The U.S. Securities and Exchange Commission has proposed a new rule that could undermine key reforms the NAM secured in 2020—and empower activist shareholders.
The background: Shareholders in public companies generally have the right to submit proposals to corporate proxy ballots.
- These proposals, which voice shareholders’ views on business and governance topics relevant to the company, can then receive a vote by the full shareholder base.
- To qualify for inclusion on the ballot, shareholder proposals must meet certain criteria.
Submission thresholds: In 2020, the NAM supported—and the SEC finalized—new thresholds to make it more difficult for activist shareholders to place politically motivated proposals on the proxy ballot.
- These thresholds require higher degrees of ownership and shareholder support before a proposal can be submitted or resubmitted.
The new rule: The SEC’s proposal leaves the 2020 thresholds in place, but it creates other opportunities for activists and limits the tools companies can use to prevent them from hijacking the proxy ballot.
- Currently, companies can exclude shareholder proposals that have already been substantially implemented, are duplicative of other proposals on the proxy ballot or are resubmissions of previous failed proposals. Each of these abilities would be limited significantly under the proposed rule.
- For example, rather than being allowed to exclude all duplicative proposals, companies would only be permitted to exclude virtually identical proposals that address the same subject matter, seek the same objective and do so by the same means.
What we’re saying: “The NAM is concerned that the SEC’s proposed rule may prioritize the agendas of activists over the needs of long-term shareholders investing for the future,” said NAM Senior Director of Tax and Domestic Economic Policy Charles Crain.
- “We look forward to working with the SEC in the coming months to ensure that manufacturers’ shareholder engagement can continue to focus on issues critical to business growth and investor returns.”
Next steps: Comments on the proposed rule are due to the SEC by Sept. 12.
As the U.S. Securities and Exchange Commission turns its back on a bipartisan agreement on proxy advisory firms, the NAM is taking action.
The background: In 2020, the NAM supported—and the SEC finalized—a major rule to increase oversight and transparency with regard to proxy advisory firms. These unregulated and unaccountable entities influence publicly traded companies by recommending how institutional asset managers should vote in corporate proxy contests.
- Since last January, the SEC’s new leadership has taken steps to undermine and reverse the 2020 rule. The NAM has filed suit against the SEC for refusing to enforce the 2020 rule, called on the agency to provide “reliable rules of the road” and opposed a proposed rule to reduce proxy firm oversight.
The new rule: Yesterday, the SEC released a final rule that rescinds many of the critical reforms the NAM secured in 2020. Specifically, the new rule removes requirements for proxy firms to engage with impacted companies and their shareholders, and it weakens the 2020 rule’s anti-fraud provisions.
Arbitrary and capricious: The SEC is making these substantial changes absent any new evidence—because the 2020 rule was never allowed to take effect. It has also failed to articulate a satisfactory policy justification. Federal agencies are prohibited from issuing regulations that are “arbitrary and capricious”—an easy descriptor for the SEC’s actions given the agency’s abrupt and unjustified about-face.
NAM in action: The NAM announced yesterday that it plans to file suit against the SEC to preserve the 2020 rule. It will argue that the SEC’s decision to change course without allowing the 2020 rule to take effect and be fairly evaluated epitomizes arbitrary and capricious rulemaking.
What we’re saying: “The SEC has offered no justification for abandoning a decade’s worth of bipartisan, consensus-driven policymaking,” said NAM President and CEO Jay Timmons. “This move will undoubtedly harm the competitiveness of publicly traded manufacturers, and it will hurt Main Street investors.”
Washington, D.C. – Following the Securities and Exchange Commission’s announcement that it is rescinding critical reforms designed to protect publicly traded manufacturers and their investors from unregulated and unaccountable “proxy advisory firms,” National Association of Manufacturers President and CEO Jay Timmons released the following statement:
“The SEC has offered no justification for abandoning a decade’s worth of bipartisan, consensus-driven policymaking. This move will undoubtedly harm the competitiveness of publicly traded manufacturers, and it will hurt Main Street investors. The SEC’s decision to change course without allowing the 2020 rule to take effect and be fairly evaluated epitomizes ‘arbitrary and capricious’ rulemaking. The NAM will be filing suit in the coming weeks to preserve the 2020 rule’s commonsense reforms and protect manufacturers from proxy advisory firms’ outsized influence.”
The NAM has long called for increased oversight of proxy advisory firms. In July 2020, the SEC issued final regulations to enhance transparency and accountability for proxy firms, a move Timmons called a “long-sought, major win for the industry and millions of manufacturing workers.” In October 2020, the NAM filed a motion to intervene in ISS v. SEC (ISS’s attempt to overturn the rule) in support of these reforms.
In June 2021, the SEC announced that it was suspending enforcement of the 2020 rule; the NAM voiced concern about the agency’s “efforts to bypass the required notice-and-comment process to keep this lawfully issued rule on ice indefinitely.” The NAM filed suit against the SEC in October 2021 challenging this unlawful suspension. Oral arguments in NAM v. SEC took place in May 2022.
The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs more than 12.7 million men and women, contributes $2.71 trillion to the U.S. economy annually and accounts for 58% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.
Washington, D.C. – Following the Supreme Court’s 6–3 decision in West Virginia vs. EPA, National Association of Manufacturers President and CEO Jay Timmons released the following statement:
“Manufacturers share a deep commitment to protecting our planet and our people, and manufacturing innovation holds the key to solving the generational challenge of climate change. The court’s decision affirms the Environmental Protection Agency’s authority to issue appropriate greenhouse gas regulations while providing a reminder that the agency must stay within the guardrails delegated by Congress. As some of the largest electricity consumers and as electricity generators, manufacturers are ready to work with the EPA to deliver innovative and balanced solutions that protect our environment and our competitiveness as it considers next steps.”
Background: Earlier this week, the NAM along with 42 state partners sent President Biden a letter highlighting the importance of affordable, reliable electricity for manufacturers to remain competitive. It signals manufacturers’ eagerness to work with policymakers on the important decisions and planning surrounding the future of the electrical grid and broader energy policy.
The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs more than 12.7 million men and women, contributes $2.71 trillion to the U.S. economy annually and accounts for 58% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org
As the Securities and Exchange Commission considers a prescriptive rule that imposes significant and burdensome climate-related disclosure obligations on public companies, the NAM is pushing back. It is fighting for critical changes that will support manufacturers’ leadership on climate change.
The background: Manufacturers have long been leaders on climate solutions, working to create the technologies and processes needed to combat climate change while also providing material information about their climate-related efforts to investors.
- But a recent rule proposed by the SEC would mandate that companies, large and small, report reams of complex climate-related information, even when that information may not have any impact on their financial performance or operations.
The rule: The proposed rule, which the SEC released in March, would require qualitative descriptions of companies’ climate-related risks and strategies as well as quantitative reporting of their greenhouse gas emissions and any climate-related impacts on their financial statements.
- The result would be an unworkable framework that does not align with current practices—imposing an enormous burden on manufacturers across the country.
- Additional information can be found about the rule here and about the NAM’s engagement with the SEC on climate disclosures here.
The response: The NAM has laid out a series of necessary changes that the SEC must make to reduce the compliance costs and liability risks associated with the rule’s requirements. Our recommendations will align the rule more closely with current climate reporting practices—decreasing burdens on public companies and increasing information utility for investors. Specifically, the NAM is calling on the SEC to:
- Delay annual GHG emissions reporting, granting manufacturers time to collect and verify data for a midyear report (rather than the proposed February deadline).
- Strike disclosure of Scope 3 emissions, which requires tracking emissions data through the supply chain. While some manufacturers are already working to understand these emissions, the data collection, estimation and reporting methodologies are still evolving. At a minimum, the SEC should provide more flexibility for companies subject to the Scope 3 requirement.
- Rescind accounting changes that would require climate impact analyses of companies’ consolidated financial statements on a line-by-line basis.
- Adjust the climate-related risk disclosures and Scope 1 and Scope 2 emissions reporting requirements to make the provisions less prescriptive and more aligned with existing company practices.
- Fine-tune the guidelines for reporting on climate-related goals to avoid penalizing companies that set ambitious targets.
- Remove requirements that companies disclose competitively sensitive information about the internal tools they use to understand and plan for climate risks, scenarios and activities.
The last word: “The SEC’s climate rule as written would be harmful for both large and small manufacturers and unhelpful for investors,” said NAM Senior Director of Tax and Domestic Economic Policy Charles Crain. “The NAM is committed to supporting our members in their efforts to combat climate change and inform investors about this critical work, and the recommendations we’ve offered present an important step toward that goal.”
Watch: NAM President & CEO Jay Timmons joined CNBC to discuss the impact of the proposed rule.
The U.S. Securities and Exchange Commission has proposed a rule that would impose new cybersecurity disclosure requirements on manufacturers—and the NAM is pushing to make those requirements work better.
The background: The SEC issued guidance in 2018 telling public companies what information about their cybersecurity protections they should provide to investors, but the SEC now feels that more disclosure is warranted.
The requirements: The SEC has proposed a rule that would require two different kinds of disclosures from public companies:
- Cybersecurity incidents: If a manufacturer experiences a material cybersecurity incident like a breach or a hack, the company would have four days to make a public disclosure describing the nature of the incident, what systems were implicated and how the company is responding.
- Governance and risk management: The proposed rule would require manufacturers to disclose the processes they use to identify and guard against cybersecurity risks, with information on their procedures and personnel.
The problem: SEC disclosures are public—and by requiring detailed disclosures about cybersecurity processes and incidents, the proposed rule could force manufacturers to provide a roadmap to potential hackers and cyber attackers.
- At the same time, the inflexible four-day window for reporting cybersecurity incidents means that manufacturers would be required to disclose information about attacks even if an incident is ongoing or the subject of a law enforcement investigation.
- This could potentially interfere with efforts to stop the attack, risking the exposure of sensitive information or implicating national security.
Our move: The NAM has urged the SEC to make commonsense adjustments to the rule in order to protect manufacturers from attacks and give companies the flexibility to respond to cybersecurity incidents appropriately.
- Specifically, the NAM has called on the SEC to adopt a more principles-based approach to the proposed risk management disclosures, allow for greater flexibility with respect to incident reporting and coordinate with U.S. law enforcement and national security experts when finalizing the rule.
Our take: “A final rule that requires timely and accurate reports without instituting one-size-fits-all mandates will ensure that shareholders have access to useful information without exposing businesses, investors, and all Americans to increased risks,” said NAM Managing Vice President of Tax and Domestic Economic Policy Chris Netram. “The NAM strongly supports a flexible approach to cybersecurity reporting, and manufacturers respectfully encourage the SEC to promulgate a final rule that allows public companies to both inform and protect their shareholders.”
The NAM Legal Center stood up for manufacturers in federal court this week, arguing that the Securities and Exchange Commission unlawfully suspended a rule governing proxy advisory firms.
A quick refresher: Proxy advisory firms advise institutional investors, like retirement fund managers, on how to vote on the policies of public companies in which the funds invest. This gives the firms significant power over public companies.
The fight: The NAM secured a significant victory in 2020 when the SEC finalized a rule increasing oversight of proxy advisory firms, which had long operated without SEC oversight.
- Manufacturers strongly supported the 2020 rule, which was designed to increase transparency, highlight conflicts of interest and provide accurate and decision-useful information to investors.
- At the beginning of the Biden administration, however, the SEC’s new leadership announced that it would not enforce the rule—without engaging in notice-and-comment rulemaking, a clear violation of administrative law.
Our move: Shortly after the SEC announced it wouldn’t enforce the 2020 rule, the NAM Legal Center filed a challenge to prevent the agency from abdicating its responsibilities. Put simply, a new administration cannot set aside lawfully promulgated rules that it happens to disagree with—and the NAM is standing up for that principle in court.
Our case: Arguing before the U.S. District Court for the Western District of Texas this week, the NAM made clear that the SEC acted unlawfully by suspending the compliance date of the proxy firm rule indefinitely without going through the required public notice-and-comment process to amend or repeal it.
- The SEC, in turn, argued that the agency hasn’t technically suspended the rule, but rather that SEC staff has made a nonbinding and “informal” recommendation not to enforce it—an action that has the same effect as an official suspension and one which the SEC’s own lawyers have described as providing “relief” to proxy firms.
Our take: “The SEC is attempting to end-run its legal obligation to enforce this rule,” said NAM Deputy General Counsel for Litigation Erica Klenicki. “We are in court fighting for manufacturers and their investors across the United States, who deserve protection from the outsized influence of proxy firms and who depend on the SEC, and all federal agencies, to adhere to the rule of law.”
As the U.S. Securities and Exchange Commission works to finalize a new rule requiring climate disclosures by public companies, the NAM is mobilizing to defend manufacturers.
The background: Manufacturers have long been leaders on climate solutions, working to create the products and technologies necessary to face the challenge of climate change.
- Manufacturers also regularly provide climate-related information to their investors, including via corporate sustainability reports, third-party reporting frameworks and SEC filings.
- At the beginning of the Biden administration, however, the SEC made clear that it was interested in creating a rule to enhance and standardize these disclosures.
- In the months since, the commission has taken steps toward that goal—and the NAM has stepped up to protect manufacturers.
In March 2021, the SEC issued a request for information on climate disclosures. The NAM responded, urging the SEC to adopt a flexible, principles-based framework that allows companies to provide investors with material information about climate risks in a consistent and comparable manner.
In September, the SEC’s Division of Corporation Finance issued new guidance calling into question companies’ existing climate disclosure practices—including the common practice of supplementing SEC filings with a sustainability or corporate social responsibility report.
- The NAM pushed back against the guidance, cautioning the division against setting new standards without a formal rulemaking process.
In October, the division released guidance drastically limiting the ability of companies to exclude climate-related shareholder proposals from the annual proxy ballot—even if those proposals are unrelated to a business’s operations.
- The NAM pushed back, emphasizing the importance of company-specific decisions for protecting manufacturers and their long-term shareholders.
The new rule: The SEC released a proposed rule in March that would significantly expand public companies’ climate disclosure obligations.
- First, the rule would require qualitative descriptions of companies’ climate-related risks and any efforts to respond to those risks.
- It also would require quantitative reporting of companies’ greenhouse gas emissions and institute a new mandate that companies conduct quantitative climate impact analysis within their consolidated financial statements.
- You can read more about the specifics of the rule here.
NAM in action: The NAM has spent the past several months connecting with manufacturers across the country to understand the real-world impact of the SEC’s proposal.
- Through a range of webinars, listening sessions and roundtables, we have been able to explain the proposed rule, gather vital feedback and map out the way forward.
What’s next: The NAM intends to provide comments to the SEC in June, highlighting provisions within the proposed rule that are impractical, costly, overly prescriptive, confusing for investors or not reflective of current climate disclosure practices.
- The NAM will call on the SEC to make targeted changes to its proposal to increase flexibility, focus on material information for investors and reduce costs, burdens and liability for companies.
What we’re saying: “Manufacturers are the leaders in America’s fight against climate change—and in order to continue that work, we need climate disclosure practices that support sustainability, rather than increasing costs for companies and confusing investors,” said NAM Senior Director of Tax and Domestic Economic Policy Charles Crain.
- “Any SEC climate disclosures rule needs to be less prescriptive, more flexible and solely focused on materiality in order to accurately reflect current practices.”
- “The bottom line is that a climate disclosures rule can’t just sound good; it has to actually work in the real world.”
The U.S. and its allies continue to apply sanctions and other measures against Russia in response to the country’s war in Ukraine. The sanctions specifically target Russian oil, corporate services within Russia and Russian manufacturing.
New U.S. sanctions: Recently, the U.S. announced new actions designed to punish Russia. The new sanctions will take effect in a variety of areas, including:
- Industry: The US announced new sanctions on wood products, industrial engines, boilers, motors, fans and ventilation equipment, bulldozers and other items with industrial uses.
- Visas: The U.S. has placed visa restrictions on 2,600 Russian and Belarusian officials and created a new policy that restricts visas for Russian military officials and authorities.
- Nuclear licenses: The U.S. Nuclear Regulatory Commission suspended licenses for exports of nuclear material to Russia.
- Key services: The U.S. cut off Russian access to U.S. accounting, management consulting and trust and corporate formation services.
U.S. allies and partners have also imposed additional sanctions:
- G7 countries: The G7 committed to phasing out or banning Russian oil imports while also working together to ensure that global energy supply remains stable.
- European Union: As part of its sixth package of sanctions against Russia, the EU will phase out Russian crude oil within six months and refined oil products by the end of 2022. The EU also committed to removing Sberbank and two other Russian banks from the SWIFT system and banning the use of European accounting and consulting services by Russian companies.
- United Kingdom: The UK announced new sanctions on Russia and Belarus targeting 1.7 billion euros worth of trade. Among the specific targets are Russia’s manufacturing and heavy machinery industries.
The NAM’s actions: On Friday, representatives from the U.S. Department of Commerce joined the NAM’s weekly Trade Forum for a discussion with NAM member companies on the U.S. response to Russia’s unlawful invasion of Ukraine. The discussion focused on the implications for U.S. exporters and other businesses, as well as U.S. government resources that can help NAM members stay informed.
- “Last week’s special meeting with the Commerce Department was a vital opportunity for manufacturers to underscore our support for efforts by the Biden administration and bipartisan congressional leaders to hold Russia accountable and bring peace to Ukraine,” said Ken Monahan, Vice President of International Economic Affairs.
- “As the NAM Board of Directors declared in a resolution approved unanimously on March 8, manufacturers stand with the people of Ukraine, and our industry is committed to sustaining and safeguarding democracy and democratic institutions not only here at home, but also abroad.”
A new overtime rule from the U.S. Department of Labor is likely to change some of the existing rule’s white-collar exemptions. NAM Vice President of Infrastructure, Innovation and Human Resources Policy Robyn Boerstling joined us to explain what’s happening.
The background: The overtime rule, part of the Fair Labor Standards Act, dictates that employees must receive overtime pay of at least time and a half for hours worked over 40 in a workweek. It contains exemptions for white-collar workers based on their salaries and duties. If an employee makes a minimum amount of money or is classified as an executive, administrator or professional, they are exempt from overtime pay.
- “The NAM has provided comments over the years to the Department of Labor and the Wage and Hour Division concerning the exemptions from Fair Labor Standards Act minimum wage and overtime requirements for certain executive, administrative, professional, outside sales and computer employees,” said “Manufacturing employees, on average, earn $92,832 in pay and benefits.”
The new action: A new overtime rule is expected soon, and employment law attorneys expect the U.S. Department of Labor to recommend higher salary thresholds for the rule’s white-collar exemptions.
What it means: A new overtime rule that raises salary thresholds for white-collar exemptions would make more employees eligible for overtime pay and potentially cause challenges for employers and even those employees who have worked to advance themselves away from hourly jobs and into salaried company positions. The current salary threshold is $35,568 per year.
Our take: Boerstling made the case directly to the Department of Labor during an April public listening session. “The NAM urges caution in any effort to expand overtime exemptions as manufacturers believe adjustments would be disruptive in a challenging economic and workforce environment,” she said.
- “The manufacturing workforce has tremendous autonomy and latitude in this labor market to address pay and compensation issues directly with their employers.”
Next steps: The NAM continues to work toward a regulatory solution but could have to take legal action to protect employers and manufacturers across the country. Check out the NAM Legal Center to learn how we are working to support our members nationwide.
The last word: “We think that any rulemaking that is being prepared for public release on overtime exemptions for certain white-collar workers should be paused and reconsidered until a later time when supply chain and inflationary challenges have subsided,” said Boerstling.