratiostatement.htm, accessed March 2017.26. “Remarks by President Trump at Signing of H.J. Resolution 41,” 14 February 2017, The White House website, https://www.whitehouse.gov/the-press-office/2017/02/14/remarks-president-trump-signing-

hj-resolution-41, accessed March 2017.27. “Remarks at the ‘SEC Speaks’ Conference 2017: Remembering the Forgotten Investor,” SEC Acting Chairman Michael S. Piwowar, 24 February 2017, SEC website, https://www.sec.gov/news/speech/

piwowar-remembering-the-forgotten-investor.html, accessed March 2017.28. “To the Point: SEC staff updates guidance on non-GAAP financial measures,” Ernst & Young LLP, 19 May 2016, http://www.ey.com/Publication/vwLUAssets/TothePoint_01108-161US_Non-

GAAPCDI_19May2016/$FILE/TothePoint_01108-161US_Non-GAAPCDI_19May2016.pdf, accessed March 2017.29. “Technical Line: A closer look at the SEC staff’s scrutiny of non-GAAP financial measures,” Ernst & Young LLP, 10 October 2016, http://www.ey.com/Publication/vwLUAssets/TechnicalLine_03290-161US_

Non-GAAP_10October2016/$FILE/TechnicalLine_03290-161US_Non-GAAP_10October2016.pdf, accessed March 2017.30. “Working Together to Advance High Quality Information in the Capital Markets: Keynote Address before the 2016 AICPA Conference on Current SEC and PCAOB Developments,” Wesley R. Bricker, Chief

Accountant, 5 December 2016, SEC website, https://www.sec.gov/news/speech/keynote-address-2016-aicpa-conference-working-together.html, accessed March 2017.31. Email from SEC Division of Corporation Finance’s Office of Healthcare and Insurance to Allergan plc CFO, 11 January 2017, SEC website, https://www.sec.gov/Archives/edgar/

data/1578845/000000000017001061/filename1.pdf, accessed March 2017.

“[T]here is zero room for bad actors in our capital markets.”Jay Clayton, Nominee for SEC Chairman

6 | SEC Outlook 2017

vigorous enforcement program, stating that “there is zero room for bad actors in our capital markets.” Although he did not highlight specific enforcement areas that he would target, he emphasized that “individual accountability drives behavior more than corporate accountability.” He also observed that while there should be deterrence at the corporate level, the SEC should be mindful that shareholders bear the costs of corporate penalties. Several senators noted during his confirmation hearing that, if confirmed, Clayton would have to recuse himself for two years from participating in enforcement decisions on cases in which he or Sullivan & Cromwell represented the defendants.32

A separate ongoing issue is the SEC’s use of administrative law judges to preside over its enforcement cases, which has been under scrutiny in the courts amid criticism from companies that say the SEC has an unfair advantage in this forum. In February, the US Court of Appeals for the District of Columbia Circuit said it would reconsider a case arguing that the SEC’s use of administrative judges is unconstitutional, following a 10th Circuit court ruling against the SEC’s use of administrative courts.33

6. CybersecurityIn 2011, the SEC issued guidance on cyber-related disclosures, stating

that “material information regarding cybersecurity risks and cyber incidents is required to be disclosed when necessary in order to make other required disclosures not misleading.”34 During Clayton’s nomination hearing, several senators raised cybersecurity as a point of concern, including Sen. Jack Reed (D-RI), who noted his draft legislation to require companies to have a cyber expert on their boards or explain why such an expert is not needed. Clayton observed that cybersecurity is not well-understood by “ordinary” investors, noting that, “as I look across the landscape of discussion and understanding of cyber threats and their possible impact on companies I question whether the disclosure is where it should be.” He further stated that he believes materiality should be the “touchstone” for disclosure.

Aside from disclosure requirements, the SEC has a cyber program for entities it supervises and inspects. Following a series of high-profile cyber attacks in 2014, the SEC’s examinations of registered investment advisors, broker-dealers and transfer agents have included reviewing cyber-related policies and procedures, physical devices, as well as firms’ ability to detect and respond to unauthorized activity.35 The SEC is also monitoring the activities of banking regulatory agencies on enhanced cybersecurity risk management standards.

7. Proxy accessA coalition of investors has been advocating for universal proxy ballots in contested company board elections. Currently, in contested director elections, shareholders receive separate proxy cards from management and dissident shareholders showing only the directors put forward by each group. An SEC proposal issued in October 2016 would require proxy ballots to list all candidates, which is similar to shareholders’ voting experience if they attend annual meetings.

The rule is supported by a coalition of investors, including several activist investors who argue that it would allow investors to better exercise their voting rights.36 Critics of the universal proxy initiative are concerned it would “increase the likelihood of proxy fights at public companies, thereby

32. “Opening Statement of Jay Clayton Nominee for Chairman, Securities and Exchange Commission Senate Committee on Banking, Housing and Urban Affairs,” 23 March 2017, Senate Committee on Banking, Housing and Urban Affairs website, http://www.banking.senate.gov/public/_cache/files/640c2f54-9c7d-47c2-8dc7-7d4debd6a13d/559D4F50EF7D195B8291094DA7490CA4.clayton- testimony-3-23-17.pdf, accessed March 2017. This is not an unusual circumstance for an SEC chair; for example, former SEC Chair White also was a partner at a law firm before becoming chair and had to recuse herself for former clients. See, e.g., https://www.nytimes.com/2015/02/24/business/dealbook/sec-hamstrung-by-its-leaders-legal-ties.html.

33. The DC Circuit case is available here: https://www.cadc.uscourts.gov/internet/opinions.nsf/0CE9017B699471A3852580C9005F3B04/$file/15-1345-1661665.pdf. The 10th Circuit opinion is available here: http://www.ca10.uscourts.gov/opinions/15/15-9586.pdf.

34. “To the Point: SEC staff issues guidance on cybersecurity disclosures,” Ernst & Young LLP, 20 October 2011, http://www.ey.com/Publication/vwLUAssets/TothePoint_CC0340_ SECCybersecurity_20October2011/$FILE/TothePoint_CC0340_SECCybersecurity_20October2011.pdf, accessed March 2017.

35. Cybersecurity — addressing rising expectations: five critical areas managers need to strengthen, Ernst & Young LLP, October 2015, http://www.ey.com/Publication/vwLUAssets/ey-us-cybersecurity-addressing-rising-expectations/$File/ey-cybersecurity-addressing-rising-expectations.pdf, accessed March 2017.

“[A]s I look across the landscape ... of cyber threats and their possible impact on companies I question whether the disclosure is where it should be.”Jay Clayton, Nominee for SEC Chairman

7SEC Outlook 2017 |

distracting management and employees from carrying out their core mission” and harm shareholders.37 The SEC staff is currently reviewing comments received on the proposal. The new SEC chair will have to decide whether to take further action (such as re-proposing or finalizing the rule, or suspending further consideration).

8. Boardroom diversity disclosuresAn SEC advisory committee recently recommended that the SEC require companies to disclose the race, gender and ethnicity of board members “as self-identified by individuals.”38 The committee suggested that this disclosure is warranted because board diversity has been associated with “improved competitiveness and talent management” as well as better relations with stakeholders and greater access to capital.

Current SEC proxy rules require companies to disclose whether, and, if so, how their board considers diversity when nominating directors. The rules also allow companies to define diversity however they want.

Last year, former SEC Chair White asked the SEC staff to study how companies are implementing current disclosure rules regarding board diversity.39 It remains to be seen whether a reconstituted SEC will take further action on either initiative.

36. “Statement regarding SEC proposal to require use of universal proxy cards,” 27 October 2016, Carl Icahn’s website, http://carlicahn.com/statement-regarding-sec-proposal-to-require-use-of-universal- proxy-cards/, accessed March 2017.

37. “Dissenting Statement at Open Meeting on Universal Proxy,” Commissioner Michael S. Piwowar, 26 October 2016, https://www.sec.gov/news/statement/statement-piwowar-universal-proxy-10-26-2015. html, accessed March 2017.

38. Letter from the SEC Advisory Committee on Small and Emerging Companies to Acting Chairman Michael S. Piwowar, 16 February 2017, https://www.sec.gov/info/smallbus/acsec/acsec-recommendation-021617-coporate-board-diversity.pdf, accessed March 2017.

39. “SEC Chief: Board Diversity Is a Priority for Agency in 2016,” The Wall Street Journal website, 27 January 2016, https://www.wsj.com/articles/sec-chief-board-diversity-is-a-priority-for-agency- in-2016-1453853477, accessed March 2017.

40. Doty’s first term concluded in October 2015 and Franzel’s in October 2016.

Looking aheadUpon Clayton’s confirmation as the next SEC chair, his priorities will increasingly become clear through his appointments of SEC division directors and other actions. He may seek to lay out his priorities in one or more speeches, as previous chairs have done. The speed at which he is able to pursue his agenda will depend in part on how quickly the other vacant seats on the commission are filled. It also depends on his ability to develop a consensus among other commissioners regarding the agenda, which he identified as a goal at his confirmation hearing.

Another area of SEC responsibility is the oversight of the Public Company Accounting Oversight Board (PCAOB), including the appointment and reappointment of its members.

While the commission must consult with the Secretary of the Treasury and the chair of the Federal Reserve, appointments to the PCAOB are not subject to Senate approval. Currently, the first terms of both Chairman James Doty and Board Member Jeanette Franzel have expired, and another PCAOB seat is empty.40 Moreover, Board Member Steven Harris’ second term expires in October 2017. Once Harris’ term expires, the Trump Administration will have the opportunity to appoint four out of five board members. Board members may continue serving past their term until a successor is appointed. Doty and Franzel are both eligible for reappointment, while Harris is not.

Among the new SEC chair’s tasks will be addressing vacancies and expired terms at the Public Company Accounting Oversight Board (PCAOB).

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ContactsLes BrorsenEY Americas Vice Chair, Public Policyles.brorsen@ey.com+1 202 327 5968

Bridget NeillEY Americas Deputy Vice Chair, Public Policybridget.neill@ey.com+1 202 327 6297

Chris HolmesNational Director of SEC Regulatory Matters Ernst & Young LLPchris.holmes@ey.com+1 202 327 8890