Published in, Forbes

By Stuart R. Levine

On January 23, President Donald Trump made a bold statement as one of the first items on his presidential agenda: “cut regulation by 75%, maybe more.” He said that regulations have gotten out of control and that with the choice, companies would prefer regulation to tax cuts, but they will get both. With the intention of bringing back manufacturing to the U.S., this will require legislation that will bring up strategic issues for boards on building plants overseas, globalization challenges, protectionism, trade and taxes. Boards will have to consider the impact of this new era and the benefits of being on the right side of this administration.

The inauguration of a new president of the U.S. and the impact they have on the regulatory environment has always been of great importance. Combining this with the accelerating speed of change, board members will have the increasingly complex role of understanding the impact this turbulence will have on their strategies and board cultures. The principles of ethics and values will additionally become even more critical.

Two highly experienced and knowledgeable experts in the field of regulation, spoke with a significant number of directors this month on a National Association of Corporate Director’s webinar focused on this very topic, “A Preview of the Regulatory Environment in 2017.” Keir Gumbs, partner at Covington & Burling LLP, and Ning Chiu, counsel at Davis Polk & Wardwell LLP, provided their perspectives and insights into what to expect in the coming year that will assist directors on framing their thinking on this subject.

The following will provide you with insights on key governance trends to watch out for in 2017 including say-on-pay, proxy access and the SEC. The data provided is actual voting behavior of shareholders from Broadridge Financial Solutions in their ProxyPulse Third Edition 2016.

Proxy Access

Proxy access defined by the council of institutional investors, “is a crucial mechanism that gives share owners a meaningful voice in corporate board elections. It refers to the right of share owners to place their nominees for director on a company’s proxy card.”

As of June 30 2016, 40% of companies in the S&P 500 have adopted proxy access by-laws.  This is a significant change from 2014 when less than 1% had adopted proxy access by-laws. Those companies that have not yet adopted these new by-laws, will need to work out where they stand on this hot governance topic and get ahead of the curve before they become vulnerable to a vote on their director slate. As of now, those companies that take pride in living by governance best-practices as well as those companies that have or anticipate activist pressures are out in front on these issues. Of the directors surveyed on the recent regulation webinar, 25% said they considered it but voted against it, one-third had implemented proxy access and 40% had not yet considered it.

Of the 69 proxy access shareholder proposals in the first half of 2016 that went to a vote, 60% received majority support. Institutional investors such as BlackRock, CalSTRS, CII, Glass Lewis, ISS, T. Rowe Price, TIAA-CREF and Vanguard have all taken positions in favor of proxy access. Interestingly, retail shareholders cast 85% of their voting shares against proxy access in support of management. This highlights the continuing importance of companies explaining the qualifications of your board members to instill shareholder confidence in how your directors add value to your company. Additionally, sharing director nomination process, the board evaluation process and how diversity is being considered is critical.


This is a very different environment from when Barack Obama took office. People both inside and outside of the SEC, are weary of the impact from both Dodd Frank and rule-making on capital formation that resulted from economic instability in 2008. The leadership and infrastructure of the various SEC divisions will most likely remain intact. Hester Peirce, the Republican nominated Chair, will most likely stay and Lisa Fairfax, the Democratic nominated Chair, despite her qualifications, may not.

The Congressional Review ACT which allows Congress to review new federal regulations issued by government agencies and to overrule a regulation, states that Congress is given 60 legislative days to disapprove which rule will go into effect. An interesting point to consider is that the 60 legislative days would take us all the way back to June of 2016 as it is calculated by official legislative days when Congress is in session. The Republican controlled House and Senate will obviously impact this.


Say-On-Pay is a rule in corporate law that allows shareholders the right to vote on executive compensation. In 2017, shareholders will be able to vote on a new six-year cycle on the frequency of pay votes. Weak Say-On-Pay is interestingly associated with weak support for directors as reflected in shareholders not supporting their candidacy. Almost 75% of directors believe it is “somewhat” or “very” important to discuss executive compensation with shareholders vs. 65% in 2013.

Seventy percent of webinar participants said that their board would likely recommend an annual vote on the frequency of Say-On-Pay, with only about 15% recommending biennial and 15% recommending triennial. More Say-On-Pay cycles are moving to annual rather than the reverse of going from annual to tri-annual.

Say-On-Pay is a prevalent global trend that will continue. It is hard to ignore the median salary number of company employees once it’s out there, and it has become more of a “shaming exercise” and a “peer exercise.” Employees view this median salary number in relationship to their personal salary. This leads to the need to provide internal communication to employees around the meaning of the numbers that will lessen the tension created.

Trends For 2017

The activism trend upward continues. In the future, whereas more activism leaned left, you will see more of a leaning to the right and the conservative side of the political spectrum. Instead of proposals on employee rights, organizations such as the National Center for Public Policy Research are becoming much more active questioning how the things you endorse increase shareholder value.

When the activities of political spending and lobbying are combined together, their importance will exceed proxy access in 2017. Reports on the risks related to your business from climate change will continue as well as Independent Chair proposals which often don’t get a majority vote.

Other business related matters such as minimum wage, pharma drug pricing, clawback proposals and virtual vs. live meetings may become more important in this coming year. Cybersecurity is certainly a non-partisan issues that may grow in importance with this new administration. Everyone is interested in boards certainly asking more questions around cybersecurity risk issues, making sure that management has a plan for when they are attacked and what their policy is in response to a breach.

The biggest governance trends to watch out for in 2017 all include a focus transparency and accountability.  So, no matter whether you are serving on a public company board or a private board, these two biggest flash points are where you should be focusing.