Speech by SEC Commissioner:
Opening Statement at SEC Open Meeting — Proxy Disclosure Enhancements
Commissioner Elisse B. Walter
U.S. Securities and Exchange Commission
December 16, 2009
I would like to commend the staff on the fabulous job you did on this release, which provides critical upgrades to the information shareholders receive in the proxy voting process. As an alum of the Division of Corporation Finance, I am particularly proud of the work you have done to bring these proposals to adoption in such a timely and thoughtful fashion.
As Oliver Wendell Holmes once said (and I paraphrase), "[t]he great thing in the world is not so much where we stand, as in what direction we are moving." As an agency, I believe that we have made tremendous progress over the past year, with Chairman Schapiro's leadership, to help find practical and well-reasoned solutions that move us in the direction of restoring the investor confidence that was badly shaken during the financial crisis.
The recommendations before us today mark an important step forward in our efforts to address investor needs in the corporate governance and disclosure arena by focusing on two fundamental aspects of the shareholder voting process — the proxy statement and the reporting of voting results.
Before I speak about the substance, however, I'd like to briefly mention how pleased I am with the rulemaking process itself. I was particularly impressed with the number of different viewpoints represented in the comment letters we received on our proposed amendments — including academics, accounting firms, attorneys and law firms, consulting firms, companies, pension funds, institutional investors, institutional investor associations, investor relations professionals and proxy advisory groups, individuals, religious organizations, and professional and trade organizations and advocacy groups. The comments we received were extremely thoughtful and enabled a good airing of views to help our staff reach a well-balanced and reasonable approach to address shareholder information needs. I ask all of you who commented on this set of proposals to continue to share your wisdom with us and comment again in the future. And I urge those of you who have a point of view, but chose not to comment, to make a different decision and submit comments on future proposals.
I expect that in the upcoming proxy season, shareholder information needs will be heightened due to the elimination of broker voting in uncontested director elections as a result of the amendments to NYSE Rule 452. Ballots cast by retail shareholders will finally reflect their own decisions, not the decisions of their brokers, and I believe the amendments before us today go a long way toward helping shareholders get the information they need to make more informed voting decisions.
Turning back to the amendments themselves, I know it's been a little while since I talked about dear Aunt Millie, my hypothetical, average, American retail investor — the "little guy" that we at the SEC work so hard to protect every day. I am not na´ve enough to think that Aunt Millie reads her proxy statements from cover to cover each year. But, I am quite hopeful that she will take the time to open the cover and read most of her proxies this coming year, particularly if she decides to vote in any uncontested director elections. Following Commissioner Casey's comments regarding boilerplate disclosure, I have one more request for those of you who are involved in proxy statement preparation; please redouble your efforts to assure that these new disclosures — and the old — communicate and are comprehensible to Aunt Millie and the other members of her Red Hat Club.
Of course, I recognize that the 2010 proxy season is fast approaching — so, in the interest of time — I'd like to highlight just a few of the ways I believe that today's recommendations can help shareholders make more informed voting decisions.
First, the narrative disclosure requirements concerning a company's compensation policies and practices as they relate to its risk management should provide shareholders with the information they need to evaluate whether compensation is creating opportunities and incentives for engaging in risk-taking that does not align with the company's overall interests. Of course, I understand that shareholders should already have access to material information concerning a company's risk considerations as they relate to its compensation policies and decisions with respect to named executive officers. But, as I stated at our open meeting this past July, shareholders should know whether a company's overall compensation policies and practices create incentives that drive other employees to behave in ways that can damage the value of the company's shares. As an aside, I would add that I think we have more work to do with respect to risk management disclosure outside of the compensation arena.
Second, the requirements to report aggregate grant date fair value of stock and option awards granted to named executive officers and directors, rather than the dollar amount recognized for financial statement purposes, should help shareholders better understand how compensation committees make decisions with respect to stock and option awards. They should not have to flip back and forth among a company's disclosure documents, various newspaper accounts, websites, and blogs in order to reach this determination.
Third, the new disclosure requirements concerning qualifications for directors and director nominees should help Aunt Millie and her peers better understand and evaluate whether a particular individual will add value to that company. This disclosure presents our publicly-held companies with an opportunity — albeit mandated — to really explain their thought processes on choosing the right directors who fit in the total mix of the board. I believe that this person-by-person approach will help to inform the person-by-person voting decisions shareholders are making.
Fourth and similarly, information about a company's board leadership structure and the board's role in overseeing risk should provide Aunt Millie with increased transparency. Again, I encourage each company to take this opportunity to tell your story.
Fifth, disclosure about the fees paid to compensation consultants and their affiliates (under certain circumstances) should help shareholders assess conflicts of interest and better evaluate the advice and recommendations on executive compensation. I am pleased to see that the staff's recommendations today represent a practical and balanced approach to these issues.
Finally, shareholders will not have to wait so long to learn the results of votes because of the requirements transferring voting results disclosure from Forms 10-Q and 10-K to Form 8-K. And, I expect that other market participants will be interested in this information given the changes that will take place as a result of the NYSE Rule 452 amendments.
I am confident that with the combined approach of these disclosure enhancements and the careful eye of our Division of Corporation Finance as proxy statements are filed in the next proxy season, Aunt Millie should be armed with the information she needs to make the voting decisions that are right for her. On her behalf, I want to thank companies and their counsel and advisers in advance for drafting these disclosures carefully, thoughtfully, and with a view to truly informing shareholders.
Thank you again for all of your hard work, and I am very pleased to support your recommendation.
I have just a few questions.