Speech by SEC Commissioner:
Statement at SEC Open Meeting
Commissioner Elisse B. Walter
U.S. Securities and Exchange Commission
July 1, 2009
I, too, would like to thank the Division of Corporation Finance, the Division of Trading and Markets, the Office of General Counsel, the Division of Investment Management, and the Office of Economic Analysis for all your hard and excellent work in preparing for today's open meeting.
I would also like to welcome Meredith Cross to her first open meeting as our new director of the Division of Corporation Finance. Your depth and breadth of experience are already proving to be a great asset to this agency, investors, and other market participants. And, given your very recent arrival on the scene, I greatly appreciate all of your contributions to the three releases before us today.
I support the staff's recommendations on all three releases. To me, all three reflect our continued focus on enhancing shareholder rights.
The first release, otherwise known as "Say on Pay" for TARP recipients, or the TARP release, is one that is mandated by law. However, like Commissioner Casey, I believe that it is important to point out that the proposed rule is consistent with past staff practice in this area. I understand that the Commission's staff has not objected to the inclusion of these types of resolutions, if non-binding and advisory, in company proxy materials.
I also want to recognize that some companies have taken their own initiatives to allow "Say-On-Pay" on their ballots. I encourage more companies to do the same, regardless of whether or not they receive TARP funds.
I believe that "Say-On-Pay" can help restore investor trust because it promotes increased shareholder participation and increased accountability of board members and corporate management. I am also hopeful that "Say-On-Pay" can help facilitate better communication between companies and their shareholders.
The second release, which consists of a broad package of corporate disclosure improvements and proxy solicitation enhancements, is designed to provide shareholders with access to important information about their company's compensation policies and procedures and their impact on risk-taking, director qualifications, compensation consultants, and other matters. In addition, the release seeks to remove unnecessary impediments to the solicitation of proxy authority to improve shareholder communication.
The disclosure-related amendments, I believe, will go a long way to getting investors the knowledge they should have about their company. Without going through all the important changes before us today, I'd like to highlight a few:
I believe that the enhancements designed to improve information disclosed about director nominees are important to helping investors make more informed decisions. The amendments should enhance shareholder understanding of why a particular nominee was selected and thus better inform their decisions as to whether a particular candidate for director is the right candidate.
I also support the proposal to lengthen the mandatory disclosure period on legal proceedings to 10 years. Similarly, providing information about past directorships should help shareholders make informed voting decisions.
The compensation-related proposals are critical. Today, if material, a company must discuss the risk considerations of its compensation policies and decisions with respect to named executive officers. Under the proposals before us, that type of information would be required about a company's overall compensation policies—applicable to employees beyond the executive officers. Is the company setting appropriate incentives for its employees? Or is it creating incentives for employees to act in a way that creates risks not aligned with the risk objectives of the company? It is simply common sense that a company—and thus its shareholders—can be affected negatively if incentives drive behavior that isn't consistent with the company's overall interests. Shareholders should have access to this type of information.
And, I am pleased to see the proposal to accelerate the timing of disclosure of voting results. There is no reason for shareholders to have to wait, perhaps as long as a few months, to find out the results of voting.
The NYSE proposal covered in the third release has been discussed for some time, and I strongly believe that it is time for us to finally move forward on this. Although we are on the verge of taking final action on this rule request, which I believe is overdue, and I feel quite comfortable with this action, it must mark the beginning of a more in depth look into other "proxy plumbing" issues like shareholder communications (or, the "NOBO/OBO" distinction) as well as over and empty voting. That plumbing is critical to the proper functioning of the proxy process.
I disagree with Commissioner Casey in one important respect. I do not believe that this proposal will disenfranchise retail shareholders. By definition these are shares voted by brokers who have not been instructed by beneficial owners. We also must keep in mind that this is not a Commission rule; it is an SRO rule and different standards for approval apply.