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Frequently Asked Questions
  It's Time to Fix the Proxy Process
Identification Number 1661
It's Time to Fix the Proxy Process
Publication Date: November 22, 2018

On November 15, 2018, John Zecca, Senior Vice President, General Counsel North America, and Chief Regulatory Officer of Nasdaq Regulation for U.S. Markets, participated in the SEC's Proxy Process Roundtable. Prior to his appearance at the roundtable, Mr. Zecca submitted a comment letter to the SEC advocating key changes to the proxy rules on behalf of public companies and retail investors.  Highlights are provided below. 

Nasdaq operates 19 regulated entities in the United States and Canada, including the Nasdaq Stock Market, which is home to over 3,000 public companies and exchange traded products.  Nasdaq is also a listed company and is subject to the same regulations as other public companies, including the proxy rules.

A common theme we hear as we talk to our listed companies (and our own experience confirms this) is that the proxy process is costly, inefficient, unduly complicated, and requires a disproportionate share of management's attention.  Specifically:

  • Companies routinely cite the proxy process as one of a series of complaints, which, in the aggregate, discourages them from joining the public markets.
  • Despite its cost and complexity, the current system results in a disproportionately few number of retail investors voting their shares. 
  • The current outdated proxy process also limits a company's ability to communicate with shareholders—especially younger retail shareholders—in the digital way that they prefer to communicate.

In my letter to the SEC dated November 15, 2018, we urge the Commission to address the cost and difficulties for companies to communicate with shareholders; reform the rules related to shareholder proposals; and require transparency about the methodologies and conflicts of proxy advisory firms, as well as a mechanism for companies to address errors by the firms. Excerpts from this letter, which address each of these issues, are provided below.

Proxy Voting Mechanics and Technology

The primary purpose of all aspects of the SEC's proxy rules should be to facilitate communications between companies and their shareholders.  In this digital age, it is notable how incredibly complex and expensive it is for companies to communicate with their shareholders, especially their retail shareholders. 

Problems fall into three broad categories:

  • Lack of transparency as to beneficial ownership.  Companies consistently report that there is over-voting and under-voting in their proxy elections, in part as a result of double-voting in connection with security lending.  Shareholders express frustration that they have no way to verify that their votes have been counted. 
  • The proxy process makes it impossible for companies and shareholders to communicate in the way retail shareholders expect to communicate today.  Because of the complexities of the proxy system, and particularly the distinction between objecting beneficial owners (OBOs) and non-objecting beneficial owners (NOBO), companies often don't know the identities of their retail shareholders, making it impossible to contact them directly.  Even when companies do know shareholders' identities, for proxy-related matters they must contact them through expensive intermediaries. 
  • Companies are frustrated they are charged fees that they cannot negotiate. Issuers receive large, obscure annual bills from intermediaries that they did not select, for delivering proxy materials.  In addition, while notice and access has improved the proxy system considerably, companies still pay a large amount in printing fees each year because intermediaries report that large numbers of stockholders have requested full set delivery of proxy materials. Issuers have little ability to contest, or even deconstruct, the annual bills they receive.  Companies would like to reach out to those stockholders to encourage them to use technology to receive materials, but again, the proxy system makes it difficult to identify and contact them.  Even where they can use electronic delivery the cost to do so remains high.

As a technology company, Nasdaq knows there is a better approach—and Nasdaq's eVoting initiative has shown that it is possible.  We have conducted proof of concept tests in Estonia and South Africa that use a cryptographically secure transaction private ledger to address many of the current challenges of the proxy process, including the lack of transparency and traceability in the voting process. In the Estonian market, we were able to use the national identity numbers issued to each resident to help establish each digital identity in this market where investors directly hold their securities. Users in South Africa, which has a central securities depositary (similar to the US), access eVoting via a web enabled front end; the system records the data on the blockchain. The system can also accommodate the transmission of voting-related materials and, of course, the audit trail and immediate vote tally functionality is available through permissioned reports that provide different levels of information to issuers and shareholders and, if needed, auditors and even regulators.

We are hopeful that technology will one day enhance many aspects of the proxy process, but in the meantime the SEC should consider the following actions:

  • Revise rules to permit direct communication between companies and their shareholders. 
  • Consider assigning the cost of the OBO designation to those shareholders whose status force those costs.
  • Give issuers a say in selecting intermediary providers and ensure transparency to companies about the fees they pay, giving them the ability to ensure that those fees are correct.  
  • Enhance the integrity of the shareholder vote by improving transparency and the mechanisms to reconcile long and short positions, thereby better limiting voting, and the cost of proxy solicitations, to only those persons entitled to vote.

Shareholder Proposals

Another cost that public companies face is related to the shareholder proposal process.  Many companies spend thousands of dollars and countless hours of management time addressing proposals from proponents who own minimal amounts of their shares. 

Nasdaq proposes the following amendments to Rule 14a-8:

  • Increase the minimum ownership percentage to ensure that shareholders have a meaningful investment in the company before they are given access to the proxy. 
  • Delete the meaningless $2,000-dollar threshold and instead require that a proposing shareholder hold a material investment in that issuer.
  • Increase the holding period to a longer period, such as three years, which would help ensure that management and boards spend their scarce time focused on shareholder proposals that come from shareholders who are aligned with other shareholders in the long-term success of the company. 
  • Increase the resubmission thresholds, so companies aren't burdened year after year with proposals that the majority of their shareholders don't support. 

In addition, shareholder activists are increasingly using Notices of Exempt Solicitation on Form PX14A6G to advocate for certain proposals and policy issues without subjecting their materials to review by the company or the SEC.  As a result, communications about a shareholder proposal that would otherwise be excluded from a Company's proxy statement in accordance with Rule 14a-8 can nonetheless be presented to shareholders on a Form PX14A6G, which can be filed at any time prior to or after an annual meeting.   

Nasdaq proposes that the SEC revise the "cover" in Rule 14a-103 to clearly identify the filing party, similar to Schedules 13D and 13G, and require the filing party to disclose the number of shares held and any interest in the proposal or policy issues it is advocating for. The SEC should also consider restricting the time period in which a voluntary Notice may be filed.

Proxy Advisory Firms

Given the number of public companies, the large number of proposals placed on each company's proxy, and the limited time to consider these proposals, institutional shareholders have come to rely on proxy advisory firms.  While this service is valuable in theory, in practice the industry is a largely unregulated black box, rife with opacity, lack of accountability and conflicts of interest.  Specifically:

  • Proxy advisory firms are not required to fully or completely explain their criteria or provide companies a means to question analysis or even correct factual errors.

  • Proxy advisory firms are not required to disclose whether they have a financial relationship or ownership stake in the companies on which they report.

  • When shareholders rely on the voting recommendations of the proxy advisory firms, it further distances companies from their shareholders.

While the SEC took preliminary steps to address these concerns several years ago by issuing Staff Legal Bulletin 20 , and again earlier this year when it withdrew two no-action letters concerning the ability of investment advisors to rely upon recommendations by proxy advisory firms in voting their clients' securities, additional guidance is needed about the impact of this withdrawal and the important underlying concerns that other market participants have with proxy advisory firms. 

Proxy advisors must also have a line of communication with the companies they analyze and clear transparency around their ownership of, or short interest in, covered companies.  The stories we hear from public companies further bear this out.  In one case, in two successive years, a proxy advisory firm based its recommendations on an erroneous and incomplete understanding of the relevant facts.  In each instance, the company was told that it could avoid such issues by subscribing to (and paying for) the proxy advisory firm's corporate services.  

Each of the above issues are central to the willingness of companies to join the public markets and to retail investors' ability to interact with the companies whose shares they own.  Nasdaq urges the SEC to address the cost and difficulties of communicating with shareholders; update the rules related to shareholder proposals; and require transparency about the methodologies and conflicts of proxy advisory firms, as well as a mechanism for companies to address errors by the firms. 

Please note that the SEC encourages public companies to submit comments related to these topics.  Comments can be submitted here

* * * * *

For more information, read:

Letter from John Zecca, Chief Regulatory Officer of Nasdaq, to the SEC >>

Chairman Jay Clayton's Statement at the SEC Staff Roundtable on the Proxy Process >>

Commissioner Kara Stein's Opening Remarks at the 2018 SEC Staff Roundtable on the Proxy Process >>

Roundtable on the Proxy Process, November 15, 2018: Transcript >>

Publication Date*: 11/22/2018 Mailto Link Identification Number: 1661
Frequently Asked Questions
  Business Development Companies Seek to Improve Retail Investor Access to Private Markets
Identification Number 1641
Business Development Companies Seek to Improve Retail Investor Access to Private Markets
Publication Date: September 24, 2018

The Securities and Exchange Commission's (SEC) Acquired Fund Fees and Expenses Rule (AFFE) has constrained investment and liquidity in business development companies (BDCs) and limited the ability of main street investors to invest in private companies. Here's how.

BDCs provide funding to middle market companies that are not yet large enough to access broad capital markets but require more capital for growth than banks can provide. The BDC corporate structure also offers retail or "main street" investors the opportunity to invest in private companies, through a vehicle that is more accessible than other forms of private investing that require investors to have a high net worth and a 10+ year commitment.

Late last month, SEC Chairman Jay Clayton told The Wall Street Journal that individual investors need more access to the private markets. In his speech in Nashville, he also said that companies located in the center of the U.S. (where there is less venture capital funding) need more access to capital. BDCs can help close both the investment opportunity gap and the capital gap. The industry, however, is hampered by an SEC disclosure requirement that appears to be misapplied.

We spoke with several members of the Small Business Investor Alliance (SBIA), an advocate for investors in small and medium sized businesses, to get a better understanding of the complexities of this issue and why a fix is long overdue.

BDCs are important to the economy.

BDCs were created by Congress in 1980 to fill the void left by traditional lenders that found themselves unable to lend to small and mid-sized businesses due to increased regulatory burdens. Currently BDCs have over $80 billion invested in small to medium sized businesses. BDCs must invest at least 70% of their assets in active small and mid-sized businesses based in the United States. They invest in a variety of industries and sectors across America including manufacturing, healthcare technology, aerospace, consumer products, food and beverage, energy, media, and IT. BDCs have various investment strategies, but typically make secured and unsecured loans between $10-$50 million to middle market companies. Many of these companies grow into household names: Cirque Du Soleil, Formula One, National Surgical Hospitals, and Brunswick Bowling are all companies that were financed at some point through BDC investments.

While the BDC universe is still relatively small as compared to that of closed-end funds, it plays a significant role in the economy: "BDCs facilitate capital formation into the middle market sector of the economy which is responsible for 1/3 of private sector jobs and produces more than $6 trillion in revenues annually," said Tonnie Wybensinger, Executive Director of the SBIA's BDC Council.

The AFFE Rule overstates the expenses of investing in BDCs.

The SEC passed the AFFE Rule in 2006 in an effort to help investors better understand the full spectrum of fees and expenses incurred by registered funds, in particular those that invest in other funds as part of their investment strategy. However, the application of the AFFE disclosure requirement overstates the expenses of mutual funds and other registered funds that invest in BDCs. BDCs hold a unique place in the registered funds' world acting as an operating company within a closed end fund structure. Adding the total expenses of the BDC into the expense ratio of a regulated fund effectively double counts the impact in a registered fund's expense ratio. A BDC's trading price already reflects its operating expense structure, which reduces the total return of the acquiring funds' investment in the BDC. Reflecting these expenses again under the AFFE rule results in double counting a BDC's expenses. The existing application of the AFFE rule disclosure to a BDC investment is therefore misleading and inaccurate.

It is this overstatement of the regulated fund's expense ratio and the misinformation it portrays that resulted in major index providers excluding BDCs in 2014 from index eligibility and contributed to a BDC industry-wide decline in institutional ownership and IPOs.

BDCs are important to main street investors.

BDCs offer retail investors the opportunity to participate in the growth phase of small and mid-sized private companies, a sector of the market that is increasingly capitalized outside of public markets. Historically, BDCs have provided good returns to investors compared to traditional fixed-income investments: "During the past three years, BDCs have returned on average approximately 9% per annum, according to the Wells Fargo BDC Index," shared Wybensinger. "For a fixed income-oriented product, that's a pretty good return for investors, whether they are retail or institutional."

The exclusion of BDCs from major indices triggered a material decline in BDC IPO activity and a significant decline in institutional ownership (which dropped from 42% at the end of 2013 to 29% by the end of 2017). Investment and liquidity in the BDC industry have been constrained as a result, and fewer BDC IPOs means fewer opportunities for retail investors to participate in the creation of new firms bringing additional capital to contribute to the growth phase of small and mid-sized businesses.

"The loss of institutional ownership impacts the quality of governance for the BDC industry, and by extension harms retail investors. Fewer institutional owners means lower voter turnout and limited professional oversight of BDC managers, for example through research analyst coverage," said Liz Greenwood, Corporate Secretary and Chief Compliance Officer of publicly traded BDC, BlackRock TCP Capital Corp. (Nasdaq: TCPC) and a member of SBIA's legal steering committee. "There's an inherent governance benefit to retail investors when an industry has more institutional investors."

"BDCs are effectively excluded from passive investment manager investment," shared Ian Simmonds, CFO of TPG Specialty Lending and Chair of SBIA's BDC Council. "BDC portfolio companies are executing long-term growth strategies, and institutional shareholders tend to be more fundamentally based in their analysis. Exempting BDCs from the AFFE Rule will bring more stability to the sector's ownership, more liquidity into BDC stocks, and more depth to the overall shareholder base—all of which benefits retail shareholders."

The SEC has the authority to remedy this situation.

As markets evolve and change, a modernization of the regulatory framework supporting them is at times warranted. In fact, in the latest draft of the 2019 House Appropriations Bill Report, issued earlier this summer, Congress indicated that it would like the SEC to revisit the AFFE Rule as it pertains to BDCs.

There is precedent for exempting corporate structures similar to BDCs from AFFE disclosure. REITs and closed-end funds are already exempted from AFFE disclosure. When the SEC passed the AFFE rule in 2006, the BDC industry was in its infancy and there was no organized representative industry body to advocate on its behalf for exemption.

"We believe that while the AFFE Rule itself is fundamentally sound, its disclosure requirements shouldn't apply to BDCs, just as they don't apply to REITs. Exempting BDCs from the AFFE Rule will steer additional capital to the middle market sector of the economy and increase investor access to private companies, catalyzing job creation and economic growth," said Wybensinger.

For more information, visit and read SBIA BDC Modernization Agenda >>


Liz Greenwood is Corporate Secretary and Chief Compliance Officer of BlackRock TCP Capital Corp. (Nasdaq: TCPC) and a Managing Director of BlackRock TCP Capital's advisor, Tennenbaum Capital Partners, LLC. She also serves on the Legal Steering Committee of the SBIA.

Ian Simmonds is the Chief Financial Officer of TPG Specialty Lending, Inc. and a Managing Director of TPG Sixth Street Partners. He also serves as Chair of the SBIA's BDC Council.

The Small Business Investor Alliance (SBIA) advocates for investors of the small and medium-sized businesses that are a critical source of job growth in the U.S. The SBIA is the largest voice for business development companies (BDCs) in Washington, D.C., representing lower middle market private equity funds and investors who provide vital capital to small and medium sized businesses nationwide. Tonnie Wybensinger serves as the Executive Director of the SBIA BDC Council.

Publication Date*: 9/24/2018 Mailto Link Identification Number: 1641
Frequently Asked Questions
  Revitalize Biotech with these 5 Policy Initiatives
Identification Number 1509
Revitalize Biotech with these 5 Policy Initiatives
Publication Date: April 3, 2018

In this post, Charles Crain of the Biotechnology Innovation Organization (BIO) highlights five legislative and regulatory reforms that he believes would address some of the principal challenges facing biotech companies that go public. Notably, several of these proposals are modest revisions to existing SEC rules and federal legislation, including the JOBS Act. These proposed reforms are consistent with Nasdaq's comprehensive blueprint for stronger, more robust public markets: The Promise of Market Reform: Reigniting America's Economic Engine.

1. Bring transparency to short seller positions

Biotech companies, many in the pre-revenue phase, are easy targets for short sellers. That's primarily due to a lack of liquidity in their stocks and blinded FDA clinical studies that make it easy to circulate false information in the market to drive down stock prices. This includes a new spurious breed of short sellers who initiate patent challenges for the sole purpose of driving the stock price down to make money. This disturbing behavior is highly damaging to industries that are based on intellectual property—like biotech.

BIO has been working with Nasdaq to advocate for increased transparency around short selling positions, which would help inform the market and prevent biotech companies from being taken advantage of by investors who don't have the best interest of long-term investors (and patients of these potentially life-saving drugs and therapies) at heart.

2. Establish SEC oversight of proxy advisory firms

Proxy advisory firms have developed an outsized market influence over biotech companies, relative to their theoretical mission. These firms claim they're only providing recommendations to investors, but what they're actually doing is inserting their own judgment over investors, company management, and corporate boards in terms of how companies should be run.

In an industry like biotech, which has a unique business model that isn't directly comparable to other industries, these one-size-fits-all recommendations can be misleading to investors and damaging to the companies themselves.

BIO and Nasdaq both support the Corporate Governance Reform and Transparency Act, a bi-partisan bill that has already passed the House of Representatives. This bill provides for SEC oversight of proxy advisory firms, and BIO believes it will help reduce conflicts of interest and allow investors to make informed proxy voting decisions.

3. Allow pre-revenue small businesses to maintain SOX 404(b) exemption for 10 years

External auditing of a company's internal controls, as required by SOX 404(b), is expensive for small businesses, potentially costing upwards of $500,000 annually. That money could otherwise be spent on life-saving R&D, and given the simple business model and straightforward corporate structure of small biotech firms, the benefits don't justify the costs. These companies typically have 30 or 40 employees, almost all of whom are scientists, so there's not much complicated financial maneuvering going on; clinical trial results and scientific data are more material concerns.

The JOBS Act was tremendously helpful to the biotech industry; more than 250 emerging biotech companies relied on provisions in the law to help them go public. This compares to just 55 biotech IPOs in the five years before passage of the JOBS Act. The positive impact of this legislation was due in part to the five-year exemption from the SOX 404(b) external auditing requirements granted to emerging growth companies. However, it can take upwards of 15 years to develop a biotech drug, not five, so the cost burden of external auditing is still going to hit some companies in their pre-revenue phase.

BIO has endorsed the Fostering Innovation Act, a bi-partisan legislative solution to reduce the cost of auditing internal controls. The Fostering Innovation Act extends the five-year exemption to 10 years for certain pre-revenue companies. Given that it's a very targeted piece of legislation (only the smallest of companies are still pre-revenue at year six), we have been able to get strong congressional momentum behind this solution, which has already passed the House.

4. Expand the SEC's definition of "non-accelerated filer"

The SEC's non-accelerated filer definition, which scales compliance requirements for small businesses (including a SOX 404(b) exemption), is presently limited to companies with a public float below $75 million. In BIO's view, that limit is too low: a 20 or 30-person biotech may be valued as high as $150-$200 million. That doesn't mean such a company actually has $200 million sitting in their bank account to be spending on Section 404(b); it means their investors are optimistic about the company's potential to fight devastating diseases one day in the future.

BIO is working with the SEC, as well as allies like Nasdaq, to expand the definition of a non-accelerated filer to allow companies with a public float below $250 million to qualify, and to add a revenue component that exempts pre-revenue companies from SOX 404(b) compliance. This will allow pre-revenue companies to focus investor funds on R&D, instead of external auditing that doesn't provide additional value to investors.

Based on the SEC's initial analysis, there are 782 additional public companies that would be added to the universe of non-accelerated filers if the public float limit was raised from $75 million to $250 million. Assuming each of these companies spent on average of $500,000 per year in external auditing, expanding the definition would divert nearly $400 million from compliance to R&D and business development. On the flip side, investor exposure is minimal. If the SEC makes this small, technical change to the definition, only 0.03% of the total float in the market would be exempted from SOX 404(b) compliance via the non-accelerated filer exemption.

5. Implement tax code reforms that incentivize investment in pre-revenue innovators

While 90% of BIO's membership is in the pre-revenue phase, the remainder are revenue-generating companies that have long been hamstrung by high corporate tax rates in the U.S. BIO member companies were therefore very pleased that Congress was able to lower the corporate rate, move to a territorial system, and maintain the R&D credit in the Tax Cuts and Jobs Act. The reduction in the corporate rate will allow those companies more capital to invest in R&D in the United States, and create opportunities to pursue partnerships and mergers with smaller biotech businesses (which is often how smaller biotech companies fund the next stage in their research).

More could be done, however. There are tax policy levers that Congress can pull on the pre-revenue side to incentivize innovation for these small businesses and pre-revenue companies, including investor-side incentives and rules to help companies better utilize net operating losses (NOLs) and/or R&D credits, neither of which pre-revenue companies can use because they don't have a tax liability to offset. For example, BIO supports allowing a small R&D company's NOLs to be carried forward after a financing round or M&A event, rather than being limited by Section 382 of the tax code. We also want to make sure the qualified small business stock rules in Section 1202 work as effectively as possible to attract investors to growing biotechs via the Section's 100% capital gains exclusion.

For more information, read Nasdaq Talks to Congressman Sean Duffy and Vitae Pharmaceuticals' CEO Jeff Hatfield about Proxy Advisor Legislation and Short Selling Transparency >>


Charles Crain is the Director of Tax & Financial Services Policy at the Biotechnology Innovation Organization (BIO). Charles's portfolio includes capital markets, securities, accounting, and tax policies that impact BIO's member companies, including the JOBS Act, legislation to enhance capital markets access for emerging companies, market structure reform, decimalization and tick size, and small company auditing standards. Charles serves as BIO's representative to the Equity Capital Formation Task Force and the SEC Government-Business Forum on Small Business Capital Formation.

BIO is the world's largest trade association representing biotechnology companies, academic institutions, state biotechnology centers and related organizations across the United States and in more than 30 other nations. BIO represents more than 1,100 biotechnology companies, academic institutions, state biotechnology centers, and related organizations.

The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry or security mentioned herein and nothing contained herein should be construed as legal or investment advice.

Publication Date*: 4/3/2018 Mailto Link Identification Number: 1509
Frequently Asked Questions
  U.S. Capital Markets and the Road Ahead
Identification Number 1477
U.S. Capital Markets and the Road Ahead
Publication Date: December 14, 2017

We asked Tal Cohen, Senior Vice President of Nasdaq North American Equities, about the road ahead for U.S. capital markets. In this Q&A, Tal also shares his perspective about the current regulatory environment, the future of speed bumped markets, and explains why Nasdaq remains focused on its Revitalize Blueprint.

Q: What is the current regulatory environment under SEC Chairman Clayton?

A: Chairman Clayton has brought a renewed focused to IPOs in the primary market, in particular stemming the decline in the number of small and emerging growth public companies. He's been very consistent every time he's spoken that the SEC is focused on enhancing the attractiveness of the public markets for IPOs, and on ensuring Mr. and Mrs. 401K are not shut out of investments in emerging growth companies. Given that he was previously an IPO and M&A attorney, he's has both the background and the context to influence that debate.

Q: What are some of the initiatives Nasdaq is working to advance with the SEC?

A: Nasdaq is pursuing the proposals outlined in our Revitalize Blueprint, to enhance capital formation opportunities in the primary equity markets. In our blueprint, we are recommending that small and mid-cap companies be permitted to benefit from the choice to consolidate liquidity through the revocation of Unlisted Trading Privileges. We are also advocating for intelligent tick sizes, which we believe is a more tailored and effective approach for resolving sub-optimal tick sizes than the existing pilot.

On the product side, Nasdaq is focused on improving the trading experience on our markets by advocating for more stock splits, developing policies that support the growing ETF market, and rolling out enhancements to our closing cross. We are also filing a proposal with the SEC to introduce a midpoint extended life order (M-ELO) in our market that will help institutional investors buy or sell large orders or orders of significant size, and provide some level of protection when they do that.

Q: Do you think the SEC is rethinking speed bumped markets?

A: We think it's interesting that the commissioner who initially voted against IEX and the initial speedbump is now also clearly showing his views on a derivation of it that was recently proposed. We believe there is an opportunity to reengage the SEC on this issue, to make the case that speed bumps are a slippery slope. It's difficult for the industry to understand the implications of that, both from a public policy perspective and from a trading perspective.

We've asked the SEC to reexamine this topic on a broader basis than just CHX, to question whether the market has really benefitted from the speed bump during the past year. We also want the SEC to consider where this might lead over the next several years if speed bumps are allowed to continue to evolve and become part of the fabric of the market.

Nasdaq looked into the opportunity to take one of our exchange medallions and launch a speedbump market. But after some discussion, we decided there was a more elegant solution that we could put in place—one that didn't have the unintended consequences of a speed bump and that didn't have our customers incur additional costs to connect and take market data from a new, fourth exchange. And the manifestation of that solution is M-ELO.

M-ELO is our "day one" response to the speedbump market, one that provides protection for investors and minimizes the impact of market-moving events that can erode execution quality. We believe we'll be able to enhance and evolve M-ELO to meet a variety of different needs of institutional investors in the marketplace—needs that we don't capitalize on today.

Q: Are there other market structure developments on the horizon that will impact listed companies?

A: The access fee pilot could have some impact on listed companies. An overarching point we make to the SEC, and the industry, is that we need to involve the issuer in secondary market pilots and discussions. We often think about the issuer after the fact. Instead, we need to solicit issuer feedback on these market structure changes upfront, as they could have a material impact on how issuer stocks trade and how investors feel about building positions or unwinding positions in those companies.

The access fee pilot is an excellent example. Lowering the incentive to provide liquidity could do one of two things: lead to wider spreads or more off-exchange activity. Is that in the best interest of the issuer? Is that something at the end of the day the issuer finds of value? An alternative might be to marginally lower the explicit cost of trading for an intermediary, but increase the cost of investing in a company for a buy side institutional investor. This would be more meaningful to the issuer, who's looking at their stock and wondering why on day one it had a one or two cent spread, but post the access fee pilot it's become a three to four cent spread. And they are wondering why their investor base now looks different and feels differently about their company.

As they design these pilot programs, the SEC should be mindful of allowing companies to opt out of a program, if they experience a degradation in stock trade performance or an adverse impact on their stock price. The SEC did not create that outlet when they initially designed the tick size pilot, which was a point of contention for issuers.

Q: Speaking of the Tick Size Pilot…have we seen any benefits from it?

A: Issuers have not seen an increase in liquidity, an increase in research coverage or any indication that this is helping the IPO market. Using those three things as the criteria on which we judge it, we have not identified a benefit for issuers.

From a trading perspective, the results have been mixed, and most of what we projected and forecasted is happening. There are wider spreads and, in some stocks, it's more costly to build a position to trade or execute. On the flipside, we have seen a greater persistency of the quote so the quote is more stable, and there's more size or quantity to be done at the inside. But that has come at a price, because both implicit and explicit costs seemed to have gone up for brokers.

Q: There are currently 13 exchanges and dozens of other trading venues a security can trade on. Is this too many?

A: It's not a question of whether there are too many exchanges—it's a question of whether the market as a whole is working for small and mid-cap issuers the way it does for large cap issuers and large ETFs. Multiple exchanges work for some of the market, but not all of the market.

Nasdaq's Revitalize Blueprint offers more tailored, nuanced solutions to dealing with competition and fragmentation within the public markets.

Q: Has there been feedback on Revitalize from issuers or the trading community that's made Nasdaq reconsider parts of the initial blueprint?

A: Nasdaq included 25 separate proposals within the Revitalize Blueprint, and we knew some of them would be hotly debated on both sides of the fence. The proposals in the blueprint were meant to engage capital markets stakeholders in a robust dialogue and then move discussions forward to solutions. Issuers and investors have come to us and said Revitalize shows thought leadership, and is an aspirational blueprint to help vet what the real issues are and then build consensus—particularly on the issues that are passionately debated by both sides.

Revitalize was structured that way by design, and as a result of the feedback so far, we now have a better sense of the issues we'll be able to get support for—and build consensus on—pretty quickly (like proxy reform) and the issues that will require deeper discussions (like shareholder activism, short-sale disclosure, and dual-class stock issuances).

Q: What is the next step in implementing Revitalize?

A: I think the next step for Nasdaq is to choose a handful of the 25 proposals within that blueprint to put forward, and then work with the industry, the SEC and the government on resolving those issues. We know that these issues are top of mind for the SEC.

This is not just a U.S. issue, or about one exchange versus another exchange in the U.S. The Revitalize Blueprint is about the health and vitality of the U.S. capital markets and their global competitiveness. It's about job creation. It's about wealth creation. It's about making the public markets once again attractive to issuers, and how that will, in turn, benefit Main Street investors at the end of the day.

Read more about Revitalize here >>


Tal Cohen joined Nasdaq in April 2016 as the Senior Vice President of North American Equities. Prior to joining Nasdaq, he was the Chief Executive Officer of Chi‐X Global Holdings, LLC. Tal currently serves as a Director on the Investment Industry Regulatory Organization of Canada (IIROC) Board and as a Director on the Canadian Depository for Securities (CDS) Board.
Publication Date*: 12/14/2017 Mailto Link Identification Number: 1477
Frequently Asked Questions
  Nasdaq Talks to the Equity Dealers Association about . . . Incentivizing EGCs to Go Public and Providing More Opportunities for Individual Investors
Identification Number 1431
Nasdaq Talks to the Equity Dealers Association about . . . Incentivizing EGCs to Go Public and Providing More Opportunities for Individual Investors
Publication Date: September 26, 2017

Reforming the capital markets has become a priority for investors, public equity firms, and regulators alike in the wake of the decline in the number of public companies in the U.S. At Nasdaq, we recently drafted a blueprint for revitalizing the capital market ecosystem, and are collaborating with other organizations intent on that same goal.

One such organization is the Equity Dealers of America (EDA). The EDA is a trade association formed to promote fair, efficient, and competitively balanced equity capital markets that protect investors, advance financial independence, stimulate job creation, and increase prosperity. In addition to policy advocacy and public outreach, the EDA hosts meetings on the equity markets to inform and educate its members on the issues relevant to their businesses.

"The EDA is working to incentivize emerging growth companies to enter the public equity markets and give individual investors an equal opportunity to participate in their growth," said Chris Iacovella, CEO of the EDA. "We want to ensure that small businesses can access the capital they need to create jobs and grow the American economy."

According to Iacovella, the path forward is two-fold and must be bipartisan. In order to reduce the compliance burden on EGCs and stimulate liquidity in their stocks, the EDA is drafting a regulatory agenda that can be implemented by the SEC as well as outlining statutory changes for Congress.

"Next year is an election year and since this is a jobs issue, the EDA believes there is a real opportunity to move forward to resolve these issues," said Iacovella. Following are a number of the capital market reforms the EDA is advocating:

Revamp market structure.

The JOBS Act was a good start to try and generate more IPOs in the marketplace, particularly by establishing a category of emerging growth companies (EGCs) with revenues under $1 billion. However, it's necessary to build on that concept to reduce disclosures and the costs associated with some of the internal controls, as well as modify the market structure so that it is applicable to emerging growth companies.

The one-size-fits-all construct put forth under Regulation NMS ten years ago does not work for small- and medium-sized companies, as the current equity market structure increases fragmentation and disproportionately harms EGCs. This needs to change, and the EDA is advocating for market structure reforms at the SEC.

There was an initiative recently to create venture exchanges to address this issue, but venture exchanges are not necessary. It makes more sense to empower issuers to choose whether they want to be a Reg NMS corporation or have their security traded on the exchange that they list on. This would cure the fragmentation occurring in smaller issuer stocks, as many are very illiquid and transact only 50,000 to 200,000 shares a day. If more EGCs choose to have their security traded only on the exchange that they're listed on, then centralized pools of liquidity will develop.

As liquidity improves, EGCs may be able to incentivize broker dealers to make markets and pay for research. The entire research ecosystem must be changed—the more research coverage that EGCs get, the better off they will be in terms of people wanting to transact in their stocks.

The time is right for a secondary market structure change, because the SEC's Investor Advisory Committee and Advisory Committee on Small and Emerging Companies are both also looking at ways to improve liquidity and increase research in these small company stocks.

Allow EGCs to opt out of Sarbanes-Oxley 404(b).

Allowing issuers that generate $1 billion or less in revenue to opt out of Sarbanes-Oxley 404(b) will lower the regulatory tax burden on those companies. Independent audits are one of the largest costs incurred by a small company when it first goes public, and those costs are ongoing.

Investors and issuers are aligned on this issue. Accounting firms want more public companies too, but reforms to Sarbanes-Oxley must be tackled in a manner that brings them into the process. For example, by relaxing independence rules for EGCs that choose to opt out of 404(b), accounting firms could be permitted to offer audit and consulting services to those companies until they exceed the $1 billion revenue level or become a Reg NMS security.

Streamline the SEC's disclosure regime.

There are certain industries, and companies within certain industries, where it doesn't make sense to go through the burden and substantial costs of filing 10Qs every quarter, supplementing with 8-Ks, and then bearing the cost of issuing a 10K at the end of the year.

For example, new biotech companies lose money until they have approval from the FDA. During the product development phase, it's not relevant to the investor to know anything other than where they are in the pipeline process of working their drug or their solutions through Phase 1, Phase 2, and Phase 3 of FDA approval. There are other industries that operate in a similar way.

While there is a substantial investment that goes into a biotech or any emerging company, the 8-K process can address those investors. If that information is not sufficient to investors, they will vote with their feet. If investors sell off a company's stock, then management will have to do something different, maybe go back to filing the Qs. Or perhaps the investors who hold the stock will say "We don't mind that you're only filing 8-Ks here, but we'd like to see at least some financials on a quarterly basis."

This idea also reduces short-termism by encouraging investors to allow enough time for critical research and development to bear fruit.

Increase the shareholder proposal threshold.

Frivolous shareholder proposals filed by low-dollar investors are becoming a burden for EGCs, who desperately need their time, resources, and capital to run and grow the business. Increasing the amount of stock that shareholders are required to own from $2,000 to $100,000 would reduce the costs associated with politically motivated proposals that are designed to advance personal agendas and interfere with corporate governance. This can only benefit EGCs as they will be able to put the limited resources they have to their highest and most efficient use.

Exempt pre-IPO discussions from Section 17 liability.

Fear of Section 17 misstatement liability is another hurdle to going public. Research analysts are focused on the future value of a company; however, potential issuers are often hesitant to speculate about future company valuations, cash flows, business lines, or multi-year growth projections because they're worried if projections don't come to fruition the company will be hit with a Section 17 misstatement liability. This issue could be resolved by allowing more free-flowing dialogue between issuers and potential investors and analysts during pre-IPO evaluation discussions and roadshows, while confining Section 17 liability to the offering documents themselves.

Increase the opportunities for individuals to invest in EGCs.

The ability to invest in EGCs has long been an opportunity for retail investors to build wealth. As the number of public companies dwindles, retail investors are being forced into passive investments, while private capital benefits from the wealth acquired during the growth stages of companies.

"The EDA wants to bring back the environment that existed when Walmart went public," said Iacovella. "In 1970, Walmart issued a 28-page prospectus and that initial offering raised just $5 million. The company continued to go back to the capital markets in subsequent years. The growth Walmart experienced since going public revitalized the economy of northwest Arkansas, and the folks who invested in Walmart over the years have been handsomely rewarded for it. That is a perfect example of how the equity capital markets are supposed to work."


Chris Iacovella is Chief Executive Officer of the Equity Dealers of America (EDA). Previously he was the Senior Director of Global Government Affairs, Strategy, and Public Policy at Bloomberg, L.P. where he worked directly with Bloomberg's internal businesses on regulatory solutions and interfaced with policymakers and regulators across the globe to discuss equity, fixed income, and derivatives market structure policy.

Read more about Nasdaq's blueprint for Revitalizing the Capital Markets >>
Publication Date*: 9/26/2017 Mailto Link Identification Number: 1431
Frequently Asked Questions
  July's Must Reads
Identification Number 1408
July's Must Reads
Publication Date: August 7, 2017

Each month, we will scour the web to bring you the news items and thought leadership pieces you need to get the governance advantage.

1. Women in the boardroom: A Global Perspective - Deloitte
Women are still largely under-represented on corporate boards globally; this study examines initiatives in 25 countries aimed at increasing the number of women in boardroom positions around the world.

2. What We Learned from Improving Diversity Rates at Pinterest – Harvard Business Review
Pinterest discusses how diverse teams yield smarter, more innovative results, which are essential in the competitive, dynamic tech industry.

3. 'Get the ethics right, and you will always be compliant' – Ethical Corporation
Companies often struggle to balance ethics and compliance. Those that are regulated often see compliance as pre-eminent.

4. Do High CEO Pay Ratios Harm Company Value? –
A new American Accounting Association study finds that even when controlling for the portion of pay linked to stock performance, the relationship between CEO pay ratio and stock price remains strong.

5. Directors Under 40 Make Their Way Into Corporate Boardrooms - Equilar
Diverse backgrounds may include gender, ethnicity, nationality, industry background, skill set and age—and the latter is coming into focus as many young executives are starting their own companies to meet the changing demands of today's consumers.

6. Here's What the Blockchain Future of Capital Markets Might Look Like – International Business Times
A growing number of stock exchanges around the world are experimenting with a variety of blockchain tools.

7. 2017 Proxy Season Review – Harvard Law School Forum on Corporate Governance and Financial Regulation
The 2017 proxy season is marked by the launch of a historic US stewardship code and the emergence of proxy access as standard practice across large companies.

8. How Your Board Can Be Ready for Crisis – Harvard Law School Forum on Corporate Governance and Financial Regulation
Most companies experience at least one crisis every four or five years. Regularly discussing the crisis plan with management and the results from testing it lets the board understand where there might be gaps in readiness.

9. Keys to effective board oversight of cyber risk management – EY
Many boards task their audit committees with overseeing matters related to cybersecurity. EY discusses the key factors audit committees should consider for effective cyber risk management.

10. How Significant are SEC Rule Changes for IPOs on Confidentiality? –
As of July 10, companies weighing an initial public offering can opt to keep certain information confidential until closer to their trading debut.

Publication Date*: 8/7/2017 Mailto Link Identification Number: 1408
Frequently Asked Questions
  June's Must Reads
Identification Number 1398
June's Must Reads
Publication Date: July 6, 2017

Each month, we will scour the web to bring you the news items and thought leadership pieces you need to get the governance advantage.

1. SEC seeks to boost market listings through privacy move – Financial Times
US regulators moved to try to boost the flagging number of stock market listings on Thursday, telling large companies that they will be able to keep their financial information secret while they prepare for a public offering.

2. PCAOB OKs First Big Change to Audit Report in 70 Years –
Worrisome matters reported by an auditor to a board audit committee would be disclosed in the auditor's report under a new standard approved by the Public Company Accounting Oversight Board.

3. The Key to Diversity in Tech? Diverse Investors, says New York-based Social Impact VC – Forbes
One often ignored tactic for encouraging diversity among tech founders and employees is to encourage diversity among the investors.

4. Sheryl Sandberg Shares 7 Ways to Build Resilience Into Your Company Culture As You Scale– Entrepreneur
As part of a 10-episode series, Sheryl Sandberg discusses, among other things: What it takes for an organization to be resilient and how a changing staff and culture remain strong despite massive shifts and bumps in the road.

5. Managing brand risk in an age of social media - Deloitte
This Deloitte whitepaper discusses how an organization's Board of Directors can effectively manage brand risk and reputation in the current digital environment.

6. 80% of This Public Company's Directors Are Women –
Travelzoo announces that it has the highest female-to-male ratio of any NASDAQ or NYSE-listed company (a group that includes nearly 6,000 businesses).

7. Webcast » The Corporate Governance Impact of Trump's First 100 Days –
In this webcast hosted by PwC's Governance Insights Center, a panel of experts discusses the current and future actions of the Trump administration and how today's companies can both prepare and respond.
Watch the video here >>

8. Where's the focus this year? –
EY discusses key themes and the shareholder proposal landscape for the 2017 proxy season.

Publication Date*: 7/6/2017 Mailto Link Identification Number: 1398
Frequently Asked Questions
  Public Companies and the PCAOB: Insights from the PCAOB, BDO, and Grant Thornton
Identification Number 1390
Public Companies and the PCAOB: Insights from the PCAOB, BDO, and Grant Thornton
Publication Date: June 16, 2017

David Wicks, Vice President of Listing Services at Nasdaq, recently hosted a webinar with Greg Scates, Acting Director of the PCAOB's Office of Outreach and Small Business Liaison; Blake Wilson, National Assurance Partner at BDO USA; and Timothy O'Neil, Audit Partner at Grant Thornton LLP. Panelists shared insights on ways publicly traded companies can ensure their voices are heard at the PCAOB and auditing firms alike.

Excerpts from this discussion are presented below and have been edited for length and clarity. The views expressed here reflect those of the speakers and do not necessarily reflect those of their organizations.

Q: How does the Office of Outreach and Small Business Liaison work with public companies? What's the best way for companies to reach you?

PCAOB: We conduct public forums with smaller public companies and brokers and dealers around the country each year, to provide updates on new standards and new activities going on at the PCAOB. These forums are also a good opportunity for us to hear from smaller firms about problems or issues they are having as they conduct their audits.

The PCAOB Office of Outreach and Small Business Liaison can be reached by phone at (202) 591-4135 or email at

Q: What type of questions should a company direct to PCAOB vs. the SEC?

Our staff responds to questions related to auditing standards and auditing-related matters with respect to the audits of public companies and brokers and dealers. When we get questions about accounting related matters, accounting standards or SEC filing and reporting matters—none of which are in our jurisdiction—we refer those to the SEC.

Q: How can publicly traded companies participate in PCAOB's standard-setting process? Are there other ways public companies can engage with PCAOB?

The principle way companies, accounting firms, investors, and others participate in the standard-setting process is through submitting comment letters to the PCAOB on proposals we have outstanding. Outstanding proposals are always posted on our homepage, with links to the releases describing the proposed changes to the PCAOB standards as well instructions on how to comment on our proposed standards. Those comments are the most valuable to the staff and the Board. We take those comments very seriously as we go through the standard-setting process.

The PCAOB is somewhat unique compared to other standard setting groups such as the FASB or the IAASB in that our standards go through two approval processes. Once a new standard or amendments to existing PCAOB standards are adopted by the PCAOB, changes to PCAOB standards are subject to approval by the SEC before changes to PCAOB standards become effective. It's a rigorous process, but it gives public companies, firms, and investors multiple opportunities to comment.

Management of public companies can also apply for membership in the PCAOB's Standing Advisory Group (SAG), which meets two or three times a year to advise the PCAOB on the standard setting agenda and related activities. Members of the SAG include individuals employed by public companies, accounting firms, investors, and other regulatory bodies.

Q: What role do accounting firms play in the standard setting process? Can you suggest how companies can better participate?

The comment forum is the most predominant way Grant Thornton drives standard setting. Leveraging relationships with the companies, private equity firms and investors on PCAOB's SAG is another opportunity for both auditing firms and companies to have impact.

We urge our partners, when they are meeting with management or with the audit committee, to have a dialogue around the PCAOB's agenda, what standards are coming down the pike, what they should expect when new standards are adopted. If a company is concerned about a given standard, I encourage them to work with their audit engagement team, or the firm itself at a higher level, to collectively craft a comment letter relevant to the company's audit agenda.

Q: We often hear from our listed companies that the PCAOB might recommend a new control, test or procedure to cover a specific item—perhaps for a specific company or industry—but instead of applying the new control to just the situation PCAOB identified, the audit firm in turn applies it to all clients. Is this the PCAOB's intent when it gives comments to auditors? If a company thinks this is happening, what recourse does the company have?

PCAOB: Based on this question, it seems there may be some confusion about the PCAOB's inspection process. The PCAOB's inspection process assesses compliance with existing auditing standards and is designed to identify and address weaknesses and deficiencies related to how a firm conducts audits under these standards. These are noted in the inspection report. The firm then goes through the process of remediating the deficiencies identified. In response, a firm may revise its existing quality control policies and procedures as well as the firm's methodology.

Q: BDO and GT, what advice would you give companies that feel they are in this situation? What recourse do they have?

In general, companies should expect their engagement team to articulate why they are performing a specific procedure. Responses in that dialogue should be rooted in a firm methodology, perhaps mapped back to a PCAOB standard or inspection finding. A company needs to challenge the auditing engagement team to understand whether they are identifying the right risks and if the responses to those risks make sense in the context of the financial statement that is currently being audited.

BDO: The PCAOB typically will only comment on a material matter, and auditing firms take those matters very seriously. As part of our QC process, we will determine why the issue occurred, if it is specific to that particular engagement and if corrective actions should be limited to that engagement, or if it is a broader QC issue that may be a methodology concern. I would encourage companies that feel they are in an over-auditing situation to have a dialogue with the engagement partner as to why they think a procedure may be necessary and to further understand what is driving it.

PCAOB: If company management is concerned about over-auditing in a particular area, then management should take it up with the audit committee. Each year, the audit engagement team discusses an overview of the audit strategy with the audit committee. This could provide an opportunity for management to have a productive dialogue with the auditor and the audit committee as to a particular auditing issue management may be concerned about.

Q: On June 1, the PCAOB introduced a new audit standard, AS #3101, that will initially make certain changes to the audit report, and eventually change the way auditors describe "Critical Audit Matters" in both the audit report and when interacting with audit committees. PCAOB, can you discuss this new standard?

The new AS #3101 is a standard that's been adopted by the Board, but not a standard of the PCAOB yet, since it is subject to a notice and comment process by the SEC. The SEC will post it in the Federal Register and public companies, broker-dealers, accounting firms, investors and others will have another opportunity to comment on this standard. The SEC will consider public comments received in deciding whether the new standard and related amendments are consistent with the requirements of the Sarbanes-Oxley Act, the securities laws, in the public interest or for the protection of investors.

The new standard retains the pass/fail model that is in the existing standard today and contains a new element related to the communication of critical audit matters, or CAMs, in the auditor's report. Critical audit matters are matters arising from the audit of the financial statements that are communicated or required to be communicated to the audit committee, relate to accounts or disclosures that are material to the financial statements, and involve especially challenging, subjective, or complex auditor judgment. If there are no critical audit matters to be communicated, then that fact should be disclosed in the report.

PCAOB board members don't intend for the CAMs to result in boiler plate language. The Board anticipates the new standard will make the auditor's report more relevant, useful and informative to investors and other financial statement users with respect to a particular company. CAMs are determined using a principles-based framework and should be tied to a particular audit engagement in which they arise. The communication of CAMs in the auditor's report should inform investors and other financial statement users of matters arising from the audit of the financial statements that involved especially challenging, subjective, or complex auditor judgment, and how the auditor addressed those matters. We anticipate there will be different CAMs between companies within the same industry. The point is to make sure the information is useful to the investing public.

We also made some other changes to the audit report in the adopted standard, including a new disclosure of audit tenure (that is the year in which the auditor begins serving consecutively as the company's auditor).

If approved by the SEC, we plan to phase in the effective date for Standard AS #3101 over several years. The new auditor's report format, excluding the reporting requirements of CAMs, would be effective for audits of fiscal years ending on or after December 15, 2017. The communication of CAMs would become effective for audits of large accelerated filers for fiscal years ending on or after June 30, 2019. Communication of CAMs for audits of all other companies would become effective fiscal years ending on or after December 15, 2020.

Q: BDO and Grant Thornton, how do you think the adoption of this standard will change your interaction with your public company clients? What do you think will be the most challenging aspect of adopting this new standard?

I'm not sure the interaction with public companies will change. The CAMs information that's expected to be included in the report is akin to an MD&A in a public company filing, meant to give insight into our audit approach. That information is already communicated not only to management, but also to those charged with governance. I think where the sensitivity will come in is that this is not generally public information currently. While management absorbs it, understands it, and challenges it, audit committees and those charged with governance in a similar fashion will have some sensitivity as to what they would like us to include and not include in a report. I expect certain firms and/or companies will have robust discussions around CAMs, and others will disclose them in more vague and general terms.

BDO: Discussions related to the new standard are already happening with engagement teams, and those are robust discussions, in terms of those CAMs: what those disclosures are, how they will be written, and discussions between the auditor and the companies in terms of the robustness of CAMs disclosures.

Q: We hear from our listed companies that audit fees are increasing because of the additional testing and audits being required by the PCAOB, and auditors have no incentive to keep them down. Do auditors use a cost/benefit analysis when deciding what procedures are necessary? How can this be addressed in a meaningful and constructive way?

We have to perform our audits to achieve high audit quality, in accordance with the auditing standards which govern our work. There's not much in terms of cost that we can do from that perspective. We are in a competitive market across all the auditing firms—margins are actually declining because of what it requires in today's world to perform a high quality audit. So we need to stay focused on performing the procedures that are necessary, and companies need to be involved in a dialogue to understand why we are doing certain things. As we discussed today, companies can also be involved in the standard setting process.

GT: There's a minimum level of effort on an audit, whether it be public or private, and a company should determine that either through their own research or their engagement team articulating what that minimum level of effort is. Because as Blake [BDO] said, that effort is rooted in the standards. There will be issues that go above and beyond the standards, because of unique industry factors or circumstances related to a given transaction or company situation.

Companies can help keep costs down by understanding the minimum level of effort, determining whether the team can leverage internal audit for controls testing, and identifying ways to leverage other information the company is using to get to the right answers.

Q: In other countries, audit reports provide much more detail than is currently provided in the U.S. Do you foresee that audit reports will become more granular in nature and less standardized? If so, how?

The proposed PCAOB standard we spoke about earlier adding CAMs to reports is a first step in that direction. It's hard to make a global comment because every jurisdiction is a little different. For example, in certain European jurisdictions, you see director information, compensation and other information in auditor's reports; this information is already public here in the U.S. but it exists in different areas. I do think we will start to see a bit more standardization across the global economy, because global investors want to see reporting that's somewhat similar, not only from an accounting standard perspective but from an audit perspective as well.

Listen to June 7th webinar >>

Visit the PCAOB homepage to view current auditing standard proposals >>

Read more about the PCAOB's Office of Outreach and Small Business Liaison >>
Publication Date*: 6/16/2017 Mailto Link Identification Number: 1390
Frequently Asked Questions
  Comment Solicitation: Shareholder Approval Rules
Identification Number 1389
Comment Solicitation: Shareholder Approval Rules
Publication Date: June 14, 2017

Click here to read our Comment Solicitation >>

Last year, Nasdaq solicited comments on our shareholder approval rules. These rules were adopted in 1990 and have remained largely unchanged since then. The comment solicitation was designed to elicit views on whether the rules could be updated given changes in the capital markets since then, without sacrificing the crucial investor protections they provide.

Following review of the comments provided, Nasdaq is considering a rule amendment to: (i) change the definition of market value for purposes of the shareholder approval rules from the closing bid price to a five day trailing average of the closing price; and (ii) eliminate the requirement for a company to obtain shareholder approval for issuances of common stock at a price less than book value.  As part of these changes, Nasdaq would also require that an issuance of 20% or more of the company's outstanding securities be approved by the company's independent directors where shareholder approval is not required.

We encourage all interested parties to review the detailed description of these proposed changes in our Comment Solicitation and provide comments before July 31, 2017. 

Electronic responses are preferred and may be addressed to:

You may also review last year's comment solicitation here.
Publication Date*: 6/14/2017 Mailto Link Identification Number: 1389
Frequently Asked Questions
  WEBINAR RE-PLAY: A Conversation with PCAOB, BDO and Grant Thornton
Identification Number 1374
WEBINAR RE-PLAY: A Conversation with PCAOB, BDO and Grant Thornton
Publication Date: June 8, 2017

Nasdaq hosted a web seminar with representatives from the PCAOB, BDO USA and Grant Thornton to discuss the PCAOB resources available for public companies on June 7.

Listen to the Re-Play Here >>
Publication Date*: 5/16/2017 Mailto Link Identification Number: 1374
Frequently Asked Questions
  Nasdaq Talks to . . . PCAOB's Office of Outreach and Small Business Liaison about Its Mission and How It Can Help Public Companies
Identification Number 1371
Nasdaq Talks to . . . PCAOB's Office of Outreach and Small Business Liaison about Its Mission and How It Can Help Public Companies
Publication Date: May 9, 2017

Nasdaq often hears questions from listed companies about their annual financial statement audit or a specific accounting directive. To help answer these questions, Nasdaq investigated and found that, although the Public Company Accounting Oversight Board (PCAOB or the Board) does not have an official "ombudsman," it does have an Office of Outreach and Small Business Liaison. Read our interview below to find out how this office can help answer these questions.

Want to know more?  You can listen to a re-play of a recent webinar Nasdaq hosted with PCAOB, BDO, and Grant Thornton here >>

Q: What is the Office of Outreach and Small Business Liaison?

A: The Office of Outreach and Small Business Liaison was established in 2010 after the passage of the Dodd-Frank Act. The Office plans and conducts forums for auditors of smaller public companies and for auditors of smaller broker-dealers. The Office also acts as a liaison between the Board and accounting firms and others affected by the Board's work; assists with arranging Board member and PCAOB staff speaking engagements; and serves as a contact for anyone who may have questions about the Board's regulatory activities or needs assistance in locating publicly available information issued by the Board.

Q: How can you help public companies?

A: The PCAOB website contains a number of resources which inform companies about the work of the PCAOB including inspection reports of registered accounting firms and summaries of inspection findings. More information on these pages is provided below.

In addition to our website, PCAOB Board Members and Senior Staff speak to representatives from public companies at events across the country. This includes groups of CFOs as well as Audit Committee members.

In addition to the website, public companies may contact our office if they have questions related to anything on the website.

Q: What's the best way to reach you?

A: The office can be reached by telephone at (202) 591-4135 or by email at either or

Q: What are the most common questions you get? How do you respond?

A: The Office of Outreach receives questions on many topics. The most common requests typically involve assistance with locating information on registered firms. Generally, staff from the office will respond directly to the person who contacts us. In some instances, due to the technical nature of the question(s) posed, messages are sent to the appropriate division within the PCAOB for a response. Additionally, if the question or request relates to an issue outside of the PCAOB's jurisdiction, we will direct people to the organization or agency best suited to respond.

We encourage people who contact us to provide enough detail in their message so that the request can be handled promptly.

Q: How can a company participate in PCAOB's standard-setting process? Are there ways for PCAOB to accept input from public companies? What is it?

A: The PCAOB collects comments from all interested parties, including public companies, as part of the standard-setting process. If a proposal is open for comment, it will be listed on the PCAOB home page. The PCAOB has also made available a rulemaking docket which lists the status of all rulemaking projects, including standards. More information on the comment process is available here. All comment letters that are received are posted on the PCAOB website.

Additionally, all PCAOB standards are subject to SEC approval. Once a proposed standard is submitted to the SEC, there is an additional period in which comments are accepted.

The PCAOB also has a Standing Advisory Group which advises on the development of auditing and related professional practice standards. Public company executives and audit committee representatives are among the members of the group.

Broad-based organizations whose members are public companies such as Financial Executives International, the Society for Corporate Governance, the American Bankers Association, and others may seek to meet with Board members and senior staff to discuss issues of mutual interest. Public companies could also reach out to the Board through Nasdaq.

Q: What other resources are available at PCAOB for public companies with auditor-related questions or concerns?

A: As noted above, the PCAOB website has a number of documents and pages that may be of interest to public companies. The Board frequently issues general reports along with staff inspection briefs. In addition, the Board has created a page with information specifically for audit committee members. Information on firms registered with the PCAOB is available through the registration and reporting system. Users of the system can search for any firm and see inspection reports and enforcement actions for each firm as well as view filings required by the PCAOB. Questions not specifically answered on our web site should be directed to the email address and phone numbers listed above.

We encourage anyone interested in the work of the PCAOB to sign up for email updates or to follow us on Facebook, Twitter and LinkedIn.
Publication Date*: 5/9/2017 Mailto Link Identification Number: 1371
Frequently Asked Questions
  Nasdaq Talks to . . . Congressman Jamie Raskin about going public and the importance of independent directors
Identification Number 1330
Nasdaq Talks to . . . Congressman Jamie Raskin about going public and the importance of independent directors
Publication Date: March 2, 2017

Congressman Jamie Raskin (D-MD) took office in January 2017 representing Maryland’s 8th congressional district and is a member of several committees including the House Judiciary Committee and the House Oversight and Government Reform Committee. Prior to his election, Raskin was a Maryland State Senator and a professor of law at American University.

We asked him to share his thoughts on the role of public companies and the importance of independent director oversight.

Q: Would you share your thoughts on the importance of having companies go public?

A: The traditional understanding is that when companies go public it democratizes the opportunity for investment so that it becomes broadly available, rather than limited to the few people who have special access or are connected to the company in some way. I think that that logic still carries a compelling force today. To the extent that there are alternatives outside of going public, one has to ask the question to what extent is this something that's generally available, open to the public and makes the markets transparent and accessible for everybody.

Q: Nasdaq requires that the board of directors of a listed company maintain certain levels of director independence. What are your thoughts on the role of board independence in the success of public companies and the protection of investors?

A: You know, I’m a professor of constitutional law and it all goes back to the insight of the founders of the constitution which is that tyranny and corruption emerge when you have a collapse of all powers into one. The safe way to do things is to divide powers up so there are checks and mutual accountability with some level of mistrust and suspicion built into it. That creates the greatest possible safety. That's why we have a legislative branch, an executive branch, a judicial branch and we have the powers of the House and the Senate within the legislative branch divided up.

I think it's basically the same principle that’s got to operate in the economy with respect to publicly held corporations. There's got to be independence of the Board of Directors so that they’re a meaningful check on the management and there's real accountability, as well as a series of processes in place that prevent a convergence of all the relevant interests. You want to make sure that there's healthy independence and checking of interests.
Publication Date*: 3/2/2017 Mailto Link Identification Number: 1330
Frequently Asked Questions
  What Boards Can Expect under the Trump Presidency
Identification Number 1310
What Boards Can Expect under the Trump Presidency
Publication Date: January 24, 2017

Former SEC Commissioner Troy Paredes recently appeared in an interview on “Inside America’s Boardrooms,” where he shared his predictions for what changes boards can expect from the SEC and Congress under the Trump presidency. Paredes predicts that boards will see pro-growth policies and an appropriate focus on capital formation and expects we will see regulatory changes from Congress and the SEC, including the reform of Dodd-Frank, the DOL Fiduciary Rule, and the Financial Stability Oversight Council. He also highlights areas boards should focus on, including compliance, governance, and technology risks.

Watch the interview here >>
Publication Date*: 1/24/2017 Mailto Link Identification Number: 1310
Frequently Asked Questions
  Web Seminar on Legislative Priorities in 2017 – How Congress Will Hit the Ground Running
Identification Number 1309
Web Seminar on Legislative Priorities in 2017 – How Congress Will Hit the Ground Running
Publication Date: January 23, 2017

On Friday, February 3, 2017, David Wicks, Nasdaq Vice President of Listing Services, and Terry Campbell, Nasdaq Vice President of Government Relations led a discussion on the 2016 election outcome and its impact on the business community. This event will feature special guest Matt Bravo, Director of Floor Operations to the House Majority Whip Steve Scalise. Topics to be discussed include the strategy and timing of legislative priorities of the new Administration and the Republican Congress as well as the potential impact of these policy changes on public companies and overall economic activity.

Listen here >>
Publication Date*: 1/23/2017 Mailto Link Identification Number: 1309
Frequently Asked Questions
  The Latest on Proxy Access
Identification Number 1213
The Latest on Proxy Access
Publication Date: June 29, 2016

Proxy access continues to be a hot topic, so it was no surprise that the panel discussion on proxy access at this year’s Society of Corporate Secretaries & Governance Professional’s National Conference was standing room only. The bottom line according to the panel, which was moderated by Ning Chui from David Polk, alongside Scott Zdrazil from the New York City Controller’s Office, James Theisen of Union Pacific Corporation, and Glenn Booraem of Vanguard, is that while no one expects proxy access to be used very often they see it as having value to shareholders simply by virtue of its very existence, making boards more responsive to issues important to shareholders.

According to Davis Polk, more than 240 companies adopted proxy access bylaw provisions as of June 1st, many doing so voluntarily to avoid a shareholder vote.

The “Four Pillars” of Proxy Access
  • Ownership Threshold. 95% of companies adopted a 3% threshold.
  • Holding Period. 100% of companies use a three-year minimum holding period.
  • Maximum number of proxy access nominees. 85% of companies provide for 20% of board seats while the remaining 15% of companies provide for 25% of board seats.
  • Group Limit. 90% of companies adopted a group limit of 20 shareholders that can aggregate holdings to meet the ownership threshold.

Other New & Noteworthy Numbers
  • 80% of companies require disclosure only of third-party compensation arrangements and do not impose prohibitions on compensation arrangements.

    In March, Nasdaq filed a proposal with the SEC to require Nasdaq-listed companies to publicly disclose payments by third parties to any nominee for director or sitting director in connection with their candidacy for or service on a board of directors. The Proposal to Require Listed Companies to Publicly Disclose Compensation is posted on the SEC’s website and Nasdaq expects SEC action on this proposal in July.
  • 75% of companies set the deadline for submitting a nomination for a proxy access nominee as 120 to 150 days before the anniversary of the mailing date of the prior year’s proxy statement.
  • 60% of companies limit re-nominations when a proxy access nominee withdraws or fails to receive 25% of the votes.
All data was provided by Davis Polk and is as of June 1, 2016. Also worth checking out: Council of Institutional Investors Best Practice Guidelines.
Publication Date*: 6/29/2016 Mailto Link Identification Number: 1213
Frequently Asked Questions
  Updated: Nasdaq Talks to Congressman Sean Duffy and Vitae Pharmaceuticals’ CEO Jeff Hatfield about Proxy Advisor Legislation and Short Selling Transparency
Identification Number 1218
Updated: Nasdaq Talks to Congressman Sean Duffy and Vitae Pharmaceuticals’ CEO Jeff Hatfield about Proxy Advisor Legislation and Short Selling Transparency
Publication Date: June 20, 2016

What motivates a Republican Congressman and a corporate biotech CEO to join forces in supporting additional regulation of U.S. capital markets? Nelson Griggs, Executive Vice President of Listing Services at Nasdaq, recently hosted a webinar discussion on corporate governance reforms with U.S. Representative Sean Duffy (R-WI) and Jeff Hatfield, President and CEO of Vitae Pharmaceuticals, Inc. (Nasdaq: VTAE). The topics discussed included Rep. Duffy’s proposed legislation to regulate proxy advisory firms and the need for timely disclosure of short selling positions.

Corporate Governance Reform and Transparency Legislation

On June 16, 2016, the House Financial Services Committee approved the Corporate Governance Reform and Transparency Act of 2016. The bill will now go to the full House for a vote.


Rep. Sean Duffy’s corporate governance reform and transparency legislation aims to ensure that proxy advice is issued in the best interest of shareholders. Congress understands the power and influence proxy advisory firms (PAFs) wield in our capital markets:

  • Institutional ownership of U.S. stocks has risen from 46% in the 1987 to approximately 75% today.
  • The two top PAF firms—Institutional Shareholder Services (ISS) and Glass, Lewis & Co.—control over 90% of the market, giving them outsized influence with respect to say-on-pay, mergers and acquisitions and director elections recommendations.
  • Many PAF firms also provide proxy battle consulting services to the corporations they issue recommendations on, potentially creating a serious conflict of interest.
  • The PAF industry is virtually unregulated and presents a significant opportunity for corruption and double-dealing.

As a result, there is an essential need for legislation that fosters accountability, transparency, responsiveness, and competition with the intent to protect investors and the market.

Duffy’s proposed bill, the Corporate Governance Reform and Transparency Act of 2016 (the Act), would require, among other things, that PAFs:

  • Register with the SEC;
  • Employ ombudsman to handle complaints from listed companies about using inaccurate information to issue recommendations and such complaints must be resolved in a timely manner; and
  • Maintain a code of ethics to better manage conflicts of interest.

The Act also grants the SEC specific statutory authority to oversee PAFs.

During the Q&A segment of the discussion, Congressman Duffy also pointed out that the bill is co-sponsored by fellow Democratic Representative John Carney from Delaware -- so there is early bipartisan support for this effort. Rep. Duffy fielded a tough question about the idea of a Republican increasing regulation in the markets, and he stressed that while increased regulation may seem counterintuitive, in the case of PAFs where the market is so clearly dominated by a couple of firms, oversight is sorely needed.

Many public companies have raised concerns about the influence proxy firms have in shaping corporate governance. Congressman Duffy’s legislation would address this frustrating situation. You can voice your support by contacting Rep. Duffy’s Deputy Chief of Staff, Andy Taylor, at

Impact of Unregulated PAFs on the Biotech Industry

The webinar provided context on the issue by focusing particularly on the effect and influence PAFs have on the biotech industry. Jeff Hatfield discussed his experience and concerns with PAFs and how the biotech industry would benefit from the bill. He explained that a new biotech company operates on a simple model, consisting of a small group of scientists working on first class breakthroughs on cures. This process takes decades to develop and costs billions to bring to market. There is no revenue earned for up to the first decade, so biotechs rely very heavily investors for cash flow and equity infusion (almost 40% of IPOs are biotech companies). Therefore, the influence of PAFs can be significant and detrimental at the same time.

PAFs don’t compare the size and revenues of the companies they influence, but rather recommend a one-size fits all approach on their recommendations throughout the market, which oftentimes does not accurately reflect the earnings potential and/or investment risk of a biotech model. Small companies find themselves aligning their policies and business models to satisfy proxy advisory firms, rather than making decisions in the best interest of the company’s long-term strategies and performance. Other issues involve the exposure of the draft reports and a noticeable conflict of interest. ISS will provide drafts of its reports to its larger companies (i.e., S&P companies) beforehand, while the smaller companies, like those in the biotech industry, will typically only get access to these reports once they are available to the shareholders. Additionally, there is an intrinsic conflict of interest, as PAFs provide consulting services on how to succeed in proxy fights that often result from the PAF’s own negative recommendations. The Act will provide some resolution to these types of issues.

Short Selling Transparency

The webcast discussion also covered the significant gap in the disclosure obligations of short sellers.

Transparency regarding short selling has long been an issue in the market. Nasdaq has taken a stance petitioning to require disclosure of short positions in parity with already-required disclosure of long positions. This is not a proposition for new restrictions, but rather to provide clarity and transparency to prevent abusive trading behavior that impacts companies and the longevity of shareholders.

While Hatfield supports short selling as it is critical to market liquidity, the information asymmetry gives rise to trade abuses. Additionally, as biotechs are thinly traded stocks with large gaps of time between major news, short selling can play a major factor in driving the stock during these periods. Short sales represent 13.2% of all biotech transactions, versus 1.6% of the market as a whole. The goal is to align short selling disclosure with parallel requirements to disclose long positions, which will give companies better insight into trading activity and provide adequate knowledge to answer investor questions and concerns.

In December, Nasdaq submitted a Petition to the SEC to adopt rules in this area. You can submit your comments to the SEC through the form here.

Listen to May 11th webinar >>

Read Nelson Griggs’ testimony before the House Financial Services Committee on these issues >>

Publication Date*: 6/20/2016 Mailto Link Identification Number: 1218
Frequently Asked Questions
  Hidden Director Conflicts Should Be Disclosed to Investors by Edward Knight
Identification Number 1214
Hidden Director Conflicts Should Be Disclosed to Investors by Edward Knight
Publication Date: June 16, 2016

This article was originally published by Institutional Investor on June 16, 2016.
Shareholder campaigns aimed at radically reshaping corporate policy and governance — and extracting short-term profits at the expense of long-term value creation — are once again in the news. Many think they are a recent phenomenon. But that’s not the case.

In 1986 vaunted management consultant Peter Drucker lambasted short-termism in an editorial in the Wall Street Journal, declaring, “Everyone who has worked with American managements can testify that the need to satisfy the pension fund manager’s quest for higher earnings next quarter, together with the panicky fear of the raider, constantly pushes top managements toward decisions they know to be costly, if not suicidal, mistakes.”

And the evidence today — the intense focus on quarterly earnings, diminishing capital investment by U.S. corporations, shrinking CEO tenure and, according to Ana Avramovic, director of trading strategy at Credit Suisse in New York, falling average holding period for shareholders to 17 weeks, among other things — continues to demonstrate a push toward decisions that can be costly for shareholders.

This situation is potentially calamitous. Short-termism, often driven by activists, can have grave implications for corporations, for our economy and sometimes for society overall. Innovation, discovery and hiring are curtailed when R&D projects are put on hold or canceled because of short-term pressures. Halted development undermines long-term U.S. competitiveness, to say nothing of potentially postponing lifesaving medicines or cutting-edge technologies from reaching the public. Short-termism also leads to mispricing, misallocation of assets and a lack of reliable information about long-term prospects. But because activists are shareholders, this dynamic puts corporate leadership in a bind. Nobody will disagree that a diverse pool of investors is a goal of any business and that none should be turned away.

Some activist groups today do claim they are in it for the long haul, bringing ideas, questions and concerns to the attention of corporate boards and management, which is an essential part of any healthy relationship between a company and its shareholders. Beyond this engagement by some, however, a movement is afoot in which some board members are paid directly by activist investors, often based on benchmarks such as an increase in share price over a fixed term.

This relation is the case with two directors on Dow Chemical Co.’s board who have a special compensation arrangement with hedge fund firm Third Point, which agreed to pay them stock appreciation rights that increase in value as Dow stock increases in price. At the very least, it is unclear how this director incentive-compensation arrangement does not establish an explicit obligation to Third Point at the expense of other shareholders, lead to conflicts on the board that skew the alignment of interests with shareholders and undercut the fundamental board responsibility to oversee management in the best interests of all shareholders. The question also arises as to whether these payments incentivize risky behavior by the very body that is responsible for ensuring that executive compensation does not do so.

So, in view of such an arrangement, how do we help ensure the healthy functioning of boards without compromising the role of shareholders?

We believe one way is to require transparency around these special compensation arrangements. Full disclosure would shed light on the conflicts of interest generated by these arrangements, steer the focus away from short-term results and benefit investors by providing information useful for their investment and voting decisions.

That’s why, earlier this year, Nasdaq filed a proposal with the Securities and Exchange Commission that calls for Nasdaq-listed companies to disclose “all agreements and arrangements between any director or nominee and any person or entity ... that provide for compensation or other payment in connection with that person’s candidacy or service as a director.” Where disclosure is required, the public company would need to identify the parties and material terms of the agreement or arrangement. This proposal is simple to enact, practical and in the best interests of shareholders and corporations alike.

Activist investors have woven themselves into the fabric of corporate dynamics, with mixed results. They do have a positive and important role to play. Boards and management must be challenged by shareholders so they can continue to develop better companies. Drucker recognized this dynamic when he wrote that the manager’s job is to “keep his nose to the grindstone while lifting his eyes to the hills.”

One way to strengthen the healthy symbiosis of checks and balances between corporate leadership and shareholders is to disclose third-party payments to board members. This openness would have a mutually beneficial long-term focus. If these hidden conflicts of interest are brought into the light, we can keep our eyes on the hills and write a chapter in our capitalist story that takes a positive turn.
Publication Date*: 6/16/2016 Mailto Link Identification Number: 1214
Frequently Asked Questions
  Nasdaq Talks to . . . Joe O'Neill about Key Issues for Public Companies in the 2016 Elections
Identification Number 1215
Nasdaq Talks to . . . Joe O’Neill about Key Issues for Public Companies in the 2016 Elections
Publication Date: June 13, 2016

We recently spoke with Joe O’Neill, the President and CEO of Public Strategies Washington, Inc., a public affairs firm that helps clients navigate the federal policy making process. Joe shared his thoughts about a number of issues impacting publicly-traded companies, including campaign issues, the First 100 Days, Trump’s cabinet prospects, and the Trans-Pacific Partnership trade agreement.

Q:  What are the principal campaign issues on which publicly traded companies should focus? 

For starters, let’s hope we get to a campaign where the issues are actually going to be debated.  So far, that has not been the case.  The race to the bottom, in terms of rhetoric in this campaign, has been swift and severe.  It’s unclear how far and fast we’re going to climb out of that. 

Once we get to the point of real issue discussions – and that may not happen until the start of the presidential debates in late September – I’d say the focus for publicly traded companies should be to assess Trump’s and Clinton’s capacity to grow the economy.  The key components are fairly predictable. How will the next administration address:

  • The U.S. position in the global market;
  • Tax reform;
  • The proper role of government in the financial markets (i.e., Dodd-Frank reforms); and
  • Energy policy.


Both candidates have adopted protectionist positions that have consequences for Nasdaq-listed companies and U.S. companies in general in terms of foreign market access. Trump’s anti-trade rhetoric, for example, really does go against the grain of the traditional Republican open trade policy.  Recently, Speaker Paul Ryan, a fierce free market advocate, endorsed Donald Trump.  We’ll have to see what effect his endorsement has, how Trump integrates with the Republican leadership and whether he can moderate the fairly aggressive nationalist stance that he’s risen to the top with. 

One thing we do know is that the voters’ negative feelings toward trade make it unlikely that either candidate is going to want to engage in any serious discussions as to how to fix whatever the potential trade problems are.  We’re not about to build a wall on the Southern border.  We’re not about to slap 35% tariffs on imported goods.  But it’s also clear that the presumed Democratic nominee is in no mood to discuss the merits of multilateral trade agreements, such as the Trans-Pacific Partnership.  That goes tenfold for her Democratic opponent, Bernie Sanders.  

We also need to keep in mind that this growing protectionist attitude has been going on for a long time.  I’ve been involved in a variety of trade issues over the last 25 years, and these attitudes have progressively gotten worse and they will have huge implications for U.S. companies in both the near and long term. 


The other key issue, of course, is taxes.  The debate will focus on whether comprehensive tax reform is even feasible in 2017.  It has frankly not become a tier one, top line political issue for the voters in this election.  A lot of people assumed it would, and it hasn’t.  But the counter balance is that both candidates have indicated that they definitely want to do something in the tax reform area and the pieces are all there if Congress and the new administration want to engage in a serious reform effort.  Both Speaker Ryan and Kevin Brady, his successor as the Chairman of the Ways and Means Committee, are aggressive advocates for tax reform.  The Senate, I have no doubt, would follow suit in that area. 

If 1986 is any indication, which is the last time we seriously engaged in a broad tax reform effort, no reform is possible politically without the absolute full weight of whoever the new president is.  He or she would have to give it their unambiguous support because it’s such a steep political hill to climb.  Difficult decisions need to be made.  Frankly, very popular tax preferences of all stripes, popular on the Democratic and the Republican side, would have to be tossed under the bus if the rate reductions envisioned are to take place. 

Trump’s definitely gone bigger and bolder on that front, although he has backtracked somewhat on his position – which is not an uncommon practice for Mr. Trump.  He’s moderated it to some extent by now saying that his ideas on tax reform were a “work in progress.”   Trump is fully prepared to renegotiate his current proposal on Capitol Hill and haggle over the details of whatever the plan is if he wins in November.  His bigger and bolder ideas are, frankly, to cut taxes drastically.  The individual tax brackets would be compressed from the current seven down to four.  Tax rates would be at 0%, 10%, 20% and 25%.  Corporate tax rates would drop from 35% to 15%.  So it’s fairly dramatic.  It also – by all economic analysis – imposes a large revenue loss, and increases the deficit to such an extent that it couldn’t make it through Congress even if the Republicans control both the House and the Senate.  So the bottom line is, to my earlier point, if Trump wins, we’ll have a chance to witness his much vaunted deal-making skills if he wants to get something like this through.

Clinton, on the other hand, has taken a more moderate position on tax reform.  She would basically keep the current individual and corporate rates as is, but increase taxes on high income earners – around $5 million – and impose some sort of surtax.  We’ll get details on that later.  And she is ready to do away with a number of the targeted tax breaks.  You know everybody’s tax preference is somebody else’s tax loophole.  On that front, she would be ready to wield a pretty good-sized axe, including goring a lot of treasured sacred cows.  Her game plan is to use the revenue to pay for other priorities, not for tax reform.  So these aren’t really revenue offset issues.  This is to pick up revenue by virtue of the reform effort and pay for other policies that are higher priorities for her. 

Financial Reform

What gets done – or not done – in the area of financial reform is going to have a major significance for Nasdaq-listed companies.  The Democratic rhetoric on that score – we see it every morning on MSNBC, if anyone has the interest any more to watch cable TV – has gotten very hostile, driven largely by Bernie Sanders’ railing against Wall Street corruption and his attempts to tie his Democratic opponent into all that.  Trump’s rhetoric is also very populist.  He occasionally will rail against the banks and that makes him somewhat of a wild card in how he might handle reform.  But the bottom line is that Trump has made not being beholden to banks a major talking point on the stump.  At the same time, he’s been pretty aggressive recently in talking about repealing Dodd-Frank as one of his priority items, so you can assume there’s a wide divergence between the two candidates on that issue. 

Energy Policy

Energy policy is the one campaign issue where each candidate appears to be in line and most firmly positioned in their respective party’s corner.  Clinton will obviously look to expand the green energy options out there that Obama’s been pushing.  The hard left of the voting constituency, which she needs, has gotten pretty extreme on energy issues.  Their motto has become “keep it in the ground.”  Clinton will certainly not go that far.  She, as former Secretary of State, knows full well that domestic oil production is key to any long-term energy independence we might pursue, and frankly, is at least a partial solution to many of the national security and foreign policy problems we experience in various parts of the globe.  So she will tread lightly on this area, given the intensity of the environmentalists’ opposition to fracking. 

Trump, on the other hand, will be much clearer in positioning.  He will look to expand fossil fuel development and extraction, and he’ll do everything in his power to do so.   We’ll see him in the coming weeks try to exploit the doubts that the oil, gas and coal industries have about a Clinton presidency. 

Q:  Can you compare and contrast what public companies should expect in the first 100 days of a Democratic administration vs. the first 100 days of a Republican administration? 

The first 100 days of any administration are immensely symbolic, but I wouldn’t put too much emphasis on outcomes during that time.  Trying to figure out what happens in the first three months of an administration is not necessarily a signal or bellwether of success.  Whoever wins, whatever legislation is proposed in those opening weeks will still require 60 votes to pass the Senate.  The House, we’re assuming, with a Democrat or Republican president, will likely remain in Republican hands, so Speaker Ryan will be critical to the passage of a 100-day plan.  In other words, anything that we talk about in terms of these 100-day programs will require a significant amount of bipartisan cooperation. 

Speculating on what could happen, you will certainly see a push to replace Justice Scalia on the Supreme Court.  That’s assuming Justice Garland falls away.  As you know, there’s a lot of speculation whether after the election there might be an inclination for the Republicans to embrace Garland more enthusiastically.  If Secretary Clinton wins, he could possibly be confirmed in a lame duck session, but we have to assume that that’s probably not going to happen.   In terms of a 100-day goal, it’s very unlikely, given how bitterly partisan the Supreme Court fights are, that you could actually get confirmation hearings completed and a nomination passed in the first three months.  So I don’t think you’re going to see that happen, but you will certainly see a nominee coming forward. 

With respect to a President-elect Clinton, you can assume that she would in those first 100 days make an aggressive push for some sort of infrastructure and job retraining bill.  The probability of success for that hinges to a great extent on the margin of her win.  If the Senate flips to Democratic control and if the Republicans lose a significant chunk of their majority voting bloc in the House, she probably stands a pretty good chance of getting something like that over the finish line in the first 100 days. 

If Trump wins, it’s an interesting question, because you can immediately assume he’ll make a strong push to rescind the multitude of President Obama’s executive orders that have been targets of criticism on the Republican side in terms of overreaching executive authority in areas like immigration and the environment.  However, I suspect if Trump wins the presidency, we will not see a lot of early legislative movement.  His most visible campaign issues – deporting all illegals, building a wall along the Southern border, blocking Muslims from entering the United States – are not exactly issues you can frame as opportunities for early legislative action.  That’s what he’s riding into the White House; those are not 100-day deals. 

On a more pragmatic basis, Clinton arguably would be a lot more nimble and could move more quickly on the legislative front early on because she would essentially inherit a government apparatus that’s already in place.  Her Schedule C political appointments for top administration jobs will obviously vary, but the core of the government apparatus that’s been there with Obama for the last eight years is already in place.  Plus, she’s been around the block in terms of Washington activities considerably more than Trump has.  So I think she could arguably hit the ground running faster than he could. 

A Trump win, in my opinion, would likely mean a very substantial amount of his time would need to be spent in those early months trying to fill a large variety of governmental posts.  I wouldn’t underestimate the difficulty that’s going to confront him in that regard.  The talent pool that he would likely draw from will be made up of much thinner ranks than what any of his Republican predecessors have seen over the past 50 years.  So this will be quite a chore for him, trying to get a government up and ready during the transition months after November but before January 20th.  It will be no easy task and there’ll be a huge proportion of vacancies in the first year of a Trump administration. 

Q:  Why do you say that Trump would be drawing from a thinner talent pool?

A perfect example is what he did with respect to maybe the most admired foreign-policy and national security public servant of the last 25-30 years: he waylaid Bob Gates.  Gates has served for both Republican and Democratic administrations in every conceivable post on the national security and foreign-policy fronts.  

The pejorative term is the “Republican Elites,” but frankly, they’re also the smart guys that are usually there during a transition.  Trump would encounter a lot of difficulty in terms of naming his foreign-policy apparatus.  For example, finding a secretary of state is hardly a “check-the-box” scenario for him.  He’s got hundreds of jobs in this area that are really critical to fill.  I think you can make a pretty compelling case that there is a whole slew of people who served in both Bush administrations, and some that are still attainable from the Reagan era, who would just have no interest in being part of a Trump administration. 

Q:  What effect would Britain abandoning the European Union – or “Brexit” – have upon the American economy and publicly traded companies?

My immediate reaction – and Nasdaq knows this as well as I do – is that as soon as you introduce some uncertainty into global markets, such as a move by Britain to leave the European Union,  it ought to be a major concern to the private sector in general, and specifically, to a lot of Nasdaq-listed publicly traded companies.    

I think by any evaluation, the EU structure that’s been in place now for a number of years has been a real positive for the global economy.  There are over 1 million people in the U.S. and Britain who’ve worked for firms based in each other’s country.  The U.S. is the UK’s biggest export market.  The U.S. and UK have the largest FDI [foreign direct investment] partnership.

I can’t definitively say what the fallout would look like, but I think in general terms, it’s a safe assertion to say that business won’t feel very assured and “Brexit” certainly qualifies as a poster child for uncertainty.

President Obama and Hillary Clinton, as we know, clearly want the UK to remain in the EU.  Trump has predicted that the UK’s departure would be approved, based on what he senses is UK voter dissatisfaction about the immigration problems that other countries are confronting on the continent.  That generally comports with his overall protectionist leanings and is a reflection of the global trend he’s espousing and that we’re seeing in a lot of other corners toward nationalism. 

The vote is scheduled for June 23rd.  Polling data seems to indicate right now that the Brits favor staying over leaving, but it’s a pretty thin margin: single digits.   We’ll have to see how those numbers play out, but clearly, it’s an issue that I think Nasdaq-listed companies need to pay very close attention to in the near future. 

Q:  How likely is it that Congress, in this term or the next, takes up the issue of immigration reform?

That’s another really important issue for Nasdaq and Nasdaq-listed companies.  The chances for it happening in this Congress are zero. 

If we hold the campaigns to their words, the Republican immigration reform would take on much bigger proportions than the Democrats’.  It would include a substantial increase in government spending if we’re really talking about building a wall on the Southern border and rounding up and deporting 11 million people.  Given those costs, that definition of an immigration reform proposal is likely to remain nothing more than campaign rhetoric. 

The next president would need to make reform either his or her top priority in order to drive congressional activity.  We’ve seen this before; immigration reform has been promised every year for the last half dozen years, and it’s clear that without strong presidential support, neither party has enough votes to force reform through on its own. 

If reform languishes, which is a more pertinent concern, the question is whether or not the next administration can somehow de-couple the more contentious issues from the issues that are important to Nasdaq-listed companies, such as visa reform.  Expanding the access to the H1B visa program is a proposal that’s quite popular.  Many in Congress agree with it, and it’s an obvious benefit for Nasdaq companies, but it has been held hostage as a result of the larger debate on immigration. 

It looks like there is going to continue to be gridlock on these broader questions.  We need to break free of that debate so that foreign students from the STEM fields – Science, Technology, Engineering and Math – who are in the U.S. and would otherwise be forced to go back home have opportunities to get good productive jobs. 

In order to get an issue of this magnitude resolved you must have sufficient support from both sides of the aisle.  If it’s going to pass it has to come from the middle, not from either end.  That makes it absolutely pivotal that business give its full-throated support for this if they’re going to drive that agenda on Capitol Hill.

Q: Our President and the leading presidential candidates have taken opposing positions on the Trans-Pacific Partnership (TPP) trade agreement.  How would this trade agreement affect domestic corporations, labor and employment? 

We, as a company, on behalf of Nasdaq and on behalf of some other clients, have been involved in trade generally and TPP specifically over the last few years.  I would say for starters, I’m quite pessimistic about prospects for TPP.  The TPP is in great jeopardy and the prospects for passage this calendar year are growing dimmer by the day, despite what the administration wants to say about that.  It is not absolutely out of the question that it could pass this year, but the only conceivable scenario now is in a lame-duck session.  Whenever you get to a lame-duck session with an issue of this magnitude, that is this volatile, it will be incredibly difficult to get that passed in the few weeks you have. 

The upside of the TPP is crystal clear: it lowers thousands of tariffs and opens up Pacific Rim markets for U.S. products and services.  It’s especially beneficial to business services, particularly the e-commerce industries, where we in the U.S. are the global leader.  There’s a large block of Nasdaq technology companies that would be huge beneficiaries. 

My assessment on the politics of this is there’s an increasingly narrow path to get TPP done during a lame-duck session, which would require consummate coordination between the White House and both Republican and Democratic congressional leaders.  It’s possible…but those of us who have been living with it every day haven’t seen the degree of cooperation that would be required in order to get something this controversial through in such a short period of time. 

The political challenge with free trade is always a recognition that the benefits are significant, but they’re also hard to measure.  The media attention will often focus on the poster child aspect of trade: what plant was closed down because of global competition.  Some of this media coverage is partially accurate, some is not.

It’s an easy issue, from a public relations standpoint, to showcase the negatives, and much harder to put a positive story out.  So that requires the President and Congressional leaders to have the resolve to go to the American people to make the pitch for the benefits to change the trajectory of opinion on TPP if we’ve got any chance for enactment. 

Our company worked on NAFTA from the early negotiations right through the Congressional hearings and final enactment.  This is a much more complex exercise than NAFTA…and if you recall, NAFTA was a rather large and controversial issue for a number years. 

The upside is that Obama himself really does view the Trans-Pacific Partnership as a legacy issue.  He’ll do everything in his power – whatever power there is for a lame-duck president – but he’ll do everything he can to get the agreement through before he leaves office and before Congress leaves at the end of the year. 

There are specific issues in TPP that are important and might be relevant to some Nasdaq companies.  The Congressional opposition to some of the more contentious issues, such as intellectual property protections relating to biologics and pharmaceutical companies and data localization requirements for financial services firms, have been difficult to resolve.  (They appear to be getting closer to a possible prospective solution on data localization for financial services.)

With past agreements like NAFTA, it was much easier to see a Congressional path toward passage because these types of hang-ups – like IP and data localization – could be negotiated under NAFTA through side letters and other mechanisms.  During the negotiations for NAFTA, then-president Bill Clinton was able to make changes to the deal relating to ancillary issues – such as labor and environment -- that were quite sensitive from the Democratic standpoint.  And he was able to claim ownership for NAFTA, while at the same time, still telling Democratic constituencies that he worked hard to fix a set of flaws in the Bush-negotiated package. 

With TPP, we aren’t going to have that kind of luxury.  It will be a much harder game to play; side letter agreements, like those used under NAFTA, are a heck of a lot harder if you need to get agreement from 11 other parties.  There might be one-off bilateral agreements, but TPP will be a much more complex exercise to get through. 

That said, and I know I indicated earlier I was pessimistic, but on the upside I can attest to having been through a whole host of trade agreements over the last 25 years, and every time the prognosis was always poor before the vote, and each time we’ve been able to somehow get it passed.  So, I’m cautiously optimistic that somehow, we’ll figure this one out too.

Joseph P. O'Neill is President and CEO of Public Strategies Washington, Inc.. Since founding the company in 1991, O’Neill has worked with an impressive roster of blue chip corporations, industry trade associations, and public sector clients on a wide range of issues, including tax policy, health care, defense, financial services, telecommunications, and energy. Over the past decade, he has also served as trade advisor to a variety of clients on matters before the World Trade Organization, with a particular focus on Latin America. O’Neill is on National Journal’s list of “Leading Democratic Lobbyists.”
Publication Date*: 6/13/2016 Mailto Link Identification Number: 1215
Frequently Asked Questions
  U.S. Chamber of Commerce Releases Plan for Next Administration
Identification Number 1258
U.S. Chamber of Commerce Releases Plan for Next Administration
Publication Date: September 20, 2016 

The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness recently released its 87-page action plan for the next administration, Restarting the Growth Engine: A Plan to Reform America’s Capital Markets. The CCMC’s recommendations are designed to remediate regulations and market inefficiencies that it believes are stifling economic growth and job creation. A number of these recommendations directly impact public companies, including those that specifically call for the modernization of financial reporting, corporate governance, and disclosure effectiveness policies.

“It is clear that a 1930s-based disclosure system cannot keep up
with the needs of 21st century investors, businesses, or markets.”

Financial Reporting. The CCMC is calling on the SEC to adopt a comprehensive approach to modernizing financial reporting policies. Recommendations to facilitate this include:

  • Making definitions of materiality consistent between SEC, FASB, PCAOB, and federal securities laws.
  • Developing a disclosure framework to address investor information overload that results from overlapping and often contradictory reporting and disclosure standards.
  • Creating new business and auditor advisory groups to help ensure that the PCAOB and other stakeholders appropriately identify and address problems, resulting in better oversight of audits.
  • Encouraging the FASB, PCAOB, and their advisory groups to follow the same rules of procedure as the SEC, including publishing economic analysis that is subject to public comment.

To read the full discussion and a complete list of CCMC recommendations, see page 55 of the plan.

“... the number of public companies in the United States has fallen in 19 of the past 20 years,
leaving the country with less than half of the public companies it had in 1996.”

Corporate Governance. The CCMC also expresses concern that the unintended consequence of imposing “one-size-fits-all” governance reform rules has been a substantial decline in the number of public companies during the past 20 years. To reverse this trend and make the public company model attractive again, CCMC made a number of recommendations, including:

  • Developing 14A-8 reforms, reinstituting the SEC’s policies to act as a gatekeeper for shareholder proposals.
  • Providing additional proxy advisory firm oversight by requiring transparent processes and communication around voting policies and recommendations.
  • Repealing rules unrelated to the SEC’s mission, including corporate disclosures used to promote social or political agendas unrelated to the growth of shareholder value. This includes repealing the Conflict Minerals Rule, Resource Extraction Rule, and Pay Ratio Rule.
  • Re-proposing or repealing Pay-for-Performance and Claw-Back proposals, as they do not currently meet their intended purpose.
  • Repealing incentive compensation rules, as the government should not decide compensation.

To read the full discussion and a complete list of CCMC recommendations, see page 58 of the plan.

“In rethinking the disclosure regime, the guiding principle of disclosure reform should
be materiality. As investors become inundated with information, they struggle to
identify what is material.”

Disclosure Effectiveness. The CCMC considers materiality a “touchstone” for determining disclosure and emphasizes that materiality should be considered through a reasonable shareholder’s perspective, reducing the risk that disclosure documents reflect idiosyncratic interests of particular investors in issues that have no bearing on the financial soundness of an investment. To promote a more focused disclosure regime, CCMC made a number of recommendations, including:

  • Removing obsolete disclosures that are relics of the paper-based disclosure system of the past, when reliable information took hours, days, or weeks to deliver and there was no immediate access to free analytical tools.
  • Prioritizing material disclosures so ordinary investors can read and understand disclosure documents. In the short term, all redundant and antiquated disclosures should be modified or repealed.

To read the full discussion and a complete list of CCMC recommendations, see page 60 of the plan.

The plan also outlines policy recommendations and reforms related to structural regulatory reform, international coordination, systemic risk, retirement savings, capital formation and FinTech.

 Read the Center for Capital Markets Competitiveness full action plan here >>

Publication Date*: 9/20/2016 Mailto Link Identification Number: 1258
Frequently Asked Questions
  Nasdaq Advocacy Efforts: Front and Center
Identification Number 1245
Nasdaq Advocacy Efforts: Front and Center
Publication Date: August 8, 2016

Nasdaq continually strives to improve the public company model. Our executive leadership and public policy advocacy team have been hard at work on and off Capitol Hill to promote and collaborate on solutions for a host of legislative and regulatory issues impacting public companies. A recent article in Agenda, highlighted Nasdaq’s increasing influence in the realm of corporate governance, citing as evidence its recently approved rule that requires listed companies to disclose third party “golden leash” payments to directors in connection with board service.

Throughout the first half of 2016, Nasdaq worked tirelessly to promote and advance improvements and reforms to many issues that are important to investors and listed companies. A summary of our principal efforts follows:

Building on the success of the JOBS Act. Nasdaq was the only exchange that testified for the JOBS Act both in the House and the Senate and continues to be a staunch supporter of this important legislation. In April, Nelson Griggs, Nasdaq Executive Vice President of Listing Services, testified before a Congressional Subcommittee on the “The JOBS Act at Four: Examining Its Impact and Proposals to Further Enhance Capital Formation.” While Nelson testified that the Act helped hundreds of companies go public and helped generate new dynamism in the private company sector, he also noted that there continue to be unnecessary burdens on public companies and impediments to capital formation. To address these areas and build on the success of the JOBS Act, he highlighted the following for action:

  • Enhance disclosure of short positions to match the disclosure requirements for long positions.
  • Improve disclosure by proxy advisory firms of how they make voting recommendations and their relationships that may give rise to conflicts of interest.
  • Create an “ombudsman” office at the PCAOB to enable companies to directly communicate their concerns about over-auditing to the PCAOB.
  • Allow companies of all sizes to file registration statements on a confidential basis, and to allow registration statements other than IPOs to be initially submitted on a confidential basis.
Read Nasdaq’s testimony >>

Garnering support for corporate governance reform and transparency. Nasdaq recently sponsored a webcast to highlight the bi-partisan effort of Reps. Sean Duffy (R-WI) and John Carney (D-DE) to enact corporate governance reform legislation. The webcast focused on their co-sponsored bill, the Corporate Governance Reform and Transparency Act of 2016, and featured Rep. Duffy and Jeff Hatfield, President and Chief Executive Officer of Vitae Pharmaceuticals.

The bill calls for proxy advisory firms to register with the SEC, disclose potential conflicts of interest, maintain a code of ethics, and make publicly available their methodologies for formulating proxy recommendations and analysis. We anticipate passage of this bill along with other financial services legislation when the House returns to session after Labor Day. 

Read Nasdaq Talks to Congressman Sean Duffy and Vitae Pharmaceuticals’ CEO Jeff Hatfield about Proxy Advisor Legislation and Short Selling Transparency >>

Petitioning the SEC to require disclosure of short positions. Nasdaq petitioned the SEC to require disclosure of short positions in kind with the disclosures already required of long positions. The petition does not seek to impose new restrictions or limitations on short sale activities themselves, but rather to provide public companies with insights into trading behaviors and patterns and as a result enable them to better engage with investors. It would also provide investors with information meaningful to their investment decisions. 

Read Nasdaq Asks SEC for Short Position Disclosure >>

Requiring disclosure of third party payments to directors. The SEC recently approved Nasdaq’s proposal to require most listed companies to disclose publicly the material terms of compensation or other payments by third parties to directors or nominees. The new rule, effective August 1, 2016, requires listed companies to make this disclosure in their next proxy statement and annually thereafter. Companies may also satisfy this requirement by making the required disclosure on or through their website.

Nasdaq believes these previously undisclosed compensation arrangements potentially raise several concerns, including that they may lead to conflicts of interest among directors and call into question the directors’ ability to satisfy their fiduciary duties. These arrangements may also tend to promote a focus on short-term results at the expense of long-term value creation. Nasdaq believes that enhancing transparency around third-party board compensation will help address these concerns and benefit investors by making available information potentially relevant to investment and voting decisions without creating a meaningful burden on directors or companies making the disclosure. 

Read the SEC Approval Order >> 

Read Nasdaq’s Listing Rule 5250(b)(3) and IM-5250-2 >> 

Read Nasdaq’s Issuer Alert >> 

Read Hidden Director Conflicts Should Be Disclosed to Investors by Edward Knight, Executive Vice President and General Counsel of Nasdaq >>

Advocating for PCAOB Reform. In his testimony to Congress in April, Nelson Griggs called for the PCAOB to address complaints that the PCAOB’s one-size-fits-all guidance is imposing unnecessary and burdensome auditing costs on smaller public companies. Nasdaq believes that the PCAOB should establish an ombudsman office to consider these concerns and address them, as appropriate, with auditors and PCAOB staff. This office would also serve as a resource for companies who feel they are being over-audited and that PCAOB is requiring unnecessary and costly audit procedures.

Advocating to extend the confidential filing of registration statements to companies of all sizes. The provision in the JOBS Act to allow certain companies to file their registration statements on a confidential basis with the SEC has arguably been its most successful reform and has led to an increased number of biotech and life science IPOs. These companies are able to finalize their registration statements without disclosing competitive, proprietary information. Confidential filing also enables companies to better manage their decision to go public as they evaluate market conditions. In his testimony, Nelson Griggs called upon Congress to go one step further and allow companies of all sizes to file on a confidential basis, and allow other types of registration statements, besides those for IPOs, to be initially submitted on a confidential basis.

What issues are on your company’s public policy wish list? Whether your list includes improving access to shareholder information, requiring short position disclosure, implementing pilots and other programs designed to help improve trading efficiencies, let us hear from you! Email us your suggestions to

Publication Date*: 8/17/2016 Mailto Link Identification Number: 1245
Frequently Asked Questions
  Proxy Advisory Firm Survey Results
Identification Number 1148
Proxy Advisory Firm Survey Results
Publication Date: November 18, 2015

Nasdaq, in partnership with the U.S. Chamber of Commerce, conducted a survey of public companies regarding their interaction with the two dominant proxy advisory firms, ISS and Glass-Lewis, leading up to and during the 2015 proxy season. The purpose of the survey is to help stakeholders better understand the interaction between public companies and proxy advisory firms leading up to and during the 2015 proxy season.

Over 155 companies of all sizes and industries responded, including many Nasdaq-listed companies. Here is what they had to say:
  • Communication between companies and advisory firms remains an issue with only 38% of respondents reaching out to proxy advisory firms to pursue opportunities to meet and discuss issues subject to shareholder votes.

  • Companies are not reporting issues to the SEC, including instances of inaccurate or stale data and apparent conflicts of interest.

  • Companies have little input into or impact on advisory firm recommendations, and even when they do have a say, only 38% of companies believe that input had any impact on the final recommendation.
Publication Date*: 11/18/2015 Mailto Link Identification Number: 1148
Frequently Asked Questions
  Nasdaq an Active Participant at Congressional Corporate Governance Roundtable Event
Identification Number 1179
Nasdaq an Active Participant at Congressional Corporate Governance Roundtable Event
Publication Date: November 17, 2015

Nasdaq played an active role in a recent Congressional roundtable event on corporate governance, which was hosted by U.S. Representative Scott Garrett (R-NJ), the Chairman of the House Capital Markets Subcommittee. Edward S. Knight, Nasdaq Executive Vice President, General Counsel, and Chief Regulatory Officer, spoke on a panel discussing the current state of investor activism. Mr. Knight’s remarks focused primarily on proposing remedies for what Nasdaq sees (and empirical evidence supports) as a growing imbalance between long term and short term investing, including:
  • Disclosure of third party payment to corporate directors.
  • Enhanced disclosure of short positions that matches the disclosure requirements for long positions.
  • Continued active SEC oversight and action by the SEC or legislation to impose transparent standard-setting on Proxy Advisory Firms.
  • Modernization of the current quarterly reporting process so that companies can post a living document and update it as necessary on an ongoing basis.
  • Allowing companies the freedom with shareholder approval to create capital structures that fit their business models.
The event also included a second panel focusing on proxy access.
Publication Date*: 11/17/2015 Mailto Link Identification Number: 1179
Frequently Asked Questions
  How Nasdaq Makes its Companies Heard on the Hill?
Identification Number 1180
How Nasdaq Gets its Companies Heard on the Hill
Publication Date: October 20, 2015

Terry Campbell, Vice President of Government Relations at Nasdaq navigates the politics of Washington in order to make sure the issues that are important to Nasdaq and its listed companies are heard on the Hill. We sat down with Terry to get a sense of the practice of government relations and the issues he faces every day.

“Our government relations work tends to be three pronged,” he says. “The first prong is focusing on what Nasdaq itself absolutely needs.” Issues like transactions and market structure are at the top of the list. “These issues go to the core of Nasdaq’s business model.”

Terry thinks Nasdaq had particular success in helping to deregulate the process by which the SEC reviews exchange rule filings as part of the passage of the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). “I’m very proud of the fact that in Dodd-Frank we were able to get a deregulatory item put in. To my knowledge, it’s the only deregulation in the whole bill. We reformed the way that exchange rule filings are reviewed by the SEC. The SEC used to have basically a pocket veto and now we have a very disciplined system where the SEC has to give us an answer on every rule filing.”

The second prong centers on lobbying for the issues that are vitally important to our listed companies. “That makes the issues vitally important to us,” he says.

According to Terry, one area of legislation that is particularly important to Nasdaq’s listed companies is immigration reform. “We need to reform our immigration process so that the very best talent that the U.S. schools, colleges and universities produced can stay here. That way we get the very best and brightest talent in the world to work for our companies.” He believes that a result of this reform would be job creation. “For every engineer who comes here and gets an H-1B visa, you usually hire about eight other people around him. They create clusters of good, new jobs.”

Nasdaq has actively lobbied in support of immigration reform for a number of years. Despite these efforts, the legislation is still in limbo. “I don’t think that highly skilled immigration reform and bringing more smart people to America and keeping them here is controversial. I think that the problem is that you have the politics of reforming the illegal immigration system,” he says.

Terry also takes great pride in Nasdaq’s role in the Jumpstart Our Business Startups Act (the “JOBS Act”). “Nasdaq participated in that debate quite effectively. We were the only exchange that testified for the JOBS Act both in the House and the Senate. We worked tirelessly to get the JOBS Act done.”

Nasdaq Government Relations also advocates for transparency in the world of proxy advisory firms. “When Nasdaq adopts rules, that’s something that we filed with the SEC and the public got a chance to comment on. It’s something that is part of a very transparent process,” he explains. “When a proxy advisory firm decides that they’re going to withdraw support for companies based on some compensation structure issue or any number of other reasons, the proxy firm has no clear standards or a transparent process for making that change.” For Nasdaq, this is an important ongoing effort. “This is an area where we’re the only exchange that’s trying to look out for our listed companies. We are maniacally focused on trying to make this issue better.”

Finally, he says the third prong is to provide Nasdaq listed companies the opportunity and best forums to be heard. “We bring policy-makers to our companies through webinars on interesting subjects or with high-level government officials and they bring government officials directly to our listed companies through events that have been held around the country including Silicon Valley, New York and elsewhere. In the past we’ve sponsored days in D.C. where our listed companies would come and we would expose them to policymakers that they otherwise wouldn’t have gotten in front of because Nasdaq maintains a constant government relations effort.”

Terry feels the secret to government relations is being proactive in identifying the issues that are important and need a voice. “Three years ago we established a policy advisory board of listed companies to meet with us quarterly. The purpose is to hear what the trends in their business are and what trends they see in government and public policy, to tell them what legislative changes we see that may affect their business, and to try to make sure that we are reacting to things that affect them and maintain our partnership with them.” Nasdaq is also a member of several industry organizations such as TechNet and the Chamber of Commerce.

For Terry, the importance of maintaining very close relationships with Nasdaq’s listed companies cannot be overlooked. “We try not to get to a point where they have to reach out to us. We try to keep communications lines open to them. We actively seek out our company’s viewpoints on issues and look for ways to help them build coalitions and be taken care of in D.C.”

Understanding the needs of Nasdaq and its listed companies and effectively communicating those issues to policymakers while keeping a finger on the pulse of Washington seems like a tall order. For Terry, it’s what he tackles every day and whether he’s successful or he’s still chasing, the work is never done.

What about his biggest disappointments in lobbying for Nasdaq? “I never admit defeat,” he says with a smile.
Publication Date*: 10/20/2015 Mailto Link Identification Number: 1180
Frequently Asked Questions
  Proxy Advisory Webinar
Identification Number 1183
Spotlight Promo
Webinar Playback: Proxy Access - Lessons Learned from the 2015 Proxy Season
Publication Date: August 5, 2015

Watch this Nasdaq hosted webinar to hear leading industry experts from The Society of Corporate Secretaries, Simpson Thacher & Bartlett, D.F. King and Nasdaq recap the 2015 proxy access season and gain a better understanding of what this means as companies think ahead to 2016.

These were among the topics discussed:
  • New Proxy Access Trends
    • Increasing Submissions of Proxy Access Shareholder Proposals
    • Proposal Thresholds
  • The SEC's Reconsideration of Whole Foods and Decision Not to Consider No-Action Requests
  • Proxy Advisory Firm Views on Proxy Access
  • Company Responses and Vote Results to Proxy Access Shareholder Proposals
  • Steps Companies Can Take to Prepare for 2016
Register to access the video and presentation now >

Publication Date*: 8/5/2015 Mailto Link Identification Number: 1183
Frequently Asked Questions
  Proxy Advisory Firm Survey: Tell Us About Your Company’s Experience this Proxy Season
Identification Number 1155
Spotlight Promo
Proxy Advisory Firm Survey: Tell Us About Your Company’s Experience This Proxy Season
Publication Date: July 1, 2015

Nasdaq and the U.S. Chamber of Commerce for Capital Markets Competitiveness hosted a conference call to review the initial results of their survey of public companies' experiences with proxy advisory firms. While the survey remains open, the responses show that while progress has been made, including increased communication between companies and their shareholders, they also show that there is work to be done.

The responses, to date, indicate that few companies believe the proxy advisory firms carefully researched and took into account all relevant aspects of the particular issue on which it provided advice and only 38% of companies believe that input they provided to the proxy advisory firm had any impact on the final recommendation. Almost half of the companies that took steps to verify the nature of proxy advisory firm conflicts of interest reported finding significant conflicts.

All of this underscores the need for continued engagement in this area and to that end, we will report data from the survey, without attribution, to the Securities and Exchange Commission to document these concerns and urge the SEC to take further action beyond the guidance it issued in June 2014 on the responsibilities of proxy advisory firms. We are committed to giving public companies a voice on this and other important issues and doing all we can to ensure that the public company model operates in the most effective and fair manner possible.

We also want to highlight the white paper released by the Chamber in January to help companies understand the SEC’s June 2014 guidance. The Chambers’ White Paper highlighted several key areas for public companies to consider, including communications with proxy advisory firms and managing their conflicts of interest.

Listen to an archived replay >
Publication Date*: 7/1/2015 Mailto Link Identification Number: 1155
Frequently Asked Questions
  Nasdaq Talks to...Tom Goldstein about the Supreme Court’s Impact on Public Companies
Identification Number 1187
Nasdaq Talks to. . . Tom Goldstein about the Supreme Court’s Impact on Public Companies  
Publication Date: October 27, 2015

Tom Goldstein recently spoke with Nasdaq about the Supreme Court’s impact on public companies, what companies should look for in the upcoming term, and whether there’ll be cameras in the Court. He also described some little known Court traditions. Excerpts from our conversation follow.

Q: What are some Supreme Court decisions that have impacted public companies?

A: In modern times the Court has tackled cases that have been essential to the value of public companies. A good example is a case involving Myriad Genetics, which addressed patents on genes that were critical to early breast cancer detection. The question before the justices was whether you can actually patent a human gene, and, by and large, the justices said no. When that decision came out, over the course of a couple days the company lost 20% of its stock value, even though the market had baked in the idea that Myriad was likely to lose. There are a number of other examples like that – for example, where the Court’s healthcare decision had significant consequences for the value of health insurers, hospital companies, and the like.

There’s a brand new study out that takes the view, which I think overstates things, that there have been more than one hundred decisions over the past 15 years that have had significant consequences for the value of securities. This can be true either because there’s a particular company involved, like Myriad, or because of a decision that has a big consequence for an industry, like healthcare.

Q: As to the upcoming term, what should companies be paying attention to?

A: There is one securities case on the docket, Merrill Lynch, which involves Section 27 of the Securities Exchange Act of 1934. The question in that case is: if you are filing a lawsuit in state court, and your claim is based on the idea that the defendant violated the federal securities laws, but you bring it under state law (i.e., you don’t assert a violation of the federal securities laws), can you be forced to sue in federal court? The answer to that question may well be yes.

The Justices importantly refused to review the very well-known series of prosecutions for insider trading in New York. The federal government had asked the justices to review the decision of the Second Circuit Court of Appeals that limited insider trading prosecutions.

Besides those securities related cases, we have some cases that are significant to energy companies. We have a case that’s significant to affirmative action, which doesn’t go to the value of securities, but a lot of public companies really depend on admissions policies that generate a workforce that’s diverse, so that can have a consequence for a company.

Another issue is when Congress can create a right to sue a company even though a party hasn’t been injured. This could create a significant amount of liability for companies.

Q: "The Economist" recently called the Roberts’ Court the most business friendly court in decades. Do you agree?

A: The Justices are concerned today with the magnitude of litigation which can drag down the economy and they feel that the courts are too involved in making policy. Those are concepts that relate to the idea that the Court favors defendants over plaintiffs. I don’t think there’s any great love for the corporate form on the Roberts’ Court, but the upshot of a variety of their decisions happens to be defendant favoring because companies are most often defendants rather than plaintiffs.

Q: "Newsweek" recently noted that not only does the Court impact business, but business impacts the Court, citing corporate actions on social issues such as gay rights, gender pay-gap, and so on. What is your reaction to that?

A: It’s true that the Justices are subject to influences from all corners, and when the business community steps forward and says, ‘this is an area of great concern for us’, whether it’s an economic questions or a social question, it’s going to get its due attention. I wouldn’t say the business community has outside influence on the Court, but it is a respected constituency of American politics and American policy.

Q: A recent poll suggests Americans favor a 10 year term limit for justices; others suggest a voluntary term limit, or voting to remove justices. Understanding that these changes would require a Constitutional amendment and face other significant hurdles, what’s your reaction to these suggestions, and what do you see is the underlying reason for them?

A: The constitutional rule is that we have life tenure for good behavior.

That rule was put into the Constitution at a time when the life expectancy was around 40 years. Now life expectancy for a justice is double that. That’s a mixed blessing. On the one hand, we have justices who have a lot more experience in judging, and therefore the wisdom that comes with that experience. You can run into a situation, however, in which a justice is not capable of doing the job anymore. There’s going to come a time where this happens, because no one has the power to force a member of the Supreme Court off, and then there’s going to be a crisis because we’re not really going to know what to do about that. Thankfully, we aren’t close to that situation now.

One of the consequences of not having a term limit also is inverted to the idea of wisdom, and that is, if you know that the person is going to be on for life, then you have a huge incentive to put them on when they’re basically in high school – so they can serve for 30, 40, 50 years. I would prefer a situation where someone would go on the Supreme Court, say around age 50 and serve for 15 or 20 years, when they’re at their intellectual and experiential prime.

But, it probably does require an amendment to the Constitution. I think that changing the Constitution is both a dead-letter and probably a disaster because of the other things that would be changed. I think we’re kind of stuck with the system we have.

What the justices tend to do now is they have a buddy system. They will say to another justice, “Hey, if you ever conclude that I’m not up to it, will you tell me? And I’ll trust you.” That’s kind of the cobbled together system we have now.

Q: Any thought on the future makeup of the Court itself in light of the presidential election next year and the rumored retirements of Justice Ginsburg and Justice Breyer?

A: You can have all the rumors you want; I can tell you, we ain’t going to have any retirements. Now, we have two justices on the left (Justices Breyer and Ginsburg), and two on the right (Justices Scalia and Kennedy), who are just actuarially unlikely to make it through the next presidency, at least if it is two terms, certainly not all of them.

I’ve been saying for decades that the next election is going to determine the course of the Supreme Court, and this time I really mean it. If Hilary Clinton gets to replace Justice Scalia and/or Justice Kennedy and if Donald Trump or Jeb Bush gets to replace Justice Ginsberg and/or Justice Breyer, the Supreme Court will look very different. There are a number of decisions that the liberals on the Supreme Court won this term, five to four, that a more conservative court would revisit. The reverse is true too. It’s hard to overstate the significance for American law, given how important the Court is to our society now of what would happen if the composition of the Court changes, and it is the fact that we have four older justices, two on each side, and an election itself that is unpredictable.

Q: What is a quirky tradition about the Supreme Court, or something that the public might not know about the Supreme Court or how it operates?

A: It’s an institution that is so built on tradition, from the way the Justices shake hands before they go out onto the bench to, when they discuss cases, nobody else is allowed in the room. The one that just strikes me as so weird is that they put all this effort into thinking about the cases, and before they go to oral argument, and before they vote, they don’t talk to each other; they really function as nine separate law firms. And so you get this situation in oral argument in which they seem to be talking to each other more than they are asking actual questions, because it’s the one chance they have to influence each other.

So I view that as just a very odd situation, that they aren’t more collaborative. But it’s just the way it has always been, and it may well always be. There are so many things that happen in the Supreme Court that – you ask the question why is it done that way? And the answer is, well you know we did it that way 150 years ago and it’s worked OK since, so we’re going to keep that up.

Other things that interest people a lot are the question of whether there are going to be cameras in the Courtroom, and the answer is no time immediately soon, but eventually the justices are going to have to recognize that people have an expectation about access through technology.

Tom Goldstein is the co-founder of Goldstein and Russell, P.C. ( and one of the best known and most experienced Supreme Court lawyers. In the last 15 years, Tom has served as counsel to one of the parties in roughly 10% of all of the Court’s merits cases (more than 100 in total), personally arguing 36. In the Court’s most recent term Tom argued four cases, winning all four. In addition, Tom teaches Supreme Court Litigation at Harvard and, before that, taught at Stanford Law School. In 2003, Tom co-founded SCOTUSblog (, the most widely read blog covering the Supreme Court, which provides analyses and summaries of Supreme Court decisions and cert petitions. Tom has received a variety of recognitions for his practice before the Supreme Court and for his appellate advocacy generally. In 2010, the National Law Journal named him one of the nation’s 40 most influential lawyers of the decade. The same publication included him in both of its most recent lists (2006 and 2013) of the nation’s 100 most influential attorneys. Legal Times named him one of the “90 Greatest Washington Lawyers of the Last 30 Years.”
Publication Date*: 10/27/2015 Mailto Link Identification Number: 1187
material_search_footer*The Publication Date reflects the date of first inclusion in the Reference Library, which was launched on July 31, 2012, or a subsequent update to the material. Material may have been previously available on a different Nasdaq web site.
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