Speech by SEC Chairman:
Statement at SEC Open Meeting
Chairman Mary L. Schapiro
U.S. Securities and Exchange Commission
July 1, 2009
Good Morning. This is an open meeting of the U.S. Securities & Exchange Commission on July 1, 2009.
Today we are considering three items: two recommendations from the Division of Corporation Finance to propose amendments to the Commission's rules related to proxy disclosure and solicitations, and one recommendation from the Division of Trading and Markets to approve a rule change adopted by the New York Stock Exchange, also related to proxy voting.
Regulation of the proxy process and disclosure is a core function of the Commission and is one of the original responsibilities that Congress assigned to the Commission in 1934. Proxy statements are among the most significant communications between a company and its owners, and they also are central to the only process through which owners formally and regularly participate in the governance of the corporation.
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.
The three items that we consider today are all related to that fundamental goal — that is, enhancing the quality of the system through which shareholders exercise their franchise.
We will consider each proposal separately. I will ask Meredith Cross, our new Director of the Division of Corporation Finance, to run us through the first item, implementing the "say on pay" provisions of the American Recovery and Reinvestment Act of 2009. I'd like to thank Brian Breheny, Paula Dubberly, Felicia Kung, and John Harrington for your hard work on this proposal. Thank you also to staff in the General Counsel's Office, as well as the Office of Economic Analysis. I want to particularly thank all of you for what I believe is one of the shortest releases in recent Commission history.
I'll now turn the meeting over to Meredith Cross for a description of the Division's first recommendation.
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The turmoil in the markets during the past 18 months has demonstrated the importance of ensuring that activities that materially contribute to a company's risk profile are fully disclosed to investors. The amendments that we consider today are the result of a re-examination during which we repeatedly asked ourselves: are investors being provided with the right information? During this process, we found the opportunity to improve proxy-related disclosure in four key areas:
First, in the area of executive compensation: specifically, we are looking for better disclosure about the relationship between a company's overall compensation policies and its risk profile, as well as about compensation consultant conflicts of interests.
Second, in the area of director and nominee qualifications: specifically, we are looking for better disclosure about each candidate's particular experience, qualifications, attributes or skills that qualify that person to be a board member.
Third, in the area of board governance: specifically, we are looking for better disclosure about why a board has chosen its particular leadership structure, and a description of the board's risk management role.
Fourth, in the area of vote results: here, we are looking for more timely disclosure of annual meeting voting results.
You will note, I hope, that in each of these areas we have stressed the concept of better or more timely disclosure — not simply additional disclosure. I have heard from both investors and companies a shared concern that our proxy statements are in danger of becoming unreadable, because there is so much information packed into them. As commenters consider this proposal, I hope that all will focus on whether the right information is being disclosed in the right way, not just on adding to an already weighty document. To the extent any item of current disclosure is unnecessary, I really hope that commenters take the time to tell us so.
Before I turn the meeting back to Meredith Cross I'd like to again thank our hardworking staff. From Corporation Finance, thank you again to Brian, Paula and Felicia, as well as to Sean Harrison, Anne Krauskopf, Mauri Osheroff, Michele Anderson, Mark Green and Nicholas Panos. And again, thank you to our Offices of General Counsel and Economic Analysis. We couldn't do any of this without you.
Meredith, can you walk us through this second proposal?
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Lastly, we also are considering a recommendation from the Division of Trading and Markets that the Commission approve a proposed rule change submitted by the New York Stock Exchange that would prohibit brokers holding shares in street name from voting on behalf of their customers in director elections, without specific voting instructions from those customers. The NYSE proposal includes a narrow exception for registered investment companies, and also would codify two existing interpretations that prohibit broker discretionary voting for material amendments to investment advisory contracts.
This proposal is particularly timely as the Commission addresses a variety of issues regarding the accountability and responsiveness of public companies and their boards of directors to the interests of shareholders. The most fundamental way in which shareholders can ensure that directors remain accountable to them is through the director election process.
The NYSE's proposal is designed to help assure that voting rights for matters as critical as the election of directors are exercised by those with an economic interest in the company, rather than by brokers, thereby improving corporate governance and enhancing accountability.
I understand that some have expressed logistical concerns about the new rule's implementation. I would note, though, that this rule is the result of the recommendations of a widely diverse, experienced, and sophisticated Proxy Working Group, convened by the NYSE, and that this proposal has essentially been awaiting Commission approval for nearly 3 years. Keeping hard decisions on hold indefinitely does not solve problems, so I think it is time for us to move forward. That said, there are related areas of shareholder communication and voting that the Commission will be studying carefully this year.
Before I close, I'd like to thank Jamie Brigagliano, Dave Shillman, Sharon Lawson, Terri Evans, Steve Kuan, and Andrew Madar from our Division of Trading and Markets for your work in shepherding this through our process. And again, thank you to our General Counsel's Office.
Jamie Brigagliano, acting co-director of our Division of Trading and Markets, will now discuss the proposal in greater depth.