SEC reform proposals: Disclosure & Proxy Access

Not to be outdone by the Walker Review this week, the United States Securities and Exchange Commission (the SEC) has released the full text proposals from their July 1st meeting which are aimed at enhancing pre- and post-meeting disclosure and facilitation of the solicitation process for non-management groups.

In a 137 page consultation document, for which comments are to be received by 15th September, the SEC makes a number of recommendations on additional disclosure and proxy access including:

  • Company (and board) risk management;
  • Overall approach to compensation and its relationship to risk;
  • Company leadership structure;
  • Biographical and qualifications of director nominees;
  • Compensation consultants and their independence in terms of their business relationships;
  • The aggregate fair value of awards as at grant date;
  • Clarification of the proxy solicitation process for non-management groups; and
  • Quicker reporting of post-meeting voting results (within 4 days).

Taken together, these proposals represent significant change for the US market and are of course the result of recent analysis and consideration of the governance aspects of the recent financial crisis.

Compared to the Walker review, they are less far-reaching and less challenging vis-à-vis the role of shareholders, insofar as they mainly espouse greater transparency. Reading  Mary Schapiro, SEC Chair, the SEC is evidently more confident than Sir David Walker that all shareholders need is more information in order to be better protected against previously latent risk. Speaking on June 10th, Schapiro said “[A]t the SEC … our role is to protect investors by ensuring that they have the information needed to make sound investment decisions … I firmly believe that better disclosure of compensation leads to more informed shareholders and in turn to more accountable corporate directors”.

This is perhaps partly to do with the fact that US disclosure in some areas lags behind UK standards.

The enhancements to the reporting of risk management and its link to strategic aspects of the business have strong echoes with Sir David’s report; this is clearly a strong theme in the after-the-storm clearing up process both sides of the Atlantic.

The proposals relating to accelerated voting results will be welcome, especially amongst those like Manifest who take a professional interest in the link between perceived shareholder discontent or contentious issues and the manner in which shareholders actually vote.

As with all consultations, it remains to be seen what response these proposals will generate, and to what extent they may be watered down. However, their gravity and urgency are underlined by the thematic similarities they bear to recent UK regulatory proposals. Perhaps running in tandem these two reform processes may have a positive effect on the outcome.

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