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U.S. Securities and Exchange Commission

SEC Proposes Measures to Improve Corporate Governance and Enhance Investor Confidence


Washington, D.C., July 1, 2009 — The Securities and Exchange Commission today voted on three measures that are intended to better inform and empower investors to improve corporate governance and help restore investor confidence.

The Commission proposed requiring public companies receiving money from the Troubled Asset Relief Program (TARP) to provide a shareholder vote on executive pay in their proxy solicitations The Commission also voted to propose better disclosure of executive compensation at public companies in their proxy statements, and approved a New York Stock Exchange rule change to prohibit brokers from voting proxies in corporate elections without instructions from their customers.

“With over 800 billion shares being voted annually at over 7,000 company meetings, it is imperative that our proxy voting process work – starting with the quality of disclosure and continuing through to the integrity of the vote results,” said SEC Chairman Mary Schapiro. “These three items considered today are all related to the fundamental goal of enhancing the quality of the system through which shareholders exercise their franchise.”

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Shareholder Approval of Executive Compensation of TARP Recipients

The Emergency Economic Stabilization Act of 2008 requires shareholder approval of executive compensation during the period in which any obligation arising from financial assistance provided under TARP remains outstanding. The SEC is seeking public comment on proposed changes to Commission rules that would:

  • Require public companies that are TARP recipients to provide a separate shareholder vote in proxy solicitations during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding.
  • Clarify that the separate shareholder vote would only be required on a proxy solicited for an annual meeting (or special meeting in lieu of the annual meeting) of security holders for which proxies will be solicited for the election of directors.
  • Provide that registrants would be required to disclose in the proxy statement that they are providing a separate shareholder vote on executive compensation and to briefly explain the general effect of the vote, such as whether the vote is non-binding.
  • Clarify that the new rules do not require smaller reporting companies to include a compensation discussion and analysis section in their proxy statements.

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Proxy Disclosure & Solicitation Enhancements

The Commission proposed a set of rule revisions intended to improve the disclosure provided to shareholders of public companies regarding compensation and corporate governance matters when voting decisions are made. These new disclosures are designed to enhance the information included in proxy and information statements, and would include information about:

  • The relationship of a company’s overall compensation policies to risk.
  • The qualifications of directors, executive officers and nominees.
  • Company leadership structure.
  • Potential conflicts of interests of compensation consultants.

In addition, the proposals are aimed to improve the reporting of annual stock and option awards to company executives and directors as well as to require quicker reporting of election results. The Commission also proposed amendments to the proxy rules intended to clarify how they operate.

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NYSE Rule Concerning Discretionary Proxy Voting by Broker-Dealers

The Commission voted to approve an NYSE proposal that would eliminate broker discretionary voting for all elections of directors, whether contested or not. Currently, NYSE Rule 452 and corresponding Listed Company Manual Section 401.08 permit brokers to vote on behalf of their beneficial owner customers in uncontested elections of directors if the customers have not returned voting instructions.

The Commission published the NYSE proposed rule change for public comment on March 6, 2009, and received 153 comment letters from issuers, transfer agents, institutional investors, proxy advisory firms and others.

The NYSE’s proposal is designed to enhance corporate governance and accountability by helping assure that investors with an economic interest in the company vote on the election of directors. It also would address concerns that broker discretionary voting for directors has impacted election results.

Specifically, the NYSE proposal would add “election of directors” to the list of enumerated items for which a member generally may not give a proxy to vote without instructions from the beneficial owner. The proposal contains a specific exception for companies registered under the Investment Company Act of 1940. In addition, the NYSE proposes to codify two previously published interpretations that do not permit broker discretionary voting for material amendments to investment advisory contracts with an investment company.

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Public comments on today’s first two items must be received by the Commission within 60 days after their publication in the Federal Register. The full text of the proposed rule amendments will be posted to the SEC Web site as soon as possible.

The NYSE’s proposal will apply to shareholder meetings held on or after Jan. 1, 2010. The SEC’s approval order will be published in the Federal Register and posted on the SEC Web site as soon as possible.

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Modified: 07/02/2009