Proxy Disclosure Enhancements
A Small Entity Compliance Guide1
On December 16, 2009, the Securities and Exchange Commission adopted amendments to its disclosure rules and forms to enhance the information provided to shareholders so they are better able to evaluate the leadership of public companies. The amendments are intended to improve disclosures regarding risk, corporate governance, director qualifications, and compensation. In particular, the amendments will require small companies to provide new disclosure about:
Under the amendments, quicker reporting of shareholder voting results would also be required.
The amendments take effect on February 28, 2010.
What are the requirements of the amendments?
New Director and Nominee Disclosure
The Commission amended Item 401 of Regulation S-K to expand the disclosure requirements regarding the qualifications of directors and nominees, as well as past directorships held by directors and nominees. Specifically, the amendments will require disclosure, for each director and director nominee of the company, of the following:
For small companies that are registered management investment companies ("funds"), the amendments will require:
Expanded Disclosure About Legal Proceedings Involving Executive Officers, Directors, and Nominees for Director
The amendments to Item 401 of Regulation S-K also lengthen the time during which disclosure of legal proceedings involving directors, director nominees and executive officers is required from five to ten years. In addition, the legal proceedings covered under this item have been expanded to require disclosure of the following:
New Disclosure of How Diversity is Considered in the Director Nomination Process
The Commission amended Item 407(c)(2)(vi) of Regulation S-K to require disclosure of whether, and if so how, the nominating committee or the board (if there is no nominating committee) considers diversity in identifying director nominees. If the nominating committee or the board has a policy with regard to the consideration of diversity in identifying director nominees, then the amendments require disclosure of how this policy is implemented and how the nominating committee or the board assesses the effectiveness of its policy.
New Disclosure about Board Leadership Structure and the Board's Role in Risk Oversight
In addition to the new diversity disclosure in Item 407 of Regulation S-K, the Commission added new paragraph (h) to Item 407. New Item 407(h) will require disclosure about:
Revised Disclosure in the Summary Compensation Table
The Commission amended Item 402 of Regulation S-K to revise the method of reporting stock and option awards in the Summary Compensation Table and the Director Compensation Table to better reflect the compensation committee's decisions with regard to these awards. Previously, Item 402 required companies to disclose in the Summary Compensation Table and Director Compensation Table the dollar amount recognized for financial statement reporting purposes for the fiscal year. Under the amendments to Item 402, companies will be required to report the aggregate grant date fair value of any stock or option awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. In addition, the Commission adopted a specific instruction for awards subject to performance conditions to address concerns that the amendments might discourage use of the awards.
New Disclosure about Potential Conflicts of Interests of Compensation Consultants
The Commission amended Item 407(e)(3)(iii) of Regulation S-K to require companies to provide new disclosure about the fees for executive compensation services in certain circumstances, as well as related disclosures. This new disclosure is intended to provide investors with information to help them better assess the potential conflicts of interest a compensation consultant may have in recommending executive compensation. The amendments can be summarized as follows:
Faster Reporting of Shareholder Voting Results
The Commission amended Forms 8-K, 10-Q and 10-K to transfer the requirement to disclose shareholder voting results from Forms 10-Q and 10-K to Form 8-K. The amendments add a new item to Form 8-K that will require companies to disclose the results of a shareholder vote, and to have that information reported within four business days after the end of the shareholders' meeting at which the vote was held.
The adopting release for these amendments can be found on the SEC's Web site at http://www.sec.gov/rules/final/2009/33-9089.pdf.
Regulation S-K can be accessed through the "Corporation Finance" section of the SEC's Web site at http://www.sec.gov/divisions/corpfin/ecfrlinks.shtml.
The SEC's disclosure forms can be accessed on the Commission's Web site at http://www.sec.gov/about/forms/secforms.htm.
Compliance and disclosure interpretations related to the amendments are available at http://www.sec.gov/divisions/corpfin/cfguidance.shtml.
Transition guidance for registered investment companies under the rule and form amendments can be found at http://www.sec.gov/divisions/investment/guidance/icproxydisclosuretransition.htm.
Contacting the SEC
The SEC's Division of Corporation Finance is available to assist small companies and others with questions regarding the amendments. You can contact the Division for this purpose at (202) 551-3500 or at https://www.sec.gov/forms/corp_fin_interpretive.
Questions on other SEC regulatory matters concerning small companies may be directed to the Division's Office of Small Business Policy through the online form or by telephone at (202) 551-3460.
The SEC's Division of Investment Management is also available to assist small companies with questions regarding fund disclosure. You can contact the Division of Investment Management's Office of Disclosure Regulation at (202) 551-6784.
1 This guide was prepared by the staff of the U.S. Securities and Exchange Commission as a "small entity compliance guide" under Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, as amended. The guide summarizes and explains rules adopted by the SEC, but is not a substitute for a rule itself. Only a rule itself can provide complete and definitive information regarding its requirements.