Speech by SEC Staff:
Division Statement before the Commission Open Meeting: Proxy Disclosure and Solicitation Enhancements
U.S. Securities and Exchange Commission
July 1, 2009
Thank you, Meredith, Chairman Schapiro, Commissioners. The Division of Corporation Finance recommends that you publish for public comment amendments that would add new disclosure requirements that are designed to enhance the information included in proxy and information statements. These proposed amendments would elicit disclosure about the relationship of a company’s overall compensation policies to risk, director and nominee qualifications, company leadership structure, and the potential conflicts of interests of compensation consultants, among other things. Our recommendations are as follows.
First, we recommend that you propose amendments to the Compensation Discussion and Analysis requirements under Item 402 of Regulation S-K to broaden their scope. Under this expanded CD&A, a company would discuss and analyze its broader compensation policies and overall actual compensation practices for employees generally, including non-executive officers, if the risks arising from those compensation policies or practices may have a material effect on the company. Under the proposed amendments, the situations that would require disclosure will vary depending on the particular company and its compensation policies.
Second, we recommend that you propose amendments to revise the disclosure of stock and option awards in the Summary Compensation Table and Director Compensation Table to require disclosure of the aggregate grant date fair value of awards computed in accordance with Statement of Financial Accounting Standards (FAS) No. 123R. The proposed revised disclosure would replace currently mandated disclosure of the dollar amount recognized for financial statement reporting purposes for the fiscal year in accordance with FAS 123R.
Third, we recommend that you propose amendments to Item 401 of Regulation S-K to expand the disclosure requirements regarding the qualifications of directors and nominees. The recommended proposed amendments to Item 401 would require companies to disclose for each director and any nominee for director selected by the company, or another proponent, the particular experience, qualifications, attributes or skills that qualify that person to serve as a director of the company, and as a member of any committee that the person serves on or is chosen to serve on, in light of the company’s business. We also recommend that you propose amendments to require disclosure of any directorships at public companies held by each director and nominee at any time during the past five years instead of only currently held directorships, and to lengthen the time for which disclosure of legal proceedings is required from five to 10 years.
Fourth, we recommend that you propose amendments to Item 407 of Regulation S-K and to Schedule 14A to require disclosure of a company’s leadership structure and a discussion of why the company believes its leadership structure is the best structure for the company. Under the proposed amendments, companies also would be required to disclose whether and why they have chosen to combine or separate the chief executive officer and board chair positions, and whether the company has a lead independent director. We also recommend that you propose amendments to require additional disclosure about the board’s role in the company’s risk management process, and the effect, if any, that this has on the way the company has organized its leadership structure.
Fifth, we recommend that you propose amendments to require companies to provide additional disclosure on the fees and services of compensation consultants and their affiliates in certain circumstances. If a compensation consultant provides consulting services related to executive or director compensation and any additional services to the company specified disclosure would be required. The proposed amendments would require disclosure of the additional services provided by the compensation consultant and any of its affiliates; the aggregate fees paid for all additional services and the aggregate fees paid for work related to executive and director compensation consulting; whether the decision to engage the compensation consultant for any other services was recommended or made by management; and whether the board of directors or the compensation committee has approved the other services.
Sixth, we recommend that you propose amendments to transfer the requirement to disclose voting results from Forms 10-Q and 10-K to Form 8-K. The recommended revisions would add a new item to Form 8-K to require a company to disclose on that form the results of a shareholder vote, and to have that information reported within four business days after the end of the meeting at which the vote was held.
Finally, we recommend proposing several amendments to the proxy rules to clarify the manner in which they operate and to facilitate shareholder communications and voting.
First, we recommend that you propose an amendment to Exchange Act Rule 14a-2(b) – the rule that exempts certain solicitations from our proxy rules — to clarify that an unmarked copy of management’s proxy card that is requested to be returned directly to management is not a “form of revocation” that would render the exemption provided by this rule unavailable. In addition, we recommend that you propose an amendment to the same rule to clarify that a substantial interest in the subject matter of a solicitation (which would make the exemption unavailable) may be present even if the soliciting party is a not a shareholder.
Second, we recommend that you propose an amendment to Exchange Act Rule 14a-4(d) to provide that a soliciting person can round out its short slate with nominees named in a non-management proxy statement in the same manner as already permitted by the rule for nominees named in the company’s proxy statement.
Third, we recommend that you propose an amendment to Exchange Act Rule 14a-4(e) to clarify that any conditions specified by a soliciting party as to when it may not vote shares it has received proxy authority over must be objectively determinable.
Last, we recommend that you propose an amendment to Exchange Act Rule 14a-12 to clarify that information regarding the identity and interests of participants in a solicitation must be available and on file no later than the time shareholders are first solicited.
Thank you. We will be happy to answer any questions you may have.