Monday, July 13, 2009

SEC Publishes Proxy Disclosure and Solicitation Proposals

On July 10, the SEC published rule proposals regarding “Proxy Disclosure and Solicitation Enhancements” that the Commission voted to approve at its July 1 open meeting.  As we described in our July 2 News Feed post “SEC Considers Slate of Proxy Rules,” the proposals are designed to improve disclosures in proxy solicitations.  In addition to the proposals involving disclosure, the release also proposes rule changes to the proxy solicitation process.

The proposed rules would require new or amended disclosure about:
  • The relationship between a company’s compensation policies and risk;

  • Stock and options awards to company executives and directors;

  • Qualifications of directors and nominees as well as disclosure about legal proceedings involving directors and executives;

  • A company’s governance structure;

  • The role of the board in risk management; and

  • Potential conflicts of interest of compensation consultants.
Of particular interest to funds are the proposals that would require disclosure about qualifications of directors and board nominees, disclosure about legal proceedings, a company’s governance structure, and the role of the board in risk management.  Investment companies would be required to include expanded disclosure about director qualifications, past directorships, and legal proceedings in proxy and information statements regarding an election of directors.  In addition, the fund’s SAI would be required to include the new disclosure about director qualifications and past directorships.

Specifically, the proposal requires disclosure about each director’s (or nominee’s) particular "experience, qualifications, attributes, or skills that qualify that person to serve as a director of the company as of the time that a filing containing the disclosure is made to the Commission."  Similar disclosure would be required regarding a director’s or nominee’s service on a particular committee of the board.  Additionally, the proposal would require disclosure of any directorships held by a director or nominee at any time during the last five years at public companies (even if the director or nominee is no longer on that board).  Finally, disclosure about legal proceedings that are material to an evaluation of the ability or integrity of any director, director nominee, or executive officer would be required for directors, nominees or executive officers for a period of 10 years (rather than the currently required 5 years).

Like operating companies, the proposed rules also would require investment companies to disclose information about their management structure in both proxy statements and the fund’s SAI.  Investment companies would have to disclose whether the fund’s board chair is an interested person.  If so, the fund would also have to disclose whether the fund has a lead independent director and what role the lead independent director plays.  Investment companies would also have to describe the board’s role in risk management.

The full text of the proxy proposals is available at

Related articles: